Clovis Corporation D/B/A Llano Permain Environmental v. Lubbock National Bank and Diversified Lenders, Inc.

NO. 07-04-0565-CV

IN THE COURT OF APPEALS

FOR THE SEVENTH DISTRICT OF TEXAS

AT AMARILLO

PANEL D

JUNE 2, 2006
______________________________

CLOVIS CORPORATION d/b/a LLANO
PERMIAN ENVIRONMENTAL,

Appellant
v.

LUBBOCK NATIONAL BANK and
DIVERSIFIED LENDERS, INC.,

Appellees
_________________________________

FROM THE 237TH DISTRICT COURT OF LUBBOCK COUNTY;

NO. 2003-522,192; HON. SAM MEDINA, PRESIDING
_______________________________

Opinion
_______________________________

Before QUINN, C.J., and CAMPBELL and HANCOCK, JJ.

Clovis Corporation d/b/a Llano Permian Environmental (Llano) appeals from a final

summary judgment denying it recovery against Lubbock National Bank (the Bank) and

Diversified Lenders, Inc. (Diversified). In turn, the Bank and Diversified appeal from an

order denying them attorney’s fees. According to the record, Llano sued the Bank and

Diversified for breach of contract, tortious interference with contract, breach of fiduciary

duty, and fraudulent inducement. The claims arose from a factor transaction. That is,
Diversified agreed to buy and Llano agreed to sell various accounts receivable. To

effectuate that purpose, the two executed a document entitled “Security and Factoring

Agreement.” Shortly after the document was executed, Diversified assigned its interest in

the contract to the Bank. The dispute before us concerned the Bank’s decision to increase

the amount of reserve it retained under the contract from 12.75% to 17.75%. In so raising

the reserve, the Bank and/or Diversified allegedly breached the agreement, engaged in

tortious interference with contract, breached various fiduciary duties owed Llano and

committed fraud. After being sued, both the Bank and Diversified filed traditional and no

evidence motions for summary judgment. So too did they request attorney’s fees and court

costs. Though the summary judgment motions were granted, those seeking fees and costs

were denied.

Through four issues, Llano contends that 1) the trial court erred in granting the

motions for summary judgment, 2) a fact issue exists concerning whether the Bank and

Diversified acted in bad faith, 3) the Bank and Diversified were not entitled to enforce the

contract’s early termination penalty provisions due to their bad faith, and 4) the Bank and

Diversified may not invoke the contract to bar prosecution of its fraudulent inducement

claim. The Bank and Diversified posit that the trial court should have awarded them fees

and costs. We affirm the judgment in part and reverse and remand it in part.

Llano Issue Two – Some Evidence of Bad Faith

We initially address issue two because Llano’s remaining issues are dependent

upon its successful disposition. Through it, Llano alleges that there existed some evidence

of material fact sufficient to deny the Bank and Diversified judgment as a matter of law.

The evidence purportedly illustrated that Llano’s opponents acted in bad faith when raising

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the reserve from 12.75% to 17.75%. And, this evidence was of import because they had

an implied obligation to act in good faith when modifying the reserve. We overrule the

issue.

According to paragraph 18 of the contract, the factor (Diversified or the Bank)

may reserve and withhold an amount in a reserve account equal to twelve
and three quarters percent (12 3/4%) of the gross face amount of all
accounts purchased. Said reserve account may be held by FACTOR and
applied by FACTOR against charge-backs or any obligations of [Llano], and
said reserve account is not due and payable . . . until any and all potential
obligations owing by and satisfied [sic]. [Llano] gives to FACTOR a security
interest in this reserve account, which secures all obligations and
indebtedness arising under this factoring agreement.

In paragraph 48, the parties also agreed that

. . . between [Llano] and FACTOR . . . FACTOR will fund eighty-seven and
one quarter percent (87 1/4%) of the face value of each invoice [and] . . . [a]t
the time of purchase FACTOR will deduct the initial factoring fee/discount
and the reserve as stated in Section 16 & 18 of the Security Agreement.
Additional fees/discounts will be taken by FACTOR from the reserve as
described in Provision 48(B). Additional reserve may be taken when deemed
necessary by FACTOR.

(Emphasis added). It is the italicized verbiage in paragraph 48 that is pivotal here. While

it permitted the factor to increase the percentage of reserve, Llano reads into it an implied

term obligating the factor to act in good faith. That is, it believes that the factor could not

raise the rate unless it did so in good faith. That Llano attempts to imply this restriction into

the agreement is beyond dispute for it appears nowhere in the written document. Yet, our

Supreme Court cautioned against implying terms into contracts. Universal Health Serv.,

Inc. v. Renaissance Women’s Group, P.A., 121 S.W.3d 742, 747 (Tex. 2003) (stating that

in “rare circumstances, . . . a court may imply a covenant in order to reflect the parties’ real

intentions” but “courts must be quite cautious in exercising this power”). Indeed, a term

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“will not be implied simply to make a contract fair, wise, or just.” Id. at 748. Rather, they

can be declared to exist “‘only when there is a satisfactory basis in the express contract[]

. . . which makes it necessary to imply duties and obligations . . . to effect the purposes of

the parties in the contract[ ] made.’” Id. at 747-48, quoting Freeport Sulphur Co. v.

American Sulphur Royalty Co., 117 Tex. 439, 6 S.W.2d 1039 (1928); accord Snyder v.

Eanes Indep. Sch. Dist., 860 S.W.2d 692, 697 (Tex. App.–Austin 1993, writ denied) (stating

that implied covenants are permitted only on the grounds of necessity). As can be seen,

necessity is the triggering agent, and that agent does not exist if the subject encompassed

by the supposed implied term is already within the scope of an express term. So, where

there already exists an express term covering a particular subject, no implied term can exist

encompassing the same subject. Freeport Sulphur Co. v. American Sulphur Royalty Co.,

6 S.W.2d at 1043; Snyder v. Eanes Indep. Sch. Dist., 860 S.W.2d at 697. And, there lies

the deficiency in Llano’s contention.

Nothing was said about acting in good faith when the parties to the agreement

before us addressed the topic of increasing the reserve. Rather, they expressly agreed

that the reserve could be raised when “deemed necessary by [the] FACTOR.” Necessity

being the expressed triggering factor, good faith cannot be substituted in its stead. In other

words, since there already existed an express provision encompassing when and how the

reserve could be modified, neither we nor Llano may imply a covenant involving the same

topic. So, we reject the invitation to burden, through implying omitted terms, the factor’s

right to alter the reserve since the parties had expressly acknowledged the factor’s authority

to act when it deemed the action necessary.

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 Next, in urging its point on appeal, Llano focused upon evidence of its opponents’

lack of good faith. No effort went into explaining why the increase was not “necessary”

from the viewpoint of either Diversified or the Bank. Given this, the fact that Llano’s

appellate issue lives or dies on our imposition of an implied term of good faith, and our

refusal to read such a requirement into paragraph 48, we hold that the trial court did not err

in awarding Diversified and the Bank summary judgment as a matter of law.

Llano’s Remaining Issues

As previously alluded to, the viability of Llano’s remaining issues are dependent

upon its success on issue two. Having overruled issue two, we overrule issues one, three

and four as well.

Issue One of Diversified and the Bank

Through this issue, Diversified and the Bank allege that the trial court erred in

denying them attorney’s fees. This is so because they were contractually entitled to such

fees as prevailing parties. We overrule the contention.

Via paragraph 34 of the agreement, the signatories provided that the “losing party

will pay any and all legal expenses and reasonable attorney’s fees that the prevailing party

may incur as a result of either CLIENT or FACTOR enforcing this Agreement one against

the other.” As can be seen, this provision entitles a prevailing party to attorney’s fees. Yet,

it also requires that the fees be “reasonable.” And, assuming arguendo, that Diversified

and the Bank were prevailing parties, we have been cited to (and found) no evidence

illustrating that the $35,860.55 in fees incurred were reasonable. No affidavit purporting

to supply the requisite information accompanied their request. Nor did the unsworn

statement appearing in the motion regarding the reasonableness of the fees suffice

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because unsworn statements in pleadings, as well as motions, are not evidence. In re

J.N.F., 116 S.W.3d 426, 436 (Tex. App.–Houston [14th Dist.] 2003, no pet.).1

Consequently, we hold that the trial court did not err in denying the motion for attorney’s

fees.

Issue Two – Costs

In their last issue, Diversified and the Bank claim that the trial court erred in failing

to award them court costs. We sustain the contention.

Rule 131 provides that “[t]he successful party to a suit shall recover of his adversary

all costs incurred therein . . . .” However, a trial court may assess costs differently for good

cause. TEX . R. CIV . P. 141; Furr’s Supermarkets, Inc. v. Bethune, 53 S.W.3d 375, 376 (Tex.

2001). And, if it opts to assess them differently, then it must memorialize on the record the

purported good cause allowing it to do so; otherwise, it abuses its discretion. Marion v.

Davis, 106 S.W.3d 860, 869 (Tex. App.–Dallas 2003, pet. denied). Finally, these rules

apply to summary judgment proceedings. Texas River Barges v. City of San Antonio, 21

S.W.3d 347, 358 (Tex. App.–San Antonio 2000, pet. denied).

Here, it cannot be denied that Diversified and the Bank were the successful parties

in the suit. Thus, they were entitled to their court costs unless the trial court found good

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Reference by Diversified and the Bank to §38.004 of the Texas Civil Practice and Remedies Code
and Budd v. Gay, 846 S.W.2d 521 (Tex. App.–Houston [14th Dist.] 1993, no writ) is unavailing. Those
authorities concern effort to recover fees incurred while prosecuting the type of claims itemized in §38.001 of
the Civil P ractice and Reme dies Code. Y et, neither Diversified nor the Bank argue that their defense against
the claim s of Llano fell within any of the categories specified in §38.001. Nor do we find that they do.
Cons equently, neither §3 8.004 nor Budd app lies. Cowa rd v. Gateway Nat. Bank, 525 S.W.2d 857, 858-59
(Tex. 1975) (holding that the predecessor of §38.001 et seq. applied so lely to claims m entione d in the statute );
Southwest Bell Mobile Sys., Inc. v. Franco, 951 S.W.2d 218, 226 (Tex. App.–Corpus Christi 1997), rev’d on
other grounds, 971 S.W.2d 52 (Tex. 1998) (holding that §38.001 et seq. applies only to the attempt to recover
upon the claim s itemize d in §38 .001).

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cause to deny them same. While the trial court denied their request, it provided no reasons

to justify its decision. Thus, it abused its discretion.

In summary, we affirm the take-nothing summary judgment and order denying

Diversified and the Bank attorney’s fees. We reverse the order denying those two parties

their court costs and remand that issue for further proceedings.

Brian Quinn
Chief Justice

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