NO. 12-04-00302-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
RICHARD MALATT, APPEAL FROM THE 273RD
APPELLANT
JUDICIAL DISTRICT COURT OF
C&R REFRIGERATION
AND ROBERT REEVES,
APPELLEES SHELBY COUNTY, TEXAS
OPINION
Richard Malatt appeals the trial court's take-nothing judgment entered in favor of Appellees,
C&R Refrigeration and Robert Reeves. Malatt raises five issues on appeal.1 We affirm.
Background
Appellees are the manufacturers of industrial freezers. Two Ecuadorian corporations, Mundi
Hielo, S.A.2 andPesqueria Progalca, S.A. (collectively "Mundi Hielo) purchased from Appellees an
Individual Quick Freeze ("IQF") machine, which is designed to freeze individual pieces of food very
rapidly. The terms of purchase required Mundi Hielo to make a $62,500 deposit on the machine
prior to its construction, an additional payment when construction was half completed, and a final
In his reply brief, Malatt acknowledges that the issues are narrowed as the result of positions taken by
Appellees in their brief. Thus, we do not consider Malatt's second issue, whether he, as assignee, can be liable for
breach of contract; his third issue, whether the trial court could rescind or cancel the contract; or as a sub-issue,
whether the evidence is sufficient to support that C&R used its "best efforts" to,sell the IQF machine.
Mundi is an Ecuadorian shrimping company.
payment prior to Appellees' shipping the machine to Mundi Hielo. Mundi Hielo paid the initial
deposit to Appellees, who began to construct the IQF machine. However, Mundi Hielo failed to
make any further payments. Appellees ceased production on the machine and refused to return the
initial deposit to Mundi Hielo. Subsequently, Appellees and Mundi Hielo entered into a settlement
agreement. Mundi Hielo assigned Malatt its interest in the $62,500 deposit being held by Appellees.
The instant lawsuit arises from a dispute concerning a provision in the settlement agreement.
The settlement agreement states, in pertinent part, as follows:
3. C&R's Performance Obligations
(c) C&R shall use its best efforts to market and sell, in an expeditious and
commercially reasonable manner, the IQF Machine currently located in the C&R
facility in Center, Texas, and for which Mundi has paid to C&R a deposit of
$62,500. C&R shall refund the deposit to Mundi, or its nominee, net any offsets,
immediately upon sale of the IQF Machine to a third party.
After the agreement was reached, the shrimp market collapsed.3 Over the next three years,
Appellees were unable to sell the IQF Machine. On January 22, 2003, Appellees sued Malatt for
breach of contract and sought to rescind the settlement agreement. Malatt filed a counterclaim,
alleging, among other things, breach of contract on Appellees' part, and sought attorney's fees.
Following a bench trial, the trial court entered a final judgment in favor of Appellees,
ordering that C&R be discharged from its obligation to use its best efforts to sell the IQF machine.
The trial court's findings of fact and conclusions of law state, in pertinent part, as follows:
Findings of Fact
The court makes the following findings of fact in this case:
8. The Settlement Agreement called for a best effort on behalf of C&R and/or Reeves
to sell the subject IQF System in a commercially reasonable and expeditious
manner; further, if the IQF Machine were sold, C&R was to pay the deposit, net any
offsets, to Malatt.
This particular IQF machine was specifically designed for freezing shrimp.
9. The Settlement Agreement did not require C&R and Reeves to actually sell the IQF.
10. Due to the unique nature of the IQF, combined with the current state of the shrimp
market to which C&R sells, there is simply no buyer for the IQF.
11. The IQF has not been sold; it remains at C&R's facilities.
12. Under the Settlement Agreement, Malatt was entitled to the deposit only when the
IQF was sold.
13. C&R and Reeves are not obligated to refund the deposit to Malatt.
14. Since entering into the Settlement Agreement, in attempting to sell the IQF, C&R
and Reeves over a period of three plus years did the following:
(1) bought advertising in shrimp and seafood publications;
(2) called on numerous contacts in the shrimping industry from a
listing known as the Shrimp Directory to market IQF Machines;
(3) made numerous quotes concerning IQF Machines to many
potential buyers;
(4) made trips to direct market in person IQF Machines, including
the subject IQF; and
(5) put IQF Machines on its website.
15. Such efforts were sufficient to satisfy the best efforts obligation of C&R and Reeves
in the Settlement Agreement.
16. C&R and Reeves in fact used their best efforts to sell the subject IQF.
17. C&R and Reeves have fulfilled their obligation to use their best efforts to sell the
subject IQF machine.
18. Moreover, due to market forces which were not predictable at the time and were
beyond the control of either party to the Settlement Agreement, the provisions
calling for the effort to sell the subject IQF System became unduly burdensome and
in fact unworkable, despite due diligence on behalf o[f] C&R and Reeves.
19. For example, although manufactured for use in Latin America, the un-marketability
of a product whose components can no longer be warranted is not peculiar to Latin
America and would be universally the case. This put everyone in the position of
wanting the deposit but no one wanting the partially built IQF System.
20. C&R and Reeves fulfilled the best efforts obligation of the Settlement Agreement
and they are discharged from their obligations under the Settlement Agreement.
Conclusions of Law
The court makes the following conclusions of law in this case:
3. C&R and Reeves did not breach the Settlement Agreement.
4. C&R's and Reeves' efforts over a three year plus period to sell the IQF were
sufficient to satisfy the best efforts obligation under the Settlement Agreement.
5. C&R and Reeves have discharged their obligation to use their best efforts to sell the
subject IQF.
This appeal followed.
Contractual Construction
In his first issue, Malatt argues that the sale of the IQF machine was not a condition precedent
to Appellees' obligation to return the deposit, but rather, related solely to the timing of Appellees'
obligation to refund the deposit.
In construing a written contract, the primary concern of the court is to ascertain the true
intentions of the parties as expressed in the instrument. Cokerv. Coker, 650 S.W. 2d 391,393 (Tex.
1983); see also Nat'l Union Fire Ins. Co. ofPittsburgh, PA v. CBI Indus., Inc., 907 S.W.2d 517,
520 (Tex. 1995). To achieve this objective, courts should examine and consider the entire writing
in an effort to harmonize and give effect to all the provisions of the contract so that none will be
rendered meaningless. Id. No single provision taken alone will be given controlling effect; rather,
all the provisions must be considered with reference to the whole instrument. Id.; Myers v. Gulf
Coast Minerals Mgmt. Corp., 361 S.W.2d 193, 196 (Tex. 1962).
If the written instrument is so worded that it can be given a certain or definite legal meaning
or interpretation, then it is not ambiguous, and the court will construe the contract as a matter of law.
Coker, 361 S.W.2d at 393. An ambiguity may be either "patent" or "latent." See CBI, 907 S.W.2d
at 520. A patent ambiguity is evident on the face of the contract. Id. A latent ambiguity arises when
a contract that is unambiguous on its face is applied to the subject matter, and an ambiguity appears
by reason of some collateral matter. See id.4
The interpretation of an unambiguous contract is a question of law, which we review de
For example, if a contract called for goods to be delivered to "the green house on Pecan Street," and there
were, in fact, two green houses on Pecan Street, a latent ambiguity would arise. See id. n.4.
4
novo. See MCI Telecomm. Corp. v. Texas Util. Elec. Co., 995 S.W.2d 647, 650 (Tex. 1999).
Ambiguity does not arise simply because the parties advance conflicting interpretations of the
contract; rather, for an ambiguity to exist, both interpretations must be reasonable. Lopez v. Munoz,
Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000).
In interpreting a contract, we must presume that the parties thereto intended every clause to
have some effect; therefore, we consider each part of the document with every other part of the
document so that the effect and meaning of one part on any other part may be determined. See
Birnbaum v. SwepiLP, 48 S.W.3d254,257 (Tex. App.-San Antonio 2001, pet. denied). Moreover,
we give terms their plain, ordinary, and generally accepted meaning unless the instrument shows that
the parties used such terms in a technical or different sense. Id. Finally, we enforce an unambiguous
agreement as written. Id. We are not permitted to rewrite an agreement to mean something it did
not. Id. We cannot change the contract simply because we or one of the parties comes to dislike its
provisions or thinks that something else is needed in it. Id. Parties to a contract are masters of their
own choices and are entitled to select what terms and provisions to include in or omit from a
contract. Id.
Here, whileneither partyarguesthat the agreementis ambiguous, each interpretsits language
differently, and neither concedes that its interpretation of the relevant passages is any less reasonable
than the other party's interpretation of the same. At the heart of the issue is the $62,500 deposit and
whether its return to Malatt was conditioned on Appellees' ability to sell the IQF machine as outlined
by the terms of the agreement.
Conditions precedent to an obligation to perform under a contract are those acts or events
occurring subsequent to the making of a contract that must occur before there is a right to immediate
performance and before there is a breach of contractual duty. See Beacon Nat'l Ins. Co. v. Glaze,
114 S.W.3d 1, 2 (Tex. App.-Tyler 2003, pet. denied) (citing Hohenberg Bros. Co. v. George E.
Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976)).
Malatt first arguesthat by pleadingin his counterclaimthat all conditionsprecedenthad been
met, an allegation not specifically deniedby Appellees, he met his burden of proof on the issue and
that C&R is not permittedto prove that a condition precedent had not been performed to avoid the
judgment. SeeTex. R. Civ. P. 54. However, in its original petition, C&Rspecifically pleaded that
it was "unable to sell th[e] freezer unit." Furthermore, in its pleadings, C&R stated that it "used its
best efforts to sell [the IQF machine], however, neither C&R nor the court has any control over the
market forces that prevent the sale of the freezer unit." We conclude that C&R's pleadings
specifically controvert the assertion that, if in fact the sale of the IQF machine was a condition
precedent to C&R's obligation to return the deposit to Malatt, such condition precedent had been
satisfied. Therefore, C&R has satisfiedthe specific denial requirement set forth in Rule 54.5
We next consider whether the sale of the IQF machine was a condition precedent to
Appellees' returning the deposit. To iterate, the contract stated as follows:
C&R shall use its best efforts to market and sell, in an expeditious and commercially reasonable
manner, the IQF Machine currently located in the C&R facility in Center, Texas, and for which Mundi
has paid to C&R a deposit of $62,500. C&R shall refund the deposit to Mundi, or its nominee, net
any offsets, immediately upon sale of the IQF Machine to a third party.
The plain language of the agreement does not obligate Appellees to sell the IQF machine, but rather,
requires that C&R "shall use its best efforts to market and sell" the machine "in an expeditious and
commercially reasonable manner." Malatt argues that the aforementioned provision relates to the
timing of repayment only. While the matter of timing is inherent to any condition precedent,
Malatt's argument presupposes that C&R was, in fact, required by the agreement to sell the machine.
To the contrary, the contract contains no such mandate. Furthermore, the contract makes no
provision concerning what course of action was to be undertaken should C&R fail to sell the IQF
machine.
Unlike Wisznia v. Wilcox, 438 S.W.2d 874, 876 (Tex. Civ. App.-Corpus Christi 1969, writ
ref d n.r.e.), upon which Malatt relies to support his contention that the aforementioned provision
related strictly to the timing of an absolute obligation to pay, the contract in the instant case contains
no "express, unqualified[,] and unconditional promise" to repay the deposit. Id. Rather, there is an
unconditional promise by Appellees to use their best efforts to market and sell the IQF machine. No
The record further reflects that Malatt did not object to any such defects in Appellees' pleadings before
the trial court signed the judgment in this case. See Tex. R. Crv. P. 90. In his reply brief, Malatt concedes that the
trial court had the power to enter judgment based on C&R's claim regarding a condition precedent irrespectiveof
Appellees' pleadings.
reference is made to any obligation to refund the deposit absent the sale of the machine.
Malatt next argues that even C&R's employment of its best efforts to sell the machine does
not excuse it from refunding the deposit to him. Specifically, Malatt, citing Jones v. Burke, 540
S.W.2d 798, 801 (Tex. Civ. App.-Corpus Christi 1976, no writ), contends that because the
agreement does not specify a time in which to refund the deposit, the law implies an agreement to
act within a reasonable time. Indeed, the agreement is silent as to the time period during which
Appellees are required to use their best efforts to sell the IQF machine. However, even if the law
implies that a contractual obligation will be performed in a reasonable time when no exact time for
performance is specified in the contract, such an implication does not further serve to burden the
parties to a contract with implied obligations to which they did not agree. Unlike the contract in
Jones, pursuant to which the purchaser had an absolute obligation to pay, see Jones, 540 S.W.2d
at 799, the contract in the instant case only obligates Appellees to use their best efforts to sell the IQF
machine.
Finally, Malatt argues that the contract contains no language that would indicate a condition
precedent. However, while certain terms such as "if," "provided that," "on condition that," or some
other phrase ordinarily connote the parties' intent that there be a condition precedent, no particular
words are necessary for the existence of such a condition. See Hohenberg Bros. Co., 537 S.W.2d
at 3. We iterate that conditions precedent are acts or events occurring subsequent to the making of
a contract that must occur before there is a right to immediate performance. See Glaze, 114 S.W.3d
at 2. Since the contract required Appellees to refund the deposit to Malatt immediately upon sale
of the IQF Machine to a third party, the sale of the IQF machine was the event that was required to
occur before Malatt was entitled to a refund of the deposit. But we must consider the entire
agreement and note that no language in the contract required Appellees to sell the machine. Thus,
the term "upon the sale of the IQF machine" can be reasonably interpreted as a condition similar to
the term "on condition that" inasmuch as the sale of the IQF machine is an event that is not certain
to occur, since it was not an absolute obligation under the terms of the contract.
We conclude that the contract required C&R to use its best efforts to market and sell the IQF
machine in an expeditious and commercially reasonable manner, and, upon the sale of the ICF
machine, C&R was required to immediately refund the $62,500 deposit to Mundi or its nominee.
7
However, we further conclude that there was no requirement that C&R sell the machine if its best
efforts could not permit it to do so. Thus, we hold that the trial court correctly held that (1) Malatt
was entitled to the deposit only when the IQF was sold and (2) that the sale of the IQF machine was
not a contractual requirement. Malatt's first issue is overruled.
Discharge of Obligation and Impracticability
In his fourth issue, Malatt argues that the defense of impracticability is not applicable and
does not excuse performance by C&R and Reeves. However, before we consider such a defense to
a party's obligation to perform, we must necessarily consider if the party did not, in fact, perform.
The trial court found that Appellees had discharged their obligation to use their best efforts to sell
the subject IQF.6
Discharge of Obligation
As we have discussed previously, C&R was not obligated under the agreement to sell the IQF
machine. Rather, it was obligated to use its "best efforts" to sell the machine. In his reply brief,
Malatt states that he "does not dispute the trial court's finding that C&R used its best efforts to sell
the IQF freezer." However, Malatt has argued that the law implies a reasonable time to perform
contractual obligations when no exact time period is stated in the contract. See Jones, 540 S.W.2d
at 801.
Given Appellees' contractual obligation, the rule in Jones could create an implied agreement
between the parties that C&R is required to use its best effortsfor a reasonable time to sell the IQF
machine in a commercially reasonable manner. The trial court found that Appellees employed
various tactics for more than three years to sell the IQF machine and, in so doing, satisfied their
obligation to use "best efforts" under the contract. On appeal, Malatt does not dispute that Appellees
satisfied their "best efforts" obligation. Furthermore, he does not raise any argument that the "three
The trial court also found as follows:
Moreover, due to market forces which were not predictable at the time and were beyond the control of either party to
the Settlement Agreement, the provisions calling for the effort to sell the subject IQF System became unduly
burdensome and in fact unworkable, despite due diligence on behalf o[f] C&R and Reeves.
year plus" time frame referenced in the trial court's findings of fact is an unreasonable time period.
Therefore, we will not disturb the trial court's unchallenged finding. We hold that Appellees
satisfied their obligation pursuant to the agreement to use their best efforts to market and sell, in an
expeditious and commercially reasonable manner, the IQF Machine.
Impracticability
Commercial impracticability is a defense to performance of a contract in Texas. See
Tractabel Energy Mktg., Inc. v. E.I. DuPont de Nemours & Co., 118 S.W.3d 60, 64 (Tex.
App.-Houston [14th Dist.] 2003, pet. denied).7 Here, since the trial court's finding that Appellees
fulfilled their best efforts to market and sell the IQF machine is not challenged on appeal, we need
not address the trial court's alternate finding related to the defense of impracticability. Malatt's
fourth issue is overruled.
Attorney's Fees
In his fifth issue, Malatt argues that he is entitled to attorney's fees and costs. Malatt's claim
in this regard is premised on his counterclaim for breach of contract. See Tex. Civ. Prac & Rem.
Code Ann. § 38.001(8) (Vernon 1997). Since we have upheld the trial court's finding that
Appellees satisfied their obligation under the agreement, it follows that Malatt is not entitled to
recover attorney's fees and costs pursuant to Section 38.001(8). Malatt's fifth issue is overruled.
DISPOSITION
Having overruled Malatt's issues one and four, we affirm the trial court's judgment.
JAMES T. WORTHEN
Chief Justice
Opinion delivered October 12, 2005.
Panel consisted of Worthen, C.J., Griffith, J., and DeVasto, J.
(PUBLISH)
The court's opinion was supplemented by Tractabel Energy Mktg., Inc. v. E.I. DuPont de Nemours &
Co., 118 S.W.3d 929 (Tex. App.-Houston [14th Dist.] 2003, pet. denied).
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
OCTOBER 12, 2005
NO. 12-04-00302-CV
RICHARD MALATT,
Appellant
V.
C&R REFRIGERATION AND ROBERT REEVES,
Appellee
Appeal from the 273rd Judicial District Court
of Shelby County, Texas. (Tr.Ct.No. 03CV-27749)
THIS CAUSE came to be heard on the appellate record and briefs filed herein,
and the same being inspected, it is the opinion of this court that there was no error in the judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below Be in All Things Affirmed, and that all costs of this appeal are hereby
adjudged against the Appellant, RICHARD MALATT, for which execution may issue, and that this
decision be certified to the court below for observance.
James T. Worthen, Chief Justice.
Panel consisted of Worthen, C.J., Griffith, J., and DeVasto, J.