IN THE
TENTH COURT OF APPEALS
No. 10-10-00017-CV
TEXAS ALL RISK GENERAL AGENCY,
INC., KELLY ANN DAVIS, DAVID DAY,
TARGA INVESTMENTS CORPORATION,
Appellants
v.
APEX LLOYDS INSURANCE COMPANY,
Appellee
From the 170th District Court
McLennan County, Texas
Trial Court No. 2007-4185-4
MEMORANDUM OPINION
Texas All Risk General Agency, Inc., Kelly Ann Davis, David Day, and TARGA
Investments Corp. jointly appeal from a trial court’s verdict in a non-jury trial awarding
Apex Lloyds Insurance Co. a judgment for a breach of a general management
agreement. Appellants complain that: (1) the trial court’s interpretation of the contract
was “oppressive, inequitable, unreasonable, and frustrates the spirit and purpose of the
agreement” and that the trial court should have interpreted the contract in a reasonable
manner which allowed them an initial period in which to comply with territorial
limitations in the contract; (2) that without a showing of a breach of the territorial
limitations in the contract Apex is not allowed to recover; and (3) that the trial court
erred by assessing liquidated damages based on an invalid liquidated damages
provision. Because we find that the trial court did not err, we affirm the judgment of
the trial court.
Background
Texas All Risk General Agency Inc., hereinafter referred to as “TAR,” entered
into a managing general agency agreement with Apex Lloyds Insurance Company
whereby TAR would sell insurance policies as a managing general agent of Apex. The
agreement contained a provision that restricted the percentage of policies that could be
issued in certain counties. The original period of the restrictions stated that TAR could
write no more than ten percent of its policies with wind exposure in Harris County
“[f]or the period from the date of contract through 11-30-07.” The contract’s effective
date was May 20, 2007. The agreement also required TAR to submit monthly reports to
Apex relating to the locations of where the policies were written, which were due 45
days after the end of each month.
The first report submitted to Apex indicated that in the month of July that four
policies were written and two of them were from Harris County. Apex sent a letter to
TAR on September 26, 2007 that expressed concerns regarding Apex’s apparent breach
of the territorial limitations with a demand that Apex comply with the restrictions. In
October of 2007, TAR sold 28 policies, 24 of which were issued in Harris County. On
November 2, 2007, Apex notified TAR of its intent to terminate the agreement in 180
days in accordance with the agreement. Additionally, Apex notified TAR that it was
suspending TAR’s right to sell policies effective immediately as allowed by the
Texas All Risk v. Apex Lloyds Page 2
agreement in the event of a breach. Apex sent TAR a second notice of its intent to
terminate the agreement on November 7, 2007. That same day, TAR responded by
sending notice of its intent to terminate the agreement with the 180 day notice. TAR
continued selling policies after it received the notice of suspension, which led to the
filing of the instant suit.
Trial was before the court. The trial court determined that TAR had breached the
territorial limitations in the agreement and awarded damages and attorney’s fees to
Apex. The trial court denied judgment on the rest of Apex’s causes of action and on all
of TAR’s counter-claims.1
Ambiguity in Contract
TAR2 complains in its first issue that the trial court erred in its interpretation of
the agreement by finding that TAR was in breach of the agreement on November 2,
2007, the date of Apex’s notice of intent to terminate the agreement and suspension of
Apex’s ability to sell policies. TAR argues that the language of the agreement “[f]or the
period from the date of contract through 11-30-07” requires that there can be no breach
of the ten percent territorial limitation prior to November 30, 2007. Our analysis must
begin with a determination of whether or not the agreement is ambiguous.
In construing a written agreement, we must ascertain and give effect to the
parties’ intentions as expressed in the agreement. Frost Nat'l Bank v. L & F Distribs., Ltd.,
165 S.W.3d 310, 311-12 (Tex. 2005) (per curiam); Carbona v. CH Medical, Inc., 266 S.W.3d
1 No party complains of the denial of its causes of action in this appeal.
2This appeal was filed by Texas All Risk General Agency, Inc., Kelly Ann Davis, David Day, and TARGA
Investments Corp. jointly; however, the judgment of the trial court was solely rendered against Texas All
Risk General Agency, Inc. Therefore, each issue is addressed as that of TAR only.
Texas All Risk v. Apex Lloyds Page 3
675, 680 (Tex. App.—Dallas 2008, no pet.). We discern intent from the agreement itself
and the agreement must be enforced as written. Deep Nines, Inc. v. McAfee, Inc., 246
S.W.3d 842, 846 (Tex. App.—Dallas 2008, no pet.). We consider the entire writing and
attempt to harmonize and give effect to all the provisions of the contract by analyzing
the provisions with reference to the whole agreement. Frost Nat'l Bank, 165 S.W.3d at
312. This consideration comes “from a utilitarian standpoint bearing in mind the
particular business activity sought to be served” and we will “avoid when possible and
proper a construction which is unreasonable, inequitable, and oppressive.” Frost Nat’l
Bank, 165 S.W.3d at 312 (quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex.
1987)). Further, “all writings that pertain to the same transaction will be considered
together, even if they were executed at different times and do not expressly refer to one
another.” DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999).
Whether an agreement is ambiguous is a question of law for the court to decide
by looking at the contract as a whole in light of the circumstances existing at the time
the contract was entered. Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983); Ganske v.
Spence, 129 S.W.3d 701, 707 (Tex. App.—Waco 2004, no pet.). An ambiguity does not
arise simply because the parties advance conflicting interpretations of the contract.
Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006); Lopez v.
Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000). A contract is ambiguous
when its meaning is uncertain and doubtful or is reasonably susceptible to more than
one interpretation. Seagull Energy E & P, 207 S.W.3d at 345. If the agreement can be
given a certain or definite legal meaning or interpretation, it is not ambiguous, and we
will construe it as a matter of law. Coker, 650 S.W.2d at 393.
Texas All Risk v. Apex Lloyds Page 4
Neither the parties nor the trial court found this agreement ambiguous, and we
likewise agree that it is not. Its meaning is therefore a question of law. Coker, 650
S.W.2d at 394. “The intent of the parties must be taken from the agreement itself, not
from the parties’ present interpretation, and the agreement must be enforced as it is
written.” Calpine Producer Servs., L.P. v. Wiser Oil Co., 169 S.W.3d 783, 787 (Tex. App.—
Dallas 2005, no pet.). A court will not change a contract merely because the court or one
of the parties comes to dislike its provisions or thinks that something else is needed. Id.
When we analyze this provision against the agreement as a whole, we find that
the intent of the parties was that TAR was not to write more than ten percent of its
policies in Harris County and that the monthly reports were to determine compliance
on a monthly basis. TAR’s computer software gave it the ability at all times to control
where it wrote the insurance policies. We agree with the determination of the trial
court that the contract is not ambiguous.
Oppressive, Inequitable, Unreasonable Provision
TAR further complains in issue one that the trial court’s interpretation of the
agreement finding that TAR breached the agreement prior to November 30, 2007, was
oppressive, inequitable, unreasonable, and frustrated the spirit and purpose of the
agreement. TAR’s contention is that it was impossible for TAR to have not breached the
territorial limitations in the agreement from the time it sold the first policy if it were in
Harris County. In response, Apex contends that the purpose of the territorial
limitations was to limit its exposure to large claims in and around Harris County, and
that the provision was made with the intent to satisfy the Texas Department of
Texas All Risk v. Apex Lloyds Page 5
Insurance and Apex’s reinsurers’s concerns of a geographically-centered catastrophic
loss.
The trial court found that the territorial limitations were intended to be closely
monitored by Apex, in part, because of warranty limitations contained in a reinsurance
agreement executed between Apex and two third-party reinsurers. The agreement
between Apex and TAR provides that the terms of that reinsurance agreement would
supersede the provisions of the agreement between TAR and Apex in the event of a
conflict and that the execution of the reinsurance agreement was a condition precedent
to the agreement between Apex and TAR. Further, the agreement provided that the
authority of TAR could be less than that allowed in the reinsurance agreement but
could not exceed that allowed in the reinsurance agreement. The reinsurance
agreement provided that no more than 20% of the policies could be sold in Harris
County. These restrictions were known to TAR when it entered into the agreement
with Apex.
In light of the requirements that we are to read separate contracts governing the
same “transaction” together, and that we are to construe contracts “from a utilitarian
standpoint bearing in mind the particular business activity sought to be served” and
“avoid when possible and proper a construction which is unreasonable, inequitable,
and oppressive,” we do not find that the agreement was unreasonable, inequitable, or
oppressive. DeWitt County Elec. Coop., 1 S.W.3d at 102; Frost Nat’l Bank, 165 S.W.3d at
312. Rather, we find that the trial court’s interpretation of the agreement is reasonable
in light of the other provisions of the agreement and the reinsurance agreement, and
that Apex’s interpretation is not reasonable. If TAR was to have the entire six month
Texas All Risk v. Apex Lloyds Page 6
period in which to determine its compliance, the purpose of the monthly and quarterly
reports would be meaningless. Additionally, in the section below the territorial
limitation during the initial period, the agreement provided that “[b]eginning 12-1-07
and thereafter,” TAR’s territorial limitation was increased to 17.5 percent in Harris
County. TAR’s asserted interpretation that the limitations would only apply as of
November 30, 2007 would render this provision entirely meaningless because there
would be no termination date for the territorial limitation to be enforced. Nor do we
find TAR’s contention that it would have been in violation of the contract from the very
beginning to frustrate the spirit of the agreement. We overrule issue one.
No Breach, No Recovery
TAR complains in its second issue that because there was no breach of the
agreement, Apex was not entitled to recover the amount it recovered or because the
contract provision at issue in the agreement was illusory and unenforceable, and the
trial court erred in determining otherwise. The agreement contained a provision in the
“Fee Schedule” section that: “Regardless of the Fees earned by [Apex] and owed by
[TAR] in (sic) during the first year of this Agreement, [TAR] shall not pay [Apex] an
amount, in total, less than sixty thousand dollars ($60,000).” We have already
determined that the trial court did not err in finding that there was a breach of the
agreement by TAR.
Illusory Contract
TAR complains that if the provision requiring it to pay Apex no less than sixty
thousand dollars is interpreted as being a damage provision in the event of a breach, the
agreement thus becomes illusory and void because it would potentially have allowed
Texas All Risk v. Apex Lloyds Page 7
Apex to terminate the agreement on the first day and obligate TAR to pay the sixty
thousand dollars without a breach of the agreement by TAR.
The agreement is a bilateral contract, which is one in which there are mutual
promises between two parties to the contract, each being both a promisor and a
promisee. Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943); Frequent Flyer
Depot, Inc. v. Am. Airlines, Inc., 281 S.W.3d 215, 224 (Tex. App.—Fort Worth 2009, pet.
denied); The Colony, Tex. v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 725 (Tex. App.—
Fort Worth 2008, pet. dism’d by agr.). A bilateral contract must be based upon a valid
consideration, in other words, mutuality of obligation. Fed. Sign v. Tex. S. Univ., 951
S.W.2d 401, 409 (Tex. 1997); Frequent Flyer, 281 S.W.3d at 224.
A contract that lacks mutuality of obligation is illusory and void and is
unenforceable. Frequent Flyer, 281 S.W.3d at 224; Tex. S. Univ. v. State St. Bank & Trust
Co., 212 S.W.3d 893, 914 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). Failing to
bind the promisor who retains the option of discontinuing performance without notice
renders a promise illusory. Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 645 (Tex.
1994). However, mutuality in each clause of a contract is not required when
consideration is given for the contract as a whole. Howell v. Murray Mortgage Co., 890
S.W.2d 78, 87 (Tex. App.—Amarillo 1994, writ denied).
The test for mutuality is applied and determined when enforcement is sought,
not when the promises are made. Hutchings, 174 S.W.2d at 489; Cherokee
Communications, Inc. v. Skinny’s, Inc., 893 S.W.2d 313, 316 (Tex. App.—Eastland 1994,
writ denied). As the Texas Supreme Court stated in Hutchings:
Texas All Risk v. Apex Lloyds Page 8
Though a contract be void for lack of mutuality at the time it is made, and
while it remains wholly executory, yet, when there has been even a part
performance by the party seeking to enforce the same, and in such part
performance such party has rendered services or incurred expense
contemplated by the parties at the time such contract was made, which
confers even a remote benefit on the other party thereto, such benefit will
constitute an equitable consideration, and render the entire contract valid
and enforceable.
Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (Tex. 1943).
We find that regardless of whether the clause was illusory at the time the
agreement was signed as alleged by TAR, the subsequent performance by both TAR
and Apex pursuant to the agreement constituted an adequate consideration and
therefore, the agreement was not illusory at the time of enforcement. See Hutchings, 174
S.W.2d at 489; Frequent Flyer, 281 S.W.3d at 224. We overrule issue two.
Damages
TAR also complains in its third issue that the trial court erred in awarding
damages based on the clause in the agreement which provided that TAR would pay
Apex no less than sixty thousand dollars in the first year of the agreement because that
clause is an unenforceable liquidated damages provision. Further, TAR argues that
because that clause is invalid, there was no evidence to support the trial court’s
judgment regarding damages. Apex counters TAR has waived this contention by
failing to plead it as an affirmative defense or matter of avoidance.
An allegation that a provision in a contract is void, unenforceable, or
unconscionable is a matter in the nature of an avoidance which must be pled. See TEX.
R. CIV. P. 94. Additionally, an assertion that a liquidated damages provision is a penalty
is an affirmative defense that a defendant has the burden of pleading and proving. TEX.
Texas All Risk v. Apex Lloyds Page 9
R. CIV. P. 94; Urban Television Network Corp. v. Creditor Liquidity Solutions, L.P., 277
S.W.3d 917, 919 (Tex. App.—Dallas 2009, no pet.). Failure to do so waives any objection
on appeal. TEX. R. CIV. P. 90. TAR filed only a general denial and did not plead any
affirmative defenses or matters in avoidance. Because this complaint was not pled for,
we find that the trial court did not err in applying the clause in determining Apex’s
damages, and therefore, we do not reach TAR’s complaint regarding the sufficiency of
the evidence disregarding that clause in the agreement. We overrule issue three.
Conclusion
We find that the agreement was not ambiguous and the trial court did not err in
its interpretation of the agreement. The agreement was not oppressive, inequitable, or
unreasonable nor was it an illusory contract. We find that the complaint regarding the
validity of the provision in the agreement which formed the basis of the trial court’s
calculation of damages was not preserved because it was not pled as a matter in
avoidance or affirmative defense. We affirm the judgment of the trial court.
TOM GRAY
Chief Justice
Before Chief Justice Gray,
Justice Reyna, and
Justice Davis
Affirmed
Opinion delivered and filed November 10, 2010
[CV06]
Texas All Risk v. Apex Lloyds Page 10