Daniel Mandarino, Carrie Mandarino, Laura Doyle, Robert Church, Brett Beals and Linda Beals as Trustees of the Beals Family Revocable Trust, Robert A. Schalbe, William H. Gay, Jr., Riccardio D. Gay, Eric Johnstone, Rafal Zielinski and Vally Mestroni v. Sherwood Lane Investments, LLC
ACCEPTED
01-15-00192-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
8/6/2015 6:33:16 PM
CHRISTOPHER PRINE
CLERK
Case No. 01-15-00192-CV
__________________________________________________
FILED IN
1st COURT OF APPEALS
IN THE FIRST COURT OF APPEALS HOUSTON, TEXAS
HOUSTON, TEXAS 8/6/2015 6:33:16 PM
CHRISTOPHER A. PRINE
__________________________________________________
Clerk
DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE, ROBERT CHURCH,
BRETT BEALS and LINDA BEALS as Trustees of the Beals Family Revocable Trust,
ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., ERIC JOHNSTONE,
RAFAL ZIELINSKI and VALLY MESTRONI, Appellants
v.
SHERWOOD LANE INVESTMENTS, LLC, Appellee
____________________________________________________
From the 164TH Judicial District Court, of Harris County, Texas
Trial Court Cause No. 2014-32347
Honorable Alexandra Smoots-Hogan, Judge Presiding
APPELLANTS’ BRIEF
TERI A. WALTER
Texas Bar No. 20815100
GLEN NORDT
Texas Bar No. 15076600
WALTER LAW FIRM, PC
1111 North Loop West, Suite 1115
Houston, TX 77008
Phone 713 529-2020
Fax 713 529-2266
Email twalter@prevaillawyers.com
Email gnordt@prevaillawyers.com
ATTORNEY FOR APPELLANTS
ORAL ARGUMENT REQUESTED
Case No. 01-15-00192-CV
DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE, ROBERT CHURCH,
BRETT BEALS and LINDA BEALS as Trustees of the Beals Family Revocable Trust,
ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., ERIC JOHNSTONE,
RAFAL ZIELINSKI and VALLY MESTRONI, Appellants
v.
SHERWOOD LANE INVESTMENTS, LLC, Appellee
IDENTITY OF PARTIES AND COUNSEL
Attorneys for Appellants DANIEL MANDARINO, CARRIE MANDARINO, LAURA
DOYLE, ROBERT CHURCH, BRETT BEALS and LINDA BEALS as Trustees of the Beals
Family Revocable Trust, ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY,
JR., ERIC JOHNSTONE, RAFAL ZIELINSKI and VALLY MESTRONI:
TERI A. WALTER
Texas Bar No. 20815100
GLEN NORDT
Texas Bar No.15076600
WALTER LAW FIRM, PC
1111 North Loop West, Suite 1115
Houston, TX 77008
Phone 713 529-2020
Fax 713 529-2266
Email twalter@prevaillawyers.com
Email gnordt@prevaillawyers.com
i
Attorneys for Appellee SHERWOOD LANE INVESTMENTS, LLC:
Douglas A. Daniels
Texas Bar No. 00793579
Andrea L. Gentle
Texas Bar No. 24074266
DANIELS & GENTLE, LLP
6363 Woodway Suite 980
Houston, TX 77057
Phone 713 979 4279
Fax 713 979 4270
Email: douglas.daniels@danielsgentle.com
Email: andrea.gentle@danielsgentle.com
ii
TABLE OF CONTENTS
INDEX OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
STATEMENT ON ORAL ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ISSUES PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY OF THE ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Issue 1: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment, based on no evidence or insufficient evidence of the Note
and fact issues regarding the terms of the Note. . . . . . . . . . . . . . . . 10
Issue 2: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment based on fact issues regarding the principal and interest due
on the Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Issue 3: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment because there was no evidence or insufficient evidence of
SHERWOOD's standing as an owner, holder, and/or holder in due
course of the Note. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Issue 4: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment and denying Appellants’ Motion for Summary Judgment
based on the two year statute of limitations pursuant to Tex. Prop. Code
§ 51.003.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Issue 5: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment based on fact issues of fraud, fraudulent inducement and
fraud in a real estate transaction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
iii
PRAYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
CERTIFICATE OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
APPENDIX 1 - Final Judgment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 1
APPENDIX 2 - Wraparound Promissory Note. . . . . . . . . . . . . . . . . . . . . . . Appendix 2
APPENDIX 3 - Statutory Text. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 3
Tex. Prop. Code § 51.003(a) Deficiency Judgment. . . . . . . . . . . Appendix 3.1
Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 8.01. . . . . . . . . . . . Appendix 3.1
Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 8.04. . . . . . . . . . . . Appendix 3.2
Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 8.05. . . . . . . . . . . . Appendix 3.3
Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA) Sec. 13.06. . . . . . . . . . . Appendix 3.3
APPENDIX 4 - Diagram of Transactions.. . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 4
APPENDIX 5 - Index of Persons and Companies. . . . . . . . . . . . . . . . . . . . . Appendix 5
APPENDIX 6 - Time Line of Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 6
iv
INDEX OF AUTHORITIES
Cases
Baylor Univ. v. Sonnichesen, 221 S.W.3d 632, 635 (Tex. 2007).. . . . . . . . . . . . . . . 25
Boyd v. Diversified Financial Systems, 1 S.W.3d 888 (Tex. App. - Dallas, 1999, no
pet.) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 15
David J. Sacks, P.C. v. Haden, 266 S.W.3d 447, 450 (Tex. 2008). . . . . . . . . . . . . . . 25
Dutton v. Dutton, 18 S.W.3d 849, 853 (Tex. App.-Eastland 2000, pet. denied)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
El T. Mexican Restaurants, Inc. v. Bacon, 921 S.W.2d 247 Tex. App.-Houston [1st
Dist.] 1995, writ denied).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
First National Acceptance Company v. Dixon, 154 S.W.3d 218, (Tex. App.
Beaumont-2004, pet. denied.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008).. . . . . . . . . . . . . . . . . . . . . 46
Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 767 (Tex. 1983). . . . . . . . . . . 29
HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190 S.W.3d 108, 113 (Tex. App.-
Houston [1st Dist.] 2005, no pet.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
In Re Hawthorne Townhomes, L.P. v. Branch, 282 S.W.3d 131, 138 (Tex. App.-
Dallas 2009, orig. proceeding). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323, 328-337 (Tex.
2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46, 47
Lewis v. Davis, 145 Tex. 468; 199 S.W.2d 146, 148-149 (1947). . . . . . . . . . . . . . . 24
Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App.-Dallas 2004, no pet.). . . 43, 44
v
Mega Child Care, Inc. v. Tex. Dep’t of Protective & Regulatory Servs., 29 S.W. 3d
303, 308 (Tex. App. - Houston [14th Dist] 2000, no pet.) . . . . . . . . . . . . . . . . . . . . 14
Moayedi v. Interstate 35/Chisam Road, L.P., 438 S.W.3d 1 (Tex. 2014).. . . . . . . . 39
Monsanto Co. v. Cornerstones Mun. Util. Dist., 865 S.W.2d 937, 939 (Tex. 1993)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 352 (Tex. 1990).. . . . . . . . . . . . . . 42
Nat'l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000) . . . . . . . . . . . . 42
Omaha Healthcare Ctr. v. Johnson, 334 S.W.3d 392, 394 (Tex. 2011). . . . . . . . . . 40
Peck v. Peck, 172 S.W.3d 26, 31 (Tex.App.-Dallas 2005, pet. denied). . . . . . . . . . 29
Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991). . . . . . . . . . . . . . . . . . . . . . . . 24
RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex. 1985). . . . 27,
41
Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) . . . . . 46
Sowell v. International Interests, LP, 416 S.W.3d 593, (Tex. App.-Houston [14th
Dist] 2013, pet. denied). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
St. Luke's Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997).. . 27, 28, 41,
42
Texas Employers’ Ins. Assn. v. Taylor, 283 S.W. 779, 780 (Tex. Com. App. 1926,
judgmt. adopted). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Westerngeco, L.L.L. v. Input/Output, Inc., 246 S.W.3d 776, 786 (Tex. App.-Houston
[14th Dist.] 2008, no pet.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 25
vi
Statutes
Tex. Bus. & Com. Code § 3.114 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Tex. Bus. & Com. Code § 3.203(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 31
Tex. Bus. & Com. Code § 3.302 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Tex. Bus. Org. Code § 402.001(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Tex. Prop. Code § 51.003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3, 8, 35, 40-43
Tex. Prop. Code § 51.005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 8.05. . . . 23, 28
Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 8.04. . . . 22, 28
Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 13.06. . . 26, 27
Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act § 8.01. . . . 20, 21
vii
STATEMENT OF THE CASE
This is a suit for the deficiency balance due on a promissory note after
foreclosure of the real property securing the note. Plaintiff/Appellee SHERWOOD
LANE INVESTMENTS, LLC, (SHERWOOD) is the assignee of the Note, on which
Defendants/Appellants DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE,
ROBERT CHURCH, BRETT BEALS and LINDA BEALS as Trustees of the Beals Family
Revocable Trust, ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR.,
RICCARDIO D. GAY, ERIC JOHNSTONE, RAFAL ZIELINSKI and VALLY MESTRONI were
makers. (CR 5).
The trial court granted summary judgment in favor of SHERWOOD on
December 19, 2014 (CR 396), and Defendants/Appellants’ Motion for New Trial was
heard on January 30, 2015 (CR 415), but no order was signed granting or denying the
motion. Therefore, the Motion for New Trial was overruled by operation of law on
March 4, 2015.
1
STATEMENT ON ORAL ARGUMENT
Appellants request oral argument. This case involves complex issues of the
rights of an entity to enter into new, long term contracts after it has been dissolved,
its right to do business has been terminated, and its certificate of registration
revoked. In addition, this is a case of first impression regarding whether the statute
of limitations, Tex. Prop. Code § 51.003, applies to the holder of a second lien, after
the first lien holder forecloses on the property securing the debts. Oral argument
would significantly aid the Court in deciding this case, by allowing a more complete
understanding of the facts presented, and the effect of the foreclosure of a first lien
on the rights of second lien holders and debtors.
2
ISSUES PRESENTED
Issue 1: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment, based on no evidence or insufficient evidence of the Note,
and fact issues regarding the terms of the Note.
Issue 2: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment based on fact issues regarding the principal and interest due
on the Note.
Issue 3: The trial court erred in granting SHERWOOD’s Motion for Summary
judgment because there was no evidence or insufficient evidence of
SHERWOOD's standing as an owner, holder, and/or holder in due
course of the Note.
Issue 4: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment and denying Appellants’ Motion for Summary Judgment
based on the two year statute of limitations pursuant to Tex. Prop. Code
§ 51.003.
Issue 5: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment based on fact issues of fraud, fraudulent inducement and
fraud in a real estate transaction.
3
STATEMENT OF FACTS
SHERWOOD seeks to enforce a “Wraparound Promissory Note” (Wraparound
Note) dated October 16, 2006 between Sherwood Pines, Ltd. as Payee and
Defendants/Appellants as Makers (CR 8, 66). The Wraparound Note was subordinate
to the “Original Fixed Rate Note” (First Lien Note) between Morgan Guaranty Trust
Company as Lender and Sherwood Pines, Ltd. as Maker, dated June 27, 2001 (CR 66).
Both the First Lien Note and the Wraparound Note were secured by liens upon the
same real property - Sherwood Pines Apartments, 4211 Sherwood Lane, Houston,
Texas. (CR 173, 197).
Sherwood Pines, Ltd. was dissolved on November 4, 1999, when one of its
general partners resigned (CR 220). Thereafter its right to do business was forfeited
on October 5, 2005 (CR 223), and its certificate of registration was cancelled on
February 6, 2006 (CR 224).
The Wraparound Note was dated October 16, 2006 (Wraparound Note, CR
66). Sherwood Pines, Ltd. assigned a portion of its interest in the Wraparound Note
(all except the right to receive a 2% penalty payment) to Lee Wallis, Inc., on or about
March 10, 2008 (CR 229).
4
The holder of the First Lien Note foreclosed on the real property securing the
Note on April 6, 2010. (CR 209).
Lee Wallis, Inc. assigned its interest in the Wraparound Note to SHERWOOD
on May 19, 2014. (CR 57). SHERWOOD filed suit to collect the unpaid deficiency
balance of the Wraparound Note on June 5, 2014. (CR 5).
5
SUMMARY OF THE ARGUMENT
The Wraparound Note was not properly in evidence, and there was a fact issue
as to the terms of the Wraparound Note. SHERWOOD did not prove up the
Wraparound Note as a business record of anyone, and the Note presented to the
court was incomplete on its face since “Exhibit A” to the Wraparound Note was
missing. Appellants objected to the Wraparound Note as hearsay and incomplete,
as well as to the competence of the witnesses purportedly authenticating the
Wraparound Note. Since the Wraparound Note was not properly in evidence, and
there were fact issues as to the terms of the Note, SHERWOOD’s summary judgment
should not have been granted.
SHERWOOD presented the court with two conflicting affidavits as to the
amount of principal and due on the Wraparound Note. These conflicting affidavits
created a fact issue which precludes summary judgment.
SHERWOOD failed to present any competent summary judgment evidence of
its standing as an owner, holder, and/or holder in due course of the Wraparound
Note. The original payee of the Wraparound Note was Sherwood Pines, Ltd., a
purported Texas limited partnership which had been dissolved on November 4, 1999,
upon the withdrawal of a general partner (CR 220). Thereafter, its right to do
6
business was forfeited on October 5, 2005 (CR 223), and its certificate of registration
was cancelled on February 6, 2006 (CR 224). All of these events pre-date the October
16, 2006 Wraparound Note (CR 66).
It is well settled Texas law that if one of the parties to a contract does not
exist, no contract can be formed as a matter of law. For the same reason, Sherwood
Pines, Ltd.’s subsequent assignment of the Wraparound Note to Lee Wallis, Inc. was
also invalid, and therefore Lee Wallis, Inc. received no rights which it could assign to
SHERWOOD. Due to Sherwood Pines, Ltd.’s lack of capacity to enter into the
Wraparound Note, and the failure to transfer the entire instrument, SHERWOOD
does not have standing to enforce the Wraparound Note.
Sherwood Pines, Ltd. assigned a portion of its interest in the Wraparound Note
(all except the right to receive a 2% penalty payment) to Lee Wallis, Inc., on or about
March 10, 2008 (CR 229). In addition, each of the purported assignments of the Note
omitted a part of the instrument - Exhibit A - and the missing portion has not been
explained. Where there is an attempted indorsement of less than the entire
instrument, the transferee obtains no rights to enforce the instrument.
SHERWOOD, as the purported assignee of the Wraparound Note, does not
qualify as a holder in due course, because SHERWOOD had actual or constructive
7
notice that the Wraparound Note was in default when at the time it was assigned to
SHERWOOD, and because of the attempted partial assignment of the Note.
Therefore, SHERWOOD is subject to the same defenses that Appellants could have
asserted against the original lender, including the defenses of fraud, fraudulent
inducement, and fraud in a real estate transaction.
The Wraparound Note was secured by a second lien on the Sherwood Pines
Apartments. The first lien holder foreclosed on the property on April 6, 2010, and
SHERWOOD’s suit was filed on June 5, 2014, more than four years after the
foreclosure. Tex. Prop. Code § 51.003 provides that if real property is sold at a
foreclosure sale for “less than the unpaid balance of the indebtedness secured by the
real property, resulting in a deficiency, any action brought to recover the deficiency
must be brought within two years of the foreclosure sale.” The statute does not
require that the foreclosure be performed by the same lien holder who later seeks
a deficiency judgment. SHERWOOD failed to bring suit to recover the deficiency
balance due on the Note within the two year statute of limitations.
Appellants asserted various fraud defenses and presented summary judgment
evidence that the Wraparound Note was intended to be a non-recourse note, (i.e.
Appellants were not intended to have had personal liability on the Note.) In
8
addition, the “merger clause” in the Wraparound Note is insufficiently worded to
preclude extrinsic evidence of fraudulent inducement and/or evidence that the
Wraparound Note should have been nonrecourse. APPELLANTS raised fact issues of
fraud, fraudulent inducement and fraud in a real estate transaction, precluding
summary judgment.
9
ARGUMENT
Issue 1: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment, based on no evidence or insufficient evidence of the Note
and fact issues regarding the terms of the Note.
The Wraparound Note which is the basis of SHERWOOD’s claim against
Appellants, (CR 66) was not properly proved up because the copy of the Note which
submitted as summary judgment evidence was incomplete on its face, and there is
no evidence of any exception to the hearsay rule which would make the document
admissible. Appellants objected to these evidentiary defects, and sought a ruling
from the court on their objections (CR 143, 398).
SHERWOOD attempted to authenticate the Wraparound Note and its
indorsements and assignment by three affidavits - one by John Gilmore (Exhibit A to
the Motion for Summary Judgment, CR 49), one by James Hale (Exhibit B to the
Motion for Summary Judgment, CR 53), and one by Herb Richardson (Exhibit C to the
Motion for Summary Judgment, CR 62). The Wraparound Note itself was attached
as Exhibit C-1 to the Motion for Summary Judgment (CR 66). However, none of these
witnesses were competent to authenticate the Wraparound Note or the subsequent
indorsements and assignment of the Wraparound Note, and none attempted to
authenticate the Note, indorsements or assignment as business records of any
10
company. Instead, the witnesses merely testified that the document was a “true and
correct copy” of the Note, despite the fact that the document was incomplete on its
face, since it was missing Exhibit A.
Affidavit of John Gilmore
At the time Sherwood Pines, Ltd was formed, John Gilmore was one of its
general partners (CR 218), but he resigned as a general partner on November 4, 1999
(CR 220), which dissolved the partnership by operation of law. Sherwood Pines, Ltd.,
had its right to do business in Texas terminated by the Secretary of State on October
5, 2005. Sherwood Pines, Ltd’s right to do business was never reinstated, and its
certificate of registration was cancelled on February 6, 2006 (CR 224), approximately
six months prior to the date on the Wraparound Note. Nevertheless, John Gilmore’s
affidavit attempts to authenticate both the Wraparound Note and the indorsement
of the Wraparound Note to Lee Wallis, Inc. on March 10, 2008, long after Sherwood
Pines, Ltd. lost its legal existence and ability to act (CR 49, 74). Essentially, all of John
Gilmore’s testimony is about the purported acts of an entity which did not exist and
did not have the authority to act at the time of the acts described.
John Gilmore attests to the Wraparound Note only as “a true and correct
copy” but does not attempt to authenticate Note or the indorsement as a business
11
record of any company (CR 49). John Gilmore does not testify that the document
submitted as summary judgment evidence is the complete document indorsed by
[the defunct entity] Sherwood Pines., Ltd., and does not mention or explain the
missing Exhibit A.
Affidavit of James Hale
The affidavit of James Hale (CR 53), President of Lee Wallis, Inc., also attempts
to authenticate the Wraparound Note, and the indorsement of the Note to Lee
Wallis, Inc. However, neither the Wraparound Note nor the indorsement are
authenticated as a business record of any company. James Hale’s affidavit states
only that the Wraparound Note attached to the Affidavit of Herbert Richardson is a
“true and correct copy” of the Note signed by Appellants (a fact of which he could
not have had any personal knowledge), that the indorsement of the Note by Lee
Wallis, Inc., to SHERWOOD is a “true and correct copy” of the indorsement, and that
the assignment of the Wraparound Note to SHERWOOD is a “true and correct copy”
of the assignment. James Hale does not testify that the document submitted as
summary judgment evidence is the complete document received by Lee Wallis, Inc.
from the defunct entity Sherwood Pines, Ltd., and does not mention or explain the
missing Exhibit A. James Hale’s affidavit does not properly authenticate the
12
Wraparound Note, either of the indorsements of the Note, or the Assignment of the
Note to SHERWOOD, all of which are critical to SHERWOOD’s claim.
Affidavit of Herbert Richardson
The affidavit of Herbert Richardson, a former partner in Sherwood Pines, Ltd.,
similarly attempts to authenticate Wraparound Note, the indorsements and
assignment of the Wraparound Note to SHERWOOD, merely as a “true and correct
copy” of those documents (CR 62). There is no testimony that the documents are a
business record of any company, and Herbert Richardson’s testimony as to the
actions of Sherwood Pines, Ltd., attempts to establish the purported acts of an entity
which did not exist at the time of those acts. Herbert Richardson not testify that the
document submitted as summary judgment evidence is the complete document
received by SHERWOOD from Lee Wallis, Inc., and does not mention or explain the
missing Exhibit A.
Appellants filed objections to the Affidavits of John Gilmore, James Hale and
Herbert Richardson and the exhibits to those affidavits as lacking competence,
hearsay, double hearsay, relevance, and to the incomplete copy of the Wraparound
Note, and sought a ruling on those objections (CR 143, 398). All such objections were
effectively overruled by the court.
13
Hearsay
Hearsay is a statement, other than one made by the declarant while testifying
at the trial or hearing, offered in evidence to prove the truth of the matter asserted.
TRE 801(d). A document is hearsay when the proponent offers the document as
evidence of the truth of the matters asserted in the document, and authentication
of a document is required as a condition precedent to admissibility. TRE 901(a).
A bare assertion that a particular document is a specifically described item is
insufficient authentication. Mega Child Care, Inc. v. Tex. Dep’t of Protective &
Regulatory Servs., 29 S.W. 3d 303, 308 (Tex. App. - Houston [14th Dist] 2000, no pet.)
Although that case found that the error was harmless where there was no allegation
or suggestion that the document was not what the proponent claimed, in this case
there is a very serious dispute about the terms of the Note, specifically the non-
recourse feature, and the document is incomplete on its face.
A contract may sometimes be admitted as an operative fact, taking it out of
hearsay status, Boyd v. Diversified Financial Systems, 1 S.W.3d 888 (Tex. App. -
Dallas, 1999, no pet.) but to do so would presumably require that the entire
document be offered into evidence. In Boyd, the court allowed a note and guaranty
into evidence at a trial on testimony that they were true and exact copies of the
14
originals, and noted that the Defendants had not denied execution of the documents
under oath. However, in Boyd, there was no dispute about the completeness of the
documents, and the documents were admitted at a trial, rather than in a summary
judgment proceeding. This case is an appeal from a summary judgment, in which the
dispute is not execution of the document, but rather that the entire document was
not offered into evidence, and there are critical terms which were omitted and not
explained.
SHERWOOD relies on the terms of the incomplete Wraparound Note (CR 66),
the indorsement to Lee Wallis, Inc. (CR 74), and the indorsement and assignment of
the Wraparound Note to SHERWOOD (CR 57, 74) for the truth of the matters
asserted in those documents - that Appellants have personal liability to SHERWOOD.
Since SHERWOOD failed to produce the entire document or to explain the missing
piece, SHERWOOD has not established the incomplete document as an operative
fact. Further, SHERWOOD has not properly authenticated any of the documents as
business records, and the documents do not meet any other hearsay exception.
15
Barriers to Admission of the Note, Indorsements and Assignment
SHERWOOD had two problems to solve in order to authenticate the Note,
indorsements and assignment. First, whether it is possible to authenticate the acts
of an entity that does not have the authority to do business at the time of those acts,
and second, whether it is possible to authenticate an incomplete copy of a contract
as an operative fact.
As to the first problem, the law is that a nonexistent business entity cannot
enter into a contract. Westerngeco, L.L.L. v. Input/Output, Inc., 246 S.W.3d 776, 786
(Tex. App.-Houston [14th Dist.] 2008, no pet). While there are exceptions for the
actions of winding up the entity, none of those apply here. (These exceptions are
more fully discussed under Issue 3). It stands to reason that an entity which cannot
enter into a contract cannot validly assign that contract later, nor can it rely on the
contract document as an operative fact, in order to make the document non-hearsay.
The only possible way to authenticate the document would be as a business record
of the defunct entity. However, there is no such evidence.
Further, SHERWOOD cannot treat an incomplete contract as an operative fact,
and a part of the Wraparound Note is missing. Exhibit A, which is referenced on page
3 of the Note (CR 68) is not contained within any of the evidence offered by
16
SHERWOOD. Although the Note suggests that Exhibit A contains a description of the
property securing the Note, until the missing portion of the document is produced
and the complete document authenticated, no one can confirm what provisions
might be contained in Exhibit A. This is especially critical where Appellants have
offered evidence that the Wraparound Note was to have been a non-recourse note.
Appellants’ Response to SHERWOOD’s Motion for Summary Judgment
provided a copy of the Commercial Contract - Improved Property, (Exhibit A to
Response to Motion for Summary Judgment, CR 155, and Commercial Contract
Financing Addendum, CR 169-172), a letter from the broker handling the transaction,
(Exhibit K to Response to Motion for Summary Judgment, CR 231) and Appellants’
affidavits that the seller financing contemplated by the contract “will not provide for
liability (personal or corporate) against maker in the event of default” (Exhibits L
through W, Response to Motion for Summary Judgment, CR 232-256, and Supp CR
3 emphasis added).
Under normal circumstances, it is a relatively simple matter to properly prove
up a note, even after multiple assignments, and even where the original lender is no
longer in business. Such records are normally in the possession of or transferred to
someone who can testify that the records are what they purport to be, and the
17
subsequent assignees can similarly testify to a complete copy of the documents
being authenticated. In this case, however, SHERWOOD was granted a judgment
without producing a complete copy of the documents on which their claim is based,
without proper authentication of the documents as business records of any holder,
and over Appellants’ challenges as to the missing terms of the documents. These are
the kinds of issues that the rules of evidence are designed to prevent.
SHERWOOD should not be permitted to claim that Appellants all have personal
liability on a note without properly authenticating complete documents, especially
where Appellants provided summary judgment evidence to the contrary. Since the
Note was not properly in evidence, granting the summary judgment was error.
Alternatively, the incomplete document, along with Appellants’ evidence that the
Note was to have been non-recourse, create fact issues which preclude summary
judgment.
Issue 2: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment based on fact issues regarding the principal and interest due
on the Note.
SHERWOOD’s Motion for Summary Judgment included two different affidavits
from John Compton, a CPA who was retained to calculate the interest due on the
Wraparound Note (CR 76, 292).
18
In the first affidavit, John Compton based his testimony on an incorrect original
principal amount, (as well as other unauthenticated hearsay). The Wraparound Note
has a discrepancy between the numerical amount and the words stated as the
original principal amount of the loan (CR 66). The Wraparound Note shows that the
original principal amount of the second lien is “Five Hundred Sixty-five Thousand
Dollars ($569,529.87)” (CR 67, emphasis added)1. John Compton’s first affidavit
reflects that he based his calculations on the numerical amount, $569,529.87 (CR 76).
Where there is a conflict between the numerical amount and the words stating the
amount of a note, the words control, Tex. Bus. & Com. Code § 3.114. Based on this
incorrect principal amount, John Compton concluded in his first affidavit that the
unpaid principal and interest on the Wraparound Note was $1,044,481.18.
Appellants objected to John Compton’s affidavit on the basis that his affidavit
contained unsupported assumptions, baseless hearsay, and hearsay within hearsay,
relevancy, and parol evidence (CR 143, 146, 398). SHERWOOD then filed a Reply to
the Response to Motion for Summary Judgment (CR 282) which included a second
affidavit from John Compton (CR 292). In this second affidavit, John Compton bases
1
Each quote of the Wraparound Note made herein is solely for the purpose
of argument, and not as any waiver of Appellants’ objections to the admissibility
of the document.
19
his calculations on the correct, lower, original principal amount of $565,000.00, and
reaches an unpaid balance of $1,058,640.53.
SHERWOOD submitted two conflicting affidavits from the same witness as its
summary judgment evidence of the amount due. Therefore, SHERWOOD’s own
summary judgment evidence created a fact issue which precludes the court from
granting summary judgment.
Issue 3: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment because there was no evidence or insufficient evidence of
SHERWOOD's standing as an owner, holder, and/or holder in due
course of the Note.
SHERWOOD Does Not Have Standing as an Owner Because the Note was Void
Sherwood Pines, Ltd. was formed on October 26, 1999, with Herbert B.
Richardson and John E. Gilmore as the General Partners (Secretary of State records,
Exhibit G, Appellants’ Response to Motion for Summary Judgment, CR 217). The
Business Organizations Code provides that a limited partnership created prior to the
Texas Business Organizations Code (effective January 1, 2006), is governed by the
prior Tex. Rev. Civ. Stat. art. 6132a-1, Texas Revised Limited Partnership Act,(RLPA)
§ 8.01, Tex. Bus. Org. Code § 402.001(b). Accordingly, Sherwood Pines, Ltd. is subject
to the statutory provisions of the RLPA, rather than the current Texas Business
Organizations Act.
20
RLPA § 8.01 provides that “A limited partnership is dissolved and its affairs
shall be wound up” in the event of withdrawal of a general partner, unless certain
exceptions apply.
The pertinent parts of RLPA § 8.01 state as follows:
“Sec. 801. A limited partnership is dissolved and its affairs shall be wound up
only on the first of the following to occur:
(3) an event of withdrawal of a general partner unless:
(A) there remains at least one general partner and the partnership
agreement permits the business of the limited partnership to be carried
on by the remaining general partner or general partners, and that
general partner or those general partners do so; or
(B) within 90 days after the event of withdrawal, all remaining partners
(or another group or percentage of partners as specified by the
partnership agreement) agree in writing to continue the business of the
limited partnership and to the extent that they desire or if there are no
remaining general partners, agree to the appointment, effective as of
the date of withdrawal, of one or more new general partners; or
(4) entry of a decree of judicial dissolution under Section 8.02 of this Act.
[emphasis added].
John Gilmore, one of Sherwood Pines, Ltd.’s general partners, resigned on
November 4, 1999 (Secretary of State Records, Exhibit G, Appellants’ Response to
Motion for Summary Judgment, CR 220). There was no evidence or argument from
SHERWOOD that any of the exceptions under § 8.01(3)(a), § 8.01(3)(b) or § 8.01(4)
21
apply. Sherwood Pines, Ltd. was therefore automatically dissolved by operation of
law on November 4, 1999.
Once dissolved, Sherwood Pines, Ltd. was statutorily required to “wind up” its
business affairs as soon as reasonably practicable RLPA § 8.04 (b). Any future lawful
acts of Sherwood Pines, Ltd. were statutorily limited to acts of “winding up” its
business affairs RPLA § 8.04(b).
Acts of “winding up” are specifically limited by statute to acts disposing of a
dissolved limited partnership’s assets and liabilities, as set forth in RPLA § 8.04(b),
which states as follows:
“(b) On the dissolution of a limited partnership and until the filing of a
certificate of cancellation as provided by Section 2.03 of this Act, unless a
written partnership agreement provides otherwise, the persons winding up
the limited partnership’s affairs may, in the name of and for and on behalf of
the limited partnership:
(1) prosecute and defend civil, criminal, or administrative suits;
(2) settle and close the limited partnership’s business;
(3) dispose of and convey the limited partnership’s property for cash, unless
a written partnership agreement permits a transfer on noncash terms;
(4) discharge or make reasonable provision to pay the limited partnership’s
liabilities; and
(5) distribute to the partners any remaining assets of the limited partnership.”
[emphasis added].
22
The statute only allows a dissolved limited partnership to dispose of its assets
and liabilities by winding up its business affairs, but does not allow for acquisition of
new assets.
RLPA § 8.05 governs how a dissolved limited partnership is required to dispose
of its assets. The statute states as follows:
“Disposition of assets: Sec. 8.05. On the winding up of a limited partnership,
its assets shall be paid or transferred as follows:
(1) to the extent otherwise permitted by law, to creditors, including partners
who are creditors other than solely as a result of the application of Section
6.06 of this Act, in satisfaction of liabilities of the limited partnership, whether
by payment or the making of reasonable provision for the payment thereof;
(2) unless otherwise provided by the partnership agreement, to partners and
former partners in satisfaction of the partnership’s liability for distributions
under Section 6.01 of this Act or payments under Section 6.04 of this Act; and
(3) unless otherwise provided by the partnership agreement, to partners first
for the return of their capital and second with respect to their partnership
interests, in the proportions provided by Section 5.04 of this Act.” [emphasis
added].
The statute does not allow a dissolved limited partnership to acquire new
property, to incur a new multimillion dollar debt, or to take on long term seller
financing of property acquired after dissolution as a part of winding up. Once
dissolved, the only lawful acts that Sherwood Pines, Ltd. could take were to dispose
of its assets and liabilities. However Sherwood Pines, Ltd., attempted to do all these
23
things, since its purchase of the Sherwood Pines Apartments in 2001, as well as the
sale and seller financing in 2006 all occurred years after its 1999 dissolution.
It is well settled that a contract to do a thing which cannot be performed
without a violation of the law is void, whether the parties knew the law or not.
Texas Employers’ Ins. Assn. v. Taylor, 283 S.W. 779, 780 (Tex. Com. App. 1926,
judgmt. adopted); Lewis v. Davis, 145 Tex. 468; 199 S.W.2d 146, 148-149 (1947).
It is also well settled that a contract that is illegal is void as a matter of public
policy. Phillips v. Phillips, 820 S.W.2d 785, 789 (Tex. 1991). Thus, once dissolved, any
contract entered into by Sherwood Pines, Ltd. which resulted in Sherwood Pines, Ltd.
acquiring new debt or new assets would be unlawful and, since such acts cannot be
a part of “winding up”.
Two years after its dissolution, Sherwood Pines, Ltd. exceeded the statutory
boundaries placed upon a dissolved limited partnership for winding up its business
affairs, when it purchased the Sherwood Pines Apartments property in 2001 (CR
173). Likewise, Sherwood Pines, Ltd., exceeded its boundaries when the property
was sold to Appellants in 2006, and Sherwood Pines, Ltd. attempted to exchange the
real property for a Wraparound Note payable over five years, ending June 1, 2011,
more than eleven years after dissolution (CR 66).
24
For the same reason, the subsequent indorsement of the void Wraparound
Note to Lee Wallis, Inc. was void, as was Lee Wallis, Inc.’s subsequent indorsement
of the void Wraparound Note to SHERWOOD. All of the contractual documents
upon which SHERWOOD’s suit is based are void.
Once dissolved, any act taken by Sherwood Pines, Ltd. outside of the scope of
winding up was effectively the act of a nonexistent legal entity. A nonexistent entity
cannot enter into a contract. Westerngeco, L.L.L. v. Input/Output, Inc., 246 S.W.3d
776, 786 (Tex. App.-Houston [14th Dist.] 2008, no pet.).
Mutual assent is an essential element of a binding contract. Baylor Univ. v.
Sonnichesen, 221 S.W.3d 632, 635 (Tex. 2007). To establish mutual assent requires
a “meeting of the minds” on the essential terms of the contract. David J. Sacks, P.C.
v. Haden, 266 S.W.3d 447, 450 (Tex. 2008). If one of the parties to a contract does
not legally exist, no contract can be formed, as there is no meeting of the minds. In
Re Hawthorne Townhomes, L.P. v. Branch, 282 S.W.3d 131, 138 (Tex. App.-Dallas
2009, orig. proceeding). The Hawthorne Townhomes case also involved a defunct
limited partnership. See also HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190
S.W.3d 108, 113 (Tex. App.-Houston [1st Dist.] 2005, no pet.), stating that if a limited
partnership did not exist at the time the parties entered in a consulting agreement,
25
then the nonexistent limited partnership entity “was not, and could not have been
a party to the consulting agreement.”
SHERWOOD incorrectly argued at the trial court level that any post dissolution
contract entered into by a dissolved limited partnership is always enforceable, even
if it exceeds the statutory limits of “winding up”. SHERWOOD relies on the portion
of RLPA § 13.06 that states that “The forfeiture of the right to transact business in
this state does not impair the validity of a contract or act of the limited partnership.
. .” SHERWOOD’s reliance on § 13.06 is misplaced, because while forfeiture does not
impair the validity of an existing contract, it also does not create validity for a new
contract entered into after the forfeiture. Nothing in the statute makes an otherwise
unlawful, invalid contract lawful.
Regardless, RLPA § 13.06 is not applicable to the actions of Shewood Pines,
Ltd., since it only applies to limited partnerships who have only had their right to do
business forfeited, as opposed to being a limited partnership which was also
dissolved.
RLPA § 13.06 states as follows:
“(a) A domestic or foreign limited partnership that fails to file a report
required under Section 13.05 of this Act when due forfeits its right to
transact business in this state.
26
(b) A forfeiture under this section takes effect without judicial
ascertainment. The secretary of state shall enter on the record kept in
the secretary's office relating to the limited partnership a notation that
the right to transact business has been forfeited together with the date
of forfeiture. . . .
(c) Unless the right of the limited partnership to transact business is
revived in accordance with Section 13.07 of this Act [Section 13.07 sets
forth how a limited partnership can be reinstated if it forfeited its right
to transact business for noncompliance with Section 13.06 of this Act],
the limited partnership may not maintain an action, suit, or proceeding
in a court of this state, and a successor or assignee of the limited
partnership may not maintain an action, suit, or proceeding in a court
of this state on a right, claim, or demand arising out of the transaction
of business by the limited partnership in this state. The forfeiture of the
right to transact business in this state does not impair the validity of a
contract or act of the limited partnership and does not prevent the
limited partnership from defending an action, suit, or proceeding in a
court of this state.
(d) This section does not affect the liability of a limited partner in the limited
partnership.” .
RPLA § 13.06 [emphasis added]
RPLA § 13.06 states clearly that it is only applicable to limited partnerships
whose right to do business has been forfeited. The word “dissolved” is not contained
anywhere in the statute.
Texas law requires courts to interpret a statute by following the plain reading
of the words used in the statute, and to take statutes as the courts find them. St.
Luke's Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997), citing RepublicBank
27
Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex. 1985). If the meaning of the
statutory language is unambiguous, as it is here, then courts must adopt the
interpretation supported by the plain meaning of the provision's words. St. Luke's
Episcopal Hosp. at 505.
Sherwood Pines, Ltd. was dissolved November 4, 1999, and forfeited its right
to do business on October 5, 2005, both of which occurred long before the
Wraparound Note on November 16, 2006. Accordingly, the Wraparound Note was
a void, unlawful and unenforceable contract because Sherwood Pines, Ltd.’s act of
entering into it was not a lawful act of “winding up” its business affairs.
Finally, SHERWOOD argued at the trial court that even though Sherwood
Pines, Ltd. was dissolved, it continued in existence until the certificate of cancellation
was filed on February 6, 2006. Assuming that Sherwood Pines, Ltd. continued to
exist until the certificate of cancellation was filed, it could do so only for the limited
purpose of winding up its affairs. Any act outside of the statutory criteria for winding
up is unlawful and void. RLPA §§ 8.04, 8.05. However, even this argument would
not extend Sherwood Pines, Ltd.’s existence long enough to validate the Wraparound
Note, since the certificate of cancellation is more than eight months prior to the
Wraparound Note.
28
Standing is an essential element of subject matter jurisdiction. El T. Mexican
Restaurants, Inc. v. Bacon, 921 S.W.2d 247 Tex. App.-Houston [1st Dist.] 1995, writ
denied). SHERWOOD is required to show that it has standing in order to pursue a
claim to enforce the Wraparound Note. SHERWOOD does not have standing to
enforce a void note, which SHERWOOD obtained by way of two subsequent void
indorsements of that note.
SHERWOOD Does Not Have Standing as a Holder, Because All Attempted
Indorsements Were Incomplete.
SHERWOOD’s pleadings have consistently contended that the Wraparound
Note is a negotiable instrument. Assertions of fact in the live pleadings of a party are
formal judicial admissions. Houston First Am. Sav. v. Musick, 650 S.W.2d 764, 767
(Tex. 1983). The facts alleged or admitted in the live pleadings of a party are binding
on the pleader. Houston First Am. Sav. at 769. A judicially admitted fact is
established as a matter of law, and the admitting party may not dispute it or
introduce evidence contrary to it. Peck v. Peck, 172 S.W.3d 26, 31 (Tex.App.-Dallas
2005, pet. denied); Dutton v. Dutton, 18 S.W.3d 849, 853 (Tex. App.-Eastland 2000,
pet. denied).
Having judicially admitted the Wraparound Note is a negotiable instrument,
SHERWOOD had the burden to prove it was the lawful holder of the Wraparound
29
Note. SHERWOOD’s burden included proving Sherwood Pines, Ltd. properly indorsed
the Wraparound Note to Lee Wallis, Inc., and that thereafter Lee Wallis, Inc. properly
indorsed the Wraparound Note to SHERWOOD.
In order to properly indorse the Wraparound Note, the indorsements both had
to be legally effective. However, neither indorsement was legally effective, as in
both instances the instrument purportedly indorsed was incomplete because Exhibit
A to the Wraparound Note is apparently missing. Where there is an attempted
transfer of less than the entire instrument, the transferee obtains no rights to
enforce the instrument. The transferee cannot be a holder of the instrument,
because it is not in possession of the complete document. Tex. Bus. & Com. Code
§ 3.203(d).
The second full paragraph of page two of the Wraparound Note states as
follows:
“The payment hereof is secured by a vendor’s lien retained in Deed of even
date herewith to the undersigned, and is additionally secured by a Deed of
Trust to Hank Schwaeble, Trustee, said Deed and Deed of Trust covering and
conveying the property described in attached Exhibit “A”. [emphasis added].
However, Exhibit A was not attached either to the Wraparound Note or the
subsequent attempted assignments. (Wraparound Note, CR 66, purported
indorsement from Sherwood Pines, Ltd. to Lee Wallis, Inc., CR 74, purported
30
Assignment from Lee Wallis, Inc. to SHERWOOD, Exhibit B, Affidavit of James Hale
SHERWOOD’s Motion for Summary Judgment, CR 57).
SHERWOOD’s summary judgment evidence reflects that the attempted
indorsement of the Wraparound Note from Sherwood Pines, Ltd. to Lee Wallis, Inc.
was missing at least one page, meaning what Lee Wallis, Inc. received was an
incomplete negotiable instrument. Likewise, the Wraparound Note purportedly
indorsed from Lee Wallis, Inc. to SHERWOOD was also missing Exhibit A.
SHERWOOD’s summary judgment evidence established only that the parties
attempted to indorse incomplete negotiable instruments.
An attempted indorsement of an incomplete negotiable instrument is
ineffective, void and of no force or effect.
“If a transferor [of a negotiable instrument] purports to transfer less than the
entire instrument, negotiation of the instrument does not occur.” [emphasis
added]. Tex. Bus. & Com. Code § 3.203(d).
SHERWOOD has judicially admitted the Wraparound Note was a negotiable
instrument. No attempted indorsement of a negotiable instrument lawfully takes
place unless the entire instrument is transferred. To meets its burden of establishing
that it was entitled to summary judgment, SHERWOOD had to offer viable summary
judgment evidence proving the entire negotiable instrument (the Wraparound Note)
31
was lawfully indorsed first from Sherwood Pines, Ltd. to Lee Wallis, Inc., and then
lawfully indorsed from Lee Wallis, Inc. to SHERWOOD. Therefore, unless the entire
Wraparound Note was indorsed both times, then there was no negotiation of the
Wraparound Note and the transferees obtained no rights to enforce the instrument.
SHERWOOD asserted at the trial court level that even if Exhibit “A” was
missing from the copies of the Wraparound Note and its subsequent indorsements,
the trial court’s ruling denying Appellants’ objections to SHERWOOD’S summary
judgment evidence constituted “harmless error.”
To the contrary, the missing Exhibit A has the legal impact of rendering the
alleged indorsements of the Wraparound Note invalid. If the indorsements are
invalid, then SHERWOOD is not a lawful holder of the Wraparound Note, and thus
lacks standing to sue to enforce it.
SHERWOOD failed to meet its burden that it is the owner and/or holder of the
Wraparound Note and that it has standing to bring this lawsuit when it failed to
proffer into evidence a copy of both indorsements of a complete negotiable
instrument. At best, a material fact issues exist as to whether either indorsement of
the Wraparound Note were legally effective. Either way, the trial court erred in
granting summary judgment for SHERWOOD.
32
SHERWOOD Does Not Have Standing as a Holder in Due Course Because It Was
Aware of the Prior Default
Under Texas law, for an assignee of a negotiable instrument to qualify as a
holder in due course, the assignee/holder must prove that “the holder took the
instrument for value, in good faith, without notice that the instrument is overdue or
has been dishonored. . .” Tex. Bus. & Com. Code § 3.302. However, at the time the
Wraparound Note was endorsed to SHERWOOD, SHERWOOD had actual and/or
constructive notice that the Wraparound Note was overdue, in default or had been
dishonored.
The Wraparound Note required Appellants to assume the First Lien Note no
later than April 20, 2007, or pay a two percent penalty. (Wraparound Note, Exhibit
C-1, SHERWOOD’s Motion for Summary Judgment, CR 67). However, the First Lien
Note was not assumed, and the two percent penalty payment was not made by any
of the makers. (Affidavits of Appellants, Exhibits L through W, Response to Motion
for Summary Judgment, CR 232-256, and Supp. CR 3-4) Therefore, the Wraparound
Note was already in default in 2007.
Herbert B. Richardson was a general partner of Sherwood Pines, Ltd. As a
general partner, Richardson would have been aware of the default on the
Wraparound Note when Sherwood Pines, Ltd. endorsed the Wraparound Note on
33
March 10, 2008, to Lee Wallis, Inc. (Affidavit of Herbert B. Richardson, Exhibit C to
SHERWOOD’s Motion for Summary Judgment, CR 62, and Secretary of State’s
Records, Exhibit G, Response to Motion for Summary Judgment, CR 218). Herbert
B. Richardson was also a “Governing Person” of SHERWOOD at the time that entity
was formed in 2014. (Secretary of State records, Exhibit H, Response to Motion for
Summary Judgment, CR 226).
Through Herbert B. Richardson, SHERWOOD had actual and/or constructive
knowledge that the Wraparound Note was in default at the time it received the
purported assignment and indorsement of the Wraparound Note.
SHERWOOD is also prevented from being a holder in due course, because only
a part of the Payee’s rights under the Wraparound Note were transferred. Although
not indicated in the indorsement, the right to receive the two percent penalty
payment was retained by Sherwood Pines, Ltd. when it indorsed the note to Lee
Wallis, Inc. (Indorsement by Sherwood Pines, Ltd. to Lee Wallis, Inc., Exhibit C-1,
SHERWOOD’s Motion for Summary Judgment, CR 74, and Assignment by Sherwood
Pines, Ltd. to , Lee Wallis, Inc. Exhibit I, Response to Motion for Summary Judgment,
CR 229). A partial assignee of a note is not a holder in due course. First National
34
Acceptance Company v. Dixon, 154 S.W.3d 218, (Tex. App. Beaumont-2004, pet.
denied.)
SHERWOOD received the Wraparound Note with actual and/or constructive
notice that the Note was in default. Therefore, SHERWOOD is not a holder in due
course, and accepted Wraparound Note subject to any claims or defenses that
Appellants may assert.
SHERWOOD has no standing as an owner, holder or holder in due course of the
Wraparound Note, and therefore no legal basis on which to enforce the Note against
Appellants.
Issue 4: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment and denying Appellants’ Motion for Summary Judgment
based on the two year statute of limitations pursuant to Tex. Prop. Code
§ 51.003.
Appellants filed a Supplemental Response to the Motion for Summary
Judgment, and Cross Motion for Summary Judgment, based on the two year statute
of limitations under Tex. Prop. Code § 51.003 (CR 318). That statute provides:
“If the price at which real property is sold at a foreclosure sale under
Section 51.002 [non-judicial foreclosure] is less than the unpaid balance
of the indebtedness secured by the real property, resulting in a
deficiency, any action brought to recover the deficiency must be
brought within two years of the foreclosure sale and is governed by this
Section.”
35
SHERWOOD’s deficiency claim was filed more than four years after foreclosure
of the property which secured the Wraparound Note, and is therefore barred by the
statute of limitations.
When Sherwood Pines, Ltd., bought Sherwood Pines Apartments, the purchase
was financed by a First Lien Note dated June 27, 2001 between Sherwood Pines, Ltd.
as borrower, and Morgan Guaranty Trust Company of New York as lender (CR 173,
180).
In 2006, Sherwood Pines, Ltd. sold the real property securing the First Lien
Note to Appellants. (SHERWOOD’s Motion for Summary Judgment, page 2, CR 33;
SHERWOOD’s Original Petition, pages 8-9, CR 12-13; and Commercial Contract -
Improved Property, Exhibit A, Appellants’ Response to Motion for Summary
Judgment, CR 155). To finance the sale, Sherwood Pines, Ltd., entered into a
Wraparound Promissory Note (Wraparound Note), with Appellants as makers and
Sherwood Pines, Ltd as payee. (SHERWOOD’s Motion for Summary Judgment, CR 66,
Appellants’ Response to Motion for Summary Judgment Exhibit A, CR 169).
36
The “Indebtedness” of the Wraparound Note
The Wraparound Note SHERWOOD seeks to enforce contains language
specifically tying it and the First Lien Note together. The second paragraph of the
Wraparound Note stated in pertinent part as follows:
“The First Lien Principal Amount shall be coextensive to, and include,
the entire amount of principal, interest, taxes, reserves, fees and
charges comprised by and owing on that certain Fixed Rate Note
executed on June 27, 2001 (between Sherwood Pines, Ltd., as maker,
and Morgan Guaranty Trust Company of New York..., and secured by
that certain deed of trust dated June 27, 2001...” (CR 66).
The Wraparound Note further states on page 3, the sixth paragraph, in
pertinent part:
“This is a wrap-around note. Included in the principal amount of this
note is the unpaid balance left due and owing on the Wrapped Note...”
(CR 68).
The second paragraph on page 3 of the Wraparound Note provides that the
entire indebtedness of the Wraparound Note was secured by its Deed of Trust, as
follows:
“The payment hereof is secured by a vendor’s lien retained in Deed of
even date herewith to the undersigned, and is additionally secured by
a Deed of Trust to Hank Schwaeble, Trustee, said Deed and Deed of
Trust covering and conveying the property described in attached Exhibit
A.”
(SHERWOOD’s Motion for Summary Judgment, Exhibit C-1, CR 68).
37
The real property described in the Deed of Trust securing the Wraparound
Note is the exact same real property which also secured the First Lien Note (“Original
Fixed Rate Note” or “Wrapped Note”).
The “Indebtedness” secured by the Wraparound Note’s Deed of Trust:
The Deed of Trust securing the Wraparound Note further defined the
“Indebtedness” being secured as follows:
“Indebtedness. The indebtedness secured by this Deed of Trust (the
“Indebtedness”) includes all other indebtedness and obligations of
Borrower [Appellants] to Beneficiary [Sherwood Pines, Ltd.], whether
presently existing or in any manner or means hereafter incurred...”
(Appellants’ Response to Motion for Summary Judgment, Deed of
Trust, Exhibit C Page 9, CR 197, 205).
Page 2 of the Deed of Trust stated securing the Wraparound Note states:
“This conveyance, however, is made in Trust to secure payment of one
(1) promissory note of even date herewith in the principal sum of Three
Million Four-Hundred Thousand and NO/100 dollars ($3,420,000.00)
executed by Grantors [Appellants], payable to the order of Sherwood
Pines, Ltd...”
As more particularly described below, this conveyance is intended to
secure wraparound financing for an existing debt on the Property, and
said debt is sometimes referred to as the “Underlying Debt.”
(Deed of Trust, page 2, Exhibit B, Appellants’ Response Motion for Summary
Judgment, CR 198).
38
The plain reading of the documentation shows that the principal balance of the
Wraparound Note included the principal balance that Sherwood Pines, Ltd. owed on
the First Lien Note. Both notes were secured by the exact same real property, by two
separate Deeds of Trust. (Deed of Trust securing First Lien Note, Exhibit B,
Appellants’ Response to Motion for Summary Judgment, CR 173, and Deed of Trust
securing Wraparound Note, Exhibit D, Appellants’ Response to Motion for Summary
Judgment, CR 197).
The holder of the First Lien Note foreclosed upon the real property securing
both notes on April 6, 2010 (Substitute Trustee’s Deed, Exhibit F, Response to Motion
for Summary Judgment, CR 209). The foreclosure sale price was apparently sufficient
to wipe out the remaining debt owed on the First Lien Note. Since a portion of the
Wraparound Note included the amount owed under the First Lien Note, that portion
of the indebtedness of the Wraparound Note was effectively paid by applying the
foreclosure sale price to the balance due. SHERWOOD’s claim against Appellants is
for a deficiency balance which remained unpaid following the foreclosure of the
property securing both the First Lien Note and the Wraparound Note.
The very definition of “deficiency” is the amount remaining on a debt after
applying the proceeds realized at a foreclosure sale. Moayedi v. Interstate
39
35/Chisam Road, L.P., 438 S.W.3d 1 (Tex. 2014). Since the foreclosure sales price
was “less than the unpaid balance of the indebtedness secured by the real property,
resulting in a deficiency,” then as a matter of law, SHERWOOD’s cause of action is
a deficiency claim and therefore governed by Tex. Prop. Code § 51.003. That statute
requires a deficiency claim to be brought within two years of the April 6, 2010
foreclosure. SHERWOOD’s claim, however, was brought more than four years after
the foreclosure, on June 5, 2014 (CR 5).
In an effort to circumvent the missed statute of limitations, SHERWOOD has
referred to its deficiency action as a suit on a negotiable instrument. However, artful
pleading does not alter the underlying nature of a claim. Omaha Healthcare Ctr. v.
Johnson, 334 S.W.3d 392, 394 (Tex. 2011). It is worth noting that SHERWOOD’s
argument would make the statute meaningless, since virtually every deficiency claim
will be based on a negotiable instrument evidencing the debt which was secured by
the real property. SHERWOOD can call its deficiency action any name it wishes, but
by statutory definition, it is a deficiency suit and is subject to the two year statute of
limitations.
SHERWOOD further contends this is not a deficiency suit because neither
SHERWOOD nor the prior holders of the Wraparound Note performed the
40
foreclosure. However, this argument attempts to add new element(s) to § 51.003(a)
that the statute does not contain. The statute applies to anyaction to collect an
unpaid balance remaining after foreclosure upon the real property securing the
indebtedness. The statute does not require that the foreclosure be performed by the
same creditor seeking to recover the unpaid balance of the indebtedness, or that the
deficiency result from foreclosure of the same deed of trust.
For SHERWOOD’s suit to constitute a deficiency action, the only requirement
is that the price at which the real property is sold at a foreclosure sale be less than
the unpaid balance of the indebtedness secured by the real property. This is exactly
the basis of SHERWOOD’s claim.
Rules of Statutory Construction
The rules of statutory interpretation as set forth by the Texas Supreme Court
require a statute to be read in accordance with the plain language used in the
statute. Additional language or elements may not be added, and courts must take
statutes as they find them. St. Luke's Episcopal Hosp. at 505 (Tex.1997), citing
RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex.1985). If the
meaning of the statutory language is unambiguous, then courts must adopt the
41
interpretation supported by the plain meaning of the provision's words. St. Luke's
Episcopal Hosp., at 505.
Under the plain reading of § 51.003(a), it is not necessary that the holder of
the Wraparound Note have conducted the foreclosure, nor that the foreclosure have
been conducted by virtue of the same Deed of Trust securing the Wraparound Note.
Neither one of those two additional elements are contained in the statute.
In construing a statute, the court's objective is to determine and give effect to
legislative intent. A court must look at the statute’s plain and common meaning, and
not look to extraneous matters for an intent that the statute does not state.
Nat'l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000) and Monsanto Co.
v. Cornerstones Mun. Util. Dist., 865 S.W.2d 937, 939 (Tex. 1993); Moreno v. Sterling
Drug, Inc., 787 S.W.2d 348, 352 (Tex. 1990), stating that in interpreting a statute, the
Legislature's intent is determined from the plain and common meaning of the words
used in the statute.
Using all of the foregoing criteria for statutory construction as outlined by the
Texas Supreme Court, Tex. Prop. Code § 51.003(a) should be interpreted by this
Court exactly as it is worded. As statutorily defined, SHERWOOD has filed a
deficiency action.
42
There is no case law on point for the question of whether the two year statute
of limitations applies in this case. The two closest cases factually are Sowell v.
International Interests, LP, 416 S.W.3d 593, (Tex. App.-Houston [14th Dist] 2013, pet.
denied), and Mays v. Bank One, N.A., 150 S.W.3d 897 (Tex. App.-Dallas 2004, no
pet.), but both are readily distinguishable.
The facts in Sowell were very different, since the lender was suing a guarantor,
under a guaranty agreement, in a suit brought within two years of the foreclosure.
The Sowell court examined a conflict in the application of the two and four year
limitations statutes, and held that the suit was governed by the four year statute of
limitations, but that limitations would be extended until two years after the date of
the foreclosure sale. Sowell at 599. The lender in Sowell filed suit within two years
of the foreclosure, and so the suit was timely. This case is not a suit on a guaranty
agreement, but a suit against the makers of the Note, suit was filed well outside the
two year statute.
The Mays case has a similar fact pattern to this case, since it was a suit by a
second lien holder against the maker of a note. However, the issue in Mays was not
whether the 2 year statute of limitations applied (Tex. Prop. Code § 51.003), but how
to calculate the deficiency on the second lien note (Tex. Prop. Code § 51.005). The
43
Mays court found that although the foreclosure of the first lien extinguished the
second lien (creating a deficiency), Mays could not use the foreclosure bid price of
the first lienholder (Bank of America) to determine the deficiency on Bank One’s
second lien. The Mays court was considering an entirely different statute, on a
different question than the issue raised in this case.
The Two Statutory Two Year Limitations Period Expired Prior to SHERWOOD’s Suit
The foreclosure took place on April 6, 2010. (Appellants Response to Motion
for Summary Judgment, Exhibit D, Substitute Trustee’s deed, CR 209). This deficiency
action was filed on June 5, 2014, more than four years after the foreclosure.
(SHERWOOD’s Original Petition, CR 5). Therefore, SHERWOOD’s claim is time barred.
The trial court erred in granting SHERWOOD’s Motion for Summary Judgment, and
in denying Appellant’s Cross Motion for Summary Judgment.
Issue 5: The trial court erred in granting SHERWOOD’s Motion for Summary
Judgment based on fact issues of fraud, fraudulent inducement and
fraud in a real estate transaction.
At the time Appellants entered into the contract to purchase the Sherwood
Pines Apartments from Sherwood Pines, Ltd., the parties agreed that the
Wraparound Note would be a nonrecourse note, with no personal or corporate
liability to in the event of a default. (Exhibit A, Commercial Contract - Improved
44
Property, Response to Motion for Summary Judgment , CR 155; Commercial Contract
Financing Addendum, Exhibit K, Response to Motion for Summary Judgment, CR
169-172; Letter from the broker handling the transaction, Exhibit K, Response to
Motion for Summary Judgment CR 231, and Appellants’ affidavits Exhibits L through
W, CR 232-256 and Supp CR 3-4, Response to Motion for Summary Judgment).
The original sales contract that gave rise to the Wraparound Note specifically
provided that “The note will not provide for liability (personal or corporate) against
the maker in the event of default.” (Exhibit A, Commercial Contract - Improved
Property, Seller Financing Addendum, page two, paragraph C, CR 155). The broker
who sold the property confirms that the intention of the parties was that the
Wraparound Note was to have been a nonrecourse note (Letter from the broker
handling the transaction, Exhibit K, Response to Motion for Summary Judgment CR
231). But for the fraudulent misrepresentation by Sherwood Pines, Ltd. regarding
the nature of the Wraparound Note, Appellants would not have signed the
Wraparound Note. SHERWOOD’s Summary Judgment Motion should have been
denied based upon the fact issues arising from the defenses based in fraud.
The “merger clause” in the Wraparound Note does not preclude Appellants
from introducing summary judgment evidence that the contract was supposed to
45
contain different terms than those which appear in the subject terms. Italian
Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323, 328-337 (Tex. 2011).
In its holding in Italian Cowboy, the Texas Supreme Court distinguished its
earlier holdings in Schlumberger Technology Corp. v. Swanson, 959 S.W.2d 171 (Tex.
1997) and Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008), in which the court
had enforced a merger clause and precluded evidence of fraud. In allowing the
admissibility of extrinsic evidence of fraud and terms which differed from those in
the final contract, the Italian Cowboy Court distinguished the contract before it from
those in the Schlumberger and Forest Oil decisions. The Court held that since the
contract at issue did not contain express language disclaiming reliance, extrinsic
evidence of fraud was admissible. The Court reiterated its holdings in previous
decisions that to disclaim reliance in a merger clause, the parties must use clear and
unequivocal language. Italian Cowboy at 336, citing the Court’s earlier holdings in
Schlumberger at 179-180 and Forest Oil at 62.
Without a clearly expressed and unequivocal intent to disclaim reliance or
waive claims for fraudulent inducement, a merger clause has never had the effect of
precluding claims for fraudulent inducement. Italian Cowboy at 334. The language
of the Wraparound Note before this Court also fails to disclaim reliance. In fact, the
46
merger clause at issue contains language similar to the merger clause in the Italian
Cowboy decision.
The pertinent language in the Wraparound Note in this case states:
“THIS NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PAYEE
AND THE MAKER AND EXCEPT AS OTHERWISE EXPRESSLY INDICATED
ABOVE MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT AGREEMENTS OF THE PARTIES
AND MAKER AGREES THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN PAYEE AND MAKER.” (Wraparound Note, SHERWOOD’s
Motion for Summary Judgment, Exhibit C-1, Page 4, CR 69).
The pertinent language in Italian Cowboy case was:
“14.21 Entire Agreement. This lease constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof,
and no subsequent amendment or agreement shall be binding upon
either party unless it is signed by each party...” Italian Cowboy at 328.
The language of the two clauses is effectively the same, and neither clause
contains language specifically waiving “reliance” or specifically “waiving a claim for
fraudulent inducement”. Therefore, the merger clause in the Wraparound Note does
not preclude evidence of fraud and/or fraudulent inducement.
Summary judgment was improper because Appellants’ summary judgment
evidence raised a material fact issue that the Wraparound Note was to have been a
nonrecourse note.
47
PRAYER
Appellants DANIEL MANDARINO, CARRIE MANDARINO, LAURA DOYLE, ROBERT
CHURCH, BRETT BEALS and LINDA BEALS as Trustees of the Beals Family Revocable
Trust, ROBERT CHURCH, ROBERT A. SCHALBE, WILLIAM H. GAY, JR., RICCARDIO D.
GAY, ERIC JOHNSTONE, RAFAL ZIELINSKI and VALLY MESTRONI pray that the court
reverse the judgment of the trial court, and render judgment in favor of Appellants.
Respectfully Submitted,
WALTER LAW FIRM, P.C.
/s/ Teri A. Walter
TERI A. WALTER
Texas Bar No. 20815100
GLEN NORDT
Texas Bar No. 15076600
1111 North Loop West Suite 1115
Houston, TX 77008
Phone 713 529-2020
Fax 713 529-2266
Email: twalter@prevaillawyers.com
Email: gnordt@prevaillawyers.com
ATTORNEY FOR APPELLANTS
DANIEL MANDARINO, CARRIE MANDARINO,
LAURA DOYLE, ROBERT CHURCH, BRETT
BEALS and LINDA BEALS as Trustees fo the
Beals Family Revocable Trust, ROBERT
CHURCH, ROBERT A. SCHALBE, WILLIAM H.
GAY, JR., RICCARDIO D. GAY, ERIC JOHNSTONE,
RAFAL ZIELINSKI and VALLY MESTRONI
48
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing has been mailed to all parties of
record in this matter in accordance with the Texas Rules of Civil Procedure, by
certified mail, return receipt requested, by hand delivery or by fax, on this the 6th
day of August , 2015.
/s/ Teri A. Walter
Teri A. Walter
Douglas A. Daniels
Andrea L. Gentle
Daniels & Gentle, LLP
6363 Woodway Suite 980
Houston, TX 77057
49
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Appendix 2.1
Appendix 2.2
Appendix 2.3
Appendix 2.4
Appendix 2.5
Appendix 2.6
Appendix 2.7
Appendix 2.8
Appendix 2.9
APPENDIX 3 - Statutory Text
Tex. Prop. Code § 51.003(a) Deficiency Judgment
If the price at which real property is sold at a foreclosure under Section
51.002 is less than the unpaid balance of the indebtedness secured by
the real property, resulting in a deficiency, any action brought to
recover the deficiency must be brought within two years of the
foreclosure sale and is governed by this section.
Texas Revised Limited Partnership Act, Tex. Rev. Civ. Stat. art. 6132a-1 (RPLA)
Article 8. Dissolution
Tex. Rev. Civ. Stat. art. 6132a-1, Revised Limited Partnership Act
Dissolution
Sec. 8.01. A limited partnership is dissolved and its affairs shall be wound up only on
the first of the following to occur:
(1) the occurrence of events specified in the partnership agreement to cause
dissolution unless within 90 days after the event causing the dissolution, all
remaining partners (or another group or percentage of partners as specified
by the partnership agreement) agree in writing to continue the business of the
limited partnership;
(2) written consent of all partners to dissolution;
(3) an event of withdrawal of a general partner, unless:
(A) there remains at least one general partner and the partnership
agreement permits the business of the limited partnership to be carried
on by the remaining general partner or general partners, and that
general partner or those general partners do so; or
(B) within 90 days after the event of withdrawal, all remaining partners
(or another group orpercentage of partners as specified by the
Appendix 3.1
partnership agreement) agree in writing to continue the business of the
limited partnership and, to the extent that they desire or if there are no
remaining general partners, agree to the appointment, effective as of
the date of withdrawal, of one or more new general partners; or
(4) entry of a decree of judicial dissolution under Section 8.02 of this Act.
Sec. 8.04.
(a) Except as provided in the partnership agreement, on the dissolution of a limited
partnership, the partnership's affairs shall be wound up as soon as reasonably
practicable, and the winding up shall be accomplished by the general partners who
have not wrongfully dissolved a limited partnership or, if there are none who have
not wrongfully dissolved the partnership, by the limited partners or a person chosen
by the limited partners. In addition, a court of competent jurisdiction, on cause
shown, may wind up the limited partnership's affairs on application of any partner
or the partner's legal representative or assignee and, in connection with the winding
up, may appoint a person to carry out the liquidation and may make all other orders,
directions, and inquiries that the circumstances require.
(b) On the dissolution of a limited partnership and until the filing of a certificate of
cancellation as provided by Section 2.03 of this Act, unless a written partnership
agreement provides otherwise, the persons winding up the limited partnership's
affairs may, in the name of and for and on behalf of the limited partnership:
(1) prosecute and defend civil, criminal, or administrative suits;
(2) settle and close the limited partnership's business;
(3) dispose of and convey the limited partnership's property for cash, unless
a written partnership agreement permits a transfer on noncash terms;
(4) discharge or make reasonable provision to pay the limited partnership's
liabilities; and
(5) distribute to the partners any remaining assets of the limited partnership.
Appendix 3.2
(c) The acts described in Subsection (b) of this section do not create liability of limited
partners that did not exist before the actions to wind up the affairs of the
partnership were taken.
Disposition of assets
Sec. 8.05. On the winding up of a limited partnership, its assets shall be paid or
transferred as follows:
(1) to the extent otherwise permitted by law, to creditors, including partners
who are creditors other than solely as a result of the application of Section
6.06 of this Act, in satisfaction of liabilities of the limited partnership, whether
by payment or the making of reasonable provision for payment thereof;
(2) unless otherwise provided by the partnership agreement, to partners and
former partners in satisfaction of the partnership's liability for distributions
under Section 6.01 of this Act or payments under Section 6.04 of this Act; and
(3) unless otherwise provided by the partnership agreement, to partners first
for the return of their capital and second with respect to their partnership
interests, in the proportions provided by Section 5.04 of this Act.
Forfeiture of right to transact business for failure to file periodic report
Sec. 13.06.
(a) A domestic or foreign limited partnership that fails to file a report required under
Section 13.05 of this Act when due forfeits its right to transact business in this state.
(b) A forfeiture under this section takes effect without judicial ascertainment. The
secretary of state shall enter on the record kept in the secretary's office relating to
the limited partnership a notation that the right to transact business has been
forfeited together with the date of forfeiture. Notice of the forfeiture shall be mailed
to the limited partnership at:
(1) the registered office of the limited partnership;
Appendix 3.3
(2) the last known address of the limited partnership; or
(3) any other place of business of the limited partnership.
(c) Unless the right of the limited partnership to transact business is revived in
accordance with Section 13.07 of this Act, the limited partnership may not maintain
an action, suit, or proceeding in a court of this state, and a successor or assignee of
the limited partnership may not maintain an action, suit, or proceeding in a court of
this state on a right, claim, or demand arising out of the transaction of business by
the limited partnership in this state. The forfeiture of the right to transact business
in this state does not impair the validity of a contract or act of the limited partnership
and does not prevent the limited partnership from defending an action, suit, or
proceeding in a court of this state.
(d) This section does not affect the liability of a limited partner in the limited
partnership.
Appendix 3.4
Appendix 4
APPENDIX 5 - Index of Persons and Companies
Beals, Bret as Trustee of the Beals Family Revocable Trust, one
of the makers of the Wraparound Note, and
Appellant (CR 66, 73, 242).
Beals, Linda as Trustee of the Beals Family Revocable Trust, one
of the makers of the Wraparound Note, and
Appellant (CR 66, 73, 244).
Cal State Investment Limited Partnership One of the makers of the Wraparound
Note, and Buyer of the Sherwood Pines
Apartments (CR 66, 69, 155).
Church, Robert One of the makers of the Wraparound Note, and
Appellant (CR 66, 71, 239).
Compton, Jeffrey CPA who performed calculations as to the balance
due on the Wraparound Note for SHERWOOD (CR
76).
Doyle, Laura One of the makers of the Wraparound Note, and
Appellant (CR 66, 70, 236).
Gay, Riccardio D. One of the makers of the Wraparound Note, and
Appellant (CR 66, 71, 251).
Gay, William H., Jr. One of the makers of the Wraparound Note, and
Appellant (CR 66, 72, 249).
Gilmore, John E. One of the general partners of Sherwood Pines, Ltd.
(CR 48, 217-221).
Hale, James President of Lee Wallis, Inc. (CR 53).
Appendix 5.1
Johnston, Eric One of the makers of the Wraparound Note, and
Appellant. (CR 66, 69, CR Supp. 3).
Lee Wallis, Inc. Received rights to a portion of the Wraparound
Note from Sherwood Pines, Ltd. on March 10, 2008
(CR 53, 54, 74) and assigned the Wraparound Note
to SHERWOOD on May 19, 2014 (CR 57, 74).
Mandarino, Daniel One of the makers of the Wraparound Note, and
Appellant (CR 66, 69, 232).
Mandarino, Carrie One of the makers of the Wraparound Note, and
Appellant (CR 66, 69, 234).
Mestroni, Vally One of the makers of the Wraparound Note, and
Appellant (CR 66, 69, 253).
Morgan Guaranty Original Lender on the first lien note dated June 27,
2001, secured by Sherwood Pines Apartments,
(wrapped note) (CR 173).
Richardson, Herbert B. One of the general partners of Sherwood Pines, Ltd.
(CR 62, 217-221).
Schalbe, Robert A. One of the makers of the Wraparound Note, and
Appellant (CR 66, 69, 246).
SHERWOOD LANE INVESTMENTS, LLC Plaintiff in Trial Court (CR 5), and
Appellee; received the
Wraparound Note by
Assignment from Lee Wallis, Inc.
on May 19, 2014 (CR 57).
Appendix 5.2
Sherwood Pines, Ltd. Seller of Sherwood Pines Apartments (CR 155);
Original Lender on the Wraparound Note dated
October 16, 2006 (CR 66); Assignor of a portion of
the Wraparound Note to Lee Wallis, Inc. on March
10, 2008 (CR 54, 74).
Villa Nueva Apartment, LLC Lender who foreclosed on the first lien note secured
by Sherwood Pines Apartments, and purchaser at
the foreclosure sale on April 12, 2010 (CR 209).
Vollucci, Eugene E. Realtor who represented Cal State
Investments as Buyer of Sherwood Pines
Apartments (CR 155, 160, 230); confirmed
that the Wraparound Note was to have been
a non-recourse note (CR 231), and one of the
makers of the Wraparound Note (CR 66, 69).
Zielinski, Rafal One of the makers of the Wraparound Note, and
Appellant (CR 66, 69, 255).
Appendix 5.3
APPENDIX 6 - Time Line of Events
10/26/99 Certificate of Limited Partnership for Sherwood Pines, Ltd., with John
Gilmore as Registered Agent, and John Gilmore and Herbert Richardson
as general partners, (Exhibit G to Response to Motion for Summary
Judgment, CR 217-219).
11/04/99 John Gilmore’s withdrawal as General Partner of Sherwood Pines, Ltd.
(Exhibit G to Response to Motion for Summary Judgment, CR 220);
Dissolution of the limited Partnership.
06/27/01 Deed of Trust Sherwood Pines to Morgan Guaranty (Exhibit A to
Response to Motion for Summary Judgment, CR 173).
10/04/05 Termination of Sherwood Pines, Ltd’s right to do business in Texas
(Exhibit G to Response to Motion for Summary Judgment, CR 223).
02/06/06 Cancellation of Sherwood Pines, Ltd’s certificate of registration by Texas
Secretary of State for failure to file periodic report (Exhibit G to
Response to Motion for Summary Judgment, CR 224).
06/12/06 Commercial Contract for Sherwood Pines Apartments, at 4211
Sherwood Lane, Houston by Sherwood Pines Limited to Cal State
Investment Limited Partnership for $4,560,000 (assumption of existing
$2,875,000 note and Seller financing of $545,000) Per financing
addendum, Seller financing shall be interest only for 5 years at 5.5%
interest) and will not provide for personal liability (page 2, paragraph
C(5). (Exhibit C to Response to Motion for Summary Judgment, CR 155).
10/16/06 Wraparound Promissory Note by Cal State Investment et. al. to
Sherwood Pines, Ltd for $3,420,000 (Exhibit C-1 to Plaintiff’s Motion for
Summary Judgment, Wraparound Note, page 1, CR 66).
Appendix 6.1
11/02/06 Deed of Trust on Wraparound Note, Cal State Investment et. al. to
Sherwood Pines, Ltd. (Exhibit D to Response to Motion for Summary
Judgment, CR 197).
04/20/07 Deadline for 2% non-assumption payment on Wraparound Note,
(Exhibit C-1 to SHERWOOD’s Motion for Summary Judgment,
Wraparound Note, page 2, CR 67).
03/10/08 Endorsement of Wraparound Note by Sherwood Pines, Ltd to Lee
Wallis, Inc. (Exhibit C-1 to SHERWOOD’s Motion for Summary Judgment,
Wraparound Note, page 10, CR 74).
08/28/09 Letter from Gene Vollucci To Whom it may concern: “This letter is to
confirm that the purchase for Sherwood Pines Apartments included a
non-recourse loan. All the parties, including the seller, were fully aware
and in agreement that this loan was to be non-recourse, just like the
underlying original note is and remains non-recourse.” (Exhibit K to
Response to Motion for Summary Judgment, CR 231).
03/31/10 Assignment of Mortgage (securing First Lien Note) to Nueva Villa
Apartment, LLC (Exhibit E to Response to Motion for Summary
Judgment, CR 207).
04/06/10 Foreclosure of First Lien on Sherwood Pines Apartments by Nueva Villa
Apartments (CR 209).
04/12/10 Substitute Trustee’s Deed to Nueva Villa Apartment, LLC for $1,775.000
(Exhibit F to Response to Motion for Summary Judgment, CR 209).
04/06/12 Two years after foreclosure. (Expiration of 2 year statute of limitations,
§ 51.003 Tex. Prop. Code).
05/12/14 Certificate of formation Plaintiff/ Appellee SHERWOOD LANE
INVESTMENTS, LLC (Exhibit H to Response to Motion for Summary
Judgment, CR 225).
Appendix 6.2
05/19/14 Assignment of 2nd lien note to SHERWOOD LANE INVESTMENTS LLC
(Exhibit B-1 to SHERWOOD’s Motion for Summary Judgment, CR 57).
06/05/14 SHERWOOD LANE, LLC’s Original Petition filed (CR 5).
12/19/14 Final Judgment entered (CR 396).
02/25/15 Notice of Appeal filed (CR 427).
Appendix 6.3