Thursday, May 24, 2012

Contract Law governs Rule 11 Settlement Agreements


The rule the Rule Eleven Agreement takes its name from: Tex. R. Civ. P. 11

General Metal Fabricating Corporation v Stergiou (Tex.App.- Houston [1st Dist.] May 24, 2012)
Contract law governs agreements made in open court pursuant to rule 11. Ronin v. Lerner, 7 S.W.3d 883, 886 (Tex. App.—Houston [1st Dist.] 1999, no pet.). A contract is legally binding only if its terms are sufficiently definite to enable a court to understand the parties’ obligations. See Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 846 (Tex. 2000).“ Each contract should be considered separately to determine its material terms.” T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992). Although the contract’s material terms must be agreed upon before a court may enforce the contract, a binding settlement contract may exist even if the parties contemplate that a more formal document memorializing their agreement will be executed at a later date. See City of Fort Worth, 22 S.W.3d at 846; Foreca, S.A. v. GRD Dev. Co., 758 S.W.2d 744, 745-46 (Tex. 1988); see also McLendon v. McLendon, 847 S.W.2d 601, 606-07 (Tex. App.—Dallas 1992, writ denied) (“[T]he attempts by the parties to reduce the rule 11 stipulations to writing do not affect the nature and effect of the stipulations dictated at the [hearing in open court.]”).When an agreement leaves material matters open for future adjustment and agreement on the additional matters never occurs, however, the agreement is not binding upon the parties. City of Fort Worth, 22 S.W.3d at846.
Whether the rule11 agreement is an enforceable settlement agreement—or whether it fails forlack of an essential term—is a question of law. See Ronin, 7 S.W.3d at 888; see also Martin v. Martin, 326 S.W.3d 741, 746 (Tex. App.—Texarkana 2010, pet. denied) (“The question of whether an agreement is an unenforceable agreement to agree is a question of law, not a question for the jury.”).The parties’ intent to be bound, however, generally is a question of fact. See Herring v. Herron Lakes Estates Owners Ass’n, Inc., No. 14-09-00772-CV, 2011 WL 2739517, at *3 (Tex. App.—Houston [14th Dist.] Jan. 4, 2011, no pet.) (mem. op.) (citing Foreca, 758 S.W.2d at 746).We may determine the issue as a matter of law only if an unambiguous writing shows that the parties intended to be bound by the agreement. Herring, 2011 WL 2739517 at *3 (citing Padilla v. LaFrance, 907 S.W.2d 454, 461-62 (Tex. 1995)).

SOURCE: HOUSTON COURT OF APPEALS - 01-11-00460-CV – 5/25/12 
CASE STYLE: GeneralMetal Fabricating Corporation, GMF Leasing, Inc., and Arnold Curry vs.  John Stergiou and Main Marine RepairIndustrial Cleaning Company 

We begin by noting that nothing in the rule 11 agreement indicates the parties did not intend to be bound. Like most settlement agreements, the rule 11 agreement included essential terms for the payment of money in exchange for the performance of some act: Stergiou would return his shares of the GMF Companies’ stock, Curry would pay $300,000, and together the parties would dismiss the lawsuit with prejudice. See Padilla, 907 S.W.2d at 460-61 (noting that material terms of rule 11 settlement agreement include payment and release of claims); see also CherCo Props., Inc. v. Law, Snakard & Gambill, P.C., 985 S.W.2d 262, 266 (Tex. App.—Fort Worth 1999, no pet.) (holding settlement agreement that included terms of payment and statement that parties would execute mutual releases contained all material terms).The rule 11 agreement further detailed when the stock would be returned (“upon payment of the $20,000 down payment . . . and the execution of all documents necessary to provide the security described therein”), how and when the money would be paid (in the form of a “promissory note” with “$20,000 of principal . . . paid on or before May 3, 2006” and monthly installments of $4,000 thereafter), the interest that would accrue (“6.5% per annum”), and the nature of the collateral (“all furniture, fixtures, equipment, receivables (from the ordinary course of business), inventory, and real property owned by the GMF Companies known [as] (the White Buildings and the empty lot) (excluding the four lots the ‘Blue Building’ resides upon and the ‘Blue Building’”)).See T.O. Stanley Boot Co., 847 S.W.2d at 221 (noting that material terms of contract to loan money are amount to be loaned, maturity date of loan, interest rate, and repayment terms).
We acknowledge that the rule 11 agreement required the parties to execute a promissory note, a deed of trust, a security agreement, and a financing statement, and that, as an affidavit included in Stergiou’s summary judgment evidence suggests, the “forms” for those documents include certain standard provisions for things like collateral descriptions; defaults; inspection rights; insurance, maintenance, and repair of collateral; and prepayment of the debt. However, to the extent these particular provisions are missing from the rule 11 agreement, the two cases on which Stergiou primarily relies do not persuade us that those provisions were essential to an enforceable settlement of this case.[4]See Martin, 326 S.W.3d at 741; see also DKH Homes, LP v. Kilgo, No. 03-10-00656-CV, 2011 WL 1811435, at *3-4 (Tex. App.—Austin May 11, 2011, no pet.) (mem. op.).

In Martin, two brothers had a dispute over the management of their closely-held corporation.326 S.W.3d at 743.In an effort to settle their dispute over “corporate control,” the brothers reached a “settlement agreement” that, among other things, required them to negotiate a shareholder agreement. Id. at 743-44.They never agreed as to the terms of the shareholder agreement. The court of appeals concluded that their settlement was not an enforceable agreement because the to-be-negotiated shareholder agreement “would be the foundational document of [the company] and would define the [brothers’] rights vis-à-vis each other and [the company].”Id. at 754.Here, the additional documents do not have the same “foundational” importance to the underlying dispute. The essence of Stergiou and Curry’s rule 11 agreement is the promise to pay $300,000in exchange for the return of the GMF Companies’ stock and the dismissal of the lawsuit. Although the rule 11 agreement requires Curry to make installment payments for a number of years, it does not require Stergiou and Curry to have a relationship akin to the parties in Martin, who continued to be involved in the operation of the same closely-held corporation.
In Kilgo, a homebuilder alleged that the Kilgos failed to comply with a contractual obligation to build a new home.2011 WL 1811435, at *1.The court of appeals determined that the parties’ agreement did not include terms essential to a contract for the construction of a new home. Id. at *3.The agreement did not include any information defining the undertaking, such as the size of the house contemplated, the price of the house on a per-square-foot or other basis, or the time for completing construction. Id. Here, unlike in Kilgo, the terms that Stergiou asserts are essential—i.e., those terms describing the parties’ obligations to insure, maintain, and repair the collateral, the notice and cure periods for default, and the right of prepayment—do not define the undertaking in the rule 11 agreement to pay for the return of Stergiou’s stock in the GMF Companies.
Instead, this case is more analogous to Montanaro v. Montanaro, 946 S.W.2d 428 (Tex. App.—Corpus Christi 1997, no writ). Montanaro was a suit for an accounting, dissolution of a family-owned partnership, fraud, and breach of fiduciary duties. The parties agreed on the general terms of their settlement, including payment obligations and the release of claims. Id. at 429.The payment obligations were to be secured by a to-be-drafted promissory note, but despite having exchanged drafts, the parties could not agree on the promissory note’s terms. Id. at 431.The court of appeals concluded that the record nevertheless established the essential terms of a settlement agreement because, like Stergiou and the GMF Companies, the parties agreed as to the exact amount of the payments and the period over which they were to be made. Id. “Additional terms regarding overdue, or post-maturity, interest and acceleration upon default were not necessary to enable the parties to comply with the terms of the note, or the underlying settlement agreement.”Id. Likewise here, we conclude that the particular terms of the additional documents were not material and therefore did not destroy the rule 11 agreement’s effectiveness, and we hold that the rule 11 agreement is not an unenforceable “agreement to agree.”
To hold otherwise would undermine well-established policy favoring the peaceable resolution of disputes by agreement and would encourage continued litigation of disputes that have already been decided by agreement. See Kennedy v. Hyde, 682 S.W.2d 525, 529 (Tex. 1984) (noting that “[i]n a day of burgeoning litigation and crowded dockets, the amicable settlement of lawsuits is greatly to be desired”). Moreover, the parties behaved as though their settlement was binding. The transcript of the trial court’s proceedings reflects that the parties were entering into a settlement agreement. Stergiou’s counsel dictated the terms of the agreement into the record. Each party, on the record, appeared in open court and expressed under oath that they had reached an agreement, had reviewed and understood its terms, had authority to enter into that agreement, and wished the trial court to approve it. The trial court did so. At no time did either Stergiou or Curry state on the record that the rule 11 agreement was only a preliminary agreement. See Ronin, 7 S.W.3d at 888 (considering lack of statement on record that rule 11 agreement was only preliminary a factor in enforcing the agreement).
The timing and circumstances under which the rule 11 agreement was executed also indicate the parties’ intent to be bound. The specific terms of the settlement were contingent on the jury’s verdict. If the rule 11 agreement was only preliminary, and not intended to be final until the details of the additional documents were agreed upon, the party that prevailed before the jury would prefer the “win” over the compromised settlement and would have little incentive to agree to those details. Stergiou did not present any summary judgment evidence establishing that his intent was otherwise. And, after the trial court approved the rule 11 agreement, the parties exchanged drafts of the additional documents contemplated by the rule 11 agreement, and they twice extended the agreed deadline for dismissing the lawsuit in order to continue negotiating the terms of the additional documents.
On this record, we overrule Stergiou’s first sub-issue.
B.      Definiteness of Terms
Stergiou’s next complaint—that the rule 11 agreement cannot be enforced as written—is closely related to the issue already decided. Stergiou contends that the rule 11 agreement cannot be enforced until the additional documents are actually executed, which is not possible because there has not been any agreement as to the terms of those additional documents and a reviewing court cannot supply the terms not agreed upon. That is, a court cannot force Stergiou or Curry to accept one or the other’s version of the additional documents.
In support of his contention, Stergiou argues this case is analogous to Nash v. Conatser, 410 S.W.2d 512 (Tex. App.—Dallas 1966, no writ).There, the court observed that specific performance of a contract cannot be ordered when the contract is unenforceable for lack of material terms. Id. at 519-21.We have already disapproved of Stergiou’s assertion that the rule 11 agreement lacked material terms by overruling Stergiou’s first issue, so Nash is not controlling here.
Because the rule 11 agreement set out the amounts to be paid for the return of the GMF Companies’ stock and the dismissal of the lawsuit, how those amounts were to be paid and when, and the interest rate, the parties’ obligations are sufficiently defined.We hold that the terms of the rule 11 agreement are not so indefinite so as to preclude its enforcement, and we overrule Stergiou’s second sub-issue.
C.      Statute of Frauds
Part of the dispute on appeal concerns the description of the security for Curry’s promise to pay Stergiou $300,000 for the return of his stock. The rule 11 agreement provides that the promissory note “will be secured by a first lien Deed of Trust and Security Agreement covering all furniture, fixtures, equipment, receivables (from the ordinary course of business), inventory, and real property owned by the GMF Companies known [as] (the White Buildings and the empty lot) (excluding the four lots the ‘Blue Building’ resides upon and the ‘Blue Building’) of General Metal Fabrication, Inc. and GMF Leasing, Inc.”

Stergiou argues that we should reverse the trial court’s summary judgment and render judgment that the rule 11 agreement is not enforceable because it does not sufficiently describe the real property offered as security. This argument rests on the premise that the rule 11 agreement is a contract for the sale of real estate and thus subject to the statute of frauds. See Tex. Bus. & Comm. Code Ann. § 26.01(b)(4) (West 2009) (statute of frauds).Without deciding whether that premise is sound, we conclude that the rule 11 agreement, together with the writings referenced by it, describes the property in a manner sufficient to satisfy the statute of frauds.
The statute of frauds does not require that a complete description of the land to be conveyed appear in a single document. See Padilla, 907 S.W.2d at 460 (holding that series of letters between parties satisfied statute of frauds).A property description is sufficient if the writing furnishes within itself, or by reference to some other existing writing, the means or data by which the particular land to be conveyed may be identified with reasonable certainty. See AIC Mgmt. v. Crews, 246 S.W.3d 640, 645 (Tex. 2008).The description of the land may be obtained from documents that are prepared in the course of the transaction, even if those documents are prepared after the parties’ contract for sale. See Porter v. Reaves, 728 S.W.2d 948, 949 (Tex. App.—Fort Worth 1987, no writ) (description of land as “1/2 of 20-acre tract” satisfied statute of frauds because location of tract was not disputed, the parties referenced a drawing of the tract in their contract, and seller was required to furnish “current survey” of land after contract was executed); see also Adams v. Abbott, 254 S.W.2d 78, 80 (Tex. 1952) (description furnished by exchange of correspondence between the parties)
The GMF Companies’ summary judgment evidence included Curry’s affidavit testimony that they owned three tracts of land, which were commonly referred to as the “Blue Building,” the “White Buildings,” and the “empty lot.”Stergiou’s attorney drafted the rule 11 agreement using those same terms. Although the rule 11 agreement describes the property to be secured by the deed of trust only as the “White Buildings” and “empty lot,” but not “the four lots the ‘Blue Building’ resides upon and the ‘Blue Building,’” the various deeds of trust and the security agreements circulated as drafts between the parties contain sufficient legal descriptions of those properties. The “White Buildings” are described as:
Lots Five (5), Six (6), Fifteen (15) and Sixteen (16), in Block Fifty-Four (54), of KING’S COURT, an addition in Harris County, Texas, according to the map of the plat thereof recorded in Volume 7, Page 65 of the Map Records of Harris County, Texas.
The “empty lot” is described as:
Lots 7, 8, 9 and 10, in Block 54 of KING’S COURT, an addition in Harris County, Texas, according to the map or plat thereof recorded in Volume 7, Page 65 of the Map of Records of Harris County, Texas.
These same legal descriptions appear in the drafts prepared by Stergiou and in the drafts prepared by the GMF Companies. Thus, there was no dispute between the parties regarding the identification of the real estate.
For this reason, we hold that the statute of frauds does not bar enforcement of the rule 11 agreement, and we overrule Stergiou’s third sub-issue.
Interpretation of the Rule 11 Agreement  
Having determined that the rule 11 agreement is enforceable, we now consider whether, as argued by the GMF Companies in their appeal, the agreement authorized Curry to pay the entire amount owed under the agreement at one time In four issues, the GMF Companies contend (1) the rule 11 agreement included a right of prepayment, (2) Curry’s tender of the full $300,000 constituted substantial performance of the rule 11 agreement, (3) by refusing that tender, Stergiou waived his right to interest under the rule 11 agreement, and (4) Stergiou’s failure to mitigate his damages by accepting the tender relieves Curry of any continuing burden to make interest payments. For reasons discussed below, only the GMF Companies’ first issue is properly within the scope of this agreed interlocutory appeal.
SOURCE: HOUSTON COURT OF APPEALS - 01-11-00460-CV – 5/25/12   
CASE STYLE: General Metal Fabricating Corporation, GMF Leasing, Inc., and Arnold Curry vs.  John Stergiou and Main Marine Repair Industrial Cleaning Company   

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