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CAUSE NO, 2010-63264
CADENCE BANK IN THE DISTRICT COURT
fik/a ENCORE BANK
Plaintiff,
Vv. OF HARRIS COUNTY, TEXAS
ALLEN L. BERRY; JOSEPH D.
MCCORD; and ROBERT G. TAYLOR, II
Defendants. 152%? JUDICIAL DISTRICT
PLAINTIFF’S SUPPLEMENTAL BRIEF IN SUPPORT OF SUMMARY JUDGMENT
TO THE HONORABLE JUDGE OF SAID COURT:
At the Court’s request, Plaintiff Cadence Bank f/k/a Encore Bank (“Encore”) files this
Supplemental Brief to address issues raised at the summary judgment hearing on January 10,
2014. Because Defendants’ arguments regarding limitations and the 2010 Consent of Guarantors
fail to raise a fact issue, summary judgment should be granted in Encore’s favor.
1 ARGUMENT & AUTHORITIES
A. Encore’s Claims for Breach of the Guaranty are Timely
1 Limitations for breach of the Guaranty only ran from when Encore treated
the contract as terminated.
1 A cornerstone of contract law is that when one party breaches, the other party is
put to an election of continuing or ceasing performanee.' Any action indicating an intention to
continue will operate as a conclusive choice but does not deprive the injured party of its cause of
action for the breach which has already taken place; the choice deprives it only of any excuse for
' Compass Bank v. MFP Fin. Services, Inc., 152 8.W.3d 844, 858 (Tex. App.—Dallas 2005, pet. denied) (citing
cases),
ceasing its own performance.” As a result, the statute of limitations on a claim for breach of
contract begins to run only when the injured party elects to treat the contract as terminated.’
2 Here, Encore chose not to treat the contract as terminated until after March 15,
2012, when the Note matured and both BLyn and Defendants failed to pay, Until that time, all
parties performed as required by the loan documents. Even after June 2010, when BLyn failed to
discharge Crimson’s lien upon demand, Encore elected not to treat the contract as terminated
and, likewise, Defendants continued to treat the contract as subsisting and enforceable. For
instance, Defendants and/or BLyn continued to make interest-only payments monthly.
Defendants and/or BLyn also made all required principal reduction payments in 2010 and 2011,
totaling $900,000.
3 Even after Encore filed suit in September 2010, Encore’s election to treat the
contract as continuing is evidenced by its decision to accept regularly-scheduled, piecemeal
payments instead of pursuing collection of the entire outstanding balance. Thus, the statute of
limitations on Encore’s claim against Defendants could not have started to run until 2012, when
the Note matured and Defendants failed to fully re-pay the debt.
2, Promissory notes are treated as installment contracts for limitations
purposes.
4 For contracts requiring fixed, periodic payments, a separate cause of action arises
for each missed payment.’ The cause of action accrues when each payment is due, and the
* id.
* Pickett v. Keene, 47 S.W.3d 67, 77 (Tex. App.—Corpus Christi 2001, pet. dism'd); see also FD. Stella Prods. Co,
v. Scott, 875 $.W.2d 462, 464-65 (Tex. App.—Austin 1994, no writ); Howell v. Kelly, 534 S.W.2d 737, 739-40
(Tex .Civ. App.—Houston [1st Dist.] 1976, no writ).
* See, 2g, Intermedics, Ine. v. Grady, 683 S.W.2d 842, 845 (Tex. App.—Houston [st Dist,] 1984, writ refd n.r.e.);
Gabriel y, Alhabbal, 618 8,W.2d 894, 897 (Tex. Civ. App—-Houston [Ist Dist.] 1981, writ refd n.t.e.); Hughes v,
Stovall, 135 S.W.2d 603, 606 (Tex, Civ, App,.—Amarillo 1939, writ dism'd judgm't cor.).
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injured party has four years to bring suit.’ Thus, a suit for the breach of a contract requiring
payment in periodic installments may include all payments due within the four-year statute of
limitations period, even if the initial breach was beyond the limitations period.°
5 Periodic payments for promissory notes are considered installment contracts for
the purpose of determining accrual of a cause of action. Thus, the statute of limitations for
failure to make required payments on a promissory note runs against each payment due
regardless of any prior breaches,® So Encore timely asserted a claim for the final payment due at
maturity in March 2012 because it amended its petition to include that breach and served
Defendants by August 2012,
3 The 2009 and 2010 Note extensions renewed limitations.
6 Next, the extensions and modifications of the Note re-set the limitations period.
In 2009 and 2010, new, unconditional promises to pay the debt were made in connection with
certain written loan modifications. These Note Modification Agreements extended maturity on
the Note, changed the interest rate, and required principal reduction payments on certain dates.”
The modifications were signed by BLyn, acknowledge and confirm the existence, justness and
validity of the debt, and contain a new promise to pay the debt. Defendants, as guarantors,
expressly consented to the modifications,!° ‘These modifications of the Note statutorily renewed
* Gabriel, 618 S.W 2d at 897.
§ See, e.g., Hollander v. Capon, 853 S.W.2d 723, 726-27 (Tex. App.—Houston [1st Dist.] 1993, writ denied).
” Hughes, 135 8, W.2d 603; see also FD. Stella Products Co, y, Scott, 875 S.W.2d 462, 464-65 (Tex, App—Austin
1994, no writ); see also Goldfield v. Kassoff, 470 §.W.2d 216 (Tex. Civ. App.—Houston (14th Dist.) 1971, no writ)
(when recovery is sought on a note, limitations runs against each installment from the time it becomes due).
* See, e.g., Goldfield, 470 $.W.2d at 217.
Rx, AS.
Ex A-6.
limitations.! Hence, limitations could not begin to run on these renewed promises until March
15, 2010, at the earliest.
7 Further, when parties agree to extend payment of a note, a new contract arises,
and extending the note sets limitations running anew.! By ensuring that the statute of
limitations is extended when a note is extended, debtors are prevented from exploiting the
extension of payments to time-bar a claim against the outstanding principal. That is exactly the
injustice Defendants seek to perpetrate here.
8 Defendants claim they breached their agreement with Encore in 2008 by
permitting a superior lien to be placed on the collateral, But Defendants kept Encore’s money
and continued making payments on the debt. The Note was originally set to mature on April 15,
2009. On that date, the parties executed a modification and extended the maturity to March 15,
2010. During the next year, BLyn and/or Defendants continued making principal reduction and
interest-only payments. On March 15, 2010, the parties again modified the Note and extended
the maturity to March 15, 2012. Yet again, Defendants and/or BLyn made principal reduction.
and interest-only payments for the next two years.
9 But now, after receiving three years’ worth of extensions, Defendants
unabashedly argue they do not have to re-pay the outstanding balance on the Note because
Encore’s claims are time-barred. Tellingly, Defendants admit Encore’s claims against them
would be timely if it had served them in 2010 or 2011 rather than granting an extension of the
Note. As the Court astutely noted, Defendants should not be permitted to receive years of
Tex. Civ, Prac. & Rem, Code § 16.065.
”° McElwee v. Estate of Joham, 15 8.W.3d 557, $59 (Tex. App.—Waco 2000, no pet.); Hoarel Sign Co. v. Dominion
Equity Corp., 2002 WL 15898, *3 (Tex. App.---Dallas Jan. 8, 2002, pet. denied) (not designated for publication).
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extensions on the Note, continue to pay down the debt, and then decide to arbitrarily stop paying
and assert limitations. That result is neither equitable nor consistent with Texas law,
4, Eyen using Defendants’ analysis, the earliest Encore’s claims could have
accrued is June 2010.
10. At the hearing, Defendants claimed the accrual date for Encore’s claims was
March 28, 2008, the date BLyn defaulted on its contract with Crimson. As the Court correctly
noted, however, Encore sustained no damage based on BLyn’s default with Crimson. Indeed,
Encore could not have sustained damages under the loan documents until at least June 2010,
when BLyn failed to discharge Crimson’s lien upon demand, The Mortgage Agreement
expressly contemplates that other liens may attach to the collateral. Thus, the mere assertion of a
lien by a third party—or even attachment of a third-party lien—is not necessarily a breach of the
Mortgage Agreement. That is because the Mortgage Agreement provides a remedy: if another
lien attaches, then BLyn has to “promptly discharge any and all liens whatsoever upon the
12713
VESSE! Only after BLyn failed to discharge a valid, enforceable lien could Encore
conceivably be damaged.
iM. Here, Crimson asserted no claim against Encore vis-a-vis lien priority until June
5, 2009, when it amended its complaint to join Encore in the Alabama suit. Encore was not
served with the complaint until June 11, 2009. By then, the arrest of the Betty Lyn IT had been
vacated by the Alabama Federal Court on February 26, 2009 because it held the Betty Lyn I was
not a “vessel” and therefore no maritime lien attached. So at the time Encore was served, the
Alabama Federal Court had already held that Crimson had no maritime lien. Thus, it was not
until May 25, 2010, when that decision was reversed, that Encore could demand a discharge of
Crimson’s lien and incur any damages.
S Bx. A-l0, Art, 17.
12. So even using Defendants’ convoluted analysis, Encore’s claim could not have
accrued until June 2010—which means limitations could not conceivably bar Encore’s claims
until June 2014.
B. The 2010 Consent of Guarantors Does Not Grant Claims
13. Defendants spent considerable time at the hearing—though very little in their
Response—arguing that the 2010 Consent of Guarantors somehow substantially impacts their
position. It doesn’t.
14, The 2010 Consent provides, in part:
[Encore] acknowledges and agrees that: @ [Defendants] have not released,
modified, or waived, any claim or cause of action that could possibly exist against
[Encore], and (ii) [Defendants] have retained and reserve any claim that they may
have had in the past, present, or future against [Encore]; and (iii) all statutes of
limitations related to any cause of action which [Defendants] may have with
respect to the Note, Guaranty Agreement, or any agreements or liens related
thereto, are hereby tolled."
15, Simply, if Defendants had any claim or cause of action against Encore on March
15, 2010, it was not waived. But the consent does not gran/ a claim or cause of action. It does
not enlarge Defendants’ claims or causes of action beyond what might exist on the date of
execution. Nor does the consent preserve potential defenses to the Note or otherwise invalidate
any portion of the Guaranty, Indeed, by executing the Consent, Defendants expressly consented
to the terms of the Note Modification Agreement, which explicitly ratified the debt, agreed to
pay the outstanding debt, and “renewed, extended, and ratified” the instruments securing the
Note, including the Guaranty," The broad, general “preservation” language in the 2010 Consent
“Ex. A-6,
Bx. AsS.
does not control over the specific language of the Guaranty,’
16, Besides, even if their counterclaims are not barred by the express waivers in the
Guaranty, Defendants’ claims still fail as a matter of well-established Texas law!”
I. PRAYER
17. Encore respectfully requests the Court grant its Motions for Summary Judgment
and for any other relief to which it may show itself entitled.
Respectfully submitted,
DOBROWSKI, LARKIN & JOHNSON L.L.P.
By: /s/ Cody W. Stafford
Paul J. Dobrowski
SBN 05927100
pid@doblaw.com
Cody W, Stafford
SBN 24068238
stafford@doblaw.com
4601 Washington Avenue, Suite 300
Houston, Texas 77007
Telephone: (713) 659-2900
Facsimile: (713) 659-2908
ATTORNEYS FOR PLAINTIFF CADENCE
BANK ff/k/a ENCORE BANK.
'S See, e.g., Grynberg v. Grey Wolf Drilling Co., L.P., 296 8.W.3d 132, 137 (Tex. App.—Houston [14th Dist.] 2009,
no pet.) (specific contractual provisions control over more general ones),
'" See, Encore’s First Amended Traditional Motion for Summary Judgment and No Evidence Motion for Summary
Judgment, filed on August 16, 2013; and Second Traditional Motion for Summary Judgment and No Evidence
Motion for Summary Judgment, filed on October 4, 2013,
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing has been served on all
counsel of record on this 17" day of January, 2014, by ECF filing and regular mail.
Jett Williams, IIT
Henke Law Firm, LLP
3200 Southwest Freeway, 34" Floor
Houston, Texas 77027
Robert G. Taylor, III
Law Office of Robert G. Taylor, IIT
4119 Montrose, Suite 400
Houston, Texas 77006
James E. “Jeb” Brown, IL
3100 Edloe Street, Suite 220
Houston, Texas 77027
Jerry S, Payne
616 Voss Road
Hunters Creek Village, Texas 77024
{s/ Cody W. Stafford
Cody W. Stafford