Preview
FILED
11/15/2021 12:11 PM
FELICIA PITRE
DISTRICT CLERK
DALLAS CO., TEXAS
Jeremy Jones DEPUTY
CAUSE NO. DC-21-14811
LISA KELLAGHER IN THE DISTRICT COURT OF
Plaintiff,
v. DALLAS COUNTY, TEXAS
PETROROCK MINERAL
HOLDINGS, LLC
101st JUDICIAL DISTRICT
Defendant.
PETROROCK MINERAL HOLDINGS, LLC’S MOTION
TO VACATE OR, IN THE ALTERNATIVE, MODIFY ARBITRATION AWARD
Defendant PetroRock Mineral Holdings, LLC (“PetroRock”) files the Motion to Vacate
Arbitration Award (the “Motion”) pursuant to Texas Civil Practice & Remedies Code §
171.088(a)(3)(A) as follows:
INTRODUCTION
Plaintiff Lisa Kellagher (“Kellagher”) brought claims before the American Arbitration
Association (“AAA”) in relation to a loan between IRA Services Trust Company CFBO: Lisa G.
Kellagher IRA607174 (“IRA Services Trust”), as Lender, and Choice Energy Holdings-1, LLC
(“Choice”), as Borrower. PetroRock’s involvement arose from its execution of the Unconditional
Guaranty (the “Guaranty”) in favor of IRA Services Trust. The Arbitrator received evidence
showing that PetroRock was not a party to (and did not sign) the Business Loan Agreement (the
“Loan Agreement”) or the Business Promissory Note (the “Note”). The Arbitrator also received
evidence that the one document PetroRock did sign—the Guaranty—was not made in Kellagher’s
favor. As a result, the evidence in the arbitration failed to establish that Kellagher had any right to
recover under the Loan Agreement and the Note. The evidence also failed to establish the existence
and ownership of a guaranty made in Kellagher’s favor. Despite clear, long-standing Texas law
stating otherwise, the Arbitrator determined that Kellagher was “the Lender for the Note and owner
of the Guaranty with PetroRock as Guarantor.” By manifestly misapplying Texas law to the
evidence that was available, the Arbitrator grossly exceeded his powers. Then the Arbitrator
continued to exceed his powers by double counting Kellagher’s arbitration expenses. PetroRock
files the Motion to vacate the manifest injustice that has resulted from the Arbitrator’s complete
disregard of Texas law or, at a minimum, correct the miscalculation of Kellagher’s award.
FACTUAL AND PROCEDURAL BACKGROUND
Choice and IRA Services Trust entered into the Note and the Loan Agreement on April 2,
2018. Ex.1 at 1, Business Promissory Note; Ex. 2 at 1, Business Loan Agreement. IRA Services
Trust loaned Choice $235,000 at an interest rate of 7.5% annum, and the maturity date was set for
9 months after the term start date. Ex. 1 at 1; Ex. 2 at 2. PetroRock, through its President Stefan
Toth, executed the Guaranty in favor of IRA Services Trust, not Kellagher. Ex. 3 at 3,
Unconditional Guaranty.
Kellagher filed Claimant’s Statement of Claims before the AAA alleging that Choice
breached the Note and the Loan Agreement by failing to pay the principal amount of $235,000 on
the maturity date. Ex. 4 at 3, Claimant’s Statement of Claims. As for PetroRock, she alleged that
it breached the Guaranty. /d. at 4. On August 12, 2021, Kellagher dismissed her claim against
Choice. Ex. 5, Kellagher Dismissal of Choice.
Kellagher and PetroRock agreed to submit briefs with exhibits for a decision based on the
evidence and arguments presented in those documents. Ex. 6 at 2, Award of Arbitrator. On
September 2, 2021, the Arbitrator closed evidence and set the matter for a ruling, which was
delivered on September 10, 2021. /d. at 1-6. The Arbitrator specifically found that Kellagher was
the “Lender” for the Note and the owner of the Guaranty, and PetroRock had failed and refused to
perform its promises to pay in a timely manner the principal and interest on the Note. /d. at 5. The
Arbitrator issued an award in favor of Kellagher for $235,000.00 in unpaid principal, $29,668.75
in interest, $11,593.28 in reasonable expenses, and $21,400.00 in reasonable attorneys’ fees. /d. at
5-6. The Arbitrator also awarded Kellagher an additional $6,936.67 for her payments toward AAA
administrative fees and the Arbitrator’s compensation. /d. at 6. The Arbitrator awarded Kellagher
a total of $304,598.70. Id.
ARGUMENT AND AUTHORITIES
I The Court should vacate the arbitration award.
A motion to vacate an arbitration award must be filed within 90 days after the party receives
a copy of the award. TEX. CIV. PRAC. & REM. CODE § 171.088(b). In this case, PetroRock received
a copy of the award on September 10, 2021, and PetroRock filed the Motion on November 12,
2021. Therefore, the Motion was timely filed.
The arbitration award should be vacated because the award resulted from the Arbitrator’s
manifest misapplication of Texas law. Based on the evidence and applicable law available to the
Arbitrator, there was no legal basis for the Arbitrator to conclude that Kellagher could recover
against PetroRock on the Guaranty.
“A guaranty is an undertaking by one person to be answerable for the payment of some
debt or the performance of some contract or duty by another person, who himself remains liable. ”
Altus Brands II, LLC v. Alexander, 435 S.W.3d 432, 442 (Tex. App.—Dallas 2014, no pet.)
(internal quotations omitted). To recover under a guaranty agreement, a claimant must prove:
(1) the existence and ownership of the guaranty contract;
(2) the terms of the underlying contract by the holder;
(3) the occurrence of the conditions on which liability is based; and
(4) the guarantor’s failure or refusal to perform the promise.
Rainier Income Fund I, Ltd. v. Gans, 501 S.W.3d 617, 622 (Tex. App.—Dallas 2016, pet. denied);
accord Abel v. Alexander Oil Co., 474 S.W.3d 795, 800 (Tex. App.—Houston [14th Dist.] 2014,
no pet.); Corona v. Pilgrim’s Pride Corp., 245 S.W.3d 75, 80 (Tex. App.—Texarkana 2008, pet.
denied). Kellagher failed to establish the first and fourth elements.
A Kellagher has not established the existence and ownership of a guaranty made in
her favor.
1 The Guaranty is not made in favor of Kellagher.
The first element of a breach-of-guaranty claim is “the existence and ownership of the
guaranty contract.” Corona, 245 S.W.3d at 80. Here, the Guaranty is not made in Kellagher’s
favor. Instead, the Guaranty is in favor of IRA Services Trust:
UNCONDITIONAL GUARANTY
‘ ‘
This UNCONDITIONAL GUARANTY (“Guaranty”) is made by PETROROCK MINERAL
HOLDINGS, LLC, a Texas limited liability company (“Guarantor”), in favor of [RA Services Trust
Company CFBO: Lisa G. Kellagher IRA607174 (“Lender”), and is effective as of the date of the below
described Business Loan Agreement.
Ex.
3 at 1.
The Guaranty cannot be construed to be in favor of anyone other than IRA Services Trust
because courts and arbitration tribunals cannot extend a guarantor’s obligations through
construction of the agreement. See Coker v. Coker, 650 S.W.2d 391, 394 n.1 (Tex. 1983) (“A
guarantor is entitled to have his agreement strictly construed so that it is limited to his
undertakings, and it will not be extended by construction or implication.”) (emphasis added). Also,
courts and arbitration tribunals must construe a guaranty most favorably to the guarantor. /d.
(“Where uncertainty exists as to the meaning of a contract of guaranty, its terms should be given
a construction which is most favorable to the guarantor.”). Therefore, the Arbitrator was required
to construe the Guaranty strictly and most favorably to PetroRock.
As far back as 1848, the Texas Supreme Court ruled that a guaranty can only be enforced
by the individual or entity specifically named on the face of the agreement:
Upon consideration, we are all of opinion that we must look to the address upon the
face of the letter, and not to the direction upon the back of it, to ascertain the party
to whom its application and promise were intended, by the writer, to have been
made; that, bearing upon its face a direction and address full and complete, and free
from ambiguity, we must take that as the certain criterion to determine its
application, without regard to the discrepancy in the superscription.
Smith v. Montgomery, 3 Tex. 199, 205 (1848); accord Grant v. Naylor, 8 U.S. (8 Cranch) 224,
235-36, 2 L. Ed. 603 (1808) (Marshall, C.J.).
While Kellagher may argue that she is identified as the “Lender” under the Loan
Agreement, that is irrelevant because the focus of the analysis is on the Guaranty alone because
the right to recover under the Guaranty resides in that document alone. The Guaranty was not
made in favor of Kellagher, irrespective of what her title or capacity is on the Loan Agreement.
Moreover, the Arbitrator expressed doubt about Kellagher’s ability to enforce the Note
against Choice given that the Note was made out in favor of IRA Services Trust, and that same
issue precludes her ability to recover under the Guaranty. Kellagher brought the arbitration claim
on her own behalf, not that of IRA Services Trust and even in the instant proceeding, the plaintiff
is Kellagher, not IRA Services Trust. Because the Guaranty was not made in Kellagher’s favor,
she cannot enforce the Guaranty against PetroRock.
2 Kellagher has not established that she “owns” the Guaranty.
Kellagher did not submit any evidence to the Arbitrator that she “owns” the Guaranty. Her
Affidavit did not provide any express testimony claiming to own the Guaranty. Moreover, IRA
Services Trust could not have assigned it to her.
Paragraph 5 of the Guaranty includes an anti-assignment clause that prohibits IRA Services
Trust or PetroRock from assigning the Guaranty without the other party’s consent: “[N]o party
may assign this Agreement without the consent of the other party.” Ex. 3 4/5, at 2. The Fort Worth
Court of Appeals observed that “[n]on-assignment clauses have been consistently enforced by
Texas courts...and by the Fifth Circuit applying Texas law.” Texas Farmers Ins. Co. v. Gerdes ex
rel. Griffin Chiropractic Clinic, 880 S.W.2d 215, 218 (Tex. App.—Fort Worth 1994, writ denied)
(citations omitted). When an anti-assignment clause imposes conditions for assignment, the
claimant must show that those conditions have been met or the assignment is “a nullity.” Jetall
Cos. v. Four Seasons Food Distribs., Inc., 474 S.W.3d 780, 784 (Tex. App.—Houston [14th Dist.]
2014, no pet.); see Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 481 (Tex.
2019); Reef'v. Mills Novelty Co., 89 S.W.2d 210, 211 (Tex. 1936).
The Arbitrator did not receive any evidence showing that IRA Services Trust assigned the
Guaranty to Kellagher. Nor was there any evidence that PetroRock consented to such an
assignment. In fact, there is nothing in the record to show that PetroRock received any request
from IRA Services Trust or Kellegher to consent to an assignment or that PetroRock consented to
such an assignment. Therefore, Kellagher failed to establish that she is the owner of the Guaranty,
and she cannot recover against PetroRock on her claim for breach of the Guaranty.
B Kellagher failed to establish that she has any right to recover under the Loan
Agreement and the Note.
Not only did Kellagher fail to show evidence that the Guaranty was signed in her favor,
she also failed to show that she can recover on the underlying Loan Agreement or the Note.
1 Kellagher lacks capacity to enforce the Loan Agreement.
First, Kellagher could not legally establish that she was entitled to recover for breach of
the Loan Agreement. Moreover, she failed to show that she had the capacity to enforce the Loan
Agreement.
“A plaintiff lacks capacity when, as pertinent here, [s]he ‘is not entitled to recover in the
capacity in which [s]he sues.” Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 775 (Tex. 2020)
(quoting TEX. R. Civ. P. 93(2)). In other words, “capacity is a party’s legal authority to sue
regardless of whether the party has a personal stake in the lawsuit.” Cty. of El Paso v. Navar, 584
S.W.3d 73, 77 (Tex. App.—El Paso 2018, no pet.). PetroRock highlighted to the Arbitrator that
under the Loan Agreement, Kellagher lacked the capacity to sue on the Loan Agreement and the
Note.
In section 4.2 of the Loan Agreement, Kellagher agreed that a nonparty named Resolute
Energy Capital, LLC (“REC”) would serve as her authorized representative in the event of any
default. Under section 4.3, Kellagher agreed to empower REC to pursue PetroRock and Choice
for any claims under the Loan Agreement, the Note, or the Guaranty. Specifically, section 4.3
stated that the “Representative shall have the power and authority, on behalf of each Lender Party,
to pursue such remedies against the Borrower and PetroRock (as guarantor under the
Unconditional Guaranty) as may be available by law and pursuant to each Lender Party loan
agreement, unconditional guaranty and Lender Party Note[.]” Ex. 2 § 4.3, at 8.
Also, Kellagher agreed in section 4.5 that she could not bring claims for payment on the
Note on her own behalf: “No Lender Party may bring any claim against the Borrower to enforce
the payment obligation evidenced by a Lender Party Note. All such claims may be brought only
by the Representative, acting on behalf of and in the name of each Lender Party.” Ex. 2 § 4.5, at
8. Thus, under the express terms of the Loan Agreement, Kellagher did not have the legal authority
to enforce any payment obligation under the Loan Agreement or the Note. Therefore, she lacked
capacity. See Pike, 610 S.W.3d at 775; Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848
49 (Tex. 2005); Etheridge v. Optiz, 580 S.W.3d 167, 174 (Tex. App.—Tyler 2019, pet. dism’d);
Navar, 584 S.W.3d at 77 (all explaining that a party has capacity when she has the legal authority
to act). Kellagher admitted as much when she dismissed her claim against Choice. Ex. 5.
2. Kellagher has not reacquired capacity to enforce the Loan Agreement.
Kellagher also did not show that she lawfully reacquired the legal authority to enforce the
Loan Agreement and the Note from REC. In section 4.9 of the Loan Agreement, Kellagher agreed
that to terminate REC’s services, Lender Parties holding at least 67% of the Lender Party Notes
must affirmatively vote to terminate REC. Ex. 2 § 4.9, at 8. No such vote to terminate REC
occurred, let alone that Lender Parties holding at least 67% of the Lender Party Notes affirmatively
voted to terminate REC.
3. Kellagher is not a holder of the Note.
Kellagher cannot enforce the Note because she has failed to establish that she is a holder
or owner of the Note. The Note is a note under the Uniform Commercial Code (“UCC”) because
it “promises to pay.” See TEX. BUS. & COM. CODE ANN. § 3.104(e). Under UCC § 3.301, a
“Tpjerson entitled to enforce an instrument” such as a note is:
a “the holder of the instrument,”
(2) “a nonholder in possession of the instrument who has the rights of a holder,” or
(3) “a person not in possession of the instrument who is entitled to enforce the
instrument pursuant to Section 3.309 or 3.418(d).”
TEX. Bus. & COM. CODE ANN. § 3.301. Kellagher did not establish before the Arbitrator that she
was a holder, a nonholder in possession who has the rights of a holder, or a person not in possession
who is entitled to enforce under §§ 3.309 or 3.418(d).
First, Kellagher failed to show that she was the “holder” of the Note. “When an instrument
is payable to an identifiable person, the ‘holder’ is the person in possession if [s]he is the identified
person.” Leavings v. Mills, 175 S.W.3d 301, 309 (Tex. App.—Houston [1st Dist.] 2004, no pet.);
see TEX. BuS. & COM. CODE ANN. § 1.201(21). The evidence presented to the Arbitrator showed
that the Note was not payable to Kellagher; it was payable to IRA Services Trust:
BUSINESS PROMISSORY NOTE
Dallas, Texas
$235,000.00 Dated for Reference Purposes: April 2, 2018
FOR VALUE RECEIVED, the undersigned, CHOICE ENERGY HOLDINGS - I, LLC, a Nevada limited
liability company (“Borrower”), with its principal offices at 5605 North MacArthur Blvd., Suite 1003,
Irving, TX 75038, promises to pay to the order of IRA Services Trust Company CFBO: Lisa G.
Kellagher IRA607174 (“Lender”), the principal amount of TWO HUNDRED
AND THIRTY FIVE THOUSAND and No/100ths DOLLARS (($235,000.00) (“Business Loan”),
together with interest as described below and subject to the terms and conditions set forth in this Business
Promissory Note.
Note at 1. Thus, Kellagher did not establish that she was the “holder” of the Note and Kellagher
admitted as much when she dismissed her claim against Choice. Ex. 5.
Kellagher also failed to show that she became a holder by negotiation of the Note. “A.
person can become the holder of an instrument when the instrument is issued to that person; or
[s]he can become a holder by negotiation.” Mills, 175 S.W.3d at 309; see TEX. Bus. & COM. CODE
Ann. § 3.201 emt. 1 (Vernon 2004). “Negotiation is the ‘transfer of possession...of
an instrument
by a person other than the issuer to a person who thereby becomes its holder.’” Martin v. New
Century Mortg. Co., 377 S.W.3d 79, 84 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (quoting
TEx. Bus. & COM. CODE ANN. § 3.201(a)). But as the First Court of Appeals explained, “[w]hen,
as here, the instrument is paid to an identified entity (i.e., to the order of New Century), ‘negotiation
requires transfer of possession of the instrument and its indorsement by the holder.”” /d. (quoting
TEX. Bus. & COM. CODE ANN. § 3.201(b)) (emphasis added); accord Nguyen v. Fed. Nat’l Mortg.
Ass'n, 958 F. Supp. 2d 781, 788 (S.D Tex. 2013). Indeed, “[i]f an instrument not in the possession
of the original holder lacks a written indorsement and proof of the chain of title, the person in
possession does not have the status of holder.” Mills, 175 S.W.3d at 309.
Under those legal requirements and the evidence provided in the arbitration, Kellagher did
not become a holder of the Note by negotiation. Also, there was no evidence that IRA Services
Trust transferred possession of the Note to her. But more importantly, there was no written
indorsement on the Note. Under UCC §3.204(a), “indorsement” is defined as:
‘Indorsement’ means a signature, other than that of a signer as maker, drawer, or
acceptor, that alone or accompanied by other words is made on an instrument for
the purpose of (i) negotiating the instrument, (ii) restricting payment of the
instrument, or (iii) incurring indorser’s liability on the instrument, but regardless of
the intent of the signer, a signature and its accompanying words is an indorsement
unless the accompanying words, terms of the instrument, place of the signature, or
other circumstances unambiguously indicate that the signature was made for a
purpose other than indorsement. For the purpose of determining whether a signature
is made on an instrument, a paper affixed to the instrument is a part of the
instrument.
TEX. Bus. & COM. CODE ANN. § 3.204(a). “The indorsement must be written by or on behalf of
the holder and on the instrument or on a paper so firmly affixed to it as to become part of it.” Mills,
175 S.W.3d at 309. There is no evidence showing a written indorsement on the instrument or on
a paper firmly affixed to it. “If an instrument not in the possession of the original holder is not
properly indorsed, then the person in possession of it does not have the status of a holder.” Martin,
377 S.W.3d at 84. As a result, Ms. Kellagher “does not qualify as a ‘holder’ under the statute.”
See id.
4 Kellagher is not a nonholder in possession with the rights of a holder.
Kellagher is not a nonholder in possession with the rights of a holder. “A non-holder
seeking to enforce a note must prove the transfer by which [s]he acquired the note.” /d. The
10
Arbitrator did not receive any evidence showing any transfer from IRA Services Trust to
Kellagher. Thus, Kellagher did not establish that she was a nonholder of the Note with the rights
of a holder.
In sum, Kellagher did not establish that she is: (1) a holder of the Note or (2) a nonholder
with the rights of a holder. Therefore, the Arbitrator exceeded his powers by finding that Kellagher
was the holder! for the Note.
IL. The Court should modify or correct the award.
Pursuant to Texas Civil Practice & Remedies Code § 171.091(d), PetroRock files an
application to modify or correct the award, in the alternative to its motion to vacate. “On
application, the court shall modify or correct an award if the award contains an evident
miscalculation of numbers[.]” TEX. Civ. P. & REM. CODE § 171.091(a)(1)(A). The application was
timely filed because the application to modify or correct an award was filed within 90 days after
receiving a copy of the award. See TEX. Civ. P. & REM. CODE § 171.091(b).
The arbitration award should be corrected because there was an evident miscalculation of
numbers in the award. See TEX. Civ. P. & REM. CODE §179.091(a)(1)(A). Kellagher claimed
$11,593.28 in arbitration expenses, which included administrative fees of the AAA of $4,070.00
and compensation of the Arbitrator of $2,866.67. Ex. 7 at PDF 10, 78, Kellagher Trial Brief. The
Arbitrator then mistakenly awarded Kellagher an additional $6,936.67 for the same arbitration
costs. Ex. 6 at 6. Because the $6,936.67 in arbitration fees and compensation were double counted,
Kellagher’s award must be reduced by $6,936.67. Thus, the correct total award amount for
Kellagher, if it should even stand, which it should not, is $297,662.03, not $304,598.70.
! The Arbitrator found that Kellagher was the “Lender” for the Note, which is the equivalent of stating that she is the
holder of the Note.
11
ATTACHMENTS
In support of the Motion, PetroRock includes documents in the attached appendix, which
is incorporated by reference. PetroRock requests that the Court include the attached documents
with its order vacating the arbitration award.
CONCLUSION
Because the evidence and Texas law required the Arbitrator to find that Kellagher (1) was
not entitled to enforce the Note, (2) lacked capacity to enforce the Loan Agreement, and (3) lacked
the right to recover against PetroRock on the Guaranty, the Arbitrator exceeded his powers by
finding that Kellagher was the Lender for the Note, Kellagher was the owner of the Guaranty, and
PetroRock failed and refused to perform its obligations under the Guaranty. Furthermore, the
Arbitrator made an evident miscalculation of numbers when he awarded Kellagher an additional
$6,936.67 in arbitration fees. The evidence shows that Kellagher’s arbitration expenses were
included in her reasonable expenses of $11,593.28, which the Arbitrator had awarded in full.
PRAYER
WHEREFORE, Petrorock respectfully requests that the Court grant the Motion, vacate the
arbitration award, and order the parties to submit to a new arbitration. Alternatively, PetroRock
respectfully requests the Court to the decrease the award to $297,662.03.
Submitted: November 12, 2021
12
Respectfully submitted,
SCHIFFER HICKS JOHNSON PLLC
/s/ Brandon S. Winchester
Andrew S. Hicks
Texas Bar No, 24032419
Brandon S. Winchester
Texas Bar No. 24079590
James A. Keefe
Texas Bar No. 24122842
700 Louisiana Street, Suite 2650
Houston, Texas 77002
Tel: (713) 357-5150
Fax: (713) 357-5160
ahicks@shjlawfirm.com
bwinchester@shjlawfirm.com
jkeefe@shjlawfirm.com
ATTORNEYS FOR PETROROCK
MINERAL HOLDINGS, LLC
CERTIFICATE OF SERVICE
This is to certify that a true and correct copy of the foregoing was served on all counsel of
record in accordance with the Texas Rules of Civil Procedure on November 12, 2021.
/s/ Brandon S. Winchester
Brandon S. Winchester
13
EXHIBIT 1
DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9
Loan No. -02884
BUSINESS PROMISSORY NOTE
Dallas, Texas
$235,000.00 Dated for Reference Purposes: April 2 , 2018
FOR VALUE RECEIVED, the undersigned, CHOICE ENERGY HOLDINGS - I, LLC, a Nevada limited
liability company (“Borrower”), with its principal offices at 5605 North MacArthur Blvd., Suite 1003,
Irving, TX 75038, promises to pay to the order of IRA Services Trust Company CFBO: Lisa G.
Kellagher IRA607174 (“Lender”), the principal amount of TWO HUNDRED
AND_THIRTY_FIVE THOUSAND and No/100ths DOLLARS (($235,000.00) (“Business Loan”),
together with interest as described below and subject to the terms and conditions set forth in this Business
Promissory Note.
This Business Promissory Note (“Business Promissory Note”) is being given by Borrower in connection
with a secured business loan (“Business Loan”) being made by Lender to Borrower pursuant to that certain
Business Loan Agreement dated of even date herewith (“Business Loan Agreement”). This Business
Promissory Note, the Business Loan Agreement, and any additional documents which Borrower may require
in connection with the Business Loan evidenced by this Business Promissory Note and the Business Loan
Agreement, shall collectively constitute the loan documents with regard to the Business Loan (“Business
Loan Documents”). Capitalized terms used but not defined in this Business Promissory Note have the
meaning given to such terms in the Business Loan Agreement.
1 Term. Upon the delivery to Borrower, and Borrower’s receipt of, the (i) Business Loan proceeds in a
“good funds” form (meaning that the funds are usable immediately by Borrower) and (ii) Business Loan
Documents completed where necessary by Lender and executed by Lender in a form acceptable to Borrower,
interest shall commence accruing at the Interest Rate on the outstanding principal of this Business
Promissory Note on the first calendar day after such delivery and receipt (“Interest Start Date”). The initial
Term (“Term Start Date’) of this Business Promissory Note shall commence on the first calendar day of the
first full month after the Interest Start Date, or on the Interest Start Date if that day is the first calendar day of
the month. For example, if subsection (i) and subsection (ii) are satisfied on April 10, 2018, then the Term
Start Date is May 1, 2018 and the Interest Start Date is April 11, 2018; or if subsection (i) and subsection (ii)
are satisfied on April 30, 2018, then the Term Start Date is May 1, 2018 and the Interest Start Date is May 1,
2018. The Term of this Business Promissory Note shall end on the last day of the month 9 months following
the Term Start Date (“Maturity”). For example, if the Term Start Date is May 1, 2018, the Maturity shall be
January 31, 2019 (i.e., May through end of January equals 9 months).
2, Interest Rate. The outstanding principal of this Business Promissory Note shall bear interest on and after
the Term Start Date through the Maturity at the fixed rate of interest equal to 7.50% per annum. The rate of
interest charged under this Business Promissory Note shall never exceed the maximum amount, if any,
allowable by law. Interest shall be charged on the principal balance from time to time outstanding on the
basis of the daily rate produced assuming a 360 day year and a 30 day month. All payments hereunder shall
be payable in lawful money of the United States of America which shall be legal tender for public and
private debts at the time of payments.
3 Payments. Monthly interest payments will be made by Borrower to Lender in arrears, on the 25" day of
the month (unless the 25" day of the month falls on a bank holiday in the State of Texas in which case the
monthly interest payment will be made on the first business day after the 25" day of the month), and such
payments shall commence in the month following the Term Start Date month. For example, if the Term Start
Date is May 1, 2018 and the Interest Start Date is April 11, 2018, then the first monthly interest payment
shall be due on June 25, 2018 and shall be a sum equal to interest owed for 20 days in April and 30 days in
May; or if the Term Start Date is May 1, 2018 and the Interest Start Date is May 1, 2018, then the first
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File
1:56 PM
DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9
Loan No. -02884
monthly interest payment shall be due on June 25, 2018 and shall be a sum equal to interest owed for 30 days
in May.
4 Repayment and Repayment Date. Subject to Section 5 below, all amounts owing under this Business
Promissory Note, including the entire unpaid principal balance and any outstanding interest, shall be
processed for payment by Borrower no later than the 25"" day of the month immediately following Maturity
(unless the 25" day of the month falls on a bank holiday in the State of Texas in which case the payment
shall be processed for payment by Borrower no later than the first business day after the 25" day of the
month). For example, if Maturity is April 31, 2021, then all amounts owing under this Business Promissory
Note shall be processed for payment by Borrower no later than May 25, 2021. The phrase “processed for
payment” means that Borrower has released funds to Lender or to the appropriate payment administrator
(whether for Borrower or Lender) for the Business Loan. Borrower may prepay all or any portion of the
Business Loan at any time without penalty. Prior to or concurrent with Borrower’s repayment to Lender at
Maturity or otherwise, Borrower will deliver to Lender a statement of the total sum being repaid by
Borrower, which statement will include the outstanding principal sum and any accrued unpaid interest being
repaid. The statement shall be binding upon Lender unless Lender notifies Borrower in writing of any
objection to such statement within 10 days after Lender’s receipt of the statement.
5 Renewal. Upon Lender’s written request, this Business Promissory Note will renew for successive
additional terms (each, a “Renewal Term’), with each Renewal Term being equal to the original term of this
Business Promissory Note set forth in Section 1 above. If Lender does not request a Renewal Term, then the
Business Promissory Note will be repaid in full at Maturity in accordance Section 4. Request for a Renewal
Term must be made_no later than 30 days in advance of Maturity (Borrower may, but is not obligated to,
waive this notice period requirement). A Renewal Term shall commence on the first calendar day
immediately after the prior date of Maturity (“Renewal Start Date’) and shall follow the same conditions of
this Business Promissory Note, and shall mature at the end of the applicable Renewal Term. Borrower
reserves the right to not renew the term of this Business Promissory Note upon Maturity. As used herein, the
ord “Maturity” includes maturity of this Business Promissory Note in connection with any Renewal Term.
6. Early Termination. Except if an Event of Default (below defined) has occurred and is continuing, under
no circumstances will Borrower be obligated to pay the Business Loan in full prior to Maturity and the
Repayment Date (below described).
a Default.
a. Borrower shall be in default under this Business Promissory Note upon the happening of
any condition or event set forth below (each, an “Event of Default”):
(i) Failure to make any payment when due under this Business Promissory Note
(including any payment due by reason of acceleration) which default continues un-
remedied for a period of ten (10) days;
(ii) The commencement of any proceeding under any bankruptcy or insolvency laws
by or against Borrower which results in the entry of an order for relief which
remains un-dismissed, un-discharged or un-bonded for a period of 60 days or
more.
The entire unpaid principal balance of this Business Promissory Note and all accrued
interest thereon shall immediately be due and payable at the option of the Lender upon the
occurrence of any one or more of the Events of Default and at any time thereafter.
All monies owed on this Business Promissory Note shall bear interest until paid at the
lesser of 18% per annum or the highest rate for which Borrower may legally contract
under applicable law. All payments hereunder shall be payable in lawful money of the
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Loan No. -02884
United States of America which shall be legal tender for public and private debts at the
time of payments.
8 Security. Security for this Business Promissory Note shall be as set forth in the Business Loan
Agreement.
9. Cumulative Rights. No delay on the part of Lender of this Business Promissory Note in the exercise of
any power or right under this Business Promissory Note or under any other instrument executed pursuant
hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
10. Attorneys’ Fees and Costs. In the event that this Business Promissory Note is collected in whole or in
part through suit, arbitration, mediation, or other legal proceeding of any nature, then and in any such case
there shall be added to the unpaid principal amount hereof all reasonable costs and expenses of collection,
including, without limitation, reasonable attorney’s fees.
11. Governing Law. This Business Promissory Note shall be governed by and construed in accordance with
the internal laws of the State of Texas, without giving effect to conflicts of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would result in the application of the laws of any jurisdiction
other than the State of Texas.
12. Usury. All agreements between Borrower and Lender of this Business Promissory Note, whether now
existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or
event whatsoever, whether by acceleration of the Maturity of this Business Promissory Note or otherwise,
shall the amount paid, or agreed to be paid, to Lender hereof for the use, forbearance or detention of the
money to be loaned hereunder or otherwise, exceed the maximum amount permissible under applicable law.
13. Notices. All notices of communication required or permitted hereunder shall be given according to the
terms of the Business Loan Agreement.
14. Payments. Both principal and interest shall be payable at the address designated in the Business Loan
Agreement.
15. Entire Agreement. THIS BUSINESS PROMISSORY NOTE, THE BUSINESS LOAN AGREEMENT,
AND THE OTHER BUSINESS LOAN DOCUMENTS CONTAIN THE FINAL, ENTIRE AGREEMENT
BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THE BUSINESS LOAN
DOCUMENTS, AND ALL PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATIVE TO
THE SAME WHICH ARE NOT CONTAINED IN THE BUSINESS LOAN DOCUMENTS ARE
SUPERSEDED AND TERMINATED HEREBY, AND THE BUSINESS LOAN DOCUMENTS MAY NOT
BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
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Loan No. -02884
IN WITNESS WHEREOF, the undersigned has executed this Business Promissory Note as of the date first
written above.
BORROWER:
CHOICE ENERGY HOLDINGS ~—I, LLC, a Nevada limited liability
company
By: RESOLUTE CAPITAL PARTNERS LTD., a Nevada limited
liability company
Its: Manager
(:
DocuSigned by:
By:
Nai = DE17B4AE8599400.
Title: Authorized Signatory
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EXHIBIT 2
DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9
Loan No. -02884
BUSINESS LOAN AGREEMENT
This Business Loan Agreement (“Business Loan Agreement”) is made as of April 2, 2018
(“Agreement Date”), by and between CHOICE ENERGY HOLDINGS - I, LLC, a Nevada limited
liability company (“Borrower”), at 5605 North MacArthur Blvd., Suite 1003, Irving, TX 75038, and the
undersigned (“Lender”).
RECITALS
A Lender desires to make a secured business loan (“Business Loan”) to Borrower in the principal
amount indicated in Section 1.1 below, which Business Loan will be evidenced by a Business Promissory
Note (“Business Promissory Note”) made by Borrower in favor of Lender dated of even date herewith.
This Business Loan Agreement and the Business Promissory Note, and any additional documents which
Borrower may require in connection with the Business Loan evidenced by this Business Loan Agreement
and the Business Promissory Note, shall collectively constitute the loan documents with regard to the
Business Loan (collectively, “Business Loan Documents”). Capitalized terms used but not defined in
this Business Loan Agreement have the meanings given to such terms in the Business Promissory Note.
B Borrower desires to use the proceeds of the Business Loan from Lender to fund a loan (“Project
Loan”) from Borrower to its parent company, PETROROCK MINERAL HOLDINGS, LLC, a Texas
limited liability company (“PetroRock”). PetroRock will provide to Lender an unconditional guaranty
(“Unconditional Guaranty’) of all amounts due to Lender under the Business Loan, including, without
limitation, all principal and interest due to Lender under the Business Promissory Note.
Cc It is anticipated that PetroRock will use the Project Loan to fund its business operations and
investments relating to owning or holding (directly or indirectly) oil, gas, or other mineral royalties or
leases, or fractional interests therein, or certificates of interest or participation in or investment contracts
relative to such royalties, leases, or fractional interests (collectively, “Oil and Gas Interests”), and may
include, without limitation, repayment of other debt, loans and promissory notes, marketing fees, legal
fees, future acquisition of assets, and cash reserves relating to its Oil and Gas Interests. Borrower will be
accepting loans, for the same PetroRock business and investment purposes, from other lenders (“Other
Lenders”), up to an estimated aggregate principal sum of $25,000,000.00 and not to exceed an aggregate
principal sum of $27,500,000.00.
D. It is anticipated that the Project Loan from Borrower to PetroRock will be evidenced by, among
other agreements and instruments, a promissory note (as the same may be amended, modified or replaced
from time to time, “Project Note” and together with such other agreements, instruments and other
supporting obligations, “Project Loan Documents”) made by PetroRock in favor of Borrower. Under
this Business Loan Agreement, Borrower grants to Lender a security interest in and to the Project Note
and other Project Loan Documents as further outlined in Section 2 below.
E., The Business Promissory Note which accompanies this Business Loan Agreement has not been
registered with the Securities and Exchange Commission under the Securities Act of 1933, or with any
state securities regulatory agency, and Borrower is making the Business Promissory Note to Lender in
reliance upon certain exclusions from registration under applicable state and federal securities laws.
F Borrower and Lender have agreed to the foregoing transaction on the terms and conditions in this
Business Loan Agreement, and in reliance upon the representations, warranties and covenants of
Borrower and Lender in this Business Loan Agreement.
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NOW, THEREFORE, acknowledging the receipt of adequate consideration and intending to be legally
bound, the parties hereby agree as follows:
AGREEMENT
1 THE LOAN.
ele Business Loan. Lender agrees to make the Business Loan to Borrower in the principal
amount of $235,000.00. Borrower intends to use the Business Loan for the purposes identified in
Recital B above; provided however, a failure by Borrower to use the Business Loan for such purposes,
for whatever reason, will not be an Event of Default under the Business Loan Documents. Lender
acknowledges that Borrower does not and cannot guarantee that PetroRock will need the Project Loan
from Borrower because such need depends upon, among other things, PetroRock finding and acquiring
Oil and Gas Interests funded with the Project Loan. As a result, Borrower retains the right to hold the
Business Loan proceeds and not make the Project Loan, and retains the right to prepay the Business Loan
as described in Section 1.2.3 below and in the Business Promissory Note.
1.2. Business Loan Terms.
eal Term. The term of the Business Loan shall commence on the Term Start Date
and terminate on the Maturity as specified in the Business Promissory Note.
1.2.2.
Interest. Interest on the outstanding principal of the Business Loan shall accrue
on and after the Interest Start Date through Maturity at the rate specified in the Business Promissory Note.
1.2.3. Prepayment. Borrower may prepay all or any portion of the Business Loan at any
time without penalty.
1.2.4. Renewal. The Maturity of the Business Promissory Note may be extended as
outlined in the Business Promissory Note.
eS Acceleration. If for any reason the Business Loan is not fully satis
Preview
FILED 11/15/2021 12:11 PM FELICIA PITRE DISTRICT CLERK DALLAS CO., TEXAS Jeremy Jones DEPUTY CAUSE NO. DC-21-14811 LISA KELLAGHER IN THE DISTRICT COURT OF Plaintiff, v. DALLAS COUNTY, TEXAS PETROROCK MINERAL HOLDINGS, LLC 101st JUDICIAL DISTRICT Defendant. PETROROCK MINERAL HOLDINGS, LLC’S MOTION TO VACATE OR, IN THE ALTERNATIVE, MODIFY ARBITRATION AWARD Defendant PetroRock Mineral Holdings, LLC (“PetroRock”) files the Motion to Vacate Arbitration Award (the “Motion”) pursuant to Texas Civil Practice & Remedies Code § 171.088(a)(3)(A) as follows: INTRODUCTION Plaintiff Lisa Kellagher (“Kellagher”) brought claims before the American Arbitration Association (“AAA”) in relation to a loan between IRA Services Trust Company CFBO: Lisa G. Kellagher IRA607174 (“IRA Services Trust”), as Lender, and Choice Energy Holdings-1, LLC (“Choice”), as Borrower. PetroRock’s involvement arose from its execution of the Unconditional Guaranty (the “Guaranty”) in favor of IRA Services Trust. The Arbitrator received evidence showing that PetroRock was not a party to (and did not sign) the Business Loan Agreement (the “Loan Agreement”) or the Business Promissory Note (the “Note”). The Arbitrator also received evidence that the one document PetroRock did sign—the Guaranty—was not made in Kellagher’s favor. As a result, the evidence in the arbitration failed to establish that Kellagher had any right to recover under the Loan Agreement and the Note. The evidence also failed to establish the existence and ownership of a guaranty made in Kellagher’s favor. Despite clear, long-standing Texas law stating otherwise, the Arbitrator determined that Kellagher was “the Lender for the Note and owner of the Guaranty with PetroRock as Guarantor.” By manifestly misapplying Texas law to the evidence that was available, the Arbitrator grossly exceeded his powers. Then the Arbitrator continued to exceed his powers by double counting Kellagher’s arbitration expenses. PetroRock files the Motion to vacate the manifest injustice that has resulted from the Arbitrator’s complete disregard of Texas law or, at a minimum, correct the miscalculation of Kellagher’s award. FACTUAL AND PROCEDURAL BACKGROUND Choice and IRA Services Trust entered into the Note and the Loan Agreement on April 2, 2018. Ex.1 at 1, Business Promissory Note; Ex. 2 at 1, Business Loan Agreement. IRA Services Trust loaned Choice $235,000 at an interest rate of 7.5% annum, and the maturity date was set for 9 months after the term start date. Ex. 1 at 1; Ex. 2 at 2. PetroRock, through its President Stefan Toth, executed the Guaranty in favor of IRA Services Trust, not Kellagher. Ex. 3 at 3, Unconditional Guaranty. Kellagher filed Claimant’s Statement of Claims before the AAA alleging that Choice breached the Note and the Loan Agreement by failing to pay the principal amount of $235,000 on the maturity date. Ex. 4 at 3, Claimant’s Statement of Claims. As for PetroRock, she alleged that it breached the Guaranty. /d. at 4. On August 12, 2021, Kellagher dismissed her claim against Choice. Ex. 5, Kellagher Dismissal of Choice. Kellagher and PetroRock agreed to submit briefs with exhibits for a decision based on the evidence and arguments presented in those documents. Ex. 6 at 2, Award of Arbitrator. On September 2, 2021, the Arbitrator closed evidence and set the matter for a ruling, which was delivered on September 10, 2021. /d. at 1-6. The Arbitrator specifically found that Kellagher was the “Lender” for the Note and the owner of the Guaranty, and PetroRock had failed and refused to perform its promises to pay in a timely manner the principal and interest on the Note. /d. at 5. The Arbitrator issued an award in favor of Kellagher for $235,000.00 in unpaid principal, $29,668.75 in interest, $11,593.28 in reasonable expenses, and $21,400.00 in reasonable attorneys’ fees. /d. at 5-6. The Arbitrator also awarded Kellagher an additional $6,936.67 for her payments toward AAA administrative fees and the Arbitrator’s compensation. /d. at 6. The Arbitrator awarded Kellagher a total of $304,598.70. Id. ARGUMENT AND AUTHORITIES I The Court should vacate the arbitration award. A motion to vacate an arbitration award must be filed within 90 days after the party receives a copy of the award. TEX. CIV. PRAC. & REM. CODE § 171.088(b). In this case, PetroRock received a copy of the award on September 10, 2021, and PetroRock filed the Motion on November 12, 2021. Therefore, the Motion was timely filed. The arbitration award should be vacated because the award resulted from the Arbitrator’s manifest misapplication of Texas law. Based on the evidence and applicable law available to the Arbitrator, there was no legal basis for the Arbitrator to conclude that Kellagher could recover against PetroRock on the Guaranty. “A guaranty is an undertaking by one person to be answerable for the payment of some debt or the performance of some contract or duty by another person, who himself remains liable. ” Altus Brands II, LLC v. Alexander, 435 S.W.3d 432, 442 (Tex. App.—Dallas 2014, no pet.) (internal quotations omitted). To recover under a guaranty agreement, a claimant must prove: (1) the existence and ownership of the guaranty contract; (2) the terms of the underlying contract by the holder; (3) the occurrence of the conditions on which liability is based; and (4) the guarantor’s failure or refusal to perform the promise. Rainier Income Fund I, Ltd. v. Gans, 501 S.W.3d 617, 622 (Tex. App.—Dallas 2016, pet. denied); accord Abel v. Alexander Oil Co., 474 S.W.3d 795, 800 (Tex. App.—Houston [14th Dist.] 2014, no pet.); Corona v. Pilgrim’s Pride Corp., 245 S.W.3d 75, 80 (Tex. App.—Texarkana 2008, pet. denied). Kellagher failed to establish the first and fourth elements. A Kellagher has not established the existence and ownership of a guaranty made in her favor. 1 The Guaranty is not made in favor of Kellagher. The first element of a breach-of-guaranty claim is “the existence and ownership of the guaranty contract.” Corona, 245 S.W.3d at 80. Here, the Guaranty is not made in Kellagher’s favor. Instead, the Guaranty is in favor of IRA Services Trust: UNCONDITIONAL GUARANTY ‘ ‘ This UNCONDITIONAL GUARANTY (“Guaranty”) is made by PETROROCK MINERAL HOLDINGS, LLC, a Texas limited liability company (“Guarantor”), in favor of [RA Services Trust Company CFBO: Lisa G. Kellagher IRA607174 (“Lender”), and is effective as of the date of the below described Business Loan Agreement. Ex. 3 at 1. The Guaranty cannot be construed to be in favor of anyone other than IRA Services Trust because courts and arbitration tribunals cannot extend a guarantor’s obligations through construction of the agreement. See Coker v. Coker, 650 S.W.2d 391, 394 n.1 (Tex. 1983) (“A guarantor is entitled to have his agreement strictly construed so that it is limited to his undertakings, and it will not be extended by construction or implication.”) (emphasis added). Also, courts and arbitration tribunals must construe a guaranty most favorably to the guarantor. /d. (“Where uncertainty exists as to the meaning of a contract of guaranty, its terms should be given a construction which is most favorable to the guarantor.”). Therefore, the Arbitrator was required to construe the Guaranty strictly and most favorably to PetroRock. As far back as 1848, the Texas Supreme Court ruled that a guaranty can only be enforced by the individual or entity specifically named on the face of the agreement: Upon consideration, we are all of opinion that we must look to the address upon the face of the letter, and not to the direction upon the back of it, to ascertain the party to whom its application and promise were intended, by the writer, to have been made; that, bearing upon its face a direction and address full and complete, and free from ambiguity, we must take that as the certain criterion to determine its application, without regard to the discrepancy in the superscription. Smith v. Montgomery, 3 Tex. 199, 205 (1848); accord Grant v. Naylor, 8 U.S. (8 Cranch) 224, 235-36, 2 L. Ed. 603 (1808) (Marshall, C.J.). While Kellagher may argue that she is identified as the “Lender” under the Loan Agreement, that is irrelevant because the focus of the analysis is on the Guaranty alone because the right to recover under the Guaranty resides in that document alone. The Guaranty was not made in favor of Kellagher, irrespective of what her title or capacity is on the Loan Agreement. Moreover, the Arbitrator expressed doubt about Kellagher’s ability to enforce the Note against Choice given that the Note was made out in favor of IRA Services Trust, and that same issue precludes her ability to recover under the Guaranty. Kellagher brought the arbitration claim on her own behalf, not that of IRA Services Trust and even in the instant proceeding, the plaintiff is Kellagher, not IRA Services Trust. Because the Guaranty was not made in Kellagher’s favor, she cannot enforce the Guaranty against PetroRock. 2 Kellagher has not established that she “owns” the Guaranty. Kellagher did not submit any evidence to the Arbitrator that she “owns” the Guaranty. Her Affidavit did not provide any express testimony claiming to own the Guaranty. Moreover, IRA Services Trust could not have assigned it to her. Paragraph 5 of the Guaranty includes an anti-assignment clause that prohibits IRA Services Trust or PetroRock from assigning the Guaranty without the other party’s consent: “[N]o party may assign this Agreement without the consent of the other party.” Ex. 3 4/5, at 2. The Fort Worth Court of Appeals observed that “[n]on-assignment clauses have been consistently enforced by Texas courts...and by the Fifth Circuit applying Texas law.” Texas Farmers Ins. Co. v. Gerdes ex rel. Griffin Chiropractic Clinic, 880 S.W.2d 215, 218 (Tex. App.—Fort Worth 1994, writ denied) (citations omitted). When an anti-assignment clause imposes conditions for assignment, the claimant must show that those conditions have been met or the assignment is “a nullity.” Jetall Cos. v. Four Seasons Food Distribs., Inc., 474 S.W.3d 780, 784 (Tex. App.—Houston [14th Dist.] 2014, no pet.); see Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 471, 481 (Tex. 2019); Reef'v. Mills Novelty Co., 89 S.W.2d 210, 211 (Tex. 1936). The Arbitrator did not receive any evidence showing that IRA Services Trust assigned the Guaranty to Kellagher. Nor was there any evidence that PetroRock consented to such an assignment. In fact, there is nothing in the record to show that PetroRock received any request from IRA Services Trust or Kellegher to consent to an assignment or that PetroRock consented to such an assignment. Therefore, Kellagher failed to establish that she is the owner of the Guaranty, and she cannot recover against PetroRock on her claim for breach of the Guaranty. B Kellagher failed to establish that she has any right to recover under the Loan Agreement and the Note. Not only did Kellagher fail to show evidence that the Guaranty was signed in her favor, she also failed to show that she can recover on the underlying Loan Agreement or the Note. 1 Kellagher lacks capacity to enforce the Loan Agreement. First, Kellagher could not legally establish that she was entitled to recover for breach of the Loan Agreement. Moreover, she failed to show that she had the capacity to enforce the Loan Agreement. “A plaintiff lacks capacity when, as pertinent here, [s]he ‘is not entitled to recover in the capacity in which [s]he sues.” Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 775 (Tex. 2020) (quoting TEX. R. Civ. P. 93(2)). In other words, “capacity is a party’s legal authority to sue regardless of whether the party has a personal stake in the lawsuit.” Cty. of El Paso v. Navar, 584 S.W.3d 73, 77 (Tex. App.—El Paso 2018, no pet.). PetroRock highlighted to the Arbitrator that under the Loan Agreement, Kellagher lacked the capacity to sue on the Loan Agreement and the Note. In section 4.2 of the Loan Agreement, Kellagher agreed that a nonparty named Resolute Energy Capital, LLC (“REC”) would serve as her authorized representative in the event of any default. Under section 4.3, Kellagher agreed to empower REC to pursue PetroRock and Choice for any claims under the Loan Agreement, the Note, or the Guaranty. Specifically, section 4.3 stated that the “Representative shall have the power and authority, on behalf of each Lender Party, to pursue such remedies against the Borrower and PetroRock (as guarantor under the Unconditional Guaranty) as may be available by law and pursuant to each Lender Party loan agreement, unconditional guaranty and Lender Party Note[.]” Ex. 2 § 4.3, at 8. Also, Kellagher agreed in section 4.5 that she could not bring claims for payment on the Note on her own behalf: “No Lender Party may bring any claim against the Borrower to enforce the payment obligation evidenced by a Lender Party Note. All such claims may be brought only by the Representative, acting on behalf of and in the name of each Lender Party.” Ex. 2 § 4.5, at 8. Thus, under the express terms of the Loan Agreement, Kellagher did not have the legal authority to enforce any payment obligation under the Loan Agreement or the Note. Therefore, she lacked capacity. See Pike, 610 S.W.3d at 775; Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848 49 (Tex. 2005); Etheridge v. Optiz, 580 S.W.3d 167, 174 (Tex. App.—Tyler 2019, pet. dism’d); Navar, 584 S.W.3d at 77 (all explaining that a party has capacity when she has the legal authority to act). Kellagher admitted as much when she dismissed her claim against Choice. Ex. 5. 2. Kellagher has not reacquired capacity to enforce the Loan Agreement. Kellagher also did not show that she lawfully reacquired the legal authority to enforce the Loan Agreement and the Note from REC. In section 4.9 of the Loan Agreement, Kellagher agreed that to terminate REC’s services, Lender Parties holding at least 67% of the Lender Party Notes must affirmatively vote to terminate REC. Ex. 2 § 4.9, at 8. No such vote to terminate REC occurred, let alone that Lender Parties holding at least 67% of the Lender Party Notes affirmatively voted to terminate REC. 3. Kellagher is not a holder of the Note. Kellagher cannot enforce the Note because she has failed to establish that she is a holder or owner of the Note. The Note is a note under the Uniform Commercial Code (“UCC”) because it “promises to pay.” See TEX. BUS. & COM. CODE ANN. § 3.104(e). Under UCC § 3.301, a “Tpjerson entitled to enforce an instrument” such as a note is: a “the holder of the instrument,” (2) “a nonholder in possession of the instrument who has the rights of a holder,” or (3) “a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3.309 or 3.418(d).” TEX. Bus. & COM. CODE ANN. § 3.301. Kellagher did not establish before the Arbitrator that she was a holder, a nonholder in possession who has the rights of a holder, or a person not in possession who is entitled to enforce under §§ 3.309 or 3.418(d). First, Kellagher failed to show that she was the “holder” of the Note. “When an instrument is payable to an identifiable person, the ‘holder’ is the person in possession if [s]he is the identified person.” Leavings v. Mills, 175 S.W.3d 301, 309 (Tex. App.—Houston [1st Dist.] 2004, no pet.); see TEX. BuS. & COM. CODE ANN. § 1.201(21). The evidence presented to the Arbitrator showed that the Note was not payable to Kellagher; it was payable to IRA Services Trust: BUSINESS PROMISSORY NOTE Dallas, Texas $235,000.00 Dated for Reference Purposes: April 2, 2018 FOR VALUE RECEIVED, the undersigned, CHOICE ENERGY HOLDINGS - I, LLC, a Nevada limited liability company (“Borrower”), with its principal offices at 5605 North MacArthur Blvd., Suite 1003, Irving, TX 75038, promises to pay to the order of IRA Services Trust Company CFBO: Lisa G. Kellagher IRA607174 (“Lender”), the principal amount of TWO HUNDRED AND THIRTY FIVE THOUSAND and No/100ths DOLLARS (($235,000.00) (“Business Loan”), together with interest as described below and subject to the terms and conditions set forth in this Business Promissory Note. Note at 1. Thus, Kellagher did not establish that she was the “holder” of the Note and Kellagher admitted as much when she dismissed her claim against Choice. Ex. 5. Kellagher also failed to show that she became a holder by negotiation of the Note. “A. person can become the holder of an instrument when the instrument is issued to that person; or [s]he can become a holder by negotiation.” Mills, 175 S.W.3d at 309; see TEX. Bus. & COM. CODE Ann. § 3.201 emt. 1 (Vernon 2004). “Negotiation is the ‘transfer of possession...of an instrument by a person other than the issuer to a person who thereby becomes its holder.’” Martin v. New Century Mortg. Co., 377 S.W.3d 79, 84 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (quoting TEx. Bus. & COM. CODE ANN. § 3.201(a)). But as the First Court of Appeals explained, “[w]hen, as here, the instrument is paid to an identified entity (i.e., to the order of New Century), ‘negotiation requires transfer of possession of the instrument and its indorsement by the holder.”” /d. (quoting TEX. Bus. & COM. CODE ANN. § 3.201(b)) (emphasis added); accord Nguyen v. Fed. Nat’l Mortg. Ass'n, 958 F. Supp. 2d 781, 788 (S.D Tex. 2013). Indeed, “[i]f an instrument not in the possession of the original holder lacks a written indorsement and proof of the chain of title, the person in possession does not have the status of holder.” Mills, 175 S.W.3d at 309. Under those legal requirements and the evidence provided in the arbitration, Kellagher did not become a holder of the Note by negotiation. Also, there was no evidence that IRA Services Trust transferred possession of the Note to her. But more importantly, there was no written indorsement on the Note. Under UCC §3.204(a), “indorsement” is defined as: ‘Indorsement’ means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument. TEX. Bus. & COM. CODE ANN. § 3.204(a). “The indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed to it as to become part of it.” Mills, 175 S.W.3d at 309. There is no evidence showing a written indorsement on the instrument or on a paper firmly affixed to it. “If an instrument not in the possession of the original holder is not properly indorsed, then the person in possession of it does not have the status of a holder.” Martin, 377 S.W.3d at 84. As a result, Ms. Kellagher “does not qualify as a ‘holder’ under the statute.” See id. 4 Kellagher is not a nonholder in possession with the rights of a holder. Kellagher is not a nonholder in possession with the rights of a holder. “A non-holder seeking to enforce a note must prove the transfer by which [s]he acquired the note.” /d. The 10 Arbitrator did not receive any evidence showing any transfer from IRA Services Trust to Kellagher. Thus, Kellagher did not establish that she was a nonholder of the Note with the rights of a holder. In sum, Kellagher did not establish that she is: (1) a holder of the Note or (2) a nonholder with the rights of a holder. Therefore, the Arbitrator exceeded his powers by finding that Kellagher was the holder! for the Note. IL. The Court should modify or correct the award. Pursuant to Texas Civil Practice & Remedies Code § 171.091(d), PetroRock files an application to modify or correct the award, in the alternative to its motion to vacate. “On application, the court shall modify or correct an award if the award contains an evident miscalculation of numbers[.]” TEX. Civ. P. & REM. CODE § 171.091(a)(1)(A). The application was timely filed because the application to modify or correct an award was filed within 90 days after receiving a copy of the award. See TEX. Civ. P. & REM. CODE § 171.091(b). The arbitration award should be corrected because there was an evident miscalculation of numbers in the award. See TEX. Civ. P. & REM. CODE §179.091(a)(1)(A). Kellagher claimed $11,593.28 in arbitration expenses, which included administrative fees of the AAA of $4,070.00 and compensation of the Arbitrator of $2,866.67. Ex. 7 at PDF 10, 78, Kellagher Trial Brief. The Arbitrator then mistakenly awarded Kellagher an additional $6,936.67 for the same arbitration costs. Ex. 6 at 6. Because the $6,936.67 in arbitration fees and compensation were double counted, Kellagher’s award must be reduced by $6,936.67. Thus, the correct total award amount for Kellagher, if it should even stand, which it should not, is $297,662.03, not $304,598.70. ! The Arbitrator found that Kellagher was the “Lender” for the Note, which is the equivalent of stating that she is the holder of the Note. 11 ATTACHMENTS In support of the Motion, PetroRock includes documents in the attached appendix, which is incorporated by reference. PetroRock requests that the Court include the attached documents with its order vacating the arbitration award. CONCLUSION Because the evidence and Texas law required the Arbitrator to find that Kellagher (1) was not entitled to enforce the Note, (2) lacked capacity to enforce the Loan Agreement, and (3) lacked the right to recover against PetroRock on the Guaranty, the Arbitrator exceeded his powers by finding that Kellagher was the Lender for the Note, Kellagher was the owner of the Guaranty, and PetroRock failed and refused to perform its obligations under the Guaranty. Furthermore, the Arbitrator made an evident miscalculation of numbers when he awarded Kellagher an additional $6,936.67 in arbitration fees. The evidence shows that Kellagher’s arbitration expenses were included in her reasonable expenses of $11,593.28, which the Arbitrator had awarded in full. PRAYER WHEREFORE, Petrorock respectfully requests that the Court grant the Motion, vacate the arbitration award, and order the parties to submit to a new arbitration. Alternatively, PetroRock respectfully requests the Court to the decrease the award to $297,662.03. Submitted: November 12, 2021 12 Respectfully submitted, SCHIFFER HICKS JOHNSON PLLC /s/ Brandon S. Winchester Andrew S. Hicks Texas Bar No, 24032419 Brandon S. Winchester Texas Bar No. 24079590 James A. Keefe Texas Bar No. 24122842 700 Louisiana Street, Suite 2650 Houston, Texas 77002 Tel: (713) 357-5150 Fax: (713) 357-5160 ahicks@shjlawfirm.com bwinchester@shjlawfirm.com jkeefe@shjlawfirm.com ATTORNEYS FOR PETROROCK MINERAL HOLDINGS, LLC CERTIFICATE OF SERVICE This is to certify that a true and correct copy of the foregoing was served on all counsel of record in accordance with the Texas Rules of Civil Procedure on November 12, 2021. /s/ Brandon S. Winchester Brandon S. Winchester 13 EXHIBIT 1 DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9 Loan No. -02884 BUSINESS PROMISSORY NOTE Dallas, Texas $235,000.00 Dated for Reference Purposes: April 2 , 2018 FOR VALUE RECEIVED, the undersigned, CHOICE ENERGY HOLDINGS - I, LLC, a Nevada limited liability company (“Borrower”), with its principal offices at 5605 North MacArthur Blvd., Suite 1003, Irving, TX 75038, promises to pay to the order of IRA Services Trust Company CFBO: Lisa G. Kellagher IRA607174 (“Lender”), the principal amount of TWO HUNDRED AND_THIRTY_FIVE THOUSAND and No/100ths DOLLARS (($235,000.00) (“Business Loan”), together with interest as described below and subject to the terms and conditions set forth in this Business Promissory Note. This Business Promissory Note (“Business Promissory Note”) is being given by Borrower in connection with a secured business loan (“Business Loan”) being made by Lender to Borrower pursuant to that certain Business Loan Agreement dated of even date herewith (“Business Loan Agreement”). This Business Promissory Note, the Business Loan Agreement, and any additional documents which Borrower may require in connection with the Business Loan evidenced by this Business Promissory Note and the Business Loan Agreement, shall collectively constitute the loan documents with regard to the Business Loan (“Business Loan Documents”). Capitalized terms used but not defined in this Business Promissory Note have the meaning given to such terms in the Business Loan Agreement. 1 Term. Upon the delivery to Borrower, and Borrower’s receipt of, the (i) Business Loan proceeds in a “good funds” form (meaning that the funds are usable immediately by Borrower) and (ii) Business Loan Documents completed where necessary by Lender and executed by Lender in a form acceptable to Borrower, interest shall commence accruing at the Interest Rate on the outstanding principal of this Business Promissory Note on the first calendar day after such delivery and receipt (“Interest Start Date”). The initial Term (“Term Start Date’) of this Business Promissory Note shall commence on the first calendar day of the first full month after the Interest Start Date, or on the Interest Start Date if that day is the first calendar day of the month. For example, if subsection (i) and subsection (ii) are satisfied on April 10, 2018, then the Term Start Date is May 1, 2018 and the Interest Start Date is April 11, 2018; or if subsection (i) and subsection (ii) are satisfied on April 30, 2018, then the Term Start Date is May 1, 2018 and the Interest Start Date is May 1, 2018. The Term of this Business Promissory Note shall end on the last day of the month 9 months following the Term Start Date (“Maturity”). For example, if the Term Start Date is May 1, 2018, the Maturity shall be January 31, 2019 (i.e., May through end of January equals 9 months). 2, Interest Rate. The outstanding principal of this Business Promissory Note shall bear interest on and after the Term Start Date through the Maturity at the fixed rate of interest equal to 7.50% per annum. The rate of interest charged under this Business Promissory Note shall never exceed the maximum amount, if any, allowable by law. Interest shall be charged on the principal balance from time to time outstanding on the basis of the daily rate produced assuming a 360 day year and a 30 day month. All payments hereunder shall be payable in lawful money of the United States of America which shall be legal tender for public and private debts at the time of payments. 3 Payments. Monthly interest payments will be made by Borrower to Lender in arrears, on the 25" day of the month (unless the 25" day of the month falls on a bank holiday in the State of Texas in which case the monthly interest payment will be made on the first business day after the 25" day of the month), and such payments shall commence in the month following the Term Start Date month. For example, if the Term Start Date is May 1, 2018 and the Interest Start Date is April 11, 2018, then the first monthly interest payment shall be due on June 25, 2018 and shall be a sum equal to interest owed for 20 days in April and 30 days in May; or if the Term Start Date is May 1, 2018 and the Interest Start Date is May 1, 2018, then the first Page | of 4 File 1:56 PM DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9 Loan No. -02884 monthly interest payment shall be due on June 25, 2018 and shall be a sum equal to interest owed for 30 days in May. 4 Repayment and Repayment Date. Subject to Section 5 below, all amounts owing under this Business Promissory Note, including the entire unpaid principal balance and any outstanding interest, shall be processed for payment by Borrower no later than the 25"" day of the month immediately following Maturity (unless the 25" day of the month falls on a bank holiday in the State of Texas in which case the payment shall be processed for payment by Borrower no later than the first business day after the 25" day of the month). For example, if Maturity is April 31, 2021, then all amounts owing under this Business Promissory Note shall be processed for payment by Borrower no later than May 25, 2021. The phrase “processed for payment” means that Borrower has released funds to Lender or to the appropriate payment administrator (whether for Borrower or Lender) for the Business Loan. Borrower may prepay all or any portion of the Business Loan at any time without penalty. Prior to or concurrent with Borrower’s repayment to Lender at Maturity or otherwise, Borrower will deliver to Lender a statement of the total sum being repaid by Borrower, which statement will include the outstanding principal sum and any accrued unpaid interest being repaid. The statement shall be binding upon Lender unless Lender notifies Borrower in writing of any objection to such statement within 10 days after Lender’s receipt of the statement. 5 Renewal. Upon Lender’s written request, this Business Promissory Note will renew for successive additional terms (each, a “Renewal Term’), with each Renewal Term being equal to the original term of this Business Promissory Note set forth in Section 1 above. If Lender does not request a Renewal Term, then the Business Promissory Note will be repaid in full at Maturity in accordance Section 4. Request for a Renewal Term must be made_no later than 30 days in advance of Maturity (Borrower may, but is not obligated to, waive this notice period requirement). A Renewal Term shall commence on the first calendar day immediately after the prior date of Maturity (“Renewal Start Date’) and shall follow the same conditions of this Business Promissory Note, and shall mature at the end of the applicable Renewal Term. Borrower reserves the right to not renew the term of this Business Promissory Note upon Maturity. As used herein, the ord “Maturity” includes maturity of this Business Promissory Note in connection with any Renewal Term. 6. Early Termination. Except if an Event of Default (below defined) has occurred and is continuing, under no circumstances will Borrower be obligated to pay the Business Loan in full prior to Maturity and the Repayment Date (below described). a Default. a. Borrower shall be in default under this Business Promissory Note upon the happening of any condition or event set forth below (each, an “Event of Default”): (i) Failure to make any payment when due under this Business Promissory Note (including any payment due by reason of acceleration) which default continues un- remedied for a period of ten (10) days; (ii) The commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower which results in the entry of an order for relief which remains un-dismissed, un-discharged or un-bonded for a period of 60 days or more. The entire unpaid principal balance of this Business Promissory Note and all accrued interest thereon shall immediately be due and payable at the option of the Lender upon the occurrence of any one or more of the Events of Default and at any time thereafter. All monies owed on this Business Promissory Note shall bear interest until paid at the lesser of 18% per annum or the highest rate for which Borrower may legally contract under applicable law. All payments hereunder shall be payable in lawful money of the Page 2 of 4 File 1:56 PM DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9 Loan No. -02884 United States of America which shall be legal tender for public and private debts at the time of payments. 8 Security. Security for this Business Promissory Note shall be as set forth in the Business Loan Agreement. 9. Cumulative Rights. No delay on the part of Lender of this Business Promissory Note in the exercise of any power or right under this Business Promissory Note or under any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. 10. Attorneys’ Fees and Costs. In the event that this Business Promissory Note is collected in whole or in part through suit, arbitration, mediation, or other legal proceeding of any nature, then and in any such case there shall be added to the unpaid principal amount hereof all reasonable costs and expenses of collection, including, without limitation, reasonable attorney’s fees. 11. Governing Law. This Business Promissory Note shall be governed by and construed in accordance with the internal laws of the State of Texas, without giving effect to conflicts of law provision or rule (whether of the State of Texas or any other jurisdiction) that would result in the application of the laws of any jurisdiction other than the State of Texas. 12. Usury. All agreements between Borrower and Lender of this Business Promissory Note, whether now existing or hereafter arising and whether written or oral, are expressly limited so that in no contingency or event whatsoever, whether by acceleration of the Maturity of this Business Promissory Note or otherwise, shall the amount paid, or agreed to be paid, to Lender hereof for the use, forbearance or detention of the money to be loaned hereunder or otherwise, exceed the maximum amount permissible under applicable law. 13. Notices. All notices of communication required or permitted hereunder shall be given according to the terms of the Business Loan Agreement. 14. Payments. Both principal and interest shall be payable at the address designated in the Business Loan Agreement. 15. Entire Agreement. THIS BUSINESS PROMISSORY NOTE, THE BUSINESS LOAN AGREEMENT, AND THE OTHER BUSINESS LOAN DOCUMENTS CONTAIN THE FINAL, ENTIRE AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF THE BUSINESS LOAN DOCUMENTS, AND ALL PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATIVE TO THE SAME WHICH ARE NOT CONTAINED IN THE BUSINESS LOAN DOCUMENTS ARE SUPERSEDED AND TERMINATED HEREBY, AND THE BUSINESS LOAN DOCUMENTS MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. Page 3 of 4 File 1:56 PM DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9 Loan No. -02884 IN WITNESS WHEREOF, the undersigned has executed this Business Promissory Note as of the date first written above. BORROWER: CHOICE ENERGY HOLDINGS ~—I, LLC, a Nevada limited liability company By: RESOLUTE CAPITAL PARTNERS LTD., a Nevada limited liability company Its: Manager (: DocuSigned by: By: Nai = DE17B4AE8599400. Title: Authorized Signatory Page 4 of 4 File 1:56 PM EXHIBIT 2 DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9 Loan No. -02884 BUSINESS LOAN AGREEMENT This Business Loan Agreement (“Business Loan Agreement”) is made as of April 2, 2018 (“Agreement Date”), by and between CHOICE ENERGY HOLDINGS - I, LLC, a Nevada limited liability company (“Borrower”), at 5605 North MacArthur Blvd., Suite 1003, Irving, TX 75038, and the undersigned (“Lender”). RECITALS A Lender desires to make a secured business loan (“Business Loan”) to Borrower in the principal amount indicated in Section 1.1 below, which Business Loan will be evidenced by a Business Promissory Note (“Business Promissory Note”) made by Borrower in favor of Lender dated of even date herewith. This Business Loan Agreement and the Business Promissory Note, and any additional documents which Borrower may require in connection with the Business Loan evidenced by this Business Loan Agreement and the Business Promissory Note, shall collectively constitute the loan documents with regard to the Business Loan (collectively, “Business Loan Documents”). Capitalized terms used but not defined in this Business Loan Agreement have the meanings given to such terms in the Business Promissory Note. B Borrower desires to use the proceeds of the Business Loan from Lender to fund a loan (“Project Loan”) from Borrower to its parent company, PETROROCK MINERAL HOLDINGS, LLC, a Texas limited liability company (“PetroRock”). PetroRock will provide to Lender an unconditional guaranty (“Unconditional Guaranty’) of all amounts due to Lender under the Business Loan, including, without limitation, all principal and interest due to Lender under the Business Promissory Note. Cc It is anticipated that PetroRock will use the Project Loan to fund its business operations and investments relating to owning or holding (directly or indirectly) oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests (collectively, “Oil and Gas Interests”), and may include, without limitation, repayment of other debt, loans and promissory notes, marketing fees, legal fees, future acquisition of assets, and cash reserves relating to its Oil and Gas Interests. Borrower will be accepting loans, for the same PetroRock business and investment purposes, from other lenders (“Other Lenders”), up to an estimated aggregate principal sum of $25,000,000.00 and not to exceed an aggregate principal sum of $27,500,000.00. D. It is anticipated that the Project Loan from Borrower to PetroRock will be evidenced by, among other agreements and instruments, a promissory note (as the same may be amended, modified or replaced from time to time, “Project Note” and together with such other agreements, instruments and other supporting obligations, “Project Loan Documents”) made by PetroRock in favor of Borrower. Under this Business Loan Agreement, Borrower grants to Lender a security interest in and to the Project Note and other Project Loan Documents as further outlined in Section 2 below. E., The Business Promissory Note which accompanies this Business Loan Agreement has not been registered with the Securities and Exchange Commission under the Securities Act of 1933, or with any state securities regulatory agency, and Borrower is making the Business Promissory Note to Lender in reliance upon certain exclusions from registration under applicable state and federal securities laws. F Borrower and Lender have agreed to the foregoing transaction on the terms and conditions in this Business Loan Agreement, and in reliance upon the representations, warranties and covenants of Borrower and Lender in this Business Loan Agreement. Page 1 of 13 File 1:56 PM DocuSign Envelope ID: 93183ADB-2A46-4D2A-BFC6-B3C58B8B1FE9 Loan No. -02884 NOW, THEREFORE, acknowledging the receipt of adequate consideration and intending to be legally bound, the parties hereby agree as follows: AGREEMENT 1 THE LOAN. ele Business Loan. Lender agrees to make the Business Loan to Borrower in the principal amount of $235,000.00. Borrower intends to use the Business Loan for the purposes identified in Recital B above; provided however, a failure by Borrower to use the Business Loan for such purposes, for whatever reason, will not be an Event of Default under the Business Loan Documents. Lender acknowledges that Borrower does not and cannot guarantee that PetroRock will need the Project Loan from Borrower because such need depends upon, among other things, PetroRock finding and acquiring Oil and Gas Interests funded with the Project Loan. As a result, Borrower retains the right to hold the Business Loan proceeds and not make the Project Loan, and retains the right to prepay the Business Loan as described in Section 1.2.3 below and in the Business Promissory Note. 1.2. Business Loan Terms. eal Term. The term of the Business Loan shall commence on the Term Start Date and terminate on the Maturity as specified in the Business Promissory Note. 1.2.2. Interest. Interest on the outstanding principal of the Business Loan shall accrue on and after the Interest Start Date through Maturity at the rate specified in the Business Promissory Note. 1.2.3. Prepayment. Borrower may prepay all or any portion of the Business Loan at any time without penalty. 1.2.4. Renewal. The Maturity of the Business Promissory Note may be extended as outlined in the Business Promissory Note. eS Acceleration. If for any reason the Business Loan is not fully satis