                                  IN THE
                          TENTH COURT OF APPEALS

                                 No. 10-10-00017-CV

TEXAS ALL RISK GENERAL AGENCY,
INC., KELLY ANN DAVIS, DAVID DAY,
TARGA INVESTMENTS CORPORATION,
                                                            Appellants
v.

APEX LLOYDS INSURANCE COMPANY,
                                                            Appellee


                           From the 170th District Court
                             McLennan County, Texas
                            Trial Court No. 2007-4185-4


                          MEMORANDUM OPINION


      Texas All Risk General Agency, Inc., Kelly Ann Davis, David Day, and TARGA

Investments Corp. jointly appeal from a trial court’s verdict in a non-jury trial awarding

Apex Lloyds Insurance Co. a judgment for a breach of a general management

agreement. Appellants complain that: (1) the trial court’s interpretation of the contract

was “oppressive, inequitable, unreasonable, and frustrates the spirit and purpose of the

agreement” and that the trial court should have interpreted the contract in a reasonable

manner which allowed them an initial period in which to comply with territorial

limitations in the contract; (2) that without a showing of a breach of the territorial
limitations in the contract Apex is not allowed to recover; and (3) that the trial court

erred by assessing liquidated damages based on an invalid liquidated damages

provision. Because we find that the trial court did not err, we affirm the judgment of

the trial court.

Background

       Texas All Risk General Agency Inc., hereinafter referred to as “TAR,” entered

into a managing general agency agreement with Apex Lloyds Insurance Company

whereby TAR would sell insurance policies as a managing general agent of Apex. The

agreement contained a provision that restricted the percentage of policies that could be

issued in certain counties. The original period of the restrictions stated that TAR could

write no more than ten percent of its policies with wind exposure in Harris County

“[f]or the period from the date of contract through 11-30-07.” The contract’s effective

date was May 20, 2007. The agreement also required TAR to submit monthly reports to

Apex relating to the locations of where the policies were written, which were due 45

days after the end of each month.

       The first report submitted to Apex indicated that in the month of July that four

policies were written and two of them were from Harris County. Apex sent a letter to

TAR on September 26, 2007 that expressed concerns regarding Apex’s apparent breach

of the territorial limitations with a demand that Apex comply with the restrictions. In

October of 2007, TAR sold 28 policies, 24 of which were issued in Harris County. On

November 2, 2007, Apex notified TAR of its intent to terminate the agreement in 180

days in accordance with the agreement. Additionally, Apex notified TAR that it was

suspending TAR’s right to sell policies effective immediately as allowed by the

Texas All Risk v. Apex Lloyds                                                      Page 2
agreement in the event of a breach. Apex sent TAR a second notice of its intent to

terminate the agreement on November 7, 2007. That same day, TAR responded by

sending notice of its intent to terminate the agreement with the 180 day notice. TAR

continued selling policies after it received the notice of suspension, which led to the

filing of the instant suit.

           Trial was before the court. The trial court determined that TAR had breached the

territorial limitations in the agreement and awarded damages and attorney’s fees to

Apex. The trial court denied judgment on the rest of Apex’s causes of action and on all

of TAR’s counter-claims.1

Ambiguity in Contract

           TAR2 complains in its first issue that the trial court erred in its interpretation of

the agreement by finding that TAR was in breach of the agreement on November 2,

2007, the date of Apex’s notice of intent to terminate the agreement and suspension of

Apex’s ability to sell policies. TAR argues that the language of the agreement “[f]or the

period from the date of contract through 11-30-07” requires that there can be no breach

of the ten percent territorial limitation prior to November 30, 2007. Our analysis must

begin with a determination of whether or not the agreement is ambiguous.

           In construing a written agreement, we must ascertain and give effect to the

parties’ intentions as expressed in the agreement. Frost Nat'l Bank v. L & F Distribs., Ltd.,

165 S.W.3d 310, 311-12 (Tex. 2005) (per curiam); Carbona v. CH Medical, Inc., 266 S.W.3d


1   No party complains of the denial of its causes of action in this appeal.

2This appeal was filed by Texas All Risk General Agency, Inc., Kelly Ann Davis, David Day, and TARGA
Investments Corp. jointly; however, the judgment of the trial court was solely rendered against Texas All
Risk General Agency, Inc. Therefore, each issue is addressed as that of TAR only.

Texas All Risk v. Apex Lloyds                                                                     Page 3
675, 680 (Tex. App.—Dallas 2008, no pet.). We discern intent from the agreement itself

and the agreement must be enforced as written. Deep Nines, Inc. v. McAfee, Inc., 246

S.W.3d 842, 846 (Tex. App.—Dallas 2008, no pet.). We consider the entire writing and

attempt to harmonize and give effect to all the provisions of the contract by analyzing

the provisions with reference to the whole agreement. Frost Nat'l Bank, 165 S.W.3d at

312.   This consideration comes “from a utilitarian standpoint bearing in mind the

particular business activity sought to be served” and we will “avoid when possible and

proper a construction which is unreasonable, inequitable, and oppressive.” Frost Nat’l

Bank, 165 S.W.3d at 312 (quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex.

1987)). Further, “all writings that pertain to the same transaction will be considered

together, even if they were executed at different times and do not expressly refer to one

another.” DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999).

       Whether an agreement is ambiguous is a question of law for the court to decide

by looking at the contract as a whole in light of the circumstances existing at the time

the contract was entered. Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983); Ganske v.

Spence, 129 S.W.3d 701, 707 (Tex. App.—Waco 2004, no pet.). An ambiguity does not

arise simply because the parties advance conflicting interpretations of the contract.

Seagull Energy E & P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342, 345 (Tex. 2006); Lopez v.

Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000). A contract is ambiguous

when its meaning is uncertain and doubtful or is reasonably susceptible to more than

one interpretation. Seagull Energy E & P, 207 S.W.3d at 345. If the agreement can be

given a certain or definite legal meaning or interpretation, it is not ambiguous, and we

will construe it as a matter of law. Coker, 650 S.W.2d at 393.

Texas All Risk v. Apex Lloyds                                                        Page 4
       Neither the parties nor the trial court found this agreement ambiguous, and we

likewise agree that it is not. Its meaning is therefore a question of law. Coker, 650

S.W.2d at 394. “The intent of the parties must be taken from the agreement itself, not

from the parties’ present interpretation, and the agreement must be enforced as it is

written.” Calpine Producer Servs., L.P. v. Wiser Oil Co., 169 S.W.3d 783, 787 (Tex. App.—

Dallas 2005, no pet.). A court will not change a contract merely because the court or one

of the parties comes to dislike its provisions or thinks that something else is needed. Id.

       When we analyze this provision against the agreement as a whole, we find that

the intent of the parties was that TAR was not to write more than ten percent of its

policies in Harris County and that the monthly reports were to determine compliance

on a monthly basis. TAR’s computer software gave it the ability at all times to control

where it wrote the insurance policies. We agree with the determination of the trial

court that the contract is not ambiguous.

Oppressive, Inequitable, Unreasonable Provision

       TAR further complains in issue one that the trial court’s interpretation of the

agreement finding that TAR breached the agreement prior to November 30, 2007, was

oppressive, inequitable, unreasonable, and frustrated the spirit and purpose of the

agreement. TAR’s contention is that it was impossible for TAR to have not breached the

territorial limitations in the agreement from the time it sold the first policy if it were in

Harris County.       In response, Apex contends that the purpose of the territorial

limitations was to limit its exposure to large claims in and around Harris County, and

that the provision was made with the intent to satisfy the Texas Department of



Texas All Risk v. Apex Lloyds                                                          Page 5
Insurance and Apex’s reinsurers’s concerns of a geographically-centered catastrophic

loss.

        The trial court found that the territorial limitations were intended to be closely

monitored by Apex, in part, because of warranty limitations contained in a reinsurance

agreement executed between Apex and two third-party reinsurers. The agreement

between Apex and TAR provides that the terms of that reinsurance agreement would

supersede the provisions of the agreement between TAR and Apex in the event of a

conflict and that the execution of the reinsurance agreement was a condition precedent

to the agreement between Apex and TAR. Further, the agreement provided that the

authority of TAR could be less than that allowed in the reinsurance agreement but

could not exceed that allowed in the reinsurance agreement.             The reinsurance

agreement provided that no more than 20% of the policies could be sold in Harris

County. These restrictions were known to TAR when it entered into the agreement

with Apex.

        In light of the requirements that we are to read separate contracts governing the

same “transaction” together, and that we are to construe contracts “from a utilitarian

standpoint bearing in mind the particular business activity sought to be served” and

“avoid when possible and proper a construction which is unreasonable, inequitable,

and oppressive,” we do not find that the agreement was unreasonable, inequitable, or

oppressive. DeWitt County Elec. Coop., 1 S.W.3d at 102; Frost Nat’l Bank, 165 S.W.3d at

312. Rather, we find that the trial court’s interpretation of the agreement is reasonable

in light of the other provisions of the agreement and the reinsurance agreement, and

that Apex’s interpretation is not reasonable. If TAR was to have the entire six month

Texas All Risk v. Apex Lloyds                                                       Page 6
period in which to determine its compliance, the purpose of the monthly and quarterly

reports would be meaningless.       Additionally, in the section below the territorial

limitation during the initial period, the agreement provided that “[b]eginning 12-1-07

and thereafter,” TAR’s territorial limitation was increased to 17.5 percent in Harris

County. TAR’s asserted interpretation that the limitations would only apply as of

November 30, 2007 would render this provision entirely meaningless because there

would be no termination date for the territorial limitation to be enforced. Nor do we

find TAR’s contention that it would have been in violation of the contract from the very

beginning to frustrate the spirit of the agreement. We overrule issue one.

No Breach, No Recovery

       TAR complains in its second issue that because there was no breach of the

agreement, Apex was not entitled to recover the amount it recovered or because the

contract provision at issue in the agreement was illusory and unenforceable, and the

trial court erred in determining otherwise. The agreement contained a provision in the

“Fee Schedule” section that: “Regardless of the Fees earned by [Apex] and owed by

[TAR] in (sic) during the first year of this Agreement, [TAR] shall not pay [Apex] an

amount, in total, less than sixty thousand dollars ($60,000).”        We have already

determined that the trial court did not err in finding that there was a breach of the

agreement by TAR.

Illusory Contract

       TAR complains that if the provision requiring it to pay Apex no less than sixty

thousand dollars is interpreted as being a damage provision in the event of a breach, the

agreement thus becomes illusory and void because it would potentially have allowed

Texas All Risk v. Apex Lloyds                                                      Page 7
Apex to terminate the agreement on the first day and obligate TAR to pay the sixty

thousand dollars without a breach of the agreement by TAR.

         The agreement is a bilateral contract, which is one in which there are mutual

promises between two parties to the contract, each being both a promisor and a

promisee. Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (1943); Frequent Flyer

Depot, Inc. v. Am. Airlines, Inc., 281 S.W.3d 215, 224 (Tex. App.—Fort Worth 2009, pet.

denied); The Colony, Tex. v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 725 (Tex. App.—

Fort Worth 2008, pet. dism’d by agr.). A bilateral contract must be based upon a valid

consideration, in other words, mutuality of obligation. Fed. Sign v. Tex. S. Univ., 951

S.W.2d 401, 409 (Tex. 1997); Frequent Flyer, 281 S.W.3d at 224.

         A contract that lacks mutuality of obligation is illusory and void and is

unenforceable. Frequent Flyer, 281 S.W.3d at 224; Tex. S. Univ. v. State St. Bank & Trust

Co., 212 S.W.3d 893, 914 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). Failing to

bind the promisor who retains the option of discontinuing performance without notice

renders a promise illusory. Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 645 (Tex.

1994).    However, mutuality in each clause of a contract is not required when

consideration is given for the contract as a whole. Howell v. Murray Mortgage Co., 890

S.W.2d 78, 87 (Tex. App.—Amarillo 1994, writ denied).

         The test for mutuality is applied and determined when enforcement is sought,

not when the promises are made.              Hutchings, 174 S.W.2d at 489; Cherokee

Communications, Inc. v. Skinny’s, Inc., 893 S.W.2d 313, 316 (Tex. App.—Eastland 1994,

writ denied). As the Texas Supreme Court stated in Hutchings:



Texas All Risk v. Apex Lloyds                                                        Page 8
       Though a contract be void for lack of mutuality at the time it is made, and
       while it remains wholly executory, yet, when there has been even a part
       performance by the party seeking to enforce the same, and in such part
       performance such party has rendered services or incurred expense
       contemplated by the parties at the time such contract was made, which
       confers even a remote benefit on the other party thereto, such benefit will
       constitute an equitable consideration, and render the entire contract valid
       and enforceable.

Hutchings v. Slemons, 141 Tex. 448, 174 S.W.2d 487, 489 (Tex. 1943).

       We find that regardless of whether the clause was illusory at the time the

agreement was signed as alleged by TAR, the subsequent performance by both TAR

and Apex pursuant to the agreement constituted an adequate consideration and

therefore, the agreement was not illusory at the time of enforcement. See Hutchings, 174

S.W.2d at 489; Frequent Flyer, 281 S.W.3d at 224. We overrule issue two.

Damages

       TAR also complains in its third issue that the trial court erred in awarding

damages based on the clause in the agreement which provided that TAR would pay

Apex no less than sixty thousand dollars in the first year of the agreement because that

clause is an unenforceable liquidated damages provision. Further, TAR argues that

because that clause is invalid, there was no evidence to support the trial court’s

judgment regarding damages.        Apex counters TAR has waived this contention by

failing to plead it as an affirmative defense or matter of avoidance.

       An allegation that a provision in a contract is void, unenforceable, or

unconscionable is a matter in the nature of an avoidance which must be pled. See TEX.

R. CIV. P. 94. Additionally, an assertion that a liquidated damages provision is a penalty

is an affirmative defense that a defendant has the burden of pleading and proving. TEX.


Texas All Risk v. Apex Lloyds                                                        Page 9
R. CIV. P. 94; Urban Television Network Corp. v. Creditor Liquidity Solutions, L.P., 277

S.W.3d 917, 919 (Tex. App.—Dallas 2009, no pet.). Failure to do so waives any objection

on appeal. TEX. R. CIV. P. 90. TAR filed only a general denial and did not plead any

affirmative defenses or matters in avoidance. Because this complaint was not pled for,

we find that the trial court did not err in applying the clause in determining Apex’s

damages, and therefore, we do not reach TAR’s complaint regarding the sufficiency of

the evidence disregarding that clause in the agreement. We overrule issue three.

Conclusion

       We find that the agreement was not ambiguous and the trial court did not err in

its interpretation of the agreement. The agreement was not oppressive, inequitable, or

unreasonable nor was it an illusory contract. We find that the complaint regarding the

validity of the provision in the agreement which formed the basis of the trial court’s

calculation of damages was not preserved because it was not pled as a matter in

avoidance or affirmative defense. We affirm the judgment of the trial court.



                                        TOM GRAY
                                        Chief Justice

Before Chief Justice Gray,
       Justice Reyna, and
       Justice Davis
Affirmed
Opinion delivered and filed November 10, 2010
[CV06]




Texas All Risk v. Apex Lloyds                                                      Page 10
