                                                                         ACCEPTED
                                                                     01-14-00246-CV
                                                          FIRST COURT OF APPEALS
                                                                  HOUSTON, TEXAS
                                                                 7/1/2015 3:59:18 PM
                                                               CHRISTOPHER PRINE
                                                                              CLERK

             NO. 01-14-00246-CV

 IN THE COURT OF APPEALS FOR THE       FILED IN
                                1st COURT OF APPEALS
     FIRST JUDICIAL DISTRICT AT     HOUSTON, TEXAS
          HOUSTON, TEXAS        7/1/2015 3:59:18 PM
                                             CHRISTOPHER A. PRINE
                                                   Clerk
ALLEN L. BERRY, JOSEPH D. McCORD,
    AND ROBERT G. TAYLOR, II
                       Appellants
                vs.
          ENCORE BANK
                       Appellee

On Appeal from the 152nd Judicial District Court
           Of Harris County, Texas
            Case No. 2010-63264

 MOTION FOR EN BANC RECONSIDERATION

                          Jett Williams III
                          State Bar No. 21554000
                          JWilliams@HenkeLawFirm.com
                          Kathleen H. Boll
                          State Bar No. 00798431
                          KBoll@HenkeLawFirm.com
                          Charlie Henke
                          CHenke@HenkeLawFirm.com
                          State Bar No. 00784254
                          HENKE & WILLIAMS
                          3200 Southwest Freeway
                          34th Floor
                          Houston, Texas 77027
                          Telephone: (713) 940–4500
                          Facsimile: (713) 940–4545
                           ATTORNEYS FOR APPELLANT
                           JOSEPH D. McCORD
           Robert G. Taylor, III
           State Bar No. 19721100
           LAW OFFICE OF ROBERT G.
           TAYLOR, III
           4119 Montrose, Suite 400
           Houston, Texas 77006
           Telephone:     (713) 654-7799
           Facsimile:     (713) 654-7814

           ATTORNEYS FOR APPELLANT
           ROBERT G. TAYLOR, II

           Jerry S. Payne
           State Bar No. 15658000
           616 Voss Road
           Hunters Creek Village, Texas 77024
           Telephone:      (713) 785-0677
           Facsimile:      (713) 781-8547

           ATTORNEYS FOR APPELLANT
           ALLEN L. BERRY



ORAL ARGUMENT REQUESTED
                                          TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................i

INDEX OF AUTHORITIES..................................................................................... ii

STATEMENT OF THE CASE .................................................................................. 2

ISSUES PRESENTED FOR REVIEW ..................................................................... 3

ARGUMENT AND AUTHORITIES ........................................................................ 4

         I.        THIS COURT FINDS APPELLEE’S CLAIMS ACCRUED ON
                   MARCH 15, 2012, LONG AFTER THIS SUIT WAS FILED
                   …………………………………………...............................................4

         II.       THE COURT ERRONEOUSLY FINDS THAT BROAD WAIVER
                   LANGUAGE CONSTITUTES CONTRACTUAL ASSUMPTION OF
                   THE RISK OF THE MISTAKE ……………………………………...7

         III.      THE MARCH 15, 2010 CONSENT OF GUARANTORS REVIVED
                   ANY OF APPELLANTS’ CLAIMS RELEASED, MODIFIED, OR
                   WAIVED IN EARLIER CONTRACTS……….................................14

         IV.       THE ECONOMIC LOSS RULE DOES NOT BAR GUARANTORS’
                   CLAIMS FOR DAMAGES THAT WERE NOT THE SUBJECT OF
                   ANY CONTRACT BETWEEN THE GUARANTORS AND THE
                   BANK ……...………………………………………………………..15

         V.        APPELLEE MATERIALLY ALTERED THE TERMS OF THE
                   LOAN, THEREBY RELEASING GUARANTORS FROM THEIR
                   OBLIGATIONS UNDER THE GUARANTY AGREEMENT……..19

CONCLUSION ........................................................................................................ 20

PRAYER .................................................................................................................. 21

CERTIFICATE OF SERVICE ................................................................................ 24

CERTIFICATE OF COMPLIANCE ....................................................................... 25


                                                             i
                      INDEX OF AUTHORITIES
                                                                  Page

Bolle, Inc. v. American Greetings Corp.,
       109 S.W.3d 827 (Tex. App.—Dallas 2003)………………………………..12

City Bank v. Compass Bank,
      2010 U.S. Dist. LEXIS 66260 *5 (W.D. Tex. 2010)………………………16

Colonial Sav. Ass’n v. Taylor,
     544 S.W.2d 116 (Tex. 1976)………………………………………………..15

De Monet v. Pera,
     877 S.W.2d 352 (Tex. App.—Dallas 1994)………………………………..13

El Paso Field Services v. Mastec N.A.,
      389 S.W.3d 802 (Tex. 2012)………………………………………………..15

English v. Fischer,
      660 S.W.2d 521 (Tex. 1983)………………………………………………..16

Equistar Chems., L.P. v. Dresser-Rand Co.,
      240 S.W.3d 864 (Tex. 2007)…...…………………………………………...18

FDIC v. Attayi,
     745 S.W.2d 939 (Tex. App. —Houston
     [1st Dist.] 1988, no writ)……………………………………………………19

Federal Land Bank Ass’n of Tyler v. Sloane,
     825 S.W.2d 439 (Tex. 1991)………………………………………..…..16, 17

Geodyne Energy Income Prod. P’ship I-E v. Newton Corp.,
     161 S.W.3d 482 (Tex. 2005)………………………….………….…7, 8, 9, 10

Lamar Homes, Inc. v. Mid-Continent Cas. Co.,
     242 S.W.3d 1 (Tex. 2007)…………………………………………………..18

Lawyers Title Inc. Corp. v. Northeast Texas Dev. Co.,
     635 S.W.2d 897 (Tex. App.—Tyler 1983, writ ref’d n.r.e.)…………..……19



                                   ii
Med. City Dallas, Ltd. v. Carlisle Corp.,
      251 S.W.3d 55 (Tex. 2008)………………………………………………..18

Mission Petroleum Carriers, Inc. v. Solomon,
      106 S.W.3d 705 (Tex. 2003)………………………………………………..16

Murray v. San Jacinto Agency,
     800 S.W.2d 826 (Tex. 1990)…………………………………………………6

Old Colony Ins. Co. v. City of Quitman,
     352 S.W.2d 452 (1961)……………………………………………..………19

½ Price Checks Cashed v. United Auto. Ins. Co.,
      344 S.W.3d 378 (Tex. 2011)…………………………….………………….18

Seureau v. Exxon Mobil Corp.,
      274 S.W.3d 206 (Tex. App.—Houston
      [14th Dist.] 2008, no pet.).…………………………………………………...6

Sharyland Water Supply Corp. v. City of Alton,
      354 S.W.3d 407 (Tex. 2001)………………………………………………..18

Torrington Co. v. Stutzman,
      46 S.W.3d 829 (Tex. 2000)…………………………………………………15

Vastine v. Bank of Dallas,
      808 S.W.2d 463 (Tex. 1991)………………………………………………..19

William v. Glash,
      789 S.W.2d 261 (Tex. 1990)…………………………………………7, 11, 12

                                        STATUTES AND RULES

TEX. CIV. PRAC. & REM. CODE §16.004(a)(3) ........................................................... 6

TEX. R. APP. P. 41, 49 ................................................................................................. 2

RESTATEMENT (SECOND) OF CONTRACTS §154 (1981)……………...........7

RESTATEMENT (SECOND) OF TORTS §552B (1977)………………….…….16

                                                           iii
                                      NO. 01-14-00246-CV

                        IN THE COURT OF APPEALS FOR THE
                            FIRST JUDICIAL DISTRICT AT
                                 HOUSTON, TEXAS

                        ALLEN L. BERRY, JOSEPH D. McCORD,
                            AND ROBERT G. TAYLOR, II
                                               Appellants
                                                 vs.
                                        ENCORE BANK
                                                             Appellee

                      On Appeal from the 152nd Judicial District Court
                                 Of Harris County, Texas
                                  Case No. 2010-63264

                        MOTION FOR EN BANC RECONSIDERATION

          Pursuant to Texas Rule of Appellate Procedure 49.7, APPELLANTS ALLEN

L. BERRY, JOSEPH D. McCORD, and ROBERT G. TAYLOR, II (hereinafter

collectively referred to as “Appellants” or “Guarantors”) submit this, their Motion for

En Banc Reconsideration and respectfully request that this Honorable Court grant

Appellants’ Motion for En Banc Reconsideration, withdraw the June 2, 2015

Opinion and issue a new opinion reversing the trial court’s judgment.1




1
    Simultaneous with the filing of this motion, Appellants have filed a Motion for Rehearing.


                                                  1
                          STATEMENT OF THE CASE

        Appellants are Allen L. Berry, Joseph D. McCord, and Robert G. Taylor, II.

Appellee is Encore Bank (hereinafter referred to as “Appellee” or “the Bank”).

        A panel of the Court issued the Opinion in this case on June 2, 2015. A copy

of the Opinion is attached as Appendix A. The panel that rendered the judgment in

this case consisted of Justices Keyes, Higley and Brown.

        The Court has the authority to grant this motion and submit the case to the

full court, sitting en banc. TEX. R. APP. P. 49.7; see TEX. R. APP. P. 41.2.

        The issues in this case present such extraordinary circumstances that

resolution of the issue by the Court en banc is necessary. See TEX. R. APP. 41.2(c),

49.7.    In denying Appellants’ limitations defense, the Court found Appellee’s

claims accrued in March 2012, many months after this suit was filed in September

2010. Additionally, the Court’s Opinion contains a fundamental error in that it

ignores and gives no effect to the March 15, 2010 Consent of Guarantors, which

expressly revives claims the Court found barred by earlier contracts between the

parties. The Court also gave overbroad application to the economic loss rule,

barring recovery by Appellants of damages that are not the subject of any contract

with Appellee. The Court has disregarded the fact that, by its acts and omissions,

Appellee materially altered the terms of the underlying loan, thereby again denying

Appellants any relief.      Furthermore, the ruling that broad waiver language



                                           2
constitutes contractual assumption of the risk of mistake significantly alters the

remedy of mutual mistake.

      The errors in the Courts’ Opinion are set forth more fully below.

                     ISSUES PRESENTED FOR REVIEW

ISSUE ONE:        Whether the Court erred in determining that Appellee’s claim
                  against Appellants accrued on March 15, 2012, despite the fact
                  that Appellee filed this suit eighteen months earlier on
                  September 27, 2010, relying on a breach of the Guaranty
                  Agreements that occurred in March 2008.

ISSUE TWO:        Whether the Court erred in ruling that broad waiver language in
                  the original loan documents constitutes contractual assumption
                  of the risk by Appellants of any mistake in the parties’
                  transactions.

ISSUE THREE: Whether the Court erred in concluding that the Appellants
             waived all claims and defenses in the original loan documents
             and Guaranty Agreements, without addressing language in the
             March 15, 2010 Consent of Guarantors expressly reviving
             Appellants’ claims.

ISSUE FOUR:       Whether the Court erred in determining that the economic loss
                  rule bars the Appellants’ negligence counterclaims when the
                  Appellants have lost the value of their investment, which is not
                  the subject of any contract between the Appellants and
                  Appellee.

ISSUE FIVE:       Whether Appellee materially altered the terms of the loan,
                  thereby releasing Guarantors from their obligations under the
                  Guaranty Agreements.




                                         3
                       ARGUMENT AND AUTHORITIES

                               I.
       THIS COURT FINDS APPELLEE’S CLAIMS ACCRUED ON
        MARCH 15, 2012, LONG AFTER THIS SUIT WAS FILED.

      The timeline for the purposes of limitations is as follows:

      March 28, 2007     Loan transaction closed. (CR Vol. 2 at 821-23; Vol. 3 at
                         817-32, 836-43, 847-70);

      March 26, 2008     Material Breach of the Guaranty Agreement - Appellee
                         received notice that Borrower was in default on its
                         payment obligations to the shipyard. (CR Vol. 3 at 885-
                         87; Vol. 4 at 1440; Vol. 5 at 1782).

      April 15, 2009     First note modification agreement and consent of
                         guarantors. (CR Vol. 1 at 388-90);

      March 15, 2010     Second note modification agreement and consent of
                         guarantors. (CR Vol. 1 at 134-38);

      Sept. 27, 2010     This suit filed against Appellants. (CR Vol. 1 at 14);

      March 26, 2012     Limitations on Appellee’s claims for breach of contract
                         and guaranty expired. (CR Vol. 4 at 1432, 1450, 1516).

      July - Aug. 2012 Appellants served (CR Vol. 1 at 153-60, 357-58; Vol. 4 at
                       1432; Vol. 5 at 1765, 1773, 1778).

      As set forth in Appellee’s Original Petition filed on September 27, 2010 and

all subsequent pleadings in this case, the Guaranty Agreement was originally

breached by events occurring no later than March 26, 2008. (CR Vol. 3 at 888-890,

891-892; CR Vol. 5 at 1782). More specifically, Appellee alleged that:

      “BLyn is in breach of its obligations under the Loan Documents…
      Due to a dispute regarding the progress of the repair and refurbishment

                                          4
      projects, BLyn ceased payment of invoices issued by Crimson in
      March of 2008. . . An event of default has occurred under the Loan
      Documents and the Guaranty Agreements”

(CR Vol. 1 at 13) (emphasis added).

      Under the Guaranty Agreement, Appellants guarantee performance by

Borrower of all obligations undertaken by Borrower under the Loan Documents.

(CR Vol. 1 at 252, ¶ 1), and there is a default under the Guaranty Agreement if

Borrower does not meet any of such obligations. (CR Vol. 1 at 255, ¶ 13).

Borrower defaulted on certain of its obligations no later than March 26, 2008, and

this also constituted a breach of the Guaranty Agreements. (CR Vol. 3 at 884-87,

888-90, 891-92; CR Vol. 5 at 1782). This is not a “hypothetical breach,” and it is

not merely a breach by Borrower. Appellee brought this suit against Appellants

for this breach on September 27, 2010 but did not serve Appellants until almost

two years later in July and August 2012, after the statute of limitations had run.

(CR Vol. 1 at 14, 153-60, 357-58; Vol. 4 at 1432; Vol. 5 at 1765, 1773, 1778).

However, when faced with Appellants’ statute of limitations defense, Appellee

argued that the second extended maturity date of March 15, 2012 was the date its

claims accrued. In its Opinion, the Court adopts Appellee’s strained reasoning

(App. A at 12-13) but fails to address how limitations can accrue on a claim some

eighteen months after suit is brought on that claim.




                                         5
      The only claim ever asserted against Appellants in this case is breach of the

Guaranty Agreements. As a matter of fact, logic, and Texas law, Appellee’s claim

for breach of the Guaranty Agreements had to accrue before it was filed. No claim

could be filed before facts came into existence that authorized Appellee to seek a

judicial remedy. Murray v. San Jacinto Agency, 800 S.W.2d 826, 828 (Tex. 1990).

      At the time suit was filed, the contract was complete, and the material breach

had taken place. As with every contract in the State of Texas, the limitations period

started running on the date of the breach, no later than March 26, 2008. TEX. CIV.

PRAC. & REM. CODE §16.004(a)(3) (West 2002).

      When the defendant’s conduct produces a legal injury, however slight, the

cause of action accrues and limitations begin to run. See Seureau v. Exxon Mobil

Corp., 274 S.W.3d 206, 226 (Tex. App.—Houston [14th Dist.] 2008, no pet.).

Once there was any default under the Guaranty Agreement constituting a legal

injury, the limitations began. According to Appellee’s pleadings in this case, that

occurred in March 2008, and Appellee sued Guarantors for the full amount due on

the loan on September 27, 2010.

      To the extent Appellee argues or the Court has found that the April 2009 and

March 2010 loan modifications or extensions, somehow “wiped the slate clean”

with respect to prior breaches of the Guaranty Agreements, Appellee certainly did




                                         6
not recognize this when it filed this suit against Appellants in September 2010 for

breaches occurring before the modifications.

      Appellants respectfully request that this Court grant its motion for en banc

reconsideration, withdraw the June 2, 2015 Opinion, reverse the trial court and

render judgment that Appellee’s claims are barred by limitations.

                                        II.

 THE COURT ERRONEOUSLY CONCLUDES THAT BROAD WAIVER
 LANGUAGE CONSTITUTES CONTRACTUAL ASSUMPTION OF THE
                 RISK OF THE MISTAKE.

      This Court’s opinion erroneously concludes that Guarantors’ defense of

mutual mistake is not available because guarantors contractually assumed the risk

of the mutual mistake due to broad waiver language in the loan documents. There

was a mutual mistake between the parties because Crimson had a priority lien on

the vessel.

      The opinion mistakenly relies on the Texas Supreme Court’s opinion in

Geodyne Energy Income v. Newton Corp., 161 S.W.3d 482 (Tex. 2005), with

references to Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990) and Restatement

(Second) of Contracts Section 154. These authorities do not support the Court’s

conclusion. The Court reasoned:

      While we agree that a mutual mistake of fact can provide a basis for
      avoiding a contractual obligation…..that right can be overridden by
      the parties’ agreement: “A person who intentionally assumes the risk
      of unknown facts cannot escape a bargain by alleging mistake or

                                         7
      misunderstanding.” Geodyne v. Newton Corp., 161 S.W.3rd 482 (Tex.
      2005); accord Williams v. Glash, 789 S.W.2d 261, 264 Tex. 1990). In
      Geodyne the Texas Supreme Court rejected the assertion of mutual
      mistake in light of section 154 of the Restatement, which provides that
      a party bears the risk of a mistake when
      (a) the risk is allocated to him by agreement of the parties, or
      (b) he is aware, at the time of the contract is made, that he has only
             limited knowledge with respect to the facts to which the mistake
             relates but treats his knowledge as sufficient….

(App. A at 18) (citations omitted). The Court then concludes, as a matter of law,

that broad waiver language in the loan documents giving the bank options in

handling the collateral qualifies as a contractual assumption of the risk of the

mistake. The Court said: “We conclude that the guarantors contractually assumed

the risk of a mistake that would leave the parties without access to the collateral.

See Geodyne, 161 S.W.3d at 491.           Accordingly, they may not avoid their

contractual obligations by asserting a mutual-mistake defense.” (App. A at 20).

      The Court errs by misstating the scope and materiality of the mistake: “It is

this superior lien position that allowed Crimson to take possession of and sell the

yacht, denying…guarantors the benefit of the collateral to offset their obligations to

Encore.” (App. A at 14). However, the materiality of Crimson having a priority

lien was far more significant than the mere value of the vessel to offset the

obligation to Appellee. The summary judgment evidence shows that Crimson

having the priority lien left the Guarantors and Appellee “sitting ducks” due to

Crimson’s ability to summarily arrest the vessel even if all repair costs were paid.



                                          8
Neither Guarantors nor Appellee would have executed the loan documents if

Crimson’s lien was known. (See Brief of Appellants at 32-34; CR Vol. 5 at 1795-

98).

        The Court’s holding is contrary to established law in Texas concerning

contractual assumption of the risk of mutual mistake and significantly alters the

remedy of mutual mistake. Texas courts have consistently held that contractual

assumption of the risk under Restatement § 154(a) is applicable only when the

agreements specifically allocate the risk; that broad language is not the same as

specific allocation of risk under § 154(a).

        Geodyne undercuts this Court’s ruling that guarantors contractually assumed

the risk of Crimson having a priority lien. See 161 S.W.3d 482 (Tex. 2005).

Geodyne was a case of first impression and multiple amici filed briefs asking the

court for clarification on causations and on affirmative defenses. Id. at 483. The

Court held that a quitclaim deed does not make representation as to validity of title

and that a buyer has no claim for “mistake” as to validity of title, as a matter of law.

Id. at 486. In Geodyne, the buyer sought rescission of a contract under the Texas

Securities Act (“TSA”) alleging misrepresentations in the sale of securities. Id. at

483-84. The contract involved the sale of offshore mineral interests by quitclaim

deed.    Id. The Court found that “the only misrepresentation pleaded…was that

[the seller] represented it was selling a ten percent in a valid lease.” Id. at 485. The



                                              9
Court specifically disagreed with the Court of Appeals’ conclusion that seller

misrepresented that it was selling ten percent interest in a valid lease. Id. at 486.

The Court reasoned that a purchaser of a quitclaim deed cannot claim the deed was

a misrepresentation that the lease was valid. See id. at 484-88. “By offering only a

quitclaim deed, [the seller] disclosed that what it was selling might turn out to be

nothing.” Id. at 488 (emphasis in original).

       The Court also addressed the Court of Appeals’ denial of seller’s claim for

well-abandonment costs. Id. at 489-90. Having ruled against rescission of the

contract under the TSA, the Court applied the terms of the contract, which

specifically placed well-abandonment costs on buyer:

      [A] quitclaim deed cannot be set aside on either basis under these
      facts. A person who intentionally assumes the risk of unknown
      facts cannot escape a bargain by alleging mistake or
      misunderstanding. The Restatement gives the precise example of
      quitclaim deeds to illustrate this principle…

      As the deed here purports to transfer Geodyne’s interest whatever that
      might be, Newton’s assumptions that the lease was valid was neither a
      mutual mistake nor a mutual misunderstanding.

Id. at 490 (emphasis added).

      The Geodyne Court did not reverse the Court of Appeals based on

Restatement § 154(a); rather, it ruled that there was no mutual mistake, as a matter

of law. Because there is no mutual mistake, there is no issue as to assumption of the

risk of the mistake. However, the court’s conclusion in Geodyne is consistent with



                                          10
the established law in Texas that contractual assumption of the risk occurs only

when the agreements specifically allocate the risk of the mistake. In Geodyne,

unlike this case, the agreements specifically allocated the risk of the mistake (the

risk of invalid title) to the buyer by conveying a quitclaim deed.

      Williams v. Glash does not support this Court’s conclusion that guarantors

contractually assumed the risk of Crimson having a priority lien on the vessel. See

789 S.W.2d 261, 263 (Tex. 1990). The issue in Glash was whether a release for

personal injuries barred a subsequent suit for injuries unknown at the time of

signing. Id. at 262. In Glash the language of the release specifically released

personal injury claims. Id. at 263-64. Nevertheless, the court reversed the Court of

Appeals and remanded for fact findings, holding that the facts and circumstances

surrounding the execution of the agreement create fact issues as to the parties’

intent when executing the contract of release. Id. at 263-65. Although the law of

mutual mistake does not preclude a person from intentionally assuming the risk of

unknown facts, whether the parties to a release intended to cover unknown facts

cannot always be determined exclusively by reference to the language of the

agreement itself. Id. at 264. It may require consideration of the conduct of the

parties and the information available to them at the time the contract is made. Id.

“The question of mutual mistake is determined…solely by objective circumstances

surrounding execution of the release,” such as the parties’ knowledge at the time of



                                          11
signing and the extent of negotiations and discussions relating to the subject of the

mistake. Id. The court held that there was sufficient evidence to establish the

existence of a genuine issue of fact as to the parties’ intent when entering the

contract. Id.

      In the case before this Court the summary judgment evidence shows that

neither party intended to allocate the risk of Crimson having a priority lien on the

vessel, because neither party had knowledge of Crimson’s lien.

      Bolle, Inc. v. American Greetings Corp. supports guarantors’ argument on

assumption of risk. See 109 S.W.3d 827 (Tex. App.—Dallas 2003). After a bench

trial the court found a mutual mistake of fact and rescinded the settlement

agreement. Id. at 829. The mistake was failing to consider an unrelated lawsuit in

California between the same parties. Id. The appellant claimed that the appellee

contractually assumed the risk of the mistake based on broad language in the

settlement agreement. Id. at 830-831. The Court rejected appellants’ argument that

appellees’ knowledge of the California cases precluded a holding of mutual

mistake.

      Appellants argue that appellee knowingly assumed the risk of failing
      to consider another lawsuit when they agreed to broad release
      language…. the Settlement Agreement does not specifically allocate
      the risk of forgetting about or failing to consider an unrelated lawsuit
      to either party in this action. Broad release language is not the same as
      specific allocation of a risk.




                                         12
        The heart of the mutual mistake issue is whether the parties—by
       employing broad language within the settlement agreement—released
       the cases without intending to do so. Having knowledge that the
       California litigation existed whether that knowledge is actual or
       imputed does not rule out mutual mistake.

                                        ***
       The alleged mistake did not involve the meaning or scope of any
       language in the release; it involved whether three lawsuits never
       discussed by the parties….were intended to be released by the
       settlement. The intent with which parties contract is an issue of fact.

       We conclude appellants’ arguments that the grounds found by the trial
       court cannot support the defense of mutual mistake as a matter of law
       have no merit.

Id. at 832, 834 (internal citations omitted).

       De Monet v. Pera further bolsters guarantors’ position. 877 S.W.2d 352

(Tex. App.—Dallas 1994). The trial court granted summary judgment for the

buyer on mutual mistake, rescinding the contract for the purchase of a building. Id.

at 355. The court of appeals reversed, finding fact issues. Id. at 359. The mistake

involved the existence of asbestos in the building. Id. at 360. The Court explained:

       …Seller contends that the trial court erred in not finding the absence
       of mutual mistake as a matter of law because [buyer] bore the risk of
       the alleged mistake…The representation and… provisions in the
       purchase agreement…do not allocate the risk of possible asbestos
       problem to [buyer]; therefore section 154(a) does not apply…[A]
       contract is ambiguous when…it remains unclear about which of two
       meanings is the intended one….A trial court cannot grant a summary
       judgment based upon an ambiguous writing.

Id. at 360. Application of this logic requires reversal of the trial court’s judgment

in the case at bar.

                                           13
                                        III.

THE MARCH 15, 2010 CONSENT OF GUARANTORS REVIVED ANY OF
  APPELLANTS’ CLAIMS RELEASED, MODIFIED, OR WAIVED IN
                    EARLIER CONTRACTS.

      The Court holds that Guarantors waived and were not entitled to assert any

affirmative defenses or counterclaims. (See App. A at 12, 27-30). The Court relies

on the original loan documents from March 28, 2007 in its analysis. (See App. A at

19, 24-26; CR Vol. 1 at 213-65; Brief of Appellants at App. V). However, the

court overlooks and does not address the March 15, 2010 Consent of Guarantors

that revived any and all of Appellants’ claims and defenses. (CR Vol. 1 at 269-70,

and attached as Appendix B).       The March 15, 2010 Consent of Guarantors

provides, as follows:

      Lender acknowledges and agrees that: (i) the Guarantors have not
      released, modified, or waived, any claim or cause of action that
      could possibly exist against the Lender, and (ii) Guarantors have
      retained and reserve any claim that they may have had in the past,
      present, or future against Lender; and (iii) all statutes of limitations
      related to any cause of action which Guarantors may have with respect
      to the Note, Guaranty Agreement, or any agreements or liens related
      thereto, are hereby tolled. No applicable statute of limitations will
      commence to run until Guarantors have received written notice from
      Lender that the tolling agreement continued in item (iii) above is no
      longer in effect.

      (CR Vol. 1 at 269) (emphasis added).

This unambiguous language revives any claim Appellants previously “released,

modified, or waived.” However, this language was not analyzed, acknowledged,



                                        14
addressed, or even mentioned in the Opinion. Any finding that Guarantors have

released, modified, waived, or otherwise forfeited their claims or defenses in the

original loan and guaranty agreements must be re-evaluated in light of this

language. This language gives Appellants valuable rights and viable claims, and it

cannot be ignored or reasoned away. Fundamental rules of contract construction

require that this language be given meaning and effect, and doing so requires

reversal of the trial court’s judgment. See El Paso Field Services v. Mastec N.A.,

389 S.W.3d 802, 805 (Tex. 2012) (A contract should be construed so that all terms

are given effect and none are rendered meaningless.).

                                         IV.

    THE ECONOMIC LOSS RULE DOES NOT BAR GUARANTORS’
  CLAIMS FOR DAMAGES THAT WERE NOT THE SUBJECT OF ANY
    CONTRACT BETWEEN THE GUARANTORS AND THE BANK.

      Texas banks are subject to the same duties as anyone in the State of Texas

when they undertake to do something. A contracting party may be liable for the

negligent performance of an undertaking if it voluntarily undertakes to perform a

service for the other party, recognizes the service as necessary for the protection of

the other’s person or things, and its negligence increased the risk of harm to the

other or the other relied on the undertaking. See Torrington Co. v. Stutzman, 46

S.W.3d 829, 837-839 (Tex. 2000); Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116,

119-20 (Tex. 1976). This principle in Section 323 of the Restatement of Torts has



                                         15
been applied in several cases where a party has gratuitously undertaken to provide

insurance for another and negligently failed to do so. See, e.g., English v. Fischer,

660 S.W.2d 521, 524-25 (Tex. 1983) (Spears, J., concurring).

      The First Preferred Ship Mortgage (“FPSM”) states that “Owner shall do

everything necessary to establish and maintain this Mortgage as a First Preferred

Mortgage . . .” (CR Vol. 3 at 830, last sentence) Despite this, Appellee voluntarily

undertook to prepare and file a lien on the vessel. (CR Vol. 1 at 30-33; Vol. 3 at

1125-34; Vol. 5 at 1761-64). As with any voluntary undertaking, Appellee had a

duty to do so in a non-negligent manner. The Court is mistaken as to the duties set

forth in the contract: this was an extra-contractual undertaking accompanied by a

duty not set forth in any contract.

      Banks have duties to their customers that sound in tort as well as contract.

City Bank v. Compass Bank, 2010 U.S. Dist. LEXIS 66260 *5 (W.D. Tex. 2010),

citing Mission Petroleum Carriers, Inc. v. Solomon, 106 S.W.3d 705, 710 (Tex.

2003). The Supreme Court of Texas has found a bank breached its duty to use

reasonable care in providing information to its customers when it encouraged its

customers to incur expenses in reliance on the information related to their loan

application. Federal Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439, 442

(Tex. 1991); see also RESTATEMENT (SECOND) OF TORTS §552B (1977).




                                         16
The tort claims in that case were not barred by any inference that the borrower’s

claims sounded only in contract. Sloane, 825 S.W.2d at 442 (Tex. 1991).

      In an over-broad application of the economic loss rule, the Opinion disallows

damages well beyond the subject and terms of the parties’ contracts. (See Brief of

Appellants at 57). Rather, the Opinion simply holds that under the terms of the

agreement, Appellee did not owe any duty to the Guarantors to secure the collateral

or apply it against the Guarantors’ obligations. (App. A at 30). However, this is

not the basis for Appellants’ counterclaims or damages.        Appellee voluntarily

undertook to handle the lien against the vessel, and it did so in an improper and

negligent manner, causing damage to Appellants.

      The Court mistakenly characterizes Appellants’ counterclaims as alleging

that Appellee was contractually required to collateralize the loan properly and its

failure to do so as causing the Borrower to lose the collateral, thereby increasing

the Guarantors financial liability under the Guaranty Agreements. (App. A at 29).

The Court is mistaken as to the parties (the Borrower/Owner was BLyn II Holding,

LLC, not Guarantors) and the duties (the duty to establish and maintain a first lien

on the vessel lay with the Borrower, not the bank, but the bank voluntarily

undertook to do and did it negligently) at issue. The Court’s blurring of the parties

and duties and broad application of the economic loss rule do not take into account

the loss of the value of Appellants’ investment in Borrower and the projected



                                         17
income stream from the charter business. (See Brief of Appellants at 57 and App.

App. A-D thereto [Credit Approval Forms]).

      The economic loss rule does not swallow all claims that arise from

independent duties. The focus of the inquiry is whether the injury is to the subject

of the contract itself. Equistar Chems., L.P. v. Dresser-Rand Co., 240 S.W.3d 864,

867 (Tex. 2007); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 12-

13 (Tex. 2007); Med. City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 61 (Tex.

2008); ½ Price Checks Cashed v. United Auto. Ins. Co., 344 S.W.3d 378, 387 (Tex.

2011).

      As the Texas Supreme Court has recognized, “a party cannot avoid tort

liability to the world simply by entering into a contract with one party [otherwise

the] economic loss rule [would] swallow all claims between contractual and

commercial strangers.”    Sharyland Water Supply Corp. v. City of Alton, 354

S.W.3d 407, 419 (Tex. 2001). The law in Texas does not allow banks carte

blanche to misrepresent the nature of a loan and bind borrowers and guarantors to a

deficient set of loan documents. This Court’s Opinion sends a message to Texas

banks that they have no obligation to even attempt to properly document loans.




                                        18
                                         V.

  APPELLEE MATERIALLY ALTERED THE TERMS OF THE LOAN,
 THEREBY RELEASING GUARANTORS FROM THEIR OBLIGATIONS
            UNDER THE GUARANTY AGREEMENT.

      Texas courts strictly construe guaranties, and a guarantor may be discharged

by the material alteration of a contract between the principal debtor and the

creditor. FDIC v. Attayi, 745 S.W.2d 939, 944 (Tex. App.—Houston [1st Dist.]

1988, no writ) (citing Old Colony Ins. Co. v. City of Quitman, 352 S.W.2d 452,

455-56 (1961)). The release of a security interest in the collateral has been held to

be an unjustifiable impairment unless the guarantors consent to such action.

Lawyers Title Ins. Corp. v. Northeast Texas Dev. Co., 635 S.W.2d 897, 899 (Tex.

App.—Tyler 1982, writ ref’d n.r.e.) (citations omitted). Where material deviations

from the underlying agreement were made without the guarantor’s assent and such

deviations were prejudicial, the Texas Supreme Court found an issue of material

fact existed and summary judgment was improper. Vastine v. Bank of Dallas, 808

S.W.2d 463, 464 (Tex. 1991).

      In this case, the Promissory Note represents that it is secured by the FPSM

and the Vessel. (CR Vol. 5 at 1762-63). The FPSM expressly states that the

Appellee was taking a first lien, had a first lien on the Vessel and that the Vessel

was collateral for the Promissory Note and the loan. (Id.; CR Vol. 2 at 748; Vol. 5

at 1765-67, 1772, 1777). Appellee expressed to the Borrower and Appellants



                                         19
verbally, in writing and through its actions that it would take action to secure a first

lien on the Vessel, that it had a first lien on the Vessel, and that the Vessel was

collateral for the loan. (CR Vol. 3 at 980, 1125-48; Vol. 4 at 1439-40; Vol. 5 at

1765-67, 1772, 1777). Because Appellee materially altered the terms of the deal by

eliminating a key term, without Appellants’ consent and to their detriment, the

Guaranty Agreement between Appellee and Appellants is not enforceable.

Moreover, the Court’s determination that this argument was waived should be

reviewed in light of the March 15, 2010 Consent of Guarantors reviving such

defense.

                                   CONCLUSION

      The Court has found that limitations began to run on Appellee’s claims for

breach of the Guaranty Agreements on a date that follows the filing of this suit for

such breach by some eighteen months, and that is logically and legally incorrect.

Texas law allows the rescission of a contract when the parties make a mutual

mistake, but the Court has failed to recognize how the parties’ mutual mistake

regarding lien priority unfairly and impermissibly altered the allocation of risk

between the parties. Additionally, by omitting any analysis of the claim saving

language in the March 15, 2010 Consent of Guarantors, the Court does not address

the complete contract between the parties and any judgment related to the

incomplete contractual analysis must be reversed.            The Opinion bases its



                                          20
affirmation of the trial court’s judgment on findings that give carte blanche to

Texas banks to conduct careless lending practices and does not require that the

banks do so with ordinary care. Furthermore, the damages sought by Appellants’

counterclaims are not the subject of any contract with Appellee; therefore,

Guarantors’ claims cannot be barred by the economic loss rule.            Appellee’s

mishandling of the lien against the vessel resulted in a material alteration of the

parties’ contracts and the business arrangement to which Appellants agreed, and

this should excuse Appellants for any further liability. Lastly, the Court’s ruling on

contractual assumption of the risk of mistake significantly alters Texas’ long

standing remedy of mutual mistake.

                                     PRAYER

      WHEREFORE, APPELLANTS Allen L. Berry, Joseph D. McCord, and

Robert G. Taylor, II respectfully request that in the event the Court does not grant

their Motion for Rehearing, this Honorable Court grant this motion for en banc

reconsideration, withdraw the Court’s June 2, 2015 Opinion, reverse the trial

court’s February 24, 2014 Final Judgment, render judgment in favor of

Appellants, remand this cause to the trial court as appropriate, and all such other

and further relief of which Appellants may show themselves entitled.




                                         21
Respectfully submitted,

HENKE & WILLIAMS


By:    /s/ Jett Williams III
       JETT WILLIAMS III
       State Bar No. 21554000
       JWilliams@HenkeLawFirm.com
       Kathleen H. Boll
       State Bar No. 00798431
       Charlie Henke
       State Bar No. 00784254
       3200 Southwest Freeway
       34th Floor
       Houston, Texas 77027
       Telephone: (713) 940-4500
       Facsimile: (713) 940-4545

   ATTORNEYS FOR APPELLANT
   JOSEPH D. McCORD

LAW OFFICE OF ROBERT G.
TAYLOR, III

By: /s/ Robert G. Taylor,III
   Robert G. Taylor, III
   State Bar No. 19721100
   4119 Montrose, Suite 400
   Houston, Texas 77006
   Telephone: (713) 654-7799
   Facsimile: (713) 654-7814

   ATTORNEYS FOR
   DEFENDANT/APPELLANT
   ROBERT G. TAYLOR, II




  22
By: /s/ Jerry S. Payne
  Jerry S. Payne
  State Bar No. 15658000
  616 Voss Rd.
  Hunters Creek Village, Texas 77024
  Telephone: (713) 785-0677
  Facsimile (713) 781-8547

  ATTORNEYS FOR
  DEFENDANT/APPELLANT
  ALLEN L. BERRY




  23
                        CERTIFICATE OF SERVICE

      I hereby certify that a true and correct copy of the foregoing Appellants’
Motion For En Banc Reconsideration has been sent to the following counsel of
record on this the 1st day of July, 2015:

      Counsel for Plaintiff/Appellee
      Paul J. Dobrowski
      Dobrowski, Larkin & Johnson L.L.P.
      4601 Washington Avenue, Suite 300
      Houston, Texas 77007
      (713) 659-2900 / (713) 659-2908 (Fax)
      Via eFile and Electronic Mail

      Counsel for Defendant/Appellant Robert G. Taylor, II
      Robert G. Taylor, III
      Law Office of Robert G. Taylor, III
      4119 Montrose, Suite 400
      Houston, Texas 77006
      (713) 654-7799 / (713) 654-7814 (Fax)
      Via eFile and Electronic Mail

      Counsel for Defendant/Appellant Allen L. Berry
      James E. “Jeb” Brown, II Will Allen Shindler, Jr.
      3100 Edloe Street, Suite220
      Houston, Texas 77027
      (713) 439-1988 / (832) 460-3263 (Fax)
      Via eFile and Electronic Mail

      Counsel for Defendant/Appellant Allen L. Berry
      Jerry S. Payne
      616 Voss Rd.
      Hunters Creek Village, Texas 77056
      (713) 785-0677 / (713) 781-8547 (Fax)
      Via eFile and Electronic Mail


                                             /s/ Jett Williams III
                                             JETT WILLIAMS III



                                        24
                     CERTIFICATE OF COMPLIANCE

       I hereby certify that this document was produced on a computer using
Microsoft Word 2010 and contains 4,424 words, as determined by the software’s
word-count function, excluding the sections of the document listed in TEX. R. APP.
P. 9.4(i)(3).


                                            /s/ Jett Williams III
                                            JETT WILLIAMS III




                                       25
Opinion issued June 2, 2015




                                     In The

                              Court of Appeals
                                    For The

                         First District of Texas
                            ————————————
                              NO. 01-14-00246-CV
                           ———————————
ALLEN L. BERRY, JOSEPH D. MCCORD, AND ROBERT G. TAYLOR, II,
                          Appellants
                                       V.
                          ENCORE BANK, Appellee


                   On Appeal from the 152nd District Court
                            Harris County, Texas
                      Trial Court Case No. 2010-63264


                         MEMORANDUM OPINION

       Allen Berry, Robert Taylor, and Joseph McCord guaranteed a loan from

Encore Bank to BLyn II Holding, LLC, a Texas limited liability company (“Blyn”)

of which Berry, Taylor, and McCord were members. After Blyn defaulted on the

loan, Encore sued the three guarantors, asserting causes of action for breach-of-


APPENDIX A
contract and suit on a guaranty. All parties filed motions for summary judgment.

The district court granted Encore Bank’s two motions and denied the guarantors’

motion. The district court also denied the guarantors’ challenge to Encore Bank’s

summary-judgment evidence.

       In five issues, the guarantors contend that the trial court erred by (1) denying

their motion for summary judgment asserting that Encore’s claims are barred by

limitations, (2) granting Encore summary judgment on the guarantors’ defense of

mutual mistake, (3) granting Encore summary judgment on the guarantors’

negligence and negligent misrepresentation counterclaims, (4) granting Encore

summary judgment on its breach-of-contract and suit-on-guaranty claims, and

(5) overruling the guarantors’ objections to Encore’s summary judgment evidence.

       We affirm.

                                     Background

       This case arises from a default on a loan obtained to finance the

refurbishment of a luxury yacht. The yacht was listed as collateral for the loan.

Three of the businessmen affiliated with the borrower executed personal

guarantees. The collateral was lost to another entity after the lender’s interest in the

collateral was primed 1 by a maritime lien placed on the yacht by the entity that


1
       In the context of competing claims to collateral, the claim that takes the highest
       priority is said to “prime” the lesser claims. See BLACK’S LAW DICTIONARY
       1311 (9th ed. 2009).

                                            2
APPENDIX A
refurbished the yacht. The lender, Encore, then sought judgment against the three

guarantors for the full amount of the loan, without any available offset due to the

loss of the yacht as collateral. The district court granted Encore summary judgment

and entered a final judgment against the guarantors.

A.      The refurbishment project

        Berry, McCord, and Taylor are personal friends who entered into a series of

business transactions to purchase and renovate a luxury yacht named the Betty Lyn

II. They planned to enter the yacht into the charter market “as a luxury, expedition

style yacht.” The friends formed Blyn and purchased the Betty Lyn II in December

2005.

        Blyn selected Crimson Yachts and Horizon Shipbuilding, Inc., in Alabama,

to refurbish the yacht. Contract negotiations began between Blyn and Crimson in

May 2006. The yacht was delivered to Crimson’s shipyard in June or July 2006.

The refurbishment contract between Blyn and Crimson was signed on August 1,

2006, and Crimson began working on the project “on or before August 1, 2006.”

B.      Encore makes unsecured and secured loans

        In August 2006, Encore made an unsecured loan to Blyn for $400,000 to pay

Crimson’s invoices. Encore made another unsecured loan of $600,000 two months

later to meet Blyn’s subsequent obligations to Crimson.




                                         3
APPENDIX A
        In October 2006 the Blyn members met with Crimson and Encore

representatives to set a total budget for the project and discuss financing. The

October 19 Encore Credit Approval Form notes that Crimson had already begun

work on the yacht.

        Blyn executed loan documents for a $6 million loan from Encore on March

28, 2007. Blyn also executed a First Preferred Ship Mortgage, a Promissory Note,

and other “Loan Documents.” The maturity date for the loan was listed as April 15,

2009.

C.      The guaranty agreement

        The terms of a guaranty agreement determine whether the lender is required

to collect from the borrower or on the collateral before looking to the guarantor to

satisfy the debt. See, e.g., Yamin v. Conn, L.P., No. 14-10-00597-CV, 2011 WL

4031218, at *6 (Tex. App.—Houston [14th Dist.] Sept. 13, 2011, no pet.) (mem.

op.).

        The three Blyn members—Berry, McCord, and Taylor—personally

guaranteed the $6 million loan from Encore to Blyn to finance the yacht

refurbishment. Under the terms of their guaranty contract, the three agreed to

“unconditionally guarantee” the prompt payment “when due at maturity” of the

principal amount of $6 million borrowed by Blyn, “including all principal, interest,

charges, and attorneys’ fees” which may become due. The guarantors waived



                                         4
APPENDIX A
notice of loan renewals, modifications or rearrangements, as well as nonpayment,

default, and demand. The guarantors agreed that, in case of default, the loan could

be “accelerated, extended, modified, amended or renewed . . . [and that] any other

indulgence may be granted with respect” to the loan by Encore.

       The guaranty created an independent obligation on the part of the guarantors

to pay the full amount of the note “at maturity.” The guaranty left to Encore’s

discretion, in case of an earlier default, whether to accelerate the obligation. It

further provides that the

       rights of Lender are cumulative and shall not be exhausted by its
       exercise of any of its rights hereunder or otherwise against Guarantor
       or by any number of successive actions until and unless all
       indebtedness constituting the Obligations have been paid, and other
       Obligations have been performed, including each of the obligations of
       Guarantor hereunder.

       The guarantors “expressly waive[d] any right to the benefit of or to require

or control application of any security or collateral or the proceeds” of that

collateral and agreed that Encore had no duty, with respect to the guarantors, to

apply security or collateral to the amount of the loan. The guaranty signed by all

three guarantors states that it is “intended to be an absolute and unconditional

guarantee of payment” and that the guarantors are not relying on any

representations, written or oral, by Encore except those expressly included in the

guaranty. Finally, the guarantors agreed that they were provided an opportunity to




                                         5
APPENDIX A
obtain legal advice regarding the guaranty and that they fully understand its

implications and ramifications.

D.     Default and litigation

       In March 2008—two years into the refurbishment—a dispute developed

between Blyn and Crimson regarding the increased cost of and anticipated

completion date for the project. In late March or early April 2008, Blyn stopped

paying Crimson’s invoices. On April 4, 2008, Crimson declared Blyn to be in

default for failure to pay Crimson’s invoices.

       Despite being in default on its obligations to Crimson, Blyn continued to

meet its payment obligations to Encore by making interest payments as they

became due. Blyn executed a note modification agreement on the original maturity

date—April 15, 2009—extending the maturity date on the loan to March 15, 2010.

The parties entered into a second note modification agreement on March 15, 2010,

that extended the maturity date again to March 15, 2012. That same day, the

guarantors executed a consent of guarantors, agreeing to the extension of the loan

maturity date.

       Crimson filed an in rem action against the yacht in June 2008 in the United

States District Court for the Southern District of Alabama. Crimson asserted that it

obtained a maritime lien on the yacht as soon as it began refurbishing the vessel

and, as a result of Blyn’s failure to pay its invoices, that it had the legal right to



                                          6
APPENDIX A
arrest the vessel and sell it to pay the lien. Following an appeal and remand, that

court concluded that Crimson’s maritime lien primed Encore’s mortgage. Crimson

Yachts v. M/Y Betty Lyn II, No. 08-0334-WS-C, 2010 WL 2104524, at *1–2 (S.D.

Ala. May 25, 2010). Crimson then sold the yacht for less than the amount due and

applied those funds towards Blyn’s debt, which left no collateral to satisfy Blyn’s

obligations to Encore or to offset the guarantors’ individual liability.

       Litigation between Crimson and Blyn continued. The suit was transferred

from Alabama to federal court in Texas. In early 2013, after the United States

District Court for the Southern District of Texas entered an order awarding

damages to Crimson with an offset for poor custodial care of the yacht, Blyn

appealed to the Fifth Circuit, but the appeal was later dismissed. Horizon

Shipbuilding Inc. v. BLyn II Holding LLC, No. C-12-60, 2012 WL 2911918 (S.D.

Tex. July 16, 2012), appeal dism’d Jan. 3, 2013.

       In the interim, Encore began litigation against the guarantors. On September

10, 2010—which was approximately four months after the federal court ruled that

Crimson’s maritime lien primed Encore’s interest in the yacht—Encore sued the

guarantors. Although the loan-maturity date had not yet passed, Encore asserted

that Blyn was in non-monetary default on its loan by failing to meets its

contractual obligations to Crimson. The guarantors were not served. They

continued to make all required interest payments on the Blyn loan. The loan



                                           7
APPENDIX A
matured on March 15, 2012, at which point the full amount of the loan became

due, but neither Blyn nor the guarantors paid the loan balance. The guarantors were

served with suit shortly after the loan maturity date passed.

             The Parties’ Competing Motions for Summary Judgment

       Encore filed two summary-judgment motions, asserting both no-evidence

and traditional summary-judgment points.2 In addition to seeking to recover on the

guaranty, it also sought judgment on the guarantors’ counterclaims and affirmative

defenses.

       The guarantors filed a single response to both of Encore’s summary-

judgment motions. The guarantors also filed objections to the affidavit of John

Lingor, Encore’s custodian of records, and other summary-judgment evidence. In

addition to responding to Encore’s two summary-judgment motions, the guarantors

filed a cross-motion for summary judgment on their limitations affirmative

defense.

        The trial court granted Encore’s two summary-judgment motions and

denied the guarantors’ summary-judgment motion. The trial court then entered a

final judgment for Encore, awarding it $3.6 million for the outstanding principal

balance on the note, as well as prejudgment interest, late fees, attorney’s fees and

post-judgment interest.

2
       Through its traditional summary-judgment motion, Encore established its right to
       enforce the guaranty as a matter of law.

                                           8
APPENDIX A
       The guarantors appeal the orders denying their summary-judgment motion,

granting Encore’s two summary-judgment motions, and overruling in part their

objections to summary-judgment evidence.

A.     Standard of review

       We review the district court’s summary judgment de novo. Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life &

Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). “When reviewing a

summary judgment, we take as true all evidence favorable to the nonmovant, and

we indulge every reasonable inference and resolve any doubts in the nonmovant’s

favor.” Dorsett, 164 S.W.3d at 661; Knott, 128 S.W.3d at 215; accord Sci.

Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). Summary judgment

is proper when there are no disputed issues of material fact and the movant is

entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Knott, 128 S.W.3d

at 215–16. When, as here, both parties move for summary judgment and the

district court grants one motion and denies the other, we review the summary-

judgment evidence presented by both sides, determine all questions presented, and

render the judgment the district court should have rendered. Tex. Workers’ Comp.

Comm’n v. Patient Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004); FM

Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).




                                        9
APPENDIX A
B.     Statute of limitations defense

       Encore sued to collect on the personal guaranty executed by the three Blyn

members. The trial court granted Encore summary judgment, holding that the

guarantors’ defenses and counterclaims were unavailing. Before reaching the

merits of the competing claims or construing the loan documents, we address the

guarantors’ first issue: whether the trial court erred in denying their statute of

limitations defense.

       Generally, breach-of-contract claims must be brought within four years.

TEX. CIV. PRAC. & REM. CODE ANN. § 16.004(a)(3) (West 2002). When a claim

accrues is a question of law reviewed de novo. See Moreno v. Sterling Drug, 787

S.W.2d 348, 351 (Tex. 1990). “A claim generally accrues when facts come into

existence that authorize a claimant to seek a judicial remedy.” Sowell v. Int’l

Interests, LP, 416 S.W.3d 593, 598 (Tex. App.—Houston [14th Dist.] 2013, pet.

denied).

       The guarantors contend that Encore’s claim accrued against them either on

the closing date for the loan or one year later, on March 26, 2008, when Blyn

stopped paying Crimson’s invoices. The guarantors argue that, based on that date,

the four-year statute of limitations expired no later than March 26, 2012, and,

because they had not been served process by that date, the statute of limitations ran

on Encore’s claims against them.



                                         10
APPENDIX A
       In response to the guarantors’ summary-judgment motion, Encore argued

that all interest payments required under the terms of Blyn’s note were paid timely

until the March 15, 2012 maturity date, at which point, neither Blyn nor the

guarantors paid off the obligations. Encore pointed to its August 2012 second

amended petition in which it asserted that the parties’ note modification agreement

extended the loan-maturity date to March 15, 2012. It attached to the amended

petition the two note modification agreements, extending the maturity date first to

March 15, 2010, and then to March 15, 2012, as well as a consent of guarantors,

signed by all three guarantors on March 15, 2010, acknowledging and consenting

to the loan modification. Encore argued that its breach-of-contract and suit on

guaranty claims did not accrue until the guarantors failed to pay off the loan on the

maturity date—March 15, 2012.

       We look first to the parties’ contracts to determine their rights and

obligations. When construing a guaranty agreement, our primary goal is to

ascertain and give effect to the parties’ intent. Coker v. Coker, 650 S.W.2d 391,

393 (Tex. 1983); Hasty v. Keller HCP Partners, L.P., 260 S.W.3d 666, 670 (Tex.

App.—Dallas 2008, no pet.). The best guide to the parties’ intent is the language of

the guaranty, and where the language is clear and unambiguous, we may not look

outside of that document to give it a different construction. See Univ. Sav. Ass’n v.

Miller, 786 S.W.2d 461, 462–63 (Tex. App.—Houston [14th Dist.] 1990, writ



                                         11
APPENDIX A
denied); Sw. Sav. Ass’n v. Dunagan, 392 S.W.2d 761, 767 (Tex. App.—Dallas

1965, writ ref’d n.r.e.).

       The guaranty states that each guarantor “irrevocably, absolutely, and

unconditionally guarantees to Lender the prompt payment when due at maturity of

the [note]” and all other amounts due. Paragraph three of the guaranty allows

Encore to seek payment from the guarantors without any requirement that it first

sue Blyn:

       Guarantor shall be liable as a primary obligor for the payment and
       performance of the Obligations. Guarantor specifically agrees that,
       except as otherwise provided in the Loan Documents, it shall not be
       necessary or required, in order to enforce Guarantor’s obligations
       under this Guaranty, that Lender have made demand for payment
       upon Borrower or any other person or entity liable thereon or have
       made protest thereof or have given notice to Borrower or any other
       party liable thereon of maturity or nonpayment of the Obligations.

Thus, to the extent the statute of limitations ran against the underlying borrower—

between the date Blyn defaulted and the date Encore served the guarantors with

suit on the guaranty—that defense is unavailable to the guarantors. See Yamin,

2011 WL 4031218, at *6 (“Whenever a creditor is permitted to sue a guarantor

without first suing the principal, the guarantor cannot defend an action to recover

on a promise to pay by showing that the claim against the principal is barred by the

statute of limitations.”); Wiman v. Tomaszewicz, 877 S.W.2d 1, 5 (Tex. App.—

Dallas 1994, no writ) (same).




                                        12
APPENDIX A
       The guaranty created an independent obligation on the guarantors to pay the

full amount of the note “at maturity,” here, March 15, 2012. Paragraph 13 of the

guaranty left to Encore’s discretion, in case of default, whether to accelerate the

obligation. Paragraph 19 further provides that the “rights of Lender are cumulative

and shall not be exhausted by its exercise of any of its rights hereunder or

otherwise against Guarantor or by any number of successive actions until and

unless all indebtedness constituting the Obligations have been paid, and other

Obligations have been performed, including each of the obligations of Guarantor

hereunder.”

       We reject the guarantors’ contention that the statute of limitations ran on

Encore’s claims against the guarantors, given that the guarantors renewed their

obligations under that contract within the two preceding years. TEX. CIV. PRAC. &

REM. CODE ANN. § 16.004(a)(3) (establishing a four-year statute of limitations).

We conclude that the trial court did not err in denying the guarantors’ summary-

judgment motion on the defense of limitations.

       Accordingly, we overrule the guarantors’ first issue.

C.     Mutual mistake defense

       In their second issue, the guarantors argue that the guaranty is voidable due

to a mutual mistake of fact. They contend the parties mistakenly believed that

Encore had a primary lien on the vessel and did not realize that Crimson already



                                         13
APPENDIX A
had a preferred, maritime lien on the vessel when the guaranty contract was

executed. It is this superior lien position that allowed Crimson to take possession

of and sell the yacht, denying Blyn and the guarantors the benefit of the collateral

to offset their obligations to Encore.

       We consider first the manner in which a maritime lien comes into existence

and the extent to which the parties may have been mistaken about Crimson’s lien.

       1.    Maritime liens

       A maritime lien is “a unique security device, serving the dual purpose of

keeping ships moving in commerce while not allowing them to escape their debts

by sailing away.” Equilease Corp. v. M/V Sampson, 793 F.2d 598, 602 (5th Cir.

1986); see Governor & Co. of Bank of Scot. v. Sabay, 211 F.3d 261, 267 (5th Cir.

2000).

       “The maritime lien developed as a necessary incident of the operation of

vessels.” Piedmont & George’s Creek Coal Co. v. Seaboard Fisheries Co., 254

U.S. 1, 9, 41 S. Ct. 1, 3 (1920); see Effjohn Int’l Cruise Holdings, Inc. v. A&L

Sales, Inc., 346 F.3d 552, 556 (5th Cir. 2003). “The purpose of maritime liens is

‘to enable a vessel to obtain supplies or repairs necessary to her continued

operation by giving a temporary underlying pledge of the vessel which will hold

until payment can be made or more formal security given.’” Lake Charles

Stevedores, Inc. v. Professor Vladimir Popov MV, 199 F.3d 220, 223 (5th Cir.



                                         14
APPENDIX A
1999) (quoting The Everosa, 93 F.2d 732, 735 (1st Cir. 1937)); see Piedmont &

George’s Creek Coal Co., 254 U.S. at 9, 41 S. Ct. at 3 (“Since she is usually absent

from the home port, remote from the residence of her owners and without any large

amount of money, it is essential that she should be self-reliant—that she should be

able to obtain upon her own account needed repairs and supplies.”); Veverica v.

Drill Barge Buccaneer No. 7, 488 F.2d 880, 883 (5th Cir. 1974) (“The very

purpose of maritime liens is to encourage necessary services to ships whose

owners are unable to make contemporaneous payment.”).

        “The lien arises when the debt arises, and grants the creditor the right to

appropriate the vessel, have it sold, and be repaid the debt from the proceeds.”

Equilease Corp., 793 F.2d at 602. Thus a maritime lien is “a property right that

adheres to the vessel wherever it may go. Such a lien has been held to follow the

vessel even after it is sold to an innocent purchaser.” Id.; see Sabay, 211 F.3d at

267–68 (quoting Equilease Corp., 793 F.2d at 602). A maritime lien gives the lien-

holder the ability to recover against the value of the vessel in an in rem action. See

Effjohn Int’l Cruise Holdings, 346 F.3d at 556. “Maritime liens have priority over

non-maritime liens and priority over other maritime liens in reverse chronological

order . . . .” Crimson Yachts v. Betty Lyn II Motor Yacht, 603 F.3d 864, 870 (11th

Cir. 2010) (in related litigation involving same yacht, holding that yacht meets




                                         15
APPENDIX A
definition of “vessel” to subject it to admiralty jurisdiction and allow Crimson to

benefit from maritime lien).

       Federal courts that have addressed the issue concur that maritime liens do

not need to be recorded to be enforced. See, e.g., P.R. Ports Auth. v. BARGE

KATY–B, 427 F.3d 93, 104 (1st Cir. 2005); Luis A. Ayala-Colon Sucres., Inc. v.

Break Bulk Servs., LLC, 925 F. Supp. 2d 199, 204 (D. P.R. 2013) (citing

Vandewater v. Mills, Claimant of Yankee Blade, 60 U.S. 82, 89 (1856)); L & L

Elecs., Inc. v. M/V Osprey, 764 F. Supp. 2d 270, 274 (D. Mass. 2011). They,

therefore, have been described as “silent” and “secret.” See, e.g., Sembawang

Shipyard, Ltd. v. Charger, Inc., 955 F.2d 983, 988 (5th Cir. 1992); Merchs. &

Marine Bank v. The T. E. Welles, 289 F.2d 188, 194 (5th Cir. 1961); P.R. Ports

Auth., 427 F.3d at 104; L & L Elecs., 764 F. Supp. 2d at 274.

       2.    All parties were aware repairs began before loan was executed

       All parties were aware that the Betty Lyn was already in Crimson’s Alabama

shipyard undergoing repairs as part of a large-scale refurbishment before (1) Blyn

executed the loan documents giving Encore a security interest in the yacht and

(2) the Blyn members executed the personal guarantees. There was no mistake of

fact concerning the chronology of the repairs and the loan.




                                         16
APPENDIX A
       Crimson began repairing the Betty Lyn II by August 1, 2006. Crimson held a

maritime lien on the vessel 3 as of that date and had the legal right to bring an in

rem action to enforce its lien, if necessary, from that date forward. See Equilease

Corp., 793 F.2d at 602; Effjohn Int’l Cruise Holdings, 346 F.3d at 556. The Blyn

members’ interest in the yacht was subject to the maritime lien before Blyn sought

to grant a security interest in the yacht to its lender, Encore.

       3.     The guarantors contractually assumed risk of a mistake of fact

       The guarantors contend that neither they nor Encore realized that Crimson

obtained a maritime lien on the yacht it was repairing as soon as the repairs began.

According to the guarantors’ expert, the parties “all mistakenly believed the

Bank’s FPSM was a first priority preferred ship mortgage entitled to the preferred

status granted by the Ship Mortgage Act and not subject to any preferred

maritime liens, including any shipyard maritime liens . . . .” He asserts that “[a]n

ordinary bank using ordinary prudence in the same or similar circumstances would

have obtained a subordination agreement from the shipyard before the loan was

funded.” One of the three guarantors, McCord, confirms in his affidavit that he

“relied on Encore to seek consultation from counsel on maritime issues” and

3
       During earlier litigation concerning the Betty Lyn II, a federal district court held
       that the yacht was a “vessel” during the repair period, thus allowing Crimson to
       obtain a maritime lien for its repair work. Crimson Yachts v. M/Y Betty Lyn II, No.
       08-0334-WS-C, 2010 WL 2104524, at *1–2 (S.D. Ala. May 25, 2010)
       (recognizing Crimson’s maritime lien and declaring that lien was first-in-time with
       priority over Encore’s rights).

                                            17
APPENDIX A
asserts that “Encore and its lawyers knew or should have known that Crimson had

a maritime lien on the Vessel before the Loan Documents, including the FPSM,

were executed.”

       The guarantors argue that there was a mutual mistake of fact regarding the

shipyard’s existing maritime lien. Neither side realized the maritime lien existed.

As such, the guarantors contend that their contractual obligations under the

personal guarantees are voidable.

       While we agree that a mutual mistake of fact can provide a basis for

avoiding a contractual obligation, see N.Y. Party Shuttle, LLC v. Bilello, 414

S.W.3d 206, 212 (Tex. App.—Houston [1st Dist.] 2013, pet. denied), that right can

be overridden by the parties’ agreement: “A person who intentionally assumes the

risk of unknown facts cannot escape a bargain by alleging mistake or

misunderstanding.” Geodyne Energy Income Prod. P’ship I-E v. Newton Corp.,

161 S.W.3d 482, 491 (Tex. 2005); accord Williams v. Glash, 789 S.W.2d 261, 264

(Tex. 1990). In Geodyne, the Texas Supreme Court rejected the assertion of mutual

mistake in light of section 154 of the Restatement, which provides that a party

bears the risk of a mistake when

       (a) the risk is allocated to him by agreement of the parties, or

       (b) he is aware, at the time the contract is made, that he has only
       limited knowledge with respect to the facts to which the mistake
       relates but treats his limited knowledge as sufficient . . . .



                                          18
APPENDIX A
See Geodyne, 161 S.W.3d at 491 (citing RESTATEMENT (SECOND) OF CONTRACTS

§ 154 (1981)). “Just as a party may agree to perform in spite of impracticability or

frustration that would otherwise justify his non-performance, he may also agree, by

appropriate language or other manifestations, to perform in spite of mistake that

would otherwise justify his avoidance.” RESTATEMENT (SECOND)          OF   CONTRACTS

§ 154, cmt. b; see Geodyne, 161 S.W.3d at 491.

       Here, the guarantors assumed the risk that Encore’s acts or omissions would

leave the parties without collateral to offset their obligations. Paragraph five of the

guaranty agreement provides as follows:

       Guarantor specifically agrees that . . . Guarantor shall not be entitled
       to require, that Lender . . . make any effort at collection of the
       Obligations from Borrower, or foreclose against or seek to realize
       upon any security or collateral now or hereafter existing for the
       Obligations, or . . . exercise or assert any other right or remedy to
       which Lender is or may be entitled in connection with the Obligations
       or such security or collateral . . . . Guarantor specifically agrees that
       Guarantor shall not have any recourse or action against Lender by
       reason of any action Lender may take or omit to take in connection
       with the Obligations, the collection of any sums or amounts herein
       mentioned, or in connection with any security or collateral or any
       other guaranty at any time existing therefor.

       Again, in paragraph 7, the guarantors “absolutely and unconditionally”

agreed that

       if all or any part of the Obligations (or any instrument or agreement
       made or executed in connection therewith) is for any reason found to
       be invalid, illegal, unenforceable, uncollectible or legally impossible,
       for any reason whatsoever . . . then in any such case Guarantor shall
       pay and perform the Obligations as herein provided and that no such


                                          19
APPENDIX A
       occurrence shall in any way diminish or otherwise affect Guarantor’s
       obligation hereunder.

       We conclude that the guarantors contractually assumed the risk of a mistake

that would leave the parties without access to the collateral. See Geodyne, 161

S.W.3d at 491. Accordingly, they may not avoid their contractual obligations by

asserting a mutual-mistake defense. We overrule the guarantors’ second issue.

D.     Material alteration of contract as defense

       In their third issue, the guarantors argue that Encore’s failure to obtain a

security right superior to Crimson’s materially altered the terms of their agreement,

discharging them of their obligations under the guaranty.

       We determine the rights of the guarantors from the contract’s terms. United

States v. Little Joe Trawlers, Inc., 776 F.2d 1249, 1254 (5th Cir. 1985); Hopkins v.

First Nat’l Bank at Brownsville, 551 S.W.2d 343, 345 (Tex. 1977); McKnight v.

Va. Mirror Co., Inc., 463 S.W.2d at 430. A guaranty agreement may not be

extended beyond its precise terms by construction or implication. Reece v. First

State Bank, 566 S.W.2d 296, 297 (Tex. 1978); FDIC v. Attayi, 745 S.W.2d 939,

943 (Tex. App.—Houston [1st Dist.] 1988, no writ). Because courts strictly

construe guarantees, a guarantor may be discharged by the material alteration of a

contract between the principal debtor and the creditor. Vastine v. Bank of Dallas,

808 S.W.2d 463, 464 (Tex. 1991); Old Colony Ins. Co. v. City of Quitman, 352

S.W.2d 452, 455 (Tex. 1961); Attayi, 745 S.W.2d at 944.


                                         20
APPENDIX A
       A material alteration of a contract is one that either injures or enhances the

guarantor’s risk of injury. United Concrete Pipe Corp. v. Spin–Line Co., Inc., 430

S.W.2d 360, 365–66 (Tex. 1968); Attayi, 745 S.W.2d at 944. Material alteration is

an affirmative defense. Attayi, 745 S.W.2d at 944; Bullock v. Kehoe, 678 S.W.2d

558, 559 (Tex. App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.). To prevail on

the defense, the guarantor must establish 1) a material alteration of the underlying

contract; 2) made without his consent; 3) which is to his detriment, meaning it is

prejudicial to his interest. Vastine, 808 S.W.2d at 464–65; Attayi, 745 S.W.2d at

944.

       Under the terms of the guaranty, the guarantors agreed to be “liable as a

primary obligor for the payment and performance of the Obligation.” They further

agreed that they “shall not have any recourse or action against Lender by reason of

any action Lender may take or omit to take . . . in connection with any security or

collateral.” Moreover, they “absolutely and unconditionally” agreed that, “if all or

any part of . . . any instrument or agreement made or executed in connection [with

the loan] is for any reason found to be . . . unenforceable, uncollectible or legally

impossible, for any reason whatsoever . . . then in any such case Guarantor shall

pay and perform the Obligations as herein provided and that no such occurrence

shall in any way diminish or otherwise affect Guarantor’s obligation hereunder.”




                                         21
APPENDIX A
       We hold that Encore was entitled to summary judgment on the guarantors’

material-alteration affirmative defense. The loss of collateral cannot be viewed as a

detriment to the guarantors to satisfy the third element of their material-alteration

defense because, under the terms of the guaranty, Encore was not obligated to take

action on the collateral before asserting a claim against the guarantors to satisfy the

debt. Accordingly, we overrule the guarantors’ third issue.

E.     Counterclaims and other defenses

       In their fourth issue, the guarantors generally assert that fact issues exist to

prevent summary judgment for Encore on their many defenses. In their brief, they

limit their argument to two of their counterclaims, that Encore: (1) negligently

misrepresented loan information to them and (2) negligently failed to secure a

superior lien. Any argument that summary judgment was improper as to their other

pleaded defenses is waived. TEX. R. APP. P. 38.1(i).

       1.    Negligent misrepresentation

       Texas follows section 552 of the Restatement (Second) of Torts on

information negligently supplied for the guidance of others, which reads:

       One who, in the course of his business, profession or employment, or
       in any other transaction in which he has a pecuniary interest, supplies
       false information for the guidance of others in their business
       transactions, is subject to liability for pecuniary loss caused to them
       by their justifiable reliance upon the information, if he fails to exercise
       reasonable care or competence in obtaining or communicating the
       information.



                                           22
APPENDIX A
RESTATEMENT (SECOND)      OF   TORTS § 552 (1977); see Fed. Land Bank Ass’n of

Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991) (applying Restatement). Thus,

the elements of a cause of action for negligent misrepresentation are:

       (1)   the representation is made by a defendant in the course of his
             business, or in a transaction in which he has a pecuniary
             interest;

       (2)   the defendant supplies ‘false information’ for the guidance of
             others in their business;

       (3)   the defendant did not exercise reasonable care or competence in
             obtaining or communicating the information; and

       (4)   the plaintiff suffers pecuniary loss by justifiably relying on the
             representation.

Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 686 n.24 (Tex. 2002); Sloane,

825 S.W.2d at 442.

       A party to a transaction may contractually agree to waive reliance on another

party’s statements. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am.,

341 S.W.3d 323, 332 (Tex. 2011); Coastal Bank SSB v. Chase Bank of Tex., N.A.,

135 S.W.3d 840, 843 (Tex. App.—Houston [1st Dist.] 2004, no pet.). “A contract

and the circumstances surrounding its formation determine whether the disclaimer

of reliance is binding.” Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171,

179 (Tex. 1997); Coastal Bank, 135 S.W.3d at 843. To be enforceable, a

contractual disclaimer of reliance must contain language that is clear and

unequivocal. Italian Cowboy Partners, 341 S.W.3d at 331, 333, 334, 336;


                                         23
APPENDIX A
Swanson, 959 S.W.2d at 179–81. This is a threshold requirement; if it is not

satisfied, the disclaimer is invalid. Italian Cowboy Partners, 341 S.W.3d at 331–36

& n.8; Allen v. Devon Energy Holdings, L.L.C., 367 S.W.3d 355, 377 (Tex. App.—

Houston [1st Dist.] 2012, pet. granted, judgm’t vacated w.r.m. 4). If the clarity

requirement is satisfied, four extrinsic factors are considered: whether (1) the terms

of the contract were negotiated or boilerplate, (2) the complaining party was

represented by counsel, (3) the parties dealt with each other at arms’ length, and

(4) the parties were knowledgeable in business matters. Forest Oil Corp. v.

McAllen, 268 S.W.3d 51, 60 (Tex. 2008); see also Tex. Standard Oil & Gas, L.P.

v. Frankel Offshore Energy, Inc., 394 S.W.3d 753, 763 (Tex. App.—Houston [14th

Dist.] 2012, no pet.); Devon Energy Holdings, 367 S.W.3d at 383.

       Regarding the clarity requirement, the guaranty agreement clearly states that

the guarantors are not relying on representations by the bank regarding the

collateral:

       Guarantor is . . . familiar with the value of any and all collateral
       intended to be created as security for the payment of the Obligations;
       however, Guarantor is not relying on . . . the collateral as an
       inducement to enter into this Guaranty. . . . Guarantor acknowledges
       and agrees that neither Lender, nor any other party has made any
       representation, warranty or statement to Guarantor in order to induce
       Guarantor to execute this Guaranty.

4
       See TEX. R. APP. P. 56.3 (noting that intermediate appellate opinions retain
       precedential value even if case is dismissed as result of settlement following filing
       of petition for discretionary review, unless order of Texas Supreme Court
       specifically provides otherwise).

                                            24
APPENDIX A
The guaranty further provides:

       Guarantor acknowledges and agrees that this Guaranty accurately
       represents and contains the entire agreement between Guarantor and
       Lender with respect to the subject matter hereof, that Guarantor is not
       relying, in the execution of this Guaranty, on any representations
       (whether written or oral) made by or on behalf of Lender except as
       expressly set forth in this Guaranty, and that any and all prior
       statements and/or representations made by or on behalf of Lender to
       Guarantor (whether written or oral) in connection with the subject
       matter hereof are merged herein.

Thus, the terms of the guaranty clearly and unequivocally state that the guarantors

waive reliance.

       The first extrinsic factor is whether the terms of the guaranty were

negotiated. There is no indication in the record that they were. This factor weighs

in favor of the guarantors.

       The next factor asks whether the guarantors were represented by counsel. At

least one of the three guarantors is a licensed attorney. That experience would have

informed him of the benefits that counsel can provide to a party contemplating a

large transaction. Relatedly, the size of this transaction and the amount of the

guarantees that were executed would suggest that each of these guarantors was in a

financial position to retain counsel, had each chosen to seek legal advice. Further,

the guarantors confirmed in the guaranty that they had the ability to seek legal

advice:

       Guarantor acknowledges that Guarantor has been afforded the
       opportunity to receive the advice of legal counsel of its own choice in


                                         25
APPENDIX A
       connection with the preparation and negotiation of this Guaranty, and
       Guarantor fully understands the implications and ramifications of the
       agreements herein made by Guarantor.

Given that one of the three was an attorney and they knowingly elected not to

retain additional, outside counsel, this factor favors a determination that reliance

was waived.

       Next we consider whether this contract resulted from an arms’ length

transaction. Each of the guarantors was an experienced businessperson or lawyer.

This was a $6 million transaction with an established bank. All aspects of this

transaction were consistent with an arms’ length relationship. This factor weighs

in favor of enforcement.

       The final factor is whether the guarantors were knowledgeable in business

matters. As noted in a related federal-court opinion, the guarantors were

experienced, successful businessmen, though without experience in this type of

endeavor:

       The vessel’s owner, BLyn, is comprised of . . . businessmen . . . . But
       none of the businessmen had any experience with refitting a vessel,
       much less refitting one that was old and in disrepair, with the end goal
       of producing a luxurious yacht. They did not understand the scope of
       the project and started down the refit road without a clear idea of their
       destination. It seems that there are quite a few optional details in
       yacht-building—expensive details. Despite their success in other
       endeavors, the BLyn members did not know how to manage this
       project.

Horizon Shipbuilding, 2012 WL 2911918, at *1.



                                          26
APPENDIX A
       Even without experience in maritime matters or yacht refurbishments in

particular, these were experienced businessmen who were entering into an arm’s

length transaction involving a significant loan and personal guaranty. “A party to

an arm’s length transaction must exercise ordinary care and reasonable diligence

for the protection of his own interests, and a failure to do so is not excused by mere

confidence in the honesty and integrity of the other party.” Coastal Bank, 135

S.W.3d at 843; see Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962). Under

these circumstances, it would have been unreasonable for the guarantors to have

relied on the lender to educate them on the maritime-lien priority system or to

protect their rights to the collateral over the rights of third parties. See Swanson,

959 S.W.2d at 180–81 (noting that, in context of tort claim based on assertion of

fraudulent non-disclosure of pertinent information, there is no duty to disclose

absent evidence of partnership or confidential relationship). This factor favors

enforcement.

       Three of the four Forest Oil extrinsic factors favor enforcement. Thus, we

conclude that the guarantors contractually disclaimed reliance on any extrinsic

statements made by Encore regarding lien priority or the possibility of offsetting

Blyn’s or the guarantors’ obligations with the collateral. Accordingly, the trial

court did not err in granting summary judgment to Encore on this issue.




                                         27
APPENDIX A
       2.    Negligence

       The guarantors contend that Encore was negligent in its handling of the Blyn

loan and collateral: “Encore’s negligent failure to obtain a subordination

agreement, perfected UCC liens and a first mortgage on the Vessel increased the

risk of harm to the [guarantors]. The [guarantors] relied on Encore . . . and

Encore’s failure to act with ordinary care . . . has caused financial harm to [them].”

Encore moved for summary judgment on the counterclaim—characterizing it as a

breach-of-contract claim repackaged into a tort claim—and argued that the

economic loss rule applied. According to Encore, the guarantors neither

established that Encore owed them a duty nor provided any evidence of the

remaining negligence elements. The trial court granted summary judgment in the

bank’s favor on the guarantors’ negligence counterclaim.

       We conclude that, for two reasons, the trial court did not err in granting

summary judgment to Encore on this issue. First, any damages that might have

resulted from Encore’s failure to collateralize the loan properly were economic

losses arising from the contract. The economic loss rule generally precludes

recovery in tort for economic losses resulting from a party failing to perform under

a contract. Lamar Homes, Inc. v. Mid–Continent Cas. Co., 242 S.W.3d 1, 12 (Tex.

2007); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex. 1991); Acad. of

Skills & Knowledge, Inc. v. Charter Schs., USA, Inc., 260 S.W.3d 529, 541 (Tex.



                                         28
APPENDIX A
App.—Tyler 2008, pet. denied). “The focus of the rule ‘is on determining whether

the injury is to the subject of the contract itself.’” Acad. of Skills & Knowledge,

260 S.W.3d at 541 (quoting Lamar Homes, 242 S.W.3d at 12). This is because,

“[w]hen the injury is only the economic loss to the subject of a contract itself, the

action sounds in contract alone.” Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617,

618 (Tex. 1986). The economic loss rule restricts contracting parties to contractual

remedies for their economic losses, even when the breach might reasonably be

viewed as a consequence of the contracting party’s negligence. Lamar Homes, 242

S.W.3d at 12–13. “If the action depends entirely on pleading and proving the

contract in order to establish a duty, the action remains one for breach of contract

only, regardless of how it is framed by the pleadings.” OXY USA, Inc. v. Cook, 127

S.W.3d 16, 20 (Tex. App.—Tyler 2003, pet. denied).

       For a contracting party to be held liable under a tort theory, the liability must

arise independently of the existence of a contract between the parties; the

defendant must breach a duty imposed by law rather than by the contract. See

DeLanney, 809 S.W.2d at 494. Here, the guarantors allege that their business

dealings with Encore required the bank to collateralize the loan properly and its

failure to do so caused the guarantors to lose the collateral, thereby increasing their

financial liability under the guaranty. This is a breach-of-contract claim seeking to

recover economic losses.



                                           29
APPENDIX A
       Second, the guaranty agreement specifically stated that Encore would not be

liable to the guarantors for failing to secure or apply the collateral against the

guarantors’ obligation: “Guarantor specifically agrees that . . . Guarantor shall not

be entitled to require, that Lender . . . make any effort . . . to realize upon any

security or . . . exercise or assert any other right or remedy to which Lender is or

may be entitled in connection with . . . such security or collateral . . . .” Further,

“Guarantor specifically agrees that Guarantor shall not have any recourse or action

against Lender by reason of any action Lender may take or omit to take in

connection with . . . any security or collateral or any other guaranty at any time

existing therefor.” The guarantors also “absolutely and unconditionally” agreed

that if any part of the agreement “is for any reason found to be invalid, . . .

uncollectible or legally impossible, for any reason whatsoever . . . that no such

occurrence shall in any way diminish or otherwise affect Guarantor’s obligation

hereunder.” Thus, under the terms of the agreement, Encore did not owe any duty

to the guarantors to secure the collateral or apply it against the guarantors’

obligations.

       We overrule the guarantors’ fourth issue.

F.     Taylor’s Duress Defense

       One of the guarantors, Taylor, separately contends that Encore took a “sign

it or else” position with him when it presented him with the original loan



                                         30
APPENDIX A
documents and required him to sign them immediately without permitting him time

to have counsel review them. Taylor argues that a fact issue exists related to his

duress defense, which prevents summary judgment in Encore’s favor.

       This claim fails as a matter of law because a defense of duress is not

available unless evidence supports the conclusion that the party against whom the

defense is asserted is the same party that created the duress: “Economic duress

must be based on the acts or conduct of the opposite party and not merely on the

necessities of the purported victim, or on his fear of what a third person might do.”

Brown v. Cain Chem., Inc., 837 S.W.2d 239, 244 (Tex. App.—Houston [1st Dist.]

1992, writ denied); see First Tex. Sav. Ass’n of Dall. v. Dicker Ctr., Inc., 631

S.W.2d 179, 185–86 (Tex. App.—Tyler 1982, no writ) (“[E]conomic duress may

be claimed only when the party against whom it is claimed was responsible for

claimant’s financial distress.”).

       “[T]he mere fact that a person enters into a contract with reluctance, or as a

result of the pressure of business circumstances, financial embarrassment, or

economic necessity, does not, of itself, constitute business compulsion or economic

duress invalidating the contract.” Dicker Ctr., 631 S.W.2d at 186. “Stress of

business conditions will not constitute duress unless the defendant was responsible

for that condition.” Id.




                                         31
APPENDIX A
       Taylor claims that Encore pressured him into signing the original loan

documents quickly and that he feared Blyn would default on its obligations to

Crimson if the loan was not approved. There is no evidence that Encore was

responsible for the economic pressure Taylor felt when he signed the loan

documents. Choosing to begin a large-scale refurbishment project before funding

had been secured was Blyn’s decision; there is no evidence of coercion or duress

by Encore to pursue these activities or to do so in this order.

       Moreover, a party may ratify a contract that he previously had a right to

repudiate. Thomson Oil Royalty, LLC v. Graham, 351 S.W.3d 162, 165–66 (Tex.

App.—Tyler 2011, no pet.); see Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d

671, 676–77 (Tex. 2000); see also Sawyer v. Pierce, 580 S.W.2d 117, 122 (Tex.

App.—Corpus Christi 1979, writ ref’d n.r.e.). “Ratification occurs when one,

induced by fraud to enter into a contract, continues to accept benefits under the

contract after he becomes aware of the fraud, or if he conducts himself in such a

manner as to recognize the contract as binding.” Sawyer, 580 S.W.2d at 122; see

Cordero v. Tenet Healthcare Corp., 226 S.W.3d 747, 751–52 (Tex. App.—Dallas

2007, pet. denied); Dicker Ctr., 631 S.W.2d at 186. When a defrauded party

ratifies a contract, it “waives any right to seek rescission.” Sawyer, 580 S.W.2d at

122; Dicker Ctr., 631 S.W.2d at 186.




                                          32
APPENDIX A
       After he executed the loan documents in 2008, Taylor twice renewed his

obligations under the guaranty by extending the maturity date on the loan and

contractually binding himself to additional interest payments and, ultimately, the

full amount of principal due. “When a note is made in renewal of a prior obligation

known by the maker to be fraudulent or without consideration, the renewal note

constitutes a waiver of the defense.” Roquemore v. Nat’l Commerce Bank, 837

S.W.2d 212, 214–15 (Tex. App.—Texarkana 1992, no writ) (citing City of

Houston v. Lyons Realty, Ltd., 710 S.W.2d 625, 629 (Tex. App.—Houston [1st

Dist.] 1986, no writ)); see Cordero, 226 S.W.3d at 751–52 (affirming summary

judgment for corporation because employee ratified agreement after learning of

alleged fraud). Thus, Taylor may not rely on a duress defense to avoid his

obligations under the guaranty agreement.

       We overrule the issue raised in Taylor’s supplemental brief.

              Objection to Encore’s Summary-Judgment Evidence

       In their fifth and final issue, the guarantors contend that the trial court erred

by overruling various objections to Encore’s summary-judgment evidence. In

particular, they argue that the affidavit of John Lingor contained conflicting and

conclusory statements.

       Evidentiary rulings are committed to the trial court’s sound discretion. City

of Brownsville v. Alvarado, 897 S.W.2d 750, 753 (Tex. 1995); Simien v. Unifund



                                           33
APPENDIX A
CCR Partners, 321 S.W.3d 235, 239 (Tex. App.—Houston [1st Dist.] 2010, no

pet.). A trial court abuses its discretion when it rules “without regard for any

guiding rules or principles.” Alvarado, 897 S.W.2d at 754. An appellate court must

uphold the trial court’s evidentiary ruling if there is any legitimate basis for the

ruling. See State Bar of Tex. v. Evans, 774 S.W.2d 656, 658 n.5 (Tex. 1989).

Moreover, an erroneous evidentiary ruling will not be reversed unless the error

probably caused the rendition of an improper judgment. See TEX. R. APP. P.

44.1(a); Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex.

1998).

       The guarantors contend that Lingor’s affidavit conflicts with his deposition

testimony and his various other affidavits, thus creating a fact issue. If summary-

judgment evidence demonstrates that a genuine issue of material fact exists,

summary judgment should be denied. See TEX. R. CIV. P. 166a(c). But the conflicts

identified in Lingor’s affidavit are immaterial. The guarantors complain that

Lingor failed to identify the FPSM as a “loan document.” While that is true,

Encore conceded in its petition that the FPSM was a loan document, and it never

argued to the contrary.

       Additionally, the guarantors complain that Lingor alternatively describes the

guarantee as “primary security” or “additional security” but offers no explanation

why this semantic distinction constitutes a material fact issue. Therefore, any



                                         34
APPENDIX A
conflict in Lingor’s affidavit does not demonstrate a genuine issue of material fact.

See id.

       The guarantors further complain that Lingor’s affidavit contained

“conclusory statements.” We disagree. “A conclusory statement is one that does

not provide the underlying facts to support the conclusion.” Rizkallah v. Conner,

952 S.W.2d 580, 587 (Tex. App.—Houston [1st Dist.] 1997, no writ); Contractors

Source, Inc. v. Amegy Bank Nat’l Ass’n, No. 01-13-01000-CV, 2015 WL 505195,

at *2 (Tex. App.—Houston [1st Dist.] Feb. 5, 2015, no pet.). Here, the objected-to

statements summarize the business transactions plainly evidenced by business

records. Therefore, the statements are not conclusory.

       We overrule the guarantors’ issue related to the affidavit.

                                     Conclusion

       Having overruled all issues presented in the guarantors’ briefs, we affirm the

judgment of the trial court.




                                               Harvey Brown
                                               Justice

Panel consists of Justices Keyes, Higley, and Brown.




                                          35
APPENDIX A
                                       CONSENT OF GU~()RS
                This Consent of Guarantors {"Consent") is made effective as of March 15,2010, by the
       lllldersigncd(the "Guarantors"), for the benefitofENCORE:SANK, NATIONALASSOCIATION
       (the "under:").

                                                 RECITALS:
               A.      Guarnntors have previously delivered to Lender the Guaranty Agreement (the
       "Guaranty Agreement'') in connection with the obligations ofBLYN II HOLDING, LLC, a.Texas
       limited liability company (the "Borrower'~ to Lender evidenced by, among other instruments
       (collectively, the "Loan Documents''}, a Promissory Note dated March 28, 2007, in the original
       principal amount of $6,000,000.00, executed by Borrower and payable to the order of Lender in
       accordance with the terms set forth therein, as modified.

               B.        Borrower has requested Lender      m modifY certain provisions oftheLoan
       Documents, as provided in the Note Modification Agreement (collectively, the "Ag,reem,en.t) of
       even date herewith, and as a condition 1hereof, Lender has required Guarantors to execute and
       deliver this Consent



              NOW. THEREFORE. for and in consideration of the premises contained herein and olher
       good and valuable considem.tion, fhe receipt and legal sufficiency of which are hereby
       acknowledged, Guarantors, jointly and severally, hereby acknowledge, confirm, and agree with
       Lender as follows:

             L      Guaranton. acknowledge and consent to each of the terms and provisions of the
       Agreement and the modification of the Loan. Docuntents, as therein provided.

                  2      Lender acknowledges and agrees thai: (i) the Guaranto~ have not released,
       modi:qed, oc waived, any claim or cause ofaction that could possibly exist against Lender, and (ii)
       Guamnt9rs have retained and reserve any claim that they may have had in the past, present, or
       fi..-tnre against Lender; and ("tii) all statutes of limitations related to any cause {)faction which
       ~rs may have with respect to the Note, Guamnty A~ement, or any agreements or liens
       related :Jhereto, ~ hereby tolled. No applicable statute of limitation -will commence to run until
       Guarantors have received written notice from Lender that the tolling agreement contained in item
       (iii) above is no longer in effect.

              3.       Whenever the conrext so requires, references.herein. to the singular number shall
       include the plural, and h"kewise the..plural. shall include the singular; words denoting gender shall
       be construed to include the masculine, feminine, and neuter, where appropriate. If Guarantors
       consist of more than one party, the obligations of each party constituting Guarantors hereunder
       shall be joint :and several,

             4.      This Consent may be executed by fac.simile and in multiple connterparts·, each of
       which shall constitute an original in.strument, all of which wi11 constitute one aud the same
       agreement

            5.   TffiS CONSENT REPRESENTS THE FINAL AGREEMENT BETWEEN
       THE PARTIES AND MAY NOT BE CONTRADICfED BY EVIDENCE OF PRIOR,
       CONI'EMPORANEOUS,ORSUBSEQUENT ORALAGREEMENTSOFTHEPARTIES.
       THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.




APPENDIX B
                                                                                                               269
                                                                                  •.
                                                                                ·. "




                 EXECUIED effective for all purposes as offh.e date first above written.
                                                                GU.AR.ANTORS:




                                                                                                 I


                                                                2
       3/30!10<8:3<lattt:H:\RSR\0020611S1107\MOD J.!O'cg;.wpd




APPENDIX B
                                                                                           270
