                                                                                       ACCEPTED
                                                                                   03-14-00607-CV
                                                                                           5072679
                                                                        THIRD COURT OF APPEALS
                                                                                   AUSTIN, TEXAS
                                                                              4/28/2015 5:33:33 PM
                                                                                 JEFFREY D. KYLE
                                                                                            CLERK
                           No. 03-14-00607-cv

                                                       FILED IN
                                                3rd COURT OF APPEALS
                   IN THE COURT OF APPEALS FOR      AUSTIN, TEXAS
            THE   THIRD DISTRICT OF TEXAS AT AUSTIN
                                                4/28/2015 5:33:33 PM
                                                  JEFFREY D. KYLE
                                                        Clerk

                        KENNETH M. HARDIN,
                             Appellant

                                     vs.

                            JOSEPH LELLA,
                               Appellee


      REPLY BRIEF OF APPELLANT KENNETH M. HARDIN


   On appeal from the County Court at Law No. 2 of Travis County, Texas
                      Cause No. C-1-CV-14-006415
                 Honorable Eric Shepperd, Judge Presiding



                                           Mark L. Aschermann
                                           SBN 01368700
                                           BARRON & NEWBURGER, PC
                                           6300 West Loop South, Suite 341
                                           Bellaire, Texas 77401
                                           Telephone (713) 942-0808
                                           Facsimile (713) 942-0449
                                           maschermann@bn-lawyers.com

                                           ATTORNEYS FOR APPELLANT


ORAL ARGUMENT REQUESTED


                            Appellant’s Reply Brief
                                      1
                                   TABLE OF CONTENTS

I. RESPONSES TO APPELLEE’S BRIEF . . . . . . . . . . . . . . . . . . . . . . . . . .                     4
II. SUMMARY OF THE ARGUMENT
      Reply Issue Number One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
      The trial court erred in granting the Motion for Summary Judgment
      because the Appellee Joseph Lella’s claims for breach of contract,
      unjust enrichment and declaratory relief are barred by limitations.
      (Reply to Appellee Issues 1, 7 and 8)
      Reply Issue Number Two. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6
      The trial court erred in granting the Motion for Summary Judgment
      because the Second Promissory Note was a novation of the First
      Promissory Note and constituted consideration to support the
      Novation. (Reply to Appellee Issues 4, 5, 9 and 10)

III. ARGUMENT AND AUTHORITIES
      Reply Issue Number One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
      Reply Issue Number Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14

IV. CONCLUSION AND REQUEST FOR RELIEF . . . . . . . . . . . . . . . . . . . 16




                                         Appellant’s Reply Brief
                                                    2
                                           INDEX OF AUTHORITIES

Cases

Barnes v. LPP Mortg., Ltd., 358 S.W.3d 301, 303 (Tex. App. Dallas 2011) ................... 12
Crego v. Lash, 2014 Tex. App. 3272 (Tex. App.—Corpus Christi, 2014, no pet.) .......... 10
CTTI Priesmeyer v. K & O Ltd. Partnership, 164 S.W.3d 675, 680-681 (Tex. App.--
  Austin 2005, no pet.) ...................................................................................................... 15
Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 871 (Tex. 2007) ... 5, 13
Joiner v. Elrod, 716 S.W.2d 606, 609 (Tex. App.- Corpus Christi 1986, no pet.) ....... 9, 10
Koch Oil Co. v. Wilber, 895 S.W.2d 854, 858 (Tex. App. Beaumont 1995) .................... 12
Loomis v. Republic Nat'l Bank, 653 S.W.2d 75, 77 (Tex. App. Dallas 1983) .................. 11
Martin v. Ford, 853 S.W.2d 680, 682 (Tex. App. Texarkana 1993) ................................ 12
National Mar-Kit, Inc. v. Forrest, 687 S.W.2d 457, 458 (Tex. App. Houston 14th Dist.
  1985) ............................................................................................................................... 11
Vandeventer v. All American Life & Casualty Co., 101 S.W.3d 703, 712 (Tex. App.--Fort
  Worth 2003, no pet.) ....................................................................................................... 15
Wiman v. Tomaszewicz, 877 S.W.2d 1, 3 (Tex. App. Dallas 1994) .................................. 12


Statutes

Texas Civil Practice and Remedies Code §16.003........................................................ 5, 13
Texas Civil Practice and Remedies Code §16.004.............................................................. 7




                                                      Appellant’s Reply Brief
                                                                    3
                  I. RESPONSES TO APPELLEE’S BRIEF

1.    The trial court erred in granting the Motion for Summary Judgment

because the Appellee Joseph Lella’s claims are barred by limitations. (Reply

to Appellee Issues 1, 7 and 8)

2.    The trial court erred in granting the Motion for Summary Judgment

because the Second Promissory Note was a novation of the First Promissory

Note and constituted consideration to support the Novation. (Reply to

Appellee Issues 4, 5, 9 and 10)




                    II. SUMMARY OF THE ARGUMENT

Reply Issue Number One

1.    The trial court erred in granting the Motion for Summary Judgment

because the Appellee Joseph Lella’s claims for breach of contract, unjust

enrichment and declaratory relief are barred by limitations. (Reply to

Appellee Issues 1, 7 and 8)

      Three Promissory Notes (C.R. 50-55) are at issue in this matter, each for the

principal amount of $30,000.00 plus interest. Each included the following

language: “The initial loan shall be for a minimum period of six months, thereafter

paymant [sic] of the entire balance plus any unpaid interest compounded monthly,


                                  Appellant’s Reply Brief
                                            4
is due upon demand in writing, sixty days prior to expected date of receipt thereof,

to the undersigned at the address herein below.” The Appellee Lella argues that

his cause of action did not accrue and limitations did not begin to run until he made

demand for payment of the First Promissory Note in February 2013 (C.R. 56).

      No interest was paid to Lella after 2003, as all interest was paid to his wife

consistent with the Second and Third Promissory Notes. Accordingly, the First

Promissory Note was in default, the cause of action accrued, and the statute of

limitations began to run in 2003. Additionally and/or alternatively, a fact issue

precluding summary judgment exists as to the date of accrual of the cause of action

related to the unreasonable delay in making demand for payment.

      Lella advanced the money in 1996 and received interest pursuant to the First

Promissory Note through 2003.       Unjust enrichment claims are governed by the

two-year statute of limitations the Texas Civil Practice and Remedies Code

§16.003. Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 871

(Tex. 2007). As noted in Issue Number One, Lella’s cause of action accrued no

later than January 2004. Thus, the limitations period expired in January 2006,

more than 7 years before he made this claim. As a result, the Trial Court’s

summary judgment on unjust enrichment must be reversed.

      As to the Appellee’s request for Declaratory Relief, any cause of action for

Declaratory Relief was contemporaneous with the breach of contract cause of


                                 Appellant’s Reply Brief
                                           5
action on the Promissory Note so that the same limitations period applies.

Otherwise the declaratory judgment cause of action would be become the safe

haven for all time barred claims.

Reply Issue Number Two

2.    The trial court erred in granting the Motion for Summary Judgment

because the Second Promissory Note was a novation of the First Promissory

Note and constituted consideration to support the Novation. (Reply to

Appellee Issues 4, 5, 9 and 10)

      In 2003 the First Promissory Note was replaced by the Second Promissory

Note, which lowered the interest rate and changed the Payee to Elisabeth Lella,

Appellee’s wife. The Second Promissory Note was the consideration to support

the novation of the First Promissory Note. The facts and circumstances of these

transactions create a fact issue which precludes summary judgment.



                    III. ARGUMENT AND AUTHORITIES

Reply Issue Number One

1.    The trial court erred in granting the Motion for Summary Judgment

because the Appellee Joseph Lella’s claims for breach of contract, unjust

enrichment and declaratory relief are barred by limitations. (Reply to

Appellee Issues 1, 7 and 8)


                                    Appellant’s Reply Brief
                                              6
      Joseph Lella filed his Plaintiff’s Original Petition on May 9, 2013 (C.R. 8).

Thus, if Lella’s cause of action accrued on or before May 9, 2009, Lella’s claim is

barred by the statute of limitations.         Tex. Civ. Prac. Rem. Code §16.004.

Appellee’s causes of action accrued at least by the year 2003 when all interest

payments were sent to Appellee’s wife Elisabeth Lella.

      In his Conclusion, Appellee avers: “It is unchallenged that Appellant is in

breach of his contract under the note with Appellee. Appellant did not breach the

contract until demand for payment was made and ignored.” The Appellant and

Appellee are in agreement that the First Promissory Note is in default, assuming it

was not replaced by novation through the Second Promissory Note.

      The question before the Court is: When did the cause of action accrue on

the First Promissory Note? Was it upon demand by the Appellee in 2013? Was it

when the note was made? Or was it the default in 2003 after which Appellee no

longer received any interest payments as the payments were sent to his wife

Elisabeth?

      Both Appellant and Appellee agree that interest was paid to Appellee’s wife

Elisabeth (Appellee’s Brief p. 5). The payment to Elisabeth was accompanied by

correspondence, the Second Promissory Note, a reduced interest rate, and tax

reporting of the interest to Elisabeth (CR 50-55, 130-136).      Appellee silently

agreed to these changes, complaining that he was the rightful recipient of the debt


                                Appellant’s Reply Brief
                                          7
only after Richard Crawford filed a bankruptcy petition and ceased paying interest

to Elisabeth. (CR 71) He explains his silence as:

      Formal demand for full interest payments were not made in an attempt to
      help Crawford, the husband of Appellee’s niece, in his business. (C.R. 48)
      Mrs. Lella had conversations with Crawford in which she tried to discuss the
      attempt to change the terms of the agreement, and the fact that the interest
      payments being made were not as promised. These attempted discussions
      proved fruitless. (CR 48; CR 60)
      Appellee’s Brief p 6; (emphasis added).

Appellee has offered no written documentation of these ‘fruitless’ conversations by

Mrs. Lella with her niece’s husband.      It should also be noted that Mrs. Lella, not

Appellee, had these conversations with Crawford.

      Regardless of whether the Second Promissory Note is considered a legal

novation of the First Promissory Note, there is no factual dispute that Joseph Lella

received NO interest payments after 2003.

      The Kenneth Hardin affidavit states that: “Based upon this new note we sent

all interest payments to Elisabeth Lella along with IRS 1099 report.          To my

knowledge both Elisabeth and Joseph Lella agreed to this change, accepted the

interest payments and never complained about the reduced interest rate or the

direction of payments to Elisabeth Lella” (CR 125). A copy of the Americus

Diamonds handwritten note ledger (CR 130-131), general ledger payments to

Elisabeth Lella, and IRS reporting statements to Elisabeth Lella (CR 133-136)




                                 Appellant’s Reply Brief
                                           8
were part of Appellant’s Summary Judgment Response.1                 Elisabeth Lella

cooperated by providing her Canadian tax information to Appellant and his partner

(CR 130, 136).

      The Appellee’s Brief for Lella is silent as to Lella’s explanation for this lost

decade other than stating that payments were made to his wife at his request. One

must refer back to Lella’s Motion for Summary Judgment to obtain his legal

position on this point.

       Lella defended his decade of inaction by saying that “Plaintiff did not make

formal demand earlier “in an attempt to help (his) niece’s husband in his business”

(C.R. 148). Lella also attempts to excuses this forbearance with the statement “a

party can waive contractual provisions for his own benefit. Joiner v. Elrod, 716

S.W.2d 606, 609 (Tex. App.- Corpus Christi 1986, no pet.).”

      As stated in Appellant’s Brief at page 20, in Joiner, the real estate buyer

Elrod, through a Trustee, offered to buy real estate owned by Joiner. A written

offer was sent to Joiner with a deadline by which the offer expired.            Joiner

accepted the offer after the deadline and mailed the contract to Elrod but later that

day sent a telegram revoking that consent. Elrod sued for specific performance.

      The above quote needs to be placed in context as a few lines later the Joiner

court said:

1
 Appellant notes that the Trial Court excluded this evidence to the extent it
supports the novation defense but not as to the limitations defense. (RR 11)
                                 Appellant’s Reply Brief
                                           9
      Moreover, a party can waive provisions for his benefit. As notification of
      acceptance is required for the benefit of the person who makes the offer, the
      person who makes the offer may dispense with notice to himself. If the
      offeror intimates a particular mode of acceptance is sufficient to make the
      bargain binding, it is only necessary that the offeree follow the indicated
      method of acceptance.
      Joiner, supra, at 609

Therefore, Joiner can be distinguished from the instant case.

      Hardin and Crawford acted in reliance on the Second and Third Promissory

Notes, paying interest to Elisabeth Lella, not Joseph Lella, and paying a lower rate

of interest. Additionally, the timing of the receipt of acceptance of the offer was a

minor matter in the Joiner transaction for which agreement was readily made.

Lella attempts to waive a decade of continued effort by Hardin and then Crawford.

Lella’s attempted waiver is only for his own benefit and should be disregarded.

      All of the documentation of the loans, the correspondence between the

parties, and the later behavior of the parties was consistent with the replacement of

the First Promissory Note by novation through the Second Promissory Note. If

there was not a novation of the First Promissory Note, Appellant was in breach of

its provisions because no interest was paid to Appellee after 2003, as all interest, at

a reduced rate, was paid to his wife Elisabeth Lella.

      Appellee refers to only three cases on the limitations issue. The first is

Crego v. Lash, 2014 Tex. App. 3272 (Tex. App.—Corpus Christi, 2014, no pet.),

which Appellee attempts to distinguish.
                                  Appellant’s Reply Brief
                                            10
      The second is National Mar-Kit, Inc. v. Forrest, 687 S.W.2d 457, 458 (Tex.

App. Houston 14th Dist. 1985) which involves an oral agreement followed by a

written contract during a time when there were different limitations period for oral

and written contracts.      The limitations argument was rejected because the

Legislature changed the limitations statute to a single four year limitations period

for both oral and written contracts.

      The third is Loomis v. Republic Nat'l Bank, 653 S.W.2d 75, 77 (Tex. App.

Dallas 1983) which involved an installment note from Loomis to Republic

National Bank payable “on demand or if no demand be made 1-31-77.” Republic

National Bank filed suit on January 28, 1981. Loomis argued that the obligation

was a demand note and that the cause of action accrued on July 30, 1976, the date

of the making of the note. The Loomis court held:

      We construe the note to mean that it was due on January 31, 1977, unless a
      prior demand had been made. In the event that no demand was made prior to
      January 31, 1977, the note provides that demand was waived. We hold that
      the note matured on January 31, 1977, and that suit was brought thereon
      within the four year statute of limitations.
      Loomis, supra at 78

It is unclear how that holding is applicable to the case at bar.

      There is a brief but clear written record of the dealings between Appellant

and Appellee on this matter.           There are the three Promissory Notes with

contemporaneous correspondence (CR 50-55) and the records of the Americus

Diamonds business on the payment of the interest (CR 130-136). Appellee has no
                                   Appellant’s Reply Brief
                                             11
written evidence of his position in 2003, other than his gratuitous comments in his

April 10, 2014 Affidavit (CR 47-49), more than a decade after the key events

transpired.

      Even if a Note is payable after formal demand, the demand must be made in

a reasonable time, depending on the circumstances of each case.                 Absent

mitigating circumstances, demand is reasonable if made within the period of

limitations. Martin v. Ford, 853 S.W.2d 680, 682 (Tex. App. Texarkana 1993),

Barnes v. LPP Mortg., Ltd., 358 S.W.3d 301, 303 (Tex. App. Dallas 2011), Wiman

v. Tomaszewicz, 877 S.W.2d 1, 3 (Tex. App. Dallas 1994), Koch Oil Co. v. Wilber,

895 S.W.2d 854, 858 (Tex. App. Beaumont 1995).

      In the alternative, if the claim on the First Promissory Note is not barred by

limitations as a matter of law, a fact issue precluding summary judgment exists as

to the day the cause of action accrued as Lella unreasonably delayed making

demand for payment of the First Promissory Note. When a cause of action accrues

is uniquely a fact issue. At a minimum, Appellant raised a fact issue as to whether

Lella’s cause of action accrued more than four years before the date of suit.

      Accordingly, the First Promissory Note was in default, the cause of action

accrued, and the statute of limitations began to run in 2003. Additionally and/or

alternatively, a fact issue precluding summary judgment exists as to the date of




                                 Appellant’s Reply Brief
                                           12
accrual of the cause of action related to the unreasonable delay in making demand

for payment.

      The Appellant did not respond with a laches defense in the trial court so no

response is made here.

      Lella advanced the money in 1996 and received interest pursuant to the First

Promissory Note through 2003. Unjust enrichment claims are governed by the

two-year statute of limitations, Texas Civil Practice and Remedies Code §16.003.

Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 871 (Tex. 2007).

As noted in Issue Number One, Lella’s cause of action accrued no later than

January 2004.     Thus, the limitations period for any unjust enrichment claim

expired in January 2006, more than 7 years before he made this claim. As a result,

the Trial Court’s summary judgment on unjust enrichment must be reversed.

      As to the Appellee’s request for Declaratory Relief, any cause of action for

Declaratory Relief was contemporaneous with the breach of contract cause of

action on the Promissory Note so that the same limitations period applies.

Otherwise the declaratory judgment cause of action would become the safe haven

for all time barred claims.




                                Appellant’s Reply Brief
                                          13
Reply Issue Number Two

2.    The trial court erred in granting the Motion for Summary Judgment

because the Second Promissory Note was a novation of the First Promissory

Note and constituted consideration to support the Novation. (Reply to

Appellee Issues 4, 5, 9 and 10)

      Appellant raised novation as a fact issue precluding summary judgment in

his Response to Motion for Summary Judgment.                Appellant supported his

Response with competent summary judgment evidence establishing that the

Second Promissory Note was a replacement of the First Promissory Note. As

further evidence of the intent of the parties to make the obligation payable to

Elisabeth Lella, paragraph 4 of the Second Promissory Note stated: “This NOTE

replaces and invalidates all previous NOTEs between American Diamond and

(handwritten) Elisabeth Lella” (C.R. 53).

      Ample evidence exists in the record to support the novation defense. As a

result, there was a fact issue as to whether novation applied and summary

judgment was improper.

      Appellee argues that there was no consideration to support a novation.

However, the record clearly shows that the Second Promissory Note was the

consideration for the novation of the First Promissory Note (C.R. 53).




                                  Appellant’s Reply Brief
                                            14
      Novation is the creation of a new obligation in place of an old one. Under

the novation, the parties may agree that a new obligor is substituted to perform the

duties agreed on in the old contract and the original obligor is released from

performing those duties. Vandeventer v. All American Life & Casualty Co., 101

S.W.3d 703, 712 (Tex. App.--Fort Worth 2003, no pet.).

      The consent to substitute a new obligor and release the original obligor may

be express or implied. Vandeventer v. All American Life & Cas. Co., 101 S.W.3d

703, 712-713 (Tex. App.--Fort Worth 2003, no pet.). In the absence of an express

agreement, whether a new contract operates as a novation of an earlier contract is

usually a question of fact. It becomes a question of law only if the evidence would

not cause reasonable minds to differ as to its effect. CTTI Priesmeyer v. K & O

Ltd. Partnership, 164 S.W.3d 675, 680-681 (Tex. App.--Austin 2005, no pet.).

      Accordingly, the First Promissory Note was in default, the cause of action

accrued, and the statute of limitations began to run in 2003. Additionally and/or

alternatively, a fact issue precluding summary judgment exists as to the date of

accrual of the cause of action related to the unreasonable delay in making demand

for payment.

      The three Promissory Notes and related correspondence (C.R. 50-55, 83)

show that Hardin and Lella intended for the Second Promissory Note to replace the

First Promissory Note. Hardin’s affidavit (C.R. 125) stated that Joseph Lella


                                 Appellant’s Reply Brief
                                           15
agreed, and in fact asked, that his wife Elisabeth be the payee on the Second

Promissory Note(s) and that interest payments be directed to her. Even without

this testimony from Hardin, the actions (and lack of action) of the Lellas speak

loudly to this outcome.

      Joseph Lella was aware of the Second Promissory Note and accepted the

benefit of the changes, while failing to protest for over 10 years.




              IV. CONCLUSION AND REQUEST FOR RELIEF

      In 2003, if not earlier, Lella asked that interest on the First Promissory Note

be paid to his wife Elisabeth.          Hardin and his partner Richard Crawford

accommodated this request by preparing, signing, and forwarding the Second

Promissory Note to Joseph and Elisabeth Lella and paying the required interest to

her. Joseph Lella did not object to this change until he made demand in 2013,

almost a decade later.    Lella’s breach of contract claim on the First Promissory

Note, any unjust enrichment claim, and his request for declaratory relief are thus

barred by the statute of limitations.

      Additionally, the claim for relief under the theory of unjust enrichment is

invalid because the existence of the First Promissory Note, a valid existing

contract, precludes recovery on the theory of unjust enrichment and as with the


                                   Appellant’s Reply Brief
                                             16
claim for breach of contract, is barred by limitations. Finally, the request for

declaratory relief is not supported by either pleadings or an order so that no relief

should be granted.

      For these reasons, Kenneth M. Hardin, Appellant, requests that this court

reverse and remand this matter to the trial court. Hardin also requests any other

relief to which he may be entitled.

                                                Respectfully Submitted,

                                                _/s/ Mark L. Aschermann______
                                                Mark L. Aschermann
                                                SBN 01368700
                                                BARRON & NEWBURGER, PC
                                                6300 West Loop South, Suite 341
                                                Bellaire, Texas 77401
                                                Telephone (713) 942-0808
                                                Facsimile (713) 942-0449
                                                maschermann@bn-lawyers.com

                                                ATTORNEYS FOR APPELLANT


                      CERTIFICATE OF COMPLIANCE

      I certify , according to the word count feature of the Word program used to
create this Brief, this Brief contains a total of 3,026 words in pages numbered 3
through 17.
                                               _/s/ Mark L. Aschermann______
                                               Mark L. Aschermann




                                 Appellant’s Reply Brief
                                           17
                         CERTIFICATE OF SERVICE

      This is to certify that on the 28th day of April, 2015, a true and correct copy
of the foregoing document was served on the parties listed below at the address
and in the manner indicated.

William M. Nichols                         _/s/ Mark L. Aschermann______
WILLIAM M. NICHOLS, P.C.                   Mark L. Aschermann
9601 McAllister Freeway, Suite 1250
San Antonio, Texas 78216-5150
Via E Delivery and Facsimile to (210) 340-8885




                                 Appellant’s Reply Brief
                                           18
