Wernecke v. W-Bar Ranches, Ltd.

MICHELE MARIE WERNECKE,INDIVIDUALLY AND AS PARENT,GUARDIAN AND/OR NEXT FRIEND OF JO. EW.,A MINOR AND JOSHUA EDWARD WERNECKE, Appellants, v. W-BAR RANCHES, LTD.,E&M RANCHES, L.T.D.,AND 3JKC INVESTMENTS, LTD., Appellees.

NUMBER 13-12-00782-CV

COURT OF APPEALS THIRTEENTH DISTRICT OF TEXAS CORPUS CHRISTI - EDINBURG

Filed: October 3, 2013

On appeal from the 94th District Court of

Nueces County, Texas.

MEMORANDUM OPINION

Before Chief Justice Valdez and Justices Garza and Perkes

Memorandum Opinion by Justice Garza

This is an appeal from a summary judgment granted in a declaratory judgmentaction. Appellee limited partnerships W-Bar Ranches, Ltd., E&M Ranches, Ltd., and 3JKC Investments, Ltd. ("W-Bar," "E&M," and "3JKC," respectively), sought a declaration that the partnership agreements governing those entities should be rescinded as to Joshua Edward Wernecke,¹ a minor who was named in the agreements as a limited partner. The trial court granted summary judgment in favor of the partnerships on the basis of unilateral mistake. Appellants Joshua and his mother Michele Marie Wernecke, individually and as parent, guardian and/or next friend of Joshua, now challenge that ruling. We affirm.

I. BACKGROUND

Michele and Edward Wernecke were married in 1990. Five children were born during the marriage, including Joshua, born on January 4, 2000. Edward created the three partnerships over the next ten years. The partnership property consists of farming and ranching operations owned or purchased by Edward, as well as a life estate in certain real property inherited by Edward from his parents, with a remainder to Edward's children. Edward drafted partnership agreements for each of the three entities. According to Edward, the purpose of setting up the partnerships was to protect the land and agricultural operations for himself, for his wife, and for his children, grandchildren and descendants.

Each of the partnership agreements named Joshua as an original limited partner.² In 2010, Edward and Michele divorced. During the divorce proceedings, it was revealed that Joshua is not, in fact, Edward's biological child. As a result, Edward executed amendments to the partnership agreements removing Michele and Joshua as partners.

Subsequently, appellants sent a demand seeking the fair value of Joshua's interest in the partnerships. See TEX. BUS. ORGS. CODE ANN. § 153.111 (West 2011) ("Except as otherwise provided by Section 153.210 or the partnership agreement, on withdrawal a withdrawing limited partner is entitled to receive, not later than a reasonable time after withdrawal, the fair value of that limited partner's interest in the limited partnership as of the date of withdrawal."). In response, the partnerships filed suit seeking a declaration that the partnership agreements are rescinded as to Joshua. Appellants answered the suit by generally denying the partnerships' allegations and asserting the affirmative defenses of waiver and estoppel. Appellants also filed a counterclaim for breach of the partnership agreements, demand for an accounting, and request for determination of redemptive terms. See id.

The partnerships filed a traditional motion for summary judgment based on unilateral mistake, claiming that Edward was under the mistaken belief that Joshua was his biological son when he included him as a limited partner. According to an affidavit by Edward, he named Joshua as a limited partner in the agreements only because he mistakenly believed that Joshua was his biological son; and he was "shocked" when helearned, after Michele filed for divorce in 2010, that Joshua was not biologically related to him. The partnerships' motion also stated that, because the partnership agreements "must be rescinded as to [Joshua]," he and Michele must take nothing by their counterclaims.

In their response to the partnerships' summary judgment motion, appellants urged that summary judgment would be improper because there is a fact issue regarding whether the provisions in the partnership agreements naming Joshua as a partner were material. See, e.g., James T. Taylor & Son, Inc. v. Arlington Indep. Sch. Dist., 160 Tex. 617, 620 (1960) (noting that, in order to obtain equitable rescission of a contract by virtue of unilateral mistake, it must be shown that the mistake, among other things, related to a material feature of the contract). In support of this argument, and in support of their waiver and estoppel affirmative defenses, appellants pointed to the partnership agreements themselves, in which individuals other than Joshua who are not biological children of Edward are named as limited partners.

The trial court granted the partnerships' motion, declaring the agreements rescinded as to Joshua and ordering that Joshua and Michele take nothing by their counterclaims. Joshua and Michele filed a motion for reconsideration, which was denied. This appeal ensued.

II. DISCUSSION

A. Standard of Review

In a traditional motion for summary judgment, the movant has the burden to establish that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). If the movant meets its burden, the burdenshifts to the non-movant to produce summary judgment evidence that raises a fact issue. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222 (Tex. 1999).

We review the granting of a traditional motion for summary judgment de novo. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We review the evidence presented in the motion and response in the light most favorable to the party against whom the summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. Id.

When a defendant moves for summary judgment based on an affirmative defense, such as unilateral mistake, the defendant, as movant, bears the burden of conclusively proving each essential element of that defense. Fed. Deposit Ins. Corp. v. Lenk, 361 S.W.3d 602, 609 (Tex. 2012); Velsicol Chem. Corp. v. Winograd, 956 S.W.2d 529, 530 (Tex. 1997) (per curiam). A matter is conclusively established if reasonable people could not differ as to the conclusion to be drawn from the evidence. City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005).

B. Applicable Law

A court may set aside a contract based on unilateral mistake if a party shows that: (1) the mistake is of so great a consequence that to enforce the contract would be unconscionable; (2) the mistake relates to a material feature of the contract; (3) the mistake occurred despite ordinary care; and (4) setting aside the contract does not prejudice the other party except for the loss of the bargain. James T. Taylor & Son, 160 Tex. at 620; Toler v. Sanders, 371 S.W.3d 477, 481-82 (Tex. App.—Houston [1st Dist.] 2012, no pet.); Welkener v. Welkener, 71 S.W.3d 364, 366 (Tex. App.—Corpus Christi2001, no pet.).

On appeal, appellants cite the 1973 Texas Supreme Court case of Johnson v. Snell in arguing that a party claiming unilateral mistake must show, as an essential element of its claim, that the mistake was known by, or induced by acts of, the other party. See 504 S.W.2d 397, 399 (Tex. 1973) ("A mistake by only one party to an agreement, not known to or induced by acts of the other party will not constitute grounds for relief."); see also Smith-Gilbard v. Perry, 332 S.W.3d 709, 713-14 (Tex. App.—Dallas 2011, no pet.) (same); Zapatero v. Canales, 730 S.W.2d 111, 114 (Tex. App.—San Antonio 1987, pet. ref'd n.r.e.) (same). We disagree. The case primarily cited by the Johnson Court, Morris v. Millers Mutual Fire Insurance Co. of Texas, stated merely that "[a] mistake by only one party to the agreement where it is not induced by the acts of the other party will usually not constitute grounds for relief." 343 S.W.2d 269, 271 (Tex. Civ. App.—Dallas 1961, no pet.) (emphasis added). This is not inconsistent with the Texas Supreme Court's pronouncement in James T. Taylor & Son that "equitable relief will be granted against a unilateral mistake when the conditions of remediable mistake [i.e., the four elements set forth supra] are present." 160 Tex. at 620. Accordingly, we conclude, consistent with a majority of appellate courts, that it is unnecessary for a party claiming unilateral mistake to prove that the other party had knowledge of the mistake or induced the mistake; rather, it is only necessary to establish the elements set forth in James T. Taylor & Son and its progeny. Accord Toler, 371 S.W.3d at 481-82; Ross v. Union Carbide Corp., 296 S.W.3d 206, 220 (Tex. App.—Houston [14th Dist.] 2009, pet. denied); City of The Colony v. N. Tex. Mun. Water Dist., 272 S.W.3d 699, 737 (Tex. App.—Fort Worth 2008, pet. dism'd); Prudential Ins.Co. of Am. & Four Partners LLC v. Italian Cowboy Partners Ltd., 270 S.W.3d 192, 205 (Tex. App.—Eastland 2008), rev'd on other grounds, 341 S.W.3d 323 (Tex. 2011); Kendziorski v. Saunders, 191 S.W.3d 395, 407 (Tex. App.—Austin 2006, no pet.); Kent v. Holmes, 139 S.W.3d 120, 132 (Tex. App.—Texarkana 2004), rev'd on other grounds, 221 S.W.3d 622, 626 (Tex. 2007); Welkener, 71 S.W.3d at 366.

C. Analysis

We first must determine whether the partnerships established their entitlement to judgment as a matter of law on the basis of unilateral mistake. See TEX. R. CIV. P. 166a(c). The partnerships' summary judgment motion alleges:

The true intention of the agreements was to pass Edward's property on to his children and grandchildren. Because Edward was mistaken that [Joshua] was his child and thus included him in these agreements as a limited partner with an ownership interest in this family property by mistake, Edward's mistake was of so great a consequence that to enforce these family partnerships with a non-family member as a limited partner would be unconscionable. Edward's four biological children and his future grandchildren would be disinherited of at least a

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