Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Tuesday, January 10, 2012

Default on installment plan or re-payment schedule


Accrual of claim when periodic payments are required and not made under a contract and acceleration does not apply.

BREACH OF A CONTRACT REQUIRING PAYMENT IN INSTALLMENTS ENTAILS MULTIPLE CAUSES OF ACTION    
 
When the debtor/obligor defaults on a payment or re-payment schedule involving periodic installments, each missed payment gives rise to separate cause of action. Therefore, a claim for earlier missed installment payments may be time-barred, whereas a claim for more recent ones may be within the limitations period.

The limitations period for breach of contract claims is four years. TEX. CIV. PRAC. & REM. CODE ANN. § 16.051 (West 2008); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002). "Limitations begins to run upon accrual of the cause of action." Barker v. Eckman, 213 S.W.3d 306, 311 (Tex. 2006). A breach of contract claim accrues when the contract is breached. Stine, 80 S.W.3d at 592. When recovery is sought on an obligation payable in installments, the statute of limitations runs against each installment from the time it becomes due. Hollander v. Capon, 853 S.W.2d 723, 726 (Tex. App.-Houston [1st Dist.] 1993, writ denied).

SOURCE: DALLAS COURT OF APPEALS - 05-10-00252-CV – 1/3/12 [Name of Plaintiff replaced with “PLANTIFF”]


Limitations

Because we have concluded that a fact issue exists on McPeak's individual liability under the Employment Contract as a promoter, we must address PLAINTIFF's contention that the trial court erred in its ruling that PLAINTIFF's claims for all but the last two installment payments were barred by limitations. The limitations period for breach of contract claims is four years. TEX. CIV. PRAC. & REM. CODE ANN. § 16.051 (West 2008); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002). "Limitations begins to run upon accrual of the cause of action." Barker v. Eckman, 213 S.W.3d 306, 311 (Tex. 2006). A breach of contract claim accrues when the contract is breached. Stine, 80 S.W.3d at 592. When recovery is sought on an obligation payable in installments, the statute of limitations runs against each installment from the time it becomes due. Hollander v. Capon, 853 S.W.2d 723, 726 (Tex. App.-Houston [1st Dist.] 1993, writ denied).

PLAINTIFF contends, however, that different rules govern the Employment Agreement. He relies on Lichtenstein v. Brooks, 12 S.W. 975 (1889), overruled on other grounds by Dixie Glass Co. v. Pollak, 347 S.W.2d 596 (Tex. 1961), Davis Apparel v. Gale-Sobel, 117 S.W.3d 15 (Tex. App.-Eastland 2003, no pet.), Intermedics, Inc. v. Grady, 683 S.W.2d 842 (Tex. App.-Houston [1st Dist.] 1985, writ ref'd n.r.e.), and US MCT, Inc. v. Brodsky, No. 05-98-00204-CV, 2001 WL 1360301 (Tex. App.-Dallas Nov. 7, 2001, no pet.) (not designated for publication). PLAINTIFF argues that under these cases, limitations did not begin to run on his breach of contract claim until demand for payment had been made and refused, or until the expiration of the contract term. He contends that the Employment Agreement is not a contract requiring periodic installment payments,[9] but rather is a "continuing contract" for which limitations did not run until the end of the contract term. We disagree, for two reasons.

First, the cases cited by PLAINTIFF do not support his arguments that a continuing contract, and specifically an employment agreement, cannot be governed by the rules for contracts requiring periodic installments. Lichtenstein does not address the issue presented here, that is, when PLAINTIFF's cause of action accrued. Instead, Lichtenstein establishes that there is only one cause of action for wrongful termination under an employment contract, which accrues on the date of the breach rather than separately with every subsequently-missed salary payment. See Lichtenstein, 12 S.W. at 975 (employee's "right to recover the loss occasioned by the breach . . . arises at once" [emphasis added]). Although the court in Lichtenstein refers to bringing suit "after the expiration of the time that the contract was made for," id., the statement was made in the context of the court's ruling (later rejected in Pollock) that the employee could not recover any anticipatory damages that might accrue after the date of trial. Id. at 975-76. To maximize the recoverable damages, the employee might wait as long as possible to bring suit. But the court limited its discussion by stating that the employee could bring suit "at any time before the cause of action is barred by the statute of limitations," and its analysis was made in the context of its holding that the cause of action accrued upon breach. See id.

In the Intermedics case, the parties entered into oral agreement under which Grady was to perform consulting services for Intermedics in return for a $20,000 annual salary and 17,000 shares of Intermedics stock. 683 S.W.2d at 844. Unlike PLAINTIFF's claims in this lawsuit, Grady brought a lawsuit only for the promised shares of stock, not to recover his annual salary. Id. In response to Intermedics's assertion that limitations barred Grady's claims, the court discussed the law applicable to "continuing contracts," and stated that the limitations period for a continuing contract "does not usually commence until the contract is fully performed." Id. at 845. The court discussed these rules as they applied to Grady's claim for the shares of stock, and determined that limitations did not bar the claim. See id. at 845-47. In its discussion, the court in Intermedics recognized an exception to the "continuing contracts" rule: "However, if the terms of an agreement call for periodic payments during the course of the contract, a cause of action for such payments may arise at the end of each period, before the contract is completed." Id. at 845. Here, the trial court found that the language of the Employment Agreement contemplated periodic payments and determined that limitations began to run on the due date for each payment. This conclusion is consistent with the court's reasoning in Intermedics. See id.

PLAINTIFF also relies on Intermedics for the proposition that a demand is required before limitations begins to run. Intermedics, however, involved an oral contract where there was no agreement as to when the promised stock would be issued. See id. at 845. In Slusser v. Union Bankers Insurance Co., 72 S.W.3d 713, 717-18 (Tex. App.-Eastland 2002, no pet.), the court distinguished Intermedics on this ground, concluding that no demand was required where a written contract provided when commissions were to be paid. PLAINTIFF contends a demand is required under paragraph 4(1) of the Employment Agreement:

4. Invoicing and Payment

(1) Invoices must be submitted with copies of approved backup documents and such invoice and backup must be submitted by [PLAINTIFF] to [HSI] on the dates specified for payment set out in Schedule "B" hereto or as soon as possible thereafter. [HSI] shall be entitled to set off any amount owed by [PLAINTIFF] to [HSI] against any amount owing to [PLAINTIFF] under this Contract.

Because invoices are required, PLAINTIFF argues, no breach of the contract occurred until he submitted his invoice in 2004. We disagree. Paragraph 4(1) clearly states that invoices are due "on the dates specified for payment in Schedule `B' hereto or as soon as possible thereafter." The time each payment is due is not changed by paragraph 4(1); in fact, paragraph 4(1) appears to contemplate that an invoice may be submitted after payment has been made pursuant to Schedule B.

 The other two cases relied on by PLAINTIFF do not compel the conclusion that PLAINTIFF's cause of action under the Employment Agreement accrued at the end of the contract term rather than at the time each payment was due. In Davis Apparel, 117 S.W.3d at 17-19, the court cited the rule for continuing contracts, but limited the plaintiff's recovery to commission payments due within the limitations period, as the trial court did here. See id. ("[W]here the terms of an agreement call for fixed, periodic payments, a separate cause of action arises for each missed payment."). In the Brodsky case, we noted the rule that under a continuing contract, a party may wait until the end of the contract term to sue. See Brodsky, 2001 WL 1360301 at *8.[10] We concluded a fact issue existed as to when the cause of action accrued under the terms of the contract between the parties, which would turn on "when, if ever, Brodsky became a defaulting venturer rather than a noncontributing venturer." Id. We did not decide or discuss whether limitations should be determined under the rules for contracts requiring periodic payments. When we were presented with that question in Spin Doctor Golf, Inc. v. Paymentech, L.P., 296 S.W.3d 354, 363 (Tex. App.-Dallas 2009, pet. denied), we concluded that the parties' agreement constituted a continuing contract so that limitations did not run from the date of the initial breach.[11] We did not hold, however, that limitations ran at the end of the contract term, but rather concluded that only payments that became due within the limitations period could be recovered. Id. We stated, "a suit for the breach of a contract requiring payment in periodic installments may include all payments due within the four-year statute of limitations period, even if the initial breach was beyond the limitations period," but "[r]ecovery of any payment more than four years overdue is barred." Id. at 362.

We reject PLAINTIFF's arguments that his cause of action did not accrue until the end of the contract term for a second reason. Here, the language of both contracts supports the trial court's interpretation that HSI's obligation to pay PLAINTIFF arose each year. The Employment Agreement states that PLAINTIFF will be paid $50,000 Canadian "in arrears per annum," while the Agreement for Sale of Shares provides that PLAINTIFF will receive "an annual fee" of $50,000 Canadian "per year." Neither agreement supports PLAINTIFF's contention that a single lump-sum payment of $500,000 was due at the end of the contract term after he submitted an invoice. The trial court's ruling that the agreements "unambiguously require that payment for each calendar year period of service be made during the following calendar year, the first payment thus becoming due in 1995 (for services rendered in 1994) and the final payment becoming due in 2004 (for services rendered in 2003)" is supported by the agreements' express language. We agree with the trial court that because PLAINTIFF did not bring suit until December 3, 2007, "claims for all but the final two annual payments (for services allegedly provided in 2002 and 2003) are barred by the statute of limitations."

CONCLUSION

Because PLAINTIFF raised a genuine issue of material fact whether McPeak is liable as a promoter, we reverse the summary judgment in part and remand the cause for further proceedings.

We affirm the trial court's judgment in all other respects.

AFFIRM in part and REVERSE and REMAND in part.

SOURCE: DALLAS COURT OF APPEALS - 05-10-00252-CV – 1/3/12 [Name of Plaintiff replaced with “PLAINTIFF”]

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