Boondoggles Corporation v. Johnathan Yancey--Appeal from 234th District Court of Harris County

Opinion issued August 3, 2006

In The

Court of Appeals

For The

First District of Texas

NO. 01-05-00185-CV

BOONDOGGLES CORPORATION, Appellant

V.

JOHNATHAN F. YANCEY, Appellee

On Appeal from the 234th District Court

Harris County, Texas

Trial Court Cause No. 2002-31521

MEMORANDUM OPINION

Appellant, Boondoggles Corporation (Boondoggles or the corporation) challenges a judgment that awarded appellee, Johnathan F. Yancey, actual damages, attorney s fees, and costs for his claim that Boondoggles breached its employment contract by not paying him the bonus of three percent of net sales specified in the contract. Trial was to the court, which filed findings of fact and conclusions of law. In six points of error, Boondoggles contends that it did not owe a bonus to Yancey as a matter of law, because an oral condition precedent to receiving a bonus was never fulfilled; that the trial court erred by awarding damages for month in which Yancey worked only part of that month and by calculating net sales as gross sales minus sales taxes collected; that the award of attorney s fees must be reversed because Yancey did not properly designate his counsel as an expert witness; that the trial court erred by concluding that the contract was not ambiguous; and that res judicata barred Yancey s claims as a matter of law. We affirm.

Facts and Procedural History

Boondoggles is a microbrewery and restaurant in the Clear Lake area of Houston. Boondoggles hired Yancey as general manager of the restaurant s operations in July 1999. The corporation had been experiencing financial difficulties, and Yancey was hired because of his experience in managing a similar restaurant, in particular, his skills in limiting theft, tracking and monitoring inventory, and managing staff. The president and secretary of Boondoggles joined Yancey in signing the employment contract on July 21, 1999, but neither the president nor the secretary testified at trial.

Yancey s contract with the corporation confirmed a base salary of $35,000 for the year beginning on July 12, 1999 and ending on July 11, 2000 and provided for renegotiation before July 11, 2000 to increase the base salary and bonus, based on business growth and productivity. The contract specified that benefits included, but were not limited to, the following:

"Monthly bonus of 3% of net sales

"Two weeks paid vacation after one year of employment

"Medical insurance (full coverage upon obtaining medical insurance by Boondoggles Corp.)

"Monthly expenses for cellular phone

"Automobile mileage for business-related expenses.

The terms of the single-page contract also proscribed any modification of the contract unless made in writing and signed by the parties. The contract did not define the term net sales.

While employed at Boondoggles, Yancey became a sixth shareholder-director of the closely held corporation. The board later added three additional shareholders. Yancey s responsibilities included on-site management at the Boondoggles restaurant for an average of 60 hours weekly and drafting checks for all expenses and salaries, including his own. He also kept the corporation s books until January 2000, when Boondoggles hired an independent company for that work. It is undisputed that Yancey never wrote a bonus check to himself while working for the corporation.

When asked at trial why he did not draft checks payable to himself to pay the bonus due, Yancey cited an agreement among the shareholders, which included him, to defer payment pending an improved financial outlook. Yancey also explained that payment of his bonus had become a sticking point with the board, beginning in October 1999. He attested, however, to discussions with other board members in January 2000, in response to the board s requests for an accounting of funds or debts owed to Yancey. Yancey claimed that he disclosed $40,000 to $50,000 owed to him, which included his unpaid bonuses, as well as debts for reimbursement for personal equipment and supplies Yancey brought into the corporation. Yancey affirmed that his discussions with board members about debts encompassed bonus payments owed to him and others, in addition to requests for reimbursement for his equipment and supplies, but the Boondoggle representatives who testified at trial denied any request relating to Yancey s bonus.

Boondoggles continued to experience financial problems, and the board considered liquidating in December 1999. By June 2000, the corporation was still losing money and had not turned a profit. On June 11, 2000, the board of directors notified Yancey of its decision not to renew his contract. Yancey acknowledged receiving this notice, but contended that he did not receive a written notice, dated the same day, which asked Yancey for a statement of amounts the company owed to him. The record contains a copy of the notice, but there is no record evidence that Yancey responded to the notice, and it is undisputed that Yancey did not request payment of his bonus before leaving Boondoggles.

Later in 2002, Yancey joined two other shareholders as plaintiffs in a shareholder-oppression action against the three majority shareholders whose shares at the time totaled 67%. The plaintiffs sought a declaration of their respective ownership interests in the Boondoggles coporation, actual and punitive damages, and attorney s fees; the majority shareholders filed counterclaims. The bench trial before the same trial court that presided over the instant case resulted in no damages, with each side bearing its own fees and costs, but the trial court s judgment recites a declaration of the amount and percentage of shares owned by each of the nine shareholders. With respect to Yancey, the April 4, 2002 judgment declared his ownership interest as 24,330 shares, or 1.3268 percent Boondoggles total shares. The defendants in the instant case were declared majority shareholders whose interest totaled 63 percent.

Shortly after the shareholder action concluded, and after Yancey unsuccessfully demanded payment of Boondoggles pursuant to the bonus and vacation-pay provisions of his employment contract, he filed this action on the contract. The case was transferred to the trial court on Boondoogles motion. Boondoggles answer to Yancey s petition included claims of res judicata, mutual mistake and fraud. Boondoggles sought summary judgment on res judicata, but did not prevail.

The trial court ruled in Yancey s favor and awarded him $25,265.20 in actual damages on his claim for unpaid bonuses, and $16,000.00 for attorney s fees, in addition to interest and costs; Yancey did not prevail on his claim for unpaid vacation benefits. The trial court filed findings of fact and conclusions of law, to which Boondoggles excepted by requesting additional findings and conclusions. Boondoggles perfected its appeal and filed a cashier s check in the amount of $43,672.38 in lieu of a supersedeas bond.

Standard of Review

Five of Boondoggles six points of error challenge the trial court s findings of fact and conclusions of law. The trial court s conclusions of law are reviewable de novo as legal questions. State v. Heal, 917 S.W.2d 6, 9 (Tex. 1996); McDermott v. Cronin, 31 S.W.3d 617, 623 (Tex. App. Houston [1st Dist.] 2000, no pet.). Conclusions of law will be upheld if the judgment can be sustained on any legal theory supported by the evidence unless they are clearly erroneous. Tex. Dep t of Pub. Safety v. Stockton, 53 S.W.3d 421, 423 (Tex. App. San Antonio 2001, no pet.). Findings of fact in a case tried to the court have the same force and effect as a jury s verdict on questions and are reviewable for legal and factual sufficiency. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex. 1991); Min v. Avila, 991 S.W.2d 495, 500 (Tex. App. Houston [1st Dist.] 1999, no pet.). When, as here, the appellate record contains a complete reporter s record of the trial, the trial court s fact findings are not conclusive, but subject to the same, well-settled standards that govern legal and factual sufficiency challenges to jury findings. Comm n of Contracts of the Gen. Executive Comm. of the Petroleum Workers Union v. Arriba, Ltd., 882 S.W.2d 576, 582 (Tex. App. Houston [1st Dist.] 1994, no writ); In the Interest of M.J.Z., 874 S.W.2d 724, 728 (Tex. App. Houston [1st Dist.] 1994, no writ).

In determining legal sufficiency, therefore, we apply the analysis recently stated by the supreme court in City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005), in which the court concluded that [t]he final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review. Id. at 827. [L]egal-sufficiency review in the proper light must credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not. Id. We may not substitute our judgment for that of the trier-of-fact, here the trial court, however, when the evidence falls within a zone of reasonable disagreement, and although we must consider evidence in the light most favorable to the judgment, and indulge every reasonable inference that would support it . . . , [i]f the evidence allows of only one inference, neither [the trier-of-fact] nor the reviewing court may disregard it. See id. at 822, 827.

In determining factual sufficiency, we must weigh all the evidence, both supporting and conflicting, and may set the finding aside only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); In re King s Estate, 244 S.W.2d 660, 661 (Tex. 1951); Arriba, 882 S.W.2d at 582.

Several of Boondoggles points of error also require that we analyze Yancey s employment contract with Boondoggles. Courts construe contracts as a matter of law and enforce an unambiguous contract as written. See SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. 2005) (quoting Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)); Lopez v. Mu oz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 862 (Tex. 2000). A basic rule of contract law requires courts to give plain meaning to the words used in the writing. See City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 518-19 (Tex. 1968). Our primary concern in construing a written contract is to ascertain the true intent of the parties as expressed in the instrument. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994); Coker, 650 S.W.2d at 393. In interpreting a written contract to ascertain the parties intent, we must examine and consider the entire writing in an effort to harmonize and give effect to all provisions of the contract so that none will be rendered meaningless. Coker, 650 S.W.2d at 393; Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 158 (Tex. 1951). Thus, no single provision taken alone will be given controlling effect, and all provisions must be considered with reference to the whole instrument. Coker, 650 S.W.2d at 393; Myers v. Gulf Coast Minerals Mgmt. Corp., 361 S.W.2d 193, 196 (Tex. 1962).

A. Challenge to Yancey s Entitlement to Bonus

Boondoggles first point of error challenges the trial court s conclusions of law one and seven and its eighth finding of fact, which state,

Conclusions of Law:

1.Boondoggles Corp. is indebted to Johnathan F. Yancey in the amount of $25,265 representing 3% of net sales during his employment.

7.Johnathan F. Yancey s right to collection of his indebtedness is due.

Finding of Fact

8.Boondoggles failed to pay Johnathan F. Yancey his monthly bonus of 3% of net sales for any of the months that he was employed.

Boondoggles challenges these rulings on several grounds, in particular through Yancey s trial testimony that he could, but never did, write himself a bonus check; testimony by Dominic Gelfo, a shareholder who stated that the board did not plan on making an incentive program until we were making money ; and minutes of the informal July 5, 1999 board meeting held to address hiring Yancey s hiring. // In addition to noting Yancey s qualifications and his willingness to work at least 60 hrs a week, the July 5, 1999 minutes recite that Yancey will start for $35,000 with expenses and then when business improves an incentive program . . . . We discussed 3% of net as the incentive.

None of this testimony, however, alters the terms of the employment contract that Yancey signed after the informal board meeting cited above, on July 21, 1999, and that the president and the secretary of the Boondoggles corporation also signed. These terms state that benefits shall include, but are not limited to . . . [m]onthly bonus of 3% of net sales. In addition, the contract refers to the bonus a second time by referring to both the bonus and the base salary as terms to be renegotiated before the single-year contract expired. Although Boondoggles disputes the meaning of net sales in this contract, the corporation has never disputed that the face of the contract mandates the payment or claimed that it paid Yancey s bonus. Similarly, Gelfo s recollection of the board s intent before the contract was signed does not alter the undisputed terms of the contract that both sides signed, which negate that intent by imposing no conditions on Yancey s receiving a bonus. Instead, the terms mandate that benefit. See Forbau, 876 S.W.2d at 133; Coker, 650 S.W.2d at 393

Boondoggles further emphasizes that Yancey did not write any bonus checks to himself, although, as manager, he could have, to support its contention that Yancey had entered into an oral agreement with the board directors that his bonus was not due until such time as Boondoggles had the ability to fund the payment and, therefore, that Yancey and the board had agreed to a condition precedent, specifically, a sufficiently solvent financial status for the corporation, that would have to occur before Boondoggles had any duty to pay Yancey his bonus. Because that condition precedent never occurred, Boondoggles argues that its indebtedness never became due, despite Yancey s pretrial demand.

A condition precedent is an event that must happen or be performed before a right can accrue to enforce an obligation. Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex. 1992). Contract law recognizes two types of conditions precedent: those that must occur before a contract can be considered formed and those that must occur before an obligation to perform an existing agreement can occur. Hohenberg Bros. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976). Boondoggles argues that a condition precedent to performance not only arose in this case, but also absolved the corporation of any duty to pay because the requisite financial solvency never occurred. Because Yancey s pleadings stated that all conditions precedent to receiving the bonus had occurred, and because Boondoggles answered in part by disputing that all conditions precedent had occurred, Boondoggles argues that Yancey had the burden to prove compliance with all conditions precedent. See Tex. R. Civ. P. 54; Betty Leavell Realty Co. v. Raggio, 669 S.W.2d 102, 104 (Tex. 1984) (stating that plaintiff must prove satisfaction of condition precedent when defendant disputes that assertion).

Boondoggles contends that the following response by Yancey, when his trial counsel inquired why Yancey wrote no bonus checks to himself, underscores its condition-precedent theory:

I didn t write my bonus checks for the reason being, it was agreed upon with the Board of Directors and with Steve Roberts and Dave Glover, which were the president and secretary of the corporation, whom [sic] it was discussed that the corporation was not able to pay those bonuses.

And so, we agreed upon when the corporation and also, I had become a shareholder as well, [a]nd knowing if I paid myself, then, it would send the company, you know, even more in the negative. And so, it was agreed upon by the board that I would hold off my bonuses until the corporation was able to take care of those responsibilities.

[Emphasis added.] Boondoggles supports its interpretation of Yancey s testimony by emphasizing that Yancey ignored two invitations to submit a statement of debts owed by the corporation.

But, in merely agreeing to hold off, or defer, payment of Boondoggles indebtnedness, Yancey did not agree to modify the terms of his contract of employment by adding a condition to the otherwise unconditional and unambiguous statement of indebtedness stated in that contract. See Okemah Const., Inc. v. Barkley-Farmer Inc., 583 S.W.2d 458, 460 (Tex. Civ. App. Houston [1st Dist.] 1979, no writ). To be effective, a modification must be supported by additional consideration, which was not shown here. See id. (stating that agreeing to do what is already required does not constitute new consideration). Moreover the terms of the contract here expressly state that any modification would have to be in writing and signed by both Yancey and the corporation to be effective. We agree with Yancey, who contends, as in the trial court, that Boondoggles had the burden to prove that the parties had modified Yancey s employment contract and had supported that modification with new consideration, see Okemah Const., Inc., 583 S.W.2d at 460, and through sufficiently ascertainable terms that would enable the court construing the agreement to determine the parties obligations, see T.O. Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992), which burden Boondoggles did not meet.

In addition, as Yancey explained in the excerpt of his testimony quoted above, his decision not to pay himself a bonus derived from his status as a shareholder in fall 1999, whose first responsibility was to the corporation, rather than his status as an employee when he first signed the contract. The record reflects that when the board considered liquidation in January 2000, Boondoggles s debts totaled between $40,000 and $50,000. Accordingly, any decision by Yancey to pay himself the bonus owed would have conflicted with his shareholder duties to the corporation by compounding its financial difficulties. See generally Int l Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 577 (Tex. 1963) (stating that corporate officer s fiduciary duty encompasses duty not to usurp corporate opportunities for personal gain). Yancey further explained, moreover, that all check drafting he performed as manager was subject to the approval of the board of directors and that he could not do anything without board approval.

Boondoggles emphasis on Yancey s alleged failure to include the bonus owed in two requests for indebtedness also fails to preclude Yancey s entitlement to the bonus as a matter of law. Yancey contested Boondoggles assertion by describing several informal discussions with board members that addressed the as-yet-unpaid bonus and stated that the bonus had become a sticking point with the board. With respect to Boondoggles claim that it had twice requested a listing of debts owed, Yancey acknowledged the corporation s first, oral request, which coincided with the possible liquidation of Boondoggles in January 2000. According to Yancey, his response to the request included not only the personal brewing equipment and supplies that he had brought into the business, but also his own and others unpaid bonuses. Yancey disputed ever receiving Boondoggles second, written request in June 2000 for a statement of funds owed.

On reviewing the contentions of both parties within the confines of the record and the applicable standards of review, we conclude that, in construing the contract as a matter of law, the trial court impliedly concluded that no condition precedent to performance of the duty to pay Yancey his bonus had arisen and, therefore, that Boondoggles did not meet its burden to establish that the parties had modified the terms of Yancey s employment contract, which, we further note, expressly forbade all but written and agreed-upon modifications. See Okemah Const. Inc., 583 S.W.2d at 460. This implied legal conclusion supports the trial court s express conclusion number one, that Boondoggles is indebted to Yancey. // Boondoggles challenge to the trial court s eighth fact finding, which states that Boondoggles failed to pay Yancey his monthly bonus while he was employed, is premised, in turn, on Boondoggles oral condition-precedent and modification theories, which we have rejected, and therefore lacks merit. Because the only inference permitted by the record is that Boondoggles did not pay Yancey the bonus required by his contract, we may not disregard that evidence and therefore hold that the evidence is legally sufficient to support the trial court s eighth fact finding. See City of Keller, 168 S.W.3d at 827. Having reviewed the record, we further find that this finding is not so contrary to the overwhelming weight of the evidence as to be clearly wrong and manifestly unjust. See Cain, 709 S.W.2d at 176.

Having concluded that the trial court properly found that Boondoggles never paid Yancey the bonus required by his contract of employment and that Yancey demanded payment before filing this action, the trial court correctly ruled, in conclusion of law seven, that Yancey s right to collect was due.

We overrule Boondoggles first point of error.

B. Challenge to Calculation of Damages Due

1. Remittitur for Miscalculation?

In its second point of error, Boondoggles further challenges conclusion of law one on the grounds that the total of damages awarded results from miscalculation and requires a remittitur because the award includes payment for the full month of July 1999, but Yancey did not begin working until July 12, 1999. The total of damages, however, is premised on finding of fact nine, which Boondoggles also challenges and which states, Three percent of net sales for the period of July 12, 1999 to July 12, 2000, calculates to $25,265.20. Yancey explained at trial that his calculation of damages included the first 11 days of July 1999, when he admittedly did not work, but excluded the first 11 days of July 2000, when he did. Boondoggles contends that there is no basis on which to assume that the calculations for each of those time periods are interchangeable and, therefore, that there is nothing from which the trial court could have calculated the amount of sales for July 2000. Yancey disagrees; we agree with Yancey.

It is undisputed that all damages calculations derived from Yancey s trial exhibit five. Exhibit five, however, is derived, in turn, from Yancey s trial exhibit four, which consists of State of Texas sales-tax records. The table or chart of exhibit five includes a month-by-month calculation of total sales and total sales taxes. As Yancey acknowledged, the table includes the month of July 1999, but omits the month of July 2000. Despite Boondoggles contention that the trial court had no evidence from which to determine Yancey s three percent commission for July 2006, the state-sales-tax records that are the source of the data in the table, include statistics for all months of the year 2000. According to these records, Boondoggles sales for July 2000 totaled $83,196.00, which incurred a tax liability of $2,035.55, and a net-sale total of $81,160.45. At the rate of three percent, the net-sale total resulted in a bonus for the entire month of $2,434.81. Reducing that total proportionally for 11 out of 31 days in July that Yancey worked results in a bonus due of $863.96. Yancey s calculations in his trial exhibit four, however, which are premised on the July 1999 sales-tax records, result in a total of only $826.60. In short, the calculations that Boondoggles challenges actually benefitted Boondoggles by requesting a lesser bonus than was due.

We overrule Boondoggles second point of error.

2. Meaning of Net Sales

Point of error four challenges the trial court s fourth fact finding, which states, Net sales means gross sales minus sales taxes collected. This finding is crucial to Yancey s case because the three percent bonus due Yancey was calculated based on that definition. The record reflects that Boondoggles conceded in its motion for new trial that the trial court relied on the table shown on Yancey s trial exhibit five in awarding damages. This table calculates net sales as the remainder after subtracting sales tax from total sales. In the same motion, Boondoggles acknowledged that the evidence of what constituted net sales[,] . . . the term used in the parties contract, came only from [Yancey].

Boondoggles, however, offered no evidence on the meaning of net sales and instead mounted legal arguments during opening statements before the trial court and in an objection to testimony by Yancey that his method of calculating net sales was common in the restaurant industry. The trial court sustained the objection by Boondoggles that Yancey was not qualified as an expert in the accounting or restaurant business. Yancey later explained, however, that the corporation commonly used the term to refer to sales after taxes and also referred to the financial reports prepared by the accounting firm that took over Yancey s role as bookkeeper. Boondoggles prevailed initially on a hearsay objection to testimony derived from the reports, but the trial court permitted Yancey s counsel to solicit testimony for the limited purpose of demonstrating that the corporation s financial reports used the term net sales in the same manner proposed by Yancey. Moreover, in response to cross-examination questions by Boondoogles, Yancey twice testified that net sales, as referred to in his contract, meant sales after taxes.

The trial court confronted Boondoggles with its failure of proof during Boondoggles counsel s final argument, by asking three times whether Boondoggles had put on evidence of the meaning of net sales, and, if so, what that evidence was. // Boondoggles first claimed that Yancey had the burden to establish the term and then claimed that the record was inconclusive on the meaning of the term. Twice confronted with That s not what I asked responses by the trial court, Boondoggles counsel conceded that the corporation had provided no testimony whatsoever . . . and reiterated its theory that lack of any profit precluded any bonus due.

Having reviewed the record within the confines of the applicable standard of review, we conclude that the only inference permitted by the only evidence before the trial court is that net sales meant total sales minus sales taxes for purposes of calculating Yancey s three-percent bonus. Just as the trial court could not disregard that evidence, we may not disregard it and therefore hold that the evidence is legally sufficient to support the trial court s fifth fact finding. See City of Keller, 168 S.W.3d at 827. We further find that this finding is not so contrary to the overwhelming weight of the evidence presented to the trial court as to be clearly wrong and manifestly unjust. See Cain, 709 S.W.2d at 176.

We overrule Boondoggles fourth point of error.

C. Alternative Challenge to Conclusion that Contract Not Ambiguous

In its fifth point of error, Boondoggles raises an alternative challenge to the trial court s ninth conclusion of law, which states that Yancey s employment contract was not ambiguous. Boondoggles argues that the meaning of the term net sales rendered Yancey s employment contract ambiguous and that we must, therefore, remand the cause for a new trial to determine the meaning of the term.

We review the trial court s conclusion of no ambiguity de novo. Heal, 917 S.W.2d at 9; see MJR Corp. v. B&B Vending Co., 760 S.W.2d 4, 10 (Tex. App. Dallas 1988, writ denied). A court may analyze a contract for ambiguity even when, as here, neither party has raised the issue in its pleadings. See Sage Street Assocs. v. Northdale Constr. Co., 863 S.W.2d 438, 445 (Tex. 1993); Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731-32 (Tex. 1981); City of Pinehurst, 432 S.W.2d at 518 19.

Whether a contract is ambiguous is a question that the court decides as a matter of law by examining the contract as a whole in light of the circumstances present when it was executed. J.M Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003); Lenape Resources Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex. 1996). If, after applying the pertinent rules of construction to the face of the contract, the court concludes that the contract is subject to two or more reasonable interpretations, the contract is ambiguous. See Universal C.I.T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951); see also JM Davidson, Inc., 128 S.W.3d at 229 (concluding that arbitration agreement ambiguous because court could not determine from face of agreement whether clause affording employer unilateral right to abolish or modify personnel policies applied to arbitration agreement itself so that it, too, was a personnel policy ). A contract is not ambiguous, however, simply because the parties offer conflicting interpretations of its terms. Am. Mfrs. Mut. Ins. Co. v. Schafer, 124 S.W.3d 154, 157 (Tex. 2003); Lopez, 22 S.W.3d at 861; Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996). An ambiguity arises only if both interpretations are reasonable. Columbia Gas Transmission Corp., 940 S.W.2d at 589 (emphasis in original).

Settled law recognizes the trial court s authority to hear and consider extrinsic evidence of the circumstances surrounding the formation and execution of the contract and to apply the rules of contract construction when the parties to a contract offer competing interpretations. See Columbia Gas Transmission Corp., 940 S.W.2d at 591; Sun Oil Co., 626 S.W.2d at 731-32; City of Pinehurst, 432 S.W.2d at 518-19. The extrinsic evidence offered to the court does not necessarily create a triable issue of fact concerning the parties intent in forming the contract. See Columbia Gas Transmission Corp., 940 S.W.2d at 592 (holding that extrinsic evidence of circumstances surrounding execution of contract did not give rise to triable issue of fact regarding parties intent). Extrinsic evidence is admissible to clarify, explain, or give meaning to terms of a contract that are facially incomplete, provided the evidence does not attempt to provide essential terms or vary or contradict other terms of the contract that are unambiguous, complete, and final. See Tex. Builders v. Keller, 928 S.W.2d 479, 481 (Tex. 1996); Warren Bros. v. A.A.A. Pipe Cleaning Co., 601 S.W.2d 436, 438-39 (Tex. Civ. App. Houston [1st Dist.] 1980, writ ref d n.r.e.).

Boondoggles answer to Yancey s petition shows that the meaning of the term net sales was a crucial determination in this case. In its answer, Boondoggles disputed Yancey s method of calculating his bonus by maintaining that the bonus was a function of net profit and not gross profit. Having disputed Yancey s method, Boondoggles had the burden to substantiate its proffered method, not only legally, but also factually. See, e.g., Lone Star Gas Co. v. McCarthy, 605 S.W.2d 653, 656-57 (Tex. Civ. App. Houston [1st Dist.] 1980, writ ref d n.r.e.) (construing meaning of term propounded by appealing party s interpretation under both the substantive law and realities of oil and gas business). The trial court s questions to Boondoggles during closing argument clarify that Boondoggles did not meet that burden and even conceded that it offered no testimony whatsoever to support its interpretation. Instead, Boondoggles relied on its legal contentions that net sales were necessarily a function of net, rather than gross, profit; and that Yancey had agreed to a condition precedent to performance of the contract that was consistent with that theory. As addressed above, the latter contention has no merit.

Yancey, on the other hand, relied on three types of extrinsic evidence to clarify, explain, and demonstrate that the term net sales meant sales after taxes, as follows: common usage of the term with that meaning by the corporation, State of Texas records used to establish sales taxes that Boondoggles was obligated to pay, and financial statements prepared for Boondoggles by an independent accounting firm. See Tex. Builders, 928 S.W.2d at 481; Warren Bros., 601 S.W.2d at 438-39. The trial court agreed with Yancey, and, as we held above, the evidence was both legally and factually sufficient to support the trial court s finding. Because Yancey thus met his burden by clarifying, explaining, and giving meaning to the disputed term and did not attempt to vary or contradict the otherwise unambiguous terms of his contract, the trial court did not err by stating, in its ninth conclusion of law, that the employment contract was unambiguous. See Tex. Builders, 928 S.W.2d at 481; Warren Bros., 601 S.W.2d at 438-39. We overrule Boondoggles fifth point of error.

D. Challenge to Admissibility of Testimony on Attorney s Fees

Boondoggles third point of error challenges the admissibility of Yancey s counsel s testimony to support the trial court s award of attorney s fees. Boondoggles contends that the trial court should have excluded the testimony and the time records on which counsel relied because Yancey did not properly designate counsel as a witness in response to Boondoggles request for disclosure. Because counsel s testimony was the only evidence offered in support of the $16,000 awarded to Yancey as attorney s fees, Boondoggles further contends that the award should be vacated.

The trial court s evidentiary rulings are reviewable for abuse of discretion. Morrow v. H.E.B., 714 S.W.2d 297, 298 (Tex. 1986). A trial court abuses its discretion when it acts arbitrarily or unreasonably and without reference to any guiding rules or principles. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). A trial court has no discretion, however, in determining what the law is, which law governs, or how to apply the law, and we therefore review those rulings de novo. See Walker, 827 S.W.2d at 840; Phoenix Network Techs., Ltd. v. Neon Sys, Inc., 177 S.W.3d 605, 611 (Tex. App. Houston [1st Dist.] 2005, no pet. h.). When we review a discretionary ruling that results from the trial court s having resolved underlying facts, we must defer to the trial court s factual resolutions and any credibility determinations that may have affected those resolutions and may not substitute our judgment for the trial court s judgment in those matters. See Walker, 827 S.W.2d at 839 40.

Boondoggles relies on E.F. Hutton Co. v. Youngblood, 741 S.W.2d 363, 364 (Tex. 1987), in which the supreme court, interpreting former Tex. R. Civ. P. 215.5, held that a party s complete failure to disclose that its counsel would testify warranted exclusion of counsel s testimony as a sanction. This case, however, is governed by Tex. R. Civ. P. 193.6. Rule 193.6 states that party who does not respond to a discovery request to name a witness may not offer the testimony of a witness not so identified, but further provides that the court may permit the testimony on finding good cause or that the failure to respond timely will not unfairly surprise the opponent. Tex. R. Civ. P. 193.6.

Boondoggles is correct in contending that the record on appeal does not contain a copy of Yancey s response to Boondoggles request for disclosure. In accordance with recent changes in the rules of discovery aimed at resolving storage problems by reducing the amount of documents filed before trial, however, discovery responses are not filed pretrial, but reserved until needed at trial. See Tex. R. Civ. P. 191.4(a)(2); Chris Griesel, The New Discovery Rules: Three Years Later Are Old Dogs Learning New Tricks?, 15th Annual Advanced Evidence & Discovery Course VI(A)(4) at 6. In response to Boondoggles counsel s objection that he had not received the responses, Yancey s counsel informed the trial court that his records indicated that the response had been faxed to opposing counsel on October 21, 2003. As supplemented by Yancey, the record on appeal contains the certificate of written discovery that Yancey s counsel filed with the trial court on October 23, 2003 to indicate that the response had been served on opposing counsel. This certificate recites that Yancey had served the response to Boondoggles request for disclosure two days earlier, but had not filed a copy with the court at that time, in compliance with the rules. See Tex. R. Civ. P. 194.(a)(2). The record on appeal, as supplemented, further establishes that Yancey properly designated his counsel as his expert on attorney s fees in February 2003, as follows: He is plaintiff s attorney. He is familiar with the reasonable and necessary fees and expenses in prosecuting plaintiff s claim.

The award of attorney s fees in this case is governed by Tex. Civ. Prac. & Rem. Code Ann. 38.001(8) (Vernon Supp. 2005), which authorizes the award of reasonable attorney s fees and costs to a party who prevails in an action for breach of an oral or written contract. Section 38.001(8) is part of chapter 38 of the Civil Practice and Remedies Code. Tex. Civ. Prac. & Rem. Code Ann. 38.001 .006 (Vernon 1997). Section 38.003 of chapter 38 creates a rebuttable presumption that the usual and customary attorney s fees are reasonable for a chapter 38 claim. See Tex. Civ. Prac. & Rem. Code Ann. 38.003; Gen. Elec. Supply Co. v. Gulf Electroquip, Inc., 857 S.W.2d 591, 601 (Tex. App. Houston [1st Dist.] 1993, no writ) (noting that section 38.003 presumption does not apply if reasonableness of fees not controverted). Moreover, pursuant to section 38.004 of Chapter 38, a trial court may take judicial notice without receiving further evidence not only of the usual and customary attorney s fees, but also of the contents of the court s file. See Tex. Civ. Prac. & Rem. Code Ann. 38.004; Gill Sav. Ass n v. Chair King, Inc., 797 S.W.2d 31, 32 (Tex. 1990); see also Purvis Oil Corp. v. Hillin, 890 S.W.2d 931, 939 (Tex. App. El Paso 1994, no writ) (further holding that appellate court may presume that trial court took judicial notice authorized by chapter 38); Holley v. Holley, 864 S.W.2d 703, 706 (Tex. App. Houston [1st Dist.] 1993, no writ) (same).

Given the statutory framework of chapter 38, and the standards stated in rule 193.6 for permitting testimony upon an objection premised on allegations of lack of compliance with a discovery request, and Yancey s representations to the trial court in response to Boondoggles objections, we conclude that the trial court properly construed the governing principles of both chapter 38 and rule 193.6. See Walker, 827 S.W.2d at 840. We further conclude, on reviewing the record on appeal, including the supplemental clerk s record provided by Yancey, and deferring to the determinations by the trial court that may have depended on credibility determinations, that we cannot say that the trial court abused its discretion by permitting Yancey s counsel to testify and by overruling Boondoggles objections to Yancey s counsel s relying on his billing records.

We overrule Boondoggles third point of error.

E. Res Judicata Challenge

In its sixth point of error, Boondoggles presents a two-pronged challenge to the trial court s sixth conclusion of law, which states that Yancey s right to collection of his indebtedness is not barred by res judicata. // Although Boondoggles does not challenge them specifically, we note further that the trial court s findings of fact 15 through 17 state the following:

15.Case 1 was an equitable minority shareholder oppression case.

16.Case 2 (the instant case) is a breach of employment case.

17.Boondoggles Corp. was not a party in Case 1.

Res judicata prevents parties and their privies from relitigating a cause of action that has been finally adjudicated by a competent tribunal. Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 206 (Tex. 1999). Res judicata precludes claims or defenses that, through diligence, should have been litigated in the prior suit but were not; the doctrine is intended to prevent causes of action from being split and thus to curb vexatious litigation and promote judicial economy. Id. at 207. Texas applies the transactional test test to claims of res judicata. Barr v. Resolution Trust Corp., 837 S.W.2d 627, 629-30 (Tex. 1992). To prevail on its claim of res judicata, Boondoggles had to establish (1) a prior final judgment on the merits by a court of competent jurisdiction, (2) identity of parties or those in privity with them, and (3) a second action based on the same claims as were raised or could have been raised in the first action. See id. at 629.

Boondoggles contends Yancey could have asserted his claims in the first suit, the shareholder-oppression lawsuit (case 1) and that the majority shareholder-defendants in the first suit were in privity with Boondoggles, the defendant in the second suit. Because Yancey did not assert his claims in the first suit, Boondoggles contends that his claims are barred.

Determining whether Yancey s breach-of-contract claim could have been brought in the first suit requires an analysis of the factual basis of the respective claims. See id. at 630. Analogizing the principles that control res judicata to those that govern compulsory counterclaims, the supreme court has instructed that the factors that will determine whether res judicata applies include the following: (1) whether the claims sought to be barred arise out of the same transaction or occurrence as the first suit and (2) whether those claims are against the opposing party in the same capacity. See Ingersoll-Rand Co., 997 S.W.2d at 207; Gracia v. RC Cola 7-Up Bottling Co., 667 S.W.2d 517, 519 (Tex. 1984) (holding that res judicata did not bar suit by woman in individual capacity who had signed prior agreed judgment solely in representative capacity as next friend of daughter); see also Guest v. Cochran, 993 S.W.2d 397, 405 (Tex. App. Houston [14th Dist.] 1999, no pet.) (distinguishing claims brought by plaintiff in individual capacity from those brought by plaintiff in capacity as coexecutor of estates).

Reviewing the trial court s conclusion de novo by applying these factors demonstrates that Boondoggles cannot meet the second element of the Barr test. Yancey s claims in this case do not derive from his capacity as a minority shareholder, on which he relied in joining the remaining minority shareholders in the shareholder-oppression action against the majority shareholders as individuals, but from his initial, retained capacity as an employee of the Boondoggles corporation and not as an employee of the shareholder individuals. Boondoggles thus fails to establish the identity of capacity required to demonstrate that this second action is based on the same claims as were raised or could have been raised in the first action. See Ingersoll-Rand Co., 997 S.W.2d at 207; Barr, 837 S.W.2d at 629.

Having concluded that Boondoggles failed the identity-of-claims test, we need not address its privity contentions.

We overrule Boondoggles sixth point of error.

Conclusion

We affirm the judgment of the trial court.

Sherry Radack

Chief Justice

Panel consists of Chief Justice Radack and Justices Taft and Nuchia.