Roberg v. Franchi (In re Franchi)

Summarized by John Jones , J. R. Jones Law PLLC
14 years 5 months ago

Citation:

No. 11-30088 (5th Cir. 2011) (Unpublished Opinion)

Tag(s):

Ruling:

Affirmed. Court held non-execution agreement was ambiguous and a party should not be allowed to take advantage of a condition of their own creation to claim an agreement has been breached and stated that “a condition is regarded as fulfilled when it is not fulfilled because of the fault of a party with an interest contrary to the fulfillment.”

Procedural context:

Appeal from bankruptcy and district court’s decision that Debtor’s were entitled to a credit for settlement with Debtor’s insurance company for the sum that Debtors owed to Robergs under a Non-Execution Agreement and Consent Judgment entered in adversary case.

Facts:

Roberg contracted with Franco International, Inc. d/b/a Franco International, a company owned by Franchis for remodeling work. Roberg pre-paid for cabinetry and millwork and sent a check for $50,000 to Colonial Millworks, which was part of Franco International. Roberg instructed Colonial to deposit the check into an interest bearing account, but instead it was deposited into the account of John B. Arnold and Jo Ann Franchi. Arnold then used the funds for purposes other than procuring the cabinets and millwork and Roberg terminated the contract with Franco International and sued the Franchis and others. The contract contained an arbitration clause and before the arbitrator made an award, Franchi’s filed for bankruptcy. Roberg objected to discharge under 11 U.S.C. §§523(a)(4) (fraud) and (a)(6) (willful or malicious injury). Franchi’s and Roberg entered into a Consent Judgment for damages (CJ) and a Non-Execution Agreement (NEA). The CJ awarded $50,000 plus interest but under the NEA, Roberg agreed to accept $45,000 in full satisfaction to be paid over time. Franchi and Roberg structured the Judgment and NEA so as to allow Roberg to attempt to obtain proceeds from Franchi’s insurance policy with Traveler’s. Specifically, paragraph 13 of the NEA stated: “Should ROBERG be successful in collecting the $50,000 which ROBERG paid FRANCHI and/or COLONIAL MILLWORKS, including the specific identity of the sums paid by TRAVELERS as the return of this $50,000 to ROBERG then FRANCHI shall receive a full credit of that sum against this agreement or the Consent Judgment if this agreement becomes null and void.” Roberg received a judgment for $50,000 against Travelers but without explanation filed a motion for new trial and subsequently, entered into a settlement agreement with Traveler’s for $68,000. The Traveler’s settlement agreement drafted by Traveler’s and Roberg (without Franchi’s involvement) did not specify that the funds were to cover the monies paid Franchi/Colonial Millworks but it did contain a full release of all claims. Relying on the judgment obtained by Roberg against Traveler’s, Franchi stopped paying under the NEA and Roberg filed a motion to re-open the adversary to enforce the Consent Judgment. Bankruptcy court held Franchi entitled to credit for payment by Travelers because of wording of NEA was ambiguous and it was to be construed against Roberg who admitted drafting it and insisted upon paragraph 13’s inclusion.

Judge(s):

Garza, Southwick and Haynes

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