Stewart & Stevenson, L.L.C. v. Galveston Party Boats, Inc.
(Tex.App.- Houston [1st Dist.] Nov. 5, 2009)(Keyes)
(consolidated interlocutory appeal and petition for writ of mandamus challenging the trial court’s
order denying a motion to compel arbitration)(court of appeals dismisses the interlocutory appeal
for lack of jurisdiction and denies the petition for writ of mandamus)(FAA vs. TAA, interstate
commerce)(no underlying agreement to arbitration, no ratification after the fact)
DISMISS APPEAL 9/5: Opinion by Justice Keyes
Before Justices Keyes, Hanks and Bland
01-09-00030-CV Stewart & Stevenson, L.L.C., and MTU Detroit Diesel, Inc. v. Galveston Party
Boats, Inc., and Boat Service of Galveston
Appeal from 405th District Court of Galveston County
Trial Court Judge: Hon. Wayne J. Mallia
This is a consolidated interlocutory appeal and petition for writ of mandamus challenging the
trial court’s December 17, 2008 order denying a motion to compel arbitration filed by
relators/appellants Stewart & Stevenson, LLC and MTU Detroit Diesel, Inc. (collectively, “Stewart &
Stevenson”). Footnote The lawsuit arose when real parties in interest/appellees, Galveston Party
Boats, Inc. and Boat Service of Galveston, Inc. (collectively, “GPB”), discovered that six marine
engines manufactured by MTU Detroit Diesel and sold by Stewart & Stevenson were faulty and
sued for recovery. In three issues, Stewart & Stevenson argues that the trial court abused its
discretion (1) by denying the motion to compel arbitration; (2) by failing to hold an evidentiary
hearing on the motion to compel arbitration; and (3) by allowing the use of inadmissible evidence to
support GPB’s response to the motion to compel arbitration.
We dismiss the interlocutory appeal for lack of jurisdiction and deny the petition for writ of
Stewart & Stevenson, a provider of parts and repair services, and GPB, a provider of boating
services, first started doing business together at the end of 2000. In 2004, GPB became involved in
a program through which the Texas Commission on Environmental Quality (“TCEQ”) would
subsidize a private business’s purchases of low-emission diesel engines with grant money. GPB
entered into negotiations with TCEQ, filing a grant application in March 2004 to obtain funding for
engines GPB would purchase through Stewart & Stevenson.
In the course of these negotiations, on August 13, 2004, GPB provided notice to TCEQ of the
assignment to Stewart & Stevenson of its payments under their prospective contract
for reimbursement of the eligible incremental costs of the purchase or lease of four main engines
and two generators on the New Buccaneer and two main engines and one generator on the
Cavalier from the Assignee under a grant contract that may be executed between Galveston Party
Boats, Inc. and the TCEQ for award of an Emissions Reduction Incentive Program Grant in
response to grant application dated March 11, 2004.
The notice stated, “If a grant is awarded for the reimbursement of the above-listed expenses, and
upon our submission of the required reimbursement request forms, please forward the payments to
On August 25, 2004, GPB entered into an agreement with TCEQ under which TCEQ agreed to
reimburse GPB for up to $445,350 toward the expense of replacing its old engines with new, lower-
emissions engines, provided that GPB met TCEQ conditions. The contract between TCEQ and GPB
Subject to approval by the TCEQ, the PERFORMING PARTY [GPB] may assign the payments due
from the TCEQ directly to the supplier, subcontractor, financing or leasing company, or other entity
from which the goods or services were procured, leased, or financed by the PERFORMING PARTY.
. . .
Under this option, the Grant Equipment and/or goods and services included under a cost must have
been received and accepted by the PERFORMING PARTY, and the PERFORMING PARTY must
have an obligation to pay the expense. Sufficient supporting documentation must be submitted, as
outlined in the form instructions, to document that the goods or services were received and that the
payment amount is owed to the entity designated to receive the payment from the state.
Performance of this agreement was made contingent on TCEQ’s receiving the funds necessary to
cover the grant.
In mid September 2004, TCEQ issued a Notice to Proceed to GPB, listing the contract amount
at $445,350. The notice stated:
The Texas Commission on Environmental Quality (TCEQ) executed contract number 582-4-65615-
0120 on August 25, 2004, contingent upon the TCEQ receiving sufficient funds to cover the grant
and issuing a Notice to Proceed. We have now received the funds for this contract. Per Article 5,
Grant Agreement, of the contract, TCEQ hereby provides the PERFORMING PARTY with a Notice
to Proceed for the activities described in the above-noted contract. The PERFORMING PARTY may
now proceed with any unfinished activities described in the contract, and may also submit a
Request for Reimbursement for contract activities completed to date.
On September 22, 2004, Stewart & Stevenson sent a sales quote letter to GPB listing the
specifications for the engines and other products to be sold. The letter stated:
We are pleased to inform you that the [TCEQ] has approved your application for a grant in the
amount of $445,350.00. . . . Should you have any questions about your grant, please feel free to
contact me personally.
The total cost of the project is $587,626.00; Emission Reduction Specialist was able to submit the
cost effectiveness amount of $528,800.00 to the TCEQ and the state awarded a reimbursement of
$445,350.00. Galveston Party Boats, Inc. is responsible for the difference between the project
amount and the reimbursement from TCEQ which totals $142,276.00; any amount above and
beyond the $587,626.00 for this project will be the responsibility of Galveston Party Boats.
The letter then listed a quote for the cost of the engines, generators, and labor to install them. The
Note: This price includes the cost to buy back the cores to be scrapped as per TCEQ contract.
Terms and conditions are attached.
Total invoice net 30 days after engines have been delivered to shipyard with approved credit from
Stewart & Stevenson credit department.
The letter is signed by Mark Wooten as a customer support representative of Stewart & Stevenson.
There are no attached terms and conditions in the record.
On April 12, 2005, GPB’s M/V Cavalier departed on its first voyage with the two new engines
delivered and installed by Stewart & Stevenson. On May 17, 2005, four new engines were installed
in the M/V New Buccaneer.
On August 17, 2005, GPB paid a $60,006 down payment to Stewart & Stevenson based on the
estimated amount that would be left owing after Stewart & Stevenson received, as assignee, funds
from TCEQ. TCEQ paid money to Stewart & Stevenson for the portion of engines paid for by the
Stewart & Stevenson provided a series of invoices reflecting these transactions. In an invoice
dated February 15, 2005, Stewart & Stevenson accounted for the verbal sale for the first two
engines and noted that they were shipped on February 7, 2005. In two subsequent invoices
reflecting the same verbal sale of the first two engines, both dated January 17, 2006, Stewart &
Stevenson also accounted for an order for extended warranties Footnote and catalogs and a
commission/consultant fee “paid to emission reduction specialist.”
The remaining four engines were accounted for in an invoice dated April 26, 2005, which noted
that the final four engines were shipped on April 21, 2005. Again, there are additional invoices
dated January 17, 2006 for these same four engines that also include a 5% commission/consultant
fee “paid to emission reduction specialist.” Footnote All of these invoices contained a statement of
Stewart & Stevenson’s terms and conditions.
Each of the multiple invoices involved in the transaction states on its front: “THE SALE
EVIDENCED BY THIS INVOICE IS SUBJECT TO THE TERMS AND CONDITIONS ON THE FRONT
AND REVERSE SIDE OF THIS DOCUMENT.” On the back of each invoice, there was an arbitration
ARBITRATION: Any dispute arising from or relating to the sale of Goods or Services, including the
interpretation of these General Terms and Conditions of Sale, shall be resolved by binding
arbitration according to the Stewart & Stevenson Arbitration Program.
The invoice also provided the following definitions as part of its terms and conditions:
[A]s used in these General Terms and Conditions of Sale, the term “Goods” shall mean the
machinery, equipment, products and other tangible property from time to time sold or offered for
sale by Seller; the term “services” shall mean the labor from time to time provided by Seller; the
term “Seller” shall mean the entity selling or offering such Goods or Services; and the term “Buyer”
shall mean the person to whom such Goods and Services is sold or offered.
Stewart & Stevenson argues that no one at GPB ever objected to the arbitration provision’s
inclusion in the invoices’ terms and conditions. However, GPB argued that it did not receive all of
these invoices on the dates listed. It argues that Stewart & Stevenson fraudulently created the
invoices on January 17, 2006, ten months after the engines were installed, to reflect the sales and
deliveries that had already occurred. GPB argues that it received the invoices in January 2006 and
then signed a hand-written agreement with Stewart & Stevenson on January 31, 2006.
The hand-written January 31, 2006 agreement between GPB and Stewart & Stevenson reflects
that the total invoiced amount was $505,356. It also reflects credits for GPB’s $60,006 down
payment, a $25,268 “ERS Fee,” and another payment of $331,884, apparently from the TCEQ
reimbursement. This document states that $88,198 is due to Stewart & Stevenson and that
$113,466 has been paid to GPB, but it does not designate who paid GPB that amount. This hand-
written document was signed by representatives of both parties.
GPB alleges that it began experiencing “serious complications leading to ongoing catastrophic
failures of the new engines” just a few weeks after the engines were installed. GPB had the engines
serviced several times by Stewart & Stevenson, resulting in multiple warranty claims from GPB to
MTU Detroit Diesel for payment on warranty work and in GPB’s incurring other expenses related to
remediating engine failures. The service work performed by Stewart & Stevenson was also invoiced
on documents containing the same arbitration provision already discussed.
GPB eventually filed a lawsuit in the trial court against Stewart & Stevenson, MTU Detroit Diesel,
and other manufacturers of the engines’ components. GPB’s petition alleged causes of action for
fraud, conspiracy to commit fraud, fraudulent inducement, breach of the implied warranty of
merchantability and breach of implied warranty of good and workmanlike repair, negligence,
negligent misrepresentation, and DTPA violations.
Stewart & Stevenson filed a motion to compel arbitration on August 1, 2008, arguing that the
arbitration provision in the invoices required GPB to arbitrate its claims against Stewart & Stevenson
and MTU Detroit Diesel. Stewart & Stevenson also argued that its eight-year relationship with GPB
represented a course of dealing that “should defeat any argument that [GPB] [was] ‘unaware’ of the
provision” in the invoices and that GPB ratified the arbitration provision in the invoices by accepting
the engines and services invoiced. Stewart & Stevenson also filed a motion to transfer venue.
In the course of this litigation, Stewart & Stevenson provided the terms of its Arbitration Program
referenced on the invoices. The Arbitration Program provides:
Upon the request of any party, whether made before or after the institution of any legal proceeding,
any action, dispute, claim or controversy of any kind (e.g., whether in contract or in tort, statutory or
common law, legal or equitable) now existing or hereafter arising between the parties in any way
arising out of, pertaining to or in connection with (1) the agreement, document or instrument to
which this Arbitration Program is attached or in which it is incorporated by reference, or any related
agreements, documents, or instruments (the “Documents”), (2) any incidents, omissions, acts,
practices, or occurrences causing injury to either party whereby the other party or its agents,
employees or representatives may be liable, in whole or in part, or (3) any aspect of the past or
present relationships of the parties, shall be resolved by binding arbitration in accordance with the
terms of this Arbitration Program. The foregoing matters shall be collectively referred to as a
“Dispute.” Any party to this Arbitration Program may, by summary proceedings bring an action in
court to compel arbitration of any Dispute.
. . . .
A Dispute between the parties shall be resolved by binding arbitration administered by the American
Arbitration Association (the “AAA”) in accordance with the terms of this Arbitration Program, the
Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable, the Federal
Arbitration Act (Title 9 of the United States Code). In the event of any inconsistency between this
Arbitration Program and the statute and rules, this Arbitration Program shall control. Judgment upon
the award rendered by the arbitrators may be rendered by any court having jurisdiction.
GPB maintains that it did not receive a copy of Stewart & Stevenson’s Arbitration Program until after
this dispute arose.
On September 9, 2008, GPB filed its combined “Motion for Partial Summary Judgment;
Objection and Response to Motion to Compel Arbitration; and Objection and Response to Amended
Motion to Transfer Venue.” It argued that Stewart & Stevenson’s attempts to enforce the “Terms
and Conditions” in the invoices were invalid as a matter of law because there was no valid contract
containing an arbitration provision. It argued that the transaction was governed by the contract
between it and the TCEQ and that it had entered into a verbal agreement with Stewart & Stevenson
for the sale of the engines before any of the invoices were ever sent and that no additional
consideration was exchanged other than that agreed upon in the verbal agreement.
Without holding a hearing, the trial court signed its order denying Stewart & Stevenson’s motion
to compel arbitration on December 17, 2008. In its order, the trial court
ORDERED, ADJUDGED AND DECREED that the terms and conditions located on the reverse of
invoices created by Stewart & Stevenson are hereby unenforceable in their entirety as a matter of
law; that no valid contract was formed incorporating such terms and conditions as a matter of law;
and that there existed no valid agreement to arbitrate.
The trial court also granted GPB’s motion for partial summary judgment.
FAA and TAA
As a threshold matter, we must determine whether the Federal Arbitration Act (“FAA”) or the Texas
General Arbitration Act (“TAA”), or both, governs this suit. The FAA preempts all otherwise
applicable state laws, including the TAA, under the Supremacy Clause of the United States
Constitution. U.S. Const. art. VI; see Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272, 115
S. Ct. 834, 838 (1995). The FAA applies to contracts involving interstate commerce. 9 U.S.C. § 2. It
requires only that interstate commerce be involved or affected. Allied-Bruce, 513 U.S. at 277–81,
115 S. Ct. at 841–43. Interstate commerce is evidenced by location of headquarters in another
state, manufacture of components in a different state, transportation of goods across state lines,
and billings prepared in another state, among other factors. Stewart Title Guar. Co. v. Mack, 945 S.
W.2d 330, 333 (Tex. App.—Houston [1st Dist.] 1997, writ dism’d w.o.j.); see also Robinson v.
TCI/US West Commc’ns Inc., 117 F.3d 900, 904 (5th Cir. 1997) (defining interstate commerce as
“trade, commerce, transportation, or communication among the several States, or between any
foreign county and any place or ship outside thereof”). The burden is on the party seeking to
compel arbitration to establish its right under the FAA. Ikon Office Solutions, Inc. v. Eifert, 2 S.W.3d
688, 696 (Tex. App.—Houston [14th Dist.] 1999, no pet).
Here, the arbitration clause provided that the FAA applied to the transaction. The transactions dealt
with the sale of engines that were manufactured by MTU Detroit Diesel, a Michigan corporation,
using parts that were manufactured by Honeywell International, Inc. and its subsidiaries, which are
New Jersey corporations. Footnote The engines were intended to be used in U.S. and territorial
waters. Because the provision in question specifically provides that the FAA applies and this
contract involves or affects interstate commerce, we determine that the FAA applies in this case.
See Allied-Bruce, 513 U.S. at 277–81, 115 S. Ct. at 841–43; Stewart Title Guar., 945 S.W.2d at 333.
At the time this mandamus was filed, mandamus was proper to address a failure to compel
arbitration under the FAA. See In re Merrill Lynch Trust Co., 235 S.W.3d 185, 188 (Tex. 2007) (“[M]
andamus relief is appropriate if the trial court abused its discretion in failing to stay the litigation and
compel arbitration.”); see also Zuffa, LLC v. HDNet MMA 2008 LLC, 262 S.W.3d 446, 449 (Tex. App.
—Dallas 2008, no pet.) (“A party seeking relief pursuant to the FAA from the trial court’s denial of
arbitration or a stay of litigation must file a petition for writ of mandamus.”). Footnote Accordingly,
we dismiss Stewart & Stevenson’s interlocutory appeal for lack of jurisdiction and consider its
petition for writ of mandamus. Footnote Motion to Compel Arbitration
In its first issue, Stewart & Stevenson argues that the trial court erred in denying its motion to
compel arbitration. Specifically, it argues that the trial court abused its discretion in finding that the
terms and conditions on the reverse side of the invoices were unenforceable, that no valid contract
was formed incorporating such terms and conditions, and that no valid agreement to arbitrate
existed. Stewart & Stevenson argues (1) that a valid agreement to arbitrate existed between it and
GPB; or, alternatively, (2) that GPB agreed to a modification of the agreement by accepting the
engines accompanied by the terms and conditions in the invoices; (3) that the course of dealing
between the parties created an implied contract, or (4) that GPB ratified the arbitration provision in
the invoices by accepting the engines.
A. Standard of Review
Mandamus issues only to correct a clear abuse of discretion or the violation of a duty imposed
by law when there is no other adequate remedy by law. Walker v. Packer, 827 S.W.2d 833, 839
(Tex. 1992). Thus, evaluating whether mandamus relief should be granted requires that we
determine whether there has been a clear abuse of discretion by the trial judge and whether an
adequate appellate remedy exists. Id.
A party seeking to compel arbitration under the FAA must establish that there is a valid
arbitration agreement and that the claims raised fall within that agreement’s scope. In re Kellogg
Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005); J.M. Davidson, Inc. v. Webster, 128 S.W.3d
223, 227 (Tex. 2003). We review the trial court’s determination as to the validity of an arbitration
agreement de novo. J.M. Davidson, 128 S.W.3d at 227. Under the FAA, ordinary principles of state
contract law determine whether there is a valid agreement to arbitrate. In re Kellogg Brown & Root,
166 S.W.3d at 738 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S. Ct.
1920, 1924 (1995)). Although there is a strong presumption favoring arbitration, that presumption
arises only after the party seeking to compel arbitration proves that a valid arbitration agreement
exists. J.M. Davidson, 128 S.W.3d at 227. Because arbitration is contractual in nature, the FAA
generally does not require parties to arbitrate when they have not agreed to do so. In re Kellogg
Brown & Root, 166 S.W.3d at 738 (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489 U.S. 468, 478–79, 109 S. Ct. 1248, 1255 (1989)).
B. Determination of Existence of Valid Agreement to Arbitrate
Stewart & Stevenson first argues that GPB only challenges the contract between them as a
whole, and not the arbitration provision specifically, and that the issue of the validity of the contract
as a whole must be determined by an arbitrator. Stewart & Stevenson cites Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S. Ct. 1204 (2006) to support its contention. The
Supreme Court held in Buckeye that the question whether a purportedly usurious contract
containing an arbitration provision was void for illegality was to be determined by an arbitrator. 546
U.S. at 444–46, 126 S. Ct. at 1208–09. Here, GPB is not arguing that the underlying contract for the
sale of engines to GPB is void for illegality, but that no agreement to arbitrate ever existed.
The trial court is charged with determining whether a valid agreement to arbitrate exists. See In
re Kellogg Brown & Root, 166 S.W.3d at 737; see also J.M. Davidson, 128 S.W.3d at 227 (holding
that when party resists arbitration, trial court must determine whether valid arbitration agreement
exists). Additionally, the Texas Supreme Court has held that “the authority of arbitrators is derived
from the arbitration agreement and is limited to a decision of the matters submitted therein either
expressly or by necessary implication.” Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959)
(considering arbitrator’s authority to make determinations once case has been submitted to
arbitration); see also In re Kellogg Brown & Root, 166 S.W.3d at 738 (holding that FAA generally
does not require parties to arbitrate when they have not agreed to do so). Therefore, the existence
of a valid arbitration agreement must first be determined by the trial court.
C. Existence of Valid Agreement to Arbitrate
Stewart & Stevenson argues that a valid agreement to arbitrate existed between itself and GPB.
1. Meeting of the Minds
Stewart & Stevenson refers to its invoices, which contained an arbitration clause printed on the
back, as “Engine Purchase and Service Contracts” and argues that GPB’s payment of the invoices
constituted acceptance of the written agreement containing the arbitration clause. GPB argues that
it never reached a meeting of the minds with Stewart & Stevenson regarding an agreement to
The elements of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds,
(4) each party’s consent to the terms, and (5) execution and delivery of the contract with the intent
that it be mutual and binding. Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex.
App.—Houston [1st Dist.] 2002, pet. denied). The elements of written and oral contracts are the
same and must be present for a contract to be binding. Wal-Mart Stores, Inc. v. Lopez, 93 S.W.3d
548, 555 (Tex. App.—Houston [14th Dist.] 2002, no pet.).
For an agreement to be enforceable, there must be a meeting of the minds with respect to its
subject matter and essential terms. Id. at 556. The determination of a meeting of the minds, and
thus offer and acceptance, is based on the objective standard of what the parties said and did. Id.
The execution of a contract includes the performance of all acts necessary to render it complete as
an instrument. Verson Allsteel Press Co. v. Carrier Corp., 718 S.W.2d 300, 303 (Tex. App.—Tyler
1985, writ ref’d n.r.e.) (per curiam).
The question of whether a contract contains all the essential terms for it to be enforceable is a
question of law. Beal Banks, S.S.B. v. Schleider, 124 S.W.3d 640, 654 n.8 (Tex. App.—Houston
[14th Dist.] 2003, pet. denied). What terms are material or essential to a contract are determined on
a contract-by-contract basis, depending on the subject matter of the contract at issue. T.O. Stanley
Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 221 (Tex. 1992) (“Each contract should be
considered separately to determine its material terms.”). Three essential elements of a contract for
sale are “(1) the thing sold, which is the object of the contract; (2) the consideration or price to be
paid for the thing sold; and (3) the consent of the parties to exchange the thing for the price.” John
Wood Group USA, Inc. v. ICO, Inc., 26 S.W.3d 12, 20 (Tex. App.—Houston [1st Dist.] 2000, pet.
The contract in this case, under which Stewart & Stevenson provided specific engines for GPB,
shipped them to GPB, and was paid an agreed-upon purchase price with funds received in part
from TCEQ, consisted of three documents. First was the TCEQ contract number 582-4-65615-
0120, dated August 25, 2004 and signed by TCEQ and GPB, under which TCEQ agreed to
reimburse GPB for up to $445,350 toward the expense of replacing its old engines with new, lower-
emission engines. This agreement permitted GPB to assign the payments due from TCEQ to the
“entity from which the goods or services were procured,” namely Stewart & Stevenson. GPB was
required “to document that the goods or services were received and that the payment amount is
owed to the entity designated to receive the payment from the state.” This part of the agreement
was made contingent upon TCEQ’s receipt of the money to fund GPB’s application for the grant.
The second part of the agreement was TCEQ’s Notice to Proceed, issued to GPB in mid-
September 2004, which served as notice that the condition precedent to its performance under
Contract 582-4-65615-0120 had been fulfilled with its receipt of the funds for the grant and that
GPB could proceed “with any unfinished activities described in the contract.”
The final document in the agreement was Stewart & Stevenson’s September 22, 2004 sale
quote letter to GPB listing the specifications for the products to be sold by Stewart & Stevenson to
GPB. That letter informed GPB that TCEQ had approved $445,350 to be paid to Stewart &
Stevenson for the project, that the total cost of the project was $587,626, and that GPB was
responsible for the difference, or $142,276, plus “any amount above and beyond” the $587,626
cost of the project. That letter was signed by Stewart & Stevenson’s customer representative.
The agreement contained all terms necessary to a valid and binding contract. See John Wood
Group USA, 26 S.W.3d at 20 (stating essential elements of contract for sale are object of contract
or thing sold, consideration or price to be paid, and consent of parties to exchange thing for that
price). Its acceptance by all parties—TCEQ, GPB, and Stewart & Stevenson—was confirmed by the
performance of all under it. The agreement did not contain an arbitration provision.
The only mention of an arbitration provision is included in the invoices sent by Stewart &
Stevenson pursuant to its already existing agreement to provide goods and services to GPB in
conjunction with its contract for a grant from TCEQ. Under the facts presented here, these invoices
were not individual contracts in and of themselves—they were acknowledgments detailing that
portion of the goods and services provided by Stewart & Stevenson in performance of its already
existing contract with GPB. See Tubelite v. Risica & Sons, Inc., 819 S.W.2d 801, 804 (Tex. 1991)
(holding, under Business and Commerce Code, contract was formed before “acknowledgments and
statements of account” were sent and stating, “The acknowledgments that followed were not a
formal confirmation of parties’ agreement because they did not contain the terms specifically
negotiated and agreed to by the parties.”). This is not enough to show a meeting of the minds
between GPB and Stewart & Stevenson on the arbitration agreement contained on the back of the
Stewart & Stevenson also argues that GPB’s purchase of the extended warranties was distinct
from its purchase of the engines and that there was a meeting of the minds regarding the arbitration
provision on the invoices documenting the sale of the extended warranties because GPB accepted
and used the warranties subject to the terms and conditions printed on the invoice. However, the
evidence does not support Stewart & Stevenson’s argument. The purchase of the extended
warranties was not separate and distinct from the purchase of the engines. The warranties
themselves were not included in the mandamus record and they are not alleged to contain any
arbitration provision. Rather, the sale and shipment of the engines and extended warranties were
memorialized on the same invoices. They were purchased following the payment plan outlined in the
agreement between TCEQ, GPB, and Stewart & Stevenson. We conclude that this does not show a
meeting of the minds between GPB and Stewart & Stevenson to arbitrate on the terms and
conditions contained on the back of the invoices reflecting the purchase of the extended warranties.
Contract modification is an affirmative defense. Arthur J. Gallagher & Co. v. Dieterich, 270 S.W.
3d 695, 701 (Tex. App.—Dallas 2008, no pet.). Whether a contract is modified depends on the
parties’ intentions and is a question of fact, and the burden of proving modification rests on the
party asserting the modification. Id. at 702. A contract modification independently must satisfy the
traditional requirements of a contract—there must be a meeting of the minds supported by
Here, the requirements of contract modification are not met because, as we have already
discussed, Stewart & Stevenson never demonstrated that it reached a meeting of the minds with
GPB regarding the addition of an arbitration provision to their agreement. GPB’s acceptance of the
engines and payment for them were all made under the terms of the existing contract. See id.
3. Course of Dealing
Furthermore, GPB did not accept the arbitration provision through its subsequent course of
dealing with Stewart & Stevenson.
An implied-in-fact contract “arises from the acts and conduct of the parties, it being implied from
the facts and circumstances that there was a mutual intention to contract.” Lopez, 93 S.W.3d at 557
(quoting Haws & Garrett Gen. Contractors, Inc. v. Gorbett Bros. Welding Co., 480 S.W.2d 607, 609
(Tex. 1972)). A meeting of the minds is also an essential element of an implied-in-fact contract. Id.;
see also City of Houston v. First City, 827 S.W.2d 462, 473 (Tex. App.—Houston [1st Dist.] 1992,
writ denied) (“The only difference between express contracts and implied contracts is the character
and manner of proof required to establish mutual assent. . . .”). The court “must look to the conduct
of the parties to determine the terms of the contract on which the minds of the parties met.” Id.
(quoting Williford Energy Co. v. Submergible Cable Servs., Inc., 895 S.W.2d 379, 385 (Tex. App.—
Amarillo 1994, no writ)). For a contract to be valid between parties, it is not necessary that the
agreement be signed by both parties. Hearthshire Braeswood Plaza, Ltd. P’ship v. Bill Kelly Co., 849
S.W.2d 380, 392 (Tex. App.—Houston [14th Dist.] 1993, writ denied).
An implied agreement, whether arising under common law or the Uniform Commercial Code,
exists when the acts of the parties are such as to indicate according to the ordinary course of
dealing and common understanding that there is a mutual intention to contract. Tubelite, 819 S.W.
2d at 804–05 (quoting Preston Farm & Ranch Supply, Inc. v. Bio-Zyme Enters., 625 S.W.2d 295,
299 (Tex. 1981)); see also Tex. Bus. & Com. Code Ann. § 1.303(b) (Vernon 2009) (“A course of
dealing is a sequence of conduct concerning previous transactions between the parties to a
particular transaction that is fairly to be regarded as establishing a common basis of understanding
for interpreting their expressions and other conduct.”).
The Tubelite court addressed a provision providing for payment of interest and stated:
Acquiescence to the contract by the party to be charged may be implied from his affirmative actions,
such as when he continues to order and accept goods with the knowledge that a service charge is
being imposed and pays the charge without timely objection. But the mere failure to object to the
unilateral charging of interest, without more, does not establish an agreement to pay interest
between the parties.
Id. at 805 (internal citation omitted).
Here, GPB’s failure to object to Stewart & Stevenson’s unilateral inclusion of an arbitration
provision in an invoice reflecting the goods and services provided under an already existing
contract does not establish an agreement to arbitrate between Stewart & Stevenson and GPB.
Footnote See id. Nor do GPB’s actions in receiving the goods and services delivered subsequent to
a separate agreement affirmatively demonstrate its acceptance of the arbitration provision.
Furthermore, the invoices sent from Stewart & Stevenson to GPB for transactions prior to the one
undertaken under the agreement between TCEQ, GPB, and Stewart & Stevenson cannot “fairly . . .
be regarded as establishing a common basis of understanding for interpreting their expressions
and other conduct” because the parties both acknowledge that they had not previously completed
any transactions under a similar contract. See Tex. Bus. & Com. Code Ann. § 1.303(b).
Although no Texas courts have addressed the application of a post-contract course of dealing
to enforce an arbitration agreement, other courts have held that “mere acceptance of and payment
for goods does not constitute an acceptance of all the terms,” including an arbitration provision,
contained in a seller’s acknowledgment form. See PCS Nitrogen Fertilizer, L.P. v. Christy
Refractories, L.L.C., 225 F.3d 974, 979–80 (8th Cir. 2000). Some other courts have allowed a
course of dealing to establish an agreement to arbitrate, but only when arbitration of disputes was a
well-established custom within the industry. See In re Cotton Yarn Antitrust Litig., 505 F.3d 274,
279–80 (4th Cir. 2007); see also Chelsea Square Textiles, Inc. v. Bombay Dyeing & Manufacturing
Co., 189 F.3d 289, 296–97 (2d Cir. 1999) (“We believe that a textile buyer is generally on notice
that an agreement to purchase textiles is not only likely, but almost certain, to contain a provision
mandating arbitration in the event of disputes, and must object to such a provision if it seeks to
avoid arbitration.”). Given that the parties had already executed a written contract governing this
sales transaction that contained no arbitration provision and that they had no prior course of
dealing under a similar contract, we decline to hold that the post-contract course of dealing between
the parties served to put GPB on notice that its acceptance of and payment for goods under the
existing contract with TCEQ and Stewart & Stevenson would subject it to mandatory arbitration in
the event of a dispute. This is particularly so when Stewart & Stevenson sent the invoices
containing the reference to arbitration under its arbitration program after it delivered the goods.
Nor did GPB ratify the arbitration provision in the invoices. “Ratification occurs when a party
recognizes the validity of a contract by acting under it, performing under it or affirmatively
acknowledging it.” Zieben v. Platt, 786 S.W.2d 797, 802 (Tex. App.—Houston [14th Dist.] 1990, no
writ). Here, GPB did none of those things to ratify the arbitration provision on the back of Stewart &
Stevenson’s invoices. As we have already discussed, the invoices themselves in this case were
acknowledgments of delivery, and GPB’s actions in accepting goods and services pursuant to a
prior agreement with Stewart & Stevenson are not enough to show affirmative acceptance of terms
and conditions not negotiated between the parties.
5. Incorporation by Reference
Finally, Stewart & Stevenson argues that the invoices were incorporated by reference in the
January 31, 2006 hand-written agreement between GPB and Stewart & Stevenson reflecting the
“total invoiced amount” of $505,356.
The doctrine of incorporation by reference allows that “an unsigned paper may be incorporated
by reference in the paper signed.” Owen v. Hendricks, 433 S.W.2d 164, 166 (Tex. 1968). “[T]he
language used is not important provided the document signed by the defendant plainly refers to
another writing.” Id. Generally, “any description, recital of fact, or reference to other documents puts
the purchaser upon inquiry, and he is bound to follow up this inquiry, step by step, from one
discovery to another and from one instrument to another,” until he obtains “complete knowledge” of
all of the matters referred to. Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex.
1982) (citing Loomis v. Cobb, 159 S.W. 305, 307 (Tex. Civ App. 1913, writ ref’d)). However, some
restrictions on the reference do exist. The incorporated document must be referenced by name.
Gray & Co. Realtors, Inc. v. Atl. Hous. Found. Inc., 228 S.W.3d 431, 436 (Tex. App.—Dallas 2007,
Here, the very general reference to “invoiced amounts” is not enough to describe the
referenced provisions sufficiently to put GPB on notice that the terms of the agreement between it,
TCEQ, and Stewart & Stevenson were being supplemented by the terms and conditions on the
invoices. See id.; see also Weber v. Hall, 929 S.W.2d 138, 143 (Tex. App.—Houston [14th Dist.]
1996, orig. proceeding) (holding that policy “of resolving doubts in favor of arbitration may not serve
to stretch a contract beyond the scope intended by the parties”). We hold that the hand-written
January 31, 2006 agreement did not incorporate the terms and conditions on the invoices by
We conclude that the trial court did not err in finding that no valid arbitration agreement existed
between Stewart &Stevenson and GPB, and, therefore, it did not abuse its discretion in denying the
motion to compel arbitration.
D. Arbitration of Claims Against MTU Detroit Diesel
Finally, Stewart & Stevenson argues that MTU Detroit Diesel is also a proper party to arbitration
because GPB is suing both Stewart & Stevenson and MTU Detroit Diesel based on benefits
received under the invoices. However, we have held that the trial court correctly determined that
there was no valid agreement to arbitrate between Stewart & Stevenson and GPB. Likewise, there is
no valid arbitration agreement in the record that could form the basis of an agreement to arbitrate
between MTU and GPB.
We overrule Stewart & Stevenson’s first issue.
Hearing and Objections
In its second issue, Stewart & Stevenson argues that the trial court erred in failing to conduct an
evidentiary hearing on its motion to compel arbitration. Stewart & Stevenson argues that a hearing
was required because of allegedly contradictory affidavits filed by the parties. Footnote
Texas Civil Practice and Remedies Code section 171.021 allows trial courts to “summarily
determine” the issue of whether to compel a party to arbitrate its claims. Civ. Prac. & Rem. Code
Ann. § 171.021 (Vernon 2005); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex. 1992)
(“We hold that the trial court may summarily decide whether to compel arbitration on the basis of
affidavits, pleadings, discovery, and stipulations.”). However, if the material facts necessary to
determine the proper disposition of a motion to compel arbitration are controverted by an opposing
affidavit or otherwise admissible evidence, the trial court must conduct an evidentiary hearing to
determine the disputed material facts. Jack B. Anglin, 842 S.W.2d at 269.
Here, Stewart & Stevenson argues that there were opposing affidavits that required the trial
court to conduct an evidentiary hearing. However, none of the affidavits presented in this case
contained material facts necessary to determine the issue of arbitrability. Footnote The material
facts were presented through the documents exchanged between the parties, and, without relying
on any of the allegedly contradictory affidavits, we have held that the trial court correctly determined
that there was no valid arbitration agreement between Stewart & Stevenson and GPB. Therefore,
we conclude that the trial court did not err in failing to hold an evidentiary hearing. See id.
We overrule Stewart & Stevenson’s second issue.
In its third issue, Stewart & Stevenson argues that the trial court abused its discretion by
allowing the use of inadmissible evidence to support GPB’s response to its motion to compel
arbitration. Specifically, Stewart & Stevenson objects to the affidavits of one of GPB’s
representatives. The trial court failed to rule on any of the objections raised by Stewart &
Stevenson, and it likewise failed to rule on Stewart & Stevenson’s Motion for Ruling on Objections
and Reconsideration filed after the trial court denied the motion to compel arbitration. However, the
evidence to which Stewart & Stevenson objects was not necessary to resolve the only argument
properly before this court, which is the legal question of whether or not a valid agreement to
arbitrate existed between Stewart & Stevenson and GPB. We did not consider this evidence in
reaching our conclusion that no enforceable arbitration agreement existed between Stewart &
Stevenson and GPB; therefore, we do not need to consider whether the affidavit in question was
We overrule Stewart & Stevenson’s third issue.
We dismiss the interlocutory appeal for lack of jurisdiction and deny the petition for writ of
Evelyn V. Keyes
Panel consists of Justices Keyes, Hanks, and Bland.