in Re Stewart & Stevenson, LLC, MTU Detroit Diesel, Inc.

Opinion issued November 5, 2009

In The

Court of Appeals

For The

First District of Texas

NOS. 01-09-00030-CV & 01-09-00111-CV

STEWART & STEVENSON, LLC & MTU DETROIT DIESEL, INC.,

appellants

v.

GALVESTON PARTY BOATS, INC. & BOAT SERVICE OF

GALVESTON, INC., appellees

IN RE STEWART & STEVENSON, LLC & MTU DETROIT DIESEL, INC.,

relators

On Appeal from the 405th District Court

Galveston County, Texas

Trial Court Cause No. 08CV0011

MEMORANDUM OPINION

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”).

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 mandamus.

Background

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 the Assignee.”

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 stated:

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 letter concludes:

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 grant.

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

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.”

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 provision:

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.

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.”).

Accordingly, we dismiss Stewart & Stevenson’s interlocutory appeal for lack of

jurisdiction and consider its petition for writ of mandamus.

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 arbitrate.

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. denied).

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

invoices.

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.

2. Modification

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

consideration. Id.

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.

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.

4. Ratification

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, no

pet.).

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 reference.

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.

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.

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 adequate evidence.

We overrule Stewart & Stevenson’s third issue.

Conclusion

We dismiss the interlocutory appeal for lack of jurisdiction and deny the

petition for writ of mandamus.

Evelyn V. Keyes

Justice

Panel consists of Justices Keyes, Hanks, and Bland.