Forrest L. KENNEDY, Petitioner, v. Richard J. HYDE, et al., Respondent, 682 S.W.2d 525

ROBERTSON, Justice. The question presented in this case is whether Texas Rule of Civil Procedure 11 bars enforcement of a disputed oral settlement agreement. Herman J. Smith sold capital stock in the Mansfield State Bank to a number of buyers, including Forrest L. Kennedy, Richard J. Hyde, and the other respondents in this cause. Subsequently, some of these purchasers, including Hyde, sued Kennedy and other defendants not appealing, seeking to recover interest paid to Smith for defendants’ benefit.

Kennedy counterclaimed and also brought a third party action against Smith, alleging misrepresentation in the original stock sale. Thereafter, the parties to the suit met for depositions, but instead became involved in settlement discussions. These discussions resulted in the drafting, revisions and eventual signing of documents settling the suit. All parties save Kennedy ultimately signed these documents. Smith, Hyde and the other plaintiffs then amended their pleadings, alleging that although Kennedy refused to sign any of the settlement documents, he had nonetheless entered into an oral contract of settlement.

As amended, the pleadings introduced the oral settlement as a basis for affirmative relief, seeking damages for breach of contract or specific performance. The oral agreement was also pleaded as a defense to Kennedy’s claims, on theories of accord and satisfaction, novation, waiver and es-toppel, among others. Kennedy likewise amended his pleadings to deny entering into any settlement agreement, and to point out the noncompliance of any alleged agreement with Rule 11 of the Texas Rules of Civil Procedure. The trial court ordered a separate trial on the existence and validity of the alleged oral agreement.

Pursuant to jury findings of an oral agreement to settle the lawsuit, the trial court rendered judgment against Kennedy, effectively enforcing the agreement according to its terms. The court of appeals affirmed, holding that Rule 11 does not prohibit the enforcement of disputed oral settlement agreements. 666 S.W.2d 325. We reverse the decisions of the courts below and remand the cause for trial. For reasons soon apparent, a historical review of Rule 11 is in order.

Tex.R.Civ.P. 11 states: “No agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.” This rule is not of recent origin, but can be traced in substantially its present form to District Court Rule 28, adopted in 1840 under the laws of the Republic of Texas, 1 Tex. 849, 852 (1848), and recodified as District and County Court Rule 47 in 1877 by authority of

article V,

section 25 of the Texas Constitution. See 47 Tex. 597, 625 (1877). The original rationale for the rule was stated cogently in Birdwell v. Cox, 18 Tex. 535, 537 (1857). “Agreements of counsel, respecting the disposition of causes, which are merely verbal, are very liable to be misconstrued or forgotten, and to beget misunderstandings and controversies; and hence there is great propriety in the rule which requires that all agreements of counsel respecting their causes shall be in writing, and if not, the court will not enforce them.

They will then speak for themselves, and the court can judge of their import, and proceed to act upon them with safety. The rule is a salutary one, and ought to be adhered to whenever counsel disagree as to what has transpired between them.” The requirement of a writing in District and County Court Rule 47 was litigated extensively. See generally L. Smoot, Annotated Rules of the Court of Texas 463-65 (1932). In Wootters v. Kauffman, 67 Tex. 488, 3 S.W. 465 (1887), the trial court refused to permit evidence of an oral stipulation of facts.

In affirming, this court stated the general rule: “The agreement was oral, and ... cannot be deemed a written agreement, as required by the rules of practice prescribed by this court.... Not being in writing, it cannot be enforced as an agreement.” Id. at 495-96, 3 S.W. at 467. Matthews v. Looney, 132 Tex. 313, 123 S.W.2d 871 (1939), is illustrative of court

interpretation of old Rule 47, and is in many respects similar to the instant cause. The parties to a will contest already set for trial appeared in court and announced that a settlement had been reached. The trial judge duly made a docket notation of “judgment by agreement.” In preparing the consent decree, though, differences of opinion between the attorneys began to appear.

Although testimony was conflicting, the Commission of Appeals noted, “[0]ne thing stands out as certain:' No formal decree signed by attorneys for all parties was ever presented to the court for approval, or to the clerk for entry.” 132 Tex. at 316, 123 S.W.2d at 872. A motion for entry of judgment nunc pro tune was then filed, with an unsigned form of judgment attached. This form, movants alleged, “contained the terms of the agreement which the parties had made at the time of the announcement in open court of settlement.” Id.

The description of the action then taken by the Matthews trial court closely parallels the procedure followed in the trial of this cause. “On July 13, 1935, trial was had upon the motion to enter judgment. Much testimony, consisting largely of that of interested attorneys, was taken. This testimony appears to have related almost altogether to negotiations and discussions between attorneys prior to the announcement in court, and for some months thereafter.

From this testimony it appears that the court manifestly was trying the question of whether or not there had ever been an agreement reached by the parties, and was attempting to reach a conclusion as to the terms of the agreement which they had actually made.... On one or more points the evidence of the attorneys was contradictory and conflicting.” 132 Tex. at 316, 123 S.W.2d at 872.

The Commission of Appeals refused to treat the lower court decision as a judgment nunc pro tunc, observing that “[t]he purpose is to enter a so-called judgment by agreement not evidenced by written decree when announcement of settlement was made, and not made in open court in an enforceable manner.” 132 Tex. at 317, 123 S.W.2d at 872.

The Commission of Appeals reversed the decisions of the courts below and remanded for a trial on the merits, holding that “the agreed judgment, if actually orally consummated, was not announced in all of its essential details in open court, and was not ‘entered of record.’ ” 132 Tex. at 319, 123 S.W.2d at 873. A final Rule 47 case bears mention. In Foster v.

Gossett, 17 S.W.2d 469 (Tex.Civ.App.—Texarkana 1929, writ dism’d), the court of civil appeals held that evidence of a settlement agreement was properly excluded, concluding that “the compromise offer referred to was made by attorneys representing parties to the suit and accepted by attorneys representing other parties thereto, and that same was not enforceable because not evidenced as required by Rule 47 for the government of district and county courts.” Id. at 470 (emphasis added). Rule 11 of the Texas Rules of Civil Procedure became effective on September 1, 1941.

By its wording, Rule 11 mandates that “[n]o agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing .... ” The rule has been held applicable to a wide variety of agreements concerning lawsuits, including stipulations as to the testimony of absent witnesses, Austin v. Austin, 603 S.W.2d 204 (Tex.1980), and agreements to limit the issues in dispute. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671 (Tex.1979); see also 3 R. McDonald, Texas Civil Practice in District and County Courts § 10.12.3 n. 6 (1983).

On at least two recent occasions, this court has strongly implied that a settlement agreement is also to be judged by Rule 11 standards. Williams v. Hollingsworth, 568 S.W.2d 130, 131 (Tex.1978); Vickrey v. American Youth Camps, Inc., 532 S.W.2d 292, 292 (Tex.1976). The court of appeals in the instant case attempts to avoid application of Rule 11 by making a fine distinction, stating that “the purpose of rule 11 is to authorize rendition of agreed judgments.” 666 S.W.2d at 327.

As we understand the opinion, an agreement in compliance with Rule 11 would authorize an agreed judgment on the merits of the underlying suit. An agreement in violation of Rule 11 would support the same result in the same suit. The sole distinction would be that in the latter case, the judgment would recite that it was based on breach of the contract to settle the suit, rather than incorporating the terms of the contract to settle the suit. Given this

interpretation, no “agreement between attorneys or parties touching any suit pending” need comply with Rule 11. For example, since any stipulation could be characterized as a contract, see, e.g., Keller Industries, Inc. v. O.O. Reeves, 656 S.W.2d 221, 228 (Tex.App.—Austin 1983, writ ref d n.r.e.), any stipulation failing to comply with Rule 11 could nonetheless be enforced as a contract. This court will not eviscerate Rule 11. Nor does the authority cited by the court of appeals support such a narrow

interpretation. In Burnaman v. Heaton, 150 Tex. 333, 240 S.W.2d 288 (1951), this court refused to sanction a consent judgment where consent was withdrawn prior to rendition of judgment. The agreement in Burna-man, however, complied with the requirements of Rule 11. The face of the opinion in Stewart v. Mathes, 528 S.W.2d 116 (Tex.Civ.App.—Beaumont 1978, no writ) does not reveal whether the agreement complied with Rule 11, nor was the rule mentioned in the court of civil appeals’ opinion. Neither opinion speaks authoritatively to the question of enforcing a settlement agreement not in compliance with Rule 11.

It is not surprising to find discussion of Rule 11 and settlement agreements in appeals challenging consent judgments, as such a judgment is a normal method of effectuating a settlement. This does not, however, warrant the court of appeals’ conclusion that “the purpose of rule 11 is to authorize rendition of agreed judgments only if the agreement for judgment is me-morialized_” 666 S.W.2d at 327 (emphasis added). A better statement of the general rule is that Rule 11 is a minimum requirement for enforcement of all agreements concerning pending suits, including, but not limited to, agreed judgments.

Burnaman stands for the proposition that, notwithstanding a valid Rule 11 agreement, consent must exist at the time an agreed judgment is rendered. See also Quintero v. Jim Walter Homes, Inc., 654 S.W.2d 442 (Tex.1983); Samples Exterminators v. Samples, 640 S.W.2d 873 (Tex.1982); 4 R. McDonald, Texas Civil Practice in District and County Courts § 17.22 (1971). Matthews v. Looney, 132 Tex. 313, 123 S.W.2d 871 (1939), demonstrates that an agreement not in compliance with the rule will not support a consent judgment.

Thus it may be said that as a general rule compliance with Rule 11 is necessary, but not sufficient for an agreed judgment. The clear language of the rule indicates, and this court holds, that compliance with Rule 11 is a general prerequisite for any judgment enforcing an agreement touching a pending suit. It has been suggested that such a holding would abridge the substantive law of contracts and thus exceed the rule-making authority granted in Tex.Rev.Civ.Stat.Ann. art. 1731a (Vernon 1962).

Article 1731a does provide that rules of procedure “shall not abridge, enlarge or modify the substantive rights of any litigant.” Rule 11 might be said to affect a substantive right by rendering certain oral contracts (i.e., those touching a pending suit) unenforceable in certain contexts (i.e., unless made in open court). Whether this restriction actually abridges a substantive right is problematical. As the United States Supreme Court observed, albeit in a somewhat different context, “[t]he line between ‘substance’ and ‘procedure’ shifts as the legal context changes.” Hanna v.

Plumer, 380 U.S. 460, 471, 85 S.Ct. 1136, 1143-44, 14 L.Ed.2d 8 (1965). “Each implies different variables depending upon the particular problem for which it is used.” Guaranty Trust Co. of New York v. York, 326 U.S. 99, 108, 65 S.Ct. 1464, 1469, 89 L.Ed. 2079 (1945). In this case, however, the issue is easily resolved without addressing such thorny questions in detail.

Article 1731a gave the Texas Legislature the power to disapprove any rule it chose. Tex.Rev.Civ. Stat.Ann. art. 1731a, sec. 2. As already discussed, the predecessor rule had an extensive gloss of judicial

interpretation upon it, and decisions like Birdwell, Matthews and Foster clearly presage the result in the instant cause. The legislature may reasonably be presumed to have been aware of these decisions construing the old rule and to have consented to those

interpretations by approving identical language in Rule 11. Cf Coastal Indus. Water Auth. v. Trinity Portland Cement Div., Gen’l Portland Cement Co., 563 S.W.2d 916 (Tex.1978) (reenactment of statute implies acquiescence in judicial

interpretation of predecessor statute). Our holding, that Rule 11 means precisely what it says, should not be interpreted as requiring “slavish adherence” to the literal language of the rule in all cases. Sone v. Braunig, 469 S.W.2d 605, 611 (Tex.Civ.App.—Beaumont 1971, writ ref’d n.r. e.). To the contrary, there are well recognized exceptions to the rule in this state, and in other jurisdictions with similar requirements. See generally Annot., 7 A.L. R.3d 1394 (1966). For example, an undisputed stipulation may be given effect despite literal noncomplianee with the rule. Thomas v.

Smith, 60 S.W.2d 514, 516 (Tex.Civ.App.—Texarkana 1933, writ dism’d). Likewise, an agreement in compliance with the rule is subject to attack on the grounds of fraud or mistake, Burnaman v. Heaton, 150 Tex. 333, 240 S.W.2d 288 (1951), and a nonconforming agreement may be enforced for similar equitable reasons. Williams v. Huling, 43 Tex. 113, 120 (1875). Quite recently, this court has interpreted the requirements of Rule 11 liberally to conform to modern trial practice. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671 (Tex.1979).

In determining whether a particular situation warrants an exception to Rule 11, an examination of the policy behind the rule is always paramount. Fidelity & Cas. Co. of N.Y. v. McCollum, 656 S.W.2d 527 (Tex.App.—Dallas 1983, writ ref’d n.r.e.). The reason for Rule 11 is clear. As already observed, oral agreements concerning suits “are very liable to be misconstrued or forgotten, and to beget misunderstandings and controversies.” Birdwell, 18 Tex. at 537. “The purpose of this rule is evident, and its wisdom will be readily conceded.

Agreements of counsel in the course of a judicial proceeding which affect the interests of their clients should not be left to the fallibility of human recollection. This is especially true with reference to agreed judgments which finally dispose of the rights of the litigants. ” Wyss v. Bookman, 235 S.W. 567, 569 (Tex. Comm’n App. 1921, holding approved) (emphasis added). The rationale underlying Rule 11 is sensible and contributes to efficient court administration. Agreements and stipulations are welcomed by courts because they limit the matters in controversy and expedite trial proceedings.

Rule 11 ensures that such agreements do not themselves become sources of controversy, impeding resolution of suits. The requirements of Rule 11 are not onerous; the benefits are substantial. The instant case illustrates the wisdom of the rule. The purported oral settlement agreement with Forrest Kennedy could easily have been reduced to writing and signed. In fact, all other parties to the suit did sign agreements comporting with Rule 11. Forrest Kennedy’s pleadings clearly, emphatically and unequivocally denied entering into an oral settlement agreement.

Nonetheless, the existence and terms of the alleged agreement were litigated, consuming some six days of court time and generating well over $100,000 in attorneys’ fees on a $12,000 claim. Respondents attempt to bring this case within an exception to Rule 11 by claiming that the oral agreement is “undisputed.” They point this court to reams of testimony and eventual favorable jury findings. This argument begs the question. The oral agreement was disputed and unenforceable at the moment its existence was denied in the pleadings; Rule 11 prohibits further inquiry.

While judicial efficiency and the wish to avoid disputes over the credibility of opposing counsel may well have been the original rationale for Rule ll’s requirements, changing times provide an additional benefit from the rule. In a day of burgeoning litigation and crowded dockets, the amicable settlement of lawsuits is greatly to be desired. This court has recognized both a public policy favoring settlements and the need for reasonable safeguards on the settlement process. See, e.g., Cypress Creek Utility Service Co., Inc. v. Muller, 640 S.W.2d 860 (Tex.1982); General Motors Corp. v.

Simmons, 558 S.W.2d 855 (Tex.1977). Similar considerations are present in this case. A requirement that an out-of-court settlement be memorialized by a writing should aid the settlement process, permitting free and frank discussion and negotiation without fear that a careless word or mistake of meaning will itself become the basis for further litigation. For the reasons stated, we reverse the judgments of the courts below and remand the cause for trial. GONZALEZ, J., dissents with opinion that is joined by WALLACE, J. .

Rule 47 was amended in 1892 by adding the phrase "or unless it be made in open court and entered of record." 84 Tex. 695, 715. The portion of Tex.R.Civ.P. 11 at issue in this cause, though, is unchanged since 1877. . The opinion notes that the oral agreement was “incorporated in the statement of facts which was signed by the counsel for the purpose of appealing from the former judgment.” 67 Tex. at 495-96. The opinion, however, antedates the 1892 revision adding “or unless it be made in open court and entered of record” to the rule.

The South Western Reporter version of the case contains a printing error, as it substitutes “unsupported” for "incorporated.” 3 S.W. at 467.