Opinion
09-20-00235-CV
11-24-2021
AMERICAN CAPITAL FUNDING CORPORATION, Appellant v. HOTEL APART, L.L.C., Appellee
Submitted on August 17, 2021
On Appeal from the 58th District Court Jefferson County, Texas Trial Cause No. A-193, 565
Before Kreger, Horton and Johnson, JJ.
MEMORANDUM OPINION
CHARLES KREGER Justice
In a single issue, American Capital Funding Corporation ("American" of "Seller") appeals the trial court's judgment awarding earnest money deposited pursuant to its commercial real estate contract with Hotel Apart, L.L.C. ("Hotel Apart" or "Buyer"). American argues the evidence demonstrates that American fully performed its obligation under the real estate contract and met all conditions precedent prior to Hotel Apart's termination of the contract. American argues that Hotel Apart materially breached the contract and American is entitled to the earnest money as its sole damages. We affirm.
Heman Patel originally entered the contract with American and assigned his rights in the contract to Hotel Apart.
I. Background A. Property and Underlying Litigation
This litigation arises from a commercial real estate contract for the sale of a hotel in Port Arthur, Jefferson County, Texas. American owns the hotel. A court-appointed receiver selected Hotel Apart as the successful bidder to purchase the hotel. When a dispute arose regarding the return of earnest money, Hotel Apart intervened in a pending lawsuit initially filed by Chimney Joint Venture against American and other entities regarding other claims against the hotel property. In the intervention, Hotel Apart contends it is entitled to return of the earnest money because the underlying litigation between American and other entities remains ongoing, amounting to a default under the contract's terms for American's failure to convey good and insurable title by the agreed closing date.
In the underlying litigation, originally Chimney Joint Venture sued American Capital and other defendants asserting, among other issues, that it had a superior lien on the hotel because of a transaction in 2010. After extensive litigation, a receiver was appointed by the trial court to facilitate the sale of the hotel and choose the buyer from a potential pool of several buyers. The receiver was discharged before the conclusion of the case after American bought Chimney Joint Venture's interest in the hotel. While portions of the underlying lawsuit were resolved, some claims of other parties remain pending.
American responded that it fulfilled all necessary contractual obligations, that Hotel Apart waived certain objections, and that Hotel Apart breached the contract by not providing the agreed upon consideration for the purchase of the hotel. Because Hotel Apart materially breached the contract by failing to close on the purchase, American asserted it is entitled to the earnest money under the contract.
Even so, the agreement goes on to obligate the seller to provide the buyer with a special warranty deed and required the deed to "convey good and indefeasible title to the Property and show no exceptions other than those permitted under Paragraph 6 or other provisions of this contract."
B. Contract Provisions and Title Policy
On September 3, 2019, the parties signed a commercial real estate contract. The contract affords the non-breaching-party the sole remedy of receiving the earnest money as damages. The real estate contract expressly provided that the buyer's purchase was not contingent on third party financing. Additionally, the real estate contract provided that "t[h]e deed must convey good and indefeasible title to the Property and show no exceptions other than those permitted under Paragraph 6 or other provisions of this contract. Paragraph 6 of the parties' contract specified the following regarding the title policy.
6. TITLE POLICY, SURVEY, AND UCC SEARCH:
A. Title Policy:
(1) Seller, at Seller's expense, will furnish Buyer an Owner's Policy of Title Insurance (the title policy) issued by Buyer (title company), in the amount of the sales price, dated at or after closing, insuring Buyer against loss under the title policy, subject only to:
(a) those title exceptions permitted by this contract or as may be approved by Buyer in writing; and (b) the standard printed exceptions contained in the promulgated form of title policy unless this contract provides otherwise.
(2) The standard printed exception as to discrepancies, conflicts, or shortages in area and boundary lines, or any encroachments or protrusions, or any overlapping improvements:
(a) will not be amended or deleted from the title policy.
The contract also provided that Hotel Apart had the option to object to the title commitment, as follows:
D. Buyer's Objections to the Commitment, Survey, and UCC Search:
(1) Within 10 days after Buyer receives the commitment, copies of the documents evidencing the title exceptions, any required survey, and any required UCC search, Buyer may object to matters disclosed in the items if: (a) the matters disclosed are a restriction upon the Property or constitute a defect or encumbrance to title to the real or personal property described in Paragraph 2 other than those permitted by this contract or liens that Seller will satisfy at closing or Buyer will assume at closing; or (b)
the items show that any part of the Property lies in a special flood hazard area (an "A" or "V" zone as defined by FEMA). If Paragraph 6B(1) applies, Buyer is deemed to receive the survey on the earlier of: (i) the date Buyer actually receives the survey; or (ii) the deadline specified in Paragraph 6B.
(2) Seller may, but is not obligated to, cure Buyer's timely objections within 15 days after Seller receives the objections. The closing date will be extended as necessary to provide such time to cure the objections. If Seller fails to cure the objections by the time required, Buyer may terminate this contract by providing written notice to Seller within 5 days after the time by which Seller must cure the objections. If Buyer terminates, the earnest money, less any independent consideration under Paragraph 7B(1), will be returned to Buyer.
(3) Buyer's failure to timely object or terminate under this Paragraph 6D is a waiver of Buyer's right to object except that Buyer will not waive the requirements in Schedule C of the commitment.(Emphasis added)
Schedule C of the title commitment advised that "[y]our Policy will not cover loss, costs, attorney's fees, and expenses resulting from the following requirements that will appear as Exceptions in Schedule B of the Policy, unless you dispose of these matters to our satisfaction, before the date the Policy is issued[.]" Schedule C also required "satisfactory recordable releases" of the outstanding liens and abstract of judgments listed in Schedule C.
C. Bench Trial
In October 2020, the parties tried the case to the bench. American argued that Hotel Apart refused to close on the transaction because it could not secure third party financing to purchase the hotel despite the contract's express provision that the purchase was a cash deal and not contingent upon the buyer obtaining third party financing.
Hotel Apart argued that American could not deliver clear title to the property, given the title company's exceptions as listed in Schedule C of the title commitment. Since American could not deliver clear title to the property, Hotel Apart contended it was entitled to terminate the real estate contract and have its earnest money returned. In support of this contention, Hotel Apart noted unresolved legal issues between several entities claiming an interest to or liens on the hotel that had not yet resulted in a final, non-appealable judgment. Hotel Apart also pointed to the contract language stating it would not waive the exceptions listed in Schedule C of the title commitment.
After hearing the evidence, including testimony from Hotel Apart's expert witness, the trial court found that American breached the contract by failing to deliver a satisfactory title policy. The court awarded the funds in the court's registry (the earnest money) to Hotel Apart as its sole damages. Neither party requested findings of fact or conclusions of law, nor did the trial court file any. See Tex.R.Civ.P. 296, 299a. American then timely appealed.
In the trial court, the parties filed a joint motion to sever this portion of the lawsuit, which the trial court granted on July 7, 2021.
II. Standard of Review
When neither party requests findings of fact and conclusions of law following a nonjury trial, all fact findings necessary to support the trial court's judgment are implied. See Shields Ltd. P'ship v. Bradberry, 526 S.W.3d 471, 480 (Tex. 2017); see also Sixth RMA Partners, L.P. v. Sibley, 111 S.W.3d 46, 52 (Tex. 2003). In Shields, the Texas Supreme Court explained that if a reporter's record is filed, "implied findings may be challenged on factual- and legal-insufficiency grounds in the same manner 'as jury findings or a trial court's [express] findings of fact,' but this Court only has jurisdiction over legal-sufficiency challenges." See Shields, 526 S.W.3d at 480 (quoting Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989)); see also In re S.M.R., 434 S.W.3d 576, 586 (Tex. 2014).
"[When] an appellant attacks the legal sufficiency of an adverse finding on an issue on which it did not have the burden of proof, the appellant must demonstrate on appeal that there is no evidence to support the adverse finding." Univ. Gen. Hosp., L.P. v. Prexus Health Consultants, LLC, 403 S.W.3d 547, 550 (Tex. App.-Houston [14th Dist.] 2013, no pet.) (citations omitted). In a legal sufficiency review, we review the evidence in the light most favorable to the appealed finding and indulge every reasonable inference that supports the finding. Id. at 550-51. We will find the evidence legally sufficient if it "would enable reasonable and fair-minded people to reach the verdict under review." City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We credit favorable evidence if a reasonable trier of fact could, and disregard contrary evidence unless a reasonable trier of fact could not. Id. at 807, 827. The trier of fact is the sole judge of the witnesses' credibility and weight to be given their testimony. Id. at 819. We will sustain a legal sufficiency challenge (no evidence challenge) only if the record shows: (1) the complete absence of evidence of a vital fact; (2) the court is barred by rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidence conclusively establishes the opposite of the vital fact. See id. at 810 (citations omitted).
III. Analysis A. Elements of Breach of Contract
The requisite elements of a breach of contract cause of action are: (1) the formation of a valid contract; (2) plaintiff's performance; (3) defendant's breach; and (4) damages to plaintiff resulting from the breach. See USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018). The parties do not dispute the contract's validity, so we focus on the elements of performance and breach of the contract.
B. The Parties' Arguments
American argued at trial that Hotel Apart waived its right to rely upon any exceptions to the title policy when it signed an Agreed Order on June 25, 2020, authorizing the receiver to sell the property after issuing the title commitment. Specifically, American asserts that the title commitment was delivered to the parties on June 23, 2020, and became effective as of June 6, 2020, based on the language in the policy. About three weeks later, Hotel Apart told the court appointed receiver in an email that it did not intend to close on the hotel and requested the return of its earnest money. American argues Hotel Apart terminated the contract because it could not obtain third party financing, claiming its failure constituted a breach of Paragraph 3 of the contract. In further support of its argument, American points to the contract provision titled "Buyer's Objections to the Commitment, Survey and UCC Search." that states, "Buyer's failure to timely object or terminate under this Paragraph 6D is a waiver of Buyer's right to object except that Buyer will not waive the requirements in Schedule C of the commitment." American contends Hotel Apart admitted it could not obtain third party financing due to the exceptions in Schedule C of the title commitment. But American asserts that since the contract was not contingent upon the buyer obtaining third party financing, Hotel Apart's failure to close on the sale of the property was a material breach of the contract.
Hotel Apart does not dispute the sale was not contingent on third party financing. Instead, it counters that American failed to comply with Paragraph 6, which required American to convey insurable title. It concludes American breached the contract or failed to meet a condition precedent under the contract's terms.
C. Application
The trial court heard testimony addressing the litigation involving American that prevented American from conveying the hotel free and clear of all liens. At trial, Hotel Apart's real estate expert testified that having those exceptions in the title policy "would be unacceptable to most experienced real estate counsel." Further, the contract provides the Buyer did not waive those exceptions listed in Schedule C of the title commitment. Specifically, the expert testified that line 9 on Schedule C was problematic because "it makes the title insurance subject to future orders of the Court." The expert explained he reviewed the trial court's docket and identified the lack of finality in some of the pending litigation. Because of the lack of finality, the expert testified that there was a possibility that the trial court could enter another order that would "basically eliminate the title coverage or the insurance." He explained the exceptions and the pending litigation could mean the "buyer would have bought a new lawsuit without any insurance coverage." According to the expert, he would treat the line 9 exception in Schedule C as a failure of a condition precedent.
I would treat it as a failure of a condition. The contract does not require the seller to cure any issue in a title policy but what it does do is it requires the seller to deliver a policy subject to the terms of the contract and, again, in Section 6D(3), it says, "Buyer's failure to timely object or terminate under Paragraph 6D is a waiver of buyer's right to object, except that buyer will not waive the requirements in Schedule C of the commitment."
The trial court agreed and awarded the Buyer, Hotel Apart, the earnest money. We agree with the trial court. Regardless of whether Hotel Apart was able to obtain financing or not, the real estate contract makes clear that American is required to secure title insurance and that Hotel Apart would not waive the requirements listed in Schedule C. See Key v. Tyler, No. 12-07-00384-CV, 2008 WL 5005910, at *5-6 (Tex. App.-Tyler Nov. 26, 2008, pet. denied) (mem. op.) (explaining "the requirements in Schedule C had to be satisfied and could not be waived by [buyer]" and where "[seller] failed to satisfy a condition precedent to the [requirement of Schedule C in the] contract[, ]" seller failed to meet conditions precedent, and seller's subsequent termination of the agreement for failure to close by a certain date constituted a breach). Given the terms of the agreement, we conclude Hotel Apart's failure to expressly object within the time limits of the title commitment to Schedule B did not constitute a waiver of those exceptions listed in Schedule C. See id.
Waiver is the "'intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.'" Waiver "'results as a legal consequence from some act or conduct of the party against whom it operates'" and is "'essentially unilateral in character, '" meaning "'no act of the party in whose favor it is made is necessary to complete it.'" LaLonde v. Gosnell, 593 S.W.3d 212, 21819 (Tex. 2019), reh'g denied (Oct. 4, 2019).
American argues Hotel Apart further waived its right to rely on the exceptions in Schedule C when it executed the Agreed Order, an order the parties signed after the title commitment issued on June 25, 2020. The Agreed Order relates to the receiver's authority to proceed with closing and states: "[American] shall not be required to terminate any alleged lease affecting the [Hotel] and Hotel Apart [] accepts the [Hotel] subject to [a lease company's] occupancy of the premises[.]"
The contested issue in the trial was whether Hotel Apart was justified in refusing to go forward with the transaction or whether its refusal breached the agreement. There was a disputed fact issue as to the reason Hotel Apart refused to go forward with the sale. That said, the trial court, as the finder of fact, could have believed from the evidence and testimony that Hotel Apart, as the buyer, was justified in refusing to close when American failed to resolve the outstanding liens and exceptions, as noted in Schedule C of the title policy commitment. The real estate sales contract expressly provided that buyer could refuse to proceed with the sale if seller could not provide a warranty of title, and that buyer did not waive the exceptions noted in Schedule C. We are unpersuaded that Hotel Apart waived its rights under Schedule C by signing the Agreed Order since the trial court's findings imply American breached its obligations under the contract to remove the liens in the agreement, meaning those listed in Schedule C. Specifically Schedule C in the title commitment provides the title company will not insure title against the claims in pending litigation, and it lists encumbrances that included an abstract of judgment favoring Chimney Joint Ventures as well as a mechanics' lien. The Agreed Order is silent as to waiving these items, and we find nothing more in the record to support American's arguments on waiver.
Chimney Joint Ventures was granted a judgment against Crown Hospitality, Inc., another defendant it sued in the underlying lawsuit regarding the sale of this hotel.
For example, there was no evidence presented at the trial that the litigation involving American had been finally resolved on the date the parties were to close on the hotel. The trial court found Hotel Apart acted within its rights to terminate the agreement when it refused to close on the Hotel. Therefore, Hotel Apart had no duty to close given the evidence supporting the trial court's finding that American breached the agreement first by failing to resolve the liens and encumbrances in Schedule C prior to closing. See id.; see also Desai v. Good Hope Missionary Baptist Church of Hous., No. 01-19-00420-CV, 2021 WL 1414282, at *4-6 (Tex. App.- Houston [1st Dist.] Apr. 15, 2021, pet. filed) (mem. op.) (noting the trial court erred in denying a motion to disregard a jury's finding the seller did not breach real estate contract given evidence of seller's breach where some items listed in Schedule C of the title policy were unfulfilled and would remain so at the time of closing); Keathley v. Baker, No. 12-07-00477-CV, 2009 WL 1871706, at *9-10 (Tex. App.-Tyler June 30, 2009, no pet.) (mem. op.) (noting Schedule C requirements could not be waived and trial court erred by granting summary judgment against buyer where seller was unable to obtain title free of encumbrances on or near the closing).
We overrule American's sole issue and affirm the judgment.
AFFIRMED.