Rodriguez v. Sanchez ( 2023 )

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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 Opinion Number: _____________
3 Filing Date: July 26, 2023
4 No. A-1-CA-38912
5 EZEQUIEL RODRIGUEZ, SR.,
6 Plaintiff-Appellant,
7 v.
8 EUGENIO SANCHEZ; EZ OILFIELD
9 SERVICES, INC.; UNITED STATES
10 OF AMERICA, DEPARTMENT OF THE
11 TREASURY; INTERNAL REVENUE
12 SERVICE; and NEW MEXICO TAXATION
13 AND REVENUE DEPARTMENT,
14 Defendants-Appellees.
15 APPEAL FROM THE DISTRICT COURT OF LEA COUNTY
16 William G.W. Shoobridge, District Court Judge
17 Law Offices of Marshall J. Ray, LLC
18 Marshall J. Ray
19 Albuquerque, NM
20 for Appellant
21 Newell Law Firm, LLC
22 Michael Newell
23 Christan Quiroz Valencia
24 Lovington, NM
25 for Appellees Eugenio Sanchez and EZ Oilfield Services, Inc.
1 OPINION
2 DUFFY, Judge.
3 {1} Plaintiff Ezequiel Rodriguez, Sr. (Seller) sued his business partner, Defendant
4 Eugenio Sanchez (Purchaser), for breach of contract after the parties’ contract for
5 Purchaser to buy out Seller’s interest in their business went unperformed because
6 Purchaser was unable to obtain financing that Seller would accept. Following a
7 bench trial, the district court determined that Purchaser obtaining bank financing was
8 a condition precedent to an enforceable contract and entered judgment in favor of
9 Purchaser. Seller appeals, challenging the district court’s conclusions that the
10 contract was unenforceable and that no equitable relief was available to Seller. We
11 affirm.
12 BACKGROUND
13 {2} Seller and Purchaser co-owned and operated EZ Oilfield Services, Inc. In
14 2015, Seller voluntarily walked away from the management of the business and
15 Purchaser assumed full control. In 2016, the parties went through mediation and
16 entered into a contract for Purchaser to buy Seller’s interest in the business.
17 {3} Generally, the contract terms called for Seller to convey his interest in the
18 business—500 shares of common stock—for the total purchase price of $425,000.
19 The contract required Purchaser to make a $75,000 down payment payable within
20 forty-five days, “contingent on Purchaser being able to obtain bank financing.” We
1 will refer to this term as the financing contingency throughout the remainder of this
2 opinion. The remaining $350,000 was to be paid in seventy monthly installments of
3 $5,000. To secure the monthly installments, Seller would retain a security interest in
4 the business and its assets. The contract contained a closing provision that specified
5 the time for performance, stating that “the transfer of [s]tock and the payment of the
6 $75,000.00 down payment shall take place within forty-five (45) days of the
7 execution of this agreement and accompanying security and financing statements.”
8 The parties executed the contract on June 10, 2016.
9 {4} Purchaser obtained bank financing through Gulf State Bank for the down
10 payment. The bank, however, required Seller to subordinate his security interest in
11 the business. When Purchaser tendered the loan documents to Seller, Seller refused
12 to accept any payment that would require him to subordinate his security interest. At
13 trial, Purchaser “testified that he obtained another form of private financing through
14 two ranchers but [Seller] refused to accept the payment,” insisting that Purchaser
15 obtain “bank” financing instead. Purchaser apparently never procured financing that
16 was acceptable to Seller, the parties never closed on the contract, and Seller never
17 relinquished his shares.
18 {5} During this period, the price of oil began to drop and the business became
19 unprofitable. EZ Oilfield Services, Inc. eventually went out of business with
20 $417,761.08 in outstanding business debt and tax liability. In early 2017, as all of
2
1 this was unfolding, Seller sued Purchaser for breach of contract, seeking to
2 “accelerate all sums due and owing under said agreement and proceed to foreclose
3 his secured interest in all assets of EZ Oilfield Services, Inc.”
4 {6} The case proceeded to a half-day bench trial, after which the district court
5 determined that the parties’ contract contained a condition precedent that Purchaser
6 obtain bank financing, and because that condition had not been fulfilled, the parties’
7 contract was unenforceable. As a result, the district court concluded that Seller and
8 Purchaser remain co-owners of the business and were each responsible for half of
9 the debt.
10 {7} Seller timely appealed to this Court.
11 DISCUSSION
12 {8} On appeal, Seller argues that the parties had a valid, enforceable contract
13 because (1) the financing contingency was not a condition precedent to the formation
14 of a valid contract, (2) the financing contingency only conditioned the initial
15 payment and did not impact Purchaser’s duty to perform the remainder of the
16 contract terms, and (3) Purchaser’s failure to fulfill the condition precedent was a
17 breach of the contract. In the alternative, Seller argues that if the contract is
18 unenforceable, he is entitled to equitable relief. We agree with Seller that the parties
19 had a valid contract, but we perceive no error in the district court’s conclusion that
20 the obligation to perform was discharged because the condition precedent went
3
1 unfulfilled within the time limit specified by the contract. Likewise, the district court
2 did not err in declining Seller’s request for equitable relief.
3 I. Seller’s Contract Arguments
4 {9} Seller’s contract arguments present a mixed question of law and fact. We
5 review the district court’s application of the law to the facts de novo. See Skeen v.
6 Boyles, 2009-NMCA-080, ¶ 17, 146 N.M. 627, 213 P.3d 531. To the extent it is
7 necessary to do so, “we review the district court’s findings of fact for substantial
8 evidence.” Id.9 A. The Financing Contingency Was a Condition Precedent to
10 Performance
11 {10} At issue is the district court’s conclusion that the financing contingency was
12 a “condition precedent necessary for an enforceable contract.” In the law of
13 contracts, a condition precedent is generally understood as “an event occurring
14 [after] the formation of a valid contract, an event that must occur before there is a
15 right to an immediate performance, before there is breach of a contractual duty, and
16 before the usual judicial remedies are available.” W. Com. Bank v. Gillespie, 1989-
17 NMSC-046, ¶ 4, 108 N.M. 535, 775 P.2d 737 (quoting 3A Arthur L. Corbin, Corbin
18 on Contracts § 628, at 16 (1960)); see also Condition, Black’s Law Dictionary (11th
19 ed. 2019) (defining “condition precedent” as “[a]n act or event, other than a lapse of
20 time, that must exist or occur before a duty to perform something promised arises.
21 If the condition does not occur and is not excused, the promised performance need
4
1 not be rendered.”). While the definition in Gillespie refers to conditions in the
2 context of a contract that already exists, the Court noted that New Mexico recognizes
3 two types of conditions precedent—those that are “prerequisites to an obligation to
4 perform under an existing agreement,” and those that are prerequisites to the
5 formation or existence of the contract itself. Gillespie, 1989-NMSC-046, ¶ 4; see
6 also 2 E. Allan Farnsworth & Zachary Wolfe, Farnsworth on Contracts § 8.02 at 8-
7 10, 8-11 n.14 (4th ed. Supp. 2021) (noting that the Restatement Second of Contracts
8 expressly does not use the term “condition” to describe “events that must occur
9 before a contract comes into existence” but observing that “[t]he use of conditions
10 to refer to events that must occur before the parties to an agreement are bound
11 is . . . common, and shows no signs of abatement”). Whether a condition is a
12 condition precedent to formation or to performance is determined by the intent of
13 the parties. Gillespie, 1989-NMSC-046, ¶ 4.
14 {11} In this case, it is unclear whether Seller is initially challenging the district
15 court’s conclusion that the financing contingency was a condition precedent. Based
16 on the plain language of the parties’ contract, we affirm the district court’s
17 conclusion on this point. The contract states, “The purchase price is $425,000.00
18 payable as follows: Seventy-Five Thousand Dollars ($75,000) payable within forty-
19 five days of the execution of this agreement. This payment is contingent on
20 Purchaser being able to obtain bank financing.” (Emphasis added.) The word
5
1 “contingent” means “[d]ependent on something that might or might not happen in
2 the future; conditional.” Contingent, Black’s Law Dictionary (11th ed. 2019). Thus,
3 the plain language of the parties’ contract states an express condition.
4 {12} Seller argues that the district court erred in concluding that the financing
5 contingency was a condition precedent to the formation of the contract. We do not
6 agree that the district court so concluded. The district court’s order states that
7 “[Purchaser] obtaining bank financing was the condition precedent necessary for an
8 enforceable contract.” (Emphasis added.) The district court’s use of the word
9 “enforceable” indicates the court viewed the financing contingency as a condition
10 precedent to performance. When a contract contains a condition precedent to
11 performance, the right to enforce the contract does not arise until the condition
12 precedent has been fulfilled. See 2 Farnsworth, supra, § 8.02 at 8-7, -8 n.8; see also
13 Restatement (Second) of Contracts § 225, Westlaw (database updated May 2023)
14 (Effects of the Non-Occurrence of a Condition). The order likewise states that
15 because the condition precedent went unfulfilled, the contract was never
16 “consummated,” a term meaning “completed” or “fully accomplished.” See
17 Consummate, Black’s Law Dictionary (11th ed. 2019). We read the district court’s
18 use of the term “consummated” together with that court’s conclusion that the
19 contract was not enforceable to conclude that the district court viewed a contract as
20 having been formed, but the duty to perform under the contract and the right to
6
1 enforce performance did not arise because the condition precedent was never
2 satisfied.
3 B. The Financing Contingency Affected All Performance Due Under the
4 Contract
5 {13} Seller next argues that the failure of the condition should not have affected the
6 parties’ obligations to perform the other terms of the contract. According to Seller,
7 the financing contingency was limited to the $75,000 down payment and, to the
8 extent it is unenforceable, it is severable from the remainder of the contract. We are
9 unpersuaded in light of the contract’s terms and structure.
10 {14} The contract called for both parties to perform at closing: Seller’s obligation
11 to transfer his shares of stock was to occur in exchange for Purchaser’s tender of
12 $75,000. Seller, for his part, has offered no explanation of how or why the sale could
13 be completed in the absence of Purchaser’s down payment. Nor has he attempted to
14 reconcile how the $75,000 down payment could be severed in light of the remaining
15 terms of the agreement, including the overall purchase price of $425,000. Because
16 other material parts of the contractual performance were directly impacted by the
17 down payment, we fail to see how the financing contingency can be viewed in
18 isolation. Seller’s arguments accordingly do not persuade us that the district court
19 erred in concluding that the contract as a whole was unenforceable as a result of
20 Purchaser not obtaining bank financing.
7
1 C. Purchaser’s Duty to Perform Is Discharged
2 {15} Finally, Seller suggests that Purchaser’s failure to secure acceptable bank
3 financing constitutes a breach of the contract. This is not the case.
4 {16} The nonoccurrence of a condition generally is not itself a breach of the
5 contract. See Gillespie, 1989-NMSC-046, ¶ 4 (stating that there is no right to
6 performance and no breach of a contractual duty before the condition precedent
7 occurs). Instead, “the obligor is entitled to suspend performance on the ground that
8 the performance is not due as long as the condition has not occurred.” 2 Farnsworth,
9 supra, § 8.03 at 8-16. Furthermore, “if a time comes when it is too late for the
10 condition to occur, the obligor is entitled to treat its duty as discharged and the
11 contract as terminated.” Id.
12 {17} In this case, the contract specified the time within which the condition must
13 occur—forty-five days from the execution of the agreement. It is undisputed that this
14 period passed without Purchaser having obtained bank financing that Seller would
15 accept. Because it is too late for the condition to occur, Purchaser was permitted to
16 treat his duty to perform as discharged and the remainder of the contract as no longer
17 enforceable. See 2 Farnsworth, supra, § 8.03 at 8-17; see also Restatement (Second)
18 of Contracts § 225.
19 {18} Seller argues that “it would be a perversion of contract law” to allow a party
20 “to breach . . . by failing to perform in order to obtain rescission.” This argument
8
1 mistakes the general nature of a condition, which renders performance conditional
2 until a bargained-for event occurs. Seller has not otherwise offered any developed
3 argument as to why Purchaser’s failure to obtain financing amounts to breach. See
4 Headley v. Morgan Mgmt. Corp., 2005-NMCA-045, ¶ 15, 137 N.M. 339, 110 P.3d
5 1076 (declining to rule in the absence of an explanation of the party’s argument and
6 facts that would allow this Court to evaluate the claim).
7 {19} In sum, the financing contingency constituted a condition precedent to the
8 parties’ obligations to perform under the contract. The nonoccurrence of that
9 condition within the time specified in the contract renders the contract
10 unenforceable. We affirm the judgment of the district court.
11 II. Equitable Relief Is Not Available to Seller
12 {20} Seller argues that if the contract is unenforceable, the district court erred in
13 denying him equitable relief, either under a theory of unjust enrichment or
14 promissory estoppel. We note that Seller made no request for equitable relief until
15 after trial, and there is no indication that any equitable claims were tried by consent.
16 See Rule 1-015(B) NMRA (stating that issues not raised by the pleadings may tried
17 by express or implied consent of the parties). Regardless, Seller has not established
18 any abuse of discretion in the district court’s denial of his request. See Maestas v.
19 Town of Taos, 2020-NMCA-027, ¶ 10, 464 P.3d 1056.
9
1 {21} Seller’s argument on appeal is limited to a brief recitation of factual
2 allegations that, he maintains, support his entitlement to equitable relief. The
3 allegations Seller relies on are neither undisputed nor readily verified, given that he
4 has provided no citations to the record indicating where these matters were raised
5 below. See Rule 12-318(A)(4) (stating that arguments in the appellant’s brief in chief
6 shall contain citations to the record proper). What is ultimately fatal, however, is that
7 most of Seller’s assertions are contradicted by the district court’s factual findings,
8 which are binding on appeal because Seller has not challenged them. See Seipert v.
9 Johnson, 2003-NMCA-119, ¶ 26, 134 N.M. 394, 77 P.3d 298. For example, Seller
10 asserts that he “gave up his entire interest in the business,” but fails to address or
11 challenge the district court’s finding that “[Seller] never relinquished his shares.”
12 Seller also states that “[i]n accordance with the agreement, [he] was not involved in
13 the management of the company at any time after execution,” but the district court
14 found Seller had “voluntarily walked away from the management of EZ” the year
15 before the parties entered their agreement. Seller also concedes he did not withdraw
16 completely from the management of the company, as he admits that he withdrew
17 $15,000 from the business’s bank account “to pay creditors of EZ Oilfield Services.”
18 Seller’s assertion that he “substantially changed his position” is not supported by the
19 record and is, in fact, contradicted by the unchallenged findings on appeal.
10
1 {22} For all of these reasons, we conclude Seller has not established error on the
2 part of the district court with respect to his request for equitable relief.
3 CONCLUSION
4 {23} We affirm.
5 {24} IT IS SO ORDERED.
6 __________________________________
7 MEGAN P. DUFFY, Judge
8 WE CONCUR:
9 _________________________________
10 ZACHARY A. IVES, Judge
11 _________________________________
12 JANE B. YOHALEM, Judge
11