Karl J. Lyons v. Terry David Ortego and Donna Hall Ortego, Individually and D/B/A D&D Supply ( 2018 )

Opinion issued August 23, 2018
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-17-00092-CV
———————————
KARL J. LYONS, Appellant
V.
TERRY DAVID ORTEGO AND DONNA HALL ORTEGO,
INDIVIDUALLY AND D/B/A D&D SUPPLY, Appellee
On Appeal from the 281st District Court
Harris County, Texas
Trial Court Case No. 2014-31125
MEMORANDUM OPINION
Karl Lyons appeals the trial court’s judgment awarding Terry and Donna
Ortego specific performance of the parties’ contract for the sale of real property.
Lyons argues that the contract terminated by its own terms, so it cannot support an
award of specific performance. To the extent he breached the contract before it
terminated, he contends that the Ortegos were required to prove their tender of
performance to be entitled to specific performance. Consequently, he seeks
reversal of the judgment compelling his specific performance of the contract,
including the trial court’s award to the Ortegos of attorney’s fees, court costs, and
other litigation expenses.
Because the contract terminated by its unambiguous terms without a written
extension, and because the Ortegos were not excused from proving their tender of
performance, we reverse. We render judgment that the Ortegos’ earnest money be
returned to them and that they otherwise take nothing by their claims.
Background
The parties’ dispute centers on their contract for the sale of commercial real
property in northern Harris County. The property was rented and occupied by
appellees Terry and Donna Ortego. A business operated out of a building on the
property, selling water pipes and related equipment. In early 2013, appellant Karl
Lyons informed the Ortegos that he was the new owner of the property, and they
agreed to a lease. The lease included an option for the Ortegos to buy the property.
The parties subsequently executed a sales contract for the property, and the
Ortegos paid $1,500 in earnest money. The contract stated that it “terminates on
October 15, 2013,” and, separately, that “the closing must occur on or before
October 15, 2013.” It also provided that “[t]ime is of the essence.” If Lyons failed
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to comply for any reason, the contract provided that the Ortegos “may terminate
this contract and receive the Earnest Money or sue for specific performance.” It
contained two integration clauses, both of which provided that the contract “cannot
be changed except by [the parties’] written consent.”
The contract’s paragraph 9(A) set forth a procedure for curing title problems
and extending the “Closing Date,” if necessary, while Lyons worked to cure title
problems. The contract defined “Closing Date” as follows: “The closing of the sale
(the ‘Closing Date’) shall take place at Darden, Fowler, & Creighton, L.L.P. if and
when Buyer exercises the option contained in the Commercial Lease of even date
herewith. The closing must occur on or before October 15, 2013.”
A commitment for title insurance prepared by an insurer for Lyons’s counsel
revealed several title problems that needed to be cured before the insurer would
issue a title-insurance policy. The parties dispute what efforts, if any, Lyons or his
representatives undertook to cure the title problems from September 30, when his
attorney received the commitment, to October 15, the date fixed by the contract for
its termination and for the Closing Date. October 15 passed without any written
amendment changing the termination date.
In April 2014, Lyons became “frustrated” that the transaction and efforts to
cure title were “hassles.” In a letter, he advised the Ortegos that the contract
terminated on October 15, 2013; that he understood that they were unwilling to
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waive the title problems; and that he was ending any further discussions with them
about the sale. Despite the ultimate resolution of the title problems that summer,
Lyons refused to complete the sale.
The Ortegos sued, seeking specific performance of the contract and
damages. They maintain that they were always ready, willing, and able to pay the
contract’s purchase price. Lyons stipulated that, if their claim for specific
performance were to be denied, he would refund their earnest money.
The lawsuit proceeded to trial before a jury. The jury returned answers
mostly favorable to the Ortegos. It found that the parties agreed to extend the
contract beyond its termination either in the contract itself or by the conduct of
Lyons or his agents. It found that Lyons failed to comply with the contract and that
the Ortegos did not “fail to comply.” It found that the parties should have closed
the sale by August 30, 2014, and that the Ortegos were ready, willing, and able to
perform on that date. But the jury awarded no money damages.
Lyons opposed entry of judgment in the Ortegos’ favor, contending in part
that the contract’s integration clauses prevented any unwritten amendment from
extending the contract beyond its termination date.
Based in part on the jury’s answers, the trial court entered a judgment
awarding the Ortegos specific performance of the contract, attorney’s fees, court
costs, and other litigation expenses. The court conditioned Lyons’s
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specific-performance obligation on the Ortegos paying the $435,000 purchase
price, less the earnest money and the sums for attorney’s fees, court costs, and
other litigation expenses that the court awarded.
Lyons moved for a new trial, again arguing that the contract terminated on
October 15, 2013, and that it therefore could not be specifically enforced. The trial
court denied the motion. This appeal followed.
Analysis
I. Interpretation of sales contract
In his first issue, Lyons contends that the contract terminated on its
termination date of October 15, 2013, and that it was not extended by any other
provision in the contract or by the parties’ conduct.
Specific performance is an equitable remedy for breach of contract. Luccia
v. Ross, 274 S.W.3d 140, 146 (Tex. App.—Houston [1st Dist.] 2008, pet. denied).
The elements of a contract claim are (1) the existence of a valid contract, (2) the
plaintiff’s performance or tendered performance, (3) the defendant’s breach, and
(4) the plaintiff’s damages sustained as a result of the breach. Id. Therefore, to be
entitled to specific performance, a party must show that the contract is valid and
enforceable. See Antwine v. Reed, 199 S.W.2d 482, 485 (Tex. 1947); Nguyen v.
Woodley, 273 S.W.3d 891, 898 (Tex. App.—Houston [14th Dist.] 2008, no pet.).
When a contract for the sale of real property terminates by its own terms, it no
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longer may be specifically enforced. See Cate v. Woods, 299 S.W.3d 149, 153
(Tex. App.—Texarkana 2009, no pet.); Nguyen, 273 S.W.3d at 898.
Interpreting unambiguous contract language is a question of law, reviewed
de novo. See Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445, 449 (Tex. 2015). “In
construing a contract, a court must ascertain the true intentions of the parties as
expressed in the writing itself.” Id. at 450 (quoting Italian Cowboy Partners, Ltd.
v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011)). Generally, we
interpret a written contract according to what is expressed in the contract’s
language and not according to extra-contractual expressions of intent. See URI,
Inc. v. Kleberg Cty., 543 S.W.3d 755, 763–64 (Tex. 2018); Anglo-Dutch Petrol.
Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex. 2011).
A court must examine and consider the entire writing and harmonize and
give effect to all provisions of the contract so that none are rendered meaningless.
Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014). A court
must not “make new contracts between the parties and must enforce the contract as
written.” In re Davenport, 522 S.W.3d 452, 457 (Tex. 2017) (orig. proceeding).
Contract language should be given its plain, ordinary, and generally
accepted meaning, unless the writing directs otherwise or unless the contract itself
shows that the language to be interpreted is being used in a technical or different
sense. See URI, 543 S.W.3d at 764; Moayedi, 438 S.W.3d at 7.
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Lyons relies on the contract’s termination language in paragraph 3: “This
Contract terminates on October 15, 2013.” He contends that this termination date
was never extended. If not extended by some means, then this unambiguous
language requires us to conclude that the contract terminated on October 15, 2013.
The Ortegos respond by offering two arguments to support the contract’s
continuation past the termination date, based upon paragraph 9(A) concerning the
“Closing Date” and the parties’ conduct.
A. “Closing Date” provision
The contract defined “Closing Date” in paragraph 7: “The closing of the sale
(the ‘Closing Date’) shall take place at Darden, Fowler, & Creighton, L.L.P. if and
when Buyer exercises the option contained in the Commercial Lease of even date
herewith. The closing must occur on or before October 15, 2013.” The Ortegos
rely on paragraph 9(A)’s provision for extending the Closing Date to justify
extension of the contract’s termination date. The relevant language provided:
Buyer shall deliver, or cause to be delivered, to Seller within thirty
(30) days from the date of this Contract a Commitment for Title
Insurance (the “Commitment”). If Buyer has an objection to items
disclosed in such Commitment provided for herein, Buyer shall have
twenty (20) days after receipt of each such instrument to make written
objections to Seller. If Buyer makes such objections or if the
objections are disclosed in Commitment or by the issuer of the Title
Policy, Seller shall have twenty (20) days from the date such
objections are disclosed to cure the same, and the Closing Date shall
be extended, if necessary. Seller agrees to utilize its best efforts and
reasonable diligence to cure such objection, if any. If the objections
are not satisfied within such time period, Buyer may (i) terminate this
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Contract and the Earnest Money shall be refunded to Buyer, or
(ii) elect to waive the unsatisfied objections and complete the
purchase
(Emphasis supplied.)
Under this contract, the termination date and the Closing Date were distinct
concepts identified by distinct language. The contract’s anticipation of the
possibility of the Closing Date being extended beyond the initially stated deadline
(“on or before October 15, 2013”) is not inconsistent with the separate provision
that provided for termination by a date certain. The contract specified that time was
“of the essence.” The contract included integration clauses, which required that
amendments be in writing. Even after the termination date passed, the parties were
free to negotiate toward completing the sale. If they intended to remain bound by
the contract, they could have confirmed that in writing.
We must enforce the parties’ contract as it was written. See Davenport, 522
S.W.3d at 457. As it was written, it unambiguously terminated on October 15,
2013. To hold otherwise in the absence of any written amendment would render
the termination provision meaningless. See Moayedi, 438 S.W.3d at 7.
The Ortegos rely on SHA, LLC v. Northwest Texas Healthcare System, Inc.,
No. 07-13-00320-CV, 2014 WL 31420 (Tex. App.—Amarillo Jan. 3, 2014, no
pet.) (mem. op.), for the proposition that contract language may “implicitly” extend
an express termination date. In SHA, a hospital company and insurer entered into
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two amendments to their reimbursement contract, which provided, respectively,
that “[t]his Agreement shall continue for a term of three (3) years and may not be
terminated by either party except for cause” and that “[b]oth Hospital and
FirstCare agree that this Agreement shall not be terminated by either party without
cause prior to August 31, 2012.” 2014 WL 31420, at *2. The court said that the
two amendments helped the parties “to extend their business relationship” by
“mentioning another three years either explicitly as in the First Amendment, or
implicitly as in the Second Amendment.” Id. at *3. Both explicitly referred to
termination of the contract and circumstances which did not justify termination.
By contrast, the extension of the Closing Date referenced in paragraph 9(A)
did not expressly address the contract’s separate provision of a fixed termination
date. Paragraph 9(A) addressed circumstances that could lead to the extension of
the Closing Date, which initially was designated to occur “on or before October 15,
2013,” yet did not purport to override the contract’s distinct provision of an
October 15, 2013 termination date. We conclude that SHA is distinguishable and
that paragraph 9(A)’s closing provisions did not nullify paragraph 3’s termination
date.
B. Extension of contract by conduct of parties
The Ortegos argue that the termination date of the sales contract was
modified by the conduct of the parties, who worked toward completing the
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transaction even after the October 15, 2013 termination date. Lyons contends that
the statute of frauds and the sales contract’s integration clauses barred the parties
from amending the contract’s termination date except by a written amendment.
See, e.g., Robertson v. Melton, 115 S.W.2d 624, 627 (Tex. 1938) (“To permit the
oral modification is forbidden both by the statute of frauds and by the express
agreement of the parties.”); Colvin v. Rickert, No. 04-05-00165-CV, 2006 WL
285993, at *7–8 (Tex. App.—San Antonio Feb. 8, 2006, pet. denied) (mem. op.)
(holding that contract for sale of real estate terminated by date certain expressed in
contract without any written extension amendment). Paragraph 13(E) provided:
“This Contract constitutes the sole and only agreement of the parties hereto and
supersedes any prior understandings or written or oral agreements between the
parties respecting the within subject matter and cannot be changed except by their
written consent.” Similarly, paragraph 25 stated: “This contract contains the entire
agreement of the parties and cannot be changed except by their written consent.”
The Ortegos contend that Lyons may not rely on the contract’s integration
clauses to contend that the parties’ conduct did not extend the termination date.
They assert that “an integration clause, like any other term, can be modified orally
by the conduct of the parties.”
The only authority the Ortegos rely upon for their argument is Shafer v.
Gulliver, No. 14-09-00646-CV, 2010 WL 4545164 (Tex. App.—Houston [14th
10
Dist.] Nov. 12, 2010, no pet.) (mem. op.). In Shafer, the court noted “an exception
to the general rule against oral modification of contracts covered by the statute of
frauds”: certain oral agreements may “extend the time of performance, so long as
the oral agreement is made before the expiration of the written agreement.” See
Shafer, 2010 WL 4545164, at *7. The Shafer court also held that a contract for the
sale of real estate whose closing was expressly set for either a date certain “or
within 7 days after objections to matters disclosed in the Commitment or by the
survey have been cured, whichever date is later,” could close after the date certain
because the seller was not able to provide clear title by the date certain. See id.
Shafer is distinguishable because it involved only the statute of frauds and not, as
here, an express contractual provision that required any amendment to be in
writing. The contract at issue in Shafer also did not include an express termination
date separate from the provisions that set the closing date.
Finally, the Ortegos contend, without citation to authority, that Lyons should
have pleaded and secured jury findings on the integration clauses because their
application is an affirmative defense. This misplaces the burden of proof: as the
plaintiffs seeking to specially enforce a contract for the sale of real property, the
Ortegos bore the burden of proving the enforceability of a contract. See Antwine,
199 S.W.2d at 485; Cate, 299 S.W.3d at 153; Luccia, 274 S.W.3d at 146; Nguyen,
273 S.W.3d at 898; see also Bell v. Phillips, No. 14-00-01189-CV, 2002 WL
11
576036, at *7 (Tex. App.—Houston [14th Dist.] Apr. 18, 2002, no pet.) (not
designated for publication) (noting and applying rule that party claiming contract
modification bears burden of proof on modification).
We therefore hold that the contract’s integration clauses barred any
amendment to the contract’s termination date that was not in writing. As such, we
need not separately address whether the argument that the contract was extended
by the parties’ continued negotiation was foreclosed by the statute of frauds. TEX.
R. APP. P. 47.1. The Ortegos did not identify any writing that extended the
termination date, and because paragraph 9(A) did not extend the termination date,
the contract was not extended beyond October 15, 2013. Accordingly, any
post-termination conduct by the parties cannot support an award of specific
performance of the terminated contract. See Cate, 299 S.W.3d at 153; Nguyen, 273
S.W.3d at 898. We sustain Lyons’s first issue.
II. Specific performance
Our interpretation of the contract is not dispositive of the appeal, because the
jury found that Lyons breached the contract. In his third issue, Lyons contends that
specific performance was not justified because the Ortegos did not adduce
sufficient evidence of their tender of performance.
The Ortegos respond that they were not required to actually pay the purchase
price to Lyons to seek specific performance. Instead, they contend they were only
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required to obtain a jury finding that they were ready, willing, and able to perform.
They argue that they were excused from tendering performance because Lyons
refused to close, according to his April 2014 letter; because he ended all
discussions about a sale in the same letter; and because the contract did not require
them to pay the purchase price until the Closing Date, which never occurred.
Generally, plaintiffs seeking specific performance must prove both that they
tendered performance and that they were ready, willing, and able to perform. See
DiGiuseppe v. Lawler, 269 S.W.3d 588, 593–94, 599–600 (Tex. 2008). “These two
requirements are not the same thing.” Id. at 599.
The tender requirement may be excused in certain cases. It is excused “when
a defendant refuses to perform or repudiates a contract . . . .” Id. at 594. It is also
excused when the defendant has committed a breach that makes the plaintiff’s
tender a “useless act, an idle ceremony, or wholly nugatory.” See id. (quoting
Wilson v. Klein, 715 S.W.2d 814, 822 (Tex. App.—Austin 1986, writ ref’d n.r.e.));
Mustang Amusements, Inc. v. Sinclair, No. 10-07-00362-CV, 2009 WL 3487796,
at *5 (Tex. App.—Waco Oct. 28, 2009, no pet.) (mem. op.) (applying
DiGiuseppe’s “useless act” rule and holding that trial court did not abuse its
discretion by “determining that [real-estate purchaser’s] actual tender would have
been ‘a useless act’ and therefore, was excused”).
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“Where time is of the essence of a contract, a party must perform or tender
performance in strict compliance with the provisions of the contract within the
time prescribed, in order to entitle him to specific performance.” Liedeker v.
Grossman, 206 S.W.2d 232, 234–35 (Tex. 1947). When time is of the essence in a
contract for the sale of real estate, “the buyer must make an actual tender of the
price and demand of the deed within the time allowed by the contract.” Wilson, 715
S.W.2d at 822 (internal quotation omitted; emphasis in original); accord Mustang
Amusements, 2009 WL 3487796, at *6; Paciwest, Inc. v. Warner Alan Props.,
LLC, 266 S.W.3d 559, 572 (Tex. App.—Fort Worth 2008, pet. denied).
The Ortegos do not contend that they tendered their performance. Instead,
they contend that Lyons’s April 2014 letter demonstrated that it would have been
“futile to require the Ortegos to tender performance.” That letter said that the
contract terminated in October 2013, and it ended the parties’ discussions about a
sale. The Ortegos thus rely on only post-contract-termination conduct for their
contention that a tender was excused. But the law requires a tender “within the
time allowed by the contract.” Wilson, 715 S.W.2d at 822; accord Liedeker, 206
S.W.2d at 234–35; Mustang Amusements, 2009 WL 3487796, at *6; Paciwest, 266
S.W.3d at 572. The Ortegos never tendered the purchase price nor demanded that
Lyons produce the deed on or before October 15, 2013. See Wilson, 715 S.W.2d at
822. Had the Ortegos undertaken some affirmative act to tender performance
14
before the contract terminated, it may have triggered Lyons into action. See, e.g.,
id. at 821 (“[T]he purpose of a tender is two-fold: (1) a valid tender of the purchase
price invokes the seller’s obligation to convey and places him in default if he fails
to do so; and (2) the tender satisfies the fundamental prerequisite of specific
performance—that the buyer show that he has done or offered to do, or is then
ready and willing to do, all the essential and material acts which the contract
requires of him.” (emphasis in original)); accord Paciwest, 266 S.W.3d at 572.
The Ortegos also contend that the jury’s findings on breach and on their
readiness, willingness, and ability to perform support an award of specific
performance. The Ortegos rely on the jury’s answers to questions five and six:
QUESTION No. 5
By what date, if any, do you find that the parties should have
closed on the transaction at issue in the Agreement?
Answer with a month, day, and year, if any: 8·30·14
QUESTION No. 6
Do you find that the Ortegos were ready, willing, and able to
perform on the date found by you in Question no. 5?
Answer “Yes” or “No”
Answer: Yes
This contention fails for two reasons. First, proof of tender and proof of
readiness, willingness, and ability to perform “are not the same thing.” See
DiGiuseppe, 269 S.W.3d at 599. Second, the Ortegos’ readiness, willingness, and
15
ability to perform on August 30, 2014, was irrelevant because “[t]he plaintiff’s
burden of proving readiness, willingness and ability is a continuing one that
extends to all times relevant to the contract and thereafter.” Id. at 594 (quoting 25
Richard A. Lord, Williston on Contracts § 67:15 (4th ed. 2002)). The finding of
readiness, willingness, and ability to perform in August 2014 does not support the
conclusion that the Ortegos were ready, willing, and able to perform on
October 15, 2013, or that they tendered performance by that date.
The Ortegos also contend that they are not required to have tendered their
performance because the contract required them to pay the purchase price only by
the Closing Date, and no closing ever happened. This contention, however, does
not account for the contract’s termination on October 15, 2013. When a contract
for the sale of real property terminates by its own terms, it may no longer be
specifically enforced. See Cate, 299 S.W.3d at 153; Nguyen, 273 S.W.3d at 898.
The Supreme Court of Texas rejected a similar argument in DiGiuseppe.
DiGiuseppe failed to secure a finding that he was at all times ready, willing, and
able to perform. Id. at 596–97, 603–04. But he contended that the contract excused
him from proving readiness, willingness, and ability to perform. He pointed to the
contractual language that allowed a non-defaulting party to “seek to enforce” the
contract by specific performance. Id. at 596–97. The court rejected this argument,
reasoning that the contractual language that a party may “seek to enforce” the
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contract by specific performance meant merely that specific performance “is
available as a remedy, but nothing in the provision suggests DiGiuseppe is relieved
of his obligation to prove he is entitled to it under the law.” Id. at 598.
Like the contract in DiGiuseppe, the contract provided that Lyons’s failure
to comply meant that the Ortegos may sue for specific performance. That the
Ortegos may sue for specific performance does not mean that they are excused
from proving the elements imposed by the common law for proving entitlement to
the remedy. See id. at 596–98.
The Ortegos were not excused from proving their tender of performance.
Because they did not carry their burden on tender, we sustain Lyons’s third issue.
III. Attorney’s fees and costs
Lyons contends that the award of attorney’s fees, court costs, and other
litigation expenses cannot stand if we reverse the trial court’s judgment. The
Ortegos based their claim for fees, costs, and other expenses on the two contractual
provisions providing for an award to the “prevailing party” and on Civil Practice
and Remedies Code Section 38.001.
For contract claimants to be entitled to attorney’s fees and costs under Civil
Practice and Remedies Code Section 38.001, they must prevail on the cause of
action and recover damages. Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex.
1997). Despite finding a breach by Lyons, the jury awarded no money damages.
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The Ortegos also were not entitled to specific performance. Therefore, the Ortegos
were not entitled to attorney’s fees and costs under Section 38.001. See id.
As for the contract’s provision for an award of fees, costs, and other
expenses to a “prevailing party,” the contract did not define “prevailing party.”
Therefore we apply its ordinary meaning. See Epps v. Fowler, 351 S.W.3d 862,
866 (Tex. 2011). For the Ortegos to be the prevailing parties, they must be awarded
something, either monetary, equitable, or declaratory relief. See id. (quoting
Intercontinental Grp. P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 655
(Tex. 2009)). A breach finding, without a monetary, equitable, or declaratory
award, is insufficient to make the plaintiff a prevailing party. See Intercontinental
Grp. P’ship, 295 S.W.3d at 660–61; accord Epps, 351 S.W.3d at 866.
Because our resolution of this appeal leaves the Ortegos without either of the
awards that they sought—damages or specific performance—they are not
prevailing parties. Therefore, they are not entitled to attorney’s fees, court costs, or
other litigation expenses under the contract. We sustain Lyons’s fifth issue.
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Conclusion
The parties’ contract terminated on October 15, 2013, and the Ortegos did
not show their tender of performance to support an award of specific performance.
We need not address Lyons’s other issues. See TEX. R. APP. P. 47.1. We reverse
and render judgment that the Ortegos take nothing by their claims, and that the
earnest money be returned to them. See TEX. R. APP. P. 43.2(c).
Michael Massengale
Justice
Panel consists of Chief Justice Radack and Justices Massengale and Brown.
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