K. Hovnanian Homes - DFW, LLC v. the Powdermaker First Family Limited Partnership ( 2016 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-15-00339-CV
K. HOVNANIAN HOMES–DFW, LLC APPELLANT
V.
THE POWDERMAKER FIRST APPELLEE
FAMILY LIMITED PARTNERSHIP
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FROM THE 211TH DISTRICT COURT OF DENTON COUNTY
TRIAL COURT NO. 14-00737-211
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MEMORANDUM OPINION1
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Appellant K. Hovnanian Homes–DFW, LLC (Hovnanian) appeals from the
trial court’s judgment, entered after a bench trial, in favor of appellee The
Powdermaker First Family Limited Partnership (Powdermaker) on
Powdermaker’s breach-of-contract claim. Because we conclude that the trial
1
See Tex. R. App. P. 47.4.
court improperly interpreted the contract, we reverse the trial court’s judgment
and remand for further proceedings.
I. BACKGROUND
A. CONTRACT OF SALE AND AMENDMENT
On July 15, 2013, Powdermaker and Hovnanian signed a contract of sale
(the contract) under which Powdermaker agreed to sell 100 acres of real property
to Hovnanian. Hovnanian placed $100,000 in escrow with the title company as
an earnest-money deposit, which would be applied as a credit against the
eventual purchase price of $7 million. Hovnanian was contractually obligated to
deposit $400,000 in additional earnest money once Hovnanian received “zoning
and development approvals.” In section 5.4 of the contract, which was entitled
“Approval of Inspections,” Hovnanian could unilaterally terminate the contract by
a certain date if it had not previously given Powdermaker written notice of its
intent to continue the contract:
If [Hovnanian] determines at any time prior to the expiration of the
Inspection Period[2] that the Property is not satisfactory to
[Hovnanian] for any reason or no reason, in [Hovnanian’s] sole
discretion, or [Hovnanian] has not obtained the Zoning and
Development Approvals then [Hovnanian] may terminate this
Contract by delivering written notice of termination to [Powdermaker]
prior to the end of the Inspection Period. Additionally, if [Hovnanian]
shall fail to give [Powdermaker] written notice on or prior to the end
2
The inspection period was contractually defined as “a period of time
commencing on the Effective Date and ending at 6:00 p.m. Dallas, Texas, time
on the ninetieth (90th) day after the Effective Date.” The effective date was the
date the title company received “a fully executed counterpart” of the contract.
The record shows that the title company received the contract on July 15, 2013.
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of the Inspection Period that [Hovnanian] wishes to continue this
Contract then this Contract shall automatically terminate at the end
of the Inspection Period. If [Hovnanian] properly terminates this
Contract or if this Contract automatically terminates pursuant to this
Section 5.4, then this Contract shall be terminated, the Title
Company shall return the Earnest Money Deposit to [Hovnanian],
and neither party shall have any further rights, duties or
obligations. . . . If [Hovnanian] timely delivers to [Powdermaker]
written notice of [Hovnanian’s] intention to continue this Contract, the
conditions of this Section 5.4 shall be deemed satisfied, and
[Hovnanian] may not thereafter terminate this Contract pursuant to
this section 5.4.
Hovnanian could extend the contractual inspection period upon notice to
Powdermaker:
[I]n the event [Hovnanian] has not obtained the Zoning and
Development Approvals prior to the then current expiration date of
the Inspection Period, [Hovnanian] shall have the right to extend the
Inspection Period for up to three (3) periods of thirty (30) days each
by . . . sending written notice to [Powdermaker] of such election to
extend the Inspection Period before the then scheduled expiration
date of the Inspection Period, and . . . sending written notice to the
Title Company to release [$25,000] of the Earnest Money Deposit
then on deposit with the Title Company to [Powdermaker] in
connection with the first thirty (30) day extension, [$10,000] with
respect to the second thirty (30) day extension and [$20,000] with
respect to the third thirty (30) day extension.
Section 5.4 further provided for liquidated damages for Powdermaker if
Hovnanian terminated the contract after notifying Powdermaker of its intent to
continue the contract:
However, should [Hovnanian] cause this Contract to terminate . . .,
[Hovnanian] shall pay [Powdermaker] the sum of $250,000.00 within
five (5) days of termination . . . . [Hovnanian’s] obligation to pay
$250,000.00 . . . shall in no way limit, replace, or reduce
[Powdermaker’s] right to additional funds from the Earnest Money
Deposit.
3
The general requirements for any provided notices were governed by section
14.5 of the contract:
Any notice provided or permitted to be given under this Contract
must be in writing and may be served by depositing the same in the
United States Mail, postage prepaid, certified or registered mail with
return receipt requested, or by delivering the same in person to the
party to be notified via a delivery service, Federal Express or any
other nationally recognized overnight courier service that provides a
return receipt . . ., or by facsimile copy transmission with proof of
receipt.
Finally and particularly relevant to the appeal before us, section 14.16 provided
that the contract could be amended and that any amendment or modification
“must be made in writing and signed or acknowledged in writing by both parties.”
On October 10, 2013, Hovnanian and Powdermaker signed an
amendment to the contract, entitled “SECOND AMENDMENT TO CONTRACT
OF SALE” (the amendment).3 The amendment “modified and amended” the
contract to provide that any reference to “Inspection Period” in the contract would
mean “a period of time commencing on the Effective Date and ending at 6:00
p.m. Dallas, Texas, time on November 13, 2013.” The amendment further
provided that “each and every of the terms and provisions of the Contract [not
modified by the amendment] are unchanged and continue[] in full force and
effect.” In November 2013, Hovnanian and Powdermaker by email discussed
3
This amendment was a “second” amendment, and Powdermaker alleged
that the first amendment was a similar amendment to the inspection period. The
first amendment is not a part of the record on appeal and, indeed, is not at issue.
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amending the contract to again extend the inspection period, but this amendment
was never agreed to or signed.
No further action was taken on the contract as amended and Hovnanian
believed that the contract had automatically terminated without penalty under
section 5.4 at the end of the amended inspection period on November 13, 2013.
As a result, Hovnanian did not pay Powdermaker the $250,000 in liquidated
damages or the remaining $98,500 in earnest money as provided in section 5.4.
B. UNDERLYING LITIGATION
Powdermaker filed suit against Hovnanian, raising a claim for breach of
contract. Powdermaker alleged that by amending the contract to extend the
inspection period, Hovnanian necessarily notified Powdermaker under section
5.4 of its intent to continue the contract, which triggered Hovnanian’s contractual
obligation to pay Powdermaker under section 5.4 because the contract was
terminated after the notice of intent to continue. In short, Powdermaker believed
that the amendment was Hovnanian’s written notice under section 5.4 that it
intended to continue the contract. Hovnanian answered and raised several
affirmative defenses, including payment, release, failure to mitigate, and waiver.
Hovnanian also raised a counterclaim for its attorney’s fees, which it alleged
were provided for in the contract: “Should either party be required to retain an
attorney to enforce its obligations hereunder, the prevailing party shall be entitled
to recover from the non-prevailing party its reasonable attorneys’ fees incurred in
such enforcement.” Based on a jury-trial waiver in the contract, the trial court
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conducted a bench trial on February 17 and April 13, 2015. After Powdermaker
rested its case, Hovnanian moved for judgment in its favor, which was denied.
See Tex. R. Civ. P. 268. After both Powdermaker and Hovnanian closed,
Hovnanian again moved for judgment, which the trial court denied.
C. POST-TRIAL
On July 31, 2015, the trial court signed a final judgment in favor of
Powdermaker, awarding it $348,500 in damages and $67,765.50 in attorney’s
fees, and rendered a take-nothing judgment on Hovnanian’s counterclaim.
Hovnanian filed a request for findings of fact and conclusions of law. See Tex. R.
Civ. P. 296. The trial court entered findings and conclusions, concluding that the
contract was unambiguous, finding that Hovnanian “gave written notice of its
intention to continue the Contract in full force and effect,” and finding that it
thereafter “terminated the Contract pursuant to Section 5.4.” The trial court
concluded that this notice and subsequent termination triggered Hovnanian’s
duty to pay Powdermaker the liquidated damages provided in section 5.4.
Hovnanian appeals and argues that (1) the trial court’s interpretation of the
amendment as a notice to continue “is unsupported by the plain language [of the
contract], fails to give meaning to each provision, fails to harmonize the
provisions, and leads to absurd results” and (2) the evidence was legally, or
alternatively factually, insufficient to support the trial court’s implicit finding that
the amendment was a written notice to continue. Powdermaker responds that
the amendment was a notice of intent to continue that complied with the
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contractual notice requirements in section 14.5, rendering the trial court’s
interpretation of the contract legally correct, and that the evidence showed
Hovnanian breached the contract by failing to pay the section 5.4 damages upon
termination.
II. STANDARDS OF REVIEW
A. CONTRACT INTERPRETATION
In attacking the trial court’s judgment, Hovnanian recites the standards of
review applicable to findings and conclusions along with the standards used to
determine whether sufficient evidence supported the challenged findings and
conclusions. But this is a case involving the interpretation of a contract. The trial
court concluded, and no party disputes on appeal, that the contract was
unambiguous. See Friendswood Dev. Co. v. McDade & Co., 926 S.W.2d 280,
283 (Tex. 1996) (holding whether a contract is unambiguous is a question of
law). Accordingly, extrinsic evidence of the parties’ intent or the meaning of the
contract’s terms may not be considered. See Kachina Pipeline Co. v. Lillis,
471 S.W.3d 445, 450 (Tex. 2015) (op. on reh’g) (holding extrinsic evidence
admissible only to interpret ambiguous contract). Thus, the traditional
sufficiency-of-the-evidence standards are a poor fit for Hovnanian’s initial,
straightforward question of contract interpretation, which is an issue of law that
we determine de novo. See, e.g., Unit Petroleum Co. v. David Pond Well Serv.,
Inc., 439 S.W.3d 389, 395–96 (Tex. App.—Amarillo 2014, pet. denied)
(reviewing, after bench trial involving interpretation of oil-and-gas lease, trial
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court’s interpretation of lease under standards of contract construction as a
matter of law). Hovnanian recognizes this by arguing in its reply that this court
may not address the evidence regarding any breach by Hovnanian without first
determining the appropriate interpretation of the contract as a matter of law.
Because Hovnanian’s first issue attacks the legal correctness of the trial court’s
interpretation of the contract, we will apply the traditional rules of contract
interpretation to determine, as a matter of law, whether the trial court erred in its
construction of the contract. See Kachina, 471 S.W.3d at 449 (“At issue here is
the trial court’s construction of the Agreement’s . . . provision[s]. The
construction of an unambiguous contract is a question of law, also reviewed de
novo.”).
In construing an unambiguous contract, we consider the entire writing and
attempt to harmonize and give effect to all of the contract’s provisions such that
none are rendered meaningless. See id. at 450; Frost Nat’l Bank v. L & F
Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005). “No single provision taken
alone will be given controlling effect; rather, all the provisions must be considered
with reference to the whole instrument.” Coker v. Coker, 650 S.W.2d 391, 393
(Tex. 1983). We are to give contractual terms their “plain and ordinary meaning”
unless the contract itself shows that a different meaning was intended.
See Dynegy Midstream Servs., Ltd. P’ship v. Apache Corp., 294 S.W.3d 164,
168 (Tex. 2009). We presume that the parties intended for every clause to have
some effect. See Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex.
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1996). The intent of the parties must be taken from the agreement and the
unambiguous contract must be enforced as written. See id. All writings that
relate to the same transaction must be interpreted together even if not executed
at the same time. DeWitt Cty. Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex.
1999); Fort Worth Transp. Auth. v. Thomas, 303 S.W.3d 850, 858 (Tex. App.—
Fort Worth 2009, pet. denied).
B. FINDINGS AND CONCLUSIONS
Hovnanian also challenges the sufficiency of the evidence to support the
trial court’s conclusion that Hovnanian breached the contract by failing to pay the
damages provided in section 5.4 based on the trial court’s finding that Hovnanian
gave written notice of its intent to continue under that same section. We review
conclusions of law de novo, affording them no deference. See Quick v. City of
Austin, 7 S.W.3d 109, 116 (Tex. 1998); State v. Heal, 917 S.W.2d 6, 9 (Tex.
1996) (op. on reh’g). A trial court’s findings of fact have the same force and
dignity as a jury’s answers to jury questions and are reviewable for legal and
factual sufficiency of the evidence to support them by the same standards.
Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994).
III. APPLICATION
Hovnanian specifically attacks the trial court’s conclusions that Hovnanian
gave written notice of its intent to continue the contract before the inspection
period expired, thereby triggering its duty to pay Powdermaker liquidated
damages and a larger portion of its earnest-money deposit after the contract
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subsequently terminated. In short, Hovnanian argues that the amendment may
not be interpreted to equate to a notice of intent to continue the contract under
section 5.4. If the amendment was a notice of intent to continue, Hovnanian was
required to pay the damages under section 5.4 when the contract terminated; if it
was not, Hovnanian could terminate the contract with no penalty under section
5.4.
At trial, Alan Powdermaker, the “general partner” of Powdermaker, testified
through designated deposition excerpts that he considered the amendment to be
Hovnanian’s written notice that it intended to continue the contract. Daniel
Stasky, the land acquisition manager for Hovnanian, testified that Hovnanian
never provided written notice to continue the contract under sections 5.4 and
14.5, mainly because he believed Hovnanian had not complied with the
contractual requirements to give such notice; therefore, the contract
automatically terminated with no penalty. But as we previously stated, this
extrinsic evidence regarding the contract’s meaning or the parties’ intent is not
admissible to inform the contract’s interpretation. Therefore, we turn to the
language of the unambiguous contract.
Considering the unambiguous language of the contract, together with the
amendment, there were separate and distinct provisions that furnished
Hovnanian with options to (1) unilaterally continue the contract, (2) unilaterally
extend the inspection period, or (3) amend the contract by agreement. In section
5.4, the contract provided for “written notice of [Hovnanian’s] intention to
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continue” the contract. This provision does not require any approval,
acknowledgment, or signature by Powdermaker. Such written notice, if delivered
before the inspection period ended, would entitle Powdermaker to liquidated
damages upon subsequent termination of the contract. But if no written notice
was given, the contract would automatically terminate at the end of the inspection
period. Section 5.4 also provided that Hovnanian could extend the inspection
period by sending written notice to Powdermaker and the title company. Once
again, this action by Hovnanian required no approval by or signature of
Powdermaker but did provide that to avail itself of this option, Hovnanian would
have to pay for each extension by the release of a specified amount of the
earnest money on deposit.4 Finally, section 14.16 of the contract clearly allowed
for an amendment to the contract with the explicit requirement that an
amendment or modification be “signed or acknowledged in writing by both
parties.”
We cannot agree with the trial court’s interpretation of the provisions at
issue. At the time the contract was executed, amendment of the contract was
specifically contemplated in section 14.16, which clearly stated how an
amendment was to be properly performed. The amendment strictly adhered to
the requirements of only one of the options set out above—an amendment or
4
The record does not reflect that the amendment was sent to the title
company to initiate the required release of funds on deposit nor does either party
contend that this occurred.
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modification of the contract. The amendment was so entitled, specifically stated
it was an “amendment and modification,” and was executed by both
Powdermaker and Hovnanian. The amendment’s language could not be clearer
that it does nothing more than amend the contract to modify the definition of the
term “Inspection Period.” We conclude as a matter of law that the unambiguous
contract’s plain language contradicts the trial court’s interpretation, equating the
amendment to a notice of intent to continue the contract under section 5.4.
Therefore, we sustain Hovnanian’s first issue.
Hovnanian’s second issue, which is dependent on the contract’s correct
interpretation, now is easily decided. Because the amendment was not a notice
of intent to continue the contract under the unambiguous contract’s plain
language, there was no notice of intent to continue such that Hovnanian
breached the contract by failing to pay Powdermaker the section 5.4 damages
once the contract terminated at the end of the amended inspection period. We
sustain issue two.
IV. CONCLUSION
Because the trial court erred by interpreting the contract contrary to its
unambiguous language, its conclusion that Hovnanian breached the contract is
unsupported by any evidence in the record. We sustain Hovnanian’s issues,
reverse the trial court’s judgment, and remand to that court for further
proceedings on Hovnanian’s counterclaim for attorney’s fees. See Tex. R. App.
P. 43.2(d), 43.3(a). Further, our judgment and mandate shall reflect that
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Hovnanian’s surety is discharged from its liability on the supersedeas bond filed
in the trial court on September 1, 2015. See Amwest Sur. Ins. Co. v. Graham,
949 S.W.2d 724, 729 (Tex. App.—San Antonio 1997, writ denied); Edlund v.
Bounds, 842 S.W.2d 719, 732 (Tex. App.—Dallas 1992, writ denied).
/s/ Lee Gabriel
LEE GABRIEL
JUSTICE
PANEL: GARDNER, GABRIEL, and SUDDERTH, JJ.
DELIVERED: June 9, 2016
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