Craig Taft and Sylvia Taft v. Donald S. Sherman and Elsa Sherman ( 2009 )

NO. 07-08-0351-CV
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL B
NOVEMBER 25, 2009
______________________________
CRAIG TAFT AND SYLVIA TAFT, APPELLANTS
V.
DONALD S. SHERMAN AND ELSA SHERMAN, APPELLEES
_________________________________
FROM THE 69TH DISTRICT COURT OF DALLAM COUNTY;
NO. 10,788; HONORABLE RON ENNS, JUDGE
_______________________________
Before QUINN, C.J., and CAMPBELL and HANCOCK, JJ.
OPINION
Appellants, Craig Taft and Sylvia Taft (Taft), appeal the granting of two partial
summary judgments and final judgment against them and in favor of appellees, Donald S.
Sherman and Elsa Sherman (Sherman). We will affirm the judgment of the trial court.
Factual and Procedural Background
In 2005, Sherman was operating a dairy in California. That year, Sherman began
investigating the possibility of relocating his dairy operation to Dallam County, Texas. To
that end, he visited the area around Dalhart. Ultimately, in that same year, Sherman
decided to purchase two tracts of land in Dallam County. One of the tracts was owned by
Maxine Taft Scott, the mother of Craig Taft. The second property was owned by Craig
Taft. Initially, a letter of intent was executed by Donald Sherman as buyer and Craig Taft
as owner/agent. Paragraph 17 of the letter of intent provides that, “It is the desire and
intent of the parties to enter into a feed supply agreement where by [sic] seller shall have
the first right to provide feed grown on the purchased and optioned properties to the buyer.
This could also include a lease back agreement and or a [sic] agreement to custom farm
for buyer.” The letter of intent was signed on October 10, 2005. Subsequently, the record
reflects that Scott desired to close the purchase of her property before Sherman would be
able to sell their dairy in California and be prepared to commence dairy operations in
Texas. To effectuate the total transaction, Scott’s land was sold to Taft, as nominal owner,
and the purchase was funded by Sherman. This led to the execution of two Option and
Purchase Agreements. The first, hereinafter termed “Option 1," covered the land initially
owned by Scott. That agreement was executed by the parties on December 30, 2005.
The second, hereinafter termed “Option 2," covered the land owned by Taft and was also
executed on December 30, 2005. The use of the option contracts was to effectuate
Sherman’s tax free exchange of his dairy in California for the one in Texas. As part of the
overall plan, a contract to build the dairy in Texas was entered into on May 30, 2006. This
agreement provided that the dairy would be built on the “Option 1" property by Taft, with
Taft’s performance guaranteed by Sherman. In other words, Taft would allow the dairy to
be built and Sherman would pay for the construction. Again, this was done to effectuate
the overall plan of situating Sherman for a tax free exchange of his California property for
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the Texas property. The testimony at the injunction hearing revealed that the “Option 2"
property was required in order to ensure that Sherman had enough land to produce feed
for the dairy herd. Both “Option 1" and “Option 2" contained language similar to the
language contained in paragraph 17 of the letter of intent. Paragraph 16 of the “Option 1"
contract stated,
The parties will use their best efforts to negotiate concerning a feed supply
agreement pertaining to the First Option Property and the Second Option
Property and/or a lease agreement or agreement for custom farming.1
The language expressed in paragraph 17 of the letter of intent, paragraph 16 of “Option
1," and paragraph 15 of “Option 2" was insisted on by Taft and both the option documents
were drafted by Taft’s attorney.
Eventually, Sherman spent approximately $9 million on the construction of the dairy.
The dairy was completed on May 1, 2007. In November 2007, Sherman identified a
purchaser for the dairy in California. Donald Sherman testified that the sale of the dairy
in California was ready to be closed by late December 2007 and, because of that, he
informed Taft that there was a need to close the purchases of the “Option 1" property some
time after January 1, 2008. According to Sherman’s testimony, Taft’s only comment was,
“We’ll get it done.” Prior to the January 2008 conversation with Taft, Sherman had
received two proposed real property leases for all of the farm land in question. The
testimony at trial revealed that Taft’s lawyer drafted the proposed leases. Under the terms
of the proposed leases, Taft would farm all of the land in question. Sherman never
1
The “Option 2" contract contained the same language in paragraph 15.
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executed the leases. In December 2007, Sherman testified that he had a conversation
with Taft regarding the farming of the “Option 1" land for the upcoming year. Sherman
testified that, in that conversation, he advised Taft that the Shermans would be farming the
land and that Taft said nothing when so informed.
By February 25, 2008, the “Option 1" property was ready to be closed. The
testimony at the injunction hearing revealed that, when Taft’s original attorney, Bill Hunter,
was contacted about the closing, Hunter informed Sherman’s attorney, Robert Triebsch,
he was no longer representing Taft and that Triebsch would be hearing from a new
attorney. A few days later, Triebsch received a call from Taft’s new lawyer advising that
Taft would not sign the closing documents because Sherman had not signed the lease
agreement. Sherman filed his original suit on March 18, 2008, asking for specific
performance on the two option contracts and requesting the issuance of a mandatory
injunction requiring Taft to close the sale of the two properties at issue. By a letter dated
April 4, 2008, Taft’s attorney instructed Sherman to cease farming operations on the
“Option 1" property. Taft filed his answer to the specific performance suit on April 23,
2008, asserting that, under the “best efforts” clause of the option contracts, Sherman had
waived or forfeited their rights to exercise the options to purchase both tracts of land.
On April 24, 2008, Sherman filed an application for temporary injunction, essentially
requesting that the trial court place them back in possession of the “Option 1" property and
allow them to continue farming operations. A hearing on the injunction was held on May
7, 2008, and the trial court granted the injunction.
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Sherman filed the first motion for partial summary judgment on May 6, 2008. This
was a traditional motion for summary judgment filed pursuant to Texas Rule of Civil
Procedure 166a(c).2 See TEX . R. CIV. P. 166a(c).3 The motion alleged that Sherman was
entitled to summary judgment on Taft’s defense of waiver and forfeiture because the
defense was based on the contractual language that best efforts would be made to
negotiate a feed supply agreement and/or a lease. Sherman alleged that such agreement
is, as a matter of law, unenforceable. Taft subsequently filed a supplemental answer
alleging that he was fraudulently induced into executing the option contracts because
Sherman had promised that Taft could farm the two tracts of land “for a period of time”
following the closing of the sales. On May 15, 2008, following the hearing on Sherman’s
request for an injunction, the trial court entered an order granting a temporary injunction.
The trial court’s order placed Sherman back on the “Option 1" property and Taft was
ordered to desist and refrain from taking any action that would interfere with Sherman’s
ability to occupy and operate the property. Subsequently, Taft filed a response to
Sherman’s first motion for summary judgment which asserted that Taft had been
fraudulently induced to sign the various documents agreeing to the transfer of the
properties at issue. As summary judgment proof, Taft referred to the temporary injunction
testimony of Donald Sherman, Richard Avila, Robert E. Triebsch, and Craig Taft. The trial
court did not immediately make a ruling on the first motion for partial summary judgment.
2
Appellees’ brief refers to a traditional motion for summary judgment under Rule
166a(d), however this appears to be a typographical error as it is clear that they mean
pursuant to Rule 166a(c).
3
Further reference to the Texas Rules of Civil Procedure will be by reference to
“rule ___.”
5
Sherman then filed a second motion for partial summary judgment on June 23,
2008, alleging that Taft’s fraudulent inducement defense failed for two reasons. First,
Sherman contends that the element of justifiable reliance on any oral representations
allegedly made is not present. Second, Sherman contends that the alleged oral promise
is barred by the statute of frauds. See TEX . BUS. & COMM . CODE ANN . § 26.01(a)(1), (b)(5)
(Vernon 2005).4 As summary judgment proof, Sherman submitted many of the exhibits
and much of the testimony from the temporary injunction hearing. On July 10, 2008, Taft
filed his response to the second motion for partial summary judgment which resubmitted
the proof submitted to counter the first motion and made legal arguments regarding that
evidence.
Sherman subsequently filed a first amended petition and a third and fourth motion
for partial summary judgment. These subsequent motions for summary judgment are not
germane to this appeal, as the court did not rule upon them. On July 22, 2008, the trial
court filed a document indicating that the court would rule on the motions for summary
judgment without a hearing and giving the parties 3 days to file any written arguments.
Thereafter, on July 25, 2008, the trial court issued a letter ruling granting Sherman’s
original motion for partial summary judgment and second motion for partial summary
judgment. On August 12, 2008, the trial court entered an order sustaining Sherman’s first
motion for partial summary judgment finding that the “best efforts” clause in paragraph 16
of the “Option 1" agreement and paragraph 15 of the “Option 2" agreement are
4
Further reference to the Texas Business & Commerce Code will be by reference
to “§ ___.”
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unenforceable. Therefore, since Taft’s waiver and forfeiture defenses, were premised on
these clauses, summary judgment was proper. The same day, the trial court entered an
order simply granting Sherman’s second motion for summary judgment relating to Taft’s
defense of fraudulent inducement. The trial court conducted a bench trial on the remaining
issues and rendered judgment for Sherman on the issues, including an award of attorney’s
fees. It is from the rulings on the motions for partial summary judgment and the final
judgment that Taft appeals.
On appeal, Taft contends that the trial court committed reversible error by granting
the two motions for partial summary judgment and entering a final judgment for Sherman
because there were material issues of fact regarding Taft’s fraudulent inducement claim.5
Standard of Review
Appellate courts review the granting of a motion for summary judgment de novo.
See Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). The movant in
a motion for summary judgment, filed pursuant to rule 166a(c), has the burden of showing
that no genuine issue of material fact exists and that it is entitled to a summary judgment
as a matter of law. See Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997).
The trial court must indulge every reasonable inference in favor of the non-movant and
resolve all doubts in his favor. Id.
5
While Taft’s appellate issue challenges both partial summary judgment rulings and
the trial court’s final judgment, Taft’s brief challenges these rulings only in relation to his
fraudulent inducement defense.
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First Motion for Partial Summary Judgment
Conspicuously absent from Taft’s appeal is an issue contesting the trial court’s
ruling regarding the defense of waiver and forfeiture pled in Taft’s original answer.
Inasmuch as appellant has not brought forth briefing or argument regarding the first motion
for partial summary judgment, we must conclude that any error in the ruling has been
waived. See TEX . R. APP. P 38.1(i). The trial court’s judgment regarding the first motion
for partial summary judgment is affirmed.
Second Motion for Partial Summary Judgment
Sherman’s second motion for partial summary judgment was predicated upon the
proposition that Taft could not prove justifiable reliance upon any alleged promise and that
the alleged oral promises violate the statute of frauds. See § 26.01(a)(1), (b)(5). Taft
presents his fraud in the inducement claim as a defense to the request for specific
performance as to the “Option 1" contract.
Fraud in the inducement is a species of fraud that arises only in the context of a
contract. See Hasse v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001). The elements of fraud
in the inducement, as applied to this case are: 1) Sherman made a material
misrepresentation that was false, 2) Sherman knew the representation was false when
made or made it recklessly as a positive assertion without any knowledge of its truth, 3)
Sherman intended to induce Taft to act upon the representation, and 4) Taft actually and
justifiably relied upon the representation, and thereby, suffered injury. See Ernst & Young,
L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001). While Ernst & Young
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was a traditional fraud case, these elements have been cited as the elements for fraud in
the inducement. See DRC Parts & Accessories, L.L.C. v. VM Motori, S.P.A., 112 S.W.3d
854, 858 (Tex.App.–Houston [14th Dist. ] 2003, pet. denied).
As applied to Sherman’s second motion for partial summary judgment, Sherman
contends that, as a matter of law, Taft could not have justifiably relied upon the alleged
misrepresentation. See Ernst & Young, 51 S.W.3d at 577. In connection with the
foregoing issue, it should be remembered that, when a party is involved in an arms-length
transaction, he must exercise ordinary care and reasonable diligence for the protection of
his own interests. See Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962).
Taft’s summary judgment proof consisted of his testimony that, from the first time
he talked to his mother about the proposed sale to Sherman, they had always intended to
lease back the farms. Further, Taft testified that Sherman had a hand-shake deal that Taft
would be allowed to farm the option properties for 20 years. Putting this testimony in the
chronology of events, the record supports that the hand-shake deal was after Scott entered
into the sale to Taft that Sherman funded. Nothing was mentioned in any of the
documents presented before the trial court about this being, in any way, a condition or term
of that sale. Further, Taft testified that he could not recall whether or not the hand-shake
deal was before or after the letter of intent was executed. Taft was certain that the hand-
shake deal was before either of the option contracts were executed.
At this point, it is good to recall who drafted which documents. The record reflects
that the letter of intent was prepared by the real estate broker involved in the transaction.
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However, the option contracts at issue were prepared by Taft’s attorney. Taft testified that
he specifically wanted the language of paragraph 16 of the “Option 1" contract included.
This language is as follows: “The parties will use their best efforts to negotiate concerning
a feed supply agreement pertaining to the First Option Property and the Second Option
Property and/or a lease agreement or agreement for custom farming.”
What we are left with is a record where one party claims that he was fraudulently
induced to enter into a contract to sell real property based upon a representation that he
would, after the sale, be allowed to farm the land in question for 20 years. Yet, the alleged
representation came after he signed a letter of intent saying that the parties would use their
“best efforts to negotiate” the very subject of the alleged representation. Even with this
language present and after the alleged oral promises were made, Taft signed two contracts
that contain the “best efforts to negotiate” language. This language is in direct
contravention to the alleged oral promises. When oral promises are directly contradicted
by express, unambiguous terms of a written agreement, the law says that reliance on those
oral promises is not justified. See DRC Parts, 112 S.W.3d at 858. Since the affirmative
defense of fraud in the inducement contains an element requiring that the reliance on the
alleged material false statement be justified, the trial court was correct to grant the second
partial summary judgment.
Taft contends that the case of Formosa controls and would require this court to
overturn the trial court’s ruling regarding his affirmative defense of fraud in the inducement.
According to Taft, since both Donald Sherman and Richard Avila testified that they never
intended to enter into a lease agreement with Taft, this was an oral promise made with no
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intention of performing. See Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, Inc.,
960 S.W.2d 41, 46 (Tex. 1998). Taft’s reliance on Formosa is misplaced. First, Formosa
did not discuss the requirement of the reliance on the oral promise being justifiable.
Second, when the factual construct of Formosa is considered, we find that the offending
company had included some very specific representations in its bid packages. The
contract executed made no reference to those representations. Here, however, the option
contracts executed contained specific and unambiguous statements that directly
contradicted the alleged oral promises. The record before us indicates that the inclusion
of the language in the option contracts was at the insistence of Taft and, therefore, it
appears that Taft failed to exercise ordinary care and reasonable diligence for the
protection of his own interests. See Thigpen, 363 S.W.2d at 251. Therefore, we do not
find Formosa to be controlling.
Accordingly, we overrule Taft’s issue on appeal.
Conclusion
Having overruled Taft’s issue on appeal, we affirm the judgment of the trial court.
Mackey K. Hancock
Justice
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