Tidwell Properties, Inc. A/K/A Veldenkens Properties v. American First National Bank ( 2006 )

Reversed and Rendered and Memorandum Opinion filed January 26, 2006

Reversed and Rendered and Memorandum Opinion filed January 26, 2006.

In The

Fourteenth Court of Appeals

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NO. 14-04-00120-CV

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TIDWELL PROPERTIES, INC.

A/K/A VELDEKENS PROPERTIES, Appellant

V.

AMERICAN FIRST NATIONAL BANK, Appellee

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On Appeal from the 152nd District Court

Harris County, Texas

Trial Court Cause No. 00‑01244

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M E M O R A N D U M   O P I N I O N

Appellant, Tidwell Properties, Inc. a/k/a Veldekens Properties (AVP@), appeals a judgment in favor of appellee, American First National Bank (Athe Bank@), in the Bank=s breach of contract suit.  In two issues, VP contends the evidence is legally and factually insufficient to support the jury=s findings on breach of contract and resulting damages.  Because we conclude the evidence is legally insufficient to support the jury=s finding on damages, we reverse and render a take nothing judgment.

I.  Background

At all relevant times, VP owned a shopping center in Houston.  In 1997, VP leased 42,270 square feet of the shopping center to Ki Yeol Kwon, who operated a supermarket in the space.  VP took a landlord=s security interest in the supermarket=s equipment and inventory.  The Bank financed Kwon=s supermarket, so it also took a security interest in the equipment and inventory.  In 1998, VP and the Bank entered into a ALandlord=s Subordination Agreement@ to address their competing liens on this collateral.  They agreed that the Bank=s lien was superior, VP would give the Bank written notice if VP evicted Kwon, and the Bank would have fifteen days to remove the collateral.  If the Bank did not remove the collateral, its security interest would terminate and VP=s lien would become superior.

In early October 1999, Kwon closed his store after business declined.  He defaulted on his loan from the Bank, and VP evicted him.  The Bank decided to look for someone else to lease the space from VP and buy the collateral from the BankCan arrangement that would benefit both VP and the Bank.

On October 8, 1999, Sherry Miles, the Bank=s president, and Charles Veldekens, VP=s president, discussed the issues resulting from Kwon=s default and eviction. At trial, Miles and Veldekens disagreed regarding their discussion.  According to Miles, she told Veldekens about the Bank=s plan to find a new tenant for the space; Veldekens responded that someone wanted to open a dollar store in the space; Miles expressed concern that a lease to a dollar store would compromise the Bank=s plan; thus, Veldekens agreed to notify Miles in advance if he decided to sublease part of the space.  In contrast, Veldekens denied that he made this agreement.  In any event, two months before this discussion, VP had subleased 15,000 square feet to Eddie Punjwani, who planned to operate a dollar store.^[1]

On October 12, 1999, VP sent the Bank written notice of Kwon=s eviction, and, thus, activated the Bank=s fifteen-day subordination period to remove the collateral.  During the subordination period, the Bank found a potential buyer/tenant, Jin Wu Kim.  The Bank represented to Kim that 42,270 square feet were available. Subsequently, the Bank and Kim discovered that VP had already leased 15,000 square feet to Punjwani, who was now operating his dollar store on the premises.^[2]  Nonetheless, negotiations between the Bank and Kim continued.  On October 18, 1999, Kim signed an AOffer to Purchase@ agreeing to buy the collateral from the Bank for $220,000 and lease the remaining 27,240 square feet.^[3]  The agreement was subject to Kim=s execution of a lease.

In early November 1999, the Bank paid VP $20,000; in return, VP agreed to extend the Bank=s subordination period until the end of November, so the Bank could consummate the agreement with Kim. VP also agreed to lease the remaining 27,240 square feet to Kim.  VP did offer Kim a tentative lease agreement for the 27,240 square feet although negotiations continued over the rental rate. However, in mid-November, Kim reneged on his agreement with the Bank.  As we will discuss, the parties disagree as to the reasons Kim reneged on the agreement. At any rate, the Bank was unable to find another buyer/tenant before the extended subordination period expired. The Bank elected not to remove most of the collateral although it sold some of the groceries for $12,000.

The Bank sued VP for breach of contract, among other claims.^[4]  According to the Bank, VP agreed to notify the Bank if it decided to lease part of the space, and VP breached the agreement when it was made by failing to notify the Bank that it had already subleased part of the space to Punjwani. A jury found that VP breached the agreement, and the Bank incurred $20,000 in damages as a result of the breach.^[5]  The jury was instructed to consider the following element of damages only: ANet sales proceeds from the prospective sale of the collateral . . . from [the Bank] to [Kim] that were a direct, probable and foreseeable consequence of [VP=s] failure to comply.@ The trial court entered judgment pursuant to the verdict and also awarded the Bank $50,000 in attorney=s fees.

II. Legal Sufficiency of the Evidence on Damages

In its first issue, VP contends the evidence is legally and factually insufficient to support the jury=s finding that the Bank incurred $20,000 in damages as a result of VP=s breach of the agreement.

A.        Standard of Review

When both legal and factual sufficiency challenges are raised on appeal, we must first examine the legal sufficiency of the evidence.  See Manon v. Tejas Toyota, Inc., 162 S.W.3d 743, 752 (Tex. App.CHouston [14th Dist.] 2005, no pet.) (citing Glover v. Tex. Gen. Indem. Co., 619 S.W.2d 400, 401 (Tex. 1981)).  We will sustain a legal sufficiency or Ano-evidence@ challenge if the record shows one of the following: (1) a complete absence of a vital fact, (2) rules of law or evidence bar the court 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 establishes conclusively the opposite of the vital fact.  City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005).  We consider the evidence in the light most favorable to the verdict and indulge every reasonable inference that supports it. Id. at 821B22.  The evidence is legally sufficient if it would enable reasonable and fair-minded people to reach the verdict under review.  Id. at 827.  We credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not.  See id.  The trier of fact is the sole judge of the witnesses= credibility and the weight to be given their testimony.  See id. at 819.  We cannot substitute our judgment for that of the jury, so long as the evidence falls within the zone of reasonable disagreement.  See id. at 822.  But, Aif the evidence allows of only one inference, neither jurors nor the reviewing court may disregard it.@ Id.

B.        Discussion

In a breach of contract action, a plaintiff may recover actual damages that are the natural, probable, and foreseeable consequence of the defendant=s conduct.  Mead v. Johnson Group, Inc., 615 S.W.2d 685, 687 (Tex. 1981); Prudential Sec., Inc. v. Haugland, 973 S.W.2d 394, 397 (Tex. App.CEl Paso 1998, pet. denied); Winograd v. Clear Lake City Water Auth., 811 S.W.2d 147, 156 (Tex. App.CHouston [1st Dist.] 1991, writ denied).  The absence of this causal connection between the alleged breach and the damages sought will preclude recovery.  Prudential Sec., Inc., 973 S.W.2d at 397; Nelson Cash Register, Inc. v. Data Terminal Sys., Inc., 671 S.W.2d 594, 600 (Tex. App.CSan Antonio 1984, no writ).

Here, VP argues that there is no evidence of a causal connection between VP=s failure to notify the Bank that it had leased part of the space to Punjwani and the Bank=s loss of the prospective sale of the collateral to Kim.  We agree. In fact, the evidence conclusively establishes no causal connection, and reasonable jurors could not disregard this evidence.  See City of Keller, 168 S.W.3d at 814B16, 827.^[6]  In particular, the evidence demonstrates that (1) even after Kim and the Bank learned VP had leased part of the space to Punjwani, Kim agreed to buy the collateral and lease the remaining space; and (2) Kim later reneged on that agreement for reasons unrelated to VP=s failure to notify.

1.         Kim=s Agreement to Buy the Collateral

The evidence demonstrates that even after Kim and the Bank learned VP had leased part of the space to Punjwani, Kim agreed to buy the collateral and lease the remaining space. Kim testified that when he learned part of the space had been leased to the dollar store, he felt Anot good.@ He had originally planned to operate his grocery store in some of the space and sublease the rest to various kiosks to help defray his lease payments.  Nevertheless, he testified that he was still interested in buying the collateral and leasing the remaining space because it was a good location.  Subsequently, Kim did sign the agreement with the Bank reflecting that the space to be leased was 27,240 square feet.  At trial, Kim confirmed that when he signed the agreement, he knew he was getting only 27,240 square feet, but he chose to accept the Adeal@ anyway.

Moreover, at trial, Sherry Miles, the Bank=s president, admitted several times that Kim agreed to buy the collateral and lease the remaining space after learning that VP had leased part of the space to Punjwani.  Miles testified that the sublease to Punjwani Aalmost killed the contract, but fortunately we were able to convince Mr. Kim that the 27,240 square feet would be sufficient and we could still do what he wanted to in that space,@ and Ahe was willing to accept the lower square footage.@  Later, Miles reiterated that the lease to Punjwani Aalmost killed the deal@ because Kim was disappointed that he would not have the entire 42,270 square feet, but Awe did salvage the deal,@ and Awe did sign the contract even with the 20 some thousand square feet.@ Subsequently, Miles testified yet again that the lease to the dollar store was not a Adeal breaker@ with Kim.

The presence of the dollar store created a few issues in addition to the reduction in space.  Kim wanted his grocery store and the dollar store to have separate air conditioning systems and electric meters and wanted a wall to separate the stores.  However, Kim testified that VP agreed to these requests, and after these issues were resolved, he still wanted to buy the collateral from the Bank.  Miles also acknowledged that the parties Agot past@ these issues. Consequently, the evidence conclusively establishes that Kim agreed to buy the collateral despite VP=s earlier failure to notify the Bank that it had leased part of the space to Punjwani.

2.         Kim=s Decision to Renege on the Agreement

The evidence further demonstrates that Kim later reneged on his agreement to buy the collateral for reasons unrelated to VP=s earlier failure to notify.  Kim=s testimony is not exactly clear because he gave two different reasons for reneging. 

At one point, Kim explained that shortly after he signed the agreement, several members of the Veldekens family visited him at his existing store.  They told him that the Bank=s subordination period would expire soon and suggested he would get a better deal by waiting to do business directly with them.  According to Kim, until that time, he was unaware of the subordination agreement between VP and the Bank, and, thus, did not know the Bank had limited time to sell the collateral.  Kim also indicated that until that time, he thought the Bank had the power to lease the space.^[7]  Therefore, after the Veldekenses= visit, Kim realized he did not have to buy the collateral from the Bank for $220,000 to obtain the lease for the store.  At trial, Kim was asked, AAnd after learning that you didn=t actually need to pay $225,000 [sic] for the material, you eventually decided not to go through with the deal?@ He responded, AThe Bank lost the powers. I don=t need to pay that much money.@

At another point, Kim suggested that the Areal problem@ was the rental rate because he would pay twice the rent Kwon had paid. Regardless, Kim never testified that VP=s earlier failure to notify the Bank that it had subleased part of the space played any role in his decision to renege on his agreement with the Bank.

Nonetheless, the Bank contends that VP=s failure to notify caused Kim to renege on the agreement because it made Kim suspicious of the Veldekenses.  Kim did testify that he was suspicious of the Veldekenses.  However, his testimony indicates that his suspicions arose after he reneged on his agreement with the Bank.  In particular, Kim testified that after the Bank=s subordination period expired, the Veldekenses did approach him about a deal.^[8]  He declined this deal because he was suspicious of the Veldekenses.  However, he never testified that he reneged on his agreement with the Bank because he was suspicious of the Veldekenses.

Further, although Kim=s testimony is somewhat difficult to understand, it indicates his suspicions had nothing to do with VP=s earlier failure to notify.  Kim explained:

Then that Mr. Veldekens I am sorry about what Mrs. Veldekens and Mr. Veldekens tell me because my feel is I didn=t feel safe at that time.  I am suspicious.  If I am going to good operating at the best over there five years after they might take over that business that=s because they kept offering me.  Okay, I have this space.  I have that property.  If after doing it, I can let you move on better properties who think is going to be paying that expenses?@

Thus, Kim=s suspicions were apparently based on the possibility that VP would terminate his lease at the end of a five-year rental period.  Kim did not provide any other reasons that he was suspicious of the Veldekenses. Consequently, there is not any evidence that Kim=s suspicions arose from VP=s earlier failure to notify, much less any evidence that Kim=s suspicions caused him to renege on his agreement with the Bank.

Regardless, the Bank suggests that the jury, as judge of the weight and credibility of the witnesses= testimony, was free to determine that VP=s failure to notify generally Apoisoned@ the agreement and affected Kim=s decision to renege.  We disagree. Although the jury may draw inferences from the evidence, those inferences must be reasonable and logical. See Hammerly Oaks, Inc. v. Edwards, 958 S.W.2d 387, 392 (Tex. 1997); see also City of Keller, 168 S.W.3d at 822.  The jury could not reasonably infer that VP=s failure to notify generally Apoisoned@ the agreement and affected Kim=s decision to renege considering there is no evidence supporting such an inference, Kim was still willing to make the agreement after learning of the failure to notify, and Kim later reneged on the agreement for reasons unrelated to the failure to notify.

Finally, the Bank urges several alternative reasons to support the causal connection between VP=s failure to notify and the Bank=s damages.  The Bank asserts that if it had known less space was available, it might have adjusted its Arecovery plan@ early on, represented to potential buyers that significantly less space was available, or liquidated the collateral piecemeal.  However, when assessing damages, the jury was not allowed to consider the loss of any prospective sale of the collateral. Instead, the jury was instructed to consider one narrow element of damages: the loss of the prospective sale of collateral to Kim. Therefore, these alternative theories cannot support the jury=s finding.

In sum, there is no evidence that VP=s failure to notify the Bank that it had subleased part of the space caused the Bank to lose the sale of collateral to Kim.  Thus, the evidence is legally insufficient to support the jury=s finding on damages.  Accordingly, we sustain VP=s first issue, reverse the judgment of the trial court, and render judgment that the Bank take nothing.^[9]

/s/        Paul C. Murphy

Senior Chief Justice

Judgment rendered and Memorandum Opinion filed January 26, 2006.

Panel consists of Justices Edelman, Guzman, and Murphy.^[10]

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^[1]  According to VP, it had subleased the 15,000 square feet to Punjwani before Kwon=s default and eviction to help Kwon improve his cash flow by reducing his lease payments.

^[2]  When the Bank and Kim first visited the space, it was unoccupied, but during a subsequent visit, they discovered that Punjwani had opened the dollar store.

^[3]  Although 42,270 square feet minus 15,000 square feet would equal 27,270 square feet, the AOffer to Purchase@ specified that Kim would lease 27,240 square feet.

^[4]  The Bank also sued for negligence, conversion, and tortious interference, but only the breach of contract claim remained when the case was submitted to the jury.

^[5]  The jury also found that VP agreed to extend the subordination period until the end of November 1999 and enter into a lease agreement with Kim, but the jury found that VP did not breach that agreement. Therefore, that agreement is not at issue in this appeal.

^[6]  In its second issue, VP contends there is no evidence to support the jury=s finding that VP breached its agreement to notify.  We will assume, without deciding, that the evidence supports that finding because there is, nonetheless, no evidence that the breach, if any, caused the Bank to lose the sale of collateral to Kim.

^[7]  Kim=s testimony regarding who he thought had the power to lease the space was somewhat contradictory. On direct examination, he generally testified that he knew VP was the landlord, but he did not specifically state when he gained that knowledge.  On cross-examination, he expressly testified that when he agreed to buy the collateral from the Bank, he thought the Bank had the power to lease the space.  In any event, once the Veldekenses visited him, he knew that VPCnot the BankChad the power to lease the space. 

^[8]  Kim testified that the Veldekenses approached him after the Alease period was up.@  Because Kim never entered into a lease with VP, he was apparently referring to the Bank=s subordination period.

^[9]  Because the evidence is legally insufficient to support the jury=s finding on damages, we need not consider VP=s second issue challenging the jury=s finding that VP breached the agreement to notify.

^[10]  Senior Chief Justice Paul C. Murphy sitting by assignment.