Capcor at KirbyMain, L.L.C. v. Moody National Kirby Houston S, L.L.C D/B/A Moody National Kirby Houston, L.L.P and Moody National Title Company, L.P. , 2014 Tex. App. LEXIS 2808 ( 2014 )

Opinion issued March 13, 2014
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-13-00068-CV
———————————
CAPCOR AT KIRBYMAIN, L.L.C., Appellant
V.
MOODY NATIONAL KIRBY HOUSTON S, L.L.C. D/B/A MOODY
NATIONAL KIRBY HOUSTON, L.L.P. AND MOODY NATIONAL TITLE
COMPANY, L.P., Appellees
On Appeal from the 215th District Court
Harris County, Texas
Trial Court Case No. 2011-32904
OPINION
This appeal concerns the fiduciary responsibilities of a title insurer as escrow
agent for a commercial real estate transaction. Appellant Capcor at KirbyMain,
L.L.C., argues that the escrow agent—appellee Moody National Title Company,
L.P.—breached its fiduciary duties by refusing to accept a cashier’s check to close
Capcor’s purchase of a tract of unimproved land. Capcor also contends that the
trial court erred in refusing a requested jury instruction on material breach of
contract by the seller, appellee Moody National Kirby Houston, L.L.P.
Finding no reversible error, we affirm.
Background
Moody National Kirby Houston, L.L.P. (Moody Kirby) owned a vacant lot
near the Texas Medical Center. Moody Kirby had fallen behind on its loan
payments, and its bank agreed to forgive a substantial portion of the principal in
exchange for the proceeds of a sale. Capcor agreed to purchase the land from
Moody Kirby using a standard “Unimproved Property Contract” promulgated by
the Texas Real Estate Commission. The contract specified a definite date for
closing and provided that “At closing . . . Buyer shall pay the Sales Price in good
funds acceptable to the escrow agent.” If a party failed to close the sale by the
closing date, the other party was entitled to exercise its contractual remedies,
which included terminating the contract and receiving the earnest money as
liquidated damages.
The parties agreed to use Moody National Title Company, L.P. (Moody
Title), a company wholly owned by Moody Kirby’s sole owner, Brett Moody, as
2
title company. Pursuant to the contract, Capcor deposited $25,000 in earnest
money with Moody Title.
As the last day for closing under the contract was the Sunday of Memorial
Day weekend, the parties agreed to shift the date for closing to the following
Tuesday. The day prior to closing, Moody Title escrow agent Kay Street informed
Capcor’s lawyer that Moody Title needed to receive the purchase funds in the form
of a wire transfer. She informed Capcor’s principal, Josh Aruh, of the same
requirement when he arrived at Moody Title’s office the next morning to sign
closing documents.
That afternoon, Street became concerned. Although the portion of the
purchase price Capcor was borrowing from its bank had arrived by wire transfer,
she had not received a wire for the additional amount that Capcor was paying
itself. She sent an email to Aruh stating: “Please advise once the wire has been
sent. We need to fund today and our outgoing wire cutoff is 3:30.” She also spoke
on the phone with Capcor’s attorney, who called and asked if she had received the
wire. When she replied that she had not received it, he said, “Let me see what’s
going on.” She still had not received a wire at 3:05 when she sent another email to
Aruh: “The purchaser funds are still outstanding. Please be advised that this
transaction is not closed until all funds are received.”
3
At 4:26, Street received an email from Capcor’s bank informing her that a
Capcor principal was on his way to the bank to obtain a cashier’s check. This is the
first communication to Street clearly established in the record that Capcor intended
to use a cashier’s check, and no evidence was presented to affirmatively establish
that Capcor had provided such notice to Street at any time prior to that. Street
reacted by contacting her underwriter, Fidelity National Title, to ask whether she
could accept the cashier’s check. Fidelity had sent a bulletin to its agents
cautioning them about counterfeit cashier’s checks. Street eventually spoke to two
Fidelity representatives who both informed her that she could not accept a
cashier’s check.
Street next sent an email to Capcor’s bank, which stated: “They need to be
stopped. We cannot accept a cashier’s check for that amount it has to be a wire.”
She sent a further email to the bank, copying it to Capcor’s attorney:
“Underwriting will not allow a cashiers check for that amount. It needs to be a
wire.” About this time, she also called the Texas Department of Insurance, which
informed her that as long as she did not accept types of funds prohibited by its
regulations, Moody Title was free to set its own policies as to what funds it would
accept.
Sometime after 5:00, Capcor principal Avi Ron arrived at Moody Title with
a cashier’s check. When Street told Ron that she was leaving for the day and could
4
not accept the check, he threw it on her desk. At this point it was no longer
possible for Capcor’s bank to conduct a wire transfer.
Street later testified as to her reasons for refusing to accept the cashier’s
check. Not only had Fidelity’s representatives told her not to accept the check, but
she avowed that she had had “an absolute responsibility to follow the directive of
the underwriting counsel” at Fidelity. Violating this responsibility, she believed,
would have resulted in loss of her escrow officer’s license.
Aside from the limitations imposed by her underwriter, Street had been
directed by Capcor’s bank not to disburse its funds unless she was in a position to
issue a title policy. And Street could not issue a title policy until consideration had
passed. As she expressed the limitation, “[A]ny transaction that’s on the last day of
the contract has got to close and fund that day. And it’s not closed till it’s funded.
And I’m in a position to issue a title policy.” When asked what type of funds were
needed, Street responded, “Collected funds, a wire.”
Street clarified that cashier’s checks are not considered “collected funds”
because they are subject to a three-day recall. She also explained that because she
would not have been able to deposit the check until the next day, the funds were
not available for transfer on the day of closing. Simply “floating” the money, i.e.,
using Moody Title’s own funds to complete the transaction on behalf of the buyer
while awaiting fulfillment of the cashier’s check, was not possible due to Moody
5
Title’s limited resources and the need to strictly separate sums in trust accounts
from an escrow agent’s own assets.
The morning after the failed closing, Capcor’s attorney offered to
immediately substitute a wire transfer for the cashier’s check. Moody National,
however, sent notice that it was terminating the contract.
Capcor refused to sign a release of the earnest money, and it sued Moody
Kirby on the sales contract, later adding claims against Moody Title for tortious
interference with the contract and breach of fiduciary duty. Moody Kirby
counterclaimed, seeking the earnest money and contractual liquidated damages.
When the case was tried, the jury found that Capcor had breached the contract,
while Moody Kirby had not. The jury further found that Moody Title had not
breached its fiduciary duties to Capcor.
The trial court entered judgment awarding Moody Kirby’s attorney’s fees,
the escrowed funds, and contractual liquidated damages in an amount three times
greater than the earnest money. After its motions for JNOV and new trial were
overruled by operation of law, Capcor timely appealed.
Analysis
Capcor argues that the evidence was factually insufficient to support the
jury’s verdict that Moody Title did not breach its fiduciary duties. It contends that
the great weight and preponderance of the evidence showed that Moody Title, as
6
represented by Street, breached its fiduciary duties by failing to disclose material
facts concerning the applicable policies regarding cashier’s checks and by
imposing a requirement that funds be provided by wire transfer. It similarly claims
that the great weight and preponderance of the evidence demonstrated that Moody
Title tortiously interfered with the contract. Separately, Capcor also argues that the
trial court erred in refusing to submit an instruction on material breach of the
contract.
I. Fiduciary duty claim against Moody Title
“When a party attacks the factual sufficiency of an adverse finding on an
issue on which [it] has the burden of proof, [it] must demonstrate on appeal that the
adverse finding is against the great weight and preponderance of the evidence.”
Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001). A “court of appeals
must consider and weigh all of the evidence, and can set aside a verdict only if the
evidence is so weak or if the finding is so against the great weight and
preponderance of the evidence that it is clearly wrong and unjust.” Id. The jury is
the sole of judge of witnesses’ credibility and may give credence to one witness
rather than another. City of Keller v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005). As
it is the jurors’ role to resolve conflicts in the evidence, our review assumes that
they did so in a manner consistent with their verdict. Id. at 820.
7
An escrow agent acts as a neutral party to the transaction and owes a
fiduciary duty to both parties. Gonzales v. Am. Title Co. of Hous., 104 S.W.3d 588,
598 (Tex. App.—Houston [1st Dist.] 2003, pet. denied). “This fiduciary duty
consists of: (1) the duty of loyalty; (2) the duty to make full disclosure; and (3) the
duty to exercise a high degree of care to conserve the money and pay it only to
those persons entitled to receive it.” Trevino v. Brookhill Capital Res., Inc., 782
S.W.2d 279, 281 (Tex. App.—Houston [1st Dist.] 1989, writ denied). An escrow
agent must “act with utmost good faith and avoid self-dealing that places its
interest in conflict with its obligations to the beneficiaries.” Gonzales, 104 S.W.3d
at 598.
“The elements of a breach of fiduciary duty claim are: (1) a fiduciary
relationship between the plaintiff and defendant, (2) a breach by the defendant of
his fiduciary duty to the plaintiff, and (3) an injury to the plaintiff or benefit to the
defendant as a result of the defendant’s breach.” Dernick Res., Inc. v. Wilstein, 312
S.W.3d 864, 877 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (citing Jones v.
Blume, 196 S.W.3d 440, 447 (Tex. App.—Dallas 2006, pet. denied)).
A. Duty of disclosure
Capcor argues that the great weight and preponderance of the evidence
showed that Moody Title breached its fiduciary duties by failing to timely disclose
that it would not accept a cashier’s check at closing. It further contends that if the
8
reason Street rejected the cashier’s check was that her underwriter would not allow
her to accept it, then she had a duty to disclose the policies of her underwriter
regarding cashier’s checks.
“A fiduciary relationship imposes a duty on the fiduciary to render full and
fair disclosure of facts material to the relationship giving rise to the duty.” Wilstein,
312 S.W.3d at 877. “A fact is material if it would likely affect the conduct of a
reasonable person concerning the transaction in question.” Fleming v. Curry, 412
S.W.3d 723, 736 (Tex. App.—Houston [14th Dist.] 2013, pet. filed) (applying
definition to alleged breach of fiduciary duty by attorney); see also Custom
Leasing, Inc. v. Tex. Bank & Trust Co. of Dall., 516 S.W.2d 138, 142 (Tex. 1974)
(outlining same definition of “material” in context of fraud). “Materiality thus
centers on whether a reasonable person would attach importance to and would be
induced to act on the information in determining his choice of actions in the
transaction in question.” Fleming, 412 S.W.3d at 737. Which facts are material to a
transaction will vary with circumstances—a fact that is pertinent in one context
may be inapposite in another—and absent a legal rule to the contrary, materiality is
an issue of fact for the jury. * See id. (holding that whether attorney complied with
*
After it filed its brief in this case, Capcor retained new counsel. Its new counsel
filed a letter brief the day before oral argument contending that Moody Title had
breached its fiduciary duty of full disclosure as a matter of law. We granted a
motion to strike the letter. Regardless of whether this line of argument was fairly
subsumed within the factual sufficiency arguments presented in its original brief,
9
fiduciary duty to disclose all material information was question of fact); Santanna
Natural Gas Corp. v. Hamon Operating Co., 954 S.W.2d 885, 892 (Tex. App.—
Austin 1997, pet. denied) (“Determining what a reasonable person would have
done or should have known are normally questions of fact.”). As explained below,
we conclude that the jury heard evidence from which a reasonable factfinder could
have concluded that the facts Capcor claims Moody Title should have disclosed
were not material to the transaction.
Street testified that she informed Capcor’s lawyer the day before closing that
a wire would be required for payment and that she imparted the same information
to Capcor’s principal, Aruh, on the morning of closing. Although Capcor argues
that there is no documentary evidence to support Street’s claim and that she
sometimes spoke of wiring “instructions” rather than a wiring requirement,
nonetheless the jury could have reasonably credited her testimony: “I know I did
tell him [Capcor’s attorney] that we had to have a wire;” and “I absolutely most
definitely told him [Aruh] I had to have a wire at the closing table.”
Street and Brett Moody testified, based on their long experience in the title
and real estate businesses, about the customary expectations and assumptions of
Capcor has provided us no authority, at oral argument or otherwise, that an escrow
agent is required to make the disclosures at issue as a matter of law. Thus, whether
or not Capcor’s argument that Moody Title breached its fiduciary duties as a
matter of law is properly before us, for the reasons explained above and in the
absence of contrary authority, we decline to hold that the escrow agent in this case
was so obligated as a matter of law.
10
parties to a commercial real estate transaction of this type. Moody testified that he
had participated in “a thousand deals,” yet he had never seen a cashier’s check
used in a commercial closing. He added that cashier’s checks are not used in this
context because of the delay associated with their deposit and collection.
According to him, the lull in the availability of funds conveyed by cashier’s check
prevents a title company from immediately delivering the purchase price to the
seller, a precondition to the title company releasing the seller’s deed to the
purchaser.
When Street was cross-examined as to whether it was “important” for her to
inform her clients of her underwriter’s policies regarding cashier’s checks, she
explained, “Just for the sake of talking about it? No. Whenever a wire is expected,
no.” Later in the same colloquy, she similarly stated, “And no, I wouldn’t find it
necessary to inform the buyer of that unless that came up . . . .” In this regard, the
parties do not contend, and we have found no record evidence to suggest that the
possibility of using a cashier’s check was brought to Street’s attention by the
parties prior to the email Street received from Capcor’s Bank at 4:26 PM on the
day of closing. Street’s testimony that it would not be important to inform a buyer
about the acceptability of a cashier’s check is congruent with the testimony of Brett
Moody on the rarity of cashier’s checks in commercial real estate transactions
11
Considering this evidence, we do not agree with Capcor that the jury’s
finding that Moody Title complied with its duty of full disclosure is against the
great weight and preponderance of the evidence. Regardless of whether the
evidence showed that Street rejected the check solely because of her underwriter’s
policies, the testimony of Street and Moody would have permitted a reasonable
jury to find that disclosure of policies on cashier’s checks was immaterial to the
transaction because their use would not be ordinarily contemplated in transactions
of this kind and there had been no indication a party would attempt to use one until
late in the afternoon on the day of closing. Alternatively, a reasonable jury could
have concluded that Street fulfilled her duties by informing Capcor on the day
before closing, and again on the day of closing, that a wire was required.
In other words, the jury reasonably could have inferred from Street’s and
Moody’s testimony that cashier’s checks were so rarely used in commercial real
estate transactions, and wire transfers so commonly used, that whether Moody
Title would accept them was not a material fact. The jury also could have
reasonably concluded that telling Capcor that a wire was required on the day
before closing was adequate and timely disclosure, especially in light of the
testimony tending to show that a wire transfer would have been the expected form
of payment. Although Capcor argues that Moody Title did not make “timely
disclosure,” it offers no reasons why informing Capcor of the wire requirement on
12
the day before or the morning of closing would have afforded inadequate time to
act on the information.
As a sub-argument, Capcor contends that Moody Title at least should have
informed it of the conditions under which its underwriter would have accepted a
cashier’s check once it became apparent on the afternoon of closing that use of a
cashier’s check was intended. Capcor points to testimony that the underwriter
would have been willing to accept a properly verified cashier’s check and argues
that Street, in her testimony, acknowledged that whether she would accept a
cashier’s check hinged on the directives of her underwriter. However, there was
other evidence that delivery of a cashier’s check, even in a form acceptable to the
underwriter, still would have been futile for the purposes of completing the closing
that day. Both Street and Moody testified that collected funds—that is, funds
available for immediate disbursement—were needed to close the transaction on the
last day of closing, that cashier’s checks were subject to a three-day hold, and that
at the late hour when Capcor’s principal arrived with the cashier’s check it was
impossible to deposit the check. As such, the evidence was factually sufficient to
support the jury’s implied finding that the conditions under which the underwriter
would accept a cashier’s check also were not facts material to the transaction
during the late afternoon on the closing date.
13
Capcor emphasizes testimony of Street to the supposed effect that the
underwriter’s policies were the sole reason she rejected the cashier’s check. For
example, Street testified, “I was not consummating the transaction because
underwriting forbade me to accept the cashier’s check,” and “It wasn’t my decision
not to accept. It was Fidelity National Title’s, the underwriter.” Street’s denial that
she had a choice to accept the cashier’s check did not render it unreasonable for the
jury to believe her other explanations as to why she could not have accepted a
cashier’s check, verified or otherwise, at the time Capcor indicated its intention to
use one. Having heard Street’s testimony as a whole, the jury reasonably could
have disagreed with Capcor’s view of the evidence that Street’s sole reason for
refusing to accept the check was her underwriter’s policies. See Ortiz v. Jones, 917
S.W.2d 770, 772 (Tex. 1996) (“In reviewing a factual sufficiency point, the court
of appeals must weigh all of the evidence in the record.”).
Accordingly, Capcor’s claim that the evidence was factually insufficient to
support the jury’s finding that Moody Title complied with its fiduciary duty of full
disclosure of material information is overruled.
B. Requirement of wired funds
Capcor argues that even if Moody Title did not breach its fiduciary duties by
failing to disclose its policies (or its underwriter’s policies) respecting cashier’s
checks, requiring wired funds was itself a breach of fiduciary duty and constituted
14
tortious interference with the contract. It claims that the jury’s finding to the
contrary was against the great weight and preponderance of the evidence.
A tortious interference claim has four elements: (1) the existence of a
contract subject to interference; (2) a willful and intentional act of interference;
(3) the act was a proximate cause of the plaintiff’s damages; and (4) actual damage
or loss. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 (Tex. 2002).
The sales contract stated, “Buyer shall pay the Sales Price in good funds
acceptable to the escrow agent.” Capcor argues that the definition of “good funds”
contained in Rule P-27 of the Basic Manual of Rules, Rates, and Forms for the
Writing of Title Insurance in the State of Texas, a set of regulations promulgated by
the Texas Department of Insurance, required that Moody Title accept a cashier’s
check as good funds. See 28 TEX. ADMIN. CODE § 9.1 (2013) (Tex. Dep’t of Ins.,
Basic Manual of Rules, Rates, and Forms for the Writing of Title Insurance in the
State of Texas) (adopting manual by reference). We disagree.
Rule P-27 is titled, “Disbursement From Escrow or Trust Fund Accounts.”
Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the
State of Texas § IV, P-27. Among other forms of payment, it lists cashier’s checks
as a form of “good funds.” Id. § IV, P-27(A)(1)(b). It does not, however, require
that a title insurer accept all enumerated types of good funds. See id. § IV, P-27.
Rather, the Rule prohibits a title insurer from disbursing funds until “good funds”
15
are received and deposited: “Good funds in an amount equal to all disbursements
must be received and deposited before any disbursement may be made.” Id. § IV,
P-27(B)(1). Nothing in the Rule limits a title insurer’s authority to refuse particular
forms of payment that qualify as good funds, see id. § IV, P-27; there is only a
prohibition on disbursements before good funds have been received and deposited.
See id. § IV, P-27(B)(1). The Rule’s narrow effect is consistent with the statute that
it implements, which is a simple prohibition on disbursements from trust accounts
until sufficient good funds have been received and deposited to fund the
disbursements. See TEX. INS. CODE. ANN. § 2651.202 (West 2009).
The sales contract vested Moody Title with discretion to determine which
good funds it would accept: “Buyer shall pay the Sales Price in good funds
acceptable to the escrow agent.” See generally Tribble & Stephens Co. v. RGM
Constructors, L.P., 154 S.W.3d 639, 652 (Tex. App.—Houston [14th Dist.] 2004,
pet. denied) (“It is well established that a contract may require performance by one
party to be subject to the satisfaction of . . . a designated thirty party . . . .
Generally, a satisfaction clause will be upheld . . . .” (citations omitted)). As an
escrow agent, Moody Title had to exercise this discretion in a manner consistent
with its fiduciary duties. See Home Loan Corp. v. Tex. Am. Title Co., 191 S.W.3d
728, 733 (Tex. App.—Houston [14th Dist.] 2006, pet. denied) (citing Meyer v.
16
Cathey, 167 S.W.3d 327, 330–31 (Tex. 2005), and clarifying that an escrow
agent’s fiduciary duties arise as a matter of law).
Street explained at trial why she did not accept the cashier’s check but
instead required wired funds. She testified that her underwriter instructed her not to
accept the check and that failure to comply with these instructions would have
placed her escrow officer’s license at risk.
Apart from her underwriter’s instructions, Street explained that she needed
the purchase price to be delivered in collected funds, funds that were immediately
available for transfer to the seller. Unless she could deliver funds to the seller, she
could not release the seller’s deed and issue a title policy. Moreover, without a title
policy, Street claimed that Capcor’s bank would not allow its escrowed money to
be released to pay the portion of the purchase price Capcor was borrowing.
Substantiating her account of her actions, Street explained that she could not
have deposited Capcor’s cashier’s check at the late hour she received it and that in
any event, cashier’s checks are subject to a three-day hold. Finally, she explained
that using Moody Title’s own funds in lieu of the delayed proceeds of the cashier’s
check was not possible given the proper role of an escrow agent and in light of
Moody Title’s limited resources.
The reasons that Street furnished for requiring wired funds were
corroborated in multiple respects by Brett Moody’s testimony. He testified that, in
17
practice, a title company would never release a seller’s deed until it had delivered
the purchase price to the seller, that a lender providing financing for a purchaser
would always instruct the title company not to release its funds until a title policy
was in place, and that funds drawn by a cashier’s check are subject to an initial
hold that keeps them from being accessible for immediate distribution.
Capcor, in its attempt to show that the evidence conclusively demonstrates a
breach, relies upon record evidence that Brett Moody was reluctant to sell the
property, that he had received better offers for the property, that he owned Moody
Title, and that he, in Street’s words, “may have” told Street that he did not want to
close the deal if wired funds were not timely received. Relying on this evidence,
Capcor argues, “One might infer that Street did not disclose these facts because her
boss wanted the deal to fall through.” Even if that inference were possible, it was
implicitly rejected by the jury, which may have instead credited Street’s testimony
that she was “absolutely” independent when acting as an escrow agent, as well as
her description of the procedures she uses to segregate her affairs from other
Moody businesses so as to comply with Texas law.
Under the applicable standard of review, the jury is entitled to resolve
conflicts in the evidence unless its conclusions are so contrary to the great weight
and preponderance of the evidence as to be clearly wrong and unjust. See City of
Keller, 168 S.W.3d at 820–21; Dow Chem. Co., 46 S.W.3d at 242. The adverse
18
inferences advocated on appeal by Capcor were rejected by the jury. The testimony
of Street and Moody would have permitted a reasonable jury to conclude that
Moody Title required wired funds from Capcor in good faith, in a permissible
exercise of its business judgment, and with valid, neutral reasons.
Capcor’s claim that the great weight and preponderance of the evidence
showed that mandating payment by wire transfer violated Moody Title’s fiduciary
duties and represented tortious inference with the contract is thus overruled.
II. Breach of contract claim against Capcor
Capcor argues that the trial court erred by refusing its proposed jury
instruction on material breach of the contract, because there was evidence at trial to
support a finding that its failure to deliver good funds acceptable to Moody Title
on the day of closing was not a material breach.
A trial court’s decision to submit or refuse a particular instruction is
reviewed under an abuse of discretion standard. Shupe v. Lingafelter, 192 S.W.3d
577, 579 (Tex. 2006) (per curiam). If an instruction might aid the jury in answering
the issues presented to them, or if there is any support in the evidence for an
instruction, the instruction is proper. Thota v. Young, 366 S.W.3d 678, 687 (Tex.
2012). “An instruction is proper if it (1) assists the jury, (2) accurately states the
law, and (3) finds support in the pleadings and evidence.” Columbia Rio Grande
Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 855 (Tex. 2009).
19
We conclude that the rejected instruction would not have been relevant to
the jury’s conclusions. The contract states that “[i]f either party fails to close the
sale by the Closing Date, the non-defaulting party may exercise the remedies
contained in Paragraph 15.” Moody Kirby’s remedies in Paragraph 15 included
“terminat[ing] the contract and receiv[ing] the earnest money as liquidated
damages.”
It is black-letter contract law that “when one party to a contract commits a
material breach of that contract, the other party is discharged or excused from
further performance.” Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d
195, 196 (Tex. 2004) (per curiam). Timely performance may be a material term:
“if it is clear the parties intend that time is of the essence to a contract, timely
performance is essential to a party’s right to require performance by the other
party.” Id. However, time is not ordinarily of the essence. Kennedy Ship & Repair,
L.P. v. Pham, 210 S.W.3d 11, 19 (Tex. App.—Houston [14th Dist.] 2006, no pet.).
The mere fact that a contract states a date for performance does not imply that time
is of the essence. Id. Rather, “the contract must expressly make time of the essence
or there must be something in the nature or purpose of the contract . . . making it
apparent that the parties intended that time be of the essence.” Id.; accord Deep
Nines, Inc. v. McAfee, Inc., 246 S.W.3d 842, 846 (Tex. App.—Dallas 2008, no
pet.). “In other words, the parties’ contract may make time essential without
20
including the magic words ‘time is of the essence.’” 2 MILTON R. FRIEDMAN &
JAMES CHARLES SMITH, FRIEDMAN ON CONTRACTS AND CONVEYANCES OF REAL
PROPERTY § 7:3.2 (7th ed. 2005).
A finding that time is of the essence “is particularly likely when the
provision consists of a right to cancel the contract.” Id. “Contracts often contain
language making one party’s performance by a specified date a condition of the
other party’s duty, and courts will usually honor such language if it is clear.” E.
ALLAN FARNSWORTH, CONTRACTS § 8.18, at 573–74 (4th ed. 2004). For example,
in Mailloux v. Dickey, 523 A.2d 66 (N.H. 1986), the Supreme Court of New
Hampshire interpreted a real estate sales contract that “contained a clause
indicating the agreement would terminate upon the failure of the parties to close
the transaction” by the date specified. 523 A.2d at 67. It held that the termination
clause was “even more specific” than use of the phrase “time is of the essence” and
entitled the defendant to terminate the contract when the transaction did not close
by the named date. Id. at 69.
Closer to home, the Amarillo Court of Appeals reached a comparable result
in Limestone Group, Inc. v. Sai Thong, L.L.C., 107 S.W.3d 793 (Tex. App.—
Amarillo 2003, no pet.). In that case, the parties entered an agreement to convey a
tract of land. Limestone Grp., 107 S.W.3d at 795. When the parties were unable to
consummate the deal, Limestone sued for specific performance. Id. Sai Thong
21
argued that Limestone was not entitled to specific performance because it was in
default, having failed to pay $75,000 in earnest money on a date specified in the
contract. Id. Limestone argued that its failure to pay the earnest money should only
preclude the remedy of specific performance if that failure amounted to a material
breach of the contract. Id. at 796–97.
The court of appeals recognized the general principle that “only a material
breach prevents one from pursuing specific performance.” Id. (citing Hudson v.
Wakefield, 645 S.W.2d 427 (Tex. 1983), and Cowman v. Allen Monuments, Inc.,
500 S.W.2d 223 (Tex. Civ. App.—Texarkana 1973, no writ)). However, it found
that principle inapplicable to the case before it because the contract contained a
“provision [that] expressly addresses Limestone’s right to specific performance.”
Id. at 796. In order for Limestone to pursue specific performance, the contract
required that Limestone, “not be in default.” Id. The court stressed that the parties
only used the word “default” and did not attach “words of qualification or measure
to it, such as substantial or material.” Id. at 797.
Having examined the language of the contract, the Amarillo court concluded
that Limestone could not obtain specific performance regardless of the materiality
of its breach. It relied on two well-established principles of Texas contract law:
(1) “parties to an agreement may contractually specify the remedies available . . .
and, thereby, modify the legal and equitable remedies generally applicable,” id.
22
(citing GT & MC, Inc. v. Tex. City Ref., Inc., 822 S.W.2d 252, 256 (Tex. App.—
Houston [1st Dist.] 1991, writ denied)); and (2) language in a contract must
ordinarily be afforded its plain, everyday meaning, id. (citing Tex. City Ref., 822
S.W.2d at 256).
As a matter of contractual terms, just as Limestone’s default unequivocally
barred it from seeking specific performance, Capcor’s failure to deliver good funds
acceptable to the escrow agent by the last day the contract fixed for closing
unequivocally permitted Moody Kirby to terminate the contract and obtain the
earnest money. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) (“If the
written instrument is so worded that it can be given a certain or definite legal
meaning or interpretation, then it is not ambiguous and the court will construe the
contract as a matter of law.”); Weaver v. Jamar, 383 S.W.3d 805, 812 (Tex.
App.—Houston [14th Dist.] 2012, no pet.) (“Parties to a contract are free to limit
or modify the remedies available for breach of their agreement.”); Limestone Grp.,
107 S.W.3d at 797 (“[B]ecause the plain meaning of the word [“default”] connotes
a mere failure, omission, or breach . . . . we eschew attempt to affix words of
qualification or measure to it, such as substantial or material.” (footnote omitted)).
Capcor’s argument assumes the following scenario: If the jury had received
the rejected instruction, it could have found that Capcor’s failure to deliver the full
purchase price by wire on the day of closing was not a material breach. The jury
23
then could have found that Moody Kirby, by giving notice the next day that it was
terminating the contract, was the first party to materially breach. If that were the
case, Capcor contends that its failure to authorize disbursement of the earnest
money would be excused by prior material breach.
The contract, however, affirmatively bestowed upon Moody Kirby the right
to terminate if Capcor defaulted by failing to timely deliver good funds acceptable
to the escrow agent. Whether or not Capcor’s breach would otherwise be
considered material is irrelevant to the outcome of the case. Cf. Limestone Grp.,
107 S.W.3d at 796–97 (whether plaintiff’s breach of real estate sales contract was
material was irrelevant to whether plaintiff could obtain specific performance
when terms of contract disqualified a breaching party from obtaining that remedy).
It is enough for us to say that if Capcor failed to close, then Moody Kirby had the
right to terminate. The trial court did not err in refusing the proposed instruction;
Capcor’s issue is overruled.
Conclusion
We affirm the judgment of the trial court.
Michael Massengale
Justice
Panel consists of Chief Justice Radack and Justices Massengale and Huddle.
24