John D. Byram and Airport 71 Land, Ltd. v. Bradley S. Scott and Austin Airport Parking, Ltd. ( 2009 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-07-00741-CV
John D. Byram and Airport 71 Land, Ltd., Appellants
v.
Bradley S. Scott and Austin Airport Parking, Ltd., Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-07-000320, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING
MEMORANDUM OPINION
This appeal arises from a suit to enforce a contract for the sale of real property. After
the seller refused to perform, the purchaser, who was also a lessee in possession of the property,
obtained from the district court the remedies of specific performance and reimbursement for rent he
paid for the use of the property during the period of delay. The sole issue presented in this appeal
is whether the district court abused its discretion in refusing to reduce this monetary award by the
amount of interest the seller would have earned on the purchase money during the same period if the
contract had been performed. Concluding that the district court did not abuse its discretion in so
ruling, we will affirm.
BACKGROUND
Appellant John D. Byram and IH 35 Building, Ltd., owned property located near the
present site of the Austin-Bergstrom International Airport. In 1999, they entered into a long-term
ground lease of the property with appellee Austin Airport Parking, Ltd. (AAP), a limited partnership
owned by appellee Bradley D. Scott, through which AAP was to operate a remote airport parking
facility. They also granted Scott an exclusive right to purchase the property beginning in the
seventh year of the lease. Ownership of the property, as well as the rights and obligations of Byram
and IH 35 Building, Ltd., under the option agreement and lease, were subsequently conveyed to
appellant Airport 71 Land, Ltd. Airport 71 is apparently owned or controlled by Byram.
The option agreement provided that, if and when Scott exercised his right to purchase
the property, Airport 71 would be required to convey the property to Scott for its market value plus
an option fee of $480,000. The parties were required to use their best efforts to agree on a purchase
price. If the parties could not agree on a purchase price after ten days of negotiations, the agreement
prescribed a procedure whereby each party was to appoint a licensed real estate appraiser, which the
agreement termed an “arbitrator.” The two appraisers or “arbitrators” were then to attempt to agree
on the property’s market value. If they could not agree on market value, they were to appoint a
third licensed appraiser/“arbitrator,” who would render a final, binding decision.
In May 2006, Scott gave notice to Airport 71 that he was invoking his right under
the option agreement to purchase the property. After several months of negotiations, the parties
were ultimately unable to agree to a purchase price, so, pursuant to the option agreement, each
appointed a licensed real estate appraiser/“arbitrator.” After the two appraisers/“arbitrators” were
unable to agree on the property’s market value, they appointed a third appraiser/“arbitrator,” who,
on January 3, 2007, rendered a decision that the property’s market value was $7,130,000 and that
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the purchase price, accordingly, should be $7,610,000. Scott forwarded to Airport 71 a contract to
purchase the property for this amount, to close on January 31, 2007. Airport 71 declined to close
the transaction.
On February 5, 2007, Scott and AAP filed suit against Airport 71 and Byram
(“appellants”) alleging breach of the option agreement. They sought the remedy of specific
performance—specifically, a decree requiring Airport 71 to sell the property to Scott for $7,610,000.
They also sought monetary compensation for any monthly rent that Scott or AAP paid Airport 71
under the ground lease after the January 31, 2007, closing date. Appellants counterclaimed for
declaratory judgment that no valid “arbitration” or determination of purchase price under the option
agreement had occurred because the third appraiser/“arbitrator” had not conducted a hearing or
otherwise followed the procedures of the Texas Arbitration Act.
Scott obtained partial summary judgment as to all liability issues. The parties
subsequently tried to the district court the amount of any monetary compensation Scott would be
awarded, as well as the issue of attorney’s fees. Scott testified that between January 31 and the time
of trial—August 23, 2007—he or AAP had paid Airport 71 seven months of rent under the ground
lease at $50,509 per month, for a total of $353,563. Appellants argued that the district court was
required to offset or reduce any monetary award to appellees by the amount of interest appellants
would have earned on the purchase money during the same period had the sale contract been
performed. As proof of this lost interest, appellants presented the testimony of Airport 71’s
corporate representative, Silverstre Garza, Jr. Garza testified that appellants would have rolled the
sale proceeds into another real estate purchase through what was known as a “1031 exchange.”
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According to Garza, a 1031 exchange enables a seller of real property to avoid taxes on the capital
gains from the sale by transferring its basis in the property into another property within six months
of the sale. See 26 U.S.C. § 1031 (West Supp. 2008). Until a suitable replacement property was
found, Garza testified, appellants would have invested the sale proceeds in a “Texas Capital Euro”
investment fund earning an interest rate of 5.30 percent per annum. Assuming this rate of interest
remained stable, Garza claimed that appellants would have earned $33,611 per month in interest on
the sale proceeds. Based on these figures, the offset appellants sought would have reduced Scott’s
per-month compensation from $50,509 to $16,898.
The district court rendered judgment awarding Scott specific performance of the
sale contract, plus $353,563 (the total amount of monthly rentals Scott or AAP had paid between
the January 31, 2007 closing date and time of trial), plus an additional $50,509 (the monthly rental
amount) for each succeeding month until the sale closed.1 The district court also awarded
prejudgment interest, at the applicable judgment interest rate, on each monthly rental award. The
court did not adjust or offset Scott’s monetary awards based on interest appellants would have earned
on the purchase money during the same period. The district court also awarded Scott attorney’s fees
and costs. This appeal ensued.
1
The parties represent that the sale finally closed in January 2008.
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ANALYSIS
In a single issue, appellants contend that the district court abused its discretion in
refusing to adjust or offset Scott’s2 monetary award by the amount of the interest appellants would
have earned on the purchase money during the delay period. At this juncture, appellants do not
complain of the judgment’s decree of specific performance of the sale contract, that the decree
awards monetary compensation in the amount of rentals Scott or AAP paid during the delay period
(apart from the offset issue), or the attorney’s fees award.
We review the district court’s decisions regarding the award of monetary
compensation incident to specific performance for an abuse of discretion. See Murray v. Cadle Co.,
257 S.W.3d 291, 300 (Tex. App.—Dallas 2008, pet. denied). We consider “whether the court acted
without reference to any guiding rules and principles.” Cire v. Cummings, 134 S.W.3d 835, 838-39
(Tex. 2004) (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex. 1985)). We
defer to the district court’s factual determinations if they are supported by evidence. Brainard
v. State, 12 S.W.3d 6, 30 (Tex. 1999). We defer to the fact-finder’s determinations of the credibility
of the witnesses, the weight to be given the testimony, and the resolution of evidentiary conflicts.
City of Keller v. Wilson, 168 S.W.3d 802, 819-22 (Tex. 2005). When, as here, no findings of fact
and conclusions of law are filed, we infer that the district court made all fact findings necessary
to support its judgment. Sixth RMA Partners, L.P. v. Sibley, 111 S.W.3d 46, 52 (Tex. 2003);
see Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989). However, because a “trial court has
2
Although appellants have named both Scott and AAP as appellees, the portion of the
judgment they challenge on appeal awards relief solely to Scott.
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no ‘discretion’ in determining what the law is or applying the law to the facts,” Walker v. Packer,
827 S.W.2d 833, 840 (Tex. 1992), we review its legal determinations de novo. Perry Homes v. Cull,
258 S.W.3d 580, 598 (Tex. 2008); Brainard, 12 S.W.3d at 30. In other words, a trial court “abuses
its discretion” if it misinterprets or misapplies the law. See Perry Homes, 258 S.W.3d at 598;
Walker, 827 S.W.2d at 840.
Appellants urge that the district court’s refusal of an offset or adjustment for interest
on the purchase money during the period of delay conflicts with established principles governing
the specific performance remedy. Upon a breach of contract for sale of real property, the non-
breaching party may elect to sue for either money damages or specific performance. Shelton
v. Poynor, 326 S.W.2d 583, 585 (Tex. Civ. App.—El Paso 1959, writ dism’d). When the non-
breaching party elects to sue for damages, the party has, in theory, opted to treat the contract as
terminated by the breach and to seek compensation for that injury. See Hamon v. Allen, 457 S.W.2d
384, 391-93 (Tex. Civ. App.—Corpus Christi 1970, no writ). When the non-breaching party sues
for specific performance, by contrast, he affirms the contract and asks the court to effectuate the
agreement. Id. at 392.
This relief is not limited solely to ordering a party to sell or purchase the real estate,
but may also include monetary compensation considered necessary to place the parties in
the same position as if the contract had been fully performed. Heritage Housing Corp. v. Ferguson,
674 S.W.2d 363, 366 (Tex. App.—Dallas 1984, writ ref’d n.r.e.). For example, if the conveyance
was delayed beyond the time of performance specified by the contract, monetary
compensation—such as rentals the purchaser could have earned on the property if he had owned it
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during the delay period, or interest the seller could have earned on the purchase money during the
same period—may be awarded to replicate the economic effects of having had the sale contract
performed in accordance with its terms. Id. The rationale of such “compensation for delay is
that the contract is being enforced retrospectively and the equities adjusted accordingly . . . . ‘Equity
looks upon things agreed to be done as actually performed.’” Id. at 365-66 (quoting Johnson
v. Downing & Wooten Constr. Co., 480 S.W.2d 254, 258 (Tex. Civ. App.—Houston [14th Dist.]
1972, no writ)). Consequently, “[i]n an action for specific performance, allowances between
the parties for rents, profits, delay costs, and like items are not ‘damages’ as such for breach of
the contract, but they are a balancing of the equities in the nature of an accounting.” Hage
v. Westgate Square Commercial, 598 S.W.2d 709, 713 (Tex. Civ. App.—Waco 1980, writ ref’d
n.r.e). However, this rule is subject to an important qualification—the party who breaches the
contract cannot “profit from its own breach” by obtaining monetary compensation exceeding that
awarded to the non-breaching party. See Johnson, 480 S.W.2d at 258. In other words, the breaching
party is limited only to an offset against any monetary compensation awarded to the non-breaching
party. See id.
Appellants condemn the district court’s judgment as placing Scott in the same
position he would have been if the sale had been performed on January 31, 2007, without
correspondingly allowing appellants an offset for interest they could have earned on the purchase
money if it had been paid to them on that date. Appellants characterize Scott’s award as the “lost
rentals” he could have earned on the property during the period of delay—i.e., compensation for
the opportunity cost of his not having received fee title as of January 31, 2007. See Johnson,
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480 S.W.2d at 258; Holley v. Hooper, 205 S.W.2d 120, 123-24 (Tex. Civ. App.—Austin 1947,
writ ref’d n.r.e.). In fact, while both parties have used the term “lost rentals” to describe Scott’s
monetary recovery, the economic substance of the award was merely a recoupment of the rentals
Scott or AAP actually paid to Airport 71 for the right to possess and use the property under the
ground lease.3 The economic effect of this award, as appellants observed during oral argument
before this court, was that Scott or AAP received free rent under the ground lease during the delay
period. Such compensation, however, did not fully account for Scott’s losses from not receiving fee
title on January 31, 2007. Had the sale been consummated as the contract contemplated, Scott, for
instance, could have leased the property on his own terms, sold it, or made improvements that would
increase its potential returns and market value. Indeed, Scott testified that he had planned to use the
property as collateral to obtain financing to expand the parking lot after the sale—and even had a
contractor with “his equipment marshaled” and “ready to go” whom he had to “dismiss” when
appellants refused to close. Scott claimed that because he was unable to go forward with the
expansion, he lost “additional capacity” that he would have “enjoyed the revenue from,” as well as
“loyalty of customers and other factors that a business of this type would have benefitted from.” In
addition, Scott testified that he had been negotiating a possible partnership with a “very well-known
national parking company” that hinged on “the condition that the land be available for sale.” When
appellants refused to close, Scott claims, he “was not able to complete that transaction with them
per the terms of that agreement.”
3
As noted, Scott also recovered prejudgment interest on each monthly rental payment, thus
compensating him for his opportunity cost of being deprived of these funds and the corresponding
benefit appellants could have obtained from them.
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Although the theory of awarding monetary compensation incident to specific
performance is to place the parties in an economic position equivalent to their having performed the
contract according to its terms, a trial court has broad discretion in “balancing the equities” to
fashion such a remedy. See Edwards v. Mid-Continent Office Distribs., L.P., 252 S.W.3d 833, 836
(Tex. App.—Dallas 2008, pet. denied) (stating that “a trial court exercises broad discretion in
balancing the equities involved in a case seeking equitable relief”) (citing In re Gamble, 71 S.W.3d
313, 317 (Tex. 2002) (orig. proceeding)); Indian Beach Prop. Owners’ Ass’n v. Linden, 222 S.W.3d
682, 690 (Tex. App.—Houston [14th Dist.] 2007, no pet.) (trial court determines equitable matters
by balancing equities). Here, the district court in effect awarded Scott free rent under the ground
lease during the delay period, but did not fully compensate him for his losses or opportunity cost
attributable to not having fee title during that period. At the same time, the district court declined
to award appellants a recovery representing interest they would have earned on the purchase money
during the delay period. In effect, the district court offset or “netted out” Scott’s uncompensated
losses attributable to delay against any losses appellants might have incurred. We conclude that the
district court did not abuse its broad discretion in balancing the equities in this manner. See Hage,
598 S.W.2d at 713. We need not address Scott’s alternative arguments in support of the judgment.
See Tex. R. App. P. 47.1. We overrule appellants’ issue.
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CONCLUSION
We affirm the judgment of the district court.
__________________________________________
Bob Pemberton, Justice
Before Justices Patterson, Pemberton and Waldrop
Affirmed
Filed: July 1, 2009
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