Joel Gulliver ET UX, Mary Ann Gulliver v. Lee Shafer ET UX, Pamela Shafer ( 2008 )

Reversed and Remanded and Memorandum Opinion filed January 15, 2008

Reversed and Remanded and Memorandum Opinion filed January 15, 2008.

In The

Fourteenth Court of Appeals

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NO. 14-07-00217-CV

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JOEL GULLIVER ET UX., MARYANN GULLIVER, Appellants

V.

LEE SHAFER ET UX., PAMELA SHAFER, Appellees

On Appeal from the County Civil Court No. 1

Fort Bend County, Texas

Trial Court Cause No. 29325

M E M O R A N D U M   O P I N I O N

Appellants, Joel and Maryann Gulliver, filed suit against appellees, Lee and Pamela Shafer, seeking specific performance of a contract to sell unimproved real estate.  Appellees  filed a traditional motion for summary judgment, which the trial court granted.  Appellants, arguing there were genuine issues of material fact, now appeal the trial court=s summary judgment.  Because we find the trial court erred when it granted appellee=s motion for summary judgment, we reverse and remand to the trial court for further proceedings in accordance with this opinion.

Factual and Procedural Background

The parties to this appeal are neighbors in Fort Bend County.  In January 2005, appellees, because they needed the cash flow, offered to sell approximately 80 percent of a plot of undeveloped land that was between and contiguous to the residences of the parties.  The undeveloped land was part of appellees= homestead.  Appellants accepted appellees= offer and the parties executed an earnest money contract (the AContract@) prepared by appellee Lee Shafer, on January 21, 2005.  At the time the Contract was executed appellants paid appellees $5,000 as earnest money for the Contract.

In the Contract, appellees agreed they would deliver a general warranty deed at the closing in exchange for a total price of $53,000.  Appellees also represented that, as of the closing date, there would be no liens on the property that could not be satisfied out of the proceeds of the sale.  The Contract provided that, if they were notified in writing, appellees would furnish a title insurance policy to the appellants.  In addition, the Contract provided that once appellants received the commitment for title insurance, they had ten days to lodge objections with appellees.  The Contract set the closing of the sale for September 30, 2005 or within seven days after objections to matters disclosed in the title insurance commitment had been cured, whichever date was later.  Finally, there is no time is of the essence language in the Contract.

As September 30, 2005 approached, there were still two liens on the property totaling approximately $115,000.  Mr. Shafer admitted that, because appellees were unable to obtain releases of the liens by September 30, no closing was scheduled and none took place.  However, even though September 30, 2005 came and went, appellees continued their efforts to obtain releases of the liens. During his deposition, Mr. Shafer testified that appellees  finally succeeded in obtaining releases of both liens in December, 2005.  Mr. Shafer further testified that he provided filed copies of the lien releases to appellants in January 2006.  In her affidavit filed in response to appellees= motion for summary judgment, appellant Maryann Gulliver testified that, because they had still not been provided with copies of the lien releases that had been filed in the Fort Bend County property records, on March 3, 2006 appellants sent appellees written notice requiring a title insurance policy issued by Stewart Title.   Ms. Gulliver further testified they did not receive a draft copy of the title commitment until April 1 or 2, 2006 and did not receive the final title commitment until April 10, 2006.

Once September 30, 2005 passed with no closing, several closings were set in March 2006, but, for reasons not disclosed in the appellate record, none took place.  Another closing was set for April 6, 2006 but it was postponed until April 10, 2006 because appellees informed Stewart Title they would not pay their pro rata share of the 2006 taxes on the property as required by the Contract.  When asked about closing on April 10, 2006, appellees told Stewart Title they would not appear because they were not Asatisfied with the conversations [Mr. Shafer] had had with the Gullivers.@  Despite this, Stewart Title set the closing for April 10, 2006.  On that date, appellants appeared at Stewart Title for closing and tendered the $48,000 balance owed on the property and executed all documents they were required to sign for the sale to be completed.  The Shafers did not appear for the closing.  On April 11, 2006 appellees mailed a letter purportedly rescinding the Contract.^[1] During his deposition, Mr. Shafer testified appellees did not go through with the sale of the property because they had simply changed their minds and no longer wished to sell.

Once appellees failed to appear at the closing, appellants filed suit seeking specific performance of the Contract.  Eventually, appellees filed a motion for summary judgment.  In their motion, appellees argued they were entitled to a final summary judgment because they (1) disproved, as a matter of law, a required element of appellants= breach of contract cause of action; and (2) conclusively proved their affirmative defenses of statute of frauds, estoppel, failure of consideration, failure to plead that all conditions precedent had been met, and rescission.  The trial court granted appellees a final summary judgment based on all grounds asserted by appellees in their motion.  This appeal followed.

Discussion

In six issues on appeal, appellants challenge the trial court=s final summary judgment.  In these issues, appellants separately address each ground asserted by appellees as a basis for their motion for summary judgment.  Appellants contend there were genuine issues of material fact regarding each ground asserted in appellees= motion for summary judgment thus precluding the granting of appellees= motion.

A.      The Standard of Review

The movant for summary judgment has the burden to show there is no genuine issue of material fact and it is entitled to judgment as a matter of law.  Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985).  In determining whether there is a genuine fact issue precluding summary judgment, evidence favorable to the non-movant is taken as true and the reviewing court makes all reasonable inferences and resolves all doubts in the non-movant=s favor.  Id. at 548B49.  We review a trial court=s summary judgment de novo.  Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).  A defendant who conclusively negates at least one of the essential elements of a plaintiff=s cause of action is entitled to a summary judgment on that claim.  IHS Cedars Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 798 (Tex. 2004).  A defendant is entitled to a summary judgment on an affirmative defense if the defendant conclusively proves all the elements of the affirmative defense.  Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999).  To accomplish this, the defendant must present summary judgment evidence that establishes each element of the affirmative defense as a matter of law.  Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 121 (Tex. 1996).  Once the defendant establishes its right to summary judgment, only then does the burden shift to the plaintiff to come forward with competent controverting evidence raising a genuine issue of material fact.  Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995).

B.      Appellants Raised a Fact Issue On Waiver

To recover under a breach of contract cause of action, a plaintiff must show: (1) the existence of a valid contract, (2) performance or tendered performance by the plaintiff, (3) breach of the contract by the defendant, and (4) damages sustained as a result of the breach.  Renteria v. Trevino, 79 S.W.3d 240, 242 (Tex. App.CHouston [14th Dist.] 2002, no pet.).  As one basis for their summary judgment, appellees argue that because it was undisputed that no closing occurred on September 30, 2005, they conclusively negated the second element of appellants= breach of contract cause of action thus entitling them to summary judgment.  Appellees also asserted that because September 30, 2005 was an absolute deadline for the deal to be closed, and since the parties did not enter into either a new written agreement for the sale of the property, or a written agreement extending that closing date, the Statute of Frauds barred appellants= suit.  See Tex. Bus. & Com. Code Ann. ' 26.01 (Vernon 2002).  In addition, making the same argument, appellees asserted that appellants= suit for specific performance was barred by estoppel.  Finally, appellees argued that appellants had to offer additional consideration to extend the closing date beyond September 30, 2005.  In their first, second, fourth, and fifth issues on appeal, appellants assert their summary judgment evidence raised genuine issues of fact on whether appellees waived compliance with the September 30, 2005 closing date, thus excusing them from performing or tendering performance on that date.

In a time is of the essence contract, a party must perform or tender performance in strict compliance with the provisions of the contract and within the time prescribed in order to be entitled to specific performance.  Roundville Partners, L.L.C. v. Jones, 118 S.W.3d 73, 79 (Tex. App.CAustin 2003, pet. denied).  Ordinarily, time is not of the essence in the performance of a real estate earnest money sales contract absent a clear intent to the contrary.  Glass v. Anderson, 596 S.W.2d 507, 511 (Tex. 1980).  This is true even if the contract specifies a date for performance or sets a date for the closing.  Atkin v. Cobb, 663 S.W.2d 48, 52 (Tex. App.CSan Antonio 1983, writ dism.).  A time of the essence provision in a contract can be waived.  17090 Parkway, Ltd. v. McDavid, 80 S.W.3d 252, 255 (Tex. App.CDallas 2002, pet. denied).  Waiver can be shown by a course of dealing between the parties.  Id. Waiver is a question of fact.  Smith v. Hues, 540 S.W.2d 485, 489 (Tex. App.CHouston [14th Dist.] 1976, writ ref=d n.r.e.).

Assuming without deciding that the Contract was a time of the essence contract and September 30, 2005 was an absolute deadline for the parties to complete the transaction, the summary judgment evidence raises a fact issue regarding whether appellees waived compliance with the September 30, 2005 deadline.  The summary judgment evidence, when viewed under the appropriate standard of review, demonstrates that appellees did not set the closing on September 30, 2005 because they could not convey clear title to the property as required by the Contract.  The evidence also establishes that appellees continued their efforts to clear the liens on the property after September 30, 2005 and maintained communication with appellants during that process.  The evidence also shows that appellees finally succeeded in clearing the liens on the property in December, 2005 and that closings were set in March 2006.  The evidence also includes Mr. Shafer=s deposition testimony.  In his deposition, Mr. Shafer testified not that he refused to close in March 2006 because the Contract had expired on September 30, 2005, only that he did not know the reason why those closings did not occur.

This evidence raises genuine issues of material fact regarding whether appellees waived compliance with the September 30, 2005 deadline, thus there are fact issues regarding whether appellants were (1) excused from having to tender performance on that date, (2) barred by the Statute of Frauds from filing suit for specific performance, (3) estopped from filing suit for specific performance; and (4) required to supply additional consideration to extend the closing date beyond September 30, 2005.  Because there are genuine issues of material fact, the trial court erred when it granted appellees= motion for summary judgment based on these arguments.  Accordingly, we sustain appellants= first, second, fourth, and fifth issues on appeal.

C.      Appellants Pled All Conditions Precedent Had Occurred or Been Met

In their motion for summary judgment, appellees urged the trial court to grant their motion because appellants failed to plead that all conditions precedent had been met before appellants filed suit seeking specific performance.  In their third issue on appeal, appellants contend the trial court erred when it granted appellees= motion on this basis.  A simple review of the appellate record reveals that appellees= assertion is without merit.  In their First Amended Petition, appellants state: APlaintiffs have met all conditions precedent.@  Accordingly, the trial court erred when it granted appellees= motion based on this contention.^[2] We sustain appellants= third issue on appeal.

D.      Rescission Does Not Apply to the Facts of This Appeal

The final affirmative defense asserted by appellees in support of their motion for summary judgment was rescission.  Here, appellees argued they rescinded the deal when, allegedly on April 7, 2006,  Mr. Shafer drafted a letter purportedly terminating the Contract but did not mail it to appellants until April 11, 2007.  In response, appellants contend there is a fact issue regarding appellees= alleged attempt to rescind the Contract.

Rescission of a contract is available as an alternative to damages in cases in which one contracting party is induced into contract by the fraud of the other contracting party.  Bank One, Tex., N.A. v. Stewart, 967 S.W.2d 419, 455 (Tex. App.CHouston [14th Dist.] 1998, pet. denied). There may also be a rescission of a contract if the parties arrive at a mutual understanding that the contract is abrogated and terminated.  Marsh v. Orville Carr Assocs., Inc., 433 S.W.2d 928, 931 (Tex. Civ. App.CSan Antonio 1968, writ ref=d n.r.e.).  A rescission of a contract by mutual understanding does not require a formal agreement, but it does require an act or conduct by the contracting parties that clearly indicates their mutual understanding that the contract has been terminated.  Id.  Because there were no allegations, or summary judgment evidence, of fraud by appellants in the formation of the Contract, or a mutual understanding between the parties that the Contract had been terminated, rescission is not available as an affirmative defense to appellants= suit for specific performance.  Because the trial court erred when it granted appellees= motion for summary judgment based on the affirmative defense of rescission, we sustain appellants= sixth issue on appeal.

Conclusion

Having sustained each of appellees= issues on appeal, we reverse the judgment of the trial court and remand this case to the trial court for further proceedings consistent with this opinion.

/s/      John S. Anderson

Justice

Judgment rendered and Memorandum Opinion filed January 15, 2008.

Panel consists of Chief Justice Hedges, Justice Anderson, and Senior Chief Justice Murphy.^*

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^[1]  Appellees= April 11, 2006 letter provides in part:

All objections to the closing of the land transaction were met on or about January 4, 2006.  Pursuant to paragraph 15, closing was to take place on or before January 19, 2006.

Because you have failed to close as called for by the Earnest Money Contract, we elect to terminate the Earnest Money Contract.  According to the terms of the Earnest Money Contract, we have a right to keep the Earnest Money, but we are electing to return it to you.

^[2]  Even if, contrary to the summary judgment standard of review, we were to construe appellees= summary judgment argument more broadly in their favor to state an assertion that appellants failed to produce summary judgment evidence raising a genuine issue of material fact regarding their performance of any conditions precedent, the result would be the same.  Conditions precedent are acts or events that occur subsequent to the formation of a contract and that must occur before there is a right to immediate performance and before there can be a breach of a contractual duty.  McMahan v. Greenwood, 108 S.W.3d 467, 484 (Tex. App.CHouston [14th Dist.] 2003,  pet. denied).  In order to determine whether a condition precedent exists, the intention of the parties must be ascertained, and that can be done only by looking at the entire contract.  Id.  Normally, in order to create a condition precedent, an agreement must use a term such as Aon condition that,@ Aif,@ Aprovided that,@ or some similar conditional phrase.  Id. Conditions precedent are not favored in the law, and courts tend to construe contract provisions as covenants rather than as conditions.  Id.  An examination of the Contract reveals, at most, a single condition precedent, the payment of the earnest money to appellees.  No other obligation found in the Contract was prefaced with the type of language required to create a condition precedent.  Instead, with the exception of appellants= obligation to pay appellees $5,000 in earnest money, all obligations under the Contract were to be performed by the parties contemporaneously, at the closing.  See Glass v. Anderson, 596 S.W.2d 507, 510 (Tex. 1980) (stating parties obligations under earnest money contracts were to be performed contemporaneously).  The Contract itself conclusively establishes that appellants paid appellees the required earnest money as it contains a signed receipt for that amount.

^*  Senior Chief Justice Paul Murphy sitting by assignment