Janos Farkas v. Second Congress, Ltd. ( 2014 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-11-00807-CV
Janos Farkas, Appellant
v.
Second Congress, Ltd., Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
NO. D-1-GN-10-003632, HONORABLE JON N. WISSER, JUDGE PRESIDING
NO. 03-13-00379-CV
Janos Farkas, Appellant
v.
Second Congress, Ltd., Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
NO. D-1-GN-10-003632, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING
NO. 03-13-00388-CV
Janos Farkas, Appellant
v.
Second Congress, Ltd., Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
NO. D-1-GN-10-003632, HONORABLE J. DAVID PHILLIPS, JUDGE PRESIDING
MEMORANDUM OPINION
These three appeals stem from the same underlying cause of action concerning
Janos Farkas’s decision not to fulfill an agreement to buy a condominium from Second Congress,
Ltd. The trial court granted Second Congress’s motion for summary judgment and awarded $86,000
in damages on its breach-of-contract claim against Farkas. It later appointed a receiver for Farkas’s
assets to help satisfy the judgment, then imposed $1,000 as sanctions for the attorney’s fees Second
Congress incurred in seeking to compel Farkas to comply with post-judgment discovery. Farkas
challenges all of these rulings. We affirm the judgment and the sanctions award and dismiss as moot
the appeal of the order appointing a receiver because the challenged order has been superseded by
a subsequent amended order.
03-11-00807-CV: The summary judgment
Farkas signed an Agreement of Sale and Purchase for a condo from Second Congress
and provided an $86,000 check written on an account of his business to satisfy the earnest-money
requirement. Second Congress agreed in a written addendum to the Agreement to hold the check
for fourteen days to permit Farkas to replace the check with a letter of credit. The substitution never
occurred, but Second Congress did not deposit the check and deliver the proceeds to the
title company as agreed in the addendum. Farkas decided not to buy the condo—reportedly due to
some financial losses—and stopped payment on the check. The Agreement provided that the seller
could retain the earnest money as liquidated damages and its sole remedy for the buyer’s failure to
purchase. Second Congress sued and obtained a summary judgment in the amount of the earnest
money, plus interest and attorney’s fees.
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On appeal, Farkas contends that the trial court erred by granting Second Congress’s
motion for summary judgment because (1) Second Congress did not establish the existence of a
valid contract, (2) the earnest money provision was a condition precedent to the formation of the
contract that was not fulfilled, (3) Farkas was within his rights to rescind the contract and withdraw
his earnest money because the amount required was indeterminate under the contract, and (4) the
property was later sold to a third party for more than Farkas’s contract price, meaning that Second
Congress was not damaged by Farkas’s decision not to buy the condo.
We review the summary-judgment motion and response de novo to determine if the
competent summary-judgment evidence included with those pleadings shows that there is no genuine
issue as to any material fact and that the movant is entitled to summary judgment as a matter of law.
See Tex. R. Civ. P. 166a(c); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).
We take as true all evidence favorable to the non-movant, and we indulge every reasonable inference
and resolve any doubts in the non-movant’s favor. See Valence, 164 S.W.3d at 661. Under the
“traditional” summary-judgment standard, the movant has the initial burden of demonstrating the
absence of a genuine issue of material fact and entitlement to judgment as a matter of law. See M.D.
Anderson Hosp. & Tumor Inst. v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000).
Did the parties form a contract?
To prove that a contract exists, a party must show the following elements: (1) an
offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the
minds; (4) each party’s consent to the terms; (5) consideration; and, if the contract is in writing;
(6) execution and delivery of the contract with the intent that it be mutual and binding. Advantage
Physical Therapy, Inc. v. Cruse, 165 S.W.3d 21, 24 (Tex. App.—Houston [14th Dist.] 2005,
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no pet.). “Evidence of mutual assent in written contracts generally consists of signatures of the
parties and delivery with the intent to bind.” Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 635
(Tex. 2007). The primary concern of a court in construing a written contract is to ascertain the
true intent of the parties as expressed in the instrument. National Union Fire Ins. Co. v. CBI Indus.,
907 S.W.2d 517, 520 (Tex. 1995). Second Congress sued Farkas for breaching the earnest-money
provision of the contract by stopping payment on the check, failing to pay the check, and ultimately
failing to comply with the earnest-money provision.
Farkas contends that the trial court should not have enforced the Agreement because
neither he nor the title company ever “received” the contract—i.e., it was not “delivered.” He
contends that absence of delivery prevented the Agreement from binding him and stopped it from
becoming “effective” by its own terms. He also contends that he withdrew his offer before the title
company received the contract.
Delivery, along with execution, is relevant to show that the party delivering
the agreement intends to be bound by its promises. Farkas relies on Sonnichsen, in which Baylor
University agents prepared and signed an employment contract but did not deliver it to the
prospective employee and, therefore, Baylor was not bound by its terms. See 221 S.W.3d at 635.
Here, the packet of documents with the Agreement including a limited warranty for the condo appear
to have been prepared by Second Congress and presented/delivered to Farkas for his signature. Both
parties have signed the Agreement—Farkas on July 2, 2010, and Second Congress on July 7,
2010—indicating that Farkas delivered the Agreement to Second Congress after signing it. Unlike
in Sonnichsen, the party seeking to enforce the contract in this case received a signed copy from
the other party. See id. We also note that, in his deposition, Farkas stated that, when he signed the
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Agreement, he intended to proceed and that his subsequent attempt to terminate the Agreement
stemmed from his own unexpected financial setbacks. The record supports the trial court’s
conclusion that the Agreement was executed and delivered with the intention that it be binding.
Farkas contends that he nevertheless is not bound by the Agreement because the title
company never received it and, thus, the “effective date” was not triggered. The “effective date” is
a term of the Agreement, not a common-law element of a contract, see Cruse, 165 S.W.3d at 24
(listing elements but not including effective date). Section 9.03 states that the “Effective Date of
this Agreement refers to the date on which this Agreement has been receipted by the Title
Company . . . .” But the Agreement does not state that delivery to the title company is a prerequisite
to the formation of a contract. In section 2.03, the effective date triggers a 30-day period in which
the buyer may terminate the agreement by giving the seller written notice of termination based on
his inability to obtain financing for the purchase. In section 4.01 of the Agreement, the effective date
triggers a 30-day period in which the buyer must make customization selections for the condo unit.
The buyer expressly acknowledges that the unit may not be complete on the effective date. The
Agreement does not use the term “effective date” with regard to any other terms. The fact that the
title company did not receive the Agreement may have tolled some obligations defined under the
Agreement, but it did not bar the formation of a binding contract between the parties.
Earnest money provision was not a condition precedent:
Farkas contends that providing earnest money for the Agreement was a condition
precedent to formation of a contract and that his failure to provide it prevented the formation of
a contract. Second Congress argues that the earnest-money provision is a covenant of the contract.
A condition precedent is an event that must happen or be performed before a right can accrue to
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enforce an obligation. Solar Applications Eng’g, Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 108
(Tex. 2010). If an express condition precedent is not satisfied, then the party whose performance
is conditioned is excused from any obligation to perform. Id. By contrast, a covenant is an
agreement to act or refrain from acting in a certain way. Id. Breach of a covenant may give rise to
a cause of action for damages, but does not affect the enforceability of the remaining provisions
of the contract unless the breach is a material or total breach. Id. Courts should avoid finding a
forfeiture through noncompliance with a condition precedent if another reasonable reading of the
contract is possible. Schwarz-Jordan, Inc. v. Delisle Constr. Co., 569 S.W.2d 878, 881 (Tex. 1978).
We examine the language of the contract as a whole looking for language that makes performance
conditional, such as “if,” “provided that,” “on condition that,” or similar terms. The absence of such
words is not necessarily dispositive, but it is probative of the parties’ intention that a promise is made
rather than a condition imposed. Solar, 327 S.W.3d at 109.
The earnest-money provisions of the Agreement here are a covenant, not a
condition precedent. Section 2.02 of the contract states as follows: “Earnest Money: In order to
secure Buyer’s performance under this Agreement, Buyer shall deposit upon execution hereof cash
. . . .” That states the purpose for the deposit, but not a precondition to the Agreement. There is an
addendum to the Agreement concerning Farkas’s delivery of a check to Second Congress and
Farkas’s intention to seek another form of security, as well as provisions for the possibility that
another buyer will appear and make an offer that Second Congress can take after giving Farkas the
chance essentially to match the offer. The addendum does not make Farkas’s provision of earnest
money a condition precedent to the formation of a contract. There are provisions in section 8.02 of
the Agreement for Second Congress to provide notice of and an extension of a time in which to cure
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a breach of the Agreement, but “no such notice and extension is required in the event of Buyer’s
default under Section 2.02 of this Agreement.” Section 8.02 states that Farkas’s default entitles
Second Congress to
terminate this Agreement and retain the Earnest Money as liquidated damages, it
being acknowledged and agreed that Seller would not have entered into this
Agreement except in reliance on Buyer’s performing its obligations hereunder . . .
[and] that the Earnest Money represents a reasonable estimate, at the time of the
execution of this Agreement, of the damages Seller is anticipated to incur in the event
of Buyer’s default.
Under the terms of the contract, the provision of earnest money is not a precondition for
enforceability, but is instead a financial commitment that provides an incentive for compliance. Its
forfeiture is a liquidated damages measure for the breach of the Agreement.
Was Farkas entitled to rescind because the earnest money was not a particular amount?
Farkas contends that the earnest money requirement was unenforceable because it was
not a set amount, pointing to the provision in the addendum permitting Second Congress to require
additional earnest money from Farkas to secure his right to purchase in the event that another
buyer offered to pay a higher price. He cites Antwine v. Reed, in which a buyer made an offer that
did not include earnest money, the seller’s counteroffer required earnest money but failed to state
an amount, the seller rescinded the offer before the buyer deposited any earnest money, and the court
rejected the buyer’s request for specific performance of the proposed-but-not-timely-consummated
counteroffer. 199 S.W.2d 482, 484-86 (Tex. 1947). In that case, the contract could not be enforced
because the parties never agreed simultaneously on the terms of the contract, including the amount
of earnest money. Here, however, the parties agreed to the sales price and the amount of money to
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be paid as earnest money that would serve as liquidated damages, both parties signed the Agreement,
and Farkas delivered a check as permitted to satisfy the earnest-money requirement. No rescission
or breach occurred until later. The parties agreed to an amount of earnest money to secure the
contract and a means of doing so—the $86,000 check that the Agreement’s addendum recites that
Farkas had already delivered. The letter of credit with which Farkas was to replace the check was
to be for the same amount. The only amount that was not set was a possible increase that was
contingent on a hypothetical competing offer, and there is no evidence that this provision was
invoked or that a competing offer arrived while Farkas still intended to fulfill the Agreement. The
only evidence is that Farkas tried to get a letter of credit but did not, and that he then terminated the
Agreement because of his own financial setbacks—not due to any action by Second Congress or any
uncertainty or mistake concerning the amount of earnest money required.
Does the subsequent advantageous sale relieve Farkas of his obligation for damages?
Farkas contends that Second Congress is not entitled to recover damages from him
because it sold a condo to someone else for more than he agreed to pay. In his brief, as at trial,
Farkas focuses on the sale of a condo that he had previously agreed to buy but decided against, not
the condo that is the subject of the Agreement that Second Congress seeks to recover damages
concerning in this case. The Agreement at issue here does not refer to the other condo, nor does the
liquidated damages provision concerning the earnest money mention offsets from a subsequent sale
of the condo at issue in this or any other contract.
A party challenging a liquidated damages provision bears the burden of proving that
it is unenforceable, either because the harm caused by the breach is not difficult or impossible to
estimate or because the amount of damages set is not a reasonable forecast of just compensation.
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Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991); GPA Holding, Inc. v. Baylor Health Care
Sys., 344 S.W.3d 467, 475 (Tex. App.—Dallas 2011, pet. denied). We find no such argument or
proof in Farkas’s pleadings at trial or here on appeal. Instead, the Agreement recites “that Seller’s
damages in the event of a default by Buyer are difficult to estimate, but that the Earnest Money
represents a reasonable estimate, at the time of the execution of this Agreement, of the damages
Seller is anticipated to incur in the event of Buyer’s default.” The earnest money is intended to
compensate for Farkas’s refusal to purchase the unit listed in the Agreement, not for his previous
failure to purchase a different condo. The trial court did not err by rejecting Farkas’s arguments on
the propriety of the liquidated damages provision as the measure of Second Congress’s damages.
Because Farkas’s arguments against the judgment fail, we affirm the judgment
challenged in appellate cause number 03-11-00807-CV.
03-13-00379-CV: The receiver appointment
Farkas challenges the order appointing a receiver to take possession of and sell
his assets to satisfy the judgment. He challenges the sufficiency of the supporting evidence, the
specificity of the application, the breadth of the order, the reasonableness of the receiver’s fee, and
the propriety of the procedures outlined in the order. The trial court signed the order he challenges
on April 3, 2013.
Second Congress moves to dismiss this appeal as moot because the trial court
signed amended orders appointing a receiver on December 6, 2013, and December 9, 2013. An
amended final order typically supersedes a prior final order when the new order amounts to
something more than a minor clerical change. Bahar v. Lyon Fin. Servs., Inc., 330 S.W.3d 379,
386 (Tex. App.—Austin 2010, pet. denied) (citing Old Republic Ins. Co. v. Scott, 846 S.W.2d 832,
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833 n.2 (Tex. 1993)). When the trial court signs an amended order, the original order becomes a
nullity and cannot support an appeal. Id. The changes—at least between the April 3 order and the
December 6 order—appear to be more than clerical. The order that Farkas challenges in this appeal
has been superseded and cannot support an appeal.
We dismiss appellate cause number 03-13-00379-CV without regard to the merits of
the issues raised here or the validity of the subsequent orders.1
03-13-00388-CV: Sanctions
Farkas challenges an order that he pay $1,000 in sanctions for the attorney’s fees
Second Congress incurred in seeking to compel him to provide post-judgment discovery. The
trial court overruled all of Farkas’s objections to Second Congress’s requests for production and
interrogatories in aid of judgment and ordered Farkas to comply with those requests. The following
events at trial are relevant to this appeal:2
December 20, 2011 Second Congress serves post-judgment discovery requests.
1
Farkas contends in his reply brief that there are problems with the new orders appointing
receivers, some of which are new and some of which persist through provisions carried over from the
original order appointing a receiver. He asserts in his reply brief that, unless the trial court corrects
the problems, he will challenge the amended order by appeal. We note that this case is distinct from
Bahar in that Farkas did timely appeal the original order appointing a receiver. See Bahar v. Lyon
Fin. Servs., Inc., 330 S.W.3d 379, 386 (Tex. App.—Austin 2010, pet. denied). Accordingly, if he
timely and properly appeals from the proper amended order, he will be able to address problems
timely and properly appealed in the original order.
2
Farkas discusses many other motions, responses, and orders following the May 6 order, but
none of those documents is part of the clerk’s record in this case, nor did they form part of the
trial court’s decision on May 6, 2013 from which Farkas appeals. Farkas also refers to and the
clerk’s record includes documents related to motions filed by the receiver. However, the receiver
did not request the discovery or the sanctions that are part of the May 6 order. We will disregard
these documents as irrelevant to the order appealed.
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January 20, 2012 Farkas files responses acting pro se.
April 26, 2013 Second Congress files motion to compel and for sanctions
regarding the December 20 post-judgment discovery.
Farkas files affidavit of negative net worth and $1 for
supersedeas bond.
April 29, 2013 Second Congress files a motion to strike and a contest to
Farkas’s affidavit of net worth.
May 6, 2013 Court overrules objections, compels discovery, and awards
sanctions.
On appeal, Farkas challenges only the imposition of sanctions, not the aspects of the
order compelling discovery. He contends that the discovery that Second Congress requested in
December 2011 exceeded the scope of that permitted after the filing of a supersedeas bond, which
he filed in April 2013, and that the trial court should not have awarded sanctions for the
attorney’s fees incurred in seeking to compel the impermissible discovery in April/May 2013.
Farkas acknowledges that the post-judgment discovery requests were pending for several months
before he filed the supersedeas bond, but asserts that the trial court should not have
imposed sanctions relating to the motion to compel that was filed and argued after he filed the
supersedeas bond.
We review the trial court’s order assessing sanctions for an abuse of discretion. Cire
v. Cummings, 134 S.W.3d 835, 838 (Tex. 2004). Imposition of sanctions is appropriate (1) if there
is a direct relationship between the improper conduct and the sanctions imposed—i.e., the sanctions
must be directed against the abuse and abuser and be tailored to remedy any prejudice the abuse
caused—and (2) if the sanctions are not excessive—i.e., the punishment should fit the crime.
TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991).
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As a judgment creditor, Second Congress was entitled to use post-judgment discovery
tools to help it enforce the judgment. See Tex. R. Civ. P. 621a. Even after a supersedeas bond is
filed suspending execution on the judgment, a creditor may conduct reasonable discovery concerning
the judgment debtor’s net worth when contemplating a contest to the judgment debtor’s affidavit of
net worth. Tex. R. App. P. 24.2(c)(2). Second Congress’s discovery requests long predated Farkas’s
filing of the supersedeas bond. Its motion to compel discovery was filed on the same day as his
bond and affidavit of net worth, and the motion appears on the trial court’s docket sheet slightly
above his deposit. Second Congress filed a challenge to the affidavit of net worth three days later—a
week before the trial court’s order on the motion to compel discovery and for sanctions that is
appealed here.
Although Farkas does not ask that we alter the discovery rulings on this direct appeal,3
he contends that we must review them because they underlie the sanctions award. The scope of
discovery is within the trial court’s discretion. In re Graco Children’s Prods., Inc., 210 S.W.3d 598,
600 (Tex. 2006) (orig. proceeding). While Second Congress initially sought the discovery to help
execute on the judgment, many of the queries were relevant to Farkas’s affidavit of negative
net worth and the related sufficiency of the $1 supersedeas bond. The trial court found that Farkas’s
responses were inadequate and that his objections were meritless. The trial court also stated in open
court that “[t]he order to produce this discovery is specifically in aid of the hearing on the validity
of his net worth affidavit . . . [The discovery material is] required to be produced so that we can have
a meaningful hearing on the objection to his net worth affidavit.” Examples of queries that Farkas
3
Orders compelling compliance with overly broad discovery requests are properly the
subject of a petition for writ of mandamus. In re Graco Children’s Prods., Inc., 210 S.W.3d 598,
600 (Tex. 2006) (orig. proceeding).
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lists support the court’s decision. For example, the relevance of bank statements and accounts
receivable to net worth is self-evident, and insurance policies and income tax returns could
provide information useful to the inquiry.4 Farkas has not demonstrated that the trial court abused
its discretion in compelling the discovery.
Farkas has likewise not shown an abuse of discretion in the sanctions award.
Second Congress filed the motion to compel the discovery only after waiting fifteen months
after making its initial request. The sanction awarded against Farkas is directly related to Second
Congress’s expenses incurred in filing the motion to compel him to comply with the discovery
that he had resisted for fifteen months. The $1,000 award represents less than four hours of work
at Second Congress’s attorney’s hourly rate of $275. That work included preparing the motion
and preparing for the hearing, the focus of which abruptly changed with Farkas’s filing of the
supersedeas bond. The trial court did not abuse its discretion by finding that the amount awarded
was not excessive and was an appropriate remedy for Farkas’s conduct.
We affirm the sanctions order in appellate cause number 03-13-00388-CV.
4
Farkas argues that Second Congress failed to respond to his interrogatories demanding
that Second Congress explain how its discovery requests relate to a determination of his net worth.
Setting aside the fact that Second Congress objected to those requests as irrelevant and not
reasonably calculated to lead to the discovery of admissible evidence, Farkas sent his requests
on June 5, 2013—a month after the sanctions decision he challenges. Second Congress’s
objections/responses, filed July 7, 2013, played no part in the trial court’s order of May 6, 2013, and
do not show that the trial court erred when it made the decision challenged here based on the
arguments and evidence before it when it made the decision. See Tex. R. App. P. 33.1(a).
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CONCLUSION
We affirm the judgment on the merits in appellate cause number 03-11-00807-CV,
we dismiss as moot the appeal of the order appointing a receiver in appellate cause number 03-13-
00379-CV, and we affirm the sanctions order in appellate cause number 03-13-00388-CV.
Jeff Rose, Justice
Before Chief Justice Jones, Justices Pemberton and Rose
03-11-00807-CV Affirmed
03-13-00379-CV Dismissed as Moot
03-13-00388-CV Affirmed
Filed: April 25, 2014
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