tukua-investments-llc-and-romelia-mondragon-v-skip-spenst-sandra-spenst ( 2013 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
TUKUA INVESTMENTS, LLC AND §
ROMELIA MONDRAGON, No. 08-11-00014-CV
§
Appellants, Appeal from the
§
v. 96th District Court
§
SKIP SPENST, SANDRA SPENST, AND of Tarrant County, Texas
VIRGINA ZAIGER, INDIVIDUALLY §
AND AS REPRESENTATIVE OF THE (TC#096-235540-09)
ESTATE OF JOHN ZAIGER, §
DECEASED,
Appellees.
OPINION
Appellants, Tukua Investments, LLC and Romelia Mondragon, were sued by Appellees
for statutory fraud and negligent misrepresentation in connection with a proposed sale of
commercial property. The trial court entered judgment in favor of Appellees based upon a
favorable jury verdict on their claims. Appellants challenge the trial court’s final judgment and
urge that this Court reverse the judgment and render a take-nothing judgment in their favor or in
the alternative, that we grant a new trial and remand to a different county for retrial. Appellants
raise nine issues on appeal. For the following reasons, we reverse and render judgment that
Appellees take nothing on their claims for statutory fraud and negligent misrepresentation.
BACKGROUND
Appellant, Romelia Mondragon is the president of Appellant, Tukua Investments, LLC.
On May 21, 2007, Tukua entered into a commercial listing agreement with Century 21 Charlotte
Banks Realty, to sell Tukua’s commercial property located at 3039 Megan Street in Eagle Pass,
Maverick County, Texas. Randall Banks, Tukua’s real estate agent, advertised the property on
the Internet as a commercial property with a triple-net lease with lease payments to begin with
the facility being licensed as a nursing and rehabilitation center.1 The sales price for the
property was listed at $2.75 million.
On August 12, 2007, Dorine Hubbard, working on behalf of Appellees, requested more
information on the Megan Street property as Appellees were looking for a 1031 exchange
property.2 On August 13, 2007, Mr. Banks emailed Ms. Hubbard a copy of the commercial
lease and informed her that Appellants estimated that the facility would be licensed as a nursing
home within thirty days. On August 14, 2007, Appellees made an offer to buy on the condition
that the close date be consecutive with the commencement of lease payments by Signature
Healthcare. At trial, Ms. Hubbard testified that Appellees made an offer of $2.5 million, but the
offer was rejected. She testified that according to Mr. Banks’ explanation the offer was rejected
because the sellers wanted to reap the benefits on the development and sale of the commercial
property while the buyers would reap the benefits of the lease. The parties ultimately agreed on
a sales price of $2.6 million. On August 16, 2007, Ms. Hubbard forwarded a sales contract to
Mr. Banks. The contract was signed and initialed by John Zaiger on behalf of “John Zaiger, et.
al.” Mr. Zaiger visited the Megan Street property on August 28, 2007, where he observed
Signature Healthcare’s furniture and equipment in the building and thought the place looked
1
Tukua and Signature Healthcare Services executed a 10-year commercial lease on or around June 1, 2006, which
stated that upon substantial completion of the building rent would be $25,000, but until then and in no event longer
than one year from the date the contract was executed rent would be $100. Substantial completion of the building
would occur when a certificate of occupancy was issued.
2
Under Section 1031of the U.S. Internal Revenue Code, a seller of real property may avoid capital gains tax by
exchanging the sold property for a property of “like-kind” within 180 days of the sale. See 26 U.S.C. § 1031.
2
outstanding and ready to go at that time.
Because Appellees had recently sold other real estate in California, they needed to
identify a 1031 exchange property by October 1, 2007, and close on the sale by February 13,
2008, in order for the capital tax to be deferred under the 1031 exchange. However, the signing
of the contract by Appellants was delayed, and in response to Ms. Hubbard’s inquiries on behalf
of her clients who wondered if they needed to pursue other properties to designate for the 1031
exchange, Mr. Banks informed her that Appellants had no problems with the terms of the
contract, but did not feel comfortable signing until after September 1 due to accounting and tax
issues, which were being addressed by Appellants’ attorney. When the contract was not
signed by September 1, in response to Ms. Hubbard’s questioning, Mr. Banks informed her that
Appellants had learned that the facility on the property had some issues under the Americans
with Disabilities Act (ADA). Appellees agreed to defer signing, as they believed these to be
solvable issues. Ms. Hubbard testified that Appellees entered into the contract knowing that
Signature Healthcare was not paying on the triple-net lease at the time because of licensing,
construction, and ADA issues. Appellants executed the sales contract on September 12, 2007.
Ms. Hubbard testified that she first learned of a problem with Signature Healthcare and
the lease on October 12, 2007. On that day, Mr. Banks informed her that his clients told him
that Signature Healthcare was not going to fulfill the lease. As the 1031 exchange designation
deadline had already passed, Ms. Hubbard submitted a commercial contract amendment in order
to protect Appellees. The amendment extended Appellees’ right to terminate the contract to
February 10, 2008, and provided time for Appellants to find a replacement tenant. When the
Appellees inadvertently received a copy of a demand letter sent to Signature Healthcare referring
to an August 8, 2007, eviction notice, Appellees became aware that a lease dispute between the
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two entities existed prior to Appellees making an offer to buy the commercial property. At this
time, Appellees withdrew from the contract, knowing they would not be able to designate and
purchase a 1031 exchange property and were required to pay over $240,000 in taxes on the sale
of their California property.
Appellees filed suit against Appellants in Tarrant County, alleging statutory fraud
pursuant to Chapter 27 of the Texas Business Code and the tort of negligent misrepresentation.
See TEX. BUS. & COM. CODE ANN. § 27.01 (West 2009). After trial, a jury found for Appellees
on both causes of action. The trial court entered a final judgment on the jury’s verdict,
awarding over $1.3 million to Appellees. Appellants filed a motion for judgment
notwithstanding the verdict (JNOV), a motion to disregard the jury’s findings, and a motion for
new trial. The trial court denied the motions by written orders. This appeal followed.
DISCUSSION
STANDING
In Issue One, Appellants complain that Appellees, Virginia Zaiger and Skip and Sandra
Spenst (“the Spensts”), lack standing to file suit in this matter. Appellants also argue that the
claims for statutory fraud and negligent misrepresentation do not survive the death of Mr. Zaiger
and as such, suit cannot be brought on behalf of his estate.
On appeal, we review the issue of standing de novo. Tex. Dep’t of Transp. v. City of
Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004). Standing is a constitutional prerequisite to
maintaining suit. Id.; see Tex. Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 444
(Tex. 1993). Standing is never presumed, nor can it be waived. Texas Air Control Bd., 852
S.W.2d at 443-44. To have standing, a plaintiff must be personally aggrieved and the alleged
injury suffered must be concrete and particularized, actual or imminent, not hypothetical.
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DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304-05 (Tex. 2008). The general test for
standing requires that there be a real controversy between the parties that can be determined by
the judicial declaration sought. Texas Air Control Bd., 852 S.W.2d at 446. In determining
whether a plaintiff has standing, we construe the petition in favor of the plaintiff, and if
necessary, review the entire record to determine if any evidence supports standing. Id.
Here, the real estate contract identifies the buyer as “John Zaiger, et. al.,” and is signed
and initialed by Mr. Zaiger using “John Zaiger, et. al.” Appellants argue that Appellees,
Virginia Zaiger and the Spensts, lack standing because they were not identified as buyers in the
contract and were not signatories to the contract. Appellees argue that the evidence at trial
established that Mr. Zaiger signed the contract in a representative capacity and that Appellants
knew Mr. Zaiger was acting on behalf of all the buyers. Thus, in determining whether Virginia
Zaiger and the Spensts have standing, we must first decide whether they were parties to the
contract.
Traditionally, the presence or absence of signatures on a contract is relevant in
determining whether the contract is binding on the parties. In re Big 8 Food Stores, Ltd., 166
S.W.3d 869, 876 (Tex. App. – El Paso 2005, orig. proceeding); In re Bunzl USA, Inc., 155
S.W.3d 202, 209 (Tex. App. – El Paso 2004, orig. proceeding). However, the absence of a
party’s signature does not necessarily destroy an otherwise valid contract. Thomas J. Sibley,
P.C. v. Brentwood Inv. Dev. Co. L.P., 356 S.W.3d 659, 663 (Tex. App. – El Paso 2011, pet.
denied). When a contract is not signed by a party, other evidence may be used to establish the
nonsignatory’s unconditional assent to be bound by the contract. In re Citgo Petroleum Corp.,
248 S.W.3d 769, 774 (Tex. App. – Beaumont 2008, orig. proceeding); see also DeClaire v. G&B
McIntosh Family Ltd. Partnership, 260 S.W.3d 34, 44 (Tex. App. – Houston [1st Dist.] 2008, no
5
pet.) (nonsignatory may accept a contract signed by the other party by his acts, conduct, or
acquiescence to the terms of the contract).
The evidence showed that both Appellants and Mr. Banks, Appellants’ real estate agent,
knew there was more than one buyer involved in the transaction. Moreover, the 1031 exchange
paperwork expressly identifies John and Virginia Zaiger and Skip and Sandra Spenst as
exchangers. The 1031 paperwork identifies the Eagle Pass property as the replacement
property and reflects that a $25,000 earnest money deposit for the replacement property was
made by the exchangers through their exchange account.
The real estate contract in issue identifies Tukua Investments, LLC, as the seller and John
Zaiger, et. al., as the buyer. While there is nothing in the contract expressly identifying
Appellees, Virginia Zaiger and the Spensts, as parties to the contract, Appellees point out that
Mr. Zaiger signed the contract using “et. al.” to indicate that he was signing the contract in a
representative capacity. In the absence of a signature on a contract, we look to other evidence
to establish whether the nonsignatory may be bound by the contract. See In re Citgo Petroleum
Corp., 248 S.W.3d at 774.
At trial, Ms. Hubbard testified that she was working for the Zaigers and the Spensts and
was in communication with both Mr. Zaiger and Skip Spenst concerning the property at issue.3
Romelia Mondragon acknowledged her signature on the contract and identified the contract that
was signed by Mr. Zaiger, the representative of Appellees, Virginia Zaiger and the Spensts.
Ms. Mondragon also testified that she knew Appellees were operating under a Section 1031
deadline. Additionally, Mondragon testified that on September 12, 2007, the day she signed the
contract, Mr. Banks told her the buyers needed the contract.
3
Ms. Hubbard also testified that she spoke more with Skip Spenst than Mr. Zaiger.
6
Appellee Skip Spenst testified that he had previously worked with Mr. Zaiger on 1031
exchanges and that they committed to the exchange involved in the present case.4 Mr. Spenst
stated that they had entered into an agreement to buy property with a 10-year lease on it, and that
he read the 10-year lease.
Appellee Virginia Zaiger testified that Mr. Zaiger, her husband, and Mr. Spenst invested
in properties for retirement and that they handled the business transactions. She testified that in
this case, her husband had told her about the property and indicated to her that he had read the
contract and the lease. Mr. Zaiger was in constant communication with Mr. Spenst about this
particular transaction. She explained to the jury that her only involvement was to sign on the
dotted line. Although Virginia Zaiger and the Spensts did not personally sign the contract and
are not individually identified in the contract, we conclude that the evidence establishes that Mr.
Zaiger signed the contract on behalf of all Appellees and that all Appellees intended to be bound
by the terms of the contract. See In re Citgo, 248 S.W.3d at 774; DeClaire, 260 S.W.3d at 44.
After construing the petition in favor of the plaintiffs and in reviewing the entire record to
determine if any evidence supports standing, we find that Virginia Zaiger and the Spensts have
standing to file suit. See Texas Air Control Bd., 852 S.W.2d at 446. Because we find that the
Appellees have standing, we need not address Appellants’ survival of the claims argument. See
TEX. R. APP. P. 47.1.5 Issue One is overruled.
MOTION TO TRANSFER VENUE
In Issue Nine, Appellants complain that the trial court erred when it denied their motion
4
Mr. Spenst testified that in this case, he notified the exchanger that he had found a replacement property and that
he filled out the 1031 exchange forms identifying the properties.
5
“The court of appeals must hand down a written opinion that is as brief as practicable but that addresses every issue
raised and necessary to final disposition of the appeal.” TEX. R. APP. P. 47.1.
7
to transfer venue from Tarrant County to Maverick County. The trial court specifically and
wholly denied Appellants’ motion to transfer venue on the ground of convenience.
Section 15.002(c) of the Texas Civil Practice and Remedies Code does not permit as a
ground for appeal a trial court’s ruling or decision to grant or deny a motion to transfer venue on
grounds of convenience. TEX. CIV. PRAC. & REM. CODE ANN. § 15.002(c) (West 2002).
When a party moves to transfer venue upon both convenience and another venue ground, and the
trial court’s order denies a motion to transfer venue based solely upon the ground of
convenience, the order is not reviewable on appeal. Garza v. Garcia, 137 S.W.3d 36, 39 (Tex.
2004); Cunningham v. Zurich American Ins. Co., 352 S.W.3d 519, 535 (Tex. App. – Fort Worth
2011, pet. denied). Issue Nine is overruled.
SECTION 27.01 CLAIMS
In Issue Two, Appellants argue that Appellees cannot recover for statutory fraud pursuant
to Section 27.01 of the Texas Business and Commerce Code because there was never an actual
conveyance of real property or, at the very least, because no contract existed between the parties
as Appellees walked away from the transaction. We disagree. Appellants cite to several
cases, which we find to be inapplicable or distinguishable from the instant case, because here the
parties entered into a valid real estate contract. See Stanfield v. O’Boyle, 462 S.W.2d 270, 271
(Tex. 1971) (interpreting predecessor to section 27.01); Burleson State Bank v. Plunkett, 27
S.W.3d 605, 611 (Tex. App. – Waco 2000, pet. denied) (section 27.01 inapplicable to a
construction loan transaction); Nolan v. Bettis, 577 S.W.2d 551, 556 (Tex. Civ. App. – Austin
1979, writ ref’d n.r.e.) (in action to cancel trustee’s deed section 27.01 inapplicable because there
was neither a contract nor the sale of land between the parties); Windsor Village, Ltd. v. Stewart
Title Ins. Co., No. 14-09-00721-CV, 2011 WL 61848, at *5 (Tex. App. – Houston [14th Dist.]
8
Jan. 6, 2011, no pet.) (case involved a contract for title insurance not real property); Hansberger
v. EMC Mortg. Corp., No. 04-08-00438-CV, 2009 WL 2264996, at *4 (Tex. App. – San Antonio
Jul. 29, 2009, pet. denied) (section 27.01 inapplicable because case involved contract for
mortgage loan not a real estate contract); Joseph v. James, No. 03-07-00197-CV, 2009 WL
3682608, at *5-6 (Tex. App. – Austin Nov. 6, 2009, no pet.) (section 27.01 inapplicable
because there was no enforceable contract where potential buyers never signed contract); Evans
v. Wilkins, No. 14-00-00831-CV, 2001 WL 1340356, at *4 (Tex. App. – Houston [14th Dist.]
Nov. 1, 2001, no pet.) (claims involved memorandums of understanding and not independent
contracts created for the conveyance of specific pieces of property).
Section 27.01(a) of the Texas Business and Commerce Code creates a statutory cause of
action for fraud in a real estate transaction. See TEX. BUS. & COM. CODE ANN. § 27.01(a) (West
2009). Fraud in a real estate transaction occurs if: (1) a person makes a false representation of a
past or existing material fact in a real estate transaction to another person for the purpose of
inducing the making of a contract; and (2) the false representation is relied on by the person
entering into the contract. Id. at 27.01(a)(1).
Section 27.01 applies to false misrepresentations or promises made to induce another to
enter into a contract for the sale of real property or stock. Marketic v. U.S. Bank Nat’l Ass’n, 436
F. Supp. 2d 842, 856 (N.D. Tex. 2006). A transaction occurs when there is a sale or a contract to
sell real estate or stock between the parties. See Nolan, 577 S.W.2d at 556; Burleson, 27
S.W.3d at 611; see also In re Skyport Global Commc’n. Inc., No. 10-03150, 2011 WL 111427, at
49 (Bkrtcy. S.D. Tex. Jan. 13, 2011) (“[Section 27.01] only requires that the false promise or
false representation be relied upon by a party in entering a contract. [The statutory provisions]
only look at the time up to and including the execution of the contract for the fulfillment of any
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of their elements. Thus, the point in time when the harm from such a transaction is held to
occur must be the time of the effectuation of the offending contract.”).
Under Section 27.01 fraud in a real estate transaction consists of a false representation
made to induce another to enter into a contract and that is relied on by that person in entering that
contract. TEX. BUS. & COM. CODE ANN. § 27.01(a)(1) (West 2009). The statute does not
specify that an actual conveyance of real estate must occur, and as such, a contract to convey
constitutes a real estate transaction under Section 27.01. See Burleson, 27 S.W.3d at 611; see
also Life Ins. Co. of Va. v. Murray Inv. Co., 646 F.2d 224, 227 n.2 (5th Cir. 1981) (noting that
Section 27.01 “reaches only those transactions involving the actual or potential sale or purchase of
real estate . . . .”). Here, it is undisputed that the actual conveyance of real estate failed to occur.
However, the evidence shows that the parties entered into a valid contract for the sale of real estate,
and as a result, a potential sale or purchase of real estate was created. Because a contract for real
estate was executed between the parties, Appellees’ cause of action for statutory fraud under
Section 27.01 is not barred due to absence of an actual conveyance of real property. See TEX.
BUS. & COM. CODE ANN. § 27.01(a) (West 2009); Burleson, 27 S.W.3d at 611; see also Life Ins.
Co. of Va, 646 F.2d at 227 n.2. Issue Two is overruled.
In Issue Three, Appellants further argue that Appellees cannot recover for statutory fraud
or for the tort of negligent misrepresentation because liability cannot be based on the promises that
support the real estate transaction at issue as such actions lie only in a suit for breach of contract.
In support of their argument, Appellants primarily rely on McPherson Road Baptist Church v.
Mission Investors/Fort Worth, No. 2-08-412-CV, 2009 WL 2579647 (Tex. App. – Fort Worth
Aug. 20, 2009, no pet.), an unpublished opinion. In McPherson, the court held that a Section
27.01 claim could not be brought where there was a failure to carry through with a promise to
10
convey mineral rights underlying a contract to convey property. Id. at *7. The court explained
that in order for section 27.01 to apply in a real estate transaction, the false promise must relate to
something which is collateral, and it must not be the consideration of the very contract, for which a
suit for breach of contract is brought. Id.
Appellants argue that the lease at issue was made part and parcel of the real estate contract,
and as such, any failure to perform would have been for breach of contract, not statutory fraud or
negligent misrepresentation. We find McPherson inapplicable and distinguishable because
unlike the present case, McPherson was a breach of contract case in which the plaintiff asserted
that the defendant breached its contractual promise to convey mineral rights at closing. Id. at *2,
7. Unlike McPherson, Appellees’ complaint is not that Appellants breached the contract by
failing to convey the lease, but rather that Appellees were induced into entering the contract by the
false representations of existing facts made by Appellants regarding the lease, and as a result,
suffered injury. Issue Three is overruled.
SUFFICIENCY OF THE EVIDENCE
In Issues Four through Eight, Appellants challenge the legal and factual sufficiency of the
evidence supporting various jury findings. When reviewing the legal sufficiency of the
evidence, we review the evidence in the light most favorable to the challenged findings and
indulge every reasonable inference that would support it. City of Keller v. Wilson, 168 S.W.3d
802, 823 (Tex. 2005). We credit favorable evidence if reasonable jurors could, and disregard
contrary evidence unless reasonable jurors could not. Id. at 827. The evidence is legally
sufficient if it would enable reasonable and fair-minded people to reach the verdict at issue. Id.
The jury is the sole judge of the witnesses’ credibility and the weight to be given to their
testimony. Id. at 819. On appeal, we assume the jury resolved all conflicts in the evidence
11
and all conflicting inferences reasonably drawn from the evidence in accordance with the verdict.
Id. at 821.
In reviewing a factual sufficiency of the evidence challenge, we consider the entire
record, considering both the evidence in favor of, and contrary to, the challenged finding. Cain
v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). After considering and weighing all the evidence, we
set aside the fact finding only if it is so contrary to the overwhelming weight of the evidence as
to be clearly wrong and unjust. Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986).
We do not substitute our own judgment for that of the trier of fact, even if we would reach a
different answer on the evidence. Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 407 (Tex.
1998).
STATUTORY FRAUD CLAIM
In Issue Four, Appellants assert that there is legally and factually insufficient evidence of
an actionable misrepresentation to support the claim of statutory fraud. To succeed on a
Section 27.01 fraud claim a plaintiff must show that: (1) a representation of a material fact was
made; (2) the representation was false; (3) the representation was made to induce a party to enter
a contract; (4) the party relied upon that representation when making the contract; and (5) the
false representation caused an injury. Larsen v. Carlene Langford & Assocs., Inc., 41 S.W.3d
245, 249 (Tex. App. – Waco 2001, pet. denied). If a plaintiff successfully proves these
elements, actual and exemplary damages can be recovered from the defendant. Hawkins v.
Walker, 233 S.W.3d 380, 391 (Tex. App. – Fort Worth 2007, no pet.).
The misrepresentations alleged in Appellees’ third amended petition for their statutory
fraud claim were (1) that a 10-year commercial lease with Signature Healthcare was valid and in
place for the property, (2) that the lease with Signature Healthcare would be conveyed with the
12
property and would provide certain economic benefits, (3) that Tukua had truthfully represented
the conditions, rights, benefits and validity of the property and lease prior to the contract for
purchase and prior to the 45-day deadline to designate property as a 1031 IRS exchange, (4) that
no issues existed with Signature Healthcare other than small issues regarding compliance with
the ADA, and (5) that the property would have a 10-year commercial tenant at a rental rate of
$300,000 per year.
The first element of statutory fraud requires that the representation made pertain to a
material fact. Larsen, 41 S.W.3d at 249. A material fact is one in which a reasonable person
would attach importance to and would be induced to act on in determining their choice of
actions. American Medical Int'l, Inc. v. Giurintano, 821 S.W.2d 331, 338 (Tex. App. –
Houston [14th Dist.] 1991, no writ). All of the misrepresentations pointed out by Appellees
relate to the lease attached to the Megan Street property. The advertisement for the Megan
Street property emphasized the lease with Signature Healthcare and its scheduled income to
potential buyers. At trial, Mr. Spenst testified that the couples would not have been interested
in purchasing the property without a lease attached to it. Based on the record, the lease was a
material fact and of importance to both parties.
Second, we consider whether the representations made were false. The first
misrepresentation raised by Appellees was that a 10-year commercial lease with Signature
Healthcare was valid and in place for the property. However, after having reviewed the record
in its entirety, we can find no evidence that the lease agreement entered into by Tukua and
Signature Healthcare was invalid or had been terminated during the time period at issue.
Instead the evidence only shows that the lease was in default based on nonpayment of rent.
Default of a lease does not automatically terminate the lease unless parties contract otherwise.
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Solar Soccer Club v. Prince of Peace Lutheran Church of Carrollton, 234 S.W.3d 814, 827 (Tex.
App. – Dallas 2007, pet. denied). Even if the parties contract for automatic termination upon
default, equities could still be shown to justify a continuation if remedy of the default is possible.
W.W. Laubach Trust/The Georgetown Corp. v. The Georgetown Corp./W.W. Laubach Trust, 80
S.W.3d 149, 157 (Tex. App. – Austin 2002, pet. denied); T-Anchor Corp. v. Travarillo Associates,
529 S.W.2d 622, 627 (Tex. Civ. App. – Amarillo 1975, no writ).
The lease agreement in this case did not trigger an automatic termination upon default of
rental payments. The remedies section of the lease allows for termination upon default if the
landlord gives the tenant written notice that they are terminating. The lease agreement also
allows the landlord to terminate the tenant’s right to possess the premises (evict) but, “[u]nless
Landlord delivers written notice to Tenant expressly stating that it has elected to terminate this
Lease, all actions taken by Landlord to dispossess or exclude Tenant from the Premises shall be
deemed to be taken under this Section . . . .” One of Appellees’ arguments about the validity of
the lease was the fact that Tukua had served the tenant with an eviction notice in August of 2007.
Under the terms of the agreement, the eviction notice by itself did not trigger a termination, and the
notice given to Signature Healthcare by Tukua states, “[t]his demand to vacate is a demand for
possession of the property, and not a termination of the lease.” Therefore, the lease agreement at
issue was valid and in place because it had not been terminated when Appellants and Appellees
were negotiating and first entered into a contract for the sale of the property. Solar Soccer
Club, 234 S.W.3d at 827.
The second misrepresentation raised by Appellees was that the lease with Signature
Healthcare would be conveyed with the property and would provide certain economic benefits.
There was no evidence presented at trial or in the record that Appellants were not planning to
14
convey the lease with the property. Mr. Spenst testified that the business deal was for the
property and the lease together. The contract was for the real property at Megan Street, as well
as the sale and conveyance of “[s]eller’s interest in all leases, rents and security deposits for all or
part of the Property.” Appellant Romelia Mondragon testified that the sale was for the property
and the attached lease and that in the contract, the sale was contingent on the commencement of
lease payments.
Next, we address both the economic benefits component raised in this misrepresentation
as well as in the fifth misrepresentation pointed out by Appellees. Under the second
misrepresentation, the economic benefit that would have been a result of the sale was the rent to
be paid during the 10-year lease term. The fifth misrepresentation alleged by Appellees was
that the property would have a 10-year commercial tenant at a rental rate of $300,000 per year.
Based on the terms of the lease agreement, the rental rate was $25,000 per month, or $300,000
per year. The obligations of lessors and lessees are determined by the terms of the lease and are
contractual obligations when entered into. Exxon Corp. v. Pluff, 94 S.W.3d 22, 29 (Tex. App. –
Tyler 2002, pet. denied). Because we have already concluded that the lease agreement at issue
was valid and in place, this was not a false representation based on the valid lease. Here,
Signature Healthcare was contractually obligated to pay the rental rates as outlined in the terms of
the lease. See id.
We also note that an actionable false misrepresentation cannot be the promise of future
rents or income, as they are generally statements of opinion rather than fact. See Starnes v.
Motsinger, 278 S.W. 496, 498 (Tex. Civ. App. – El Paso 1925, no writ) (at the sale of a business,
the factual representation of what the seller had been making per month is considered an opinion
and if the buyer fails to make the same amount, the seller is not liable for fraud). See also,
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Franklin Life Ins. Co. v. Faggard, 296 S.W.2d 335, 338 (Tex. Civ. App. – San Antonio 1956,
writ ref'd n.r.e.). However, there are exceptions if the opinion is known to be false by the
speaker, and the speaker has special knowledge of past or present facts that the other party does
not. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex.
2011); Transport Ins. Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995); O'Brien v. Daboval,
388 S.W.3d 826, 840 (Tex. App. – Houston [1st Dist.] 2012, no pet.). Neither of the exceptions
apply in this case. First, because the lease was valid and in place, we cannot conclude that
Appellants would have known that their representations regarding the rent were false.
Cleveland Reg'l Med. Ctr., L.P. v. Celtic Properties, L.C., 323 S.W.3d 322, 334 (Tex. App. –
Beaumont 2010, pet. denied) (when a lease meets the requirements of a lease document and both
parties entered into it with the intention to be bound by it, the lease and its terms are valid and
enforceable). Even though the rent was not being paid, there is evidence in the record that
Tukua and Signature Healthcare were still working together to remedy the default based on the
continued construction on the building and Signature Healthcare’s movement of property and
equipment into the building through the months of July and August of 2007. Tukua was also
incentivized to remedy the default because their sale of the property to Appellants would not close
until lease payments by Signature Healthcare commenced. Second, the record does not reflect
that Appellants had special knowledge of past or present facts that the other party did not.
Italian Cowboy Partners, Ltd., 341 S.W.3d at 337. In fact, there is evidence in the record that
Appellees knew that Signature Healthcare was not making rental payments.
The third and fourth misrepresentations pointed out by Appellees are that Tukua had
truthfully represented the conditions, rights, benefits and validity of the property and lease prior
to the contract for purchase and prior to the 45-day deadline to designate property as a 1031 IRS
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exchange, and that no issues existed with Signature Healthcare other than small issues regarding
compliance with the ADA. We consider these two misrepresentations as claims of fraud based
on the failure to disclose information. As a general rule, failure to disclose does not constitute
fraud unless there is a legal duty to disclose the information. Bradford v. Vento, 48 S.W.3d 749,
755 (Tex. 2001); Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). A company
does not have a duty to disclose all of its financial difficulties while conducting business if it is
actively working towards remedying the situation. Silence on the issue alone is not enough to
constitute fraud. Moore & Moore Drilling Co. v. White, 345 S.W.2d 550, 555 (Tex. Civ. App. –
Dallas 1961, writ ref’d n.r.e.).
In this case, Tukua did not have a duty to disclose that the lease was in default because it
appears from the record to have been working towards remedying the default by trying to collect
past rent, continuing the construction, and Signature Healthcare moving its furniture and
equipment into the building. Moore, 345 S.W.2d at 555 (silence is not fraud where party is not
legally bound to volunteer information).
Additionally, a seller only has a duty to disclose material facts which would not be
discoverable by the exercise of ordinary care and due diligence by the purchaser, or which a
reasonable investigation and inquiry would not uncover. Smith v. Nat'l Resort Communities, Inc.,
585 S.W.2d 655, 658 (Tex. 1979).
Mr. Banks, the broker for Appellants, made it clear to Ms. Hubbard, Appellees’ broker,
that he could not produce an income statement because the property was currently not producing
an income. However, Mr. Banks did provide Ms. Hubbard with a copy of the lease agreement
between Tukua and Signature Healthcare. Ms. Hubbard and Mr. Spenst testified that they
assumed the nonpayment was because the licensing process was still ongoing, that it did not seem
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unusual to them since the tenant had not completely moved into the building, and that they did not
see a need to inquire further about the matter. Appellees also claimed that the state licensing and
ADA compliance issues were presented to them as being small and solvable, only to later learn
that they were significantly more numerous and problematic. However, Ms. Hubbard and Mr.
Spenst testified that they assumed that the licensing and ADA issues were small and would be
easily fixable and that they did not feel a need to request any further information or details on the
issues.
Additionally, Mr. Zaiger visited the Megan Street property in late August of 2007 and
thought that everything looked great and assumed that any ADA issues would be minor but did not
inquire further or ask for specifics. When a buyer has knowledge of existing issues, but chooses
not to exercise due diligence to inquire more about the details of those issues, they cannot
justifiably rely on an alleged failure to disclose for purposes of claiming fraud or negligent
misrepresentation. Rich v. Olah, 274 S.W.3d 878, 887-88 (Tex. App. – Dallas 2008, no pet.)
(seller of a home not liable for fraud or negligent misrepresentation for the alleged failure to
disclose the need to do further repairs where seller told the buyers that there had been foundation
repairs on the house, they saw sticking doors, cracks on walls and in tiles, but did not investigate
any further damage before closing on the sale). We find in the record that Appellees did not
exercise due diligence by assuming that the nonpayment of rent was for a specific purpose and that
the ADA issues were minor without inquiring further into the situation. Rich, 274 S.W.3d at 888.
Further, it does not appear that Appellees were denied access to speak directly with
Signature Healthcare to inquire about the lease or any other issues Signature Healthcare would
have conducting business at the facility. In fact, Mr. Banks spoke on the phone with Mr. Dawson,
the owner of Signature Healthcare and its signatory on the lease, but there is no evidence about
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what was discussed. There were also multiple delays in the signing of the sales contract and
Appellees decided that they wanted “to ride it out . . . [to] get to contract,” without requesting
further details about any of the issues they had observed up to that point and with full knowledge of
the time limitations in regards to their 1031 designations. After reviewing the record, we
conclude that Tukua did not have a duty to disclose all of the details of its issues with Signature
Healthcare and that Appellees had the opportunity to discover the details of Signature Healthcare’s
nonpayment, and the licensing and ADA compliance issues through the exercise of due diligence.
Robbins v. Capozzi, 100 S.W.3d 18, 25 (Tex. App. – Tyler 2002, no pet.) (the purchaser of a condo
had no false misrepresentation to rely on because she failed to exercise due diligence by assuming
she could park her car in the garage but not attempting to do so and by not looking into the special
parking accommodation given to the previous owner).
Based on the foregoing, we conclude that the alleged misrepresentations raised by
Appellees fail to meet the second element of statutory fraud of being false either directly or
through a failure of required disclosure. See Robbins, 100 S.W.3d at 26. We need not discuss
the remaining three elements of statutory fraud, because the second element is not met. Appellees
have failed to present legally sufficient evidence to sustain their claim of statutory fraud. Id.
When the evidence is deemed legally insufficient, we need not address the factual sufficiency of
the evidence. Glover v. Texas Gen. Indem. Co., 619 S.W.2d 400, 401 (Tex. 1981). We sustain
the part of Appellants’ fourth issue as to the legal sufficiency of the evidence supporting the jury’s
finding of statutory fraud. As such, we must render judgment for the Appellants on this issue.
See AutoZone, Inc. v. Reyes, 272 S.W.3d 588, 595 (Tex. 2008) (when evidence is legally
insufficient to support a legal claim, the judgment on that claim is reversed and rendered for
appellant).
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NEGLIGENT MISREPRESENTATION CLAIM
In Issue Four, Appellants also assert that there is legally and factually insufficient
evidence of an actionable misrepresentation to support a negligent misrepresentation claim.
Although Appellants failed to set out the elements of negligent misrepresentation in their
briefing, it is necessary to review those in order to consider the sufficiency of the evidence claim.
The four elements of negligent misrepresentation are: (1) the representation is made by a
defendant in the course of his business, or in a transaction in which he has a pecuniary interest; (2)
the defendant supplies “false information” for the guidance of others in their business; (3) the
defendant did not exercise reasonable care or competence in obtaining or communicating the
information; and (4) the plaintiff suffers pecuniary loss by justifiably relying on the representation.
Federal Land Bank Ass'n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). In their negligent
misrepresentation claim, Appellees raise the same claims as those raised in their statutory fraud
claim, namely: (1) that a 10-year commercial lease with Signature Healthcare was valid and in
place for the property, (2) that the lease with Signature Healthcare would be conveyed with the
property and would provide certain economic benefits, (3) that Tukua had truthfully represented
the conditions, rights, benefits and validity of the property and lease prior to the contract for
purchase and prior to the 45-day deadline to designate property as a 1031 IRS exchange, (4) that
no issues existed with Signature Healthcare other than small issues regarding compliance with
the ADA, and (5) that the property would have a 10-year commercial tenant at a rental rate of
$300,000 per year. The second element of negligent misrepresentation is that the defendant
supplies “false information” for the guidance of others in their business. Hagans v. Woodruff,
830 S.W.2d 732, 736 (Tex. App. – Houston [14th Dist.] 1992, no writ). The alleged
misrepresentations supporting Appellees’ claim for negligent misrepresentation are the same
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misrepresentations raised in their statutory fraud claim. As we have determined, based on our
analysis set forth in the statutory fraud section above that the representations made were not
false, we must also conclude that the alleged misrepresentations in support of Appellees’ claim
for negligent misrepresentation were not false. Accordingly, Appellees failed to meet the
second element and therefore, their claim of negligent misrepresentation fails. See id.
Because the evidence is legally insufficient to sustain negligent misrepresentation, we need not
address the factual sufficiency of the evidence. See Glover, 619 S.W.2d at 401. Having found
that the evidence was legally insufficient to sustain both the jury findings of statutory fraud and
negligent misrepresentation, we render judgment for the Appellants on the entirety of its
sufficiency of the evidence claim. AutoZone, Inc., 272 S.W.3d at 595. Issue Four is sustained.
In light of our disposition of Appellants’ fourth issue, we need not address Issues Five
and Six, related to Appellees’ justifiable reliance and actual damages for fraud. See TEX. R.
APP. P. 47.1. Nor do we address Issues Seven and Eight concerning Appellees’ punitive
damages and the individual liability of Romelia Mondragon. See id.
CONCLUSION
We reverse the trial court’s judgment and render judgment that Appellees take nothing on
their claims for statutory fraud and negligent misrepresentation against Appellants.
GUADALUPE RIVERA, Justice
August 14, 2013
Before McClure, C.J., Rivera, and Antcliff, JJ.
Antcliff, J., not participating
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