Joe Frank Muzquiz/Para Todos, Inc. v. Para Todos, Inc./Joe Frank Muzquiz ( 2021 )

§
JOE FRANK MUZQUIZ/PARA No. 08-19-00005-CV
TODOS, INC., §
Appeal from the
Appellant/Cross-Appellant, §
17th District Court
v. §
of Tarrant County, Texas
PARA TODOS, INC./JOE FRANK §
MUZQUIZ, (TC#017-287752-16)
§
Appellee/Cross-Appellee.
OPINION
This is an appeal and cross-appeal from a final judgment rendered by the trial court largely
in favor of Appellee, Para Todos, Inc. Appellant Joe Muzquiz attempted to terminate a lease in
which the term is purportedly “in perpetuity” and renegotiate it with his lessee, Para Todos. When
Para Todos refused, Muzquiz filed a declaratory judgment action and breach of contract claim,
seeking a declaration of his rights as lessor under a lease which, as written, contains a perpetual
lease term, was terminable only at the will of Para Todos except in the event of default, contained
no provision for increasing the rent amount, and required Muzquiz to pay for property taxes,
insurance, and common area maintenance.
Following a bench trial, the trial court found, among other things, the parties intended to
create a lease with a right of perpetual renewal, the lease language did not create a tenancy at will,
and Muzquiz failed to meet his burden to prove unconscionability or the lease violated public
policy. The trial court also found Para Todos failed to meet its burden of proving Muzquiz’s claims
were barred by the statute of limitations. Muzquiz and Para Todos, Inc. appeal.
BACKGROUND
Leticia Grimaldo and her late husband purchased the Arlington property at issue in this
appeal in the 1960s. 1 When they purchased the property located at 4713 Camp Bowie Rd. (the
Property), it included a commercial building partially occupied by a restaurant. Over time, the
restaurant expanded into the commercial space. At the present time, the restaurant occupies the
entire building except for a small portion which houses a salon. In 1999, Para Todos began
occupying the restaurant space without a lease. The restaurant’s prior occupants also operated in
the space without a lease.
The Lease
In 2003, Para Todos and Ms. Grimaldo executed a lease (the Lease) for the restaurant space.
Robert Self, Para Todos’ owner, prepared the lease form and presented it to Ms. Grimaldo. 2 When
Ms. Grimaldo executed the Lease, she was eighty years old and in “okay” health, according to her
son, Appellant, Frank Muzquiz. Muzquiz testified his mother did not hire an attorney to review
the lease prior to her signing it, but admitted she could have hired an attorney if she had so chosen.
Pursuant to the lease, Para Todos rents ninety-two percent of the building’s square footage and
pays $27,000 in rent each year. The remaining portion of the building is rented to the salon, which
pays $1,200 in rent each month.
The following provisions in the lease are relevant in this appeal:
2. TERM: Subject to and upon the conditions set forth herein, the term
of this lease shall commence on . . . June 1, 2003 and shall be perpetual and
terminable at Lessee’s sole discretion upon thirty days written notice to Lessor.
Lessor’s assignees, assigns, heirs and executives are hereby bound, and Lessor
1
This case was transferred from our sister court in Fort Worth pursuant to the Texas Supreme Court’s docket
equalization efforts. See TEX.GOV'T CODE ANN. § 73.001. We follow the precedents of the Fort Worth Court to the
extent they might conflict with our own. See TEX.R.APP.P. 41.3.
2
A fact issue exists regarding whether Mr. Self drafted the lease himself or simply obtained a form which he used to
base their agreement on. However, there is no dispute among the parties that the Lease was procured by Mr. Self and
Ms. Grimaldo did not participate in drafting it.
2
agrees that same are bound, by the terms hereof. Lessee shall continuously use and
occupy the leased premises for use as a restaurant and for such other lawful
purposes as Lessee desires.
. . .
7. REPAIRS AND MAINTENANCE: Lessor shall be responsible for
all external walls, roof and front parking lot of leased premises.
. . .
8. ASSIGNMENT OR SUBLEASE: Lessor shall have the right to
transfer in assign, in whole or in part, its rights and obligations in the Building and
property that are the subject of this lease. Lessee shall have the right to assign this
lease or sublet all or any part of the leased premises without the prior written
consent of Lessor.
. . .
15. FIRE AND CASUALTY DAMAGE: Lessor shall, at all times
during the term of this lease, at Lessor’s expense, maintain a policy or policies of
insurance, insuring the Building against loss or damage by fire. 3
Muzquiz was unaware of the terms of the Lease until 2010 when his mother asked him to
review it. Muzquiz testified Ms. Grimaldo wanted to know if she could raise Para Todos’ rent.
Muzquiz found an attorney to review the lease to ascertain the validity of the lease. The attorney
told Muzquiz, on December 28, 2010, he was “still doing research on the question of whether the
lease with the Original restaurant can be enforced or not. I will let you know as soon as I come to
a conclusion.” No answer was ever provided to Muzquiz.
Ms. Grimaldo passed away in 2014. Muzquiz inherited her entire estate, including the
Property, subject to the Lease. Muzquiz engaged a different lawyer to determine if he could raise
Para Todos’ rent or terminate the lease. On October 26, 2015, Muzquiz’s attorney contacted Para
Todos and informed them the Lease was unenforceable and requested the parties renegotiate the
lease.
3
The Lease is silent on which party is obligated to pay property taxes, which, in effect, leaves the burden on the
property owner. In this case, the property owner has paid the property taxes since the Lease’s inception.
3
Procedural History and Trial Testimony
Muzquiz filed his original petition on September 27, 2016. He filed a second amended
original petition on December 7, 2017 (the Petition), which was his live pleading at the time of
trial. In the petition, he asks for the following: 4
9. Pursuant to Section 37.001 et. seq. of the Texas Civil Practice and
Remedies Code, Plaintiff asks this court to declare the rights, status and other legal
relations between the parties to this suit arising out of the Lease and to declare the
Lease terminable at will or to declare the Lease unenforceable.
10. Plaintiff would show the following grounds for the relief sought:
a. The Lease is unconscionable. The Lease is unconscionable
because it is unfair due to its overall one-sidedness or the gross one-
sidedness of one or more of its terms.
b. The Lease is terminable at will. The Lease is clearly terminable
at the will of the Lessee. Texas law is clear that a lease that is terminable at
will by one party is terminable at will by the other.
c. Perpetual Leases Are Not Enforceable in Texas. The Texas
Supreme Court has determined that such leases are terminable at will by
either party.
d. The Lease is void as against public policy. The law does not favor
perpetual rights. It would be contrary to the public policy of this state to
enforce agreements which have no end but place increasing burdens on one
party only.
Para Todos filed its answer and asserted the affirmative defense of limitations, in addition to
counterclaims which are not a subject of this appeal. Both sides later filed motions for summary
judgment on their respective claims, which the trial court denied.
The parties agreed to a bench trial. Muzquiz testified 92 percent the 2018 property tax and
insurance on the Property, which corresponds with the portion of square footage occupied by Para
Todos and which the Lease requires him to pay, was approximately $26,000. According to
4
Muzquiz asserted other causes of action against Para Todos for which it received adverse rulings at trial, but which
are not the subject of this appeal.
4
Muzquiz, property taxes have escalated steadily since 2003, and he expects they will continue to
increase. Muzquiz’s son, who assists him with maintenance on the property, testified he anticipates
having to replace the roof within ten years at an estimated cost of $100,000. He also testified the
parking lot needs repairs which will cost $20,000.
In its final judgment, the trial court found Muzquiz’s claims for declaratory relief were not
barred by limitations. It further declared as follows:
1. The Lease does not create a tenancy at will.
2. The provisions of the Lease are plain and unambiguous and evidence an intent and
purpose to create a right of perpetual renewal.
3. The Lease is not unenforceable or void because it contains a perpetual term.
4. Plaintiff did not meet his burden of proof that the lease is unconscionable.
5. Plaintiff did not meet his burden of proof that the lease is void as against public
policy.
Muzquiz timely filed a notice of appeal, and Para Todos timely filed its notice of cross-
appeal.
DISCUSSION
We first consider Muzquiz’s three issues on appeal:
1. Did the trial court err by finding that a perpetual renewal lease is a valid exception
to the undisputed rule that a perpetual term lease is not enforceable when there is
no discernable difference between the two?
2. Did the trial court err in finding that the parties intended to create a perpetual
renewal lease, instead of a perpetual term lease, when the only evidence in the
record of the parties’ intent is the lease itself, which unambiguously states that the
term shall be perpetual?
3. Did the trial court err in finding that the lease does not violate public policy, even
though it binds the lessor and his heirs to pay escalating property taxes and maintain
the property, for eternity, but also prohibits the rent from ever being adjusted
beyond the initial amount that was set in 2003?
Standard of Review
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Interpretation of a contract is reviewed by an appellate court de novo. URI, Inc. v. Kleberg
Cty., 543 S.W.3d 755, 763 (Tex. 2018). Our “primary concern” in construing a contract’s language
“is to give effect to the written expression of the parties’ intent.” Forbau v. Aetna Life Ins. Co.,
876 S.W.2d 132, 133 (Tex. 1994).
Perpetual initial term versus Perpetual renewal term
Muzquiz asserts the “undisputed rule” is perpetual leases are unenforceable. However, our
review of Texas law finds leases which renew in perpetuity are disfavored but upheld when a
lease’s language clearly indicates the parties’ intent to create such an obligation. See Hull v.
Quanah Pipeline Corp., 574 S.W.2d 610, 612 (Tex.Civ.App.—San Antonio 1978, writ ref’d
n.r.e.). On the other hand, leases with a perpetual term are not, per se, unenforceable. See, e.g.
Philpot v. Fields, 633 S.W.2d 546 (Tex.App.—Texarkana 1982, no writ). Rather, leases with
indefinite initial terms are treated as terminable at will by either party. See, e.g. Holcombe v.
Lorino, 79 S.W.2d 307, 310 (Tex. 1935)(lease with perpetual initial term deemed terminable at
will by either party); Effel v. Rosberg, 360 S.W.3d 626, 630-31 (Tex.App.—Dallas 2012, no
pet.)(lease with indefinite initial term based on life of tenant deemed terminable at will by either
party).
This distinction necessarily begs the question, is the Lease’s initial term indefinite or is it
a term which renews in perpetuity?
Appellant’s First and Second Issues: Perpetual Leases
We first consider Muzquiz’s second issue. Specifically, whether the trial court erred in
finding the parties intended to create a perpetual renewal lease, as opposed to a perpetual initial
term lease. We find the trial court erred in finding the parties intended to create a lease with a
perpetual renewal term and sustain Muzquiz’s second issue.
Rule Against Perpetuities
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The backdrop to our analysis of Muzquiz’s appeal is Texas’s Rule Against Perpetuities (the
Rule). The Texas Constitution contains a prohibition against perpetuities and monopolies in Article
I, Section 26, which states in pertinent part, “Perpetuities and monopolies are contrary to the genius
of a free government, and shall never be allowed[.]” TEX.CONST. art. I, § 26. The Rule is a product
of English common law which found its way into the Texas Constitution’s Bill of Rights when the
Republic was founded in 1836. See id. (2007 commentary). The Rule is intended to prevent the
non-alienability of property interests, a problem endemic in feudal Europe and one which new
Americans sought to prevent by incorporating the Rule into its laws. See Elkins v. Sears, Roebuck
and Co., Civil Action No. H-04-4629, 2008 WL 2465344, at *2 (S.D. Tex. June 17, 2008).
At common law, the Rule states, “no interest within its scope is good unless it must vest,
if at all, not later than twenty-one years after some life in being at the creation of the interest[.]”
Kelly v. Womack, 153 Tex. 371, 375 (1954). As our sister court in Texarkana set out in Caruso v.
Young, 582 S.W.3d 634, 638 (Tex.App.—Texarkana 2019, no pet.), “[t]he word ‘vest’ in regards
to the Rule refers to an immediate, fixed right of present or future enjoyment of the interest.”. . .
“The Rule does not apply to present or future interests that vest at their creation.” Id. [Citations
omitted]; see also Conoco Phillips Company v. Koopmann, 547 S.W.3d 858, 867 (Tex. 2018).
Leasehold interests, generally, are subject to the Rule. 70 C.J.S. Perpetuities § 23 (2021).
However, a lease taking effect presently for a set term, even when the term exceeds the time
allowed by the Rule, does not violate the Rule because it conveys only present, and not future,
interests. See id., (citing Ponder v. Southwestern Hotel Co., 114 S.W.2d 319 (Tex.Civ.App.—El
Paso 1938, writ dism’d)(where a lease for a term of 99 years did not violate Rule). Additionally,
some rights conveyed within a lease such as a right to purchase or right to renew, even if they do
not vest until a time outside of what would normally be allowed by the Rule, do not violate the
7
Rule so long as they vest at a time not longer than the initial term of the lease. See, e.g., Ezer v.
Texas Tower Ltd., No. H-13-1805, 2014 WL 3669222, at *5 (S.D. Tex. July 22, 2014)(mem. op.
and order)(citing Hull, 574 S.W.2d at 612); Elkins, WL 2465344, at *2-3 (option to purchase
property within a lease). Thus, although leases in perpetuity are generally enforced by the courts
and not found to violate the Rule, they are disfavored because of Texas’ longstanding distaste for
perpetual property rights. See Hull, 574 S.W.2d at 612. Accordingly, absent express language
granting a right of perpetual renewal, a lease will not be construed as granting such right. Hull,
574 S.W.2d at 612; see also Ezer, 2014 WL 3669222, at *5; Elkins, 2008 WL 2465344, at *2-3
(applying similar reasoning to options to purchase within a lease).
Perpetual Leases
Hull is a seminal case in our discussion of perpetual leases. There, the plaintiffs owned a
piece of land which they leased to a pipeline company for an initial term of one year. Id. at 611.
The lease at issue contained a renewal provision granting the lessee the “indefeasible option” of
extending the initial yearly term “for an additional year and from year to year to year thereafter for
the same consideration and under the same terms and conditions as set forth” in the lease, “so long
as used for the above purposes and the annual rental is paid for the use thereof[.]” Id. The stated
purpose of the lease is not contained in the opinion, but it is logical to assume it was related to oil
and gas activities. The Texarkana court in Hull acknowledged the dearth of case law on the issue
and adopted the following rule which states as follows:
Although there is some contrary authority, the generally accepted view is that a
provision clearly giving the lessee and his assigns the right to perpetual renewals is
valid in the absence of some statutory prohibition, and will be enforced by the
courts, although such a provision in a lease is not favored by the courts, and a lease
will be construed as not making such a provision unless it does so clearly.
It has been generally held that a provision in a lease for perpetual renewal is not
violative either of the rule against perpetuities or of statutes limiting the period
8
during which the absolute power of alienation may be suspended. The reason for
this is that the covenant to renew may be taken as part of the lessee’s present
interest. It is obvious that a perpetual lease, or a lease containing a covenant for
perpetual renewal, is not a restraint or limitation upon the power of alienation of
the fee, for there are at all times persons in being who, by joining, can convey the
fee.
Hull, 574 S.W.2d at 612, (quoting 50 AM.JUR.2d Landlord and Tenant § 1169 (1970)).
In Philpot v. Fields, 633 S.W.2d 546 (Tex.App.—Texarkana 1982, no writ), the parties
signed a lease with a term of twenty years and:
[S]o long thereafter as the lessee, his heirs, successors or assigns, may use the
premises for the purpose of maintaining and operating a LTX separator, tanks and
other machinery, appliances, and equipment in connection with the processing,
refining, treating, and storing of natural gas and its derivatives, or other petroleum
products.
Id. at 547. The appellant sought to have the lease declared a tenancy at will due to the alleged
indefiniteness of the renewal period. Id. at 547-48. The court acknowledged, “when one holds
premises for an uncertain time, he is generally held to be a tenant at will unless the lease makes
reference to some certainty.” Id. at 547 [Emphasis added]. However, because the express language
in the lease reflected the intent of the parties to create a perpetual right to lease the land, and
because the lease duration after the twenty-year initial term was “tied to the cessation of the use of
the land for certain definitely ascertainable purposes”—maintaining and operating various specific
equipment related to natural gas processing—the lease was enforceable as written. Id. at 548.
In Haley v. GPM Gas Corp., 80 S.W.3d 114 (Tex.App.—Amarillo 2002, no pet.), a lessor
executed a surface lease with an initial one-year term with an option for the lessee to renew the
lease for successive one-year periods “indefinitely and perpetually” so long as rent was paid and
the land was used for “any lawful purposes in connection with the erection, maintenance, operation
and repair of a gas booster station[.]” Id. at 116. After the lessee built a radio tower on the property,
the lessor terminated the lease, claiming because of the perpetual renewal it was a tenancy at will,
9
and sued the lessee for damages for, among other things, trespass and breach of contract. Id. at
116-17. The lessee counterclaimed seeking a declaration the lease was not a tenancy at will and
remained in full force and effect. Id. at 117. The trial court found in favor of the lessee on summary
judgment, the Court of Appeals in Amarillo affirmed. Id. at 117-19. Citing to Hull and Philpot,
among others, the court reasoned the language of the lease unequivocally expressing the lessee’s
right of renewal in perpetuity, coupled with the defined initial lease term and the defined renewal
periods of one year, warranted enforcing the lessee’s right of perpetual renewal as written. Id. at
118-19.
Distinctions arise, however, in leases with an indefinite and/or perpetual initial term. Lease
agreements lacking a specific duration or end date are tenancies at will, terminable by either party.
1320/1390 Don Haskins Ltd. v. Xerox Commercial Solutions LLC, 584 S.W.3d 53, 68 (Tex.App.—
El Paso 2018, pet.denied)(citing Providence Land Services, LLC v. Jones 353 S.W.3d 538, 542
(Tex.App.—Eastland 2011, no pet.); see also Fandey v. Lee, 880 S.W.2d 164, 169 (Tex.App.—El
Paso 1994, writ denied)(tenant at will holds possession of a premises by permission of an owner,
but without a fixed term).
The courts in Philpot and Haley closely examined Norman v. Morehouse, 243 S.W. 1104(Tex.Civ.App.—Amarillo 1922, writ dism’d), a case in which the Seventh Court of Appeals found
a tenancy at will existed based on the indefiniteness of the lease’s provisions, including its term.
See Philpot, 633 S.W.2d at 548; Haley, 80 S.W.3d at 118. The lease at issue in Norman was part
oral and written. The Norman lease described a term for “so long as either [Norman or his co-
lessee engaged in the business of making and repairing harness [sic], shoes, etc.” Norman, 243
S.W. at 1104. The Seventh Court found even if the entire agreement had been in writing, the lack
of certainty as to the duration of the term, and no reference to a certainty, mandated the tenancy
10
be one at will and not a lease for years. Id. “[A] lease must as to its duration be certain or refer to
a certainty” in order for it to be classified a lease for a number of years, rather than a tenancy at
will. Id.
About a decade after Norman, the Texas Supreme Court decided Holcombe. There, the
plaintiff-respondent had a rental agreement with the city of Houston to use and occupy a stall in
the city market “for so long as he paid rent thereon and complied with the rules and regulations
promulgated by the city of Houston for the operation of its city market[.]” Holcombe, 79 S.W.2d
at 308. The city sought to evict him based on a city ordinance allowing the mayor and/or the city
council the right to terminate leases of the tenants at the market at their will. Id. The plaintiff
argued the city was not entitled to evict him and his lease with the city gave him the right to stay
in the stall as long as he so desired, as long as he was paying rent and abiding by the market’s rules
and policies. Id. at 310. The Supreme Court reasoned the lack of a certain time or duration of the
agreement between the plaintiff and the city, or reference to any certainty on which to base the
agreement’s duration, created only a tenancy at will. Id.; see also Hill v. Hunter, 157 S.W. 247(Tex.Civ.App.—Austin 1913, writ ref’d). Further, the fact the plaintiff could terminate the tenancy
and vacate at will supports the notion he was a tenant at will. Id.Many years later, in Effel, the appellant leased a residential property “for the remainder of
her natural life, or until such time as she voluntarily chooses to vacate the premises.” Effel, 360
S.W.3d at 628. When the lessor attempted to have the appellant evicted after she constructed a
fence on the property, she answered by pleading she had a life estate in the property and a lifetime
lease. Id. at 629. The trial court concluded the lease at issue “created only a tenancy at will
terminable at any time by either party.” Id. at 630. The Fifth Court of Appeals agreed, citing other
cases in which leases for the term of a lessee’s life were deemed to be terminable at will due to the
11
uncertainty of the lessee’s date of death. Id., (citing Nitschke v. Doggett, 489 S.W.2d 335, 337
(Tex.Civ.App.—Austin 1972), vacated on other grounds, 498 S.W.2d 339 (Tex. 1973); Kajo
Church Square, Inc. v. Walker, No. 12-02-00131-CV, 2003 WL 1848555, at *5 (Tex.App.—Tyler
April 9, 2003, no pet.)(mem. op.). The Fifth Court stated in no uncertain terms, “a lease for an
indefinite and uncertain length of time is an estate at will.” Effel, 360 S.W.3d at 630, (citing
Providence Land Servs., 353 S.W.3d at 542); see also Sherrod v. Powell, No. 10-10-000173-CV,
2012 WL 503651, at *3 (Tex.App.—Waco Feb. 15, 2012, no pet)(mem. op.). It also reasoned the
uncertainty as to the end date of the lease based on the lessee’s life was further muddied by the
tenancy’s duration “‘until such time as she voluntarily vacates the premises.’” Effel at 630. “If a
lease can be terminated at the will of the lessee, it may also be terminated at the will of the lessor.”
Id. at 630-31, (citing Holcombe, 79 S.W.2d at 310).
Perpetual Renewal or Indefinite Initial Term?
We turn to the question of whether the trial court erred in finding the parties intended to
create a perpetual renewal lease, rather than a perpetual initial term lease. The parties agree and
the trial court determined the lease language is unambiguous. Therefore, we need not look beyond
the four corners of the lease to determine the intent of the parties. See Forbau, 876 S.W.2d at 133
(stating all parts of a contract must be read together to determine the parties’ intent).
Muzquiz contends there can be no logical interpretation of the lease language other than
finding it creates a perpetual term and thus a terminable-at-will agreement. In support, he cites to
Clear Lake City Water Auth. v. Clear Lake Utils. Co., 549 S.W.2d 385, 390 (Tex. 1977) and Kirby
Lake Dev., Ltd. v. Clear Lake City Water Auth., 320 S.W.3d 829, 842 (Tex. 2010). While both of
the foregoing cases involve contracts with indefinite terms, they are not factually similar to this
case as they involve a utility service contract and a perpetual performance contract, respectively,
12
rather than leases. See Clear Lake City Water Auth., 549 S.W.2d at 390; Kirby Lake Dev., Ltd.,
320 S.W.3d at 842. Muzquiz also cites to Holcombe and Effel regarding Texas’ policy treating
leases for an uncertain period of time as tenancies at will. See Effel, 360 S.W.3d at 630; Holcombe,
79 S.W.2d at 310.
Muzquiz argues the Texas Supreme Court and Texas law, generally, do not recognize a
difference between “fixed term lease[s] with a perpetual renewal clause . . . from a lease operating
on a single perpetual term.” In making this assertion, Muzquiz relies on Fort Worth Indep. Sch.
Dist. v. City of Fort Worth, 22 S.W.3d 831, 841 (Tex. 2000)(superseded by statute on other
grounds)(“We have previously stated that ‘contracts which contemplate continuing performance
(or successive performances) and which are indefinite in duration can be terminated at the will of
either party’”). However, the Fort Worth case, similar to Clear Lake City Water Auth., involves a
performance contract to pay for right-of-way access, rather than a lease. Id. at 834-840
Furthermore, as discussed previously, Texas law does make a distinction between fixed-term
leases with a perpetual renewal provision and perpetual initial term leases. Compare Holcombe,
79 S.W.2d at 310 with Hull, 574 S.W.2d at 612.
Para Todos counters the Lease’s explicit perpetual term evidences the parties’
unambiguous intent to create a perpetual lease and should be enforced in the same way the Seventh
Court enforced the lease in Philpot. Philpot, 633 S.W.2d at 548. It claims the unambiguous
language regarding the perpetual lease term, coupled with the Lease’s requirement for Para Todos
to use the property as a restaurant or any other legal purpose it chooses, constitutes an ascertainable
date for termination of the perpetuity and accordingly should be enforced. See id. Para Todos also
argues the Lease should be enforced as a periodic tenancy terminable solely at the will of the lessee
and in that way is analogous to Haley, where a lessor executed a surface lease with an initial one-
13
year term with an option for the lessee to renew the lease for successive one-year periods
“indefinitely and perpetually[.]” Haley, 80 S.W.3d at 116. In both Philpot and Haley, the
expiration of the terms of the leases were tied to explicit use of land requirements. See Philpot,
633 S.W.2d at 548; Haley, 80 S.W.3d at 116. Each also contained a definite initial lease period.
See Philpot, 633 S.W.2d at 548; Haley, 80 S.W.3d at 116.
We find the Lease language here is analogous with Norman, Effel, and the other cases
where indefinite lease terms created a tenancy at will and not like the situations in Hull, Philpot,
Haley, and the cases where the parties clearly intended to create a right of perpetual renewal.
Turning to the Lease’s language:
TERM: Subject to and upon the conditions set forth herein, the term of this
lease shall commence on . . . June 1, 2003 and shall be perpetual and terminable at
Lessee’s sole discretion upon thirty days written notice to Lessor. Lessor’s
assignees, assigns, heirs and executives are hereby bound, and Lessor agrees that
same are bound, by the terms hereof. Lessee shall continuously use and occupy the
leased premises for use as a restaurant and for such other lawful purposes as Lessee
desires.
The paragraph heading is entitled “TERM.” The Lease explicitly states “the term of this lease shall
commence . . . June 1, 2003 and shall be perpetual.” [Emphasis added]. The Lease does not
address renewals or the term of the lease other than what is found in this paragraph. The Lease, as
written, is only terminable by Para Todos, at their sole discretion, with no right of termination by
Muzquiz. Further, Para Todos may continue their occupancy “in perpetuity” so long as they
continuously occupy, use the premises as a restaurant, or any other lawful purpose they desire.
In addition, Para Todos, under the lease, secured the right to assign the lease or sublet without the
prior consent of Muzquiz. The Lease did not provide for any increase in the term rental for the
premises from its inception in 2003. Under the Lease, Muzquiz is responsible for the maintenance
of all external walls, roof and front parking lot; required to maintain insurance policies for loss or
damage by fire; and could transfer his rights and obligations in the Building and the lease. Muzquiz
14
also paid the real property taxes.
Contrasting the Lease at issue here with the lease language found in Hull, Philpot, and
Haley, leads to the conclusion the parties did not intend to create a lease with an initial fixed term
and a right of perpetual renewal. See Hull, 574 S.W.2d at 612; Haley, 80 S.W.3d at 117-19. First,
the Lease expressly states the term is “perpetual” and makes no reference to a right of renewal.
Holcombe also dealt with a perpetual term, where a tenant at a city market leased a stall to sell his
products for as long as he continued to pay the rent, and the Supreme Court of Texas held it to be
a tenancy at will. Holcombe, 79 S.W.2d at 310. The indefiniteness of the Lease’s “term” is also
akin to the term of the lease-for-life in Effel, which ended either when Effel passed away or
otherwise at her will, which the court deemed to be a tenancy terminable at will by either party.
Effel, 360 S.W.3d at 630-31.
The Lease is also similar to the agreement found in Norman, whose lease termination date
was based on when the lessees ceased “‘engag[ing] in the business of making and repairing harness
[sic], shoes,’ etc.” Norman, 243 S.W. at 1104. The vague condition of use of the premises in the
Norman lease is much like the condition of use provision in the Muzquiz Lease, which allows Para
Todos to occupy the premises “for use as a restaurant and for such other lawful purposes as Lessee
desires.” The Lease does not describe a term with a definite end date nor does it require a particular
use of the premises the cessation of which would end the lease term.
Considering the lease explicitly contains an indefinite perpetual initial lease term with no
defined end date nor any requirement tying the cessation of the lease to a specific use of the
property, we find the trial court erred in determining the parties intended to create a lease with a
right of perpetual renewal and in finding the Lease was not terminable at will by either party. See
Holcombe, 79 S.W.2d at 310; Effel, 360 S.W.3d at 630-31; Philpot, 633 S.W.2d at 547-48. We
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hold the trial court erred in finding the parties intended to create a lease with a right of perpetual
renewal rather than a lease with an indefinite initial term. We hold the Lease creates a tenancy at
will, terminable at will by either party.
Muzquiz’s second issue is sustained. Further, we find the disposition of Muzquiz’s second
issue renders his first issue moot. Amarillo v. R.R. Comm'n. of Texas, 511 S.W.3d 787, 794
(Tex.App.—El Paso 2016, no pet.)(“[W]hen an actual controversy no longer exists between the
parties, ‘the decision of an appellate court would be a mere academic exercise.’”)(quoting Beltran
v. Beltran, 324 S.W.3d 107, 110 (Tex.App.—El Paso 2010, no pet.)).
Appellant’s Third Issue: Substantive Unconscionability
Notwithstanding our finding the initial term is indefinite and therefore, terminable at will,
we also find the Lease is substantively unconscionable as written. Muzquiz’s third issue posits the
trial court erred in finding the lease does not violate public policy. An examination of the public
policy implications of the lease terms is inextricably intertwined with the issue of
unconscionability. See In re Poly-America, L.P., 262 S.W.3d 337, 349 (Tex. 2008)(citing Hoover
Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex. 2006). The trial court affirmatively found the
Lease was not unconscionable and Muzquiz raised the issue on appeal.
Standard of Review
As Muzquiz correctly states in his brief, “[w]hether a contract is contrary to public policy
or unconscionable at the time it is formed is a question of law. Because a trial court has no
discretion to determine what the law is or apply the law incorrectly, its clear failure to properly
analyze or apply the law of unconscionability constitutes an abuse of discretion.” Poly-America,
262 S.W.3d at 349, (citing Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992)).
Muzquiz argues it is against public policy to treat the Lease as anything other than a tenancy
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at will, considering its indefinite nature and Texas law. Having already determined the Lease
language creates a tenancy at will, we turn our discussion to the substantive unconscionability of
the Lease.
Analysis
Contracts offending the conscience are “an exception to the freedom that generally
pervades contract law.” Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222, 228 (Tex. 2014).
Normally, Texas Courts do not look at the fairness of a contract or why it was created. Id.Unambiguous contracts, in particular, “are presumed to reflect the intent of the contracting parties
and are generally enforced as written” regardless of whether one party puts himself in a bind as a
result. Id. However, “grossly unfair bargains should not be enforced.” Id.Texas recognizes both procedural and substantive unconscionability. Delfingen US-Tex.,
L.P. v. Valenzuela, 407 S.W.3d 791, 797 (Tex.App.—El Paso 2013, no pet.). Substantive
unconscionability refers to the inherent unfairness of a particular contract or provision; procedural
unconscionability deals with the circumstances surrounding a contract’s adoption. Id. A contract
or contract provision can be found unenforceable based on egregious facts supporting either
procedural or substantive unconscionability. Id., (where arbitration agreement was deemed
procured using procedurally-unconscionable means and thus found unenforceable);
ReadyOne Industries, Inc. v. Lopez, 551 S.W.3d 305, 314 (Tex.App.—El Paso 2018, no
pet.)(“Unconscionability . . . may exist in one or both of two forms: (1) procedural
unconscionability, . . . and (2) substantive unconscionability . . . .”).
As the Texas Supreme Court stated,
Unconscionability . . . is not easily defined. The term defies a precise legal
definition because ‘it is not a concept, but a determination to be made in light of a
variety of factors not unifiable into a formula.’ . . . Although difficult to define, the
defense has a long history. One of the earliest decisions to apply the defense
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described an unconscionable contract as one that ‘no man in his senses and not
under delusion would make on the one hand, and as no honest and fair man would
accept on the other.’ [Internal citations omitted].
Venture Cotton, 435 S.W.3d at 228. In assessing whether a contract is unconscionable under the
totality of the circumstances, we consider: “(1) the ‘entire atmosphere’ in which the agreement
was made; (2) the alternatives, if any, available to the parties at the time the contract was made;
(3) the ‘non-bargaining ability’ of one party; (4) whether the contract was illegal or against public
policy; and (5) whether the contract is oppressive or unreasonable.” Delfingen, 407 S.W.3d at 798.
“The grounds for substantive abuse must be sufficiently shocking or gross to compel the court to
intercede[.]” Id. A contract is substantively unconscionable where its inequity shocks the
conscience. Ridge Natural Resources, LLC v. Double Eagle Royalty, L.P., 564 S.W.3d 105, 131
(Tex.App.—El Paso 2018, no pet.). Contracts deemed unconscionable are unenforceable. Poly-
America, 262 S.W.3d at 348.
In Ski River Development, Inc. v. McCalla, 167 S.W.3d 121 (Tex.App.—Waco 2005, no
pet.), a jury found a lease, its first addendum and two amendments were procured as a result of
unconscionability. Id. at 137. The Waco Court of Appeals, upholding the jury’s findings on this
issue, found a number of evidentiary points to support their finding regarding substantive
unconscionability, including that the lessors had to pay for all the real estate taxes for the lease’s
99-year term; the lessees paid $3,000 per month for the first twelve-and-one-half years of the lease,
after which time they only paid $75 per month, which is less than the estimated real estate taxes
borne by the lessor; the lessees had the sole right to terminate; the lessors lost virtually all
possessory rights of the premises; and a clause in the lease prevented the lessors from selling the
land while the lease was in effect. Id. at 138-139.
We find the substance of the Lease at issue here analogous to the offending lease terms in
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Ski River and thus substantively unconscionable. Turning to the Lease’s language:
TERM: Subject to and upon the conditions set forth herein, the term of this
lease shall commence on . . . June 1, 2003 and shall be perpetual and terminable at
Lessee’s sole discretion upon thirty days written notice to Lessor. Lessor’s
assignees, assigns, heirs and executives are hereby bound, and Lessor agree that
same are bound, by the terms hereof. Lessee shall continuously use and occupy the
leased premises for use as a restaurant and for such other lawful purposes as Lessee
desires.
The paragraph heading is entitled “TERM.” The Lease explicitly states “the term of this lease shall
commence on . . . June 1, 2003 and shall be perpetual and terminable at Lessee’s sole
discretion[.]” [Emphasis added]. The Lease, as written, is only terminable by Para Todos, at their
sole discretion, with no right of termination by Muzquiz and binding upon his “assignees, assigns,
heirs and executives[.]” Further, Para Todos may continue its occupancy “in perpetuity” so long
as they continuously occupy, use the premises as a restaurant, or other lawful purpose they
desire. In other words, Para Todos can operate any type of lawful business on the premises it
wishes, so long as it is paying rent, forever. In addition, Para Todos, under the lease, secured the
right to assign the lease or sublet without the prior consent of Muzquiz.
The Lease did not provide for any increase in the annual rent amount for the premises from
its inception in 2003. Thus, regardless how much property values in the area have or will continue
to increase, Para Todos would never have to pay more than the amount specified in the Lease. The
Lease also requires Muzquiz to pay for maintenance of all external walls, the roof and front parking
lot; as well as maintain insurance policies for loss or damage by fire. Muzquiz also has to pay the
real property taxes. According to the testimony at trial, Muzquiz anticipates repair expenditures of
approximately $120,000 within the next ten years, on top of property taxes which increase
continually and are almost enough to eclipse the total amount of rent he receives each year such
that he would sustain a loss to cover them. Thus, in the worst-case scenario for Muzquiz, Para
Todos could sublet the space for significantly more money than it pays each month and earn a
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substantial profit in perpetuity for doing absolutely nothing and undertaking zero risk, so long as
it continues paying the modest required rent amount to Muzquiz or his descendants, while Muzquiz
and his progeny lose substantially more money every year for as long as Para Todos continues the
lease. Even in the best-case scenario for Muzquiz under the Lease terms, he testified he will likely
be losing money on what should be income property in the immediate future as a result of
increasing property taxes and insurance premiums, which could continue for generations.
Additionally, the burden imposed by the Lease on the lessor is so great and the benefit so meager,
we think it highly unlikely Muzquiz would be able to convey the property because there is no
advantage to a potential purchaser to do so.
We find the terms of the Lease to be so one-sided and grossly unfair that no person in his
or her right mind would have agreed to the position in which Ms. Grimaldo put herself and her
successors. See Venture Cotton, 435 S.W.3d at 228; Poly-America, 262 S.W.3d at 348. The
evidence at trial demonstrates unfair terms in the contract, gross disparity in the value exchanged
between the parties, little benefit to Muzquiz and Grimaldo before him, and lease terms which
shock the conscience. See Ski River, 167 S.W.3d at 139. Each of these factors contributes to our
holding the lease, as a whole, is unconscionable and unenforceable. Poly-America, 262 S.W.3d at
348. We therefore find the trial court erred in finding Muzquiz did not meet his burden to prove
unconscionability and sustain Appellant’s third issue.
Cross-Appellant’s Sole Issue: Limitations
Having sustained two of Muzquiz’s three issues on appeal, we move on to Para Todos’
cross-appeal. In its sole issue, Para Todos claims the trial court erred in finding Muzquiz’s
declaratory judgment action was not barred by the statute of limitations. We find the trial court did
not err in determining Muzquiz filed his lawsuit within the applicable statute of limitations and
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overrule Para Todos’ issue on cross appeal.
The parties agree the residual four-year limitations period applies. See
TEX.CIV.PRAC.&REM. CODE ANN. § 16.051. The real issue is when Muzquiz’s claim accrued to
determine at what point the limitations clock began running. As the party asserting the limitations
defense, Para Todos bears the burden of pleading and proving (1) the date the limitations period
commenced, also known as its accrual date, and (2) the suit was filed outside of the requisite
limitations period. In re Estate of Denman, 362 S.W.3d 134, 144 (Tex.App.—San Antonio 2011,
no pet.).
Para Todos contends a justiciable controversy arose at the time the lease was executed,
which it bases on case law analyzing contract reformation claims based on mutual mistake. See
Kenney v. Porter, 604 S.W.2d 297, 306 (Tex.Civ.App.—Corpus Christi 1980, writ ref’d n.r.e.);
Trahan v. Mettlen, 428 S.W.3d 905, 909-11 (Tex.App.—Texarkana 2014, no pet.). It also cites to
a Fort Worth Court of Appeals case which states, “[A] person who signs a contract must be held
to have known what words were used in the contract and to have known their meaning, and he
must be held to have known and fully comprehended the legal effect of the contract.” Wee Tots
Pediatrics, P.A. v. Morohunfola, 268 S.W.3d 784, 791 (Tex.App.—Fort Worth 2008, no pet.).
Muzquiz counters Para Todos’ position, noting suits brought under the Declaratory
Judgment Act accrue once there is “an actual dispute or controversy between the parties.” HSM
Wynngate 04, Ltd. v. Tex. Sotherby Homes, Inc., No. 02-15-00281-CV, 2016 WL 4540492, at *3
(Tex.App.—Fort Worth Aug. 31, 2016)(mem. op.). Since the controversy between the parties here
did not arise until October 26, 2015, when Muzquiz challenged the lease, he alleges his claim
accrued at that time.
Having determined the lease is terminable at will and, additionally or in the alternative,
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substantively unconscionable and thus unenforceable, Para Todos’ argument fails. We find this is
a somewhat unique situation where there is not an underlying “cause of action” upon which
Muzquiz brought his lawsuit. While he did file suit for breach of contract in addition to his
declaratory judgment claims, the crux of the controversy in the declaratory judgment action was
the Lease’s unenforceability as written and/or seeking a declaration regarding its rights under the
explicit terms. The question of validity or construction did not arise until Muzquiz sought to
terminate the lease and renegotiate it, which Para Todos refused to do.
The dissent posits that Muzquiz’s claim is most like a deed reformation case because it
asked the trial court to add a term to the Lease which was not part of the original agreement. Justice
Alley compares the instant case to Cosgrove v. Cade, 468 S.W.3d 32 (Tex. 2015), where a plaintiff
sought to sell his property but expressly reserve his mineral rights. Id. at 35. The deed mistakenly
transferred the property in fee simple. Id. More than four years passed following the sale, and the
sellers asked for a correction deed, but the buyer refused. Id. The Texas Supreme Court sided with
the buyer based on their assertion of limitations and reversed the Fort Worth Court’s decision in
favor of the seller.
We find Cosgrove and other cases like it distinguishable. Unlike the dissent suggests,
Muzquiz is not seeking to add a terminable-at-will provision to the Lease, or even correct a mistake
in the Lease. Rather, he is seeking a declaration that the Lease terms as written necessarily render
it terminable at will and/or void. The declaration sought did not become a live controversy until
Muzquiz attempted to terminate the lease on October 26, 2015, and the lawsuit was filed
September 27, 2016, well within the four-year period from the time a claim accrued under the
Declaratory Judgment Act. See HSM Wynngate 04, Ltd., 2016 WL 4540492, at *3.
We affirm the trial court’s ruling that Para Todos failed to meet its burden on its statute of
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limitations defense to Muzquiz’s claims. Cross-Appellant’s sole issue is overruled.
CONCLUSION
We sustain Appellant’s second and third issues and find his first issue rendered moot. We
overrule Cross-Appellant’s sole issue.
We revere the trial court’s judgment as to Appellant/Cross-Appellee Joe Frank Muzquiz
and remand for further proceedings consistent with this opinion. We further affirm the judgment
as to Appellee/Cross-Appellant Para Todos, Inc.
March 31, 2021
YVONNE T. RODRIGUEZ, Chief Justice
Before Rodriguez, C.J., Palafox, and Alley, JJ.
Alley, J., Dissenting
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