Atkemix Thirty-Seven v. Coastal Prod & Chem

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-20893
_____________________
ATKEMIX THIRTY-SEVEN INCORPORATED,
Plaintiff - Counter Defendant - Appellant,
v.
COASTAL PRODUCTS AND CHEMICALS INCORPORATED,
Defendant - Counter Claimant - Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(H-95-CV-1369)
_________________________________________________________________
January 14, 2000
Before KING, Chief Judge, and SMITH and STEWART, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant Atkemix Thirty-Seven, Inc. appeals from
the district court’s judgment that Defendant-Appellee Coastal
Products and Chemicals, Inc. did not breach the parties’ real
estate purchase agreement, and that as a result, it was entitled
to both the return of its escrow deposit and attorney fees. We
reverse.
I. FACTUAL AND PROCEDURAL BACKGROUND
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
During the latter part of 1994, Coastal Products and
Chemicals, Inc. (“Coastal”) and Atkemix Thirty-Seven, Inc.
(“Atkemix”) entered into negotiations for the sale of two of
Atkemix’s Harris County properties: the Greens Bayou Property
(“Greens Bayou”), a parcel of approximately 110 acres, and the
Pasadena Property (“Pasadena”), a parcel of approximately 3.5
acres. The parties eventually agreed that the properties would
be sold at fair market value, and had appraisals done to assist
in finalizing the purchase price. Appraisals valued Greens Bayou
at $2 million and at $2.4 million. Pasadena was not appraised.
The parties subsequently agreed on a purchase price of $1.5
million for both properties. At Coastal’s request, $1.2 million
of the agreed-upon price was allocated to Greens Bayou and the
remaining $300,000 was allocated to Pasadena. Coastal also
requested that two separate agreements be executed. The two
documents, the Greens Bayou Purchase Agreement and Pasadena
Purchase Agreement, were each effective January 20, 1995. After
both were executed, Coastal deposited $100,000 in escrow ($50,000
for each of the properties) as dictated by the two agreements.
These funds were held by Stewart Title Guaranty Company (“Stewart
Title”), the title insurance company involved in the transaction.
Stewart Title had sent to the parties a Commitment for Title
Insurance dated January 17 describing the terms under which it
was willing to provide title insurance covering Pasadena.
The parties met on February 7, 1995 to close on the two
properties. At that time, Coastal brought to Atkemix’s attention
2
the fact that the metes and bounds description in a recorded
easement agreement allowing Atkemix to use a road across adjacent
property to have access to the landlocked Pasadena did not
comport with the location of the actual road. Because the
“easement problem” raised a question of whether Atkemix was able
to convey a legal right of access to Pasadena, Coastal refused to
close on that property. This caused Atkemix to refuse to close
on Greens Bayou, as Atkemix’s obligation to convey Greens Bayou
was expressly conditioned on the completion of the sale of
Pasadena.
The parties entered into discussions and on February 10,
1995, executed a Letter Agreement that dealt with the easement
problem and the sale of Greens Bayou. Under the Letter
Agreement, Greens Bayou would be conveyed to Coastal for $1.2
million. Additional language, which is the focus of the instant
dispute, dealt with the sale of Pasadena. The Letter Agreement
contained a “pay or close” provision that required Coastal to pay
Atkemix $200,000 (the $50,000 in escrow plus an additional
$150,000) if for any reason Coastal chose not to close on
Pasadena. Coastal’s obligation to “pay or close” was contingent
on Atkemix’s having satisfied requirements set forth in two
clauses. One clause gave Atkemix three choices as to the form of
the documents that it could tender. Under the first option,
Atkemix could tender documents in form of exhibits attached to
the Letter Agreement. One of those exhibits included language
that quitclaimed Atkemix’s recorded easement rights. Under the
3
second option, Atkemix could amend the documents described in its
first option with corrected easement agreements. Finally,
Atkemix could tender documents in another form that was agreeable
to Coastal. The second clause required Atkemix to meet its
“other obligations for closing.” The parties agreed that the
date for closing on Pasadena would be March 14, 1995, or an
earlier, mutually acceptable date. Shortly after February 10,
1995, the parties closed on Greens Bayou.
Atkemix attempted to come to an agreement with the owner of
the adjacent property, Phillips Petroleum, Inc. (“Phillips”),
over how best to resolve the discrepancy between the location of
the actual road over its property and the location described in
the recorded easement. By March 13, no agreement had been
reached. As a result, Atkemix wrote Coastal of its intention to
tender documents in accordance with the first of the three
options it had under the Letter Agreement. In the same letter,
Atkemix informed Coastal that Phillips had “confirmed orally on
several instances to Atkemix that the existing roadway location
is the easement to the Pasadena Property” and that Phillips was
“willing to execute a document reconfirming the location and
existence of the access easement if requested by Atkemix or its
successors in interest.”
On March 14, Stewart Title submitted to the parties a
revised Commitment for Title Insurance that included a new
paragraph describing the easement problem and noting that a new
recordable easement agreement was needed prior to closing. The
4
parties dispute the implications of Atkemix’s failure to comply
with this provision. Later the same day, Atkemix tendered the
documents it had stated it would. Coastal refused to close, and
paid nothing to Atkemix. Atkemix did not authorize Stewart Title
to release the $50,000 it still held.
On May 4, 1995, Atkemix filed this diversity suit against
Coastal alleging a breach of the Letter Agreement, and seeking
damages, a declaratory judgment that Atkemix was entitled to the
$50,000 escrow deposit, and attorney fees. Coastal
counterclaimed, alleging breach of contract and tortious
interference, and seeking the return of its $50,000 escrow
deposit. After the case was tried but before the district court
rendered its judgment, Stewart Title interpleaded the $50,000
escrow deposit, and filed a summary judgment motion seeking
release from liability to both Atkemix and Coastal. Holding that
Coastal had not breached the Pasadena Purchase Agreement, the
court’s judgment awarded nothing to Atkemix, awarded Coastal the
escrow deposit and attorney fees, and released Stewart Title from
any liability. The lower court also concluded that the “pay or
close” provision in the Letter Agreement was unenforceable due to
a lack of consideration. Atkemix timely appeals.
II. THE ESSENCE OF THE DISPUTE
The dispute between Atkemix and Coastal has at its center
the easement problem — the discrepancy between how an easement is
described in recorded documents and the actual location of the
5
road that is used to access Pasadena. No one contends that the
discrepancy made Pasadena currently inaccessible. The two
corporations are before us because they disagree on whether
Atkemix was contractually obligated to obtain corrected easement
agreements, i.e., fix the easement problem, in order to trigger
Coastal’s obligation to “pay or close.”
The parties arguments, in a nutshell, are as follows.
Atkemix, pointing to Coastal’s agreement to allow Atkemix to
quitclaim its recorded easement rights, maintains it was not
obligated to fix the easement problem. Upon tender of documents
described in the Letter Agreement and the fulfillment of
Atkemix’s other obligations for closing, Coastal had to pay
either a total of $200,000 if it chose not to close or $300,000
if it chose to close. Atkemix contends that it performed its
obligations under the Pasadena Purchase Agreement, as amended,
and thus Coastal’s refusal to pay or close is a breach of
contract.
For its part, Coastal admits that it agreed to accept a
quitclaim of Atkemix’s recorded easement rights. It insists,
however, that Atkemix had to fix the easement problem nonetheless
in order to fulfill its other obligations for closing. Those
obligations, Coastal maintains, included ensuring that Stewart
Title provided Coastal with a title insurance policy that covered
the easement at issue. Coastal contends that Stewart Title
required the easement problem to be fixed before it would issue a
policy. Because Atkemix did not fix the easement problem, it
6
could not obtain the required title insurance policy. Therefore,
Coastal’s obligation to pay or close was not triggered.
We can resolve the dispute between the parties by answering
one crucial question: whether Atkemix was obligated under the
Pasadena Purchase Agreement, as amended, to obtain a title
insurance policy in Coastal’s name that insured that the easement
was without defect. We find, in part because Coastal waived its
termination right and agreed to allow Atkemix to quitclaim its
easement rights, that it also agreed to accept a title insurance
policy that excepted for the easement at issue. It simply is not
reasonable to think that Coastal agreed to waive its right to
terminate the Pasadena Purchase Agreement and to accept a
quitclaim deed on the easement and at the same time required
Atkemix to provide a title policy insuring good and marketable
fee title to the easement in Coastal. Absent special
circumstances not present here, a title insurance company will
not respond to a quitclaim by insuring good and marketable title
in the buyer. As a result, we conclude that district court erred
in holding that Coastal did not breach the parties’ agreement.
The nuts and bolts of our reasoning follow.
III. PASADENA PURCHASE AGREEMENT, AS AMENDED
Resolution of the parties’ dispute requires interpretation
of the Pasadena Purchase Agreement, as amended by the Letter
Agreement of February 10. We review a lower court’s contract
interpretation de novo, unless that interpretation turns on a
7
consideration of extrinsic evidence of the parties’ intent. See
Chastant v. Headrick Outdoor Inc., 81 F.3d 31, 33 (5th Cir.
1996). Under those circumstances, we review for clear error.
See id. Here, the district court restricted itself to the
documents. It is the case, however, that “[o]ur ‘broad standard
of review includes the initial determination of whether the
contract is ambiguous.’” Exxon Corp. v. Crosby-Mississippi
Resources, Ltd., 154 F.3d 202, 209 (5th Cir. 1998) (quoting
American Totalisator Co. v. Fair Grounds Corp., 3 F.3d 810, 813
(5th Cir. 1993)).
The parties’ agreement specified that Texas law would govern
questions of construction and enforcement. Under Texas law, the
primary concern of courts interpreting contracts “is to ascertain
and to give effect to the intentions of the parties as expressed
in the instrument.” R & P Enters. v. LaGuarta, Gavrel & Kirk,
Inc., 596 S.W.2d 517, 518 (Tex. 1980). We first consider the
facts and circumstances surrounding the execution of the
agreement in order to ascertain whether the agreement is
ambiguous, or is capable of only a single meaning. See National
Union Fire Ins. Co. v. CBI Indus., 907 S.W.2d 517, 520 (Tex.
1995)(per curiam); Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d
726, 731 (Tex. 1981); City of Pinehurst v. Spooner Addition Water
Co., 432 S.W.2d 515, 519 (Tex. 1968). Only if the contract is
found to be ambiguous may we consider extrinsic evidence of the
parties’ intent. See Sun Oil Co., 626 S.W.2d at 732 (“Where the
meaning of the contract is plain and unambiguous, a party’s
8
construction is immaterial.”); R & P Enters., 596 S.W.2d at 519.
Under these circumstances, we may take into account parol
evidence, see Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d
280, 282 (Tex. 1996), the parties’ behavior under the contract,
cf. Sun Oil Co., 626 S.W.2d at 732 (taking issue with lower
court’s use of one party’s actions under the contract to
interpret its provisions when the contract was unambiguous), and
other extrinsic evidence in order to assist us in ascertaining
the parties’ intent.
A. Whether the Pasadena Purchase Agreement, as Amended,
Is Ambiguous
Our first task is to determine whether the Pasadena Purchase
Agreement, as amended, is ambiguous. In performing this task, we
must look at the agreement as a whole in light of the
circumstances existing at the time of execution. See Reilly v.
Rangers Mgmt., Inc., 727 S.W.2d 527, 529 (Tex. 1987). After
negotiating over terms for several months, the parties arrived at
one figure for both properties. At the request of Coastal, that
figure was allocated to the two properties in the manner it
suggested. Also at the request of Coastal, two agreements were
executed. At the same time the original Pasadena agreement was
executed, the parties signed the Greens Bayou Purchase Agreement.
That Agreement included a specific provision that required that
“Buyer shall have . . . (ii) satisfied all of the conditions
precedent to the closing of the sale of said Pasadena Property as
set forth in Article 7 of said Purchase Agreement and, the
9
Closing of the sale of the Pasadena Property as set forth in
Article 8 of said Purchase Agreement shall have been completed.”
By this time, the parties also had received from Stewart Title a
Commitment for Title Insurance with an issue date of January 17,
1995 that described the terms of the policy it was willing to
provide. That Commitment included three schedules: Schedule A,
which described the property and the amount of coverage; Schedule
B, which listed twenty exceptions to coverage; and Schedule C,
which described eight requirements under a pre-printed
introduction that stated:
Your policy will not cover loss, costs, attorney fees,
and expenses resulting from the following requirements
that will appear as Exceptions in Schedule B of the
Policy, unless you dispose of these matters to our
satisfaction, before the date the Policy is issued.
Among the items listed on Schedule C was that “[s]atisfactory
evidence must be provided that . . . there is legal right of
access to and from the land.”
The circumstances facing the parties at the time they
executed the Letter Agreement were different from those that
existed at the time the Pasadena Purchase Agreement was signed.
Coastal had discovered the easement problem and had refused to
close on Pasadena as a result. With the permission of Atkemix,
Coastal was in possession of Greens Bayou. It had begun
operations there and was facing manufacturing, or other
deadlines. But Atkemix had refused to close on Greens Bayou if
the sale of Pasadena was not first completed. The parties
10
executed the Letter Agreement in an effort to resolve their
immediate dilemma.
When viewed in light of these, and the other circumstances
facing the parties, we do not find the Pasadena Purchase
Agreement, as amended, ambiguous. We will therefore restrict our
review to the agreement and enforce it as written.1
B. Whether Atkemix was Required to Fix the Easement Problem in
Order to Trigger Coastal’s Obligation to “Pay or Close”
Coastal argues that Atkemix failed to fulfill its “other
obligations for closing” under the February 10 Letter Agreement.
For this reason, Coastal contends, it was not required to pay
anything when it decided not to close on Pasadena. In order to
assess the merits of this argument, we must discern what Atkemix
was obligated to do under the Pasadena Purchase Agreement, and
how, if at all, its obligations were modified by the Letter
Agreement.
1
In response to Atkemix’s claims, Coastal looks to
Atkemix’s attempts to fix the easement problem and its request
for an extension of the contractual closing date as evidence that
Atkemix knew it was obligated to fix the easement problem. In
light of our determination that the contract is unambiguous, we
may not consider parties’ behavior as an indicator of intent.
See Sun Oil Co., 626 S.W.2d at 732. Even if we were to determine
that the contract was ambiguous, Atkemix’s attempts to fix the
easement problem would not be conclusive. Atkemix stood to gain
an additional $100,000 and other benefits if in fact the parties
closed on Pasadena. Those benefits could easily explain its
attempts to fix the problem despite not being contractually
obligated to do so.
11
1. Original Terms of the Pasadena Purchase Agreement
Under section 4.2 of the Pasadena Purchase Agreement,
Coastal’s “acceptance of the Grant Deed from [Atkemix] for
[Pasadena] at the Closing on the Closing Date and the issuance of
a title insurance policy to [Coastal] by [Stewart Title] on the
Closing Date . . . [would] conclusively establish that [Atkemix]
conveyed the Property to [Coastal] . . . and [would] discharge in
full [Atkemix’s] obligations under § 4.1 . . . .” Section 4.1
lays out Atkemix’s obligations with respect to the Grant Deed.
Atkemix was to
convey to [Coastal] good and marketable fee title to
the Property, by a duly executed and acknowledged Grant
Deed (the “Grant Deed”) in the form of Exhibit B
attached hereto, free and clear of liens, encumbrances,
leases, easements, restrictions, rights, covenants and
conditions, except the following (the “Permitted
Exceptions”): (a) the title exceptions in the
Preliminary Report [and approved (or deemed to be
approved) by Buyer pursuant to section 1.2 hereof],
(b) title exceptions shown by a correct survey of the
Property or a physical inspection of the Property, and
(c) any other matters created, permitted or approved by
Buyer.”
The Property is described in section 1.1 as the real property
“commonly known as 1000 Jefferson Street, together with the
improvements on such real property, the easements and rights
appurtenant to such real property”.
Atkemix’s obligations with regard to title insurance are
listed in section 7.2(c), under the heading of “Conditions
Precedent”:
On the Closing Date, the Title Company shall be
prepared to issue to Buyer a policy of title insurance
(or such equivalent title insurance coverage then in
effect), with liability equal to the total purchase
12
price for the Property, insuring Buyer that fee title
to the Property is vested in Buyer subject only to the
Permitted Exceptions.
In summary, under sections 4.1, 4.2, and 7.2(c), Atkemix was
required to convey good and marketable fee title to the real
property and to appurtenant easements, and arrange for a title
insurance policy, with the title and the insurance policy
subject only to “Permitted Exceptions.” Because the only
definition of “Permitted Exceptions” in the Pasadena Purchase
Agreement occurs in section 4.1, the Permitted Exceptions for
purposes of section 7.2(c) must be as defined in section 4.1.
Permitted Exceptions under section 4.1 included those
exceptions in Stewart Title’s preliminary reports that were
approved of, or deemed approved of, by Coastal. Section 1.2,
referenced in section 4.1, provided Coastal with means of
terminating the Pasadena Purchase Agreement. Under
section 1.2(d), Coastal had until February 27 to object, in
writing, to title exceptions in Stewart Title’s preliminary
reports. If Atkemix received such an objection, it had until
March 1 to elect either to remove or not remove the objection.
If it decided to remove the objection, it had until the closing
date to do so. If it chose not to remove the objection, Coastal
could, on or before March 1, terminate the agreement or withdraw
the objection. If termination was not chosen, Coastal would be
deemed to have withdrawn the objection and approved title subject
13
to the exception.2 The record provides no indication that
Coastal had, on or before February 10, exercised its rights under
this provision.
2. The February 10 Letter Agreement
At issue in this case is how the parties’ Letter Agreement
of February 10 affected Atkemix’s obligations. The Letter
Agreement deals with both the sale of Greens Bayou and the sale
of Pasadena. In paragraph 1 of the Letter Agreement, Atkemix
agreed to the sale of Greens Bayou prior to closing on Pasadena.
Paragraph 2 of the Letter Agreement provided that, “[e]xpressly
conditioned on Seller’s compliance with” paragraph 1:
a. Coastal agrees to waive Coastal’s right to
terminate the Pasadena Contract under Sections
1.2(a) and 1.2(d) of the Pasadena Contract.
b. Coastal and Seller agree that the “Closing Date”
under the Pasadena Contract will be March 14, 1995
or such earlier date as shall be established by
written agreement of the parties.
c. Coastal agrees that if: (i) Seller is able to
tender (and in fact does tender) Exhibits A and B
to the escrow “Grant Deed” under the Pasadena
Contract in the form attached hereto (or in a form
substantively identical thereto, which shall
include tendering of such Grant Deed with one or
more current or corrected equivalent easements
which may be added to the Deed and correspondingly
to the exceptions in Exhibit B but over the road
described in easement number F-279857 as currently
existing), or in other form hereafter approved in
writing by Coastal; (ii) Seller tenders
performance of its other obligations for closing
under the Pasadena Contract; and (iii) Coastal
refuses to or elects not to close the purchase of
2
This was not the only means of terminating the Pasadena
Purchase Agreement. Under section 1.2(a), Coastal could terminate
the Agreement by providing Atkemix written notice on or before
March 1, 1995 that Coastal had found the property “unacceptable.”
14
the Pasadena Property, then, as an addition to the
$50,000 Deposit under the Pasadena Contract to be
delivered and paid to Seller as liquidated
damages, Coastal shall pay and deliver an
additional $150,000, for an aggregate payment to
Seller thereunder of [$200,000].
Exhibit A attached to the Letter Agreement included the following
language in addition to a description of the metes and bounds of
Pasadena:
Together with [all grantor’s right, title and interest
in] easements as set forth in instruments recorded
under Clerk’s File Nos. F-279856, F-279857, and F-
279859 of the Real Property Records of Harris County,
Texas.
The portion in brackets above was interlineated.
Paragraph 2(c)(i), as Coastal has admitted,3 gives Atkemix
the choice of fixing, or not fixing, the easement problem.
Coastal argues that despite the language in paragraph 2(c)(i),
Atkemix remained obligated under paragraph 2(c)(ii) to fix the
easement problem prior to closing. It contends that under
sections 7.2(c) and 8.1(e)4 of the Pasadena Purchase Agreement,
and under the documents provided by Stewart Title, Atkemix was
required to ensure that Stewart Title was prepared to issue a
3
Coastal agreed that pursuant to the terms of the Letter
Agreement, Atkemix was given “the option of rectifying the
discrepancy with the access easement, and was provided time to do
so. However, the Letter Agreement clearly provided that [Seller]
was not required to rectify that discrepancy.” See Joint Pre-
Trial Order, R44 at 7.
4
Under section 8.1(e) of the Pasadena Purchase Agreement,
“The Title Company shall issue to Buyer the title insurance
policy described in section 7.2(c) hereof.” Section 8.1 begins
with “Seller and Buyer shall cause the following to occur at the
Closing on the Closing Date,” and thus presents obligations on
the part of both parties.
15
title insurance policy that did not include the easement problem
as an exception, and that such a policy would be issued at
closing.
Coastal believes that the following language in Schedule C
of Stewart Title’s March 14 revised Commitment5 strongly supports
its position:
Both Purchaser, Seller and we have been informed that
the access easement abutting the property and
continuing to the dedicated road is different on the
ground than as set forth in the original easement grant
of which both are reflected on the current survey.
Therefore, prior to closing we must be furnished with
an easement agreement that defines the easement as it
exists on the ground, in recordable form to be executed
by the fee estate owner of which the easement tract
traverses and to be also joined in by any lienholder,
if any.
Coastal interprets this language to require that Atkemix fix the
easement problem (i.e., submit recordable documents that defined
the easement as it actually existed) in order for a policy to
issue. Because Atkemix was required under section 7.2(c) to
ensure that Stewart Title was prepared to issue a policy, its
failure to provide the title company with the required evidence
of legal right of access resulted in its failure to fulfill its
contractual obligations. Moreover, because the above language
was located in Schedule C of the revised Title Commitment, and
not in Schedule B, Coastal contends that the easement problem was
not a Permitted Exception under the Pasadena Purchase Agreement.
5
The revised Commitment again contained three Schedules
(A, B, and C). There were seventeen items listed on Schedule B
(down from twenty), and nine items on Schedule C (up from eight).
The legal description of the property given on Schedule A
included reference to recorded easements.
16
The district court agreed with Coastal that Atkemix was
obligated to fix the easement problem before Coastal was required
to pay Atkemix anything. Our review of the Pasadena Purchase
Agreement, as amended, causes us to conclude that the district
court erred in so deciding.
3. Permitted Exceptions Under the Pasadena Purchase Agreement
We cannot accept Coastal’s interpretation of the Pasadena
Purchase Agreement, as amended, and of Stewart Title’s documents.
Contrary to what Coastal urges, language in the Stewart Title’s
revised Commitment for Title Insurance does not support its
contention that the title company required Atkemix to fix the
easement problem prior to closing in order for the policy to
issue. The pre-printed portion of Schedule C clearly states the
implication of Atkemix’s failure to meet the listed requirement
by fixing the easement problem prior to closing: The easement at
issue would be described on Schedule B and exist as an exception
to coverage. Thus, the policy would issue, but would issue with
the additional exception. This is consistent with Stewart
Title’s March 15 fax to both parties of revised Schedules A and B
(but no Schedule C), with Schedule B now including reference to
the easement problem.
Because Stewart Title did not require that Atkemix fix the
easement problem in order for a policy to issue, Coastal must
17
find support in the Pasadena Purchase Agreement, as amended, for
its argument that Atkemix was nonetheless required to correct the
problem. As noted above, Atkemix was obligated under
section 7.2(c) to ensure that Stewart Title was prepared to issue
a policy “insuring [Coastal] that fee title to the Property [was]
vested in [Coastal] subject only to the Permitted Exceptions.”
Coastal argues that it never agreed to allow Atkemix to obtain
title insurance that included the easement problem as an
exception. The dispute between the parties thus reduces to the
question of whether Coastal agreed to such a policy.
In order to evaluate Coastal’s contentions regarding the
nature of the title insurance policy it agreed to accept, we must
keep in mind the purpose of such policies, and in particular,
what a company such as Stewart Title agrees to when it issues an
insurance policy. The Tenth Circuit, evaluating a claim of
breach of a title insurance policy, provided the following
description of the purpose, and limitations, of such policies:
Title insurance is merely a contract to indemnify the
insured for any losses incurred as a result of later
found defects in title. Title insurance does not
insure the value of the subject property; it insures
only that the title to such property is unencumbered by
unknown liens, easements, and the like which might
affect the property’s value. In other words, a title
insurance policy is not analogous to a warranty of
title found in a deed which is breached, if at all, at
the time it is made.
First Fed. Sav. & Loan Ass’n v. Transamerica Title Ins. Co., 19
F.3d 528, 530 (10th Cir. 1994)(citations omitted); see also
Youngblood v. Lawyers Title Ins. Corp., 923 F.2d 161, 163 n.2
(11th Cir. 1991)(“‘[A] title insurance policy is not an agreement
18
to guarantee the state of title, but is, rather, an agreement to
indemnify the policy holder.’” (quoting D. BARLOW BURKE, JR., LAW OF
TITLE INSURANCE, § 1.3.1. at 18 (1986))); Martinka v. Commonwealth
Land Title Ins. Co., 836 S.W.2d 773, 777-78 (Tex. App. 1992, writ
denied) (describing law governing the title insurance business).
Understanding that a title insurance policy does not operate to
warrant title, but instead indemnifies the insured if
subsequently discovered title defects result in losses, we can
now evaluate Coastal’s claims.
Coastal argues that because the easement problem was not
listed in Schedule B of Stewart Title’s Commitment prior to March
15, it did not agree to allow the problem to be excepted from a
title insurance policy. This would be a stronger argument were
it not the case that the appearance in title insurance documents
of a listed exception was not required in order for a problem to
be considered a Permitted Exception under the Pasadena Purchase
Agreement. Section 4.1 provides three avenues for the creation
of a Permitted Exception, only one of which deals with exceptions
listed by Stewart Title. Coastal could, through operation of
section 1.2(d), approve, or be deemed to have approved, title
exceptions listed in the Stewart Title’s Preliminary Report.
Coastal’s argument focuses on this avenue. However, Permitted
Exceptions could also be “title exceptions shown by a correct
survey of the Property or a physical inspection of the Property.”
Finally, Permitted Exceptions include “any other matters created,
19
permitted or approved by Buyer” (emphasis added).6 Under section
9.5 of the Pasadena Purchase Agreement, “[t]he words ‘approval,’
‘consent’ and ‘notice’ shall be deemed to be preceded by the word
‘written.’” Thus, written approval was required.
Coastal maintains no such approval was given. It is clear,
however, that Coastal entered into certain agreements pertaining
to the easement problem when it executed the Letter Agreement of
February 10. On that date, Coastal knew of the easement problem.
From the Title Commitment dated January 17, it also had notice
that Stewart Title would list access-related problems as an
exception if it was not supplied with evidence of legal right of
access to and from Pasadena. Finally, prior to entering into the
Letter Agreement on February 10, Coastal had the ability, via
section 1.2(a),7 to terminate the Pasadena Purchase Agreement by
6
“Other matters” would cover access issues regardless of
whether those issues were considered defects in title, per se.
See LEE R. RUSS, COUCH ON INSURANCE ch. 159, at 78 (3d ed. 1998)
(“Ability to access a parcel of real estate . . . is not
technically a ‘defect’ in the title of the property.”).
7
Section 1.2(a) provides that:
Buyer shall, in good faith and with diligence, at
Buyer’s expense, review and investigate the physical
and environmental condition of the Property, the
character, quality and general utility of the Property,
the zoning, land use, environmental and building
requirements and restrictions applicable to the
Property, and the state of title to the Property. . . .
Buyer shall determine whether or not the Property is
acceptable to Buyer within the Property Approval
Period. If, during the Property Approval Period, Buyer
determines that the Property is not acceptable, Buyer
shall have the right, by giving notice to Seller on or
before the last day of the Property Approval Period, to
terminate this Agreement.
20
simply giving Atkemix written notice. Nonetheless, Coastal
executed the Letter Agreement. In it, Coastal allowed Atkemix to
tender a documents that quitclaimed its recorded easement rights
and waived its rights to terminate the Pasadena Purchase
Agreement through the procedures established in sections 1.2(a)
and 1.2(d) of that Agreement.8
We find that by agreeing to the terms of the Letter
Agreement, Coastal approved, in writing, Atkemix’s option to
arrive at closing without evidence that it had legal right of
access to and from Pasadena, and thereby made the easement
problem a Permitted Exception under the third of section 4.1's
means of creating such exceptions. Section 4.1 speaks to the
form of the Grant Deed that Atkemix was to tender; the Letter
Agreement allows Atkemix to tender documents in the form of
exhibits attached to it. Those exhibits included new language
quitclaiming Atkemix’s recorded easement rights. Coastal
therefore agreed, in writing, to allow Atkemix to tender fee
title to Pasadena, with the exception of its recorded easement
rights, which Atkemix could quitclaim.
The Property Approval Period ran from October 7, 1994 to March 1,
1995.
8
Because the Letter Agreement expressly stated that
Coastal waived its termination rights under sections 1.2(a) and
1.2(d) of the Pasadena Purchase Agreement, we find the district
court’s conclusion that “[a]ny preexisting right Coastal had
under the original Pasadena Purchase Agreement to terminate the
deal if Atkemix failed to obtain legal access to the Pasadena
property by the time of closing was not waived by Coastal’s
execution of the Letter Agreement” in error.
21
In addition, Coastal’s waiver of rights under section 1.2(d)
meant that it would no longer have the ability to terminate if
Stewart Title included the easement problem (or any other title
exception) in any revised document submitted to the parties prior
to February 27. Although section 1.2(d) required some action on
the Atkemix’s part to trigger Coastal’s termination rights, this
was not the case under section 1.2(a). That section gave Coastal
the ability to terminate the agreement for virtually any reason
by merely submitting written notice to Atkemix. If it did so,
the Pasadena Purchase Agreement provided that the $50,000
deposit, plus interest, would be returned to Coastal. Rather
than exercising its option to terminate the Agreement under
section 1.2(a), Coastal agreed to waive that option. The effect
of this was to deem the property, with a quitclaim of recorded
easement rights, “acceptable.”
Because the lack of evidence of legal access to and from
Pasadena was a Permitted Exception under section 4.1, it was also
a Permitted Exception under section 7.2(c). In this way, Coastal
allowed Atkemix to not fix the easement problem and nonetheless
fulfill its obligations under section 7.2(c) by ensuring that
Stewart Title was “prepared to issue . . . a policy of title
insurance . . . insuring Buyer that fee title to the Property is
vested in Buyer subject only to the Permitted Exceptions.” Once
Coastal agreed to allow Atkemix to quitclaim its recorded
easement rights, it could not expect that Stewart Title would
issue a policy that insured fee title to the easement, free of
22
defects, in Coastal. As we said earlier, a title insurance
company cannot reasonably be expected to respond to a quitclaim
by insuring good and marketable title in the buyer.
This interpretation of the Pasadena Purchase Agreement, as
amended, also prevents us from having to render portions of the
Letter Agreement meaningless. See Balandran v. Safeco Ins. Co.
of Am., 972 S.W.2d 738, 741 (Tex. 1998); R & P Enters., 596
S.W.2d at 519 (“[T]he Court will examine and consider the entire
instrument so that none of the provisions will be rendered
meaningless.”). Coastal’s basic argument is that, despite
paragraph 2(c)(i)’s language allowing Atkemix to tender documents
that quitclaimed its easement rights, i.e. allowing Atkemix to
not fix the easement problem, Atkemix was nonetheless obligated
under paragraph 2(c)(ii) to fix the easement problem.
Interpreting paragraph 2(c)(ii) in the manner Coastal urges would
render meaningless language in paragraph 2(c)(i) that provides
Atkemix with options regarding the form of documents it could
tender at closing.
Once Atkemix tendered the documents allowed under the Letter
Agreement and ensured that Stewart Title was willing to issue
title insurance subject only to Permitted Exceptions, Coastal had
the option of closing on Pasadena or not closing. If it chose
the latter option, it was obligated to pay an additional
$150,000. There were no other options. It had waived all its
rights to terminate the Pasadena Purchase Agreement on February
10, and even if that had not occurred, the operative deadline for
23
terminating the agreement, March 1, had passed. In failing to
close or pay, Coastal breached the Pasadena Purchase Agreement,
as amended. The district court erred in concluding otherwise.
The district court also erred in concluding that the “pay or
close” provision within the Letter Agreement was unenforceable
because it was not supported by consideration. It is clear from
the Letter Agreement itself and the circumstances surrounding its
execution that the provision does not fail for lack of
consideration. The “pay or close” provision was introduced with
language expressly conditioning the section’s terms on Atkemix’s
sale of Greens Bayou to Coastal. Thus, Atkemix agreed to allow
Greens Bayou to close prior to Pasadena.9 In addition, under the
terms of the “pay or close” provision, Coastal retained the right
to choose not to close even if Atkemix had fixed the easement
problem. Atkemix agreed that it would have “no recourse against
Coastal or its assets (other than collection of the above-
described $200,000 in liquidated damages) for failing to
consummate the purchase of the Pasadena Property” and expressly
waived its rights of specific performance and to an action for
9
The court below may have based its conclusion in part on
the misplacement, within the Greens Bayou Purchase Agreement, of
language tying the Greens Bayou closing to that of Pasadena.
Rather than being included among the conditions that Seller could
require as conditions precedent, the paragraph was placed within
the section listing items that the Buyer could require as
conditions precedent. The language of the misplaced paragraph
demonstrates the mistake: It talks entirely of Buyer’s
obligations, using the phrase “Buyer shall.” Under the
circumstances, it would be clear error to find that the parties
intended to allow Coastal to waive the prior closing on Pasadena,
as would be the case if the paragraph was interpreted as being
part of the section listing obligations on the part of Atkemix.
24
damages other than the $200,000 (and reasonable attorney fees).
Thus, the provision was supported by consideration and the
district court erred in concluding otherwise.
IV. ATTORNEY FEES
In light of our conclusions above, we must also reverse the
portion of lower court’s judgment awarding Coastal attorney fees.
We remand the issue of Atkemix’s attorney fees, which, consistent
with the Letter Agreement, it also seeks.
V. CONCLUSION
For the reasons above, we REVERSE the district court’s
judgment as it pertains to Atkemix and Coastal, and REMAND for
determination of attorney fees to be awarded Atkemix and for
entry of judgment not inconsistent with this opinion. Coastal
shall bear the costs of this appeal.
25