HSM Wynngate 04, LTD v. Texas Sotherby Homes, Inc., F/K/A Shaddock Builders and Developers, Inc. D/B/A Sotherby Homes

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-15-00281-CV
HSM WYNNGATE 04, LTD APPELLANT
V.
TEXAS SOTHERBY HOMES, INC., APPELLEE
F/K/A SHADDOCK BUILDERS AND
DEVELOPERS, INC. D/B/A
SOTHERBY HOMES
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FROM THE 367TH DISTRICT COURT OF DENTON COUNTY
TRIAL COURT NO. 2013-50941-367
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MEMORANDUM OPINION1
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Appellant HSM Wynngate 04, Ltd. (HSM) appeals from the trial court’s final
judgment granting summary judgment in favor of Appellee Texas Sotherby
Homes, Inc., f/k/a Shaddock Builders and Developers, Inc. d/b/a Sotherby
1
See Tex. R. App. P. 47.4.
Homes (Sotherby) on HSM’s declaratory judgment claim and awarding Sotherby
interpleaded funds held in the trial court’s registry. We affirm.
Background
In 2005, HSM and Sotherby2 entered into a contract for the development
and purchase of sixty-one single family lots in the WynnGate Subdivision in
Frisco, Texas. Pursuant to the contract, Sotherby deposited $140,000 in earnest
money with American Title Company. The contract provided that after Sotherby
purchased thirty lots, the earnest money deposit would be reduced to $70,000,
which was to “remain on deposit under the control of the title company and
applied to the purchase of the last lot or lots to be purchased [under the
contract].” The contract further provided that “[i]f this Contract is terminated prior
to the Closing of all the Lots, the Earnest Money Deposit then on deposit shall be
delivered to Seller or returned to Purchaser by the Title Company as elsewhere
provided herein.”
The contract also set out each party’s remedies in the event of the other
party’s default. In the event of Sotherby’s default, the contract provided the
following remedies to HSM:
2
At the time the contract was executed, Sotherby was Shaddock Builders
and Developers, Inc.
2
3.02 PURCHASER’S OBLIGATIONS
....
(b) Should Purchaser fail to consummate this Contract with
respect to any particular Lot or Lots within the time specified above,
for any reason except default hereunder by Seller, Seller shall, as
Seller’s sole and exclusive remedy hereunder, have the right to
terminate this Contract and to retain the Earnest Money then on
deposit. Seller may enforce specific performance on only the first
twelve (12) Lots to be closed by Purchaser under this Contract and
waives any other remedies which might be available to it upon
default by Purchaser, except for Seller’s right to terminate this
Contract and receive and retain the Earnest Money then on deposit
as liquidated damages for such default and not as a penalty.
....
5.01 SELLER’S REMEDIES. In the event that Seller shall fulfill all
of Seller’s obligations pursuant to this Contract, should Purchaser
breach any term of this Contract, Seller shall be entitled, as Seller’s
sole and exclusive remedy to (i) waive the contractual obligations of
Purchaser in writing; or (ii) extend the time for performance by such
period as may be mutually agreed upon in writing by the Parties
hereto; or (iii) terminate this Contract as to all un-purchased Lots and
receive the Earnest Money then on deposit as liquidated damages
for such default and not as a penalty as the sole and exclusive
remedy of Seller, in which event the Parties shall be released here
from and have no further rights, obligations or responsibilities
hereunder. [Emphasis added.]
Paragraph 9 of the contract provided that each party was entitled to written notice
of any default and would have fifteen days from the receipt of the notice to cure
the default prior to the exercise of any remedy provided in the contract.
Sotherby failed to purchase all sixty-one lots. On April 13, 2009, HSM sent
a letter to Sotherby stating as follows:
The purpose of this letter is to furnish Purchaser with written
Notice of Default of Purchaser’s obligations under the above
3
referenced Contract and to invoke the fifteen (15) day period to allow
cure of such default provided under paragraph 9 of the Contract.
In accordance with paragraph 3.02(a) of the Contract,
Purchaser was obligated to have purchased and closed all sixty-one
(61) Lots under the Contract on or before 4-18-2008. As of the date
hereof, Purchaser has closed on only fifty-two (52) of such Lots
leaving nine (9) Lots contracted to be purchased and closed.
Demand is hereby made on Purchaser to purchase and closed [sic]
the remaining nine (9) Lots on or before the expiration of the allowed
period to cure such default (being the date of 5-28-2009).[3]
In the event that Purchaser fails to cure the above described
default on or before the date noted, Seller will exercise its available
remedies in accordance with paragraph 5.01 of the Contract and
applicable law including termination of Purchaser’s rights under the
Contract and demand forfeiture and delivery to Seller of Purchaser’s
remaining Earnest Money Deposit.
HSM claims Sotherby did not cure its default, but HSM took no action to recover
the earnest money deposit.
By letter dated February 13, 2013, American Title Company’s successor in
interest, Capital Title of Texas, LLC (Capital Title), informed Sotherby and HSM
that $70,167.33 in earnest money remained on deposit and requested
instructions from the parties on how to disburse the funds. In response, on April
11, 2013, HSM sent a letter to Sotherby stating, in part,
Seller has previously notified Purchaser that it has been and
continues to be in default under the terms of the Contract for failure
to purchase lots in the WynnGate Subdivision as required by the
Contract and such default was not cured during the applicable cure
period provided by the Contract.
3
It appears that the May 28, 2009 cure deadline was an error because the
contract provided the parties only fifteen days to cure any default.
4
Seller has terminated the Contract and demands that the
earnest money (“Earnest Money”) now held in connection with the
Contract by Capital Title . . . in the approximate amount of
$70,167.33, together with any and all interest earned on the Earnest
Money, be immediately disbursed to Seller.
HSM sent Sotherby another letter on May 24, 2013, reiterating its demand for the
earnest money and threatening litigation if Sotherby did not comply.
On December 13, 2013, HSM filed a declaratory judgment action against
Sotherby and Capital Title, seeking a declaration as to the parties’ rights, duties,
and obligations under the contract and a judgment ordering Sotherby and Capital
Title to release the earnest money and all accrued interest thereon to HSM. See
Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001–.11 (West 2015). Capital Title filed
an interpleader petition and deposited the earnest money into the trial court’s
registry. The trial court signed an agreed order on the interpleader petition
dismissing all claims against Capital Title.
In its answer, Sotherby pled that HSM’s claims were barred by limitations
and claimed that it was entitled to the interpleaded funds and attorney’s fees.
Sotherby then moved for summary judgment on its affirmative defense. After a
hearing at which the trial court indicated that it was going to grant Sotherby’s
motion, Sotherby filed a motion for release of the interpleaded funds from the
court registry and for attorney’s fees. The trial court then signed an order
granting Sotherby’s motion for summary judgment. HSM moved for rehearing,
and after a hearing, the trial court denied the motion for rehearing. The trial court
5
entered a final judgment against HSM awarding the interpleaded funds and
$17,290 in attorney’s fees to Sotherby. HSM has appealed.
Limitations
In the first part of its sole issue, HSM contends the trial court erred by
granting summary judgment based on the statute of limitations.
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,
315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the
light most favorable to the nonmovant, crediting evidence favorable to the
nonmovant if reasonable jurors could, and disregarding evidence contrary to the
nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. 20801,
Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A defendant is entitled to
summary judgment on an affirmative defense if the defendant conclusively
proves all the elements of the affirmative defense. Frost Nat’l Bank v.
Fernandez, 315 S.W.3d 494, 508–09 (Tex. 2010), cert. denied, 562 U.S. 1180
(2011); see Tex. R. Civ. P. 166a(b), (c). To accomplish this, the defendant-
movant must present summary judgment evidence that conclusively establishes
each element of the affirmative defense. See Chau v. Riddle, 254 S.W.3d 453,
455 (Tex. 2008).
In its motion, Sotherby asserted HSM’s declaratory judgment claim was
barred by the four-year statute of limitations. Both parties agree that a four-year
6
limitations period applies to HSM’s claims. Because a declaratory judgment
action is a procedural device used to determine substantive rights, we must look
to the legal remedy underlying the cause of action to determine the applicable
limitations period. Nw. Austin Mun. Util. Dist. No. 1 v. City of Austin, 274 S.W.3d
820, 836 (Tex. App.—Austin 2008, pet. denied). Here, HSM is seeking the
earnest money as liquidated damages for Sotherby’s default pursuant to the
terms of contract. An action for breach of contract is governed by a four-year
statute of limitations. See Tex. Civ. Prac. & Rem. Code Ann. § 16.051 (West
2015); Smith v. Ferguson, 160 S.W.3d 115, 123 (Tex. App.—Dallas 2005, pet.
denied). Thus, we agree with the parties that the four-year limitations period
applies.
Limitations begin to run when a cause of action accrues, and the date of
accrual is a question of law. Waxier v. Household Credit Servs., Inc., 106
S.W.3d 277, 279 (Tex. App.—Dallas 2003, no pet.). A cause of action under the
declaratory judgments act does not accrue until there is an actual dispute or
controversy between the parties. In re Estate of Denman, 362 S.W.3d 134, 144
(Tex. App.—San Antonio 2011, no pet.). Accordingly, Sotherby had to prove as
a matter of law when the actual dispute or controversy on the issues raised in
HSM’s declaratory judgment claim arose and prove HSM’s petition was filed
more than four years after the controversy arose. See id. at 144–45.
In its motion for summary judgment, Sotherby argued that the controversy
between the parties accrued in either April 2009 (when HSM sent Sotherby the
7
notice of default) or in May 2009 (when the “cure period” expired without cure).
HSM asserted in the trial court and contends on appeal that (1) no justiciable
controversy existed until it demanded a release of the earnest money deposit in
2013 and Sotherby refused to authorize the release of the earnest money deposit
from Capital Title and (2) Sotherby’s April 13, 2009 default under the lot purchase
contract constituted a mere theoretical dispute as to the earnest money prior to
HSM’s demand for the earnest money deposit in 2013.
We agree with Sotherby that an actual dispute or controversy existed
between the parties when Sotherby failed to cure its default in response to
HSM’s April 2009 letter in which HSM recognized Sotherby’s default, HSM’s
remedies, and the date by which HSM was entitled to seek those remedies. Cf.
Drexel Corp v. Edgewood Dev., Ltd., 417 S.W.3d 672, 674–75 (Tex. App.—
Houston [14th Dist.] 2013, no pet.) (concluding that client’s declaratory judgment
action against real estate broker as to when payment for broker’s services were
due presented a justiciable controversy and was ripe where broker sent demand
letter to client asserting $12 million was “due and owing” under the contract but
client contended that broker’s interpretation of the contract was incorrect and
denied that it owed broker the payment demanded); Mackie v. Guthrie, 78
S.W.3d 462, 467 (Tex. App.—Tyler 2001, pet. denied) (holding plaintiff had
standing to maintain a declaratory judgment action where plaintiff received a
demand letter from defendant and the declarations sought by plaintiff would
prevent defendant from recovering under the contract). When Sotherby failed to
8
cure its default, HSM had the right to terminate the contract and receive the
earnest money then on deposit as liquidated damages for Sotherby’s default.
HSM did not file its declaratory judgment action until December 2013, more than
four years after the actual dispute or controversy arose. Thus, Sotherby
established its affirmative defense as a matter of law, and the trial court did not
err by granting Sotherby’s motion for summary judgment. Accordingly, we
overrule the first part of HSM’s only issue.
The Interpleaded Funds
In the second part of its sole issue, HSM argues that Sotherby failed to
satisfy its burden of establishing its right to the interpleaded funds. Sotherby had
the burden to prove its right to the interpleaded funds. See Westbrook Constr.
Co. v. Fidelity Nat’l Bank of Dallas, 813 S.W.2d 752, 754 (Tex. App.—Fort Worth
1991, writ denied); see also Marine Indem. Ins. Co. of Am. v. Lockwood
Warehouse & Storage, 115 F.3d 282, 289 (5th Cir.) (stating that a claimant to
interpleaded funds has a burden of establishing its right to them by a
preponderance of the evidence), cert. denied, 522 U.S. 967 (1997); Johnson v.
Structured Asset Servs., LLC, 148 S.W.3d 711, 726 (Tex. App.—Dallas 2004, no
pet.) (“In an interpleader action, each party making a claim to the funds at issue
bears the burden of establishing his right to the funds.”).
HSM argues that Sotherby’s claim to the interpleaded funds is barred by a
four-year statute of limitations and that Sotherby, as the depositor, did not retain
equitable title to the earnest money because upon depositing the funds into
9
escrow, Sotherby lost control over the earnest money, and equitable title to the
earnest money vested in HSM. HSM also argues that Sotherby was not entitled
to the interpleaded funds under section 3.02(b) of the contract, which provides as
follows:
Should Purchaser fail to consummate this Contract with respect to
any particular Lot or Lots within the time specified above, for any
reason except default hereunder by Seller, Seller shall, as Seller’s
sole and exclusive remedy hereunder, have the right to terminate
this Contract and to retain the Earnest Money then on deposit.
Seller . . . waives any other remedies which might be available to it
upon default by Purchaser, except for Seller’s right to terminate this
Contract and receive and retain the Earnest Money then on deposit
as liquidated damages for such default and not as a penalty.
“Texas courts hold that when a grantor executes an escrow agreement
and deposits the subject matter into escrow, he retains legal title to the subject
matter, with equitable title passing to the ultimate grantee.” In re Missionary
Baptist Found. of Am., Inc., 792 F.2d 502, 504 (5th Cir. 1986) (citing Cowden v.
Broderick & Calvert, 131 Tex. 434, 114 S.W.2d 1166 (Tex. 1938); Hudgins v.
Krawetz, 558 S.W.2d 131, 134 (Tex. Civ. App.—San Antonio 1977, no writ)). In
addition, “Texas escrow law provides that a party who deposits funds in escrow
relinquishes control over those funds.” In re AFI Servs., LLC, 486 B.R. 827, 838
(Bankr. S.D. Tex. 2013) (citing Day v. Townsend, 238 S.W. 213, 215 (Tex.
Comm’n App. 1922, holding approved); Cutbirth v. Snowden, 252 S.W.2d 477,
482 (Tex. Civ. App.—El Paso 1952, writ ref’d n.r.e.)). Thereafter, “[t]he ultimate
disposition of the subject matter to the grantor or grantee is determined by the
10
terms of the agreement, upon fulfillment of the necessary conditions.” Missionary
Baptist Found. of Am., 792 F.2d at 504.
As the depositor, Sotherby retained legal title to the earnest money unless
and until HSM proved it was entitled to it under the terms of the contract.
Because HSM’s declaratory judgment action asking the trial court to determine
the parties’ rights, duties, and obligations under the contract—including a
declaration that Sotherby defaulted under the contract and that HSM was entitled
to the earnest money under the terms of the contract—is barred by limitations,
HSM did not establish that it was entitled to the earnest money under the terms
of the contract. And we need not determine whether Sotherby’s claims to the
earnest money under the terms of the contract are barred by limitations because
even if they were, Sotherby, as the depositor, retained legal title to those funds.
In this particular instance, Sotherby’s legal title to the funds prevails over HSM’s
equitable title. See Black’s Law Dictionary 1713 (10th ed. 2014) (defining
“equitable title” as “[a] title that indicates a beneficial interest in property and that
gives the holder the right to acquire formal legal title” and “legal title” as “[a] title
that evidences apparent ownership but does not necessarily signify full and
complete title or a beneficial interest”); see also id. at 934 (defining “beneficial
interest” as “[a] right or expectancy in something . . . as opposed to legal title to
that thing”). Accordingly, Sotherby established by a preponderance of the
evidence that it was entitled to the interpleaded funds; therefore, the trial court
11
did not err by awarding them to Sotherby. We overrule the remainder of HSM’s
sole issue.4
Conclusion
Having overruled HSM’s sole issue on appeal, we affirm the trial court’s
judgment.
/s/ Anne Gardner
ANNE GARDNER
JUSTICE
PANEL: LIVINGSTON, C.J.; DAUPHINOT and GARDNER, JJ.
DELIVERED: August 31, 2016
4
HSM also argues for the first time on appeal that Sotherby’s limitations
argument is essentially an assertion that HSM forfeited or waived its right to the
earnest money. HSM never presented this argument to the trial court, thereby
failing to preserve it for our review. See Tex. R. App. P. 33.1.
12