Rex Smith v. Kelly Davis and Amber Davis

NO. 12-14-00007-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
REX SMITH AND NANCY SMITH, § APPEAL FROM THE 294TH
APPELLANTS
V. § JUDICIAL DISTRICT COURT
KELLY DAVIS AND AMBER DAVIS,
APPELLEES § VAN ZANDT COUNTY, TEXAS
OPINION ON REHEARING
Kelly Davis and Amber Davis filed a motion for rehearing of our February 18, 2015
opinion. We overrule the motion for rehearing, but we withdraw our February 18, 2015 opinion
and judgment, and substitute the following opinion and judgment in its place.
Rex Smith and Nancy Smith appeal the trial court’s judgment in favor of Kelly Davis and
Amber Davis based on Texas Property Code Section 5.077. The Smiths raise fourteen issues on
appeal. We affirm in part, reverse and render in part, and reverse and remand in part.
BACKGROUND
The Smiths own the Tall Oaks Estates Subdivision in Van Zandt County, Texas. In 2003,
Rex Smith signed a contract with the Davises to allow them to purchase lot 9 of the subdivision
for $43,750.00 with payments to be made over 180 months. In 2004, the Davises executed a
vendor’s lien note and deed of trust made payable to the Smiths, after which the Smiths executed
a warranty deed with vendor’s lien conveying lot 9 to the Davises.
In March 2005, lot 7 in the subdivision became available for purchase. After a meeting
between Rex Smith and the Davises, they executed another contract in which the Davises agreed
to purchase lot 7 for $65,100.00, with payments to be made over a 360 month period. The
payments that the Davises had made to the Smiths for lot 9 were applied to the purchase price for
lot 7. Additionally, the Davises reconveyed lot 9 to the Smiths.
As 2007 came to a close, the Davises requested that the Smiths give them a deed to lot 7,
as had been done on lot 9. Before sending the Davises the requested deed to lot 7, Rex Smith sent
a vendor’s lien note and deed of trust to the Davises to sign. In response, the Smiths received the
following letter from S. Gary Werley, the attorney for the Davises:
January 15, 2008
Rex Smith and wife, Nancy Smith
P. O. Box 536
Eustace, TX 75214
Re: Lots #7 Tall Oaks Estates
Van Zandt County
Dear Mr. and Mrs. Smith:
I represent Kelly and Amber Davis in reference to the executory contract for Lot #7 of Tall
Oaks Estates Subdivision, dated March 22, 2005.
You furnished a Deed of Trust and Promissory Note pursuant to Section 5.081 of the Texas
Property Code. The section is only available [sic] to the purchaser, who is not responsible for any
costs and requires you to execute and record a warranty deed. Also the note is to be equal to the
balance owed under the contract-not the contract total.
I inquired about the balance and was informed that you had not furnished the Annual
Accounting Statement required by Section 5.077. Pursuant to Section 5.077(d) you are liable for
liquidated damages in the amount of $250.00 a day since January 31, 2006 and $500.00 a day since
January 31, 2007 for a total of $273,750.00, limited by the fair market value of the property being
$90,000.00.
Please send the sum to me, made payable to Kelly and Amber Davis.
Yours truly,
/s/ S. Gary Werley
S. Gary Werley
When the Smiths did not meet their demands, the Davises filed suit against the Smiths
alleging various statutory violations based on the contract to convey lot 7. Eventually, the case
was tried to a jury. The jury made findings in favor of the Davises based on statutory fraud in a
real estate transaction under Texas Business and Commerce Code Section 27.01, and failure to
provide annual statements under Texas Property Code Section 5.077, as well as various other
2
violations of the Texas Property Code.
Before judgment was rendered, the Davises elected to take the relief found by the jury
pertaining to statutory fraud in a real estate transaction. The Smiths appealed to this court, and
we reversed the trial court’s judgment based on that theory. See Smith v. Davis, No. 12-12-
00169-CV, 2013 WL 2424266, at*1 (Tex. App.—Tyler June 5, 2013, no pet.) (mem. op.). We
also remanded the case to the trial court, so that the Davises could elect another remedy. Id. at
*7.
On remand, the Davises elected the relief awarded by the jury for the Smiths’ failure to
provide the annual statements required by Texas Property Code Section 5.077. The trial court
rendered a new judgment awarding the Davises $65,100.00 for the Section 5.077 violations. The
new judgment also included other alternative remedies in the event the Section 5.077 award was
reversed as part of this appeal. Specifically, the trial court alternatively awarded $33,664.41 to
the Davises under Texas Property Code Sections 5.069 (failure to provide a survey and disclosures
concerning whether the property was within a flood plain), 5.070 (failure to provide tax
certificates), and 5.072 (failure to provide notice that the written agreement is the final agreement
of the parties, and that oral agreements were prohibited). The trial court also alternatively awarded
the Davises $33,664.41 for common law negligent misrepresentation and mutual mistake.
Finally, the trial court awarded prejudgment interest and attorney’s fees. This appeal followed.
TEXAS PROPERTY CODE SECTION 5.072 – ENFORCEABILITY OF EXECUTORY CONTRACTS
In their first, fourth, seventh, and tenth issues, the Smiths claim that the executory contract
violates Section 5.072 of the Texas Property Code in two respects: (1) the contract required
Nancy’s signature because the property was Rex and Nancy’s joint community property, yet her
signature was absent from the agreement; and (2) there were oral agreements between the parties
at the time the contract was executed.1
1
The Smiths, in their first issue, make this argument with respect to the Davises recovery of “liquidated
damages” under Section 5.077 of the Texas Property Code. In regard to their fourth, seventh, and tenth issues
respectively, they make this argument with respect to the Davises’ remedy of cancellation and rescission as to the
Smiths’ failure to provide, prior to the execution of the contract: (1) a survey, which was completed within the year
prior to the contract’s execution, or plat of a current survey of the property as required under Section 5.069, as well as
a notice concerning the property’s flood plain status; (2) a tax certificate from the collector for each taxing unit that
collects taxes due on the property as required under Section 5.070; and (3) the disclosure required under Section 5.072.
See TEX. PROP. CODE ANN. §§ 5.069(a)(1), (3), (d)(2) (West 2014); 5.070(a)(1), (b)(2) (West 2014); 5.072(d), (e)(2)
(West 2014).
3
Standard of Review and Applicable Law
An executory contract for the conveyance of real property, also known as a contract for
deed, is one method to effectuate a real estate transaction. See Flores v. Millennium Interests,
Ltd., 185 S.W.3d 427, 429 (Tex. 2005). Unlike a traditional mortgage, an executory contract
“allows the seller to retain title to the property until the purchaser has paid for the property in full.”
Id.; see also Shook v. Walden, 368 S.W.3d 604, 625 (Tex. App.—Austin 2012, pet. denied) (“A
contract for deed differs from a conventional contract for sale of realty, in which the seller and
purchaser mutually agree to complete payment and title transfer on a date certain (the ‘closing
date’)”). Said another way, in an executory contract, “legal title to the property does not transfer
until after all purchase payments have been made.” Flores, 185 S.W.3d at 435 (Wainwright, J.,
concurring).
Executory contracts covering property to be used as a residence must satisfy numerous
requirements, and are highly regulated by the legislature. See TEX. PROP. CODE ANN. §§ 5.061-
.085 (West 2004). Section 5.072, entitled “Oral Agreements Prohibited,” states in pertinent part
as follows:
(a) An executory contract is not enforceable unless the contract is in writing and signed by
the party to be bound or by that party’s authorized representative.
(b) The rights and obligations of the parties to a contract are determined solely from the
written contract, and any prior oral agreements between the parties are superseded by and
merged into the contract.
(c) An executory contract may not be varied by any oral agreements or discussions that occur
before or contemporaneously with the execution of the contract.
TEX. PROP. CODE ANN. § 5.072(a)-(c) (West 2004).
Discussion
Based on the clear and unambiguous language of the written contract, this contract is an
executory contract, because it allows the seller to retain title to the property until the purchaser has
paid for the property in full. See Morton v. Nguyen, 412 S.W.3d 506, 509-10 (Tex. 2013).
Specifically, the contract states that “Seller retains title to or liens on the land until all payments
hereunder have been paid in full, and NO PART OF THE LAND WILL BE CLEARED OF SUCH
SECURITY INTEREST PRIOR TO COMPLETION OF ALL PAYMENTS HEREUNDER.”
The Smiths argue that the contract in this case fails to comply with Section 5.072 for two
4
reasons. First, they contend that a portion of the contract is oral because the parties orally agreed
to convert the contract to a more traditional real estate transaction after a set time period and that
Nancy would sign the necessary documents at a future time. Consequently, their argument
continues, the contract is not subject to the restrictions on executory contracts because part of the
agreement is oral. Second, they contend that Nancy is not bound by the agreement because
neither she nor her authorized representative signed the contract.
The Smiths are correct that Section 5.072 prohibits oral agreements occurring prior to or
contemporaneously with the execution of the contract. See id. But the statute also states that
“[t]he rights and obligations of the parties to a contract are determined solely from the written
contract, and any prior oral agreements between the parties are superseded by and merged into the
contract.” Id. Thus, Section 5.072 simply restricts our review of the rights and obligations of
the parties to the written contract. Id. Here, the Davises presented a written contract executed
by Rex. The trial court’s judgment in favor of the Davises is against Rex alone, and not Nancy.
As such, the relief granted the Davises was based on the written contract, and not based upon any
oral agreement involving Nancy.
The Smiths also are correct that to be bound by an executory contract, the party or his
authorized representative must have signed the contract. See id. However, the Smiths argue that
Nancy is not bound by the contract because the contract lacks her signature. The trial court’s
judgment is not against Nancy. The trial court’s judgment is against Rex. The Smiths’ argument
does not go far enough to establish that the trial court erred. They have provided argument as to
why Nancy should not have had a judgment rendered against her, but there is no such judgment.
They have failed to provide argument as to how Section 5.072 prohibits a judgment against Rex,
a party who did sign the executory contract, and upon whom the trial court’s judgment imposes
liability to the Davises.
The Smiths’ first, fourth, seventh, and tenth issues are overruled
TEXAS PROPERTY CODE SECTION 5.077 – ANNUAL ACCOUNTING STATEMENT
In their third issue, the Smiths contend that the trial court was required to apply Texas Civil
Practice and Remedies Code Chapter 41 in awarding damages under Texas Property Code Section
5.077 but failed to do so. In their second issue, the Smiths contend that the evidence is legally
and factually insufficient to support an award of damages under Texas Property Code Section
5
5.077. Since these issues are related, we address them together.
Standard of Review
The meaning of a statute is a question of law, which we review de novo to ascertain and
give effect to the legislature’s intent. Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433,
437 (Tex. 2009); Hong Kong Dev., Inc. v. Nguyen, 229 S.W.3d 415, 457 (Tex. App.—Houston
[1st Dist.] 2007, no pet.). When construing a statute, we begin with its language. Our primary
objective is to determine the legislature’s intent, which, when possible, we discern from the plain
meaning of the words chosen. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). We
presume the legislature intended a just and reasonable result by enacting the statute. City of
Rockwall v. Hughes, 246 S.W.3d 621, 626 (Tex. 2008). Where the text is clear, it is
determinative of that intent. Entergy Gulf States, 282 S.W.3d at 437. When a statute’s language
is clear and unambiguous, it is inappropriate to resort to rules of construction or extrinsic aids to
construe the language. City of Rockwall, 246 S.W.3d at 626.
Exemplary Damages Under Chapter 41
When Chapter 41 applies to a cause of action, it limits the amount of exemplary damages
a claimant may recover. See TEX. CIV. PRAC. & REM. CODE ANN. § 41.008 (West Supp. 2014).
Texas Civil Practice and Remedies Code Section 41.002 states in pertinent part that
(a) This chapter applies to any action in which a claimant seeks damages relating to a cause of
action.
(b) This chapter establishes the maximum damages that may be awarded in an action subject to
this chapter, including an action for which damages are awarded under another law of this
state. This chapter does not apply to the extent another law establishes a lower maximum
amount of damages for a particular claim.
(c) Except as provided by Subsections (b) and (d), in an action to which this chapter applies, the
provisions of this chapter prevail over all other law to the extent of any conflict.
TEX. CIV. PRAC. & REM. CODE ANN. § 41.002(a)-(c) (West 2008).
Moreover, when Chapter 41 applies, a claimant seeking exemplary damages ordinarily
must prove by clear and convincing evidence that the damages resulted from fraud, malice, or
gross negligence. See id. § 41.003(a) (West Supp. 2014). Alternatively, the claimant may
recover exemplary damages if a statute establishes a cause of action authorizing exemplary
damages under specified circumstances, provided that the claimant proves the required
circumstances under the statute by clear and convincing evidence. See id. § 41.003(c). Generally
6
speaking, exemplary damages may be awarded under Chapter 41 only if damages other than
nominal damages are awarded. See id. § 41.004(a) (West 2008).
Annual Accounting Statement Under Texas Property Code Section 5.077
The current version of Section 5.077 states as follows:
§ 5.077. Annual Accounting Statement
(a) The seller shall provide the purchaser with an annual statement in January of each year for the
term of the executory contract. If the seller mails the statement to the purchaser, the statement
must be postmarked not later than January 31.
(b) The statement must include the following information:
(1) The amount paid under the contract;
(2) The remaining amount owed under the contract;
(3) The number of payments remaining under the contract;
(4) The amounts paid to taxing authorities on the purchaser’s behalf if collected by the
seller;
(5) The amounts paid to insure the property on the purchaser’s behalf if collected by the
seller;
(6) If the property has been damaged and the seller has received insurance proceeds, an
accounting of the proceeds applied to the property; and
(7) If the seller has changed insurance coverage, a legible copy of the current policy,
binder, or other evidence that satisfies the requirements of Section 5.070(a)(2).
(c) A seller who conducts less than two transactions in a 12-month period under this section who
fails to comply with Subsection (a) is liable to the purchaser for:
(1) Liquidated damages in the amount of $100 for each annual statement the seller fails to
provide to the purchaser within the time required by subsection (a); and
(2) Reasonable attorney’s fees.
(d) A seller who conducts two or more transactions in a 12-month period under this section who
fails to comply with Subsection(a) is liable to the purchaser for:
(1) Liquidated damages in the amount of $250 a day for each day after January 31 that the
seller fails to provide the purchaser with the statement, but not to exceed the fair
market value of the property; and
(2) Reasonable attorney’s fees.
TEX. PROP. CODE ANN. § 5.077 (West Supp. 2014). The pre-2005 version of Section 5.077 did
not include the limitation in (d)(1) that liquidated damages were “not to exceed the fair market
value of the property.” See Act of June 18, 2005, 79th Leg., R.S., ch. 978, § 5, 2005 Tex. Gen.
Laws 3282, 3284. Thus, the prior version allowed liability without limitation.
In Flores, the Texas Supreme Court was presented with three certified questions from the
United States Court of Appeals for the Fifth Circuit: (1) whether a seller who provides an annual
7
statement under Section 5.077 is liable for the statute’s “liquidated damages” provision when the
statement omits some of the required information; (2) if so, must the purchaser prove actual harm
or injury to recover under Section 5.077; and (3) whether “exemplary damages” in Chapter 41
encompass the “liquidated damages” in Section 5.077, requiring compliance with Section 41.003.
See Flores, 185 S.W.3d at 428. The court concluded that (1) the pre-2005 Section 5.077 is penal
in nature; (2) a deficient annual statement representing a good faith effort to provide the statement
does not trigger the liquidated damages provision in Section 5.077; and (3) that if the provision is
triggered, the legislature “did not intend that a purchaser prove actual damages as a predicate to
their recovery.” See id. at 429, 434. Importantly, however, the court went on to state that
“because the incomplete annual statement here did not invoke the liquidated damages provision of
Section 5.077(c), we decline to decide at this time whether these statutory damages are also
‘exemplary damages’ within the meaning of Chapter 41.” Id.
Later the same year, the Texarkana court of appeals answered the question left open in
Flores. Henderson v. Love, 181 S.W.3d 810, 817 (Tex. App.—Texarkana 2005, no pet.). In
Henderson, the court observed that the pre-2005 version of Section 5.077, standing alone, was
constitutionally suspect as an excessive fine because it contained no limitation on liability. Id. at
816. However, the court also concluded that “Section 5.077 does not stand alone” because “by
its terms, Chapter 41 applies to a Section 5.077 claim.” See id. at 817. This included the statute’s
liquidated damages provision, which “[fell] squarely within Chapter 41’s definition of exemplary
damages.” See id. Consequently, the court reasoned, Chapter 41 limits the claimant’s recovery
under the pre-2005 version of Section 5.077, rendering the statute constitutional. See id.; see also
TEX. CIV. PRAC. & REM. CODE ANN. § 41.008(b) (West Supp. 2014) (limiting exemplary damages
to the greater of (1) twice the amount of economic damages plus an amount equal to noneconomic
damages found by the jury, not to exceed $750,000; or (2) $200,000).
Unlike Flores and Henderson, the current version of Section 5.077 applies to this case.
However, the language pertinent to our analysis is the same in both versions.
Actual Damages
The Smiths argue that Chapter 41 applies to the Davises’ claim under the current version
of Section 5.077, and that the Davises failed to prove by clear and convincing evidence that they
suffered actual damages.
As we have stated, the Texas Supreme Court in Flores expressly declined to decide
8
whether Section 5.077’s “liquidated damages” are also “exemplary damages” within the meaning
of Chapter 41. Nevertheless, Chapter 41, by its own terms, clearly and unambiguously applies to
any action in which a claimant seeks damages. See TEX. CIV. PRAC. & REM. CODE ANN.
§ 41.002(a). Moreover, it establishes the maximum exemplary damage award, even when
damages are awarded under another law, unless the other law “establishes a lower maximum
amount of damages for a particular claim.” 2 Id. § 41.002(b). Chapter 41 also states that its
provisions prevail over conflicting laws. Id. § 41.002(c).
Under Chapter 41, “exemplary damages” means “any damages awarded as a penalty or by
way of punishment but not for compensatory purposes.” TEX. CIV. PRAC. & REM. CODE ANN.
§ 41.001(5) (West 2008). And the Texas Supreme Court has concluded that damages awarded
under Section 5.077 are penal in nature. Flores, 185 S.W.3d at 433.
Chapter 41 requires proof of actual damages as a predicate to exemplary damages. See
TEX. CIV. PRAC. & REM. CODE ANN. § 41.004(a). Section 5.077 does not require proof of actual
damages as a predicate to a recovery of liquidated damages. See TEX. PROP. CODE ANN. § 5.077.
Chapter 41 prevails over all other law to the extent of any conflict. See id. § 41.002(c). Such
provisions mean what they say and are to be given effect. See, e.g., Tex. Lottery Comm’n v. First
State Bank of DeQueen, 325 S.W.3d 628, 639 (Tex. 2010). The legislature expressed its intent
that Chapter 41 controls here, and we are not free to disregard the clear and unambiguous language
expressed in the statute. See id.; Flores, 185 S.W.3d at 438-39 (Brister, J., dissenting). In
Flores, Justice Brister stated in his dissenting opinion that Chapter 41 applies to Section 5.077 by
its explicit terms and it prevails over all other conflicting laws. Flores, 185 S.W.3d at 438-39
(Brister, J., dissenting). He stated further that such provision “leaves little room for exceptions[,
and w]e cannot presume . . . that the drafters of Chapter 41 forgot about statutory fines like the one
here; but even if they did, that would not authorize us to edit their draft.” Id. at 439. Justice
Brister’s dissent is consistent with the language of Chapter 41 and the principles governing its
interpretation. Therefore, we agree with the Smiths that Chapter 41 applies to recovery under
Section 5.077.
2
Here, the parties do not dispute that the current version of Section 5.077 is “another law” that “establishes
a lower maximum amount of damages” for this “particular claim.” TEX. CIV. PRAC. & REM. CODE ANN. § 41.002(b)
(West 2008). They also do not dispute that Section 5.077’s cap applies here, assuming that Chapter 41 applies
generally to their claims. Compare TEX. PROP. CODE ANN. § 5.077(d) with TEX. CIV. PRAC. & REM. CODE ANN.
§ 41.008(b).
9
We hold that Section 5.077 is subject to Chapter 41, and that a claimant must prove more
than nominal damages as a predicate to recovery of liquidated damages under Section 5.077.
Because the Davises failed to prove any actual damages from the Smiths’ failure to provide the
statements, the evidence is insufficient to support the award of Section 5.077 liquidated damages.
The Smiths’ second and third issues are sustained.
TEXAS PROPERTY CODE 5.072 – DISCLOSURE
In their eleventh issue, the Smiths argue that the Davises are not entitled to cancellation
and rescission of the contract for lot 7. Alternatively, they argue that in the event the Davises are
entitled to the remedy, the trial court erred in rendering judgment on that issue because the Davises
failed to present evidence as to the amount of rent they should have paid in restitution to offset the
cancellation and rescission remedy.
Standard of Review and Applicable Law
The seller of the property must include in the executory contract, or in a separate document
prior to the contract’s execution, a provision in 14-point boldfaced type or 14-point uppercase
typewritten letters that reads substantially similar to the following:
THIS EXECUTORY CONTRACT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
SELLER AND PURCHASER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
TEX. PROP. CODE ANN. § 5.072(d) (West 2014). Moreover, the notice is to be signed and dated
by the buyer and the seller. Id. If the seller fails to provide the notice, the buyer is entitled to
cancel and rescind the executory contract and receive a full refund of all payments made to the
seller. Id. § 5.072(e)(2). Separately, the failure to provide the notice qualifies as a false,
misleading, or deceptive act or practice under the Texas Deceptive Trade Practices Act (DTPA).
See id. § 5.072(e)(1).
Unlike the punitive nature of the liquidated damages penalty in Section 5.077, the
cancellation and rescission remedy is “not intended to be punitive—it merely provides the buyer
the option of unwinding the transaction.” Morton v. Nguyen, 412 S.W.3d 506, 511 (Tex. 2013).
Consequently, the cancellation and rescission remedy “contemplates mutual restitution of benefits
among the parties[, and the buyer] must restore to the seller supplemental enrichment in the form
10
of rent for the [buyer’s] interim occupation of the property upon cancellation and rescission of the
contract for deed.” Id. at 508. The statutory cancellation and rescission remedy does not
contemplate the common law restitution elements of notice and restitution or a tender of restitution
by the buyer, “as long as the affirmative relief to the buyer can be reduced by (or made subject to)
the buyer’s reciprocal obligation of restitution.” Id. at 511.
The right of offset, setoff, or reimbursement against damages is an affirmative defense that
must be pleaded and proved by the party asserting it. See Tenet Health Sys. Hosps. Dallas, Inc.
v. N. Tex. Hosp. Physicians Group, P.A., 438 S.W.3d 190, 204 (Tex. App.—Dallas 2014, no pet.)
(citing Brown v. Am. Transfer & Storage Co., 601 S.W.2d 931, 936 (Tex.1980)). Generally, an
affirmative defense must be pleaded in a responsive pleading, or the defense is waived. See TEX.
R. CIV. P. 94; MAN Engines & Components, Inc. v. Shows, 434 S.W.3d 132, 136–37 (Tex. 2014)
(stating Rule 94 makes clear that affirmative defenses must be raised in pretrial pleadings);
Shoemake v. Fogel, Ltd., 826 S.W.2d 933, 937 (Tex. 1992) (stating affirmative defense waived if
not pleaded). Mutual restitution in this circumstance, akin to the affirmative defense of offset or
setoff, is an affirmative defense that must be pleaded. See Morton, 412 S.W.3d at 508.
Discussion
The jury found in response to special issue number 12 that Rex Smith failed to provide the
notice required by Section 5.072 at the time the parties signed the executory contract for lot 7.
The Davises testified that they never received that disclosure. When asked at trial whether he
provided the disclosure, Rex Smith replied, “Well, of course not.” Moreover, our review of the
contract and the record shows that Rex did not provide the notice. Therefore, the Davises are
entitled to the cancellation and rescission remedy, relief they specifically requested in their
petition.3
The statute authorizes a “full refund.” When the parties exchanged lot 9 for lot 7, Rex
applied the amount of principal paid on lot 9, $3,700.00, as a down payment to lower the amount
the Davises would finance from Rex on lot 7 (from a $65,100.00 purchase price to a financed
amount of $61,400.00). The Davises then made twenty-eight monthly payments on lot 7 in the
3
The cancellation and rescission remedy is available for violations of Sections 5.069, 5.070, and 5.072. See
TEX. PROP. CODE ANN. §§ 5.069 (d)(2); 5.070(b)(2); 5.072(e)(2). Since we have determined that the Smiths failed
to provide the notice required by Section 5.072, we need not address the Smiths’ complaints relating to the jury’s
findings that the Smiths failed to comply with Sections 5.069 and 5.070. See TEX. R. APP. P. 47.1.
11
amount of $565.00 per month. In total, the Davises paid the Smiths $19,520.00 for lot 7.4 Amber
Davis testified that these are the correct amounts they paid on lot 7. And the recitals in the
contracts, along with Rex’s financial records and the Davises’ carbon copies of each payment,
confirm these amounts.
The Smiths contend that, under Morton, they are entitled to an offset against the refund for
the rental value of the property while the Davises occupied the land. We have noted that the
failure to plead and prove an offset waives any entitlement to it. Tenet Health Sys., 438 S.W.3d
at 204 (citing Brown, 601 S.W.2d at 936). The Texas Supreme Court made it clear in Morton
that the seller pleaded the affirmative defense in question. Morton, 412 S.W.3d at 508 (“Morton
asserted various affirmative defenses to the Nguyens’ counterclaims and alleged that he was
entitled to a setoff in the amount of the fair market rental value of the property for the time the
Nguyens occupied the house.”). Moreover, the court noted in Cruz v. Andrews Restoration Inc.,
the case upon which it based its subsequent holding in Morton, that the buyer’s right to receive
the refund is subject to the seller’s right to “plead and prove an offset.” Cruz v. Andrews
Restoration, Inc., 364 S.W.3d 817, 826 (Tex. 2012).
The Smiths failed to plead an affirmative defense or any facts suggesting that they seek a
setoff or an offset against the Davises’ refund. Furthermore, the parties did not try this issue by
consent. Rex stated at the trial’s conclusion that he had been paying taxes on the property since
this dispute began and that he will be unable to sell it until after this dispute is resolved. But there
is no evidence that the parties tried the issue of whether he was entitled to an offset or any evidence
establishing the proper amount of an offset. See Hartford Fire Ins. Co. v. C. Springs 300, Ltd.,
287 S.W.3d 771, 779 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (noting trial by consent
is reserved for exceptional cases, and we review the record not for admission of relevant evidence
on the issue, but rather for evidence of trial of the issue).
In a counterclaim, the Smiths contend that they also seek rescission, but argue that it is
impossible to return the parties to the position they maintained prior to the purchase of lot 7. This
is because, their argument continues, rescission would necessitate returning lot 9 to the Davises,
and Rex has resold lot 9 to a third party. But the Davises returned lot 9 to the Smiths as part of
4
Kelly Davis believed that he paid the real estate taxes on lot 7, but was unsure. There is no evidence in
the record as to the amount of taxes paid on lot 7 for the years in question.
12
this transaction in exchange for lot 7, and Rex applied the amount of principal the Davises had
paid on lot 9 ($3,700.00) to lot 7. The Davises do not seek the return of lot 9 and the statutory
“full refund” will include the $3,700.00 paid on lot 9 that was applied to lot 7. This satisfies the
requirements of the statute.
The Smiths have waived any entitlement to an offset. Therefore, the Davises are entitled
to a full refund in the amount of $19,520.00.
The Smiths’ eleventh issue is overruled.
ATTORNEY’S FEES
In their sixth, ninth, and twelfth issues, the Smiths argue that the Davises are not entitled
to attorney’s fees for violations under Sections 5.069, 5.070, and 5.072, and that the trial court
erred in awarding them.
Applicable Law
A purchaser recovering liquidated damages under Section 5.077 is entitled to reasonable
attorney’s fees. See TEX. PROP. CODE ANN. § 5.077(d)(2). Sections 5.069, 5.070, and 5.072 do
not authorize an award of attorney’s fees. See TEX. PROP. CODE ANN. §§ 5.069, 5.070, 5.072;
Morton, 412 S.W.3d at 512. However, violations of those sections support DTPA liability. See
TEX. PROP. CODE ANN. §§ 5.069(d)(1); 5.070(b)(1); 5.072(e)(1). The DTPA allows a “consumer”
who successfully obtains relief under the DTPA to recover costs and reasonable and necessary
attorney’s fees. TEX. BUS. & COM. CODE ANN. § 17.50(d) (West 2011).
Discussion
We have reversed the trial court’s judgment pertaining to liquidated damages under Section
5.077. Without those damages, an award of attorney’s fees in improper. See Morton, 412
S.W.3d at 512 (holding that without Section 5.077 liquidated damages and finance code claims,
no theory authorized a recovery of attorney’s fees, including an award of fees for cancellation and
rescission under Sections 5.069, 5.070, and 5.072).
The Davises pleaded that the statutory violations were false, misleading, or deceptive acts
under the DTPA, and they argue that they are entitled to fees because the DTPA statute applies.
However, as in Morton, the Davises did not recover under the DTPA. See id. at 513 (stating that
“[t]he trial court did not find that Morton violated the DTPA,” and holding that the purchasers
were not entitled to attorney’s fees under the DTPA, even though they were entitled to cancellation
13
and rescission under Sections 5.069, 5.070, and 5.072). Therefore, they are not entitled to
attorney’s fees.
The Smiths’ sixth, ninth, and twelfth issues are sustained.
CONCLUSION
We have overruled the Smiths’ first, fourth, seventh, and tenth issues relating to the
executory contract’s enforceability. We have also overruled the Smiths’ eleventh issue with
respect to their failure to provide the notice required by Section 5.072, along with their contention
that they are entitled to an offset against the Davises’ remedy of rescission and cancellation of the
executory contract. However, we have sustained their second and third issues regarding the
Davises’ recovery of liquidated damages under Section 5.077. We have also sustained the
Smiths’ sixth, ninth, and twelfth issues regarding the award of attorney’s fees.
Accordingly, we reverse the judgment of the trial court awarding the Davises $65,100.00
for the Section 5.077 violations, as well as all awards for attorney’s fees, and render judgment (1)
that the executory contract between Rex Smith and the Davises covering lot 7 is cancelled and
rescinded; (2) that the Smiths retain title and recover possession of lot 7; and (3) that Rex Smith
pay a full refund to the Davises in the amount of $19,520.00. Because their fifth, eighth,
thirteenth, and fourteenth issues pertain to alternative theories of recovery resulting in the same
remedy and amount of recovery, we need not address them. See TEX. R. APP. P. 47.1. The
portion of the trial court’s judgment denying the Smiths’ counterclaim and awarding prejudgment
interest for the Section 5.072 violation is affirmed. Because we have determined that the Davises
are entitled to a refund in the amount of $19,520.00, we remand the case so that the trial court may
recalculate prejudgment interest.
JAMES T. WORTHEN
Chief Justice
Opinion delivered April 22, 2015.
Panel consisted of Worthen, C.J. and Hoyle, J.
(PUBLISH)
14
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
APRIL 22, 2015
NO. 12-14-00007-CV
REX SMITH,
Appellant
V.
KELLY DAVIS AND AMBER DAVIS,
Appellee
Appeal from the 294th District Court
of Van Zandt County, Texas (Tr.Ct.No. 08-00171)
THIS CAUSE came to be heard on the appellate record and the briefs filed herein,
and the same being considered, because it is the opinion of this court that there was error in the
judgment of the court below, it is ORDERED, ADJUDGED and DECREED by this court that the
judgment awarding the Davises $65,100.00 for the Section 5.077 violations, as well as all awards
for attorney’s fees be reversed; judgment is rendered (1) that the executory contract between Rex
Smith and the Davises covering lot 7 is cancelled and rescinded; (2) that the Smiths retain title and
recover possession of lot 7; and (3) that Rex Smith pay a full refund to the Davises in the amount
of $19,520.00. The portion of the trial court’s judgment denying the Smiths’ counterclaim and
awarding prejudgment interest for the Section 5.072 violation is affirmed; and the cause is
remanded to the trial court for recalculating prejudgment interest.
It is further ORDERED that the costs of court incurred in both the trial and
appellate courts be assessed one-half against the Appellant, REX SMITH, and one-half against
the Appellees, KELLY DAVIS AND AMBER DAVIS; and that this decision be certified to the
court below for observance.
James T. Worthen, Chief Justice.
Panel consisted of Worthen, C.J. and Hoyle, J.