Nextera Retail of Texas, LP v. Investors Warranty of America, Inc.

Opinion issued November 21, 2013
In The
Court of Appeals
For The
First District of Texas
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NO. 01-12-00577-CV
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NEXTERA RETAIL OF TEXAS, LP, Appellant
V.
INVESTORS WARRANTY OF AMERICA, INC., Appellee
On Appeal from the 295th District Court
Harris County, Texas
Trial Court Case No. 2011-36374
OPINION
Appellant NextEra Retail of Texas, LP challenges the trial court’s judgment
granting appellee Investors Warranty of America, Inc.’s motion for summary
judgment and denying NextEra’s motion for summary judgment. In three issues,
appellant argues (1) Investors Warranty expressly assumed the obligations of the
contract between NextEra and another party; (2) Investors Warranty impliedly
assumed and ratified the obligations of that contract; and (3) the statute of frauds
has no relevance to the dispute.
We affirm.
Background
On October 3, 2008, NextEra—named at the time Integrys Energy Services
of Texas, LP—and CFS Northwind, L.P. entered into a contract for the provision
of electricity. The electricity contract provided that NextEra would sell and deliver
electricity to CFS at a specified location in Houston, Texas, for five years, ending
on November 1, 2013. Among the provisions in the contract was a clause
governing assignment of the contract:
There are no third party beneficiaries to the Agreement and none are
intended. This Agreement will not be assigned or transferred by you
[CFS] without prior written consent, which consent will not be
unreasonably withheld. We [NextEra] may assign this Agreement to
our parent, affiliate, subsidiary, or successor to all or a material
portion of our assets as long as notice is provided as soon as
reasonably practicable.
The contract also outlined the penalty for early termination of the contract:
“Early Termination” means we [NextEra] (i) receive notice from any
ISO or Utility that your [CFS’s] Account has moved away or will be
moving away from our account at ERCOT and we subsequently
provide you with written notice that we acknowledge such notice from
the ISO or Utility; or (ii) we receive notice from you, your agent or
representative (which includes any third-party aggregator, broker or
consultant) that you are terminating service to your Account(s).
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The property owned by CFS was subject to a mortgage in favor of its lender,
Investors Warranty. At some point after entering into the contract with NextEra,
CFS defaulted on its loan and surrendered the property to Investors Warranty
under a Deed in Lieu of Foreclosure. As a part of the transaction, CFS assigned its
rights under the electricity contract to Investors Warranty without notifying
NextEra.
The assignment contract expressly stated that Investors Warranty would not
assume any obligations or liabilities under CFS’s contracts. Specifically, the
contract provided:
[N]either Lender [Investors Warranty], nor any of the Lender Parties,
has or does hereby assume or agree to assume any liability whatsoever
of Owner [CFS], and neither Lender nor any of the Lender Parties
assumes or agrees to assume any obligation of Owner under any
contract, lease, agreement, indenture or any other document to which
Owner is a party, by which Owner is or may be bound or which in any
manner affects the Property, or any part thereof, except as otherwise
expressly agreed to by Lender in this Agreement and the Deed.
Investors Warranty operated under the electricity contract for nine months
after the foreclosure proceedings, and Investors Warranty fully paid for the
electricity provided. Four months after CFS assigned the electricity contract,
Investors Warranty sent NextEra a letter seeking to negotiate an electricity contract
for the Property. In pertinent part, it wrote,
Integrys Energy Services of Texas, LP had entered into a Power Sale
Agreement (hereinafter referred to as “Agreement”) with CFS
Northwind, LP, the previous owner, effective October 3, 2008 (copy
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enclosed for your reference). This agreement was not assumed when
[Investors Warranty] became the new owner. [Investors Warranty]
would like to discuss the possibility of entering into a new power
purchase agreement with Integrys.
NextEra never responded. At the end of the nine-month period, Investors
Warranty entered into a new agreement with a different electricity provider.
NextEra filed suit against CFS and Investors Warranty to recover early
termination damages, asserting that Investors Warranty’s change in electricity
providers was an “Event of Default or Early Termination” under the electricity
contract. Investors Warranty filed an answer. CFS did not file an answer, and the
trial court ultimately rendered default judgment against CFS.
Investors Warranty later filed a motion for summary judgment, arguing that
the evidence conclusively established that it was not an original party to the
electricity agreement and that it did not expressly or impliedly assume any
obligations under the electricity contract based on the language of the assignment
or its subsequent actions. NextEra also filed a motion for summary judgment,
arguing that Investors Warranty had expressly assumed the electricity contract
when it signed and accepted the Deed in Lieu of Foreclosure Agreement. In its
response to Investors Warranty’s motion for summary judgment, NextEra argued
Investors Warranty impliedly assumed and ratified the obligations under the
electricity contract by taking the benefits of the electricity contract and operating
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under the contract for nine months after acquiring the property from CFS. The trial
court granted Investors Warranty’s motion and denied NextEra’s motion.
Standard of Review
The summary-judgment movant must conclusively establish its right to
judgment as a matter of law. See MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.
1986). Because summary judgment is a question of law, we review a trial court’s
summary judgment decision de novo. Mann Frankfort Stein & Lipp Advisors, Inc.
v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).
To prevail on a “traditional” summary-judgment motion asserted under Rule
166a(c), a movant must prove that there is no genuine issue regarding any material
fact and that it is entitled to judgment as a matter of law. See TEX. R. CIV. P.
166a(c); Little v. Tex. Dep't of Criminal Justice, 148 S.W.3d 374, 381 (Tex. 2004).
A matter is established as a matter of law if reasonable people could not differ as to
the conclusion to be drawn from the evidence. See City of Keller v. Wilson, 168
S.W.3d 802, 816 (Tex. 2005).
To determine if there is a fact issue, we review the evidence in the light most
favorable to the nonmovant, crediting favorable evidence if reasonable jurors could
do so, and disregarding contrary evidence unless reasonable jurors could not. See
Fielding, 289 S.W.3d at 848 (citing City of Keller, 168 S.W.3d at 827). We
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indulge every reasonable inference and resolve any doubts in the nonmovant's
favor. Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).
When, as here, the parties file cross-motions for summary judgment on
overlapping issues, and the trial court grants one motion and denies the other, we
review the summary judgment evidence supporting both motions and “render the
judgment that the trial court should have rendered.” FM Props. Operating Co. v.
City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).
Analysis
Investors Warranty sought summary judgment, arguing that it could not be
held liable for any injury suffered by NextEra from a breach of contract.
Generally, a party cannot be held liable under another party’s contract without an
express or implied assumption of the obligations of that contract. Jones v. Cooper
Indus. Inc., 938 S.W.2d 118, 125–26 (Tex. App.—Houston [14th Dist.] 1996, writ
denied). It is undisputed that Investors Warranty was not a party to any contract
with NextEra. NextEra argues that Investors Warranty is liable under the
electricity contract based on express assumption, implied assumption, and
ratification. These are all affirmative defenses. See TEX. R. CIV. P. 94.
A. Express Assumption
In its first issue, NextEra argues that Investors Warranty expressly assumed
the obligations of the electricity contract. It argues that, by signing the Deed in
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Lieu of Foreclosure Agreement, which contained language of acceptance regarding
the assignment of CFS’ contractual interests, Investors Warranty also assumed the
obligations under the contract.
Generally, the assignor of a contract remains liable for the obligations he
originally assumed, even after the contract is assigned. Seagull Energy E&P, Inc.
v. Eland Energy, Inc., 207 S.W.3d 342, 346–47 (Tex. 2006). In contrast, the
assignee of a contract is not responsible for the assignor’s obligations unless he
expressly or impliedly assumes them. See Jones, 938 S.W.2d at 124.
Contrary to NextEra’s contention, “[t]he mere acceptance of an assignment
does not create a liability against the accepting party.” Jones, 938 S.W.2d at 126.
Instead, there must be actual promissory words, or words of assumption, on the
part of the assignee for there to be an express assumption of contractual
obligations. Id. at 124 (citing Lone Star Gas co. v. Mexia Oil & Gas, Inc., 833
S.W.2d 199, 201 (Tex. App.—Dallas 1992, no writ)).
NextEra argues that, because Investors Warranty accepted CFS’s contractual
interests in the Deed in Lieu of Foreclosure Agreement, Investors Warranty also
assumed CFS’s contractual obligations. In an example, NextEra points to a
provision in the foreclosure agreement stating that the contracts identified to be
assigned, which includes the electricity contract, “shall be executed, delivered and
accepted by” Investors Warranty. (Emphasis added.) In making this argument that
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acceptance of a contract constitutes assumption of a contract, NextEra relies on a
section of the Uniform Commercial Code’s provisions for the sale of goods. See
TEX. BUS. & COM. CODE ANN. § 2.210(e) (Vernon 2009) (concerning assigments);
see also TEX. BUS. & COM. CODE ANN. § 2.102 (Vernon 2009) (providing chapter
two applies to transactions in goods). Subsection 2.210(e) of the Texas Business
and Commerce Code provides that an assignment written in general terms “is an
assignment of rights and unless the language or the circumstances . . . indicate the
contrary, it is a delegation of performance of the duties of the assignor and its
acceptance by the assignee constitutes a promise by him to perform those duties.”
Id. § 2.210(e). It also provides that such an assignment is enforceable by the other
party to the original contract. Id.
Even assuming the electricity contract can be construed as a contract for the
sale of goods, subsection 2.210(e) does not establish any error. As NextEra
recognizes, assignments under subsection 2.210(e) have their full effect “unless the
language or the circumstances . . . indicate the contrary.” Id. The language of the
foreclosure agreement expressly disclaims any assumption of any obligation under
the electricity contract.
[N]either Lender [Investors Warranty], nor any of the Lender Parties,
has or does hereby assume or agree to assume any liability whatsoever
of Owner [CFS], and neither Lender nor any of the Lender Parties
assumes or agrees to assume any obligation of Owner under any
contract, lease, agreement, indenture or any other document to which
Owner is a party, by which Owner is or may be bound or which in any
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manner affects the Property, or any part thereof, except as otherwise
expressly agreed to by Lender in this Agreement and the Deed.
(Emphasis added.) The contract does not expressly provide for the assumption of
the electricity contract. Accordingly, assumption of the electricity contract was
expressly disclaimed.
We overrule NextEra’s first issue.
B. Implied Assumption
In part of its second issue, NextEra argues that Investors Warranty impliedly
assumed the obligations under the electricity contract based on its actions after
signing the Deed in Lieu of Foreclosure Agreement. NextEra contends that,
because Investors Warranty accepted the benefits of the contract for nine months
following CFS’s default, Investors Warranty should also be responsible for the
contract’s underlying liabilities, or it will be unjustly enriched.
As stated above, an assignee cannot be held liable under another party’s
contract without an express or implied assumption of that contract’s obligations.
See Jones, 938 S.W.2d at 125–26. “Implied covenants are not favored, and courts
will not lightly imply additional covenants enlarging the terms of a contract.” Id.
at 124. Implied covenants can be found (1) when the term was so clearly within
the contemplation of the parties that they deemed it unnecessary to express it or (2)
on equitable grounds. Jones, 938 S.W.2d at 124–25 (citing Danciger Oil & Ref.
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Co. of Tex. v. Powell, 154 S.W.2d 632, 635 (Tex. 1941)). NextEra argues an
implied assumption on equitable grounds.
An implied assumption of obligations may arise “when the benefit received
by the assignee is so entwined with the burden imposed by the assignor’s contract
that the assignee is estopped from denying assumption and the assignee would
otherwise be unjustly enriched.” Id. at 125 (citing Lone Star Gas, 833 S.W.2d at
203). NextEra argues that Investors Warranty is unjustly enriched by operating
under the contract, thus benefitting from the long-term fixed rates without
assuming any of the liabilities. It relies primarily on two cases as authority for this
argument: McKinnie v. Milford, 597 S.W.2d 953 (Tex. Civ. App.—Tyler 1980,
writ ref’d n.r.e.) and Kirby Lumber Co. v. R.L. Lumber Co., 279 S.W. 546 (Tex.
Civ. App.—Beaumont 1926, no writ).
In Kirby Lumber, a timber contract provided that Kirby would sell timber to
the buyer, who was required to make periodic payments. 279 S.W. at 547.
However, the buyer assigned the contract, and the assignee subsequently cut and
removed timber without paying for it. Id. at 546. The court held that the assignee
had both the right to enforce the contract and the obligations associated with it
because the benefit was so entwined with the burden that allowing the assignee to
remove the timber without paying for it would lead to unjust enrichment. Id. at
549.
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This case is distinguishable from Kirby Lumber by the simple fact that
Investors Warranty paid for the electricity provided as each monthly bill became
due to CFS. NextEra argues that the unjust enrichment stems from benefitting
from the rates of the long-term contract. While this may show that Investors
Warranty benefitted from the contract, it does not establish that Investors Warranty
was unjustly enriched.
NextEra relies on McKinnie for the proposition that courts may imply an
assumption of contractual obligations from the acceptance of an assignment so
long as there is nothing in the record indicating a contrary intention. 597 S.W.2d
at 958. This means that evidence of contrary intention disproves a claim of
implied assumption. See id. It does not mean that a claim of implied assumption
is proved by the absence of an express contrary intention. See Jones, 938 S.W.2d
at 124 (recognizing implied covenants are not favored and not lightly implied).
Nevertheless, there is evidence of a contrary intention. The Deed in Lieu of
Foreclosure Agreement expressly disclaims any assumption of the obligations
under the contract for the provision of electricity. Further, Investors Warranty sent
a letter to NextEra on April 24, 2010, stating that Investors Warranty had not
assumed the electricity contract. Instead, it wanted to discuss creating a new
power purchase agreement with NextEra.
We overrule this part of NextEra’s second issue.
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C. Ratification
In the remaining part of its second issue, NextEra argues that Investors
Warranty’s actions surrounding and following the Deed in Lieu of Foreclosure
Agreement indicate Investors Warranty’s intent to ratify CFS’s contract with
NextEra. Specifically, NextEra points to Investors Warranty’s operation under the
contract for nine months before terminating the contract as well as to the
communications between CFS and Investors Warranty.
Ratification concerns a party taking an unauthorized act on behalf of another
party, who then obtains knowledge of the act and retains the benefit of the
transaction. See Land Title Co. of Dallas v. F.M. Stigler, Inc., 609 S.W.2d 754,
756 (Tex. 1980). There is no evidence anywhere in the record to suggest that CFS
ever purported to act on behalf of Investors Warranty. Instead, the opposite is
established: CFS contracted with NextEra on its own behalf for its own benefit.
We hold ratification does not apply in this situation.
We overrule the remainder of NextEra’s second issue. Because we hold that
the trial court did not err by granting summary judgment on the grounds that
Investors Warranty did not assume the obligations of the electricity contract, we do
not need to address NextEra’s remaining issue of whether the statute of frauds
would also have prevented NextEra from recovering. See TEX. R. APP. P. 47.1.
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Conclusion
We affirm the judgment of the trial court.
Laura Carter Higley
Justice
Panel consists of Justices Keyes, Higley, and Massengale.
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