Craig v. Varon (Tex.App.- Houston [1st Dist.] Dec. 3, 2009)(Jennings)
(real estate contract, repudiation, indemnity agreement, trial of issues by consent)
AFFIRM TC JUDGMENT: Opinion by Justice Jennings
Before Justices Jennings, Higley and Sharp
01-08-00794-CV Bob Craig, 6030 South Rice, Ltd. v. Jacobo Varon, Charter Title Company
Appeal from 127th District Court of Harris County
Trial Court Judge: Hon. Shearn Smith
MEMORANDUM OPINION
Appellants, Bob Craig and 6030 South Rice, Ltd. (“South Rice”), challenge the trial court’s judgment,
rendered after a nonjury trial, in favor of appellees, Jacobo Varon and Charter Title Company
(“Charter”), on the parties’ claims against each other for breach of a real estate contract. In three issues,
Craig and South Rice contend that the trial court erred in finding that Craig had breached the contract
(the “Contract”), the trial court erred in not finding that Varon had repudiated the Contract, and the
judgment in favor of Charter is “defective because Charter failed to plead any cause of action against
Craig, individually, and only suffered damages of attorney’s fees.”
We affirm.
Factual and Procedural Background
In his original petition, Craig alleged that he, on November 10, 2004, entered into the Contract with
Varon to sell Varon a parcel of commercial real estate for $1,315,000. Varon deposited $50,000 in
earnest money with Charter pursuant to the Contract, and the parties agreed to close on or before
December 10, 2004. Craig further alleged that he “tendered performance to [Charter] on December 10,
2004,” but Varon failed to fulfill his obligations to timely close the Contract. Craig asserted a claim for
breach of contract and sought the earnest money as his liquidated damages. Craig also sought a
declaratory judgment stating that he was entitled to receive the earnest money as his liquidated
damages and Varon had no claim to the earnest money or the property. Craig also sought his attorney’s
fees under the Declaratory Judgment Act Footnote and under the terms of the Contract. In an amended
petition, Craig dropped his breach of contract claim but maintained his claim for a declaratory judgment.
Craig attached to his amended petition a copy of the Contract, which provided that the effective date
of the Contract was November 10, 2004, and that Varon had the right to terminate the contract within
twenty-one days after the effective date by providing Craig with written notice of termination. The
Contract also provided that if Varon timely terminated the Contract, the earnest money would be
refunded to Varon, less a nominal fee. Under paragraph 9A of the Contract, if either party failed to close
by the December 10, 2004 closing date, the non-defaulting party could exercise the remedies in
Paragraph 15, which states,
A. If Buyer fails to comply with this contract, Buyer is in default and Seller may as Seller’s sole and
exclusive remedy: (1) terminate this contract and receive the earnest money as liquidated damages,
thereby releasing the parties from this contract; or (2) seek other relief as may be provided by law,
. . .
C.. . . [I]f Seller fails to comply with this contract, Seller is in default and Buyer may as Buyer’s sole and
exclusive remedy: (1) terminate this contract and receive the earnest money, less any independent
consideration under Paragraph 7B(3)(a), as liquidated damages, thereby releasing the parties from this
contract; or (2) enforce specific performance.
Varon filed a general denial in this lawsuit and a separate breach of contract lawsuit against Craig
and Charter. After the trial court consolidated both lawsuits, Footnote it realigned the parties with Craig,
as plaintiff/counterdefendant; Varon, as defendant/counterplaintiff/third-party plaintiff; South Rice, as
third-party defendant; and Charter, as third-party defendant.
Charter then filed a cross-claim against South Rice, alleging that after the transaction failed to close,
Charter released the earnest money to South Rice pursuant to South Rice’s agreement to defend and
indemnify it in any resulting litigation. Charter demanded that South Rice defend and indemnify it for
damages and attorney’s fees incurred in the litigation, and it asserted claims against South Rice in the
event that Varon recovered damages from Charter. Footnote
Charter attached to its cross-claim a copy of its indemnity agreement with South Rice, which the
parties executed upon Charter’s release of the earnest money. The indemnity agreement identified
South Rice as the “indemnitor,” and Bob Craig and Harry Craig signed it as managers of Craig GP, LLC,
the general partner of South Rice. In the indemnity agreement, South Rice declared Varon in default of
the Contract because of Varon’s failure to perform and South Rice instructed Charter to release the
earnest money to it pursuant to the Contract. Charter agreed to release the earnest money based upon
South Rice’s agreement to indemnify it against any damages arising from any litigation brought by Varon.
In the trial, Footnote Craig testified that Charter scheduled the closing for December 10, 2004. Craig
called Charter multiple times on the closing date, but was informed him that Varon had not appeared to
close. Craig explained that because closing did not occur, he exercised his rights under the Contract’s
default provisions. Even though he did not personally appear at the closing, Craig noted that South Rice’
s lawyer had sent “all the closing papers” to Charter, the lawyer had been in contact with Kim LaVern,
the escrow agent at Charter, and he told her that “we could go by [Charter] and do what we needed to
do to perform” if Varon appeared at closing.
Craig further testified that he and his brother, Harry, had formed South Rice, a limited partnership, to
buy and hold the property. Craig explained that he acted as South Rice’s agent to sell the property, the
general partner of South Rice was “Craig GP LLC,” he and his brother were the managers of Craig GP
LLC, and he had the authority to sign the Contract and sell the property on behalf of South Rice and
Craig GP LLC. Craig conceded that “we indemnified” Charter for releasing the earnest money to South
Rice.
On cross-examination, Craig agreed that South Rice was a separate entity and that his brother
owned one-half of South Rice. He stated that he signed the indemnity agreement with Charter on behalf
of South Rice. He agreed that he signed the Contract in his individual name and that South Rice’s name
did not appear on the Contract. However, he asserted that his brother did not need to sign the closing
documents in order for the sale to be consummated. Craig agreed that he did not appear in person at
Charter’s office on the closing date and he, individually, had agreed to “stand behind” the indemnity
agreement, although he later provided conflicting testimony on this issue.
Kim LaVern, the Charter escrow agent, testified that on December 9, 2004, she learned that Varon,
the buyer, would not be ready to close on December 10, 2004. She had received non-executed closing
documents from “the seller,” and it was her “understanding” that if Varon elected to attend the closing,
South Rice intended to execute the closing documents. LaVern noted that Craig had called her several
times on the day of closing to see if he needed to attend the closing, and she opined that Craig and
South Rice did everything in their power to close the transaction.
However, LaVern also agreed that the Contract identified Craig, individually, as the seller and not
South Rice, which was the record title owner of the property. LaVern explained that Charter would not
have issued a title insurance policy, as required by the Contract, if Craig had attempted to sign the deed
in his individual capacity. Although LaVern provided some conflicting testimony on this issue, LaVern,
during Varon’s examination, agreed that the documents that she had received from Craig were not
signed and Charter would not prepare a title policy based upon the unsigned documents. She further
noted that some of the closing documents would have to have been signed by Craig’s brother, who was
also a manager of the general partner of South Rice, the actual owner of the property. LaVern also
agreed that “there were a lot of things that had to be done” before Charter would have closed the
transaction and issued a title policy on the property.
Varon, a medical doctor, testified that he originally wanted to purchase the property for his personal
office. However, he did not appear at closing because he had timely cancelled the Contract pursuant to
the contractual termination procedures. Footnote Mark Ray, Varon’s real estate broker, testified that,
after discovering problems with the property, Varon decided to terminate the Contract.
Following the trial, the trial court entered numerous findings of fact and conclusions of law. The trial
court found that the property was owned by South Rice and not Craig individually; South Rice was not
named in the Contract; South Rice was not a signatory to the Contract and was not a named party to the
Contract; there was no written agreement identifying Craig as the trustee for South Rice; Varon did not
terminate the Contract under the termination provisions; Craig and Varon both failed to appear at the
scheduled December 10, 2004 closing; as a result of failing to appear both Craig and Varon were in
default under the Contract; Craig had sent a set of unsigned documents to Charter before the closing
date; South Rice held title to the property on the closing date; in January 2005, Charter released the
earnest money to South Rice; South Rice agreed to indemnify Charter for releasing the earnest money;
Varon demanded that Charter and Craig return his earnest money; and neither Craig nor Varon
qualified as a “non-defaulting party” under paragraph 9A of the Contract. The trial court concluded that
under the provisions of Paragraph 9 of the Contract a non-defaulting party may exercise the remedies in
Paragraph 15 of the Contract; neither Craig nor Varon was a non-defaulting party; “the Contract default
provisions are ambiguous when and where both the Seller and Buyer are in default as here”; Varon was
entitled to the return of his earnest money; Craig’s failure to authorize Charter to release the earnest
money to Varon constituted a breach of the Contract; Charter breached its fiduciary duties to Varon
when it released the earnest money to South Rice; and Varon was entitled to judgment against Craig,
South Rice, and Charter. In its final judgment, the trial court awarded Varon the sum of $50,000, plus
interest and costs, against Craig, South Rice, and Charter. The trial court also awarded Varon his
attorney’s fees.
The trial court subsequently entered additional findings of fact and conclusions, in which it found that
Craig and South Rice had agreed to indemnify Charter in connection with Varon’s claims for the earnest
money, including attorney’s fees and costs. The trial court then entered an amended judgment, in which
it restated its award of $50,000 to Varon against Craig, South Rice, and Charter and its award of
attorney’s fees to Varon against Craig. It also ordered that Charter “have judgment over against” Craig
and South Rice for the $50,000 awarded to Varon against Craig, South Rice, and Charter. It further
ordered that Charter recover its attorney’s fees and costs from Craig and South Rice.
Standard of Review
In an appeal of a judgment rendered after a nonjury trial, a trial court’s findings of fact have the same
weight as a jury’s verdict, and we review the legal and factual sufficiency of the evidence used to support
them just as we would review a jury’s findings. Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994);
Daniel v. Falcon Interest Realty Corp., 190 S.W.3d 177, 184 (Tex. App.—Houston [1st Dist.] 2005, no
pet.). In conducting a legal sufficiency review of the evidence, we must consider all of the evidence in the
light most favorable to the verdict and indulge every reasonable inference that would support it. City of
Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005). In determining whether legally sufficient evidence
supports the finding under review, we must consider evidence favorable to the finding if a reasonable
fact finder could consider it, and disregard evidence contrary to the finding unless a reasonable fact-
finder could not disregard it. Id. at 827; Brown v. Brown, 236 S.W.3d 343, 348 (Tex. App.—Houston [1st
Dist .] 2007, no pet.). In a legal sufficiency challenge on an issue on which an appellant bears the
burden of proof, he must demonstrate that the evidence conclusively established all vital facts to support
the issue. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); Solares v. Solares, 232 S.W.
3d 873, 878–79 (Tex. App.—Dallas 2007, no pet.).
In reviewing a factual sufficiency challenge, we consider and weigh all of the evidence supporting and
contradicting the challenged finding and set aside the finding only if the evidence is so weak as to make
the finding clearly wrong and manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); see Plas-
Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). When a party is challenging the factual
sufficiency of a finding regarding an issue upon which that party had the burden of proof, that party must
demonstrate that the adverse finding is against the great weight and preponderance of the evidence.
Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001).
We review a trial court’s conclusions of law de novo, and we will uphold the conclusions if the
judgment can be sustained on any legal theory supported by the evidence. BMC Software Belgium, N.V.
v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002); In re Moers, 104 S.W.3d 609, 611 (Tex. App.—Houston
[1st Dist.] 2003, no pet.). Although a trial court’s conclusions of law may not be challenged for factual
sufficiency, we may review the legal conclusions drawn from the facts to determine whether the
conclusions are correct. BMC Software Belgium, N.V., 83 S.W.3d at 794. If we determine that a
conclusion of law is erroneous, but that the trial court nevertheless rendered the proper judgment, the
error does not require reversal. Id.; Vaughn v. DAP Fin. Servs., 982 S.W.2d 1, 6 (Tex. App.—Houston
[1st Dist.] 1997, no pet.).
When findings of fact are filed and unchallenged, those findings are binding on the appellate court
unless the contrary is established as a matter of law, or if there is no evidence to support the finding.
Davey v. Shaw, 225 S.W.3d 843, 853 (Tex. App.—Dallas 2007, no pet.). Finally, we note that the trial
court acts as fact-finder in a bench trial and is the sole judge of the credibility of witnesses. See Murff v.
Murff, 615 S.W.2d 696, 700 (Tex. 1981); HTS Servs., Inc. v. Hallwood Realty Partners, L.P., 190 S.W.3d
108, 111 (Tex. App.—Houston [1st Dist.] 2005, no pet.).
Breach of Contract
In their first issue, Craig and South Rice argue that the trial court erred in finding that Craig had
breached the Contract by failing to appear at the closing because there was “no provision in the
Contract requiring Craig to physically attend closing.” Craig and Rice also argue the trial court erred in
concluding that Craig breached the Contract by not authorizing Charter to release the money to Varon
because “there is no provision in the Contract requiring Craig . . . to authorize the disbursement of
money to Varon.” Craig asserts that “the Contract only required for [him] to furnish title for the property
to Varon at closing,” and he was ready, willing, and able to furnish title at closing.” Craig also asserts
that he “had delivered to Charter all required documents and instruments necessary to close the sale at
closing.”
Craig and South Rice, in their original briefing, do not directly challenge many of the trial court’s
findings, including its findings that Craig entered into the Contract as the seller of the property although
South Rice actually held title to the property; South Rice “was not named in the Contract or referred to in
its contents”; Craig “sent a set of unsigned documents to Charter” on or before the closing date; Craig
failed to appear at the closing; South Rice continued to hold title to the property on the date of closing;
and there was “no written agreement” in which Craig was identified as, or granted the powers of, a
trustee for South Rice on the closing date. We recognize that Craig disputed at trial, and continues to
dispute on appeal, that his mere failure to appear at the closing constituted a default under the Contract.
Craig asserts that the evidence shows that he made clear to Charter that he was ready, willing, and able
to execute the prepared closing documents. Furthermore, Craig emphasizes LaVern’s testimony that it
was her “understanding” that “South Rice was going to execute” the closing documents in the event that
Varon attended the closing and that “it appeared” to Lavern that Craig was “ready, willing, and able to
sign those documents.”
However, we cannot view the trial court’s finding in isolation from the other findings and evidence that
Craig’s failure to appear rendered him a defaulting party under the Contract. The trial court’s finding
regarding Craig’s default is not solely tied to the lack of his physical presence at the closing. Rather, the
trial court’s fact findings and legal conclusions reveal that it entered its judgment in favor of Varon and
Charter based upon evidence showing that the transaction was not ready, or at least may not have been
ready, to close on the closing date. The trial court also found that Craig’s delivery of unsigned
documents to Charter prior to closing was significant in light of the other evidence showing that, contrary
to the Contract, title to the property was actually held by South Rice and not Craig individually. Some of
the unchallenged findings of fact reveal that the trial court was concerned that there is no evidence that
Craig was a trustee for South Rice, and there is evidence that certain closing documents required the
signature of Craig’s brother, Harry, who did not testify at trial and who was the other manager of the
general partner of South Rice. Moreover, although LaVern’s testimony might be considered conflicting
on whether the transaction was actually ready to close, she testified that Craig’s brother never appeared
at Charter, she never spoke to him, she could not recall if he had ever said that he was ready to come to
the closing, and that “there were a lot of things that had to be done” before Charter could issue the title
policy and close the Contract. The trial court could have found that the evidence presented at trial
showed that Craig, who was the individual seller identified in the Contract, had not taken all steps
necessary to convey clear title to the property on the date of closing. Thus, we conclude that the trial
court was presented with legally and factually sufficient evidence to support its finding that Craig had
defaulted under the Contract. Footnote
Craig and South Rice have not challenged the trial court’s finding that the Contract was ambiguous in
the circumstance when both parties were in default. The trial court determined that both parties
defaulted by not closing the transaction by the closing date and, because the Contract was ambiguous
in this circumstance, Craig was not entitled to exercise the remedy provisions regarding the earnest
money. We agree with the trial court that the Contract is ambiguous regarding the parties’ remedies and
the handling of the earnest money when both parties are in default under the circumstances found by
the trial court. Thus, although Craig and Rice may be correct that there is no express contractual
provision requiring Craig “to authorize the disbursement of money to Varon,” the trial court construed the
ambiguous contractual provisions regarding the right to exercise the contractual remedies and obtain
the earnest money to preclude Craig from obtaining the earnest money in the event of his own default
and then refusing to return it upon demand. We conclude that the trial court did not err in concluding
that Craig’s failure to authorize Charter to release the money to Varon constituted a breach of the
Contract. Footnote
In sum, we hold that the trial court’s findings of fact challenged by Craig and South Rice are
supported by legally and factually sufficient evidence and that the trial did not err in making its
conclusions. Footnote
Repudiation
In their second issue, Craig and South Rice argue that the trial court erred in not finding that Varon
repudiated the Contract because the evidence conclusively shows that Varon’s realtor, Mark Ray,
advised LaVern that Varon would not be attending the closing and LaVern forwarded this notice to Craig’
s attorney.
Tender of performance is excused under certain circumstances, such as when a tender would be
futile or when the defendants have repudiated the contract. Chapman v. Olbrich, 217 S.W.3d 482, 491
(Tex. App.—Houston [14th Dist.] 2006, no pet.) (citing Burford v. Pounders, 145 Tex. 460, 199 S.W.2d
141, 144–45 (1947)). “A party repudiates a contract if the party manifests, by words or actions, a definite
and unconditional intention not to perform the contract according to its terms.” Id. Here, the trial
court found that both Craig and Varon defaulted by failing to appear on the closing date and that they
both “gave notice of termination of the Contract” only “after December 10, 2004.” Thus, the trial court
necessarily rejected any argument that Varon repudiated the Contract prior to the closing date. The trial
court’s findings are supported by evidence. First, the trial court could have considered Craig’s testimony
that he was ready on the closing date to proceed with the closing as conflicting with any subsequent
claim made by him that Varon had repudiated the Contract and that there was no need to tender
performance. Second, the trial court could have considered LaVern’s testimony to indicate that there
was, at a minimum, an open question on the closing date as to whether Varon intended to close the
transaction and, thus, whether he had repudiated the Contract.
Accordingly, we hold that Craig and South Rice have not demonstrated that the evidence
conclusively established all vital facts to support a finding of repudiation and that the trial court’s finding
that Varon did not repudiate the Contract is not against the great weight and preponderance of the
evidence.
We overrule Craig and South Rice’s second issue.
Indemnity Agreement
In their third issue, Craig and South Rice argue that the judgment in favor of Charter is “defective
because Charter failed to plead any cause of action against Craig, individually, and only suffered
damages of attorney’s fees.”
First, Craig and South Rice complain that the trial court’s judgment provides that Charter may be
indemnified for an amount of up to $50,000 from South Rice and also from Craig individually, when the
indemnity agreement is between Charter and South Rice and the earnest money was indisputably paid
to South Rice and not to Craig. Craig and South Rice also complain that Charter did not plead any
causes of action against Craig individually.
“When issues not raised by the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in the pleadings.” Tex. R. Civ. P. 67. At trial,
the following exchange occurred:
[Charter’s counsel]: And you said that although the indemnity agreement from [South Rice] that
you had agreed to stand behind that individually, is that right?
[Craig]: Yes.
Craig’s counsel made no objection to the question, and there was no attempt to clarify or change this
testimony in subsequent questioning. Craig clearly and unequivocally stated in the above exchange that
he had in fact agreed to individually stand behind the indemnity agreement he and his brother Harry had
signed on behalf of South Rice. Craig also provided testimony that “we indemnified” Charter. Thus,
Charter’s claim for indemnity from Craig individually was tried by consent, Craig admitted that he
individually indemnified Charter, and the trial court’s finding regarding indemnity against Craig is
supported by legally and factually sufficient evidence. See id.
Second, Craig and South Rice argue that the trial court’s amended final judgment is defective
because it compels them to pay $50,000 to Varon “and another $50,000 to Charter,” plus attorney’s
fees. Charter counters that when the judgment is read based upon the trial court’s findings and
conclusions, it is clear that Craig and South Rice are not required to pay the $50,000 twice and that
Charter only obtained a judgment for indemnity from Craig and South Rice. We agree that the judgment
can only be interpreted to provide Charter indemnification for Varon’s damages from Craig and South
Rice in the event Varon recovers any of his damages from Charter. Footnote
Accordingly, we hold that the issue of Craig’s agreement to individually indemnify Charter was tried by
consent, there is sufficient evidence to support the trial court’s finding that Craig agreed to individually
indemnify Charter for its damages and attorney’s fees, and the trial court’s judgment in favor of Charter
is not defective.
We overrule Craig and South Rice’s third issue.
Conclusion
We affirm the judgment of the trial court.
Terry Jennings
Justice
Panel consists of Justices Jennings, Higley, and Sharp.