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.