Classic Century, Inc. F/K/A Classic Century Homes, Inc. v. Deer Creek Estates, Inc., Darsona Enterprises D/B/A Alliance Homes, and Kenmark Homes, L.P., a Texas Limited Partnership
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-06-104-CV
CLASSIC CENTURY, INC. F/K/A APPELLANT
CLASSIC CENTURY HOMES, INC.
V.
DEER CREEK ESTATES, INC., APPELLEES
DARSONA ENTERPRISES D/B/A
ALLIANCE HOMES, AND KENMARK
HOMES, L.P., A TEXAS LIMITED
PARTNERSHIP
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FROM THE 352ND DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION 1
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I. Introduction
Appellant Classic Century, Inc., a homebuilder, sued Appellee Deer Creek
Estates, Inc., a real estate developer, seeking specific performance and
1
… See T EX. R. A PP. P. 47.4.
damages for breach of a contract, which by its terms allowed Classic to
purchase lots of land from Deer Creek. Classic’s second and third amended
petitions added Appellees Darsona Enterprises, Inc. d/b/a Alliance Homes and
Kenmark Homes, L.P., other builders who ultimately purchased some of these
lots from Deer Creek. Classic appeals from summary judgment in favor of
Appellees.2 We affirm.
II. Factual and Procedural Background
On November 7, 2000, Classic entered into a contract with Deer Creek
to purchase eighty-five lots of land in Crowley, Texas, known as Phase Five and
Phase Six of Deer Creek Estates. The contract provided that a number of
events had to occur in order for the lots to be considered “complete” for Classic
to purchase them from Deer Creek. These events included acceptance by the
city of the streets and issuance of building permits; receipt of a letter from TXU
Electric stating that the subdivision was “hot” and service was available to all
lots; the purchase of a storm and water pollution prevention plan by Deer
Creek; “pinning” of the corners of all lots; none of the lots being within the
flood plain; and notification by Deer Creek of local telephone and cable
2
… Deer Creek’s president Alton Isbell, who is not a party to this appeal,
was also added to the underlying suit in Classic’s third amended petition.
Classic sued Isbell for fraud in connection with the contract that is at issue in
this appeal. The trial court severed Classic’s claim against Isbell as well as
counterclaims by Appellees.
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companies that the subdivision lots were ready. Classic was to purchase the
lots in stages. Deer Creek would inform Classic which lots were completed and
Classic would have ten days to buy the completed lots.
Paragraph 21 of the contract sets forth the following relevant provision:
21. No recordation. [Classic] shall neither record this Contract
nor a memorandum of the terms hereof in any public records
without the prior written consent to such recordation from
[Deer Creek]. Any unauthorized recording of the Contract or
memorandum of the terms hereof . . . shall constitute an
event of default by [Classic and] shall immediately and
automatically terminate [the contract] and all Earnest Money
deposited by [Classic] hereunder shall be retained by [Deer
Creek] as liquidated damages in accordance with the terms
hereof. Further, the placing of record by [Deer Creek] of an
affidavit reciting the unauthorized recording of this Contract,
or a memorandum of the terms hereof, by [Classic] and the
subsequent termination of this Contract due to such
unauthorized recording shall constitute full and sufficient
evidence of the termination of this Contract.
Around December 6, 2001, Deer Creek sent a letter to Classic stating
that the lots in Phase Five were ready for purchase. Per the contract, Deer
Creek informed Classic that Classic had ten days to fund the purchase of these
lots. Classic contends that the parcels were not “complete” because they had
not been pre-drenched, drainage swales had not been cut, and Deer Creek had
not completed all the events described above. The ten days passed without
Classic purchasing the lots in Phase Five.
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On December 21, 2001, Deer Creek sent a letter to Classic stating that
Classic had defaulted on the agreement by failing to close and that Classic’s
rights to the contract were terminated. Classic’s president responded with a
letter to Deer Creek’s president stating that the above listed events had not
been completed on the lots and that due to these defects, it was Deer Creek
who had failed to deliver the lots as required by the contract. In this same
letter, however, Classic’s president notified Deer Creek of its election to
continue under the terms of the contract, stating he was attempting to work
with Deer Creek regarding the purchase of these lots, even though he
considered the lots incomplete for purchase, and that he would like to discuss
the matter before “the attorneys get involved.”
Classic contends that Deer Creek revealed to Classic that it intended to
sell these same lots to other buyers. Ostensibly driven by that belief, Classic
recorded the contract in the Tarrant County deed records on January 14, 2002.
Classic’s attorney informed Deer Creek of that recordation and of its intentions
to pursue litigation to enforce the contract. On January 17, 2002, Classic filed
suit against Deer Creek seeking specific performance of the contract and
attached a copy of the contract to its petition in which it alleged failure of Deer
Creek to comply with the provisions of the contract to complete lots in Phase
Five and failure to tender certain lots with clear title. On January 25, 2002,
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Classic filed a notice of Lis Pendens and again attached a copy of the contract
as an exhibit.
On the same day, Deer Creek filed an affidavit in the Tarrant County deed
records reciting that Classic had recorded the contract in the county deed
records without Deer Creek’s consent, which automatically terminated the
contract under the language of paragraph 21 of the contract.
According to Classic, at all times Classic repeatedly advised Deer Creek
of Classic’s intention to enforce the contract and close on all eighty-five lots in
Phase Five and Phase Six as soon as Deer Creek had them complete. Both
parties agree that a number of these lots in Phase Five were, in fact, eventually
delivered with improvements as specified in the contract and purchased by
Classic in March and July of 2002. After the March purchases, but before the
July purchases, Classic dismissed its previous lawsuit against Deer Creek.
Classic contends that on April 10, 2003, Deer Creek made a written
demand on Classic to purchase lots in Phase Six that Classic again considered
incomplete, and that Deer Creek informed Classic it had ten days to respond.
And, Classic contends, Classic received a letter from Deer Creek on April 16,
2003, in which Deer Creek stated the contract was out of date and either
needed to be updated or terminated.
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In February 2005, after numerous inquiries by Classic to Deer Creek
regarding the status of the lots, Classic again recorded the contract in the
Tarrant County deed records. Deer Creek responded by again recording its
affidavit containing language from paragraph 21 of the contract and stating that
the contract was terminated by Classic’s unauthorized recording of the contract
in the deed records. Thereafter, on April 13, 2005, and April 15, 2005, Deer
Creek sold several lots in Phase Six to Appellees Kenmark and Alliance.
On April 22, 2005, Classic filed the lawsuit underlying this appeal
claiming that Deer Creek had breached the contract and seeking specific
performance of the contract as to the lots in Phase Six and, alternatively, for
damages, together with attorneys fees. Classic’s second and third amended
petitions added Appellees Kenmark and Alliance, claiming tortious interference
with an existing contract. On May 10, 2005, Classic filed another notice of Lis
Pendens attaching the contract as an exhibit.
Deer Creek filed a motion for traditional summary judgment claiming that
Classic had terminated the contract by its unauthorized recording of the
contract in the Tarrant County deed records without prior written consent of
Deer Creek, that Classic had waived any right to damages under paragraph 13
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of the contract, and that since Classic had terminated the contract it could not
claim the remedy of specific performance under the contract.3
Classic responded by filing a cross-motion for summary judgment and
response, claiming that Deer Creek’s motion failed as a matter of law because
it was Deer Creek who first breached the contract and that Classic was entitled
to partial summary judgment. The trial court entered an order granting Deer
Creek’s motion. Appellees Alliance and Kenmark filed their own motions for
summary judgment, which the trial court also granted. This appeal followed.
III. Discussion
In four issues, Classic argues that the trial court erred by granting
summary judgment in favor of Deer Creek. In its first issue, Classic contends
that Deer Creek first breached the contract and it was only after Deer Creek
failed to deliver the Phase Five lots that Classic recorded the contract in the
county deed records. Classic argues that Deer Creek again breached the
contract by failing to deliver the lots in Phase Six and by selling them to other
builders and it was only after Deer Creek’s second breach that Classic filed the
contract again in the deed records. Therefore, Classic argues, the trial court’s
3
… Paragraph 13 of the contract provided that, upon default by Deer
Creek, Classic could either terminate the contract and receive return of the note
previously deposited or seek specific performance “as its sole and exclusive
remedy, [Classic] hereby waiving any right to seek damages from [Deer Creek]
for any breach of the terms of this contract.”
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summary judgment based on Classic’s breach of the contract by filing the
contract publicly cannot be sustained. Second, Classic argues, paragraph 21
of the contract is unenforceable because it violates public policy. Third, Classic
argues that there are genuine issues of material fact concerning whether Classic
failed to comply with the contract. Fourth, Classic argues that because the trial
court erred in granting summary judgment in favor of Deer Creek, the summary
judgments in favor of Alliance and Kenmark should also be reversed.
A. Standard of Review
In a summary judgment case, the issue on appeal is whether the movant
met the summary judgment burden by establishing that no genuine issue of
material fact exists and that the movant is entitled to judgment as a matter of
law. T EX. R. C IV. P. 166a(c); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211,
215 (Tex. 2002); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671,
678 (Tex. 1979). The burden of proof is on the movant, and all doubts about
the existence of a genuine issue of material fact are resolved against the
movant. Sw. Elec. Power Co., 73 S.W.3d at 215.
When reviewing a summary judgment, we take as true all evidence
favorable to the nonmovant, and we indulge every reasonable inference and
resolve any doubts in the nonmovant’s favor. Valence Operating Co. v.
Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Evidence that favors the movant’s
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position will not be considered unless it is uncontroverted. Great Am. Reserve
Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965).
But we must consider whether reasonable and fair-minded jurors could differ in
their conclusions in light of all of the evidence presented. See Wal-Mart Stores,
Inc. v. Spates, 186 S.W.3d 566, 568 (Tex. 2006); City of Keller v. Wilson, 168
S.W.3d 802, 822–24 (Tex. 2005).
The summary judgment will be affirmed only if the record establishes that
the movant has conclusively proved all essential elements of the movant’s
cause of action or defense as a matter of law. Clear Creek Basin, 589 S.W.2d
at 678.
A defendant who conclusively negates at least one essential element of
a cause of action is entitled to summary judgment on that claim. IHS Cedars
Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 798 (Tex.
2004). Once the defendant produces sufficient evidence to establish the right
to summary judgment, the burden shifts to the plaintiff to come forward with
competent controverting evidence raising a genuine issue of material fact with
regard to the element challenged by the defendant. Centeq Realty, Inc. v.
Siegler, 899 S.W.2d 195, 197 (Tex. 1995).
B. Breach of Contract
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In its first issue Classic argues that, by demanding that Classic close on
the lots in Phase Five without the improvements required by the contract and
by sending a notice of default when the property was no more than unfinished
lots, Deer Creek breached the contract first. Therefore, Classic argues, Deer
Creek cannot rely upon any acts of Classic that occurred after this initial breach
by Deer Creek as grounds for summary judgment.
Generally, when one party to a contract commits a material breach, the
other party is discharged or excused from further performance. Mustang
Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d 195, 196 (Tex.
2004). The non-breaching party must elect between two courses of action,
either continuing performance or ceasing performance. Gupta v. Eastern Idaho
Tumor Inst., Inc., 140 S.W.3d 747, 756 (Tex. App.—Houston [14th Dist.]
2004, pet. denied). If the non-breaching party elects to treat the contract as
continuing and insists the party in default continue performance, the previous
breach constitutes no excuse for nonperformance on the part of the party not
in default and the contract continues in force for the benefit of both parties.
Id. Thus, treating a contract as continuing—after a breach—deprives the
non-breaching party of any excuse for terminating its own performance. Id. at
757.
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Although the non-breaching party must elect between continuing or
ceasing performance, the election does not affect whether the non-breaching
party can sue for a former or future breach. Cal-Tex Lumber Co., Inc. v. Owens
Handle Co., Inc., 989 S.W.2d 802, 812 (Tex. App.—Tyler 1999, no pet.). The
election affects only whether the non-breaching party itself is then required to
perform fully. Gupta, 140 S.W.3d at 757 n.7. If the non-breaching party
continues performance, it obligates itself to fully perform. Id.
Deer Creek responds to Classic’s argument (that it was Deer Creek who
first breached the contract) by asserting that, even assuming Deer Creek
breached first, Classic had the choice of either continuing performance or
ceasing performance. And, Deer Creek argues, Classic elected to treat the
contract as continuing; thus, the alleged prior breach can no longer constitute
an excuse for nonperformance. Therefore, Deer Creek argues, when Classic
thereafter recorded the contract the contract in the deed records, it then
breached the continuing contract, as the result of which, the contract
terminated by its own terms and Deer Creek was free to sell the property. We
agree.
Even assuming that Deer Creek breached the contract by failing to deliver
the lots in Phase Five, Classic was put to an election of either continuing
performance or ceasing performance. Gupta, 140 S.W.3d at 756. Classic has
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maintained all along and even in its brief to this court that “[a]t all times,
Classic repeatedly advised Deer Creek of Classic’s intention to enforce” the
contract. Given this posture, Classic cannot use the alleged previous breach by
Deer Creek as excuse for its own subsequent breach. Id. We hold that when
Classic recorded the contract in the deed records, Classic terminated the
contract. Deer Creek was then free to file affidavits affirming the contract had
been terminated and free to sell the lots to other purchasers. We hold that the
trial court did not err in granting summary judgment in favor of Deer Creek
based on Classic’s breach of the contract. We overrule Classic’s first issue.
C. Paragraph 21 and Public Policy
In its second issue, Classic argues that Paragraph 21—which terminates
the contract if Classic records the contract of public record—is void as a matter
of public policy because Classic could not have an adequate remedy under
Texas law if it were contractually prevented from filing a lawsuit, and recording
the contract in relation to that lawsuit, in order to enforce its right of specific
performance.
Texas courts have long recognized Texas’ strong public policy in favor of
preserving the freedom of contract. Fairfield Ins. Co. v. Stephens Martin
Paving, LP, 246 S.W.3d 653, 664 (Tex. 2008). Texas courts also recognize the
importance of the “indispensable partner” to the freedom of contract—contract
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enforcement. Id. Freedom of contract is not unbounded. Id. As a general
rule, parties have the right to contract as they see fit as long as their agreement
does not violate the law or public policy. Id. Pertinent to this case, where a
valid contract prescribes particular remedies or imposes particular obligations,
equity generally must yield unless the contract violates positive law or offends
public policy. Fortis Benefits v. Cantu, 234 S.W.3d 642, 648–49 (Tex. 2007).
Texas’ public policy is embodied in its constitution, statutes, and judicial
decisions. Texas Commerce Bank, N.A. v. Grizzle, 96 S.W.3d 240, 250 (Tex.
2002). Without clear legislative intent to prohibit agreements, and absent any
claim of fraud, duress, accident, mistake, or failure or inadequacy of
consideration, Texas courts generally decline to declare contractual agreements
void on public policy grounds. Fairfield, 246 S.W.3d at 664.
Classic contends that, in order to exercise the remedy of specific
performance and to protect its property rights under the contract, it had to file
two suits for specific enforcement of the contract and also file two notices of
Lis Pendens to put the public on notice of litigation concerning the property at
issue. Classic reasons that because it had to file a lawsuit to enforce its rights
of specific performance, it was required by the best evidence rule to prove the
contents of the writing by publicly filing the contract. Therefore, Classic
argues, paragraph 21 violates Texas Rules of Evidence in that paragraph 21 of
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the contract prevents Classic from attaching to its lawsuit the best obtainable
evidence of the contracts contents—the contract itself.
Deer Creek counters that Classic’s argument is disingenuous because
Texas Rules of Evidence do not require a filing of the contract with its petition
and, regardless of what the Texas Rules of Evidence dictate, Classic recorded
the contract in the county deed records prior to filing its lawsuit. Further, Deer
Creek argues, Classic had the option of filing a lawsuit and having the contract
evaluated in camera, therefore still allowing Classic to seek specific
performance without violating paragraph 21 of the contract. We agree with
Deer Creek.
Nothing in the Texas Rules of Evidence requires the public recording of
documents like Classic did when it filed the contract in the Tarrant County deed
records without Deer Creek’s permission in violation of paragraph 21 of the
contract. See T EX. R. E VID. 1002. Furthermore, Classic could have, as Deer
Creek argues, maintained the confidentiality of the contract without publicly
filing the contract and still sought remedy in court by either seeking an in
camera inspection of the contract or having the trial court place the contract
under seal. See In re Dalco, 186 S.W.3d 660, 664 (Tex. App.— Beaumont,
2006, orig. proceeding, mand. denied) (conducting in camera review of
employment contracts); see also T EX. R. C IV. P. 76a. Finally, we note that Deer
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Creek’s stated ground in its motion for summary judgment was the recording
of the contract in the deed records, not the filing of a copy of it with the
petition or notice of Lis Pendens. We overrule Classic’s second issue.
D. No Genuine Issues of Material Fact Exist
In its third issue, Classic argues that there are genuine issues of material
fact concerning whether Classic failed to comply with the contract.
Specifically, Classic contends that fact questions remain concerning: (1)
whether Deer Creek breached the contract when it demanded Classic close on
alleged incomplete lots; (2) whether Deer Creek was the first to breach the
contract; (3) whether Deer Creek made a valid tender under the contract prior
to its attempts to terminate the contract; (4) whether Deer Creek forced Classic
into recording the contract by sending a letter that the contract had been
terminated; (5) whether Deer Creek negotiated sales of the properties in
question while assuring Classic that it would honor the contract; and (6)
whether paragraph 21 is enforceable as a matter of law. We are unpersuaded
that any of these create a genuine issue of material fact.
We have already held that, even assuming Deer Creek breached prior to
Classic’s recording of the contract publically in violation of paragraph 21,
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Classic cannot use the previous breach by Deer Creek as an excuse for its own
breach after electing to continue the contract. This disposes of what Classic
contends are fact questions as to (1) through (4) listed above. The above
numbered (5) potential fact question is disposed of because we have already
held that once Classic recorded the contract in violation of paragraph 21, Deer
Creek was no longer bound by the contract and free to sell the properties to
other potential buyers. And the above numbered (6) is a question of law that
we have already disposed of by overruling Classic’s second issue. We therefore
overrule Classic’s third issue.
E. Appellees Alliance and Kenmark
In its fourth issue, Classic argues that Alliance and Kenmark were not
entitled to summary judgment concerning Classic’s claim that those parties
tortiously interfered with the existing contract by purchasing lots covered by
the contract.
The elements of tortious interference with a contract are: (1) the
existence of a contract subject to interference; (2) willful and intentional
interference; (3) interference that proximately caused damage; and (4) actual
damage or loss. ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 430
(Tex. 1997). A party to a contract has a cause of action for tortious
interference against a third person who wrongly induces another contracting
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party to breach the contract. Holloway v. Skinner, 898 S.W.2d 793, 794 (Tex.
1995).
In this case, it was Classic that breached the contract. As stated earlier,
even assuming that Deer Creek’s previous sending of letters to Classic that the
contract was terminated constituted a breach, Classic elected to continue under
the contract. See Gupta, 140 S.W.3d at 756. Once Classic elected to
continue with the contract, Classic was not excused from its own duties. By
filing the contract in the deed records a second time after continuing the
contract, Classic terminated the contract by the terms of paragraph 21. As a
matter of law, once the contract terminated, there was no longer an existing
contract with which Alliance and Kenmark could interfere by later purchasing
the lots. See Ice Bros., Inc. v. Bannowsky, 840 S.W.2d 57, 63 (Tex. App.—El
Paso 1992, no writ) (holding once oil and gas lease terminated for lack of
production, there was no longer a contractual relationship with which appellant
could tortiously interfere).
For the foregoing reasons, the trial court correctly granted summary
judgment in favor of Alliance and Kenmark as to Classic’s claim for tortious
interference with an existing contract. We overrule Classic’s fourth issue.
IV. Conclusion
Having overruled all of Classic’s issues, we affirm the trial court’s
judgment.
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ANNE GARDNER
JUSTICE
PANEL: GARDNER, WALKER, and MCCOY,JJ.
WALKER, J. concurs without opinion.
DELIVERED: August 14, 2008
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