Court Opinion

ID: 2876527
Source: CourtListenerOpinion
Date Created: 2015-09-06 06:47:15.56254+00
Date Added: 2024-06-11T12:46:08.981476
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-07-00741-CV

                    John D. Byram and Airport 71 Land, Ltd., Appellants

                                                  v.

                Bradley S. Scott and Austin Airport Parking, Ltd., Appellees

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
      NO. D-1-GN-07-000320, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING

                            MEMORANDUM OPINION

               This appeal arises from a suit to enforce a contract for the sale of real property. After

the seller refused to perform, the purchaser, who was also a lessee in possession of the property,

obtained from the district court the remedies of specific performance and reimbursement for rent he

paid for the use of the property during the period of delay. The sole issue presented in this appeal

is whether the district court abused its discretion in refusing to reduce this monetary award by the

amount of interest the seller would have earned on the purchase money during the same period if the

contract had been performed. Concluding that the district court did not abuse its discretion in so

ruling, we will affirm.

                                         BACKGROUND

               Appellant John D. Byram and IH 35 Building, Ltd., owned property located near the

present site of the Austin-Bergstrom International Airport. In 1999, they entered into a long-term
ground lease of the property with appellee Austin Airport Parking, Ltd. (AAP), a limited partnership

owned by appellee Bradley D. Scott, through which AAP was to operate a remote airport parking

facility. They also granted Scott an exclusive right to purchase the property beginning in the

seventh year of the lease. Ownership of the property, as well as the rights and obligations of Byram

and IH 35 Building, Ltd., under the option agreement and lease, were subsequently conveyed to

appellant Airport 71 Land, Ltd. Airport 71 is apparently owned or controlled by Byram.

               The option agreement provided that, if and when Scott exercised his right to purchase

the property, Airport 71 would be required to convey the property to Scott for its market value plus

an option fee of $480,000. The parties were required to use their best efforts to agree on a purchase

price. If the parties could not agree on a purchase price after ten days of negotiations, the agreement

prescribed a procedure whereby each party was to appoint a licensed real estate appraiser, which the

agreement termed an “arbitrator.” The two appraisers or “arbitrators” were then to attempt to agree

on the property’s market value. If they could not agree on market value, they were to appoint a

third licensed appraiser/“arbitrator,” who would render a final, binding decision.

               In May 2006, Scott gave notice to Airport 71 that he was invoking his right under

the option agreement to purchase the property. After several months of negotiations, the parties

were ultimately unable to agree to a purchase price, so, pursuant to the option agreement, each

appointed a licensed real estate appraiser/“arbitrator.” After the two appraisers/“arbitrators” were

unable to agree on the property’s market value, they appointed a third appraiser/“arbitrator,” who,

on January 3, 2007, rendered a decision that the property’s market value was $7,130,000 and that

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the purchase price, accordingly, should be $7,610,000. Scott forwarded to Airport 71 a contract to

purchase the property for this amount, to close on January 31, 2007. Airport 71 declined to close

the transaction.

               On February 5, 2007, Scott and AAP filed suit against Airport 71 and Byram

(“appellants”) alleging breach of the option agreement. They sought the remedy of specific

performance—specifically, a decree requiring Airport 71 to sell the property to Scott for $7,610,000.

They also sought monetary compensation for any monthly rent that Scott or AAP paid Airport 71

under the ground lease after the January 31, 2007, closing date. Appellants counterclaimed for

declaratory judgment that no valid “arbitration” or determination of purchase price under the option

agreement had occurred because the third appraiser/“arbitrator” had not conducted a hearing or

otherwise followed the procedures of the Texas Arbitration Act.

               Scott obtained partial summary judgment as to all liability issues. The parties

subsequently tried to the district court the amount of any monetary compensation Scott would be

awarded, as well as the issue of attorney’s fees. Scott testified that between January 31 and the time

of trial—August 23, 2007—he or AAP had paid Airport 71 seven months of rent under the ground

lease at $50,509 per month, for a total of $353,563. Appellants argued that the district court was

required to offset or reduce any monetary award to appellees by the amount of interest appellants

would have earned on the purchase money during the same period had the sale contract been

performed. As proof of this lost interest, appellants presented the testimony of Airport 71’s

corporate representative, Silverstre Garza, Jr. Garza testified that appellants would have rolled the

sale proceeds into another real estate purchase through what was known as a “1031 exchange.”

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According to Garza, a 1031 exchange enables a seller of real property to avoid taxes on the capital

gains from the sale by transferring its basis in the property into another property within six months

of the sale. See 26 U.S.C. § 1031 (West Supp. 2008). Until a suitable replacement property was

found, Garza testified, appellants would have invested the sale proceeds in a “Texas Capital Euro”

investment fund earning an interest rate of 5.30 percent per annum. Assuming this rate of interest

remained stable, Garza claimed that appellants would have earned $33,611 per month in interest on

the sale proceeds. Based on these figures, the offset appellants sought would have reduced Scott’s

per-month compensation from $50,509 to $16,898.

                The district court rendered judgment awarding Scott specific performance of the

sale contract, plus $353,563 (the total amount of monthly rentals Scott or AAP had paid between

the January 31, 2007 closing date and time of trial), plus an additional $50,509 (the monthly rental

amount) for each succeeding month until the sale closed.1 The district court also awarded

prejudgment interest, at the applicable judgment interest rate, on each monthly rental award. The

court did not adjust or offset Scott’s monetary awards based on interest appellants would have earned

on the purchase money during the same period. The district court also awarded Scott attorney’s fees

and costs. This appeal ensued.

       1
           The parties represent that the sale finally closed in January 2008.

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                                            ANALYSIS

               In a single issue, appellants contend that the district court abused its discretion in

refusing to adjust or offset Scott’s2 monetary award by the amount of the interest appellants would

have earned on the purchase money during the delay period. At this juncture, appellants do not

complain of the judgment’s decree of specific performance of the sale contract, that the decree

awards monetary compensation in the amount of rentals Scott or AAP paid during the delay period

(apart from the offset issue), or the attorney’s fees award.

               We review the district court’s decisions regarding the award of monetary

compensation incident to specific performance for an abuse of discretion. See Murray v. Cadle Co.,

257 S.W.3d 291, 300 (Tex. App.—Dallas 2008, pet. denied). We consider “whether the court acted

without reference to any guiding rules and principles.” Cire v. Cummings, 134 S.W.3d 835, 838-39

(Tex. 2004) (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex. 1985)). We

defer to the district court’s factual determinations if they are supported by evidence. Brainard

v. State, 12 S.W.3d 6, 30 (Tex. 1999). We defer to the fact-finder’s determinations of the credibility

of the witnesses, the weight to be given the testimony, and the resolution of evidentiary conflicts.

City of Keller v. Wilson, 168 S.W.3d 802, 819-22 (Tex. 2005). When, as here, no findings of fact

and conclusions of law are filed, we infer that the district court made all fact findings necessary

to support its judgment. Sixth RMA Partners, L.P. v. Sibley, 111 S.W.3d 46, 52 (Tex. 2003);

see Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989). However, because a “trial court has

       2
         Although appellants have named both Scott and AAP as appellees, the portion of the
judgment they challenge on appeal awards relief solely to Scott.

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no ‘discretion’ in determining what the law is or applying the law to the facts,” Walker v. Packer,

827 S.W.2d 833, 840 (Tex. 1992), we review its legal determinations de novo. Perry Homes v. Cull,

258 S.W.3d 580, 598 (Tex. 2008); Brainard, 12 S.W.3d at 30. In other words, a trial court “abuses

its discretion” if it misinterprets or misapplies the law. See Perry Homes, 258 S.W.3d at 598;

Walker, 827 S.W.2d at 840.

               Appellants urge that the district court’s refusal of an offset or adjustment for interest

on the purchase money during the period of delay conflicts with established principles governing

the specific performance remedy. Upon a breach of contract for sale of real property, the non-

breaching party may elect to sue for either money damages or specific performance. Shelton

v. Poynor, 326 S.W.2d 583, 585 (Tex. Civ. App.—El Paso 1959, writ dism’d). When the non-

breaching party elects to sue for damages, the party has, in theory, opted to treat the contract as

terminated by the breach and to seek compensation for that injury. See Hamon v. Allen, 457 S.W.2d
384, 391-93 (Tex. Civ. App.—Corpus Christi 1970, no writ). When the non-breaching party sues

for specific performance, by contrast, he affirms the contract and asks the court to effectuate the

agreement. Id. at 392.

               This relief is not limited solely to ordering a party to sell or purchase the real estate,

but may also include monetary compensation considered necessary to place the parties in

the same position as if the contract had been fully performed. Heritage Housing Corp. v. Ferguson,

674 S.W.2d 363, 366 (Tex. App.—Dallas 1984, writ ref’d n.r.e.). For example, if the conveyance

was delayed beyond the time of performance specified by the contract, monetary

compensation—such as rentals the purchaser could have earned on the property if he had owned it

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during the delay period, or interest the seller could have earned on the purchase money during the

same period—may be awarded to replicate the economic effects of having had the sale contract

performed in accordance with its terms. Id. The rationale of such “compensation for delay is

that the contract is being enforced retrospectively and the equities adjusted accordingly . . . . ‘Equity

looks upon things agreed to be done as actually performed.’” Id. at 365-66 (quoting Johnson

v. Downing & Wooten Constr. Co., 480 S.W.2d 254, 258 (Tex. Civ. App.—Houston [14th Dist.]

1972, no writ)). Consequently, “[i]n an action for specific performance, allowances between

the parties for rents, profits, delay costs, and like items are not ‘damages’ as such for breach of

the contract, but they are a balancing of the equities in the nature of an accounting.” Hage

v. Westgate Square Commercial, 598 S.W.2d 709, 713 (Tex. Civ. App.—Waco 1980, writ ref’d

n.r.e). However, this rule is subject to an important qualification—the party who breaches the

contract cannot “profit from its own breach” by obtaining monetary compensation exceeding that

awarded to the non-breaching party. See Johnson, 480 S.W.2d at 258. In other words, the breaching

party is limited only to an offset against any monetary compensation awarded to the non-breaching

party. See id.

                 Appellants condemn the district court’s judgment as placing Scott in the same

position he would have been if the sale had been performed on January 31, 2007, without

correspondingly allowing appellants an offset for interest they could have earned on the purchase

money if it had been paid to them on that date. Appellants characterize Scott’s award as the “lost

rentals” he could have earned on the property during the period of delay—i.e., compensation for

the opportunity cost of his not having received fee title as of January 31, 2007. See Johnson,

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480 S.W.2d at 258; Holley v. Hooper, 205 S.W.2d 120, 123-24 (Tex. Civ. App.—Austin 1947,

writ ref’d n.r.e.). In fact, while both parties have used the term “lost rentals” to describe Scott’s

monetary recovery, the economic substance of the award was merely a recoupment of the rentals

Scott or AAP actually paid to Airport 71 for the right to possess and use the property under the

ground lease.3 The economic effect of this award, as appellants observed during oral argument

before this court, was that Scott or AAP received free rent under the ground lease during the delay

period. Such compensation, however, did not fully account for Scott’s losses from not receiving fee

title on January 31, 2007. Had the sale been consummated as the contract contemplated, Scott, for

instance, could have leased the property on his own terms, sold it, or made improvements that would

increase its potential returns and market value. Indeed, Scott testified that he had planned to use the

property as collateral to obtain financing to expand the parking lot after the sale—and even had a

contractor with “his equipment marshaled” and “ready to go” whom he had to “dismiss” when

appellants refused to close. Scott claimed that because he was unable to go forward with the

expansion, he lost “additional capacity” that he would have “enjoyed the revenue from,” as well as

“loyalty of customers and other factors that a business of this type would have benefitted from.” In

addition, Scott testified that he had been negotiating a possible partnership with a “very well-known

national parking company” that hinged on “the condition that the land be available for sale.” When

appellants refused to close, Scott claims, he “was not able to complete that transaction with them

per the terms of that agreement.”

       3
         As noted, Scott also recovered prejudgment interest on each monthly rental payment, thus
compensating him for his opportunity cost of being deprived of these funds and the corresponding
benefit appellants could have obtained from them.

                                                  8
               Although the theory of awarding monetary compensation incident to specific

performance is to place the parties in an economic position equivalent to their having performed the

contract according to its terms, a trial court has broad discretion in “balancing the equities” to

fashion such a remedy. See Edwards v. Mid-Continent Office Distribs., L.P., 252 S.W.3d 833, 836

(Tex. App.—Dallas 2008, pet. denied) (stating that “a trial court exercises broad discretion in

balancing the equities involved in a case seeking equitable relief”) (citing In re Gamble, 71 S.W.3d
313, 317 (Tex. 2002) (orig. proceeding)); Indian Beach Prop. Owners’ Ass’n v. Linden, 222 S.W.3d
682, 690 (Tex. App.—Houston [14th Dist.] 2007, no pet.) (trial court determines equitable matters

by balancing equities). Here, the district court in effect awarded Scott free rent under the ground

lease during the delay period, but did not fully compensate him for his losses or opportunity cost

attributable to not having fee title during that period. At the same time, the district court declined

to award appellants a recovery representing interest they would have earned on the purchase money

during the delay period. In effect, the district court offset or “netted out” Scott’s uncompensated

losses attributable to delay against any losses appellants might have incurred. We conclude that the

district court did not abuse its broad discretion in balancing the equities in this manner. See Hage,
598 S.W.2d at 713. We need not address Scott’s alternative arguments in support of the judgment.

See Tex. R. App. P. 47.1. We overrule appellants’ issue.

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                                      CONCLUSION

              We affirm the judgment of the district court.

                                           __________________________________________

                                           Bob Pemberton, Justice

Before Justices Patterson, Pemberton and Waldrop

Affirmed

Filed: July 1, 2009

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