Court Opinion

ID: 3112230
Source: CourtListenerOpinion
Date Created: 2015-10-16 07:02:18.770014+00
Date Added: 2024-06-11T11:44:58.229364
License: Public Domain

Opinion issued November 21, 2013

                                    In The

                             Court of Appeals
                                    For The

                         First District of Texas
                           ————————————
                             NO. 01-12-00577-CV
                          ———————————
               NEXTERA RETAIL OF TEXAS, LP, Appellant
                                       V.
         INVESTORS WARRANTY OF AMERICA, INC., Appellee

                   On Appeal from the 295th District Court
                            Harris County, Texas
                      Trial Court Case No. 2011-36374

                                 OPINION

      Appellant NextEra Retail of Texas, LP challenges the trial court’s judgment

granting appellee Investors Warranty of America, Inc.’s motion for summary

judgment and denying NextEra’s motion for summary judgment. In three issues,

appellant argues (1) Investors Warranty expressly assumed the obligations of the
contract between NextEra and another party; (2) Investors Warranty impliedly

assumed and ratified the obligations of that contract; and (3) the statute of frauds

has no relevance to the dispute.

      We affirm.

                                    Background

      On October 3, 2008, NextEra—named at the time Integrys Energy Services

of Texas, LP—and CFS Northwind, L.P. entered into a contract for the provision

of electricity. The electricity contract provided that NextEra would sell and deliver

electricity to CFS at a specified location in Houston, Texas, for five years, ending

on November 1, 2013.        Among the provisions in the contract was a clause

governing assignment of the contract:

      There are no third party beneficiaries to the Agreement and none are
      intended. This Agreement will not be assigned or transferred by you
      [CFS] without prior written consent, which consent will not be
      unreasonably withheld. We [NextEra] may assign this Agreement to
      our parent, affiliate, subsidiary, or successor to all or a material
      portion of our assets as long as notice is provided as soon as
      reasonably practicable.

The contract also outlined the penalty for early termination of the contract:

      “Early Termination” means we [NextEra] (i) receive notice from any
      ISO or Utility that your [CFS’s] Account has moved away or will be
      moving away from our account at ERCOT and we subsequently
      provide you with written notice that we acknowledge such notice from
      the ISO or Utility; or (ii) we receive notice from you, your agent or
      representative (which includes any third-party aggregator, broker or
      consultant) that you are terminating service to your Account(s).

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      The property owned by CFS was subject to a mortgage in favor of its lender,

Investors Warranty. At some point after entering into the contract with NextEra,

CFS defaulted on its loan and surrendered the property to Investors Warranty

under a Deed in Lieu of Foreclosure. As a part of the transaction, CFS assigned its

rights under the electricity contract to Investors Warranty without notifying

NextEra.

      The assignment contract expressly stated that Investors Warranty would not

assume any obligations or liabilities under CFS’s contracts.       Specifically, the

contract provided:

      [N]either Lender [Investors Warranty], nor any of the Lender Parties,
      has or does hereby assume or agree to assume any liability whatsoever
      of Owner [CFS], and neither Lender nor any of the Lender Parties
      assumes or agrees to assume any obligation of Owner under any
      contract, lease, agreement, indenture or any other document to which
      Owner is a party, by which Owner is or may be bound or which in any
      manner affects the Property, or any part thereof, except as otherwise
      expressly agreed to by Lender in this Agreement and the Deed.

      Investors Warranty operated under the electricity contract for nine months

after the foreclosure proceedings, and Investors Warranty fully paid for the

electricity provided. Four months after CFS assigned the electricity contract,

Investors Warranty sent NextEra a letter seeking to negotiate an electricity contract

for the Property. In pertinent part, it wrote,

      Integrys Energy Services of Texas, LP had entered into a Power Sale
      Agreement (hereinafter referred to as “Agreement”) with CFS
      Northwind, LP, the previous owner, effective October 3, 2008 (copy

                                           3
      enclosed for your reference). This agreement was not assumed when
      [Investors Warranty] became the new owner. [Investors Warranty]
      would like to discuss the possibility of entering into a new power
      purchase agreement with Integrys.

NextEra never responded.       At the end of the nine-month period, Investors

Warranty entered into a new agreement with a different electricity provider.

      NextEra filed suit against CFS and Investors Warranty to recover early

termination damages, asserting that Investors Warranty’s change in electricity

providers was an “Event of Default or Early Termination” under the electricity

contract. Investors Warranty filed an answer. CFS did not file an answer, and the

trial court ultimately rendered default judgment against CFS.

      Investors Warranty later filed a motion for summary judgment, arguing that

the evidence conclusively established that it was not an original party to the

electricity agreement and that it did not expressly or impliedly assume any

obligations under the electricity contract based on the language of the assignment

or its subsequent actions. NextEra also filed a motion for summary judgment,

arguing that Investors Warranty had expressly assumed the electricity contract

when it signed and accepted the Deed in Lieu of Foreclosure Agreement. In its

response to Investors Warranty’s motion for summary judgment, NextEra argued

Investors Warranty impliedly assumed and ratified the obligations under the

electricity contract by taking the benefits of the electricity contract and operating

                                         4
under the contract for nine months after acquiring the property from CFS. The trial

court granted Investors Warranty’s motion and denied NextEra’s motion.

                                Standard of Review

      The summary-judgment movant must conclusively establish its right to

judgment as a matter of law. See MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.

1986). Because summary judgment is a question of law, we review a trial court’s

summary judgment decision de novo. Mann Frankfort Stein & Lipp Advisors, Inc.

v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009).

      To prevail on a “traditional” summary-judgment motion asserted under Rule

166a(c), a movant must prove that there is no genuine issue regarding any material

fact and that it is entitled to judgment as a matter of law. See TEX. R. CIV. P.

166a(c); Little v. Tex. Dep't of Criminal Justice, 148 S.W.3d 374, 381 (Tex. 2004).

A matter is established as a matter of law if reasonable people could not differ as to

the conclusion to be drawn from the evidence. See City of Keller v. Wilson, 168
S.W.3d 802, 816 (Tex. 2005).

      To determine if there is a fact issue, we review the evidence in the light most

favorable to the nonmovant, crediting favorable evidence if reasonable jurors could

do so, and disregarding contrary evidence unless reasonable jurors could not. See

Fielding, 289 S.W.3d at 848 (citing City of Keller, 168 S.W.3d at 827). We

                                          5
indulge every reasonable inference and resolve any doubts in the nonmovant's

favor. Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).

      When, as here, the parties file cross-motions for summary judgment on

overlapping issues, and the trial court grants one motion and denies the other, we

review the summary judgment evidence supporting both motions and “render the

judgment that the trial court should have rendered.” FM Props. Operating Co. v.

City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).

                                      Analysis

      Investors Warranty sought summary judgment, arguing that it could not be

held liable for any injury suffered by NextEra from a breach of contract.

Generally, a party cannot be held liable under another party’s contract without an

express or implied assumption of the obligations of that contract. Jones v. Cooper

Indus. Inc., 938 S.W.2d 118, 125–26 (Tex. App.—Houston [14th Dist.] 1996, writ

denied). It is undisputed that Investors Warranty was not a party to any contract

with NextEra.     NextEra argues that Investors Warranty is liable under the

electricity contract based on express assumption, implied assumption, and

ratification. These are all affirmative defenses. See TEX. R. CIV. P. 94.

A.    Express Assumption

      In its first issue, NextEra argues that Investors Warranty expressly assumed

the obligations of the electricity contract. It argues that, by signing the Deed in

                                          6
Lieu of Foreclosure Agreement, which contained language of acceptance regarding

the assignment of CFS’ contractual interests, Investors Warranty also assumed the

obligations under the contract.

      Generally, the assignor of a contract remains liable for the obligations he

originally assumed, even after the contract is assigned. Seagull Energy E&P, Inc.

v. Eland Energy, Inc., 207 S.W.3d 342, 346–47 (Tex. 2006). In contrast, the

assignee of a contract is not responsible for the assignor’s obligations unless he

expressly or impliedly assumes them. See Jones, 938 S.W.2d at 124.

      Contrary to NextEra’s contention, “[t]he mere acceptance of an assignment

does not create a liability against the accepting party.” Jones, 938 S.W.2d at 126.

Instead, there must be actual promissory words, or words of assumption, on the

part of the assignee for there to be an express assumption of contractual

obligations. Id. at 124 (citing Lone Star Gas co. v. Mexia Oil & Gas, Inc., 833
S.W.2d 199, 201 (Tex. App.—Dallas 1992, no writ)).

      NextEra argues that, because Investors Warranty accepted CFS’s contractual

interests in the Deed in Lieu of Foreclosure Agreement, Investors Warranty also

assumed CFS’s contractual obligations.       In an example, NextEra points to a

provision in the foreclosure agreement stating that the contracts identified to be

assigned, which includes the electricity contract, “shall be executed, delivered and

accepted by” Investors Warranty. (Emphasis added.) In making this argument that

                                         7
acceptance of a contract constitutes assumption of a contract, NextEra relies on a

section of the Uniform Commercial Code’s provisions for the sale of goods. See

TEX. BUS. & COM. CODE ANN. § 2.210(e) (Vernon 2009) (concerning assigments);

see also TEX. BUS. & COM. CODE ANN. § 2.102 (Vernon 2009) (providing chapter

two applies to transactions in goods). Subsection 2.210(e) of the Texas Business

and Commerce Code provides that an assignment written in general terms “is an

assignment of rights and unless the language or the circumstances . . . indicate the

contrary, it is a delegation of performance of the duties of the assignor and its

acceptance by the assignee constitutes a promise by him to perform those duties.”

Id. § 2.210(e). It also provides that such an assignment is enforceable by the other

party to the original contract. Id.

      Even assuming the electricity contract can be construed as a contract for the

sale of goods, subsection 2.210(e) does not establish any error.       As NextEra

recognizes, assignments under subsection 2.210(e) have their full effect “unless the

language or the circumstances . . . indicate the contrary.” Id. The language of the

foreclosure agreement expressly disclaims any assumption of any obligation under

the electricity contract.

      [N]either Lender [Investors Warranty], nor any of the Lender Parties,
      has or does hereby assume or agree to assume any liability whatsoever
      of Owner [CFS], and neither Lender nor any of the Lender Parties
      assumes or agrees to assume any obligation of Owner under any
      contract, lease, agreement, indenture or any other document to which
      Owner is a party, by which Owner is or may be bound or which in any
                                         8
      manner affects the Property, or any part thereof, except as otherwise
      expressly agreed to by Lender in this Agreement and the Deed.

(Emphasis added.) The contract does not expressly provide for the assumption of

the electricity contract. Accordingly, assumption of the electricity contract was

expressly disclaimed.

      We overrule NextEra’s first issue.

B.    Implied Assumption

      In part of its second issue, NextEra argues that Investors Warranty impliedly

assumed the obligations under the electricity contract based on its actions after

signing the Deed in Lieu of Foreclosure Agreement.             NextEra contends that,

because Investors Warranty accepted the benefits of the contract for nine months

following CFS’s default, Investors Warranty should also be responsible for the

contract’s underlying liabilities, or it will be unjustly enriched.

      As stated above, an assignee cannot be held liable under another party’s

contract without an express or implied assumption of that contract’s obligations.

See Jones, 938 S.W.2d at 125–26. “Implied covenants are not favored, and courts

will not lightly imply additional covenants enlarging the terms of a contract.” Id.

at 124. Implied covenants can be found (1) when the term was so clearly within

the contemplation of the parties that they deemed it unnecessary to express it or (2)

on equitable grounds. Jones, 938 S.W.2d at 124–25 (citing Danciger Oil & Ref.

                                            9
Co. of Tex. v. Powell, 154 S.W.2d 632, 635 (Tex. 1941)). NextEra argues an

implied assumption on equitable grounds.

       An implied assumption of obligations may arise “when the benefit received

by the assignee is so entwined with the burden imposed by the assignor’s contract

that the assignee is estopped from denying assumption and the assignee would

otherwise be unjustly enriched.” Id. at 125 (citing Lone Star Gas, 833 S.W.2d at

203). NextEra argues that Investors Warranty is unjustly enriched by operating

under the contract, thus benefitting from the long-term fixed rates without

assuming any of the liabilities. It relies primarily on two cases as authority for this

argument: McKinnie v. Milford, 597 S.W.2d 953 (Tex. Civ. App.—Tyler 1980,

writ ref’d n.r.e.) and Kirby Lumber Co. v. R.L. Lumber Co., 279 S.W. 546 (Tex.

Civ. App.—Beaumont 1926, no writ).

       In Kirby Lumber, a timber contract provided that Kirby would sell timber to

the buyer, who was required to make periodic payments. 279 S.W. at 547.

However, the buyer assigned the contract, and the assignee subsequently cut and

removed timber without paying for it. Id. at 546. The court held that the assignee

had both the right to enforce the contract and the obligations associated with it

because the benefit was so entwined with the burden that allowing the assignee to

remove the timber without paying for it would lead to unjust enrichment. Id. at

549.

                                          10
      This case is distinguishable from Kirby Lumber by the simple fact that

Investors Warranty paid for the electricity provided as each monthly bill became

due to CFS. NextEra argues that the unjust enrichment stems from benefitting

from the rates of the long-term contract. While this may show that Investors

Warranty benefitted from the contract, it does not establish that Investors Warranty

was unjustly enriched.

      NextEra relies on McKinnie for the proposition that courts may imply an

assumption of contractual obligations from the acceptance of an assignment so

long as there is nothing in the record indicating a contrary intention. 597 S.W.2d

at 958. This means that evidence of contrary intention disproves a claim of

implied assumption. See id. It does not mean that a claim of implied assumption

is proved by the absence of an express contrary intention. See Jones, 938 S.W.2d

at 124 (recognizing implied covenants are not favored and not lightly implied).

      Nevertheless, there is evidence of a contrary intention. The Deed in Lieu of

Foreclosure Agreement expressly disclaims any assumption of the obligations

under the contract for the provision of electricity. Further, Investors Warranty sent

a letter to NextEra on April 24, 2010, stating that Investors Warranty had not

assumed the electricity contract. Instead, it wanted to discuss creating a new

power purchase agreement with NextEra.

      We overrule this part of NextEra’s second issue.

                                         11
C.    Ratification

      In the remaining part of its second issue, NextEra argues that Investors

Warranty’s actions surrounding and following the Deed in Lieu of Foreclosure

Agreement indicate Investors Warranty’s intent to ratify CFS’s contract with

NextEra. Specifically, NextEra points to Investors Warranty’s operation under the

contract for nine months before terminating the contract as well as to the

communications between CFS and Investors Warranty.

      Ratification concerns a party taking an unauthorized act on behalf of another

party, who then obtains knowledge of the act and retains the benefit of the

transaction. See Land Title Co. of Dallas v. F.M. Stigler, Inc., 609 S.W.2d 754,

756 (Tex. 1980). There is no evidence anywhere in the record to suggest that CFS

ever purported to act on behalf of Investors Warranty. Instead, the opposite is

established: CFS contracted with NextEra on its own behalf for its own benefit.

We hold ratification does not apply in this situation.

      We overrule the remainder of NextEra’s second issue. Because we hold that

the trial court did not err by granting summary judgment on the grounds that

Investors Warranty did not assume the obligations of the electricity contract, we do

not need to address NextEra’s remaining issue of whether the statute of frauds

would also have prevented NextEra from recovering. See TEX. R. APP. P. 47.1.

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                                   Conclusion

      We affirm the judgment of the trial court.

                                             Laura Carter Higley
                                             Justice

Panel consists of Justices Keyes, Higley, and Massengale.

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