Court Opinion

ID: 9396275
Source: CourtListenerOpinion
Date Created: 2023-05-20 06:11:32.426689+00
Date Added: 2024-06-11T17:19:15.760790
License: Public Domain

Opinion filed May 18, 2023

                                      In The

        Eleventh Court of Appeals
                                   __________

                              No. 11-21-00266-CV
                                  __________

                 NOONER HOLDINGS, LTD., Appellant
                                         V.
    ABILENE VILLAGE, LLC; PILLAR ABILENE VILLAGE
  INVESTORS, LLC; PCG MANAGEMENT, INC.; AND BRIAN
                   MOORE, Appellees

                     On Appeal from the 42nd District Court
                            Taylor County, Texas
                        Trial Court Cause No. 51183-A

                                   OPINION
      This case involves the sale of commercial property, with an estimated one
million dollars in alleged undisclosed parking lot defects, pursuant to a negotiated
Purchase and Sale Agreement containing an “as is” provision, as well as a parking
lot repair clause and due diligence inspection provisions.        Appellant, Nooner
Holdings, Ltd., as buyer of a shopping center, challenges the trial court’s grant of a
take-nothing summary judgment against Appellant on its claims for breach of the
sales contract, fraud, fraudulent inducement, and statutory fraud by Appellees—
Abilene Village, LLC; Pillar Abilene Village Investors, LLC; PCG Management,
Inc.; and Brian Moore. We affirm.
                           Factual and Procedural History
      Appellant alleged that it received less than what it bargained for when it
signed a “Purchase and Sale Agreement” with Abilene Village regarding a
commercial property in Abilene. Although the property included shops and tenants,
the issues on appeal center around the parking lot. The parking lot, less than three
years old when negotiations took place, had previously begun to exhibit physical
deformities because it did not conform to the originally specified construction
standards.   A geotechnical report issued by Terracon (the Terracon survey)
confirmed that to properly repair the parking lot, to meet the original construction
standards, would cost approximately one million dollars. Abilene Village initially
discussed making the needed repairs to help sell the property, but changed course
two weeks later. Meeting minutes from November 6, 2018, noted that “Pillar
[Abilene Village Investors] is trying to sell [the] property so parking lot will not be
repaired to full scope.”
      It is undisputed that the Purchase and Sale Agreement is a valid and
enforceable contract. Appellant acknowledged and confirmed in the Purchase and
Sale Agreement that it was “a sophisticated purchaser of real property.” During sale
negotiations, the parties discussed the parking lot. The unsworn “Declaration” of
Sean Nooner, president of Nooner Holdings, Ltd. stated that Appellees revealed and
agreed to repair some apparent “alligatoring” (i.e. visible damage that resembles the
skin of an alligator) located in a small portion of the parking lot. Appellees did not
say that this was the only damage to the parking lot, but neither did they offer the

                                          2
full truth: that this “alligatoring” was likely a symptom of the fundamental defects
in the parking lot. The parties negotiated a “Parking Lot Work” clause that was
included in their agreement. The language contained in this clause, section 15.2(l)
of the Purchase and Sale Agreement, is important.
             Parking Lot Work. Seller and Buyer acknowledge that there are
      defects in the parking lot located upon the Land. Seller, at its cost, shall
      cause repair work to be performed on the parking lot during the
      Feasibility Period, as and to the extent determined necessary by Seller
      in its sole and absolute discretion. If Buyer is unsatisfied with such
      work for any reason, Buyer may terminate this Agreement during the
      Feasibility Period in accordance with Section 8.4 above.
Parking lot defects were acknowledged. Any repair work to be performed by
Appellees was only to the extent determined necessary by Appellees in their “sole
and absolute discretion,” and if unsatisfied Appellant was entitled to terminate the
entire agreement up until closing.
      While there is other relevant contract language, three other notably important
clauses were negotiated as well: a comprehensive “As-Is” clause, 1 “Due Diligence

      1
       Section 15.1(g), the as-is clause, provides:
               As-ls. Buyer is a sophisticated purchaser of real property and, other than the
      representations, warranties, and covenants expressly stated in this Agreement or in the
      instruments executed and delivered by Seller at the Closing (the “Express
      Representations”), Seller has not made, does not make, and specifically negates and
      disclaims any representations, warranties, promises, covenants, agreements, or guaranties
      of any kind or character whatsoever, whether express or implied, oral or written, past,
      present, or future, of, as to, concerning, and/or with respect to the Property and/or the
      Property Information, including, without limitation: (i) the value, nature, quality, or
      condition of the Property, including, without limitation, the water, soil, and geology, . . .
      (v) the habitability, merchantability, marketability, profitability, or fitness for a particular
      purpose of the Property, (vi) the manner or quality of the construction or materials, if any,
      heretofore incorporated into the Property, (vii) the manner, quality, state of repair, or lack
      of repair of the Property . . . or (x) any other matter with respect to the Property and/or the
      Property Information. Buyer further acknowledges and agrees that, except for the Express
      Representations, Buyer is relying entirely on Buyer’s own investigations and examinations
      as to the physical condition and every other aspect of the Property and/or the Property

                                                      3
Review” clause and an investigation clause. 2 The “As-Is” clause, as the name
implies, indicates that the buyer is accepting the risk of all the faults associated with
the property and “accepts and agrees to bear all risks with respect to all attributes and
conditions, latent or otherwise, of the Property.” The investigation clause here

      Information, including, without limitation, those matters set forth in clauses (i) through (x)
      above. Buyer acknowledges that, subject to the Express Representations, it has performed,
      or before the Closing will perform, any and all inspections Buyer deems necessary or
      appropriate for Buyer to be satisfied with the acceptability of the Property. Buyer
      acknowledges that, except for the Express Representations, Buyer is purchasing the
      Property on an “AS-IS”, “WHERE-IS”, and “WITH ALL FAULTS” basis, without any
      implied warranties, and, except for the Express Representations, Buyer accepts and agrees
      to bear all risks with respect to all attributes and conditions, latent or otherwise, of the
      Property. Except for the Express Representations, Seller does not warrant any of the
      Property to be free from defects. The provisions of this Section 15.1 shall survive the
      Closing and shall not merge with the Deed.
      2
       Section 8.1, relating to due diligence review, provides in relevant part:
              Due Diligence Review. During the Feasibility Period, Buyer, at its sole cost and
      expense, shall have the right to conduct such studies and investigations of such matters as
      Buyer deems necessary and appropriate to determine the suitability of the Property for
      Buyer’s purposes (a “Due Diligence Review”), including, without limitation, of the
      following:
               a) inspecting, surveying, making engineering, architectural and environmental
      studies, assessments and/or audits, testing the soil, soil compaction and grading elevations,
      testing for the presence of naturally occurring radioactive materials, evaluating any
      wetlands or waters of the United States, and otherwise determining the condition of the
      Property and prior uses of the Property;
              ....
               i) performing all such other inspections and investigations and obtaining such
      other approvals, as shall be deemed necessary by Buyer for its proposed development and
      use of the Property.
      Section 15.1(f), the investigation clause, provides as follows:
               Investigation. Prior to the Closing, Buyer shall have made its own examination,
      inspection and investigation of the condition of the Property (including, without limitation
      the subsurface thereof, and all soil, environmental, engineering and other conditions which
      may affect construction thereon) and all matters affecting the development of the Property
      as it deems necessary or appropriate, and Buyer is entering into this Agreement and
      purchasing the Property based upon the results of such inspections and investigations and
      not in reliance on any statements, representations, or agreements of Seller not contained,
      or referenced, in this Agreement.

                                                    4
indicates that Appellant was responsible for making its own examination, inspection,
and investigation of the condition of the property—“purchasing the Property based
upon the results of such inspections and investigations and not in reliance on any
statements, representations, or agreements of Seller not contained, or referenced, in
this Agreement.” Despite the language of the parties’ negotiated agreement, there
is no evidence that Appellant made any attempt to survey the parking lot, request
more information from Abilene Village, or further inspect the premises. Contrary
to the cited terms of the Purchase and Sale Agreement, Appellant contends that it
relied upon Abilene Village’s statements—and failure to disclose—concerning the
parking lot when it signed the contract on January 8, 2019. Appellant realized too
late that the scope of the parking lot defects extended well beyond the surface defect
that Abilene Village had affirmatively identified.
       Appellant first filed suit against those who built the parking lot (the
construction defendants), then joined Appellees to the suit in its fourth amended
petition on March 31, 2021. In response, Appellees filed their first motion for
summary judgment. Without a ruling on the first motion, Appellees filed a second
motion for summary judgment—on traditional grounds only. After a hearing, the
trial court granted Appellees’ second motion for summary judgment. Appellees then
filed an unopposed motion to sever their claims from the construction defendants;
the severance was granted, providing a final, appealable judgment.
       Appellant raises five issues on appeal. 3 We have summarized them below.
           1. The trial court erred when it granted Appellees’ second motion for
              summary judgment because the arguments from the first motion for
              summary judgment were not “expressly presented” in the second
              motion.

       3
         There were initially six issues, but in its reply brief Appellant withdrew its sixth issue—a
contention regarding an award of attorney’s fees.

                                                 5
         2. The trial court erred when it granted the second motion for summary
            judgment as to Appellant’s claims for fraud.
         3. The trial court erred when it granted the second motion for summary
            judgment as to Appellant’s claims for breach of contract.
         4. The trial court erred when it granted the second motion for summary
            judgment on its claims of derivative liability as to the individual
            appellees named in its suit based on theories of direct actor liability,
            respondeat superior/vice principle, beneficiary of fraud and ratification
            and conspiracy.
         5. The trial court erred when it granted the second motion for summary
            judgment because Appellees failed to plead and prove the elements of
            the affirmative defense of release.
      Appellees’ second motion for summary judgment contains sufficient grounds
to affirm the trial court’s judgment. We do not address Appellant’s first issue
regarding Appellees’ first motion for summary judgment because the trial court
specifically granted Appellees’ second motion for summary judgment. The merits
of Appellant’s last two issues regarding its derivative liability claims and its release
of Brian Moore are dependent on viable claims of fraud and breach of contract—
issues two and three.
                                 Standard of Review
      We review de novo a trial court’s grant of summary judgment. Travelers Ins.
Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010) (citing Provident Life & Accident
Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003)). We consider the evidence
presented in the light most favorable to the nonmovant, crediting evidence favorable
to the nonmovant if reasonable jurors could, and disregarding evidence contrary to
the nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. 20801,
Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A defendant who conclusively

                                           6
negates at least one essential element of a cause of action is entitled to summary
judgment on that claim. Frost Nat’l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex.
2010); see TEX. R. CIV. P. 166a(b), (c). When the trial court’s order does not specify
the grounds relied upon, the trial court’s grant of summary judgment will be affirmed
on any grounds advanced by the movant that are meritorious. Barker v. Roelke, 105
S.W.3d 75, 82 (Tex. App.—Eastland 2003, pet. denied).
      While a party may not like the consequences of the terminology they chose in
negotiating a contract, we must enforce it as written, particularly as between
sophisticated parties. “We must construe contracts by the language contained in the
document, with a mind to Texas’s strong public policy favoring preservation of the
freedom to contract.” FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d
59, 67 (Tex. 2014) (citing El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389
S.W.3d 802, 811–12 (Tex. 2012)); see also Cross Timbers Oil Co. v. Exxon Corp.,
22 S.W.3d 24, 26 (Tex. App.—Amarillo 2000, no pet.) (“In short, the parties strike
the deal they choose to strike and, thus, voluntarily bind themselves in the manner
they choose.”). “[S]ophisticated parties have broad latitude in defining the terms of
their business relationship.” Sundown Energy LP v. HJSA No. 3, Ltd. P’ship, 622
S.W.3d 884, 889 (Tex. 2021) (quoting FPL Energy, LLC, 426 S.W.3d at 67).
“[C]ourts are obliged to enforce the parties’ bargain according to its terms.” Id.
(citing Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex. 1996) (“We
have long held that courts will not rewrite agreements to insert provisions parties
could have included or to imply restraints for which they have not bargained.”)).
“[C]ourts may not rewrite a contract under the guise of interpretation.” Id.; see also
Provident Fire Ins. Co. v. Ashy, 162 S.W.2d 684, 687 (Tex. [Comm’n Op.] 1942)
(“Parties make their own contracts, and it is not within the province of this court to
vary their terms in order to protect them from the consequences of their own

                                          7
oversights and failures in nonobservance of obligations assumed.” (quoting Dorroh-
Kelly Mercantile Co. v. Orient Ins. Co., 135 S.W. 1165, 1167 (Tex. 1911))); E. Tex.
Fire Ins. Co. v. Kempner, 27 S.W. 122, 122 (Tex. 1894) (“[W]here the language is
plain and unambiguous, courts must enforce the contract as made by the parties, and
cannot make a new contract for them, nor change that which they have made under
the guise of construction.”).
                                       Analysis
      In Appellant’s second issue, it argues that summary judgment was improper
as to its claims of statutory fraud, common law fraud, and fraudulent inducement. It
argues that Appellees failed to conclusively negate an element of Appellant’s claims
of false representation and justifiable reliance.
      Section 27.01(a) of the Texas Business and Commerce Code creates a
statutory fraud cause of action in a real estate transaction. See TEX. BUS. & COM.
CODE ANN. § 27.01(a) (West 2023). It requires, in relevant part:
            (a) Fraud in a transaction involving real estate or stock in a
      corporation or joint stock company consists of a
                   (1) false representation of a past or existing material
            fact, when the false representation is
                       (A) made to a person for the purpose of
                 inducing that person to enter into a contract; and
                        (B) relied on by that person in entering into
                 that contract[.]
      Common law fraud requires (1) that a material representation was made;
(2) the representation was false; (3) when the representation was made, the speaker
knew it was false or it was made recklessly, without any knowledge of the truth and
as a positive assertion; (4) the speaker made the representation with the intent that
the other party should act upon it; (5) the party acted in reliance on the
representation; and (6) the party thereby suffered injury. Italian Cowboy Partners,

                                           8
Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011) (citing
Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009) (per
curiam)). Fraudulent inducement “is a particular species of fraud that arises only in
the context of a contract.” Nat’l Prop. Holdings, L.P. v. Westergren, 453 S.W.3d
419, 423 (Tex. 2015) (quoting Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001)).
A party claiming fraudulent inducement must show that (1) the other party made a
material representation, (2) the representation was false and was either known to be
false when made or was made without knowledge of its truth, (3) the representation
was intended to be and was relied upon by the injured party, and (4) the injury
complained of was caused by the reliance. Id.
      Appellant argues that based on Appellees’ partial disclosure—that of defects
in a limited area of the parking lot—Appellees had a duty to disclose the full extent
of the parking lot defects known to Appellees. Appellant also argues that the
language of the contract does not contain the clear language necessary to disclaim
Appellant’s reliance on the partial disclosure as a matter of law. Importantly, our
analysis is limited to sophisticated parties in the negotiation of non-boilerplate
contractual provisions that allocate relevant risks and duties between the parties
where no direct misrepresentation has been made.
      I. No Further Duty to Disclose
      Appellant claims that the failure to disclose the full range of damage to the
parking lot met the element of false representation. Failing to disclose information
is equivalent to a false representation when particular circumstances impose a duty
on a party to speak, and the party deliberately remains silent. In re Int’l Profit
Assocs., Inc., 274 S.W.3d 672, 678 (Tex. 2009) (citing Bradford v. Vento, 48 S.W.3d
749, 755 (Tex. 2001)). “As a general rule, a failure to disclose information does not
constitute fraud unless there is a duty to disclose the information.” Bradford, 48

                                          9
S.W.3d at 755. “Whether such a duty exists is a question of law.” Id. “Generally,
no duty of disclosure arises without evidence of a confidential or fiduciary
relationship.” Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998).
      Appellant’s claims of fraud, as pled in its multiple common law and statutory
forms, all require proof of a misrepresentation. See Mecedes-Benz USA, LLC v.
Carduco, Inc., 583 S.W.3d 553, 556, 559, 563 (Tex. 2019) (where the evidence
indicated that none of the defendants actually made any oral representation about
plaintiff’s ability to move the dealership but, rather, due to other events and
circumstances, plaintiff “assumed that he would eventually be able to relocate”)
(emphasis added). To be clear, similar to the facts presented in Mercedes-Benz, no
actual misrepresentation was made to Appellant that the parking lot was free of
defects.
      But Appellant advances two theories that it claims would impose on Appellees
a duty to disclose—and failure thereby to constitute a misrepresentation. First,
Appellant cites to authority that states a seller of real estate has a duty to disclose
material facts that (1) would not be discoverable by the exercise of ordinary care and
due diligence by the purchaser or (2) a reasonable investigation and inquiry would
not uncover. Smith v. Nat’l Resort Cmtys., Inc., 585 S.W.2d 655, 658 (Tex. 1979).
This duty has held strong in the common law since Smith. See Domel v. Birdwell,
No. 11-12-00200-CV, 2014 WL 4347815, at *6 (Tex. App.—Eastland Aug. 29,
2014, pet. denied) (mem. op.); Tukua Invs., LLC v. Spenst, 413 S.W.3d 786, 801
(Tex. App.—El Paso 2013, pet. denied); Myre v. Meletio, 307 S.W.3d 839, 843 (Tex.
App.—Dallas 2010, pet. denied). Appellees attempt to distinguish this duty as being

                                          10
only applicable to sales of residential real estate.4 Ignoring the fact that “residential”
is conspicuously absent from the rule each time it is stated, some courts have held
that this duty to disclose applies to commercial real estate transactions. See Uribe v.
Briar-Ridge, LLC, No. 13-20-00167-CV, 2021 WL 6129133, at *6 (Tex. App.—
Corpus Christi–Edinburg Dec. 29, 2021, pet. denied) (mem. op.); Tukua Invs., 413
S.W.3d at 800–801; Coldwell Banker Whiteside Assocs. v. Ryan Equity Partners,
Ltd., 181 S.W.3d 879, 888 (Tex. App.—Dallas 2006, no pet.).
        Appellant relies on case law to support its argument that Appellees had a duty
to disclose material facts, but Appellant fails to provide evidence that the parking lot
defects of which it complains would not have been discoverable as required by that
same case law by the exercise of ordinary care and due diligence by the purchaser,
or which a reasonable investigation and inquiry would not uncover. See Smith, 585
S.W.2d at 658. Appellant provides no evidence of any due diligence steps taken or
any effort to inspect or investigate at all to meet that common law element—much
less Appellant’s contractually accepted duties of inspection or investigation.5
Appellant provides no basis upon which we could hold that a reasonable
investigation and inquiry would not have led it down the same path as that taken by
Appellees to ultimately have a third-party inspection to uncover parking lot defects.
“And when a party fails to exercise such diligence, it is ‘charged with knowledge of
all facts that would have been discovered by a reasonably prudent person similarly

        4
         In their brief, Appellees assert that there is no common law duty to disclose absent a fiduciary
duty. So confident are the Appellees in their assertion, that they filed a forty-two-page motion for damages
for Appellant’s purported filing of a frivolous appeal. See TEX. R. APP. P. 45. Appellees filed their Rule 45
motion just days after filing a supplemental filing—one this court requested regarding the duty to disclose.
Texas courts have often entertained the concept of a common law duty of disclosure. While the matter may
not be settled in all fact scenarios, it is certainly far from frivolous. Accordingly, we deny Appellees’
motion for damages.
        5
         The Texas Supreme Court implies that “greater diligence” would be required of a sophisticated
party such as Appellant. Mercedes-Benz, 583 S.W.3d at 563.

                                                     11
situated.’” Mecedes-Benz, 583 S.W.3d at 563 (quoting JPMorgan Chase Bank,
N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 654 (Tex. 2018)). There can be
no misrepresentation in failing to reveal that knowledge with which Appellant is
charged as a matter of law. Id. Based on this record and considering the terms of
the contract and the circumstances presented, we cannot hold that the trial court erred
when it impliedly concluded that, as a matter of law, there was no evidence of a
breach of any duty to disclose. Unambiguous terms of a written contract may
directly contradict claims of misrepresentation or justified reliance on same—with
or without other “red flags”—and may defeat Appellant’s claims as a matter of law.
See Mecedes-Benz, 583 S.W.3d at 558–59
      Second, ignoring strong language in the Purchase and Sale Agreement,
Appellant argues that when Appellees disclosed the limited “alligatoring” issue in
the parking lot, even though it did not do so expressly, it intentionally created a false
impression that this “alligatoring” was the only damage to the parking lot—a
purported false impression upon which Appellant relied. According to Appellant,
this false impression created a duty to disclose the full extent of the defects.
      It is important to note that we are not merely dealing with common law issues,
but also with an agreement that contains specific contractual provisions that directly
bear on accepted duties and risks between the parties. The contractual provisions
are relevant as to whether, in light of these terms, there is a misrepresentation and/or
whether reliance thereon would be justified. These unambiguous contractual terms
accepted by Appellant, of course, include the parking lot work clause, the “As-Is”
clause, and the due diligence/inspection clauses.
      We cannot say that the Texas Supreme Court has adopted a duty of full
disclosure based on partial disclosures that are true. See SmithKline Beecham
Corp. v. Doe, 903 S.W.2d 347, 352 (Tex. 1995) (“This Court has cited section 551

                                           12
only once, Smith v. National Resort Communities, 585 S.W.2d 655, 658 (Tex.1979),
but has never embraced it as a rule of law in Texas.”). The supreme court may have
alluded to a duty to disclose based on incomplete, affirmative disclosures, but each
time the question of duty was presented, the case was disposed of on different
grounds. See Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572
S.W.3d 213, 219–20 (Tex. 2019); Mercedes-Benz, 583 S.W.3d at 562 (partial
disclosure was claimed to trigger a duty to disclose, but the court emphasized
continued refusal to accept Restatement, Section 551); Bradford, 48 S.W.3d at 755–
56. The supreme court did not analyze the duty to disclose in Bombardier because
the defendant did not dispute the finding of fraud. It merely questioned which
plaintiff could recover for fraud. Bombardier, 572 S.W.3d at 220. Mercedes-Benz
and Bradford were both disposed of based on a lack of evidence to support section
551’s application. Mercedes-Benz, 583 S.W.3d at 562–63; Bradford, 48 S.W.3d at
756.
       Various Texas courts of appeals have generally agreed that a duty to disclose
may arise based upon a partial disclosure. See CLC Roofing, Inc. v. Helzer, 594
S.W.3d 414, 425 (Tex. App.—Fort Worth 2019, no pet.); Hoggett v. Brown, 971
S.W.2d 472, 487 (Tex. App.—Houston [14th Dist.] 1997, no writ); Myre v. Meletio,
307 S.W.3d 839, 843 (Tex. App.—Dallas 2010, pet. denied). We have also noted
that several Texas courts have held that there is a general duty to disclose when a
party makes a true disclosure that conveys a false impression.        Domel, 2014
WL 4347815, at *6. In Domel, we held that, in the context of a seller and buyer of
a home, “Appellants had a common-law duty to disclose the whole truth, correct any
misstatements or false impressions, and disclose material information—like the
insurance claim and payment for roof damage—that would not have been
discoverable through ordinary and reasonable diligence.” Id. at *7.

                                         13
      Cases that review the issue of duty based on partial disclosure also discuss
whether the seller could have reasonably discovered the undisclosed facts
themselves. See Bradford, 48 S.W.3d at 755; Prudential Ins. Co. of Am. v. Jefferson
Assocs., Ltd., 896 S.W.2d 156, 163 (Tex. 1995); Domel, 2014 WL 4347815, at *7;
Myre, 307 S.W.3d at 844. It cannot be unreasonable for a seller to assume that a
buyer will “trust, but verify” their representations. See Restatement (Second) of
Torts § 551 cmt. k (1977) (“The defendant may reasonably expect the plaintiff to
make his own investigation, draw his own conclusions and protect himself. . . .”).
“In an arm’s length transaction, the party alleging fraud must have exercised
ordinary care to protect its own interests and cannot blindly rely on the defendant’s
reputation, representations, or conduct where the plaintiff’s knowledge, experience,
and background warrant investigation.”        Mercedes-Benz, 583 S.W.3d at 563
(quoting Orca Assets, 546 S.W.3d at 654). We hold that, generally, in an arm’s
length business transaction, a party that conveys a partial or ambiguous factual
statement may have a common law duty to disclose matters known to him to prevent
the disclosure from being misleading. But that is not dispositive of any applicable
duty or breach thereof in light of the relevant Purchase and Sale Agreement
provisions that was agreed to by the sophisticated parties in this case and the risks
that they bargained for.
      II. No Justifiable Reliance—Red Flags and Express Contract Terms
      “[A] buyer’s affirmation and agreement that he is not relying on
representations by the seller should be given effect” in a contract when an “as-is”
clause negotiated by sophisticated parties also appears. Prudential, 896 S.W.2d at
162. An “as-is” clause is a form of disclaimer of reliance. See Schlumberger Tech.
Corp. v. Swanson, 959 S.W.2d 171, 179 (Tex. 1997) (citing Prudential, 896 S.W.2d
at 161–62). The as-is clause agreed to by Appellant contradicts its claim of reliance.

                                         14
      An abundance of “red flags” may preclude justifiable reliance as a matter of
law. Justifiable reliance is a fact question, but may be negated as a matter of law
when circumstances exist under which reliance cannot be justified. Orca Assets, 546
S.W.3d at 654. “Red flags” alone or direct contradictions in express contract terms
alone can negate justifiable reliance as a matter of law. See Mercedes-Benz, 583
S.W.3d at 559 (citing Orca Assets, 546 S.W.3d at 660 n.2). The Purchase and Sale
Agreement before us contains both direct contradictions and red flags that negate
any justifiable reliance on an alleged misrepresentation through a partial disclosure.
      Appellees’ second motion for summary judgment focuses on the contention
that because of the express, unambiguous statement at the beginning of the parking
lot work clause—“there are defects in the parking lot”—the oral statement that a
portion of the parking lot was exhibiting “alligatoring” could not have justifiably
been assumed to be a denial of any defect in the remainder of the parking lot. We
agree, particularly in the context of the other contractual terms examined herein.
      “[T]here is no direct contradiction if a reasonable person can read the writing
and still plausibly claim to believe the earlier representation.” Orca Assets, 546
S.W.3d at 659 (finding that seller’s representation that the acreage was “open,”
meaning unleased, was directly contradicted by the negation-of-warranty clause that
spoke to a potential “failure of title”). While Appellees’ representation regarding
the “alligatoring” is claimed to have misled Appellant into believing that this was
the only defect in the parking lot, Appellees did not affirmatively represent as much.
A sophisticated buyer could read the unambiguous contract language “there are
defects in the parking lot” and reasonably believe that Appellees’ representation that
there had appeared, in the feasibility period, a rippling in a limited portion of the
parking lot. The contract provision’s generic language is without scope or limit—
plainly declaring that the parking lot contains defects. We acknowledge that a direct

                                         15
contradiction may be found when the representation and the writing are not exactly
the same. Orca Assets, 546 S.W.3d at 659. But it is too much to say that the words
“there are defects in the parking lot” directly contradict a representation of an
“alligatoring” defect somewhere in the parking lot.
      The “red flags” in the record do not permit Appellant as a sophisticated buyer
to ignore them with impunity. While direct contractual contradictions focus on
specific language and the accompanying representations, “red flags” reflect general
circumstances that warn a party of the risks of the transaction that they are about to
enter. Orca Assets, 546 S.W.3d at 655. “Red flags” must also be viewed with an
eye to the parties’ relative levels of sophistication. Id. at 656.
      Courts identify “red flags” in both the language of a contract and the parties’
actions surrounding a contract.       For example, in Orca Assets, a seller made
ambiguous representations about whether it had good title to the property it was
selling. Id. The buyer had contractually agreed to verify exactly what the seller
owned. Id. at 657. Upon the execution of the letter of intent, the buyer ceased
checking property records for newly filed leases, and three days later a lessee
recorded its previous lease with the seller. Id. The court found these things to be
“red flags” that supported a lack of justifiable reliance as a matter of law. Id. at 660.
Other “red flags” can involve whether the allegedly defrauded party exercised
diligence. Lewis v. Bank of Am. NA, 343 F.3d 540, 546 (5th Cir. 2003) (holding that
plaintiff’s decision to enter into transaction without undertaking additional
investigation into tax consequences was not justifiable, given his access to
professional accountants, the amount of money involved, and the ambiguous nature
of the pertinent representation); Orca Assets, 546 S.W.3d at 657 (“And by the very
terms of the letter, Orca had taken upon itself to verify exactly what the trust
owned.”). An arm’s length transaction that results in something other than a form

                                           16
agreement can be a “red flag.” Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc.,
590 S.W.3d 471, 501 (Tex. 2019).
      Appellees’ second motion for summary judgment directs us to at least three
“red flags” and/or express contract provisions: the parking lot clause, the as-is
clause, and the due diligence/investigation clauses. The identification of actual
alligatoring in the parking lot is a fourth. Our cumulative analysis of these “red
flags” is framed with two overarching facts: that Appellant concedes that it is a
sophisticated purchaser of real property, and that Appellant does not contest that the
contract was drafted after an arm’s-length negotiation.
      First, the parking lot clause may not contain a direct contradiction, but its
presence—particularly as a product of negotiation—is a clear acceptance of risk by
Appellant that directs the buyer’s attention to the parking lot as a potential issue. A
statement that “there are defects in the parking lot” may not point out all the defects
in specificity and scope, but such a clause clearly puts Appellant on notice that the
parking lot is a source of risk that Appellant is accepting when it signs off on the
purchase of this multi-tenant commercial property.
      Second, Appellant agreed that it would take the property, not excluding the
parking lot, “as is.” Usually, a valid as-is clause can negate justifiable reliance on
its own, but an exception exists when fraudulent representation or concealment of
information procures the otherwise valid disclaimer. Prudential, 896 S.W.2d at 161.
Appellant’s actual knowledge of the major defects, coupled with the true but
allegedly misleading disclosure of the smaller defect, raises a potential exception.
Though we do not hold that the as-is clause alone is determinative, it cannot be
overlooked. In light of the inclusion of an as-is clause, the Texas Supreme Court
observed that “[t]he sole cause of a buyer’s injury in such circumstances, by his own
admission, is the buyer himself. He has agreed to take the full risk of determining

                                          17
the value of the purchase. He is not obliged to do so; he could insist instead that the
seller assume part or all of that risk by obtaining warranties to the desired effect.”
Prudential, 896 S.W.2d at 161. Such a clause warrants the careful investigation that
apparently Appellant neglected, particularly when combined with the other relevant
and agreed-to contractual provisions in the Purchase and Sale Agreement.
      Third, Appellant—through the due diligence/investigation clauses—
unequivocally assumed the responsibility to inspect and investigate the condition of
the parking lot. Appellant was on notice that this parking lot was, in part, defective.
Importantly, when a buyer has knowledge of existing issues but chooses not to
exercise due diligence to inquire more about the details of those issues, they cannot
justifiably rely on an alleged failure to disclose for purposes of claiming fraud or
negligent misrepresentation. Rich v. Olah, 274 S.W.3d 878, 887–88 (Tex. App.—
Dallas 2008, no pet.). “We find in the record that [Appellant] did not exercise due
diligence by assuming” that there were no further parking lot issues. See Tukua
Investments, 413 S.W.3d at 801 (emphasis added); see also Rich, 274 S.W.3d at
887–88. Again, there is no evidence that Appellant made a reasonable attempt to
inspect, investigate, or obtain further information.
      These “red flags” paint a clear picture: with the knowledge that it had
affirmatively been represented that the parking lot was defective, Appellant traded
risk for a better price. By purchasing a property “as is,” the buyer negotiates a lower
price, but also accepts the risk that the property is worth less than the price paid.
Prudential, 896 S.W.2d at 161. Appellees’ nondisclosure did not excuse Appellant
from reasonable diligence. “[A] failure to exercise reasonable diligence is not
excused by mere confidence in the honesty and integrity of the other party.” Nat’l
Prop. Holdings, L.P. v. Westergren, 453 S.W.3d 419, 424 (Tex. 2015) (per curiam)
(quoting Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962)). As previously noted,

                                          18
a reasonable search may or may not have uncovered the full extent of the defects.
But viewing the “circumstances in their entirety while accounting for the parties’
relative levels of sophistication,” Appellant’s failure to demonstrate any
investigation at all belies claimed reasonable reliance on Appellees’ alleged
misrepresentation by sharing a partial truth. See Orca Assets, 546 S.W.3d at 656.
Even if we held that there was a relevant duty or a misrepresentation, which we do
not, reliance, under these circumstances and in light of the negotiated provisions of
purchase and sale agreement by sophisticated parties was simply not warranted. As
a sophisticated business entity, Appellant accepted the additional risk in the “as is”
clause and the additional responsibility in the “investigation” clause. Despite being
put on alert by warnings in the non-boilerplate parking lot clause and by identified
physical defects, Appellant failed to perform the accepted duties of basic
investigation and inspection to which it acquiesced in the contract. Appellant’s
assumptions under the circumstances as to the overall condition of the parking lot
were not warranted, and we cannot find that a material misrepresentation or
justifiable reliance, as asserted by Appellant, exists as a matter of law. We overrule
Appellant’s second issue.
      III. No Breach of Contract
      In its third issue, Appellant argues that Appellees failed to negate an element
of Appellant’s breach of contract claim in their second motion for summary
judgment. Appellant asserts that, as to the defects in the parking lot, Appellees
breached the contract by failing to provide written notice of a “major loss” as per the
terms of the contract.
      A plaintiff asserting a breach of contract claim must prove (1) the existence
of a valid contract; (2) that plaintiff performed or tendered performance as the
contract required; (3) that defendant breached the contract by failing to perform or

                                          19
tender performance as the contract required; and (4) that plaintiff sustained damages
as a result of the breach. USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501
n.21 (Tex. 2018). Appellees, as the summary judgment movants, had the burden to
disprove one of the above elements as a matter of law. In their second motion for
summary judgment, Appellees asserted that they did not breach the contract because
they had no disclosure obligations under the terms of the contract. When we
interpret a contract, we begin with the contract’s express language. Nettye Engler
Energy, LP v. BlueStone Nat. Res. II, LLC, 639 S.W.3d 682, 689 (Tex. 2022). We
interpret the contract in its “plain, grammatical, and ordinary” meaning unless the
instrument shows the parties used the terms in a technical sense, or a plain
interpretation would “clearly defeat the parties’ intentions.” Nettye Engler, 639
S.W.3d at 690.
      Specifically, Appellant argues that Appellees breached section 13.2(b) of the
Purchase and Sale Agreement when they failed to provide written notice of a “major
loss” as required by the contract. Section 13.2(b) of the parties’ contract reads as
follows:
            13.2 Risk of Loss. Before the Closing, the risk of any loss or
      destruction of all or any part of the Property is upon Seller. After the
      Closing, the risk of any loss or destruction of all or any part of the
      Property is upon Buyer.
             ....
             (b) Major Damage. In the event of a “major” loss or
      damage, Buyer may terminate this Agreement by written notice to
      Seller. If Buyer does not elect to terminate this Agreement within ten
      (10) days after Seller sends Buyer written notice of the occurrence of
      major loss or damage detailing the damage, the cost to repair and/or
      refurbish such damage, the time to complete such repairs, and
      warranting to Buyer whether the loss/damage is covered by any
      insurance policy, all in the professional third-party estimation of a duly

                                         20
        licensed architect (or engineer), then Buyer shall be deemed to have
        elected to proceed with Closing . . . .
(Emphasis added). In context, Section 13.2 begins with the words “Before the
Closing.” Before the closing is a reference to the time period between signing of the
Purchase and Sale Agreement and the formal closing of the sale which is typically
conducted by a closing agent.               The risk-of-loss clause addresses the parties’
responsibility for losses that occur within that interim period of time. Appellant’s
interpretation of “major loss” is not based on the plain language of the contract, nor
is it consistent with the context of the phrase “Before the Closing.” The definition
of “major loss or damage” in the contract is:
               For purposes of Section 13.2(a) and 13.2(b), “major” loss or
        damage refers to the following: (i) loss or damage to the Property or
        any portion hereof such that the cost of repairing or restoring the
        premises in question to a condition substantially identical to that of the
        premises in question prior to the event of damage would be, in the
        certified opinion of an architect (or engineer) reasonably acceptable to
        Seller and Buyer, equal to or greater that Two Hundred Fifty Thousand
        No/100 Dollars ($250,000.00) for any loss.6
        Appellant discusses the cost of the damage, which is undoubtedly above
$250,000, but glosses over the fact that the defects in the parking lot are not the result
of an “event of damage.” The parking lot’s defects, present from the moment of its
imperfect creation, do not comport with a plain reading of an “event of damage.”
Appellant fails to explain how the parking lot can be restored to its condition “prior
to the event of damage,” when this parking lot never existed in such a condition or
was in the same or similar condition at the time that the initial Purchase and Sale
Agreement was signed. We agree with Appellees that they proved as a matter of

        6
          Despite the numbered (i) notation, Section 13 ends immediately after the quoted language without
an (ii) or other phrase or paragraph following it.

                                                   21
law that they did not breach Section 13.2 of the parties’ contract by failing to disclose
the extent or magnitude of the preexisting parking lot issues in writing. The risks
allocated by the terms of the contract placed no such requirement upon Appellees.
Appellant’s third issue is overruled.
      Because the claims of fraud and breach of contract fail as a matter of law, we
do not reach Appellant’s remaining issues (Issues Four and Five) related to
derivative liability and contractual release of personal liability, respectively, that are
dependent upon a viable fraud and/or breach of contract cause of action. See TEX. R.
APP. P. 47.1
                                   This Court’s Ruling
      We affirm the judgment of the trial court.

                                                W. BRUCE WILLIAMS
                                                JUSTICE

May 18, 2023
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.

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