CASE UPDATE Cramer Weatherbie Richardson Walker

Document Sample
CASE UPDATE Cramer Weatherbie Richardson Walker Powered By Docstoc
					    CASE UPDATE


     DECEMBER 2 & 3, 2010

                                DAVID A. WEATHERBIE
                Cramer Weatherbie Richardson Walker LLP
                                           Dallas, Texas
                                         (214) 369-1170
                                          CASE UPDATE
                                 DAVID A. WEATHERBIE
                                    DALLAS, TEXAS

         The case selection for this episode of the Case Update, like all of them in the past, is very
arbitrary. If a case is not mentioned, it is completely the author’s fault. Cases are included through 319
S.W.3d 973 and Supreme Court opinions released through November 12, 2010.

        In an effort to streamline the case discussions, various statutory and other references have been
reduced to a more convenient shorthand. The following is an index of the more commonly used

        “Bankruptcy Code” – The Federal Bankruptcy Code, 11 U.S.C.A. §§ 101 et seq.

       “DTPA” – The Texas Deceptive Trade Practices Act, Texas Business and Commerce Code,
Chapter 17.

        “UCC” – The Texas Uniform Commercial Code, Texas Business and Commerce Code, Chapters
1 through 9.

       “Prudential” – Prudential Insurance Co. of America v. Jefferson Associates, 896 S.W.2d 156
(Tex.1995), the leading case regarding “as-is” provisions in Texas.

        The Texas Property Code and the other various Texas Codes are referred to by their respective
names. The references to various statutes and codes used throughout this presentation are based upon the
cases in which they arise. You should refer to the case, rather than to my summary, and to the statute or
code in question, to determine whether there have been any amendments that might affect the outcome of
any issue.

        This and past Case Law Updates are available at our website

2010 Texas Land Title Institute – Case Update                                                   ii
                                                  TABLE OF CO              TE TS

PART I MORTGAGES AND FORECLOSURES ........................................................................ 1

PART II HOME EQUITY LENDING .......................................................................................... 7

PART III ASSIGNMENTS OF RENTS........................................................................................ 7


PART V DEEDS AND CONVEYANCE DOCUMENTS .......................................................... 12

PART VI LEASES ....................................................................................................................... 16

PART VII VENDOR AND PURCHASER .................................................................................. 25


PART IX EASEMENTS ............................................................................................................. 37

PART X CONDOMINIUMS AND OWNERS ASSOCIATIONS .............................................. 42

PART XI HOMESTEAD ............................................................................................................. 44

PART XII CONSTRUCTION AND MECHANICS’ LIENS ...................................................... 45

PART XIII CONDEMNATION .................................................................................................. 51

PART XIV LAND USE PLANNING AND RESTRICTIONS .................................................. 56

PART XV AD VALOREM TAXATION ................................................................................... 62

PART XVI MISCELLANEOUS ................................................................................................. 63

2010 Texas Land Title Institute – Case Update                                                                              iii
          PART I                                  the substitute trustees sought rescission of
MORTGAGES A D FORECLOSURES                        the conveyance from the substitute trustees
                                                  to LaSalle.
    Myrad Properties, Inc. v. LaSalle Bank
  ational Association, 300 S.W.3d 746,                Rather than requiring that erroneous
2009 WL 4877733, 53 Tex. Sup. Ct. J. 208          deeds be reformed or rescinded by judicial
(Tex. 2009).      Myrad Properties, Inc.          proceedings, the courts have long allowed
financed two separate properties in Killeen.      agreeable parties to use correction deeds in
Myrad executed a promissory note, which           limited circumstances.     For instance, a
was secured by a deed of trust that covered       correction deed may be used to correct a
both properties. After Myrad defaulted,           defective description of a single property
LaSalle proceeded to foreclose.                   when a deed recites inaccurate metes and
                                                  bounds. Similarly, a correction deed may be
    The substitute trustees posted notice of      used to correct a defective description of a
sale. In various parts, the notice referred       grantor's capacity.
both to the note and the recorded deed of
trust, including a statement that “Notice is           However, using a correction deed to
hereby given of Holder's election to proceed      convey an additional, separate parcel of land
against and sell both the real property and       is beyond the appropriate scope of a
any personal property described in the Deed       correction deed. Preserving the narrow
of Trust.” However, the notice's property         circumstances for acceptable use of a
description referred to Exhibit A, the only       correction deed is important because a
exhibit, which in turn described only one of      proper correction deed may relate back to
the two properties. La Salle was the only         the date of the deed it corrects. To allow
bidder at the foreclosure sale. It bid its        correction deeds to convey additional,
entire debt.                                      separate properties not described in the
                                                  original deed would introduce unwarranted
     After the foreclosure sale, the substitute   and unnecessary confusion, distrust, and
trustees issued a substitute trustees deed to     expense into the Texas real property records
LaSalle, which LaSalle immediately                system. For example, it could require those
recorded. The substitute trustee’s deed           who must rely on such records to look
conveyed the “Property” to LaSalle.               beyond the deed and research the
“Property” was defined in the deed as the         circumstances of ownership to make sure
real property described in Exhibit A to the       that no conveyance mistake such as that
deed, which, again, described only one of         before us in this case was made,
the two tracts.                                   undermining the entire purpose of record
                                                  notice. Thus, the Supreme Court held that
     Myrad took the position that the sale        LaSalle's correction deed purporting to
covered only the one tract and, because           convey both properties was void as a matter
LaSalle had bid its entire debt for the one       of law.
tract, Myrad then owned the other tract free
and clear. It sued LaSalle to enjoin it from          Having not succeeded in confirming the
filing a correction deed, but the trial court     correction deed, LaSalle then sought to
dissolved its initial restraining order and       rescind the conveyance from the substitute
LaSalle filed a correction deed which             trustees because of mistake in the original
described both tracts. Mryad then sought to       deed. When mistake is alleged, the court
quiet title and sought a declaration that         may consider extrinsic evidence of intent in
LaSalle owns only the one tract described in      determining whether to enforce a deed.
the initial deed. LaSalle in turn sought a        Rescission is an available equitable remedy
declaration that it now holds title to both       if mutual mistake is shown.
properties, or in the alternative, LaSalle and

2010 Texas Land Title Institute – Case Update                                                1
     The lower courts did not reach the               The court did not need not reach the
rescission claim. However, the trial court       question of whether notice was adequate or
granted, and the court of appeals affirmed,      chilled potential bidding, because rescission
LaSalle's claim that the correction deed         of the deed is proper regardless. And, a fresh
vested title to both parcels. The use of a       foreclosure sale would address Myrad's
correction deed to reform a mistaken deed        concerns about adequate notice to the
necessarily implies a mutual mistake in the      public.
underlying instrument running contrary to
the grantor's and grantee's intent. Thus, a          Chase Home Finance, L.L.C. v. Cal
fact-finding supporting a decision to enforce    Western Reconveyance Corporation, 309
a correction deed would be identical to the      S.W.3d 619 (Tex.App.-Houston [14th Dist.]
finding required for equitable rescission.       2010, no pet. history to date). Dickerson
The correction deed at issue made a single       bought a lot on Galveston. It was initially
change: the description of two properties        financed by AHL, with Dickerson giving
instead of one. Thus, in entering and            AHL a first lien and second lien on the lot.
affirming judgment enforcing the correction      The AHL liens were later assigned to Wells
deed, the trial court and court of appeals       Fargo.
necessarily found that a mistake existed in
the substitute trustees' deed, the intent of         Shortly after buying the lot, Dickerson
LaSalle and the substitute trustees being to     conveyed the lot to Gooch, subject to the
convey both properties covered by the deed       AHL liens. Gooch filed for bankruptcy right
of trust. Because of the trial court's implied   after that and later she sold the lot to Landin.
finding of mutual mistake, supported by all      Landin borrowed from People’s Choice to
of the evidence, equitable rescission is an      buy the lot and gave People’s Choice a first
available remedy.                                and second lien on the lot. The People’s
                                                 Choice first lien deed of trust contained a
     The court noted that it was “not blind”     provision stating that People’s Choice would
to the equities of the situation. LaSalle was    be subrogated to any liens paid off with the
entitled to be made whole as holder of the       proceeds of the loan. The People’s Choice
note from Myrad, and in trying to acquire        loan paid off the AHL first lien, which was
two properties LaSalle received only one by      released, but the AHL second lien was not
mistake. Although the court cannot enforce       paid off or released. HSBC bought the
the correction deed, it recognized that          People’s Choice notes and liens. Its servicer
enforcement of the original substitute           was Chase.
trustees' deed would result in one of two
things happening. Should LaSalle remain              HSBC foreclosed on the People’s
able to foreclose on the omitted property        Choice first lien. After the foreclosure, the
under the note after accounting for its          AHL second lien was assigned to RTR,
payment, requiring someone to pay a second       which then sought to foreclose on the lot.
time for that property will entitle Myrad to a   Chase then filed suit to prevent RTR from
windfall from any surplus beyond what            foreclosing on the second lien it had
Myrad owes on the note. Likewise, if the         acquired from AHL. Chase claimed that,
terms of the note are satisfied, Myrad will      because the proceeds from the People’s
stand as owner of the omitted property free      Choice first lien had been used to pay off the
from encumbrance despite its default. Myrad      AHL first lien, the holder of the People’s
has never disputed this, and indeed argues       Choice first lien (i.e., HSBC) was
for just such a result. The court concluded      subrogated to the rights of the AHL first lien
that Myrad will be unjustly enriched if the      and that the HSBC foreclosure extinguished
mistaken deed to LaSalle is enforced.            the AHL second lien.

2010 Texas Land Title Institute – Case Update                                                  2
    The trial court concluded that RTR was        exception for a lien like the AHL second
entitled to retain the AHL second lien.           lien, and the title policy complied with this
Further, on the principle that a lienholder       instruction.
should not be granted subrogation if the
superior or equal equities of others with              In Texas Commerce Bank ational
recorded interests would be prejudiced            Association v. Liberty Bank, 540 S.W.2d
thereby, it denied subrogation to Chase and       554 (Tex.Civ.App.-Houston [14th Dist.]
held that the AHL second lien was prior to        1976, no writ), this court held that a bank
Chase’s lien.                                     lender was entitled to subrogation as a
                                                  matter of law. The facts in TCB are
     The trial court found that material          substantially the same. The court in TCB
prejudice to RTR would result based on the        held that Liberty Bank, who had repaid an
following factors:         (1) if equitable       existing first lien, was expressly subrogated
subrogation were applied in this case, then       to the rights of the holders of the prior liens
rather than RTR being subordinate to the          it had repaid and that, as a matter of law,
original AHL fixed rate loan, RTR would be        there was no prejudice to TCB. Both before
subject to a more risky variable rate loan; (2)   the pay-off of the senior liens by Liberty
when the People’s Choice (now Chase) loan         Bank and after this pay-off and subrogation
was made, the new borrower was not                of Liberty Bank to the senior position, TCB
properly qualified, was not a suitable            was entitled to the amount remaining after
borrower for the loan transaction, and made       the amounts of these liens were subtracted
very few payments against the new                 from the proceeds of the foreclosure sale in
mortgage before going into default; (3) the       a foreclosure of the two senior liens.
People’s Choice loan was $41,000 greater
than the note it repaid; (4) the borrower of           The trial court in this case appears to
the People’s Choice loan was a bad credit         have evaluated prejudice based on the
risk; (5) permitting subrogation would cause      presumption that, if subrogation were
accrued interest under the AHL first lien to      granted, it would have to be as to all
be converted to principal under the People’s      amounts owed under the People’s Choice
Choice first lien, prejudicing the second lien    first lien note. Therefore, the trial court
holder with a greater interest burden in front    considered the fact that, although the initial
of it; and (6) a reasonable second lienholder     interest rate of the People’s Choice first lien
would not voluntarily subordinate its             note was lower than the AHL first lien note,
position because of the material prejudices       after two years, the People’s Choice first
created by any such subordination.                lien note changed to a high, variable interest
                                                  rate. However, if subrogation were granted,
     The trial court also found that People's     priority would be given only to the
Choice and its successors, including Chase,       $348,482.63 paid by People's Choice plus
had a duty to pay off the AHL second lien,        six-percent interest thereon from the date of
and that they knew and acknowledged that          payment.       Therefore, the difference in
they had a duty to pay the amount necessary       interest rates is not material to the analysis.
to extinguish this lien. In addition, the trial
court found that People's Choice assumed               The trial court also emphasized that
the responsibility to pay off the AHL second      Landin was a borrower with a high
lien. There is no written agreement in the        likelihood of default. First of all, this
record reflecting such a duty or assumption       testimony was based on speculation by the
of responsibility.        None of closing         corporate representative of RTR, premised
documents impose on People's Choice the           on the terms of the Landin purchase rather
duty to pay off the AHL second lien. In its       than on a credit report or other direct
closing instructions, People's Choice states      information       regarding      Landin's
that the title policy should not have an          creditworthiness. Even presuming a high

2010 Texas Land Title Institute – Case Update                                                  3
risk that Landin would default, there is no       subrogation. Likewise, in such cases, the
evidence that this risk of default was higher     subsequent lender's alleged negligence is not
than the risk associated with Dickerson.          relevant to the subrogation analysis.
Although the record also lacks direct
information        regarding       Dickerson's        Long Beach Mortgage Company v.
creditworthiness, it reflects that, less than a   Evans, 284 S.W.3d 406 (Tex.App.-Dallas
month after purchasing the property with no       2009, pet. denied). Evans was appointed
down-payment, Dickerson conveyed title to         receiver in a California suit brought by the
Gooch and warranted to her that the               SEC against TLC America. After his
property was free from all encumbrances. In       appointment in California, Evans brought
fact, the Property was encumbered with two        suit in Texas federal court against various
liens from the recent closing. After making       related defendants, included the Prices.
at most a few payments against his                During the course of that litigation, Evans
indebtedness to Aames, Dickerson stopped          discovered that the Prices had diverted funds
paying, and his loan went into default. There     to buy a house. Evans filed a notice of lis
is no evidence in the record that Gooch           pendens describing the house on July 23 and
assumed Dickerson's indebtedness, and at          the notice was recorded on July 24.
the time of the sale to Landin, Gooch had
filed for bankruptcy protection. Even if it           Also on July 24, 2002, the Prices
were appropriate to consider prejudice            borrowed $400,000 from Long Beach
arising from the substitution of Landin in        through a home equity loan. A deed of trust
place of Dickerson as the debtor, the record      on the Marquette Property secured this loan.
evidence is legally insufficient to support a     On August 2, 2002, Long Beach filed its
finding that this change was prejudicial.         deed of trust in Dallas County, Texas,
                                                  creating a lien on the Marquette Property.
     The parties in this case argue over          The Prices ultimately defaulted on their loan
whether this case involves purely                 with Long Beach.
contractual subrogation or purely equitable
subrogation. In cases like the one at hand,            After the California court found the
there is no contract between the two lenders      Prices liable to Evans, it imposed a
who are disputing whether the subsequent          constructive trust on the house. Evans then
lender is entitled to subrogation; however,       asked for permission to sell the house free
there is an express deed-of-trust provision       and clear of liens. Long Beach did not file a
between the debtor and subsequent lender          claim in that litigation. Evans registered the
stating that, if proceeds are used to pay off a   California judgment with the federal court in
prior debt, the lender will be subrogated to      Texas, and that court divested the Prices of
all rights of the prior lienholder. Under         title to the house and vested title in Evans.
precedent from the Supreme Court of Texas,
such cases fall into a third, hybrid category.         Evans filed this suit in state court to
In these cases, the right of subrogation is not   resolve the competing claims between the lis
wholly dependent on the application of a          pendens and the deed of trust lien. The trial
contract, and it is not wholly dependent on       court held that the lis pendens was superior
equitable principles. In such cases, though       to the deed of trust.
the analysis does involve equitable
considerations, each case is not controlled            Among many other arguments, Long
by its own facts, and the subsequent lender       Beach contends the record does not reflect
can be entitled to subrogation as a matter of     that the lis pendens was recorded prior to the
law. In these cases, the subsequent lender's      effective date of Long Beach's lien. Thus,
actual or constructive knowledge of the lien      Long Beach argues the lis pendens did not
previously filed by the other lender does not     provide the necessary constructive notice
defeat the subsequent lender's right to           prior to the effective date of Long Beach's

2010 Texas Land Title Institute – Case Update                                                 4
lien on the Marquette Property.                    or replace damaged or destroyed
                                                   improvements covered by the policy.”
     Although the record reflects the lis
pendens was recorded on July 24, the same              Hurricane Rita severely damaged
date Long Beach's deed of trust was                Keith's home. Keith filed a claim under her
executed, the record also reflects the lis         homeowners' insurance policy.         Keith
pendens was filed on July 23. “An                  received an insurance draft for the damages
instrument filed with a county clerk for           the hurricane had caused to her home. The
recording is considered recorded from the          carrier made the draft payable to Keith, her
time that the instrument is filed.” Property       attorney, and the lender.
Code § 191.003. Also, a notice of lis
pendens is effective from the time it is filed          After receiving the draft from the
or, in this case, July 23. Thus, Evans's lis       insurance company, Keith's attorney
pendens was filed and deemed recorded              forwarded the draft to Statewide with
prior to the date Long Beach executed its          instructions requesting that the lender
deed of trust on July 24 or filed the deed of      endorse the check and return it so as to pay
trust on August 2. Thus, the record                expenses and begin repairs. Instead, the
establishes that Evans's lis pendens was           funds were deposited into the account of the
recorded prior to the effective date of Long       lender’s servicing agent. Although Keith
Beach's security instrument. Long Beach's          sent the proceeds to the address the lender
lien claim is, therefore, subordinate to           had instructed its mortgagors to send
Evans's lis pendens as a matter of law.            mortgage payments, the lender explained
                                                   that payments received at that address were
    Still, Long Beach argues lis pendens           actually received by another bank with
provides constructive notice only upon             whom it had a relationship. Its deposit
recording and proper indexing. Long Beach          relationship with the other bank required
asserts that “obviously, it was indexed            that funds sent to the designated address be
sometime after it was recorded”, so there          deposited into the servicer’s account for the
was no constructive notice given prior to the      lender. When the lender finally received a
time of execution of Long Beach's deed of          copy of the attorneys’ letter, it moved the
trust. However, the court had already              funds to a suspense account, but did not try
concluded that the filing of the lis pendens       to contact Keith or her attorney regarding
was sufficient to place Long Beach on              the funds.
notice of Evans's interest in the property.
There is no provision in Property Code §               When the endorsed check had not been
13.004 which requires the index to be made         returned, Keith's attorney called and spoke
as a condition precedent to the validity of        to a lender representative. Keith's attorney
the notice.                                        demanded that the lender return the draft.
                                                   When the draft was not returned, Keith's
     Statewide Bank v. Keith, 301 S.W.3d           attorney filed suit against the lender and
776 (Tex.App.-Beaumont 2009, pet.                  servicer, alleging claims based on several
pending). Keith’s deed of trust required her       theories, including breach of contract, theft,
to keep the property in good repair and to         and breach of fiduciary duty.
maintain insurance. Among the lender’s
rights under the deed of trust, it had the right       Shortly after the suit was filed, the
to receive any insurance proceeds paid to the      lender sent a letter saying it was prepared to
borrower that resulted from damage to              disburse the proceeds to Keith and her
Keith's home. That provision, which is at          contractor upon presentation of invoices.
issue, states: “[Mortgagee] may apply any          Keith rejected the lender’s requests.
proceeds received under the insurance
policy either to reduce the note or to repair          Other than requesting that Keith provide

2010 Texas Land Title Institute – Case Update                                                  5
the lender with contracts and invoices, and       reasonable period of time. Courts also
directing its servicer to make payments for       consider the purpose of the option at issue
invoices Keith had paid, the record does not      when determining whether it was exercised
contain any additional evidence that the          in a timely manner.
lender or its agents did anything more to
fulfill the lender's obligation under the deed         An obvious purpose of a lender's option
of trust to either repair Keith's home or         to repair is to allow it some control over
apply the proceeds to the loan's balance. At      how the insurance funds are used to protect
trial, the jury found that the lender had         the lender's damaged collateral. But, the
breached the deed of trust and rejected its       lender's interest is not the only
claim that Keith breached the deed of trust.      consideration, as the borrower also has an
                                                  interest in making financial decisions that
    The lender challenges the legal and           will impact the borrower's interests in the
factual sufficiency of the evidence to            property. With respect to the length of time
support the jury's finding that it breached the   a lender may take in making its election, the
deed of trust. The lender argues that it acted    question arises whether the lender could
reasonably in requiring Keith to provide it       withhold its decision for such a length of
with invoices and contracts to protect its        time that the mortgagor could be forced to
interest in making sure that the insurance        make a decision to repair the property
proceeds were spent on the repair of Keith's      without knowing if the lender had elected to
home. It further asserts that none of the         repair the property. Or, stated another way,
evidence indicates it acted unreasonably.         can the lender decide, after the borrower
However, the lender’s brief fails to address      repaired the property, to apply the insurance
one of the questions implicitly resolved by       proceeds to the mortgage balance instead of
the jury's verdict-whether the lender made a      to the property's repair? With respect to that
timely election of its option to either repair    question, the answer is no.
Keith's home or apply the proceeds to the
principal of the mortgage. The lender argues           Because both have an interest in
that it still maintains a right under the deed    knowing which option the lender has
of trust to elect to apply the insurance          chosen, the interests of both the borrower
proceeds to the mortgage balance.                 and lender are protected by requiring the
                                                  mortgagee, under an agreement that fails to
     In contrast, Keith contends that the deed    specify otherwise, to exercise its option
of trust did not require her to provide the       within a reasonable time. In this case, in
lender with invoices or contracts for the         light of the amount of Keith's outstanding
repair of her home. While Keith recognizes        mortgage compared to the insurance
that the lender could place some conditions       proceeds received, the court believed that
on the release of the funds it held, she          the lender, acting in a reasonably prudent
complains that instead of doing so, the           manner, was on notice that Keith's home had
lender chose to do nothing until Keith filed      fairly extensive damage. Thus, aware of
suit.                                             significant damage to Keith's home, the
                                                  lender needed to inform Keith of its election
     In analyzing whether the lender made a       within a fairly short period after receiving
timely election, courts first consider the time   the proceeds in order to allow Keith to then
period within which the lender was required       decide what to do about repairing her home.
to elect its option. The deed of trust provides
no specific time. Nevertheless, where                 Black v. Washington Mutual Bank,
contracts do not specify the time within          318 S.W.3d 414 (Tex.App.-Houston [1st
which a party must elect an option, the law       Dist.] 2010, pet. pending). Lundy owned a
presumes that the contracting parties             house and got a $1 million loan on it from
intended the option be exercised within a         WaMu. Less than a month after obtaining

2010 Texas Land Title Institute – Case Update                                                 6
the loan, Lundy conveyed the house by                 See also Williams v. Band of ew York,
quitclaim to Black, who paid $100,000             Mellon, 315 S.W.3d 925 (Tex.App.-Dallas
down and made monthly payments of                 2010, no pet.). Defects in the foreclosure
$8,500. About a year after entering into the      process may not be considered in a forcible
agreement to purchase the property, Black         detainer action to evict the foreclosed
received a phone call from Lundy telling her      homeowner.
that he needed to do something with the
lender or bank and he needed her to go and             And see also Shutter v. Wells Fargo
release the property but he would give it         Bank, N.A., 318 S.W.3d 467 (Tex.App.-
back to her. Black signed the deed giving         Dallas 2010, pet. pending). The lender
the property back to Lundy. Lundy did not         proved its right to possession of the property
transfer the property back to Black, and          by presenting in evidence the substitute
Black never heard from Lundy again.               trustee's deed, the deed of trust, and notices
                                                  to the borrower and the other residents of the
     WaMu foreclosed on the loan. Black           property to vacate. The substitute trustee's
was given notice of the sale. After the           deed showed the lender purchased the
foreclosure, WaMu gave Black a notice to          property in a public auction following
vacate and then filed this forcible detainer      appellant's default on the deed of trust. The
action. Black claimed that the justice court      deed of trust showed the borrower was a
and county court lacked subject matter            tenant at sufferance when she did not vacate
jurisdiction over the case because it involved    the property after thje lender purchased it.
the determination of title to the property. A     The notice to vacate informed the borrower
justice court in the precinct in which real       of her tenant-at-sufferance position and the
property is located has jurisdiction over a       lender's requirement that she vacate the
forcible detainer suit. The sole issue to be      property. This evidence was sufficient to
determined in a forcible detainer action is       establish the lender's right to immediate
the entitlement to actual and immediate           possession of the property.
possession, and the merits of the title shall
not be adjudicated.                                            PART II
                                                         HOME EQUITY LE DI G
     Black argues that the granting of a
quitclaim deed from Lundy granted her                 Texas       Banks      Association     v.
“equitable title” and a greater right of          Association of Community Organizations
possession than WaMu. However, a                  for Reform ow (ACOR ), 303 S.W.3d
quitclaim deed, by its very nature, only          404 (Tex.App.-Austin 2010, pet. pending).
transfers the grantor's right in that property,   ACORN sued the Finance Commission and
if any, without warranting or professing that     Credit Union Commission seeking to
the title is valid. Thus, Black took the          invalidate certain regulations adopted by the
property subject to the terms of the deed of      Commissions relating to home equity
trust, which allow foreclosure. Further,          lending. This case discusses the ACORN
Black admitted at trial that she did not have     objections in detail.
title at the time of sale because she conveyed
her interest back to Lundy. Black fails to
include in her analysis how her conveyance                     PART III
of the property back to Lundy affected her               ASSIG ME TS OF RE TS
claimed “equitable title.” While Black may
seek recourse against Lundy independent of            In re Amaravathi Limited Partnership,
the forcible detainer suit, her argument has      416 B.R. 618 (Bankr. S.D. Tex. 2009). The
no bearing on the determination of                properties involved are high-end apartments
immediate right of possession.                    that generate a lot of rents that are the
                                                  primary source of the debtors’ income.

2010 Texas Land Title Institute – Case Update                                                 7
Acquisition of the properties were financed          In an extensive discussion of bankruptcy
by the lender and secured by deeds of trust,     law, the court concluded that under the
assignments of rents and leases, and cash        unambiguous language of Bankruptcy Code
management       agreements     typical    in    § 541(a)(6), the rents that come from
securitized loan transactions.          After    property of the estate are themselves
borrowing the loan, the debtors collected the    property of the estate.
rents and deposited them into a lockbox
pursuant to the cash management agreement.            The court went further to say that the
The lender would deduct the debt service         lender’s state law arguments also fail. The
and make the remainder available to the          lender claims that the parties agreed to an
debtor.    When the properties stopped           “absolute” assignment of rents that
generating enough cash to pay the operating      automatically transferred full title in the
expenses and debt service, the debtor            rents to the lender. Alternatively, the lender
stopped making deposits into the lockbox,        argues that, if the court finds the assignment
which was a default under the various loan       was “collateral” and not “absolute,”
agreements.                                      complete title to the rents transferred when
                                                 the receiver took possession of the
    The debtor filed this Chapter 11             Properties. Regardless of whether the
bankruptcy and promptly moved to use the         assignment was “absolute” from its
rents as cash collateral. The lender opposed     initiation or “activated” by the appointment
the motion. The single issue litigated by the    of a receiver, the thrust of the lender's
parties was whether the assignment of rents      argument is that debtors lack any interest in
removed the post-petition rents from the         rents sufficient to bring the rents into the
property of the estate.                          estate under Texas law.

    The lender argued that, since the                Assignments of rents are interests in real
assignment of rents was “absolute” under         property and are created and defined
Texas law, the debtors had no further            according to the law of the state where the
interest in the rents. Without an interest in    property is located. The two leading cases
the rents, the rents could not become            involving assignments of rent in Texas are
property of the estate under Bankruptcy          Taylor v. Brennan, 621 S.W.2d 592
Code § 541(a)(1). The debtors argued, on         (Tex.1981) and FDIC v. International
the other hand, that the assignment was          Property Management, Inc., 929 F.2d 1033
merely a “collateral” assignment and that the    (5th Cir.1991).      Neither case directly
future rents remained property of the estate     addresses bankruptcy law or the issue
under § 541(a)(1).                               presently before this court; nevertheless,
                                                 their holdings and dicta provide the legal
    The United States Supreme Court has          framework for resolving this case.
held that bankruptcy courts should generally
look to state law to determine property              In Taylor, the Texas Supreme Court
rights in the assets of a bankruptcy estate.     discussed “absolute” and “collateral”
There are two exceptions to this general         assignments of rents.         A “collateral”
rule. First, there is an exception if Congress   assignment of rents occurs when the debtor
modifies state law through legislation           pledges the property's rents to the mortgage
enacted under Congress's authority to            lender as additional security for a loan. In
establish uniform laws on the subject of         the event of default, the lender may assert
bankruptcies throughout the United States.       rights not only to the property subject to the
Second, state property law must relent if        mortgage but also to the rents generated by
some federal interest requires a different       the mortgage property. An important caveat
result.                                          with “collateral” assignments is that the
                                                 lender must take some affirmative action to

2010 Texas Land Title Institute – Case Update                                                8
“activate” its rights to the rents. In dicta, the   as “contingent present assignments” on four
Texas Supreme Court explained how an                different occasions in its opinion. The
“absolute” assignment of rents differs from a       phrase “contingent present assignment”
“collateral” assignment. The key difference         more accurately reflects the true substance
is that “an absolute assignment operates to         of “absolute” assignments.
transfer the right to rentals automatically
upon the happening of a specified condition,             The finding that there is nothing
such as default.”. Thus, unlike a “collateral”      “absolute” about “absolute” assignments
assignment-which forces the mortgagee to            directly influenced the Fifth Circuit's
take additional steps to “activate” its “right”     clarification of Taylor's statement, in dicta,
to collect rents-the “absolute” assignment          that an “absolute” assignment “passes title to
permits the mortgagee to assert “rights” to         the rents” to the lender. Furthermore, any
all the rents immediately once a specified          doubt concerning International Properties'
condition (usually default) occurs.                 legal conclusion that “absolute” assignments
                                                    do not grant full title to the mortgagee is put
    The     law     governing      “absolute”       to rest upon review of the general
assignments was later explained in greater          characteristics of an “absolute” assignment
detail by the Fifth Circuit-when interpreting       of rents transaction. Several characteristics
and clarifying the dicta from Taylor. In            of these transactions, which are also present
International Property, the Fifth Circuit           in this case, indicate that complete title
found that the mortgage documents                   simply cannot transfer to the lender. The
demonstrated the parties' intent to create an       most obvious interest that a debtor retains
“absolute” assignment and, therefore, the           following an “absolute” assignment is the
FDIC had the right to collect the rents             debtor's ability to insist that the rents be
immediately upon default. In International          properly applied to the debtor's obligation to
Property, the Fifth Circuit recognized that,        the lender.      The second characteristic
given the nature of these arrangements, the         demonstrating that equitable title remains
term “absolute” assignment is, essentially, a       with the debtor is that, although the
misnomer:                                           borrower may be required to apply rents to
                                                    pay for operation and maintenance of the
         “The concept of a present transfer of      property and to pay debt service, the
    title to rents contingent upon default, as      borrower's use of excess rents is not
    opposed to a security interest in the           restricted. Third, generally an absolute
    rents, is essentially a legal fiction....       assignment of rents is given in connection
    Whatever terminology the court uses, ...        with (and only because of) the related
    mortgagees employ such assignments to           mortgage loan.
    secure the debt, and all such
    assignments would be considered                     The bankruptcy court also noted that, as
    security interests under the Uniform            mentioned in Taylor, a pro tanto payment
    Commercial Code, which treats all               must be made to create a “true” assignment.
    transfers intended to secure a debt as          A pro tanto payment is a credit to the debt of
    security interests despite their form.”         the present value of the future rental stream.
                                                    Thus, if the future rental stream was worth
    The bankruptcy court also quoted In re          $10,000,000 at the time the loan documents
Foundry of Barrington Partnership, 129              were executed, the lender was required to
B.R. 550, 557 (Bankr.N.D.Ill.1991) (“[The           reduce the debt by $10,000,000 in order to
lender] can call this arrangement an                effect a “true” assignment of title. No pro
‘absolute      assignment’      or,     more        tanto payment occurred in this case. The
appropriately, ‘Mickey Mouse.’ It's still a         lender's failure to credit the present value of
lien ...”). The Fifth Circuit solidified this       the rents is an indication that the parties did
point by referring to “absolute” assignments        not treat the assignment as one of both a

2010 Texas Land Title Institute – Case Update                                                    9
legal and an equitable interest.                 disposition of the property. It thus held that
                                                 the notes are payable at a definite time.
     Finally, the “absolute” assignment of
rents does not transfer complete title because       And while the court agreed that the
such assignments “terminate upon payment         notes were not demand notes, it did not
in full of the debt.                             agree that the cause of action accrued only
                                                 when notice of acceleration was sent. The
              PART IV                            Notes at issue here do not provide for
         PROMISSORY OTES,                        repayment through periodic installment
        LOA COMMITME TS,                         payments with provision for acceleration of
         LOA AGREEME TS                          any outstanding payments in the event of
                                                 default. Instead, the notes themselves
    Financial Freedom Senior Funding             provide that payment shall be made in full
Corporation v. Horrocks, 294 S.W.3d 749          upon demand by appellant once specified
(Tex.App.-Houston [14th Dist.] 2009, no          conditions occurred. Because the entire debt
pet.). Mullane borrowed a reverse mortgage       would always be due upon demand, there
a few months before she died. The notes          was never any requirement that appellant
evidencing the mortgage provided that            accelerate the debt first. Because the notes
borrower was required to pay the balance         are payable at a definite time, appellant's
upon receipt of a notice from lender             cause of action to enforce the liens accrued
requiring payment in full as provided in         when one or more of the conditions listed in
paragraph 7 of the notes. Paragraph 7            Paragraph 7 occurred.
provided that the lender could require
immediate payment in full upon the                   Athey     v.   Mortgage      Electronic
borrower’s death or a disposition of the         Registration Systems, Inc., 314 S.W.3d 161
property.                                        (Tex.App.-Eastland 2010, pet. denied). The
                                                 Atheys executed a promissory note payable
    Mullane died in March, 2003. In July,        to Decision One and secured by their
2007, the lender sent a notice of loan           property. The note contained a legend at the
maturity. The administrator of Mullane’s         top in bold and all caps that said “THIS
estate claimed that the statute of limitations   NOTE CONTAINS PROVISIONS AL-
had run on the lender’s right to foreclose.      LOWING FOR CHANGES IN MY
                                                 INTEREST RATE AND MY MONTHLY
     The lender claimed that the notes were      PAYMENT.”        The body of the note
not demand notes and that the statute did not    contained a provision that said the interest
commence until it sent its notice of             rate would change on September 1, 2007
acceleration. Citing section 3.108(a)(2) of      and every six months after that.
the Business & Commerce Code, the
administrator argued that since the Notes            In contrast to this language, the Atheys
state they are due upon receipt of a notice      contended that an unnamed representative of
from appellant requiring payment in full and     Decision One told them at closing that the
do not otherwise include a specific time for     note had a fixed interest rate.
payment, they are demand notes and
limitations began to run on the date they            Decision One raised the interest rate
were signed. The court did not accept either     from 7.79% to 10.79%.          The Atheys
interpretation of the notes.                     defaulted and the lender accelerated. The
                                                 Atheys contended that they were defrauded
   While the notes do not list a specific        when the Decision One representative
maturity date, they do contain conditions        misrepresented that the interest rate was
which create a readily ascertainable time for    fixed. The lender moved for summary
payment – the borrower’s death or the            judgment on this claim, arguing that the note

2010 Texas Land Title Institute – Case Update                                               10
fully disclosed that the interest rate was       hold that a fraudulent inducement cause of
variable. The Atheys do not dispute that the     action can never lie merely because the
note unambiguously provided for an               operative oral representation is contradicted
adjustable interest rate but contend that,       by a provision within the contract. But in
absent proof of their actual knowledge that      this instance, the Atheys could not
the rate was variable (knowledge which           reasonably rely upon an oral representation
cannot be inferred merely from what they         that was so plainly contradicted.
would have learned had they read the note),
testimony that the representative said the            Stephens v. LPP Mortgage, Ltd., 316
interest rate was fixed is sufficient to         S.W.3d 742 (Tex.App.-Austin 2010, pet.
preclude summary judgment.                       denied). LPP acquired Stephens’s note from
                                                 the SBA. The note was secured by a deed of
     While the court agreed that the Atheys      trust. LPP initially sued to collect on the
were not required to independently               note. In that original suit, LPP did not
investigate the Decision One representative's    pursue foreclosure of the lien or otherwise
statement before relying upon it, does this      place the deed of trust at issue. LPP
mean that they could rely upon an oral           prevailed and obtained a judgment and
statement     clearly     inconsistent   with    attempted collection, but the writ of
conspicuous provisions of the note? The          execution was returned Nulla Bona. LPP
Athey’s argued that they could, reasoning        then filed suit for judicial foreclosure of its
that,    because      the    Decision    One     lien.
representative's statement induced them to
sign the note, they could rely upon it even if        Stephens contends that after suing on
it was contradicted by a conspi-cuous note       the promissory note and reducing that claim
provision. A party to a contract may not         to judgment, LPP Mortgage was barred by
successfully claim that he believed the          res judicata from pursuing the remedy of
provisions of the contract were different        foreclosure of the deed of trust lien securing
from those plainly set out in the agreement      repayment of the note. For res judicata to
or that he did not understand the meaning of     apply, there must be (1) a prior final
the language used. To vitiate a contract, a      judgment on the merits by a court of
fraud must be something more than merely         competent jurisdiction, (2) identity of parties
oral representations that conflict with the      or those in privity with them, and (3) a
terms of the written contract.                   second action based on the same claims that
                                                 were raised or could have been raised in the
     Even if bright-line rules for determining   first action. The doctrine of res judicata
whether reliance is justified are sometimes      seeks to bring an end to litigation, prevent
wanting, Texas courts have been more             vexatious litigation, maintain stability of
stringent in their analysis of fraudulent        court decisions, promote judicial economy,
inducement claims when the contract is a         and prevent double recovery. Under the
promissory note. The policy behind this          doctrine, if a plaintiff prevails in a lawsuit,
heightened proof requirement is to avoid         his cause of action merges into the judgment
uncertainty and confusion in the law of          and the cause of action dissolves. The
promissory notes.                                question, here, is whether LPP Mortgage
                                                 was required to litigate its claim for judicial
    The Atheys' evidence does not establish      foreclosure of its lien as part of its prior suit
the trickery, artifice, or device necessary to   on the promissory note.
void a promissory note. The oral
representation upon which they rely is                It has long been the rule in Texas that
directly,   clearly,     and    conspicuously    suit may be maintained on a note secured by
contradicted by the note's heading and           lien without enforcement of the lien, and
introductory paragraph. The court did not        after judgment another suit can be brought

2010 Texas Land Title Institute – Case Update                                                 11
to foreclose the lien. Stephens argued,            contractually alter the parties' remedies-the
however, that this longstanding rule was           lien-creditor may later bring suit for judicial
overruled by the Texas Supreme Court's             foreclosure of the lien. Until the underlying
decision in Barr v. Resolution Trust Corp.,        debt is actually satisfied, the recovery of a
837 S.W.2d 627 (Tex.1992), where the court         judgment on the note secured by a deed of
“reaffirmed” the transactional approach to         trust lien, where foreclosure of the lien has
res judicata, which relates to what claims         not been sought in that suit, does not merge
could have been litigated in a prior lawsuit.      the deed of trust in the judgment and does
Under the transactional approach, res              not preclude foreclosure on the lien in a
judicata may apply if the subsequent suit          subsequent suit instituted for that purpose.
arises out of the same subject matter as a
previous suit and, through the exercise of
diligence, could have been litigated in the                      PART V
previous suit. A determination of what                   DEEDS A D CO VEYA CE
constitutes the subject matter of a suit                      DOCUME TS
requires an examination of the factual basis
of the claims without regard to the form of            Gaut v. Daniel, 293 S.W.3d 764
action.                                            (Tex.App-San Antonio 2009, pet. denied).
                                                   To be sufficient, a writing conveying title
    Stephens claimed that, in order to             must provide within itself, or by reference to
ascertain the entire agreement between             some other existing writing in existence at
contracting parties, separate documents            the time of the deed, the means or
executed at the same time, for the same            information by which the land being
purpose, and in the course of the same             conveyed can be identified with reasonable
transaction are to be construed together. So,      certainty. This has been termed the “nucleus
if the note and deed of trust should be            of description” theory. Under this theory, if
construed together based on this principle, it     the deed contains a “nucleus of description,”
follows that under the transactional               parol evidence may be introduced to explain
approach to res judicata-as set out in Barr-a      the descriptive words in order to locate the
final judgment on the note will bar a              land.
subsequent suit to foreclose the lien.
                                                       Extrinsic evidence may be used only for
    The court disagreed. The fact that two         the purpose of identifying the property with
documents should be viewed together for            reasonable certainty from the data contained
purposes of construing those documents'            in the contract, not for the purpose of
terms is not, by itself, sufficient to require     supplying the location or description of the
all claims under either document to be             property.
brought together, particularly given that,
here, the two documents create two separate            The deed in question first generally
and severable rights held by LPP. When a           references the Duval County surveys out of
debt is memorialized by a note that is             which the 28 acres can be found. None of
secured by a lien, the note and lien               these surveys are part of the record. The
constitute separate obligations.           Such    deed also notes the 28 acres as being out of a
separate obligations may be litigated in           called 399.5 acre tract designated as Share
separate lawsuits. Therefore, the holder of a      No. 6, as set aside to Alice L. Garcia. It then
note and security interest may bring suit and      references several surveys of the partitioned
obtain judgment on the note, and-if, as is the     land from which the 399.5 acre tract was
case here, the holder did not request              taken.    Following that was a metes and
foreclosure in that suit, the judgment on the      bounds description which, among other
note in the holder's favor is not satisfied, and   things, failed to identify the specific tract
no provisions of the note or deed of trust         that was its point of commencement,

2010 Texas Land Title Institute – Case Update                                                  12
contained no means within the deed to            in an unrecorded subdivision, an abstract
locate the tract, and included no reference      number referencing a railroad survey map of
within the deed to any existing extrinsic        the unrecorded subdivision locating it in the
writing which might assist in determining        county, and a tax identification number for
the location. A surveyor was able to plot the    the parcel conveyed coordinated with the
boundaries, but only in reliance upon            map. The parties were able to drive to the
external evidence that was not part of the       house and lot and there was no confusion as
record. The court thus held that the property    to the property conveyed by the contract for
description was insufficient.                    deed. The court held that the evidence
                                                 presented meets the standard of reasonable
      guyen v. Yovan, 317 S.W.3d 261             certainty and the contract satisfies the statute
(Tex.App.-Houston [1st Dist.] 2009, pet.         of frauds as a matter of law.
denied). For a land sales contract to meet
the requirements of the statute of frauds, it        Wiggins v. Cade, 313 S.W.3d 468
must furnish within itself or by reference to    (Tex.App.-Tyler 2010, pet. denied). The
another existing writing the means or data to    royalty deeds in question each contained the
identify the particular land with reasonable     same legal description, beginning with a
certainty.    Here, the contract for deed        reference to the property being the northwest
described the property as “15817 Hwy. 6,         corner of a 45 acre tract formerly owned by
Santa Fe, Tx. The property description is as     Mrs. Kate Crook. The descriptions did not
follows: ABST 613 PAGE 6 LOTS 5 thru 7           show either the name of the survey or the
HIGHWAY 6 UNRECORDED SUB                         abstract number in which the property was
SANTA FE, TEXAS 0.384 ACRES                      situated.
PARCEL # 4005-0000-0005-000.” The
property description was clearly taken from           An instrument conveying land must
appraisal district records.                      contain a sufficient legal description or the
                                                 instrument is void under the statute of
    Here, the contract contains a complete       frauds. A property description is sufficient
street address. Courts have held that a street   if the writing furnishes within itself or by
address or a commonly-known name for             reference to some other writing, the means
property may be sufficient property              or data by which the particular land to be
description if there is no confusion. Neither    conveyed may be identified with reasonable
party argues that there has been any             certainty. A recital of ownership in a deed
confusion about the exact property that was      may be used as an element of description
conveyed by any of the deeds. In addition,       and may serve as a means, together with
the contract refers to another existing          some other element, of identifying the land
writing which has the means to identify the      with reasonable certainty. Where the deed
land with particular certainty. The seller’s     contains some data susceptible of being
expert surveyor said that he could use tax       connected, by parol testimony, with some
records to identify the property. Although       definite land, the description is in law
he said that the description of the property     sufficient.     A deed is not void for
would not be exact, a contract for deed need     uncertainty unless on its face the description
only have the “means or data by which the        cannot, by extrinsic evidence, be made to
land to be conveyed may be identified with       apply to any definite land. If enough
reasonable certainty.” The law does not          information appears in the description so
require a metes and bounds description or a      that a party familiar with the locality can
plat in a recorded subdivision in order for      identify the premises with reasonable
land to be conveyed by a contract for deed.      certainty, it will be sufficient.

    Here, the contract for deed provides the         An affidavit in support of the validity of
size of the property, an address, a lot number   the deed was given by Tonroy. He stated

2010 Texas Land Title Institute – Case Update                                                 13
that by using the description in the two          voidable rather than void, and because
royalty deeds and by examining the public         unilateral mistake does not apply to the facts
records of the county clerk of Rusk County,       of this case, the administrator's deed at issue
Texas, he determined that the forty-five          here is voidable. Therefore, the four-year
acres formerly owned by Mrs. Kate Crook           statute of limitations applies.
was located in the M.V. Peña Survey, A-27,
of Rusk County, Texas. He stated that he              The four-year statute of limitations also
was able to determine this information from       governs a suit for reformation. The two-
a search for Kate Crook in the                    year statute of limitations governs a claim
grantor/grantee indices of the Rusk County        for slander of title. In general, a cause of
clerk's office. He stated that this was the       action accrues and limitations begin running
only forty-five acre tract that Kate Crook        when a wrongful act causes a legal injury.
ever owned in Rusk County and that                Here, Poag claims that the wrongful act
therefore he was able to locate the land          occurred in June 1996 when the
described in the two royalty deeds with           administrator's deed, which conveyed four
reasonable certainty.                             parcels of land from Flories to Anson, was
                                                  recorded in the Tarrant County deed records
     The court agreed. Parol evidence can be      as a conveyance of “surface estate only.”
used to connect data described in the             Thus, Poag's slander of title, reformation,
instrument, such as the name of a land            and suit to quiet title causes of actions filed
owner, to establish the sufficiency of a legal    in 2006 are clearly barred by the applicable
description. This is just what the affidavit      two- and four-year statutes of limitations.
explained.                                        Poag, however, argues that the discovery
                                                  rule applies to his claims. The court
     Poag v. Flores, 317 S.W.3d 820               disagreed.
(Tex.App.-Fort Worth 2010, pet. denied).
An equitable suit to quiet title is not subject       The discovery rule defers the accrual of
to limitations if a deed is void. If a deed is    a cause of action until the plaintiff knows, or
voidable, however, then the four-year statute     by exercising reasonable diligence, should
of limitations controls. The question of          know of the facts giving rise to the claim.
whether a deed is void or voidable depends        For the discovery rule to apply, the injury
on its effect upon the title at the time it was   must be inherently undiscoverable and
executed and delivered. A void deed is            objectively verifiable.        An injury is
without vitality or legal effect. A voidable      inherently undiscoverable if it is the type of
deed on the other hand operates to                injury that is not generally discoverable by
accomplish the thing sought to be                 the exercise of reasonable diligence. Here,
accomplished, until the fatal vice in the         the conveyance Poag attacks occurred in
transaction has been judicially ascertained       1996 between Flories and Anson. The
and declared.                                     conveyancing document (the administrator's
                                                  deed) was recorded in the Tarrant County
    Here, Poag alleged that the language in       deed records on June 11, 1996, and
the administrator's deed, “surface estate         conveyed the “surface estate only” in four
only,” was not the intent of the document         parcels of land from Flories to Anson. On
and was a fraud on the creditors of the           June 21, 1996, Anson conveyed two of those
Estate. He further alleged that the failure of    four parcels of land to Poag.
the administrator's deed to evidence the true
intent of the parties was due to a mutual             The recording of the administrator's
mistake or a unilateral mistake by one party      deed on June 11, 1996, charged Poag with
together with the fraud or other inequitable      notice that Anson only possessed the surface
conduct by the other. Because deeds               estate, thereby commencing Poag's two- and
obtained by fraud or mutual mistake are

2010 Texas Land Title Institute – Case Update                                                 14
four-year period of limitations to file an       exceptions, reservations, conditions and
action to set the administrator's deed aside.    restrictions (if none, insert “none”).” That
                                                 language is followed by these terms: “A.
     Bright v. Johnson, 302 S.W.3d 483           Minerals, Royalties, and Timber interests:
(Tex.App.-Eastland 2009, no pet.). The           (1) Presently outstanding in third parties.”
Johnsons filed this suit against Clarence O.     The parties inserted the word “None.” That
Bright to reform a deed dated May 2, 2002,       language is then followed immediately by
by which they conveyed thirty-three acres to     “(2) To be additionally retained by Seller”
Clarence O. Bright. They alleged that the        (emphasis added). The parties wrote the
sales contract between the parties called for    words “All of Record” (emphasis added). As
all minerals to be reserved or retained by the   to mineral leases and surface leases, the
Johnsons; but, through a scrivener's error,      parties wrote in “None.” This agreement
the warranty deed failed to reserve or retain    might not be a model of clarity, but the court
the minerals.         Clarence O. Bright         believed that it reflects the intent of the
acknowledged that he had agreed that the         parties that, as to minerals, there are no
Johnsons would keep all the minerals and         outstanding interests in third parties but that
that, even at closing, he still believed they    the Johnsons are retaining all of record. The
had.                                             careful title examiner or scrivener should
                                                 know that the Johnsons were retaining all of
     Clarence O. Bright's son, Clarence          the minerals of record and that the
Dwaine Bright, intervened in the suit. He        conveyance as to other matters was to be
testified that he purchased one-half of what     made subject to those other matters.
his father had purchased from the Johnsons.
Clarence Bright had paid $59,400 to the              Oftentimes the terms “reservation” and
Johnsons for the thirty-three acres, and         “exception” are used interchangeably. But,
Dwaine Bright paid $30,000 for the               that depends on the context in which the
undivided one-half interest. Clarence Bright     terms are used. Here, the contract goes
and Dwaine Bright executed a document,           further and contains not only the language
which was not recorded, but which was            “reserved,” it also contains the words
dated June 13, 2003, to reflect Dwaine           “additionally retained ” in reference to the
Bright's acquisition from Clarence. After the    minerals. The Brights have confused
Johnsons filed this suit and a notice of lis     “exceptions” and “reservations.” The
pendens, Clarence Bright executed and            parties, listed “All of Record” that would
caused to be recorded two “corrected” deeds      have excepted the two interests owned by
without warranty conveying to Dwaine             third parties. However, the interests owned
Bright one-half of Clarence Bright's interest    by third parties would not have been
in the thirty-three acres.                       “retained” by the Johnsons as the seller.
                                                 They would have been an exception to the
    The Johnsons argued that in their            property conveyed. It is clear from the
Contract, the parties agreed that the            record and the briefing that the parties were
Johnsons would reserve all of the minerals.      not using the words “reservation” and
Therefore, a mutual mistake occurred when        “exception” interchangeably; they used the
the person preparing the deed to Clarence        words “reserved” and “retained” in such a
Bright did not reserve or retain the minerals    manner that no minerals were to be
on behalf of the Johnsons. Thus, a               conveyed to the Brights. Here, the Johnsons
scrivener's error occurred and the deed          “retained” or “reserved” the minerals (that
should be reformed.                              they owned of record) to themselves.

    The Sales Contract contains the                  Enerlex, Inc. v. Amerada Hess, Inc.,
following language: “The Property will be        302 S.W.3d 351 (Tex.App.-Eastland 2009,
conveyed subject to the following                no pet.). A warranty deed to land conveys

2010 Texas Land Title Institute – Case Update                                                15
property. A quitclaim deed conveys the                    The mineral deed, when viewed in its
grantor's right in that property, if any.             entirety, is a quitclaim deed. It does not
Enerlex's deed is labeled “MINERAL                    purport to convey any specific interest but
DEED.” It conveyed to Enerlex “[A]ll right,           instead broadly conveys all of the grantor's
title and interest in and to all of the Oil, Gas,     interest – not just in the seventy-one sections
and any other classification of valuable              but in all of Gaines County. Because the
substance, including any mineral leasehold            mineral deed is a quitclaim deed, Enerlex
and royalty interests, including any future or        cannot be a bona fide purchaser.
reversionary in-terest, in and under and that
may be produced from the following
described lands situated in Gaines County,                              PART VI
State of Texas, to wit: WTTR Survey, Block                              LEASES
G, Sections 160-230 inclusive.” The deed
also said that it was the grantor’s intent to              Merry Homes, Inc. v. Chi Hung Luu,
convey all interest of the grantor in the             312 S.W.3d 938 (Tex.App.-Houston [1st
county, even if not specifically described.           Dist.] 2010, no pet.). Luu’s lease provides
The deed also contained a general warranty.           that Luu may use the premises only for the
                                                      purpose of operating a nightclub or bar and
     Enerlex argues that the deed is not a            for no other purpose. The lease also
quitclaim deed because it was not restricted          prohibits Luu from using the premises for
to any interest that Grace may have had and,          any activity that violates any applicable law,
therefore, the deed conveyed an interest in           regulation, zoning ordinance, restrictive
property. Enerlex notes that Grace conveyed           covenant, or governmental order or for any
“all right, title and interest” in the seventy-       activity that violates any applicable federal,
one sections rather than “my right, title, and        state, or local law. An additional provision
interest” or “all right, title, and interest that I   requires Luu to “satisfy himself that the
may own.”                                             leased premises may be used as Luu intends
                                                      by independently investigating all matters
     Enerlex is correct that the deed does not        related to the use of the leased premises or
contain this type of qualifying language, but         Property.
it reads too much into this distinction. It is
more significant that at no point in the deed              Luu submitted his liquor license
did Grace warrant or represent that she               application to the City of Houston.
actually owned any mineral interest. The              Approximately one month later, the city
court also recognized that the deed contains          faxed a letter to Luu, informing him that the
a general warranty and that it is absent any          city denied his application since the
“as is” or “without warranty” language, but           premises is located less than 300 feet from a
because the deed contains no specific                 public school and less than 300 feet from a
representation concerning Grace's title, that         public hospital. The city mailed a follow-up
language does not preclude it from being              letter, again informing Luu that it denied his
considered a quitclaim deed. The Fifth                application, but also suggesting that he
Circuit has noted that “what is important and         attempt to qualify for the restaurant
controlling is not whether grantor actually           exception, which would allow Luu to
owned the title to the land it conveyed, but          operate a restaurant that serves alcohol at the
whether, in the deed, it asserted that it did,        premises. Luu testified that immediately
and undertook to convey it.” Am. Republics            after he received the first denial from the
Corp. v. Houston Oil Co. of Texas, 173                City of Houston, he contacted his landlord,
F.2d 728, 734 (5th Cir.1949). Here, the               Merry Homes, and requested a meeting to
grantor made no such assertion.                       determine how to proceed under the lease.

2010 Texas Land Title Institute – Case Update                                                     16
    Luu ultimately determined that opening
a restaurant instead of a bar would not be             Although the lease, on its face, does not
financially feasible. Merry Homes refused         require violation of the law, the only
to refund Luu's deposit or cancel the lease.      permissible use of the premises under the
Luu sought a declaratory judgment that the        lease's terms is impossible and illegal, given
lease was void since it could not be              the location of the premises relative to a
performed legally, and also asserted claims       school. As Luu cannot obtain a liquor
of common law and statutory fraud,                license and therefore cannot perform under
negligent misrepresentation and statutory         the lease without violating the statute and
fraud, negligent misrepresentation, and           ordinance, the trial court properly
violations of the Deceptive Trade Practices       determined that this lease is void for
Act.                                              illegality.

    The trial court declared the lease void on        Kahn v. Imperial Airport, L.P., 308
two grounds: (1) the provisions of the lease      S.W.3d 432 (Tex.App.-Dallas 2010, no
that restricted the use of the premises to that   pet.). Imperial owned the leased premises.
of a nightclub or bar, fatally conflicted with    Its manager negotiated a lease with Kahn.
the provisions that prohibited any use of the     The leased premises was to be occupied by a
premises that violates an applicable law or       store under the name “Condom Sense.”
regulation; and (2) Luu could not perform         Kahn operated four stores under the same
his contractual obligations legally, since he     name in Dallas.
could not obtain a liquor license for the
premises due to its proximity to a public             At trial, two different versions of the
school.                                           lease were introduced. Kahn’s version’
                                                  signature line was as follows:
    The Texas Supreme Court previously
has held that a contract to fulfill an                LESSEE:
obligation which cannot be performed
without violating the law contravenes public          Condom Sense
policy and is void. The purpose behind this
principle is to benefit and protect the public,       By: Steve Kahn It's president
not to punish or protect a party to the
contract. If the illegality does not appear on        STEVE KAHN (President)
the contract's face, a court will not find it
void unless facts showing the illegality are          (Type Name and Title)
before the court. If the parties could
perform the contract in a legal manner, the           By: DBA Condom Sense
contract is not void merely because the
parties may have performed the contract in            ______________________
an illegal manner or committed illegal acts
in carrying out the contract.                         On Imperial’s version of the lease, the
                                                  signature line was similar, but not identical:
     Whether a contract violates a statute is
determined by looking at the specific facts           LESSEE:
of the case and deciding the intention of the
parties in executing the contract. Here, the          Condom Sense
Texas Alcoholic Beverages Code authorizes
counties and cities to adopt regulations              By: It's president
prohibiting the sale of alcohol within 300
feet of a public school. The City of Houston          Steve Kahn
has adopted such a regulation.

2010 Texas Land Title Institute – Case Update                                                17
    (Type Name and Title)                         really the lessee under the Lease, although
                                                  he acknowledged that “M. Stack” did not
    By: STEVEN KAHN                               appear anywhere in the Lease. He agreed
                                                  that M. Stack did not exist when the Lease
    _________________________                     was signed, or when the Certificate of
                                                  Occupancy was signed, and that he had no
    (Type Name and Title)                         authority to sign the Lease for M. Stack.
                                                  Kahn testified it was his practice to have a
    Kahn applied for the store's certificate of   DBA Condom Sense enter into a lease on
occupancy himself. He did not disclose the        behalf of an entity to be formed after
nature of the business in his application. In     “everything [is] resolved.” If the landlord
December 2005, Kahn oversaw creation of           wanted the lease signed before forma-tion,
M. Stack, a limited liability corporation that    he testified, there would be an addendum to
Kahn claims was to be the actual lessee.          the lease. But Kahn testified no addendum
During this time period, Imperial finished        was drafted in this case, and he had never
out the premises to Kahn's specifications at a    notified anyone at Brad-ford that M. Stack
cost of $27,000. Rent was paid for the initial    was to be the lessee for the Irving store.
months of the Lease term by an entity
named SB TAZ, LLC.                                     Kahn's arguments have no basis in law.
                                                  Initially, an individual cannot sign for and
    The Irving Condom Sense store opened          bind a DBA entity. A DBA is no more than
on February 9, 2006. The next day, the store      an assumed or trade name. And it is well-
was raided by the Irving police, who seized       settled that a trade name has no legal
some, but not all, of the store's inventory.      existence.     Thus, to the extent Kahn
The City of Irving did not close the store        purported to sign the Lease on behalf of
down. Kahn, his mother Marcia Kahn, and           Condom Sense as a DBA, he bound only
M. Stack (collectively designated the             himself. Likewise, one cannot sign for and
Applicants by the City) entered into an           bind a legal entity that does not yet exist.
Agreed Order with the City. The terms of          Kahn argues he signed the Lease as a
that order required the store to cease sale of    promoter for the later-created M. Stack. But
“items used in conjunction with sexual            when a promoter signs a contract on behalf
activity” and to change its name. In return,      of an unformed entity, he is personally liable
the Applicants would avoid prosecution. But       on the contract unless there is an agreement
despite the order, the store did not re-open,     with the contracting party that the promoter
and after April 2006 no more rent payments        is not liable. The record contains no
were made.                                        evidence Imperial agreed not to hold Kahn
                                                  liable. Moreover, the Lease was not made in
    Imperial sued Steven Kahn, CSI, and M.        the name of the unformed entity; there was
Stack for breach of the Lease. The trial          conflicting testimony concerning whether
court concluded Kahn breached the Lease           the landlord knew Kahn was purporting to
and is individually liable as the lessee.         sign for an unformed entity; and no evidence
                                                  was presented indicating M. Stack adopted
    Kahn challenges the trial court's             the Lease after its formation. The court thus
findings that he entered into the Lease in his    conclude that, under the facts of this case,
individual capacity and should be liable in       Kahn is personally liable on the Lease.
that capacity. Kahn testified he signed the
Lease on July 21, 2005 as Condom Sense's              Kahn went on to argue that his failure to
president. He testified he was not president      make rent payments and comply with the
of CSI on that date, but he did not know          terms of the Lease should be excused
what entities he was president of on that         because the Lease was terminated by the
date. Kahn claimed at trial that M. Stack was     City’s actions. The trial court's findings

2010 Texas Land Title Institute – Case Update                                                18
support Kahn on this issue. The court found        Accordingly, the court concluded he did not
a substantial part of the Leased Premises          prove a regulatory taking in this case.
was taken by the City of Irving for quasi-
public use under a governmental law,                   Wood Care Centers, Inc. v. Evangel
ordinance or regulation and that this taking       Temple Assembly of God of Wichita Falls,
materially interfered with the intended use        Texas, 307 S.W.3d 816 (Tex.App.-Fort
of the leased premises. Accordingly,               Worth 2010, pet. denied). After Hurricane
according to the trial court, no rent or other     Katrina hit New Orleans, Evangel Temple
obligations of the lessee were owed after the      contacted Wood Care to lease the property
date of the raid.                                  to assist evacuees. Several drafts of a lease
                                                   were circulated. The final version contained
    A taking may be either physical or             a “ten-percent termination clause” that
regulatory. A physical taking occurs when          provided Evangel Temple could terminate
the government authorizes an unwarranted           the lease by giving notice to Wood and
physical occupation or appropriation of an         paying 10% of the rental payments then
individual's property.     A compensable           owed. The lease also contained a provision
regulatory taking occurs if governmental           that allowed Evangel Temple to terminate if
regulations deprive a property owner of all        the premises was denied a tax exemption for
economically viable use of his property or if      the property.     The tax exemption was
those regulations totally destroy the              granted, but with a proviso that the
property's value.                                  exemption would be lost if the use of the
                                                   premises changed.
      Kahn argues the Irving Condom Sense
store could not be operated for its intended           After the last of the evacuees moved out
use under the terms of the Agreed Order and        of the facility, Evangel Temple sent a
under the City's interpretation of its             termination letter to Wood. It’s not clear
ordinance. However neither of these                from the case, but it appears that Evangel
restrictions on the use of the leased premises     Temple lost its tax exemption at the time it
qualifies as a governmental taking. The            sent the notice.        Wood sent a letter
Agreed Order represents the joint decision         demanding 10% of the remaining lease
of the Applicants-including Kahn-and the           payments. Evangel Temple claimed not to
City; it was not a unilateral act or regulation    owe the 10% because of the tax exemption
by the City. Kahn could have chosen to             termination clause. The trial court rendered
litigate the City's interpretation of the          a take-nothing judgment against Wood. The
ordinance. Indeed, he testified at trial that at   appeal deals primarily with the conflict
least one court had held Condom Sense was          between the ten-percent termination clause
not a sexually oriented business under an          which required a payment for termination
identical ordinance. But Kahn voluntarily          and the tax exemption clause which required
agreed not to litigate and to accept the           none.
restrictions in the Agreed Order. And as to
the restrictions posed by the ordinance itself,        The essential question is whether
it is uncontroverted that the Irving ordinance     Evangel Temple breached the provision of
pre-dated Kahn's negotiation of the Lease          the Agreement that states: “Both parties
and that Kahn himself was familiar with the        agree to cooperate with each other to
ordinance. When existing law regulates the         achieve any available property tax
use of property, an owner's reasonable             exemption.”     Wood Care argues the
expectations must take those regulations into      evidence conclusively established Evangel
account. Kahn did not prove he had a               Temple's breach of this provision because it
reasonable expectation of operating the store      admittedly could have come up with another
he intended at the leased premises.                tax exempt use.

2010 Texas Land Title Institute – Case Update                                                19
     Although Evangel Temple “could have”         were other heirs, as he later determined. He
submitted another exemption application for       received no response to his initial notice, so
the facility after the evacuees left, there was   he contacted them again, along with some
considerable testimony about Evangel              additional heirs, this time sending a form of
Temple's many efforts to find another use         deed for the property. A few months later,
and its resulting inability to finalize an        with still no response, Moosavideen filed
agreement with any of the potential               suit, seeking a declaratory judgment that he
organizations for any of the potential tax-       had validly exercised the option contained in
exempt uses. Evangel Temple's efforts to          the lease and was entitled to a deed
find other tax-exempt uses for the facility       transferring the lease property to him, and
included meeting with CPS about an interim        for specific performance of the option.
facility for children, speaking with the          During      the     course     of  discovery,
county's veteran's office about a veteran's       Moosavideen determined the names of more
home,       communicating      with      Dallas   heirs and provided notice to them of his
representatives about a Sudanese refugee          intent to exercise the option.
facility, speaking with a representative about
an annex for women, consulting with a                  Almost a year after Moosavideen gave
director of the Dallas Dream Center about a       notice of his exercise of the option, the heirs
place for at-risk teenagers, and providing a      notified him that he was in default under the
tour of the building for a prison-aftercare       terms of the lease. The property had been
expert. Concerning Evangel Temple's               used as a gas station and there was an
cooperation with Wood Care to achieve an          environmental contamination that the heirs
exemption, Wood Care suggested a youth            claimed violated the lawful use clause. The
bible study group be placed at the vacant         trial court found for the heirs and awarded
building. Wood Care did not suggest any           them damages for breach of the lease and
other uses and did not make any further           found that, because of the breach,
attempt to cooperate after the evacuees left      Moosavideen was not entitled to exercise the
the facility. Bateman stated that he did not      option.
personally have any conversations with
Wood Care about a continued use of the                 Moosavideen contended that he had
property. The evidence at trial supported the     validly exercised the option when he first
trial court's findings of fact that Evangel       contacted the heirs. The lease stated that, if
Temple did not breach the Agreement and           a notice address is to be changed, it is the
that it “made reasonable and good faith           duty of the party making the change to
efforts” to find another use for the facility.    notify the other parties. The trial court had
                                                  held that this provision didn’t apply to the
     Moosavideen v. Garrett, 300 S.W.3d           heirs, because they hadn’t changed their
791 (Tex.App.-Houston [1st Dist.] 2008,           addresses.     This court disagreed. It is
pet. denied). A 1928 ground lease was             irrelevant that the heirs had not changed the
freely assignable. One provision of the lease     addresses at which they resided. At issue is
gave the Tenant the right to purchase the         the lessors' duty in the event he or she
leased premises for $50,000, payable over a       wished to change the address for receiving
five year period. The option provision also       notices under the lease from the address set
stated that, when the Tenant exercised the        out in the 1928 lease to some other address.
option, the Landlord was bound to convey
the property.                                         The undisputed evidence shows that,
                                                  Moosavideen gave notice to all the heirs for
    Moosavideen acquired the Tenant’s             whom he had an address, and that the
interest under the lease. He sent notice to       remaining heirs had never changed their
the four heirs of the original Landlord that      addresses for receiving notice as required by
he knew about, exercising the option. There       the lease. Because Moosavideen's failure to

2010 Texas Land Title Institute – Case Update                                                 20
provide notice to the remaining heirs was          LESSOR hereby gives and grants to the
brought about by the conduct of those heirs        LESSEE, and LESSEE shall have an
through their failure to comply with the           optional right at any time within a period of
lease, Moosavideen's failure to give notice        the term of this lease, to purchase the
to them separately is excused. Because             interest of Lessor in and to the demised
some heirs did not comply with the notice          premises ...” While the option provision
change      provisions      of    the     lease,   recites the rental payments as consideration,
Moosavideen's notice of intent to exercise         it does not condition the right to exercise the
the purchase option was complete when he           option on compliance with any of the other
gave his first notice to the only four heirs for   terms of the lease. Instead, the language
whom he had either received notice or had          clearly states that the option can be
actual knowledge of their addresses. Thus,         exercised “at any time within a period of the
Moosavideen validly exercised the option to        term of this lease.” It is undisputed that, at
purchase almost one year before he was             the time Moosavideen was able to finally
given notice of his default under the lease.       give notice to all of the heirs, rental
                                                   payments were current, the lease had not yet
     Even if the court were to hold that           terminated, and could not be terminated
Moosavideen had not validly exercised the          until the “cure” period expired. Had the
option before he was given notice of default,      parties wished to create a condition
it nonetheless concluded that he was entitled      precedent to the lessee's right to exercise the
to exercise the option any time before the         option agreement conditioned on the lessee's
contract was terminated because his                compliance with the terms of the lease, they
compliance with the other terms of the lease       could have done so.
was not a condition precedent to his right to
exercise the lease purchase option.                    Taylor v. Carbajal, 304 S.W.3d 585
                                                   (Tex.App.-Beaumont 2010, pet denied).
    Moosavideen claims that his right to           The lease provided for a term of five years,.
exercise the purchase option was not               The lease required payments of $800 per
conditioned on his compliance with the             month, and provided that “amount paid on
other clauses of the lease. He further argues      lease will go to purchase of property
that because the contract had not been             $125,000.” The badly drafted option to
terminated by the time he first attempted to       purchase contained in the commercial lease
exercise the option, the heirs should be           read as follows:
required to specifically perform the option
contract by transferring the property to him.               Option to Purchase. Provided that
The heirs respond that Moosavideen's right             Lessee is not in default in the
to exercise the option was conditioned on              performance of this lease, Lessee shall
his compliance with the other terms of the             have the option to purchase for an
lease, and that once they notified him that            additional term of _____ months
they intended to terminate the lease after a           commencing at the expiration of the
180-day cure period, he no longer had the              initial lease term. All of the terms and
right to exercise the option to purchase.              conditions of the lease shall apply
                                                       during the renewal term except that the
    The option clause in this lease                    monthly rent shall be the sum of $
agreement is not conditioned on the lessee's           _____. The option shall be exercised by
performance of the terms of the lease. The             written notice given to Lessor not less
option provides that “[i]n consideration of            than _____ days prior to the expiration
the amount of the rental payments                      of the initial lease term. If notice is not
hereunder, paid and to be paid, and of the             given in the manner provided herein
other valuable considerations inuring to the           within the time specified, this option
benefit of the LESSOR hereunder, the                   shall expire.

2010 Texas Land Title Institute – Case Update                                                  21
                                                amount of $800, and that the Landlord
     The Tenants remained in possession of      accepted each payment until after the
the property beyond the end of the initial      Tenants gave written notice of the option to
term. The Landlord began demanding more         purchase. It follows that the parties did not
money and refusing to agree to apply rents      understand this clause to mean that no rent
to the purchase price.                          was due. Thus, it appears the “monthly rent”
                                                exception did not apply, and all of the terms
    The Tenants gave written notice of their    and conditions of the lease applied during
intent to exercise the option to purchase the   the “renewal term.”
property. The Landlord rejected the next
rent payment and on a few weeks later, gave         “Renewal term” is not defined in the
written notice to vacate the premises. The      lease, but the previous sentence states that
Tenants filed a petition for declaratory        “[p]rovided that Lessee is not in default in
judgment and deposited with the trial court     the performance of this lease, Lessee shall
he balance due on the purchase price of the     have the option to purchase for an additional
property.                                       term of _____ months commencing at the
                                                expiration of the initial lease term.” The
    The Landlord claimed the option to          second half of this sentence is somewhat
purchase expired at the end of the initial      ambiguous: do the Tenants have an
lease term. The Tenants contended that the      unspecified number of months to exercise
option to purchase remained in effect while     the option to purchase mentioned earlier in
they remained as tenants of the property        the sentence, or is the phrase merely an
paying rent and not otherwise in default.       acknowledgment that the lease might be
                                                renewed for an unspecified period of time?
    The first question was whether the lease    The agreement of the parties did not provide
expired at the end of its stated term or        the Tenants with the right to renew the lease;
remained in effect on the date the Tenants      instead, they could exercise an option to
gave notice of exercise of the option. The      purchase the property. However, by
general common law rule provides that a         accepting the lease payments after the end of
tenant who remains in possession of the         the initial term, the Landlord elected to treat
premises after termination of the lease         the Tenants as holding under the terms of
occupies ‘wrongfully’ and is said to have a     the original lease.
tenancy at sufferance. Under the common
law holdover rule, a landlord may elect to          Under either possible construction of the
treat a tenant holding over as either a         clause, the express terms of the contract
trespasser or as a tenant holding under the     provided that all of the terms and conditions
terms of the original lease. The court looked   of the lease continued during the “renewal
to the terms of the lease to determine          term.” The contract does not provide for the
whether the terms of the lease continue in      length of the renewal term; however, at the
the event of a holdover tenancy.                very least, it would include the period during
                                                which the Tenants continued in possession
    It is apparent that the Landlord            of the property and the Landlord accepted
converted a form lease renewal clause into      monthly lease payments without giving
an option clause, retaining some of the         notice of termination.
renewal language and leaving several terms
blank. The option paragraph provides that            The next question was whether the
“[a]ll of the terms and conditions of the       option period expired. The contract provided
lease shall apply during the renewal term       that “[t]he option shall be exercised by
except that the monthly rent shall be the sum   written notice given to Lessor not less than
of $ _____.” It is undisputed that the          _____ days prior to the expiration of the
Tenants continued to pay monthly rent in the    initial lease term.” The Landlord construe

2010 Texas Land Title Institute – Case Update                                               22
the contract to require written notice “prior      right to purchase the property for the amount
to the expiration of the lease term.” Thus,        agreed to in the lease.
they argue, the Tenants failed to meet the
final sentence of the option paragraph,                Cottman Transmission Systems, L.L.C.
which required written notice to be given          v. FVLR Enterprises, L.L.C., 295 S.W.3d
“within the time specified” by the option          372 (Tex.App.-Dallas 2009, pet. denied).
paragraph.                                         FVLR and LBR entered into a lease. LBR
                                                   was a franchisee of Cottman and operated a
    The Tenants argue that when the time           transmission repair shop at the premises.
for performance is omitted, the contract may       The lease contained a rider that provided
be performed within a reasonable time.             that Cottman had the option to assume the
                                                   lease upon its termination or expiration. To
     Time is of the essence in an option           exercise the option, Cottman was required to
contract because it is unilateral. In this case,   assume the lease and replace LBR as tenant.
however, the unilateral option was part of a
bilateral contract. The Tenants had the                LBR abandoned and moved out of the
exclusive right to exercise the option to          premises two years after execution.
purchase, but the Landlord had the exclusive       Cottman terminated its franchise with LBR
right to renew the lease under the same            and sent its manager to manage the repair
terms and conditions as the original lease.        shop at the premises. Cottman paid one
Thus, under this contract both parties could       month’s rent. Cottman didn’t pay any
control what occurred after the five-year          further rent and moved out in a few months.
lease term ended. The Tenants could                The landlord sued. At trial, the landlord was
purchase the property, or the Landlord could       awarded damages for loss of rent, triple-net
renew the lease. The option provision was          charges, and costs of finding a new tenant.
not excluded from the renewal language.            Cottman complained that the evidence is
Because the provision was left blank, the          legally and factually insufficient to support
contract failed to specify that the notice had     the jury's findings that Cottman was bound
to be given before the expiration of the           by the LBR lease agreement and the lease
initial lease term.                                rider.

     The contract in this case is                      The lease agreement and lease rider are
distinguishable from a case in which the           subject to the statute of frauds because they
extension of the lease is contingent upon the      concern the lease of commercial real estate
exercise of the option. Here, a renewal            for a period greater than one year. Cottman
clause is contained within the option              did not sign the LBR lease agreement or the
paragraph, but it is not expressly contingent      lease rider. At trial, FVLR relied upon the
on the exercise of the option. That renewal        doctrine of partial performance to avoid the
clause expressly provides that all of the          statute of frauds. Under the partial
terms and conditions of the contract will          performance exception, an agreement that
continue during a renewal. The only                does not satisfy the traditional statute of
potentially contrary provision appears in a        frauds but that has been partially performed
clause that was left blank. Under these            may be enforced if denying enforcement
circumstances, a reason-able time for the          would itself amount to a fraud.
exercise of the option includes the period of
time during which the parties continued to             Cottman argues the evidence is
perform the lease. The Tenants gave written        insufficient to support the finding that it
notice before the Landlord gave notice of          bound itself to the lease rider because it was
termination. Accordingly, the trial court did      not a party to it. However, Cottman's
not err in declaring that the Tenants have a       president testified that Cottman was a
                                                   beneficiary of the lease rider. He readily

2010 Texas Land Title Institute – Case Update                                                 23
acknowledged that the lease rider gave           belonged to the landlord but that the tenant
Cottman the option to assume the lease.          owned the trade fixtures. Just before the
                                                 lease expired, the HVAC units on top of the
    Cottman also contends the evidence is        restaurant were vandalized by copper
insufficient to support the finding that it      thieves and damaged by hail. A dispute
assumed the lease. Cottman makes the             ensued as to whether the tenant was
following two arguments: (1) the lease rider     obligated to repair or replace the units.
required it to provide written notice to
FVLR of its intent to assume the lease and it         The lease defined the Premises as the
never provided such written notice; and (2)      land and improvements. It also provided
its actions did not constitute partial           that the tenant has the right to install trade
performance under the lease rider.               fixture and stated that trade fixtures and
                                                 other personal property remained the
    The court construed the wording of the       property of the tenant. The lease did not
option. The rider provided that the tenant       define “trade fixtures;” however that term
conditionally assigned its interest in the       has     a     well-established,    commonly
lease to Cottman, effective upon the             understood meaning in Texas. It is now
occurrence of two conditions: (1) the            well settled that, as between a landlord and
termination of the franchise with Cottman        his tenant, the term “trade fixtures” means
and (2) exercise by Cottman of the option to     such articles as may be annexed to the realty
assume the obligations of and replace the        by the tenant to enable him properly or
tenant as provided in the franchise              efficiently to carry on the trade, profession,
agreement. The court held that the rider did     or enterprise contemplated by the tenancy
not explicitly state that Cottman had to         contract or in which he is engaged while
provide written notice of its exercise of the    occupying the premises, and which can be
option to assume.                                removed without material or permanent
                                                 injury to the freehold.
    Cottman also argued that the evidence
was insufficient to show that it had partially       The court held that the tenant
performed under the lease rider. The court       conclusively established that the HVAC
noted that Cottman had paid rent within the      units met the commonly understood
30 day period it had to assume the lease.        definition of trade fixtures. The tenant
Payment of the rent was a good indication        presented      uncontroverted       summary-
that Cottman was assuming the lease. But         judgment evidence that the HVAC units
Cottman did a number of other things as          were not attached to the building, but were
well.    It entered into a management            designed to be and were placed on curbs on
agreement for the premises. It met with the      the roof so they could be removed and
landlord’s property manager and told him         replaced without injury to the building, and
that Cottman was taking over the operations      that such units needed to be replaced
at the premises. It secured utilities in its     periodically as they reached the end of their
own name, purchased equipment, and               useful life cycles. The tenant likewise
entered into service contracts with vendors.     presented undisputed evidence that the
Thus, the court concluded that an                HVAC units here were approaching the end
assumption had occurred and that Cottman         of their useful lives, and that the units
was bound by the terms of the lease.             ultimately were replaced without injury to
                                                 the building. Further, the tenant presented
   C.W. 100 Louis Henna, Ltd. v. El              uncontroverted summary-judgment evidence
Chico Restaurants Of Texas, L.P., 295            that the 45 tons of air-conditioning capacity
S.W.3d 748 Tex.App.-Austin 2009, no pet.).       provided by the HVAC units facilitated the
The lease provided that, on termination, the     building's use as a restaurant, but was many
improvements constructed by the tenant           times greater than that needed if the building

2010 Texas Land Title Institute – Case Update                                               24
were to be used for other retail or office use.   Jr. Harrell does not claim that his ownership
Several Texas courts, addressing similar          interest in the property did not validly pass
facts, have held that air-conditioning units      to the Bank via the deed of trust and
are trade fixtures as a matter of law. There      substitute trustee's deed. As between Harrell
is no rule or presumption in Texas law that       and the Bank, there is no title dispute; the
air-conditioning units are always trade           allegation involves a dispute in title between
fixtures. The issue, rather, turns on the         nonparties and the Bank. Harrell's claim of a
parties' intent, which is ascertained from the    title dispute based on the alleged property
ground lease.                                     interests of nonparties with no supporting
                                                  documentation is far too tenuous to permit
    Harrell v. Citizens Bank & Trust              us to conclude that the issue of possession
Company of Vivian, Louisiana, 296 S.W.3d          cannot be determined. Specific evidence of a
321 (Tex.App.-Texarkana 2009, pet. dism’d         title dispute is required to raise an issue of
w.o.j.). Harrell defaulted on his note, and       jurisdiction.
the property was sold to the Bank at a
nonjudicial foreclosure sale. The Bank                 Cammack the Cook, L.L.C. v.
demanded Harrell vacate the premises.             Eastburn, 296 S.W.3d 884 (Tex.App.-
When Harrell refused, the Bank filed a            Texarkana 2009, pet. denied). The lease
forcible detainer action in the justice court;    provided that, at the expiration of the lease,
the justice court granted the Bank a writ of      upon obtaining the Landlord’s written
possession.                                       consent, the Tenant would remove any
                                                  alterations and improvements it made. It
     Harrell contends that Charles A. Harrell,    also provided that Tenant was required to fix
Jr., owned an undivided one-fourth interest       up the premises after termination. When the
in the real property described in plaintiff's     lease was terminated by the Landlord, the
sworn complaint for forcible detainer and         Tenant left everything in place and didn’t
that Harrell remains on the property with the     clean up or repair the premises, so the
consent of Harrell, Jr. Harrell contends that     Landlord sued. When read as a whole, the
at the time he executed the deed of trust in      court found the language in the lease to be
favor of the Bank, Harrell, Jr. was a minor.      unambiguous and that the Tenant had
Harrell testified that he was appointed           breached its obligations to remove
guardian of Harrell, Jr. and that he failed to    alterations,     trade      fixtures,     and
gain the approval of the county court in          improvements, and to clean up the premises.
which Harrell, Jr.'s guardianship was
pending before signing the deed of trust as                   PART VII
guardian for his son.FN2 As a result of this            VE DOR A D PURCHASER
omission, Harrell contends the trial court
lacked subject-matter jurisdiction because            TC Dallas #1, LP v. Republic
these ownership issues are beyond the             Underwriters Insurance Company, 316
jurisdiction of the court sitting in a forcible   S.W.3d 832 (Tex.App.-Dallas 2010, no pet.
detainer hearing.                                 history to date). TC Dallas and Republic
                                                  entered into a contract for purchase and sale
    Here, the issue of possession involves        of an office building in which the Dallas
Harrell and the Bank; Harrell's only              National Bank had been a tenant since 1996.
allegation is that the title issue involves       TC Dallas intended to re-develop the
Harrell, Jr. and the Bank. Harrell is not         property, but it could not do so until all the
claiming any title in his own right. In fact,     tenants, including the Bank, vacated the
his attorney conceded as much at the              building. The purchase price was $20
hearing.     Harrell's claimed right of           million, but Republic agreed to share TC
possession is merely made through one he          Dallas's expenses for terminating the leases
claims to have title to the property-Harrell,     of the remaining tenants and the costs of

2010 Texas Land Title Institute – Case Update                                                25
managing and operating the property until          increased     by      Operating     Expenses
the last tenant vacated.                           incurred....” For payments to be “Lease
                                                   Termination Costs,” they had to be “buy-out
    The contract provided that, after closing,     fees,    termination     fees    and    other
TC Dallas had the sole and exclusive right to      consideration paid or given to tenants to
negotiate the termination of the tenants'          terminate the leases.” For the payments to be
leases and provided for the sharing of “O&T        “Operating Expenses” they had to be
Expenses,” defined as lease termination            “expenses and disbursements that Purchaser
expenses as adjusted for operating expenses        [TC Dallas] incurs in connection with the
incurred and rents collected for the period in     ownership, operation, management and
question.                                          maintenance of the Property.”

    TC Dallas did not develop the property.             TC Dallas argues that some portion of
Instead, it entered into a second contract to      the $6 million Bank Credit should be
sell the property to SCA. This second              considered Operating Expenses under the
contract stated that the $16 million sales         first PSA because the discount constituted
price reflected a $6 million reduction from        an “expense” or “disbursement” incurred by
the “intended” sales price. The $6 million         TC Dallas “in connection with the
was a “Bank Credit,” which was defined as          ownership, operation, management and
the amount by which the intended purchase          maintenance of the property.” The court
price was reduced to compensate SCA for            disagreed.
the risk involved in taking title subject to the
Bank’s lease, the cost of terminating the              First, according to the second contract,
Banks’ lease, and the intervening operating        the Bank Credit was a discount in the sales
costs and rent collections.        The second      price of the property made by TC Dallas to
contract mentioned the first contract and          Turtle Creek Partnership, not an expense or
said that TC Dallas retained all of the rights     disbursement. This conclusion is not
under that contract, including the rights          affected by the fact that its existence arose
related to sharing the O&T Expenses.               out of the respective desires of the
                                                   contracting parties to allocate costs (or risks
     SCA and the Bank negotiated an                of costs) that might be incurred in the future.
amendment of the Bank’s lease which                Second, the $6 million Bank Credit (i.e., the
initially extended the term, but cancelled all     discount) was not incurred by TC Dallas “in
renewal rights. As part of the agreement,          connection with the ownership, operation,
SCA was to pay the Bank $2 million. The            management and maintenance of the
$2 million was sent by SCA to TC Dallas            property.” Rather, it was incurred by TC
and from TC Dallas to the Bank.                    Dallas in connection with TC Dallas's sale
                                                   of the property to SCA. And these
     TC Dallas then sued Republic seeking          conclusions are unaffected by the fact that
reimbursement of O&T Expenses. TC                  the definition of “Bank Credit” makes clear
Dallas argued that the plain language of the       that its purpose was to compensate SCA for
first contract made the $2 million payment         the expenses it (not TC Dallas) may incur in
was a lease termination cost, clearly made         owning, managing, and operating the
part of O&T Expenses. Republic argued              property     while     it   was      occupied.
that it had no obligation to reimburse TC          Accordingly, the $6 million Bank Credit, as
Dallas for any part of the “Bank Credit.”          such, does not constitute Lease Termination
                                                   Costs or Operating Expenses as defined in
    Under the first PSA, Republic agreed to        the first PSA, and thus does not constitute
pay forty percent of the O & T Expenses,           “O & T” Expenses under that agreement.
defined as “all Lease Termination Costs
incurred by Purchaser [TC Dallas] ...

2010 Texas Land Title Institute – Case Update                                                  26
     TC Dallas also argues that the $2               Barry v. Jackson, 309 S.W.3d 135
million of the Bank Credit paid by SCA to        (Tex.App.-Austin 2010, no pet.). Barry
the Bank-albeit via TC Dallas-should be          entered a contract with the Jacksons to buy
considered Lease Termination Costs because       their home. The Jacksons entered into a
the definition of “Bank Credit” in the second    contract to buy a replacement house. After
PSA stated it was for “anticipated costs of      their option to terminate the replacement
terminating the Bank Lease.” However, the        house contract expired, Barry informed the
definition of “Bank Credit” makes clear the      Jacksons that he was backing out of his deal
credit was compensation to the Purchaser,        to buy their house. The Jacksons lost the
Turtle Creek Partnership, for the expenses       earnest money deposit on the replacement
that Turtle Creek Partnership, not TC Dallas,    house contract. They re-listed their house
would incur in terminating the Bank's lease.     and ultimately sold it for less than Barry had
                                                 agreed to pay. The Jacksons sued Barry for
     TC Dallas also argues that the $2           breach of contract.
million of the Bank Credit paid by SCA to
the Bank-albeit via TC Dallas-should be              On appeal, Barry contends that (1) the
considered Lease Termination Costs as            Jacksons elected a contractual remedy that
defined in the first PSA because it paid the     bars them from receiving damages, and (2)
Bank $2 million for the Bank's agreement         there was insufficient evidence of the
not to renew its lease after 2010, and it        property's market value to support the trial
incurred this expense because the source of      court's damages award.
the $2 million paid to the Bank was the
Bank Credit. TC Dallas “paid” the Bank by             Barry’s first contention was that the
sending the Bank the money TC Dallas             Jackson’s had asked the trial court to order
received from SCA. However, the court            the release of Barry’s earnest money to
held that TC Dallas’s payment in that            them. The court held that the Jacksons had
manner does not mean that TC Dallas              not elected to receive the earnest money as
“incurred” a Lease Termination Cost.             liquidated damages. Although the Jacksons
“Incur” means “become liable or subject to.      filed a motion for summary judgment
Thus, assuming without deciding that the $2      seeking the release of Barry's earnest
million “Bank Lease Modification Costs”          money, that was sought and granted by the
paid to the Bank was in connection with          trial court in partial satisfaction of the
terminating the lease, unless TC Dallas was      breach-of-contract damages they sought.
liable to the Bank for that payment it did not   Shortly after Barry announced his intention
“incur” Lease Termination Costs under the        to breach his contract, the Jacksons refused
first PSA. The agreement with the Bank,          to sign a form that would have given them
though, said that SCA was liable for the         the earnest money and released Barry from
payment, not TC Dallas.                          further liability. In their amended petition,
                                                 the Barrys were very clear in seeking
    That TC Dallas was not liable to the         damages for breach of contract, which their
Bank for (and thus did not “incur”) the Bank     contract with Barry allowed. There is
lease modification costs amount, was             sufficient evidence to show that the Jacksons
established by section 12.18 of the second       did not elect to receive liquidated damages,
PSA, which eliminated the existence of any       relinquish their right to sue, or engage in
third-party beneficiaries to the second PSA.     conduct inconsistent with that right.
Because the Bank could not enforce the
second PSA as third-party beneficiary, TC            The court next turned to Barry's
Dallas could not be liable to the Bank for       complaint related to the evidence supporting
payment of the $2 million.                       the trial court's damages award. Barry
                                                 argues that the Jacksons did not present
                                                 sufficient evidence to show the property's

2010 Texas Land Title Institute – Case Update                                               27
market value at the time of his breach. The      Because the Jacksons did not present any
Jacksons claimed that the market value of        evidence that would support reasonable
the house at the time of the breach was the      inferences either that the October 2003 sale
price Barry had agreed to pay for the house      occurred within a “reasonable time” or that
and that their damages were the price they       the October 2003 sales price reflected the
got in the later sale plus the added expenses    property's value at the time of Barry's breach
they incurred.                                   more than a year earlier, the trial court erred
                                                 in awarding them the difference between the
     The general rule in a breach-of-contract    two contract prices.
case is that damages should put the plaintiff
in the same economic position he would                Franco v. Lopez, 307 S.W.3d 551
have been in had the contract been               (Tex.App.-Dallas 2010, no pet.). Franco
performed. When the breached contract is         entered into a contract to sell three parcels of
for real estate, the measure of damages is the   land to Lopez and Valdespino. The contract
difference between the contract price and the    was not dated, but according to the contract,
property's market value at the time of the       it was effective when received by the title
breach. The market value of the property         company, which was February 2, 2007. The
may be determined by a fair resale, after        closing was to be on January 19, 2007
notice to the party within a reasonable time     (which was, in case you missed it, before the
after the breach.                                effective contract date) or within 7 days
                                                 after title objections were cured, and time
    The Jacksons sold their house more than      was of the essence. The closing didn’t occur
a year after Barry breached the contract.        on January 19. In the following months,
Although the court recognized that what is a     Lopez and Vadespino deposited additional
reasonable time is a question of fact, varied    earnest money and tried to close after
by the circumstances of each case, the           receiving a survey of the property, but
Jacksons provided no evidence related to         Franco refused.       Lopez and Valdespino
whether thirteen months was a reasonable         sued for specific performance.           Franco
time, especially considering that they took      argued that the buyers had filed to deposit
the house off the market for a number of         earnest money, obtain a survey, and appear
months and had the property listed for sale      for the January 19 closing, and that such
by owner, rather than through a realtor who      failures were defaults that excused his
could list it in the MLS system, for a time.     performance.
For example, they did not present testimony
by an appraiser or realtor as to whether the         The court found that earnest money had
real estate market had undergone significant     been timely deposited.        Moreover, the
fluctuations during that year, that the          survey provision in the contract didn’t
eventual sales price would have been a fair      specify when the survey was supposed to be
market value for the property at the time of     obtained. Furthermore, because closing
the breach, or whether market conditions in      wasn’t to be until 7 days after title
October 2003 were similar to those in            objections and the title commitment was not
August 2002. Recent events in the                due until well after January 19, the failure to
nationwide real estate market show without       close on January 19 could not be a default.
a doubt that one year can make an enormous
difference in the value of real estate, and          Franco also argued that specific
Texas courts have recognized this fact. As       performance was not available because the
plaintiffs, it was the Jacksons' burden to       buyers had failed to close by the required
establish the property's market value as of      closing date. Generally, where a contract
August 2002, not October 2003, and thus it       provides that time is of the essence, a party
was their burden to establish that the later     must tender performance within the
sale was within a reasonable amount of time.     specified time to be entitled to specific

2010 Texas Land Title Institute – Case Update                                                 28
performance.      The court had already
considered and rejected Franco's complaints           When the closing date was approaching,
based on the buyers' failure to perform by        the parties had not agreed on which acreage
January 19. To the extent Franco argues           was to be released. Ultimately, because they
that the buyers are barred from seeking           couldn’t agree, the sale was not closed.
specific performance because, after January       Thedford filed suit, alleging breach of
19, 2007, they never tendered the full            contract and fraud.
amount of the purchase price, the court
noted that Franco never presented this                Tew contends that the parties’
complaint to the trial court. By failing to       agreement concerning the release tract was a
present this theory to the trial court, Franco    condition precedent to closing that had not
has waived error on appeal with respect to        been satisfied. Tew also argued that the
this issue.                                       contract omitted material terms rendering it
                                                  indefinite and uncertain as to the parties’
     Absent waiver, however, the court            obligations. Theford disagreed.
would still conclude that Franco's argument
lacks merit. Texas cases have long                     A contract must be sufficiently definite
recognized that where a party openly refuses      in its terms so that a court can understand
to perform his part of the contract a plaintiff   what the promissor undertook. If an alleged
need not tender performance before bringing       agreement is so indefinite as to make it
suit.    Where tender of performance is           impossible for a court to fix the legal
excused, a party must plead and prove he is       obligations and liabilities of the parties, it
ready, willing, and able to perform. In this      cannot constitute an enforceable contract.
case, there is ample evidence from which the      Similarly, a contract providing for an
trial court could have found that Franco          agreement to be negotiated in the future is
openly refused to perform his part of the         void. The parties, however, may agree on
contract and that the buyers were ready,          some terms sufficient to create a contract,
willing, and able to perform their obligations    leaving other provisions for later negotiation
under the contract. Accordingly, the trial        so long as those terms are not material or
court did not err in awarding the buyers          essential. However, those terms left for
specific performance of the contract.             future negotiation are not part of the
                                                  enforceable portion of the contract.
     Thedford Crossing, L.P. v. Tyler Rose
  ursery, Inc., 306 S.W.3d 860 (Tex.App.-             Here, the essence of the parties'
Tyler 2010, pet. pending). Tew agreed to          agreement is the sale of real estate. The
sell Thedford approximately 361 acres near        parties agreed that Tew would sell and
Tyler for $6 million. The contract was            Thedford would buy approximately 361
extended by its terms when Thedford paid          acres of land. The contract identified the
an extension fee. During the extension            location of the 361 acres to be conveyed, set
period, the contract was amended to provide       forth the price Thedford would pay Tew,
two alternate means of purchasing the             and stated the date on which the sale must
property, either by cash for the original         close. Based on the court’s reading of the
purchase price of $6 million or for seller        contract, there is no uncertainty concerning
financing that raised the price to $10 million    these terms, and, thus, there exists a valid
and provided for an initial deposit and some      contract for the sale of 361 acres of real
partial releases of the land to Thedford free     estate.
of the seller financing lien.        Thedford
elected the seller financed method and made           The terms concerning the location of
the initial deposit. Then the parties started     land to be released to Thedford free of lien,
negotiating the location of the partial release   though undoubtedly of concern to the
portions of the land.                             parties, is not an essential term to the

2010 Texas Land Title Institute – Case Update                                                29
contract for sale of real estate. Thus, the         words are necessary for the existence of
parties' expression of this term as one to be       such a condition.
agreed upon in the future does not serve to
nullify the contract as a whole.                         Conditions precedent are acts or events
                                                    occurring subsequent to the making of a
    Likewise, the manner of release and             contract that must occur before there is a
extent of Tew's conveyance of the property          right to immediate performance. Here, the
between the closing of the option and the           contract sets forth that the parties agreed to
final closing date is not an essential term to      close by one of two methods and that the
the contract for sale of real estate. Thus, the     seller finance method required some future
parties' failure to specify such details is not     agreements by the parties. It is apparent that
fatal to their contract. Further still, the terms   the contract required the parties to mutually
and provisions applicable to the payment of         agree that, among other things, Tew would
the balance of the pur-chase price are not          release fifty contiguous acres, the location of
essential terms to the overall sale of the          which would be agreed upon, to Thedford.
property. Thus, the court concluded that            However, the contract does not set forth any
while each of these details may be important        date by which the release of such property or
to the parties and may have proven to be            the determination of its location must occur.
valuable additions to their agreement given         Rather, the contract required only that the
the benefit of hindsight, the absence of such       parties agree that (1) Tew will release the
terms does not serve to render unenforceable        land and (2) the parties would mutually
the contract for sale.                              agree upon the location of the land.

     With regard to the question of whether              Tew contends that treating the provision
the agreement as to the release portion was a       as a covenant would lead to an absurd result.
condition precedent to Tew’s obligations,           The court disagreed. Tew's argument rests
the court looked to the intention of the            upon his assertion that the parties imposed
parties as expressed in the contract.               upon themselves a deadline of the closing
Conditions precedent to an obligation to            date to agree upon the location of the fifty
perform under a contract are those acts or          acre tract. However, as set forth above, a
events occurring subsequent to the making           close reading of the contract reveals that no
of a contract that must occur before there is       such deadline was expressed in the
a right to immediate performance and before         agreement. There is no indication from the
there is a breach of a contractual duty. In         plain language of the contract that the
construing a contract, forfeiture by finding a      parties intended to compel the release of the
condition precedent is to be avoided when           fifty acre tract at the time of closing.
another reasonable reading of the contract is       Therefore, based on the plain meaning of the
possible, when the intent of the parties is         language of the contract, the court held that
doubtful, or when a condition would impose          the parties' mutual agreement concerning the
an impossible or absurd result.                     location of the fifty contiguous acres to be
                                                    released by Tew was a covenant rather than
    Thedford argues that the contract               a condition.
contains no language that would indicate the
existence of a condition precedent. The                 Cate v. Woods, 299 S.W.3d 149
court agreed that the contract contains no          (Tex.App.-Texarkana 2009, no pet.). Tom
such language. However, while certain               and Patsy Cates signed a contract to sell
terms such as “if,” “provided that,” “on            their farm to Woods. The contract had a
condition that,” or some other phrase               financing contingency that said the contract
ordinarily connote the parties' intent that         would terminate if Woods failed to obtain
there be a condition precedent, no particular       financing. Woods did not obtain financing
                                                    for one of the two tracts comprising the

2010 Texas Land Title Institute – Case Update                                                   30
farm. Nevertheless, the Cates provided            Woods obtaining third-party financing for
partial seller financing and allowed Woods        the value of both properties. Since financing
to purchase half of the farm. In order to do      was not obtained by the closing date, the
that, they entered into a separate contract for   contract terminated by its own terms. This
the one tract. Although they talked about it,     termination and abandonment of the original
no written contract was ever signed               contract was further evidenced by the
regarding the other half of the farm.             parties' execution of a separate written
                                                  contract for sale of the one half of the
    At one point, without letting Patsy know      property at a later date.
about it, Tom allowed Woods onto the other
half of the farm. Woods moved cattle from             Woods then tried to argue that he had an
the part he owned to this half, planted hay,      oral contract, but no evidence of an oral
and built some improvements. No money             contract was presented at trial, so this
was ever paid for the tract.                      argument was not available on appeal.

    When Patsy found out that Tom had let             The court also found that there was no
Woods onto the other half of the farm, she        basis for Woods’s fraud claim. When fraud
“had a heated discussion” with Tom. Tom           claims arise out of an alleged contract which
and Woods continued to talk about Woods           is unenforceable under the statute of frauds,
buying the property, but no contract was          the statute of frauds bars the fraud claims as
ever entered into. Patsy then wanted Woods        well as the contract claims.
off the land. After several attempts to
remove Woods from the property, Tom                   Elijah Ragira/VIP Lodging Group, Inc.
moved Woods’s cattle back to the other half       v. VIP Lodging Group, Inc., 301 S.W.3d
of the farm, plowed up the grass, and put         747 (Tex.App.-El Paso 2009, pet. denied).
locks on the gates. Woods then sued for           VIP owned five tracts of land secured by a
specific performance based on the original        senior note held by PMC a subordinate note
contract of sale. The trial court granted         held by Sunburst. Having trouble paying off
specific performance to Woods, requiring          the matured notes on the property, which
him to pay the purchase price. It also            totaled approximately $2.7 million, VIP
awarded him damages for the Cates                 entered into negotiations with Ragira for the
trespassing on the property.                      purchase of the property. The parties agreed
                                                  to a purchase price of $3.5 million and
    Specific performance is an equitable          executed three separate contracts.
remedy that can be awarded upon showing a
breach of contract. In pursuing an action for         The first contract provided for the
specific performance, the first question is       purchase of tracts four and five at a price of
whether there is an enforceable contract to       $1 million and named the closing date as
be performed. To be enforceable and               May 31, 2004. The second contract was for
comply with the statute of frauds, a contract     the purchase of tract one at a price of $1.5
for the sale of real property must be in          million with a closing date of November 30,
writing and signed by the person to be            2004. The third contract was for the
charged with the agreement. Before a court        purchase of tracts two and three at a price of
can order specific performance of a contract      $1 million and a closing date of February
for the sale of land, there must be a written     28, 2005. Each contract required Ragira to
agreement expressing the essential terms of       deposit earnest money and a “$100 review
the contract with reasonable certainty.           fee.” If Ragira failed to do so, the contracts
                                                  were rendered null and void.           Ragira
     In ordering specific performance, the        deposited the earnest money for each
trial court relied on the original contract for   contract, but didn’t pay the “review fee.”
sale, which was clearly contingent upon

2010 Texas Land Title Institute – Case Update                                                31
    The contracts were modified in various      citing 1464-Eight, Ltd. v. Joppich, 154
ways, but the earnest money and review fee      S.W.3d 101 (Tex.2004), argues that the
provisions were not changed.                    nonpayment of the review-period fees did
                                                not preclude the enforcement of the
    The contracts required VIP to provide       contracts. However, unlike Joppich, the
surveys and phase one environmental             parties did not include a false recital of
reports. There was a dispute as to whether      nominal consideration, that is, that the
the surveys were to be new ones or existing     review-period fees had been paid. Rather,
ones and as to which party was responsible      the contract required the payment of the
for getting the phase ones.                     review-period fees and expressly provided
                                                that Ragira's failure to do so rendered the
    The first contract did not close on the     contracts null and void. Because Ragira
extended closing date. Ragira blamed that       failed to satisfy the express requirements of
on not having the survey or phase one; VIP      the contract by failing to pay the review-
claimed Ragira didn’t have its financing.       period     fees,     the    contracts    were
When Ragira tried to have VIP close later       unenforceable as a matter of law, and
on, VIP refused.                                therefore, Ragira was not entitled to specific
                                                performance on any of the contracts.
    Ragira found out that the property was
part of the new Cowboy’s stadium in                 Even assuming the contracts were
Arlington and redoubled its efforts to close    enforceable, Ragira was still required to
the properties. VIP, in the meantime, was       show his readiness, willingness, and ability
negotiating with another buyer and the City     to perform at relevant times to be entitled to
of Arlington. VIP and the other parties were    specific performance.
prevented from moving forward with the
City because Ragira had filed memoranda of          Ragira contends that he proved his
the contracts.                                  ability to tender performance on all the
                                                contracts by relying on the evidence
     Ragira    filed   suit    for   specific   showing that he contacted a third-party
performance. VIP filed counterclaims for        investor, who had been pre-approved for a
removal of the memoranda as clouds on           loan, to aid in the purchase of the property.
title.     Ragira was denied specific           When a party alleges he is ready, willing,
performance because there was no evidence       and able to perform under the terms of a
that it was ready, willing, and able to close   contract, but is relying on third-party
on the contracts.                               financing, the party must show that he had a
                                                firm commitment for financing, or he will
    The equitable remedy of specific            not be entitled to specific performance.
performance may be awarded upon a
showing of breach of contract. However, to          The lender’s commitment letter
be entitled to specific enforcement of a        agreement falls short of the required firm
contract, a party must show that the contract   commitment for financing. The letter
in question is valid and enforceable.           agreement did not exist as of the original
                                                closing date of the first contract, and by the
    In this case, the express terms of the      time Ishii's proposal was accepted by
contracts provided that Ragira's failure to     Ragira, Ragira already terminated the first
pay the review-period fees rendered the         contract.    Moreover, funding for the
contracts “null and void.” Further, Ragira      purchase of all the properties was
admitted that he failed to pay those fees for   conditional on the formation of a LLC,
any of the contracts. Accordingly, the three    which was never formed, and title insurance
contracts were null and void, and Ragira was    was to be obtained, which was never proven
not entitled to specific performance. Ragira,   to have occurred. Additionally, although

2010 Texas Land Title Institute – Case Update                                              32
Ragira claims that VIP was responsible for       consideration, and      without     notice   of
obtaining the environmental reports under        outstanding claims.
the terms of the contracts, the letter
agreement placed that burden on Ragira, and           Notice of a third-party's claim or interest
Ragira did not obtain the environmental          can be either actual or constructive, which
report until after the closing date passed on    has been broadly defined as information
the first contract.                              concerning a fact actually communicated to
                                                 a person, derived by him from a proper
    Having determined that Ragira did not        source, or presumed by law to have been
have a firm commitment for financing from        acquired.      Generally, the question of
a third-party investor, the court agreed with    whether a party has notice is a question of
the trial court that Ragira was not ready,       fact; it becomes a question of law only when
willing, and able to perform under the           there is no room for ordinary minds to differ
contracts, and therefore, Ragira was not         as to the proper conclusion to be drawn from
entitled to specific performance on any of       the evidence.
his contracts.
                                                     A subsequent purchaser has actual
      guyen v. Chapa, 305 S.W.3d 316             notice if he has personal information or
(Tex.App.-Houston [14th Dist.] 2009, pet.        express knowledge of an adverse right. The
denied). Ruiz sold the 3-acre tract to Chapa.    only evidence of actual knowledge at trial
Chapa did not file the deed from Ruiz.           was Chapa's testimony that once he and
Thirteen months later, Ruiz sold the same 3      Nguyen realized Ruiz had sold each of them
acres to Nguyen. Nguyen immediately filed        the same property, Nguyen asked Chapa if
a general warranty deed with the county          he had filed his interest with Harris County.
reflecting his interest in the property. After   Chapa answered no, and Nguyen replied
learning of the Ruiz-Nguyen sale, Chapa          “bad luck for you.” Chapa contends that
sought to establish his title by filing suit.    Nguyen's inquiry and response shows that
Challenging Chapa's unrecorded interest,         he knew of Chapa's interest and knew Chapa
Nguyen claimed he was a bona fide                did not file the interest with the county.
purchaser. The bank that financed Nguyen's       Contrary to Chapa's argument, Nguyen's
loan on the property intervened and asserted     query is not evidence that he had personal or
status as a bona fide mortgagee. A jury          express knowledge that Chapa had a
found in favor of Chapa on his contract          competing interest in the same property.
claims against Ruiz and found against            Rather, Nguyen's statements merely reflect
Nguyen's and the bank's claims of bona fide      his knowledge of a party's duty to record
purchaser and mortgagee, respectively.           interests in real estate. Nguyen's question
                                                 and reply are not evidence of actual
    Under Texas law, an unrecorded               knowledge; at best, this evidence provides
conveyance of an interest in real property is    nothing more than basis for surmise, guess,
void as to a subsequent purchaser who            or conjecture as to Nguyen's knowledge of
purchases the property for valuable              Chapa's interest.
consideration and without notice. However,
the unrecorded instrument is binding on a            Constructive notice is notice the law
subsequent purchaser who does not pay a          imputes to a person not having personal
valuable consideration or who has notice of      information or knowledge. One form of
the instrument. Thus, to receive the bona        constructive knowledge imputes notice
fide purchaser protection, a party must          where a subsequent purchaser has a duty to
acquire the property in good faith, for value,   ascertain the rights of a party in possession.
and without notice of any third-party claim      The duty to ascertain arises only if the
or interest. A bona fide mortgagee takes a       possession is visible, open, exclusive, and
lien in good faith, for valuable

2010 Texas Land Title Institute – Case Update                                                 33
unequivocal. This case, however, is not a         businesses, Texas Galvanizing and U.S.
constructive-knowledge-by-possession case.        Galvanization. They entered into a contract
                                                  with Valmont Industries for the sale of the
     Nevertheless, a subsequent purchaser is      businesses and a lease or purchase of the
also charged with notice of the terms in          property. Pursuant to the right of first
deeds which form an essential link in his         refusal in the deed, they sent notice to FWT.
chain of ownership. Although a deed               FWT responded by exercising its right of
outside the chain of title does not impute        first refusal. Thereafter, confusion broke out
constructive knowledge, a person may be           among the parties. Haskin, Wallace, and
charged with the duty to make a reasonable        Mason believed the right of first refusal
diligent inquiry using the facts at hand in the   required FWT to buy the businesses and the
recorded deed. Thus, every purchaser of           property on the Valmont terms; FWT took
land is charged with knowledge of all facts       the position that the right of first refusal
appearing in the chain of title through which     required only that FWT buy the property.
he claims that would place a reasonably           No closing ever occurred, however.
prudent person on inquiry as to the rights of
other parties in the property conveyed.                A preferential right, also known as a
Accordingly, if Nguyen or his bank had            right of first refusal or preemptive right, is a
knowledge of any fact or circumstance             right granted to a party giving him or her the
sufficient to put a prudent man upon inquiry      first opportunity to purchase property if the
which, if prosecuted with ordinary diligence,     owner decides to sell it. A preferential right
would lead to actual notice of Chapa's claim      has been described as a dormant option.
to the 3 acres, Nguyen and the bank are           Once the property owner conveys the terms
charged with such knowledge. The court            of the offer to the rightholder, the
reviewed the evidence and found nothing           rightholder then has the power to accept or
that would have put Nguyen or the bank on         reject the offer. Thus, when the property
inquiry.                                          owner gives notice of his intent to sell, the
                                                  preferential right matures or “ripens” into an
     FWT, Inc. v. Haskin Wallace Mason            enforceable option. The terms of the option
Property Management, L.L.P., 301 S.W.3d           are formed by both the provisions granting
787 (Tex.App.-Fort Worth 2009, pet.               the preferential right and the terms and
denied). Haskin, Wallace, and Mason are           conditions of the third-party offer presented
the owners of Haskin Wallace. In 1990, they       to the rightholder. Once the property owner
formed Texas Galvanizing, Inc. Texas              has given the rightholder notice of his intent
Galvanizing is located in Hurst and operates      to sell on the terms contained in the third-
a “hot-dip” galvanizing plant. In 1997,           party offer, the terms of the option cannot be
FWT sold to Haskin Wallace approximately          changed for as long as the option is binding
six acres of undeveloped real property            on the property owner.
located in Kennedale and adjacent to FWT's
plant. The deed from FWT to Haskin                    The rightholder's exercise of the option
Wallace contained a right of first refusal in     to purchase must be positive, unconditional,
favor of FWT that gave FWT the right to           and unequivocal. With regard to an option,
purchase the property on the same terms and       generally, a purported acceptance containing
conditions as Haskin Wallace intended to          a new demand, proposal, condition, or
sell to a third party.                            modification of the terms of the offer is not
                                                  an acceptance but a rejection.
    Haskin, Wallace, and Mason then
formed U.S. Galvanization to operate a                As a general rule, the holder of a
galvanizing business on the property.             preferential right cannot be compelled to
Haskin, Wallace, and Mason eventually             purchase assets beyond the scope of the
decided to sell the two galvanizing               agreement subject to the preferential right in

2010 Texas Land Title Institute – Case Update                                                  34
order to exercise that right. An exception to     then had sixty days to exercise his then-
this rule exists, however, when the               matured option to purchase the .28 tract on
preferential right is expressly made subject      the same terms to which American Tower
to the same terms and conditions offered by       and Hicks had agreed: $50,000.00. Castille
a prospective, bona fide, third-party             did not exercise his option to purchase the
purchaser, as is the case here. In such a case,   .28 acre. Instead, on June 18, 2008, he filed
the question of whether the holder of a           suit for declaratory relief.
preferential right must purchase the
additional assets turns on whether the                Castille reads the ROFR agreement as
condition that requires the purchase of           allowing Hicks to sell the 4-acre tract only
additional      assets    is     commercially     as one entire parcel. In other words, he
reasonable, imposed in good faith, and not        reads the agreement as one which would
specifically designed to defeat the               prohibit Hicks from selling a portion, rather
preferential right. While this exception has      than the entirety, of the 4-acre tract. Hicks,
been applied to cases involving the               on the other hand, reads the Agreement
conveyance of a single asset, there doesn’t       without such restriction and maintains that
appear to be any reason why it should not         the Agreement permits such a sale of a
apply equally to cases involving multiple         portion of the 4-acre tract so long as he
assets.                                           notifies Castille in accordance with the
                                                  terms of the Agreement.
    In this case, FWT elected to exercise its
preferential right contained in the deed. The          The court began its analysis by
deed's preferential right provision clearly       observing that alienability is a legal incident
and unambiguously requires that FWT meet          of property, and restraints against it are
the same price and the “same terms and            generally contrary to public policy. The
conditions offered by the prospective             right of alienation is an inherent and
purchaser,” Valmont. Valmont expressly            inseparable quality of an estate in fee
conditioned its purchase or lease of the          simple.     A restriction not forbidding
Property on its acquisition of the assets of      alienation to particular persons or for
the galvanizing businesses. Thus, FWT was         particular purposes only, but against any and
required to meet the terms and conditions of      all alienation whatever during a limited
Valmont's offer, including the conditions         time, of an estate in fee, is likewise void, as
requiring acquisition of the business assets,     repugnant to the estate devised to the first
unless those conditions           were    not     taker, by depriving him during that time of
commercially reasonable, were imposed in          the inherent power of alienation.
bad faith, or were specifically designed to
defeat FWT's preferential right, which the             The court said that to adopt Castille's
court found them not to be.                       construction of the Agreement would be
                                                  enforcing what appears to be an
     Hicks v. Castille, 313 S.W.3d 874            unreasonable restraint on alienation: an
(Tex.App.-Amarillo 2010, pet pending).            outright prohibition of indeterminate
Castille bought 96 acres (out of a 100-acre       duration from selling any portion of the land
tract) from Hicks. The other 4 acres              in question less than four acres. Castille has
included a quarter-acre parcel subject to a       not directed this Court to a case which
tower lease. Castille was given a right of        would support the position that a landowner
first refusal to buy the 4-acre tract. Hicks      may not partition or sell portions of the
sent Castille a notice of intent to sell the      property described in an agreement
quarter-acre tract on which the tower lease       conferring a right of first refusal. Adhering
was located and which was included in the         to the relevant rules of construction, the
four-acre tract on which Castille held a right    court then examined the Agreement from a
of first refusal. According to Hicks, Castille    utilitarian perspective, bearing in mind the

2010 Texas Land Title Institute – Case Update                                                 35
purposes and restrictions associated with a        operating expenses, and Cham-bers began
right of first refusal, and have construed the     cleaning up the property. Chambers did not
Agreement in such a way as to not invalidate       pay any part of the sales price on June 28
it.                                                and admits that the property was not
                                                   purchased on that date. On June 29, 2004,
     Having done so, the court concluded           Chambers was advised by the Sabine River
that the agreement permits the sale of a           Authority of the problem with the septic
portion of the four acres so long as Hicks         system. As a result, Chambers and the Bank
gives proper notice in accordance with the         entered into an amended contract July 20,
agreement. To hold otherwise would cause           2004, which provided that the Bank was to
the right of first refusal to represent an         repair the septic system for an allowance not
unreasonable restraint on alienation by            to exceed $32,000.00.
prohibiting Hicks from selling any portion
of the tract less than four acres. The                  Before the septic-system repairs could
converse application would also be                 be made, Chambers filed for bankruptcy and
unreasonable, permitting the right of refusal      stopped making payments on the note to the
to do something it must not do; to hold that       Bank. The Bank foreclosed on the property
Castille has a right to buy all four remaining     and sued Chambers for the remaining
acres intact would run afoul of the well-          deficiency on the loan. Chambers thereafter
established rule that a holder of a right of       filed suit against the Bank for fraud and real
first refusal cannot compel the owner to sell      estate fraud.        The two cases were
the property at issue. That is, to read the        consolidated.
agreement to mean that Hicks can only sell
the entire four-acre tract of land could have           The fraud in question concerns the
the practical effect of forcing him to sell        Bank's failure to inform Chambers about the
land that he does not wish to sell. The court      condition of the septic system. The question
will not construe the agreement to create a        here is whether there is sufficient evidence
right of first refusal that is inconsistent with   that Chambers ratified that fraud.
the principles concerning such rights
                                                        Ratification occurs when the parties'
    Chambers v. Equity Bank, SSB, 319              obligations are adjusted after the defrauded
S.W.3d 892 (Tex.App.-Texarkana 2010, no            party learns of the fraud. An agreement is
pet.). The case begins like a bad novel.           also ratified if a party, by word or conduct,
“Unknown to Charles M. Chambers, when              affirms the agreement after becoming aware
he passed by the Lighthouse Resort on Lake         of any fraud that would otherwise impair the
Fork on a weekend fishing trip in early 2004       agreement.      That is, ratification occurs
and noticed the “for sale” sign, was the fact      whenever the parties act in a way that
that lurking beneath the resort's surface was      recognizes, in spite of the revealed fraud, the
a damaged or defective septic system.”             existence of a binding contract.

    Chambers entered into a contract to buy             In this case, the evidence shows that,
the house from the Bank. While he did not          after Chambers learned of the fraud, the
know about the bad septic tanks, the Bank          purchase of the property was completed,
did. A “pre-closing” of the Lighthouse             including the signing of an amended
property took place June 28, 2004, at which        contract of sale expressly addressing the
time various, but not all, closing documents       matter at the heart of the fraud allegation-
were signed; none were filed for record at         repair of the septic system-at a cost to the
that time. At that time, Chambers signed a         Bank of $32,000.00. The court held that
promissory note for $650,000.00, the Bank          ratification had occurred.
gave Chambers the keys to the Lighthouse
property along with $15,000.00 for

2010 Texas Land Title Institute – Case Update                                                  36
                                                    validity of deeds or other documents of title,
           PART VIII                                the suit is not one for declaratory judgment.
 ADVERSE POSSESSIO , TRESPASS                       Since title to real property was at issue in the
 TO TRY TITLE, A D QUIET TITLE                      instant case, a declaratory judgment action is
           ACTIO S                                  not a proper vehicle to resolve the matter.
                                                    Had this been a boundary dispute, a
     Ramsey v. Grizzle, 313 S.W.3d 498              declaratory judgment action is permissible.
(Tex.App.-Texarkana 2010, pet. denied).             Had it been a case in which interpretation of
This case involves a confusing set of               the lease was at issue, the matter may have
circumstances relating to an oil and gas            been properly resolved through a declaratory
lease. The confusion led to a declaratory           action. As the instant case stands, however,
judgment action being filed by Grizzle.             title was at issue here, meaning the proper
Ramsey argued that the case, which                  vehicle was a trespass to try title action.
involved title to the mineral estate, should
have been brought as a trespass to try title             Trespass to try title is a purely statutory
case rather than a declaratory judgment             creation and embraces all character of
action and that Grizzle had failed to prove a       litigation that affects the title to real estate.
title interest in the mineral lease in question.    The action is governed by special pleading
                                                    and proof requirements established by the
     The Texas Supreme Court has explained          Texas Rules of Civil Procedure. A plaintiff
that oil and gas leases are unique: In Texas it     who has no interest at all in the land lacks
has long been recognized that an oil and gas        standing to assert a trespass to try title
lease is not a “lease” in the traditional sense     action. To maintain an action of trespass to
of a lease of the surface of real property. In a    try title, the person bringing the suit must
typical oil or gas lease, the lessor is a grantor   have title to the land sought to be recovered.
and grants a fee simple determinable interest       A plaintiff’s right to recover depends on the
to the lessee, who is actually a grantee.           strength of his or her own title, not the
Consequently, the lessee/grantee acquires           weaknesses of the title of his or her
ownership of all the minerals in place that         adversary. A defendant is not required to
the lessor/grantor owned and purported to           show title in himself or herself, nor may the
lease, subject to the possibility of reverter in    plaintiff rely on the defendant's failure to do
the lessor/grantor. The lessee's/grantee's          so. Ordinarily, a plaintiff may recover (1)
interest is “determinable” because it may           by proving a regular chain of conveyances
terminate and revert entirely to the                from the sovereign, (2) by proving a
lessor/grantor upon the occurrence of events        superior title out of a common source, (3) by
that the lease specifies will cause                 proving title by limitations, or (4) by
termination of the estate. In this case, the        proving prior possession and that the
lessors retained only a royalty interest.           possession has not been abandoned.
When an oil and gas lease reserves only a
royalty interest, the lessee acquires title to           Another trespass to try title case decided
all of the oil and gas in place, and the lessor     this year is Kennedy Con., Inc. v. Forman,
owns only a possibility of reverter and has         316 S.W.3d 129 (Tex.App.-Houston [14th
the right to receive royalties. A royalty           Dist.] 2010, no pet.), which dwells, for the
interest, as distinguished from a mineral           most part, on the evidence required to
interest, is a nonpossessory interest.              establish title.

    With an exception not applicable here, a                          PART IX
trespass to try title claim is the exclusive                        EASEME TS
method in Texas for adjudicating disputed
claims of title to real property. When the             Severance v. Patterson, --- S.W.3d ----,
suit does not involve the construction or           2010 WL 4371438 (Tex. 2010). This case

2010 Texas Land Title Institute – Case Update                                                    37
answers certified questions from the United      of vegetation landward. The entirety of the
States Court of Appeals for the Fifth Circuit.   house on Severance's property is now
                                                 seaward of the vegetation line. The State
     1. Does Texas recognize a “rolling”         claimed a portion of her property was
public beach-front access easement, i.e., an     located on a public beachfront easement and
easement in favor of the public that allows      a portion of her house interfered with the
access to and use of the beaches on the Gulf     public's use of the dry beach. When the
of Mexico, the boundary of which easement        State sought to enforce an easement on her
migrates solely according to naturally           private property pursuant to the OBA,
caused changes in the location of the            Severance sued several State officials in
vegetation     line,   without   proof    of     federal district court. She argued that the
prescription, dedication or customary rights     State, in attempting to enforce a public
in the property so occupied?                     easement, without proving its existence, on
                                                 property not previously encumbered by an
     2. If Texas recognizes such an easement,    easement,       infringed    her      federal
is it derived from common law doctrines or       constitutional rights and constituted (1) an
from a construction of the Open Beaches          unreasonable seizure under the Fourth
Act?                                             Amendment, (2) an unconstitutional taking
                                                 under     the     Fifth   and     Fourteenth
    3. To what extent, if any, would a           Amendments, and (3) a violation of her
landowner      be     entitled to   receive      substantive due process rights under the
compensation (other than the amount              Fourteenth Amendment.
already offered for removal of the houses)
under Texas's law or Constitution for the            Texas has a history of public use of
limitations on use of her property effected      Texas beaches, including on Galveston
by the landward migration of a rolling           Island's West Beach. These rights of use
easement onto property on which no public        were proven in courtrooms with evidence of
easement has been found by dedication,           public enjoyment of the beaches dating to
prescription, or custom?                         the nineteenth century Republic of Texas.
                                                 But that history does not extend to use of
    The central issue is whether private         West Beach properties, recently moved
beachfront properties on Galveston Island's      landward of the vegetation line by a
West Beach are impressed with a right of         dramatic event, that before and after the
public use under Texas law without proof of      event have been owned by private property
an easement.                                     owners and were not impressed with pre-
                                                 existing public easements. On one hand, the
    In April 2005, Severance purchased           public has an important interest in the
three properties on Galveston Island's West      enjoyment of Texas's public beaches. But on
Beach. “West Beach” extends from the             the other hand, the right to exclude others
western edge of Galveston's seawall along        from privately owned realty is among the
the beachfront to the western tip of the         most valuable and fundamental of rights
island. One of the properties, the Kennedy       possessed by private property owners.
Drive property, is at issue in this case. A
rental home occupies the property. A public           The Open Beaches Act states the policy
easement for use of a privately owned parcel     of the State of Texas for enjoyment of public
seaward of Severance's Kennedy Drive             beaches along the Gulf of Mexico. The
property pre-existed her purchase.               OBA declares the State's public policy to be
                                                 “free and unrestricted right of ingress and
    Five months after Severance's purchase,      egress” to State-owned beaches and to
Hurricane Rita devastated the property           private beach property to which the public
subject to the easement and moved the line       “has acquired” an easement or other right of

2010 Texas Land Title Institute – Case Update                                              38
use to that property. Privately owned           these boundaries are somewhat dynamic to
beaches may be included in the definition of    accommodate       the     beach's    everyday
public beaches. The Legislature defined         movement and imperceptible erosion and
public beach by two criteria: physical          accretion, the State cannot declare a public
location and right of use. A public beach       right so expansive as to always adhere to the
under the OBA must border on the Gulf of        dry beach even when the land the easement
Mexico. Along the Gulf, public beaches are      originally attached to is eroded. This could
located on the ocean shore from the line of     divest private owners of significant rights
mean low tide to the line of vegetation,        without compensation because the right to
subject to the second statutory requirement     exclude is one of the most valuable and
that the public must have a right to use the    fundamental rights possessed by property
beach.    This right may be “acquired”          owners.     Texas does not recognize a
through a “right of use or easement” or it      “rolling” easement on Galveston's West
may be “retained” in the public by virtue of    Beach. Easements for public use of private
continuous “right in the public since time      dry beach property do change along with
immemorial.”                                    gradual and imperceptible changes to the
                                                coastal landscape. But, avulsive events such
     The area from mean low tide to mean        as storms and hurricanes that drastically
high tide is called the “wet beach,” because    alter pre-existing littoral boundaries do not
it is under the tidal waters some time during   have the effect of allowing a public use
each day. The area from mean high tide to       easement to migrate onto previously
the vegetation line is known as the “dry        unencumbered property. This holding shall
beach.” The wet beaches are all owned by        not be applied to use the avulsion doctrine to
the State of Texas. However, the dry beach      upset the long-standing boundary between
often is privately owned and the right to use   public and private ownership at the mean
it is not presumed under the OBA. The           high tide line. That result would be
Legislature recognized that the existence of    unworkable, leaving ownership boundaries
a public right to an easement in privately      to mere guesswork. The division between
owned dry beach area of West Beach is           public and private ownership remains at the
“dependant” [sic] on the government's           mean high tide line in the wake of naturally
establishing an easement in the dry beach or    occurring changes, even when boundaries
the public's right to use of the beach.         seem to change suddenly.
Accordingly, where the dry beach is
privately owned, it is part of the “public          Land patents from the Republic of
beach” if a right to public use has been        Texas in 1840, affirmed by legislation in the
established on it. The question is did the      new State, conveyed the State's title in West
easement on the property seaward of             Galveston Island to private parties and
Severance's property “roll” onto Severance's    reserved no ownership interests or rights to
property?                                       public use in Galveston's West Beach.
                                                Accordingly, there are no inherent
    The court reviewed the history of land      limitations on title or continuous rights in
ownership along the beaches of Galveston        the public since time immemorial that serve
since the days of the Republic and              as a basis for engrafting public easements
eventually held that the State had divested     for use of private West Beach property.
its entire property interest in the dry         Although existing public easements in the
beaches.     It thus held that a public         dry beach of Galveston's West Beach are
beachfront easement in West Beach,              dynamic, as natural forces cause the
although dynamic, does not roll. The public     vegetation and the mean high tide lines to
loses that interest in privately owned dry      move gradually and imperceptibly, these
beach when the land to which it is attached     easements does not migrate or roll landward
becomes submerged underwater. While             to encumber other parts of the parcel or new

2010 Texas Land Title Institute – Case Update                                              39
parcels as a result of avulsive events. New            The trial court's judgment specifically
public easements on the adjoining private         declares that an easement by implied
properties may be established if proven           dedication burdens the Van Dams' Q-2
pursuant to the Open Beach Act or the             property. Dedication is the appropriation of
common law.                                       land, or an easement therein, by the owner,
                                                  for the use of the public. Once dedicated, a
    Van Dam v. Lewis, 307 S.W.3d 336              landowner reserves no rights that are
(Tex.App.-San Antonio 2009, no pet.). The         incompatible with the full enjoyment of the
Lewises claim an easement exists across a         public. In Texas, the elements of an implied
portion of land owned by the Van Dams,            dedication are well established: (1) the
which provides the Lewises and other              landowner induced the belief that the
individuals access to Lake Corpus Christi.        landowner intended to dedicate the property
The trial court granted a declaratory             to public use;n (2) the landowner was
judgment, in favor of the Lewises,                competent to do so; (3) the public relied on
confirming an easement by implied                 the landowner's actions and will be served
dedication “for the benefit of the public. . .”   by the dedication; and (4) there was an offer
                                                  and acceptance.
    The subdivision includes numbered lots
and undivided areas designated as                     Determining that a dedication was
“Undivided Q” on the subdivision plat. Over       intended requires more than simply failing
the years, portions of the Q areas were sold      to act or acquiescence in the use of land,
to individuals holding lots adjacent to the Q     although direct evidence of an overt act or a
areas including one of the Van Dams'              declaration is not required. Consequently, in
predecessors in title. The disputed easement      the present case, mere acquiescence and use
in question takes the form of a path or           by the neighbors, without some additional
overgrown road over that portion of the Van       factor from which the donative intent can be
Dams' property formerly designated as             inferred, does not establish an easement by
Undivided Q-2. The Lewises’ property is           implied dedication. Even if the evidence
also adjacent and contiguous to the portion       establishes some intent that neighbors could
of the Van Dams' Q-2 property in question.        traverse the Q-2 property, the use of the Q-2
Critically, the Q-2 property completely           property by a limited class of persons is not
separates the Lewis property from the water.      sufficient to constitute an implied dedication
The Lewises argue there is an easement            of the Q-2 property for public use. There
across the Van Dams' property granting            was no testimony that the public at large
them access to the lake.                          used the Q-2 property to access Lake Corpus
                                                  Christi. Based on the record, the court
    From August of 2005 through early             concluded that there is legally insufficient
2006, the Lewises accessed the lake through       evidence of donative intent by the original
their back gate, crossing the Q-2 property, to    owners and developers the subdivision to
enjoy the lake. In the spring of 2006, Daniel     burden the Q-2 property with an easement.
Van Dam notified Patrick Lewis that the Q-
2 property was private property and the               Ferrara v. Moore, 318 S.W.3d 487
Lewises' use of Q-2 was trespassing. The          (Tex.App.-Texarkana 2010, pet. pending).
Van Dams subsequently installed a metal           Brian Hays owned an eleven-acre tract of
chain across their property with a sign that      land abutting a county road, which he
said “Private property, no trespassing.”          subdivided into five lots. Each deed
Additionally, the Van Dams began                  contained an easement for a “non-exclusive
constructing a retaining wall and a boat          right-of-way for purposes of ingress and
ramp on the Q-2 property.                         egress between a public road and the tract
                                                  conveyed.” Each of the deeds referenced an
                                                  attachment in which the particular easement

2010 Texas Land Title Institute – Case Update                                                40
was specifically described by metes and               After a bench trial, which Ferrara
bounds. In 2005, Ferrara purchased tract # 2      attended pro se and called no witnesses
by warranty deed in which he also was             other than himself, the trial court issued
granted such an easement and the tract was        judgment declaring that the Moores had an
subject to all valid easements which allowed      express easement for means of ingress and
northern property owners, including owners        egress onto their property. It permanently
of otherwise landlocked tract # 5, access to      enjoined Ferrara from “erecting or placing
their property from a county road. Ferrara        gates, fences, posts, barriers, wires, chains,
installed a fence and a gate around the           locks, logs, rocks, or any other impediment
easement in February 2006 and began to            or obstacle” that would “interfer[e] in any
block the road. He justified this action by       manner with [the Moores'] free and
claiming he “researched it and that piece of      unrestricted use and enjoyment of the
property north of me did not have legal           Easement.” The existing gates were to be
access to use that [easement]. It was a           removed, and Ferrara was ordered to pay
privilege.”                                       damages and $4,500.00 in attorney's fees.
                                                  After judgment was entered, Ferrara retained
     Hays was notified by Roy Gay, another        counsel.
owner of property north of tract # 2, that he
was “allowed to enter the gate for a couple           On appeal, Ferrara argues that the court
of times and then Mr. Ferrara would not let       misinterpreted the easement terms and erred
them enter any longer.” To no avail, Hays         in ordering him to remove gates and other
spoke with Ferrara “several times about the       obstacles on the easement. Interpretation of
easement” and clarified that Ferrara was not      contracts granting easements are reviewed
allowed to block it. Thereafter, “Ferrara         de novo.
came out and ... cut trees [and laid them] all
across the easement where it wasn't                   A servient estate cannot interfere with
passable,” despite being directed to open the     the right of the dominant estate to use an
gate. Finally, to avoid conflict, Hays used a     easement for the purpose for which it was
bulldozer to create a road on someone else's      granted or sought. Likewise, the easement
property to allow the other tracts to access      owner must make reasonable use of the right
the county road.                                  and not unreasonably interfere with property
                                                  rights of the owner of the servient estate.
    In May 2009, the Moores purchased             Any use by others that interferes with the
tract # 5 and discovered that Ferrara was         exercise of superior easement rights must
blocking access and use of their easement.        yield. The Moores' easement originated
The Moores asked Ferrara “once again could        from an express grant with a specific
we settle this amicably ... and [Ferrara] said    description. Their rights are paramount to
no, that [he'd] have to be taken to court.” So,   the extent of the grant.
the Moores filed suit. They asked the court
to order Ferrara to remove the gates to the            The court first looked to the grant and
easement, issue an injunction enjoining him       its purpose. In this case, all five tracts were
from “erecting any other impediment to the        borne from a single acquisition of 111 acres.
free and unrestricted use of the easement,”       Because all tracts north of tract # 2 did not
and sought damages and attorney's fees.           have access to a public roadway, they were
Ferrara's pro se answer alleged that the          granted “a non-exclusive right-of-way for
“[f]ence and gate” had been in place for          purposes of ingress and egress between a
three and one-half years and the easement         public road and the tract conveyed and
had not been used for that time and was           described herein.” Additionally, the
therefore abandoned.                              easement provided that the grantor and his
                                                  assigns “shall have the non-exclusive right
                                                  to use any portion of this easement that lies

2010 Texas Land Title Institute – Case Update                                                 41
within the tract conveyed herein.” Because
the gates and fences were built on
specifically described easement property,                    PART X
grantees were improperly barred from using           CO DOMI IUMS A D OW ERS
these portions of the easement. Ferrara's                 ASSOCIATIO S
actions in building a barbed wire fence on
one end of the easement, a gate on another            Holly          Park        Condominium
end of the easement which remained locked,        Homeowners’ Association, Inc. v. Lowery,
in felling logs across the easement to make it    310 S.W.3d 144 (Tex.App.-Dallas 2010, pet.
impassable, and in denying access to              denied). Lowery quit paying her monthly
grantees of the easement for a period of          assessments, so the Association gave her
three years, could certainly be considered as     notice of default and conducted a non-
contrary to the purpose of the easement as        judicial foreclosure of her unit, then sold the
expressed within the grant. At trial, Ferrara     property.     Lowery sued for wrongful
appeared to believe the Moores had no right       foreclosure and sought a declaratory
to an easement and only International Paper       judgment       finding     the     non-judicial
Company had legal access on deed for that         foreclosure void. Lowery contended that
easement. Ferrara did not attempt to show         only a judicial foreclosure was permitted
that the Moores' use of the easement would        under her declaration. She contended further
impair or interfere with his use of the           that the Texas statutes governing
property.                                         condominium regimes did not abrogate this
                                                  specific contractual right.
    When the easement was granted, no
gates, fences, or other obstacles were placed         Because the Holly Park condominium
across the roadway. It was openly used for        regime was created before January 1, 1994,
ingress and egress from 1985 until Ferrara's      it is governed primarily by the
obstacles were built in 2006. There is            Condominium Act (the “Old Act”), codified
nothing in the record to suggest that there       at chapter 81 of the Texas Property Code.
are uses for the easement property other than     However, the condominium regime is also
to provide access to landlocked property          governed by the Uniform Condominium Act
owners. Where, as here, an easement is            (the “Uniform Act”), codified at chapter 82
granted to provide abutting landowners            of that code, to the extent provided by
access to a roadway, and no gates existed         section 82.002. Section 82.002, in turn, sets
prior to the grant of the easement, it is         forth a list of specific provisions in the
evident access to the roadway was to be           Uniform Act that apply to pre-1994
unobstructed.                                     condominium regimes. Those listed
                                                  provisions apply only to events and
    Michael Moore testified that he cannot        circumstances occurring after January 1,
travel down the easement to his property          1994, and they do not invalidate existing
without running over Ferrara's gate, jumping      provisions of the declaration, bylaws, or
over stumps, and finally breaking through a       plats or plans of a condominium for which
six-foot barbed wire fence wired to a post.       the declaration was recorded before January
The trial court did not err as a matter of law    1, 1994.
in its interpretation of the deed and the
parties' intent. Contrary to the motion for           Among the listed provisions of the
new trial alleging the court was without          Uniform Act that conditionally apply to the
legal authority to do so, the trial court could   Holly Park condominium regime is section
enjoin Ferrara from “erecting or placing          82.113, which addresses assessments levied
gates, fences, posts, barriers, wires, chains,    by an association against a unit owner. The
locks, logs, or any other impediments or          Old Act does not provide an association
obstacles ... on the Easement.                    with any method of enforcing its owners'

2010 Texas Land Title Institute – Case Update                                                 42
obligation to pay assessments, with the           Condominiums. The condominiums were
single exception of an association's claim for    created in 1980. Duarte failed to pay certain
unpaid assessments against sales proceeds         assessments,     and    the     condominium
when an owner sells her unit. But section         association foreclosed on its lien, conducted
82.113 of the Uniform Act, titled                 a foreclosure sale, and sold the property to
“Association's Lien for Assessments,”             Disanti, a third party. Duarte attempted to
provides that an assessment levied by an          “redeem” the property pursuant to the
association is a personal obligation of the       provisions of Section 209.011 of the Texas
owner, secured by a continuing lien on the        Residential Property Owners Protection Act.
condominium unit.                                 Disanti refused to allow Duarte to redeem
                                                  the property, and Duarte filed suit. The sole
    Holly Park’s bylaws, which are                basis for Duarte's claimed right of
incorporated into the declaration, state that     redemption is chapter 209 of the Texas
enforcement of the assessment lien shall be       Property Code. Disanti filed a motion for
by judicial foreclosure. Lowery maintains         summary judgment asserting chapter 209
that judicial foreclosure represents the outer    does not apply to condominiums.
limit of the Association's right to enforce its
assessment lien.                                      Chapter 209 of the Texas Property
                                                  Code, known as the Texas Residential
    The Uniform Act provides that                 Property Owners Protection Act, became
foreclosure can be either judicial or non-        effective in 2002. The Property Owners
judicial, and the Association relied on it in     Protection Act contains various provisions
conduction the non-judicial foreclosure;          concerning when a property owners'
however, the provision is states that these       association of a “residential subdivision”
foreclosure rights exist except as provided in    may foreclose upon a lien. The Act also
the declaration.                                  gives property owners certain rights of
                                                  redemption when a property owners'
    The declaration in this case balanced the     association forecloses on such a lien.
interests of the parties on the issue of unpaid   Section 209.003(d) makes clear that the Act
assessments. It specifically provided the         does     not   apply   to    condominium
Association with an assessment lien and a         developments governed by Chapter 82 of the
method of enforcing that lien, although the       Property Code.
Old Act did not provide either of those
mechanisms. At the same time, the                     Chapter 82, which applies only to
declaration assured Lowery that she would         condominiums, contains its own provisions
have her day in court before her property         that concern redemption after foreclosure by
could be sold for unpaid assessments. This        a property owners' association. Chapter 82
was the parties' agreement; it is laid out in     became effective in 1994. Condominiums
an existing provision of the bylaws,              created after that date are governed
incorporated into the declaration. Any            “exclusively” by chapter 82.         Certain
application of section the Uniform Act that       provisions of chapter 82, however, apply to
allowed nonjudicial foreclosure without           all condominiums, regardless of when they
Lowery's approval would upset the balance         were created. In particular, section 82.113
for which the parties contracted. It would        applies to all condominiums in the State of
invalidate an existing provision of the           Texas. This section contains the provisions
declaration or bylaws and, thus, would            that permit a condominium's property
violate the property code.                        owners' association to take a lien on a
                                                  condominium, allow for nonjudicial
   Duarte v. Disanti, 292 S.W.3d 733              foreclosure of such liens, and give a
(Tex.App.-Dallas 2009, no pet.). Duarte           property owner a right of redemption when a
owned a condominium in the Skillman Bend

2010 Texas Land Title Institute – Case Update                                               43
unit is foreclosed on and purchased by the       assessment. The resolution provided that
association.                                     the special assessment was to fund
                                                 replacement, repair, maintenance, and
    The court concluded under the plain          restoration work on the common elements,
terms of the Property Owners Protection          and would not be used for any additions,
Act, that the Act does not apply to Duarte's     improvements, or alterations.
condominium. This construction is in
harmony with the legislature's clear intent to        On appeal, Ritter argued that the board
have different redemption rights for             of directors did not authorize a special
residential    subdivisions      than      for   assessment and that the special assessment
condominiums.                                    was      for    additions,    alterations    or
                                                 improvements to the common areas, and
     Ritter v. Las Colonitas Condominium         therefore, it was invalid without a vote of
Association, 319 S.W.3d 884 (Tex.App.-           the majority of the owners. The bylaws,
Dallas 2010, no pet.). The Las Colonitas         submitted by both parties as summary
Condominium         is    a    condominium       judgment evidence, established that a special
association, comprised of 243 units. It was      assessment      for    replacement,      repair,
built approximately thirty years ago and         maintenance, and restoration of the common
many of its common elements are in need of       areas, did not require a vote of the owners.
repairs. The bylaws of the Association           However, a special assessment for additions,
provide that any special assessment for          alterations or improvements to the common
additions, alterations, or improvements in       areas in excess of $25,000, required the vote
excess of $25,000 must be approved by            of fifty-one percent of the owners. It is
fifty-one percent of the owners. However, if     undisputed that the owners did not vote to
the special assessment is for the                approve the special assessment. The court
“replacement, repair, maintenance or             held that the summary judgment evidence
restoration of any Common Elements,”             submitted by the Association showed that
approval of the owners is not necessary.         the assessment had been authorized by the
                                                 board and that it was for repairs, not new
     The board of directors for the              construction, and was therefore valid.
Association passed a $200,000 special
assessment. Owners did not vote on the
assessment. The Association gave owners                           PART XI
six months to pay the special assessment.                       HOMESTEAD
Ritter has not paid the special assessment.
Sometime after the assessment, Ritter                Fairfield Financial Group, Inc. v.
distributed post cards to units alleging the     Synnott, 300 S.W.3d 316 (Tex.App.-Austin
special assessment was “illegal,” and            2009, no pet.). Glenn and Connie Synnott
scheduled a meeting to discuss the issue.        purchased the house in Travis County in
Before filing this lawsuit, the Association      1984. Fairfield obtained a judgment against
asked Ritter to retract the information. When    Glenn and filed an abstract of that judgment
Ritter failed to do so, the Association filed    in 1992. The judgment debt is owed solely
suit, seeking a declaratory judgment that the    by Glenn. In the fall of 1997, Glenn moved
special assessment was valid. Ritter filed a     out of the house to Hays County and filed
counterclaim against the Association and         for divorce. In January 1998, Glenn and
alleged that the special assessment violated     Connie executed an Agreement Incident to
the bylaws.                                      Divorce, the court signed the decree, and
                                                 then Glenn signed a special warranty deed
    A new board of directors was elected         conveying his interest in the property to
and the new board passed a resolution to         Connie. By special warranty deed dated
clarify the purpose of the special               September 15, 1999, Connie conveyed the

2010 Texas Land Title Institute – Case Update                                                 44
house to the Connie L. Synnott Revocable         provides greater protection to the
Trust. She lives in the house and claims it as   homestead. So Austin joined other Courts
her homestead.                                   of Appeals in holding that judgment liens
                                                 cannot attach to a homestead while that
    Connie filed this suit seeking a             property remains a homestead.
declaration that Fairfield has no interest in
the property through a lien or otherwise.            A judgment lien may attach to the
The trial court held that the house was          judgment debtor's interest, however, if he
Connie’s homestead and not subject to the        abandons the property as his homestead
judgment lien. Fairfield appealed.               while he owns it and while there is a
                                                 properly abstracted judgment lien against
         The core of Fairfield's appeal is its   him.       Fairfield contends that Glenn
assertion that the summary judgment is           abandoned his homestead interest and that
erroneous because there is a genuine issue of    Fairfield's lien attached to his ownership
material fact regarding whether Glenn            interest in the home before he transferred his
abandoned the homestead, thereby allowing        ownership interest to Connie. The court
Fairfield's judgment lien to attach to his       concluded, however, that the timing and
share of the community ownership of the          effect of Glenn's actions are irrelevant
house.                                           because the property remained at all relevant
                                                 times protected by Connie's undivided
         Under Texas law, judgment liens         homestead interest in the property. Fairfield
that have been properly abstracted cannot        argues, correctly, that one spouse may
attach to a homestead while that property        abandon his homestead interest while his
remains a homestead. The court noted that        spouse retains her homestead interest.
this statement differs from one of its earlier   However, although a lien attaches to
interpretations. In Exocet Inc. v. Cordes,       property when it loses its homestead
815 S.W.2d 350 (Tex.App.-Austin 1991, no         character, Texas courts have held that the
writ), the Austin court held that a properly     property is wholly exempt from the
recorded and indexed abstract of judgment        attachment of liens (other than those listed
attached to the homestead but that the           in property code section 41.001(b)) so long
homestead remained exempt from the               as the remaining spouse retains her
foreclosure while the homestead exemption        homestead interest.

         On reviewing relevant statutory and                  PART XII
case law, the Austin court changed its                     CO STRUCTIO
position. Constitutional homestead rights               A D MECHA ICS’ LIE S
protect citizens from losing their homes, and
statutes relating to homestead rights are            Ready Cable, Inc. v. RJP Southern
liberally construed to protect the homestead.    Comfort Homes, Inc., 295 S.W.3d 763
The property code states that a homestead is     (Tex.App.-Austin 2009, no pet.). Ready
exempt from seizure for the claims of            Cable sent its lien affidavit to the
creditors except for encumbrances properly       Williamson County Clerk for filing.
fixed on homestead property, and lists the       Attached to the affidavit was a document
limited ways a lien can be fixed.         The    entitled “EXHIBIT ‘A’ to Condominium
implication is that types of encumbrances        Declaration: FIELD NOTES,” which
not listed may not be “properly fixed” on        contained a legal description of the property
homestead property. This interpretation is       sought to be charged with the lien. The
consistent with the holdings of other courts     phrase “Unofficial Document” appears
of appeals regarding the effect of the           across the face of the document.
homestead exemption on most liens and

2010 Texas Land Title Institute – Case Update                                               45
     A week later, Ready Cable got a written      provide proper notice of which property was
notice for the Williamson County Clerk            at issue, or that RJP would have been misled
stating that it could not accept an unofficial    to its prejudice if the county clerk had
document as an attachment. A few weeks            accepted the affidavit with the attachment
later, Ready Cable filed a modified affidavit.    for filing. Thus, the county clerk's basis for
                                                  rejecting Ready Cable's August 15 filing
    RJP filed suit against Ready Cable            was not a defect that would cause the lien
seeking removal of the lien, claiming it was      affidavit to fail to satisfy the substantial
not timely filed. The district court granted a    compliance requirement of Property Code §
summary judgment and removed the lien.            53.054.       The county clerk was not
                                                  authorized        to    impose      additional
     To perfect its lien, Ready Cable was         requirements for filing or recording a legal
required to sign an affidavit with specified      paper such as the removal of irrelevant
contents (Property Code § 53.054), timely         notations. Filing the affidavit was a
file the affidavit with the county clerk          ministerial act, and the county clerk's refusal
(Property Code § 53.052(a)), and provide          to accept the lien affidavit was improper.
notice of the filed affidavit to the property
owner and the original contractor (Property            Having found no authority for the
Code § 53.055). Also, Ready Cable was             county clerk's rejection of Ready Cable's
required to have provided prior notice of the     filing, the court concluded that the clerk's
unpaid balance to the property owner and          failure to accept for filing Ready Cable's lien
the original contractor(Property Code §           affidavit when it was timely delivered for
53.056).        It is well settled that the       filing did not result in invalidation of the
mechanic's and materialman's lien statutes        lien claim for lack of timeliness. Property
are to be liberally construed for the purpose     Code § 53.052(c) says “Failure of the county
of protecting laborers and materialmen.           clerk to properly record or index a filed
Generally, for purposes of perfecting the         affidavit does not invalidate the lien.”
lien, only substantial compliance is required     Moreover, RJP does not dispute its having
in order to fulfill the statutory requirements.   received actual notice of the August 15
                                                  filing of the lien affidavit, or allege that it
    The single issue in this appeal is            was otherwise misled to its prejudice.
whether Ready Cable's affidavit delivered to
the Williamson County Clerk should be                  Private Mini Storage Realty, L.P. v.
deemed timely filed. The question, then, is       Larry F. Smith, Inc., 304 S.W.3d 854
whether the August 15 affidavit fails to          (Tex.App.-Dallas 2010, no pet.). Raus was
comply with the timing requirements of            the general contractor for a storage facility.
property code section 53.052(a) when the          It hired Smith as the concrete subcontractor.
only reason for such failure is the county        Smith submitted invoices for close to
clerk's rejecting its filing.                     $600,000. Pursuant to its contract with
                                                  Smith, Raus withheld retainage. Raus also
     The court held that, in this case, it does   did not pay any part of an $18,000 invoice.
not. The county clerk was required to record      Smith sent a funds-trapping notice to the
the affidavit. RJP does not direct us to-and      owner for payment of the retainage and the
the court couldn’t find-any authority that        unpaid work. A month later, Smith notified
would authorize the county clerk to refuse to     the owner that it had filed a mechanics’ lien
file or record an affidavit of a materialman's    affidavit for the unpaid work. The owner
lien based on an attachment bearing the           had retained 10% of Raus’s contract
property description also bearing the             amount, by never paid any of it to Smith.
notation “unofficial document.” There is no       Smith filed suit.
evidence that the property was incorrectly
described, that the attachment failed to

2010 Texas Land Title Institute – Case Update                                                 46
    Subchapter E of the property code            Sayre's residence. Classic Openings claims
requires an owner to retain ten percent of the   the trial court abused its discretion by failing
funds to be paid to a general contractor to      to abate the case under the Residential
secure payment to “artisans and mechanics”       Construction Liability Act, Property Code §
who were not paid by the general contractor.     27.004(d). The Dallas Court of Appeals
When the time expires for filing a claim on      conditionally grant the writ.
these retained funds, the owner pays the
retainage to the general contractor.                 Sayre contends the RCLA does not
Subchapter D permits an owner to retain          apply to his claims because he is not seeking
additional amounts due to the contractor         damages under that act, However, Property
upon the request of a subcontractor when the     Code § 27.002(a)(1) provides that the RCLA
contractor fails to pay the subcontractor as     applies to “any action to recover damages or
required during the performance of the           other relief arising from a construction
contract. Under section 53.084, the owner        defect, except a claim for personal injury,
will be personally liable for any amounts        survival, or wrongful death or for damage to
paid to the contractor after receiving the       goods.” A “construction defect” includes
proper notice under the statute if the           “an alteration of or repair or addition to an
subcontractor's lien has been secured and its    existing residence ... on which a person has
claim reduced to judgment.                       a complaint against a contractor.” Property
                                                 Code § 27.001(4).
     Section 53.083 permits a subcontractor
to demand payment from an owner who was              Sayre alleged Classic Openings
authorized to retain funds under subchapter      overcharged for improper windows and the
D. The subcontractor must send a copy of         incorrect configuration of three doors. These
the demand to the general contractor, who        allegations are a complaint against a
then has thirty days to notify the owner of      contractor regarding the alteration or repair
the general contractor's intent to dispute the   of an existing residence. Thus, Sayre's
subcontractor's claim. If the general            allegations fall within the RCLA.
contractor does not give timely notice of        Consequently, Sayre was required to give
intent to dispute the claim, he is considered    Classic Openings written notice of the defect
to have assented to the demand and the           sixty days before filing suit. While Sayre
owner must pay the claim. Smith claims the       did give the required notice under the
owner was required to pay it because Raus        DTPA, that notice does not suffice to
failed to notify the owner within the thirty     provide Classic Openings with the specific
day period. He was granted summary               notice required under the RCLA.
                                                     J.P. Morgan Chase Bank, .A. v.
    The court held that many of the owner’s      Texas Contract Carpet, Inc., 302 S.W.3d
arguments against granting summary               515 (Tex.App.-Austin 2009, no pet.). The
judgment were not timely. The court also         Bank was the lender, Agape was the owner,
held that there was sufficient evidence          AMHC was the contractor, and there were
supporting summary judgment.                     several subcontractors. The Bank agreed to
                                                 lend money for construction of a low-
    In re Classic Openings, Inc., 318            income apartment complex. The funds
S.W.3d 428 (Tex.App.-Dallas 2010, no             became available as a result of a loan
pet.). This mandamus proceeding involves a       agreement between Agape and Capital Area
suit brought by Gary Sayre against Classic       Housing Finance Corporation, a public, non-
Openings, Inc. for breach of contract,           profit    housing    finance    corporation
deceptive trade practices, and breach of         authorized under the Housing Finance
express and implied warranties after Classic     Corporations Act to issue tax-exempt bonds
Openings replaced windows and doors in           for the purpose of loaning the proceeds of

2010 Texas Land Title Institute – Case Update                                                 47
the bonds to other entities for the             subcontractors had not been paid for their
development of low-income housing               work and had filed affidavits claiming liens
projects. In the loan agreement between         on the property. At that point, Agape's
Capital Area and Agape, Capital Area            construction consultant advised the Bank
agreed to loan the proceeds of the sale of      and Agape that they should not release any
certain bonds to Agape in order to finance      further funds until they received proof that
costs of the acquisition, construction, and     the subcontractors had been paid and had
equipping of the project. Capital Area          released their liens. In February 2002,
assigned its rights under the loan agreement    AMHC submitted a thirteenth draw request,
to the Bank, who became trustee of the          this time bypassing intermediaries and
funds pursuant to a trust indenture between     submitting it directly to the Bank. Thus, the
Capital Area and the Bank. Also, in the         draw request did not contain the usual
construction contract between the Bank and      representations from Agape. The Bank did
Agape, the Bank agreed to issue a letter of     not release funds and notified Agape that it
credit in favor of the owner of the bonds.      was in default under the loan agreement.
                                                The Bank also told Agape that the remaining
    The Bank initially funded a large           funds in the construction account were
portion of the loan into an account from        insufficient to pay project costs and
which it would draw funds to pay Agape for      demanded that Agape promptly pay all of
construction costs. Funds were released         the remaining costs of the project, including
when Agape satisfied certain conditions.        all amounts necessary to remove the
The Bank could refuse to fund a draw            subcontractors' liens on the property.
request if any mechanics’ liens were
threatened or filed, unless Agape bonded             The bondholder also demanded that the
around the liens. The Bank also kept the        Bank draw on the letter of credit to pay
retainage and was directed to disburse it 31    interest on the bonds. The Bank paid the
days after completion and the satisfaction of   letter of credit and took possession of the
certain additional conditions.                  bonds.

    Agape hired AMHC as the contractor.             Everybody sued everybody else and
AMHC entered into a contract with               many of the claims were settled. On appeal,
American Multi to act as prime contractor,      the only issues were whether the Bank (i)
and American Multi entered into the             was Agape’s agent and, as such, breached its
subcontracts. American Multi and AMHC           fiduciary duty by failing to withhold
were related entities.                          retainage in the construction account, (ii)
                                                misapplied trust funds under the Texas Trust
     Construction began in early 2001 and       Fund Act; (3) was negligent and grossly
was completed in January or February 2002.      negligent in failing to withhold retainage in
During that time, Agape submitted twelve        the construction account; (4) violated a
draw requests to the Bank, each of which        fiduciary duty to the subcontractors; and (5)
was approved. Each of the draw requests         converted the subcontractors' funds.
was submitted to multiple entities before
submission to the Bank, and by the time             The Bank contends that the trial court
each request reached the Bank, it included      erred in determining that the Bank acted as
various representations made by AMHC and        Agape's agent with regard to the statutory
Agape.     Those representations included       duty to retain ten percent of the contract
statements that all bills were paid and there   price of the project. Property Code § 53.101
were no liens.                                  imposes a duty to retain funds on owner of
                                                project or owner's agent, trustee, or receiver.
    After funding the twelfth draw, the Bank    The Bank argues that section 53.101
became aware that several of the                imposes the duty to retain funds on Agape as

2010 Texas Land Title Institute – Case Update                                               48
the owner of the project and that there is no   sole control over whether to release
evidence that Agape delegated the duty to       retainage from the account. Given that there
the Bank as an agent or that the Bank           is no evidence of the vital fact that the Bank
accepted any such delegation.                   was subject to Agape's control, the court
                                                concluded that the evidence is legally
    To be an agent, a person must (1) act for   insufficient to support the trial court's
and on behalf of another person and (2) be      finding that the Bank served as Agape's
subject to that person's control.        Both   agent with regard to the duty to withhold
elements are required. The absence of one       retainage.
will prevent the conclusion that an agency
relationship exists. The party claiming             The Bank also asserted that the trial
agency must prove that the principal has        court erred in applying the Texas
both the right to assign the agent's task and   Construction Trust Fund Act (Property Code
the right to control the means and details by   § 162.001) to it. The Bank argues that (1)
which the agent will accomplish the task.       whether the funds were “trust funds” under
                                                the Act is irrelevant because the Bank is
    The subcontractors concede that Agape,      exempt from the Act's requirements, and (2)
as the owner of the project, would ordinarily   even if the Bank were not exempt, the funds
be responsible for retaining funds in the       in the construction account were
construction account pursuant to the statute.   undisbursed bond proceeds held for the
However, the subcontractors argue that the      benefit of the bondholder and thus could not
construction agreement created an agency        be considered “trust funds” under the Act.
relationship between Agape and the Bank.
As support for their position, the                   The Act states that it does not apply to a
subcontractors point to the construction        bank, savings and loan, or other lender. The
agreement that allegedly demonstrate the        Bank, of course, is a bank, and was the
Bank's acceptance of Agape's statutory duty     entity lending money. Thus, the plain
to withhold retainage. The agreement states     wording of the Act exempts the Bank from
that the Bank “shall make all decisions in      its application.
connection      with      the     day-to-day
administration of the Construction Matters.”        The subcontractors argue that the court
Construction Matters is defined to include      should not follow the plain language of the
approval of construction draws, inspection      provision because doing so would lead to an
of the project, and holding and disbursing      absurd     result.    According       to    the
retainage. There was also testimony from a      subcontractors, a plain-language inter-
loan officer who said it was her job to make    pretation of the provision would lead to the
sure the Bank complied with Texas laws          allegedly absurd result of allowing a bank to
regarding retainage.                            take on the attributes of an owner in a
                                                construction project while also permitting
    The court did not find there was an         the bank to avoid all the responsibilities
agency, despite these provisions. Although      imposed upon an owner under the Act. The
there is evidence of the first requirement of   court disagreed.      Although the specific
an agency relationship, that the Bank agreed    circumstances of this case may have led to
to act on behalf of Agape in withholding        an undesirable result for the subcontractors,
retainage, there is no evidence of the second   the circumstances do not create an absurd
requirement, that the Bank was subject to       result out of the plain-language of the
Agape's control in accomplishing the task.      statute. At most, they demonstrate a gap or
To the contrary, considerable evidence          oversight in the statute that, if true, must be
supports a conclusion that it was the Bank,     corrected by the legislature, not the courts.
not Agape, that maintained sole control of      Further, although the subcontractors may
the funds in the construction account and       consider the statute unfair under the

2010 Texas Land Title Institute – Case Update                                               49
circumstances of this case, whether a statute      on the defendant. The most important factor
is fair or makes the most sense are questions      to consider is the foreseeability of the risk.
for the legislature to consider, not the courts.   The test for foreseeability is what a party
                                                   should, under the circumstances, reasonably
     In its third issue, the Bank contends that    anticipate as a consequence of its conduct.
the trial court erred in issuing a finding of
fact that the Bank was negligent in failing to         In addition to the balancing test, courts
exercise reasonable care in disbursing             must also consider (1) whether one party
retainage funds from the construction loan         had superior knowledge of the risk; (2)
account, prior to completion of the project.       whether one party had a right to control the
To prove negligence, a party must establish:       actor who caused the harm; (3) whether
(1) the existence of a legal duty; (2) a breach    societal changes require recognition of new
of that duty; and (3) damages proximately          duties; (4) whether the creation of a new
caused by the breach. Duty is the threshold        duty would be in conflict with existing
inquiry in a negligence case. In the absence       statutory law; and (5) whether there are
of a duty, there can be no negligence. A           countervailing concerns that would support
duty can be assumed by contract or imposed         or hinder the recognition of a new duty.
by law.
                                                        The court first addressed the initial
    The subcontractors allege the duty was         considerations: the risk, foreseeability, and
established in the loan agreement. Because         likelihood       of    injury.   Here,     the
the subcontractors were not parties to the         subcontractors' injury was that they were not
contract, they bring their claim as third          paid for some of their work on the project.
parties. A third party may recover on a            Although the Bank could have anticipated
contract made between other parties only if        this injury, it could have done so only in the
the contracting parties: (1) intended to           same way that every party to every
secure a benefit to the third party, and (2)       construction contract could foresee the
entered into the contract directly for the         possibility that a contractor, for whatever
third party's benefit. An agreement must           reason, may not pay subcontractors for their
clearly and fully express an intent to confer      work. In fact, the danger of subcontractors
a direct benefit on the third party. The Bank      remaining unpaid in construction projects is
contends that the subcontractors cannot be         so well known that the Texas legislature
third-party beneficiaries of the construction      recognized and responded to it by enacting
agreement because the plain language of the        the Trust Fund Act, which was previously
agreement specifically disavows the                discussed in this opinion.
existence of third-party beneficiaries. The
court agreed, saying that the express                   The court then looked the second set of
disavowal of third-party benefits defeats the      considerations: the social utility of the
subcontractors’ claims.                            Bank's conduct, the magnitude of the burden
                                                   of guarding against the injury, and the
     The subcontractors final attempt was to       consequences of placing the burden on the
ask the court to impose a new common law           Bank. The court found significant social
on the Bank in its administration of               utility in the Bank's general conduct of
construction loan agreements. In deciding          lending money to a non-profit organization
whether to impose a new common-law duty,           for the construction of a low-income
courts must first consider the risk,               apartment complex. Regarding the second
foreseeability, and likelihood of injury, and      and third considerations, the court found the
then weigh those factors against the social        magnitude of the burden of protecting
utility of the actor's conduct, the magnitude      subcontractors and the consequences of
of the burden of guarding against the in-jury,     placing that burden on lenders to be
and the consequences of placing the burden         significant. Lenders currently do not carry

2010 Texas Land Title Institute – Case Update                                                 50
such a burden unless they explicitly agree to      require our recognition of a new duty. In
do so. Thus, they are currently able to assess     addition, the creation of a new duty would
their liability at the time of entering into the   be in conflict with existing statutory law.
contract. The more they can limit their
liability, the more freely they can lend               The court concluded that the factors
money for projects such as the one here. If        weighing against the imposition of a new
courts were to impose a duty on them to            duty outweigh those in favor.
withhold retainage and ensure that
subcontractors were paid, they would be
exposing them to a considerable number of                        PART XIII
costly lawsuits brought by parties that they                   CO DEM ATIO
may not even be able to identify at the time
of entering into the contract. Also, placing           State of Texas v. Brownlow, 319
the burden on lenders would interfere with         S.W.3d 649, 53 Tex. Sup. Ct. J. 1100 (Tex.
their freedom to contract as they see fit,         2010).     The State sought to condemn
which is a strongly favored public policy in       Brownlow’s 12.146 acres of land for the
Texas.                                             opening, construction and maintenance of a
                                                   floodplain mitigation pond.       The parties
     The court addressed the final set of          eventually settled the condemnation suit
considerations: whether one party had              with an Agreed Judgment for an easement
superior knowledge of the risk; whether one        on the property “for the purpose of opening,
party had a right to control the actor who         constructing,     and      maintaining      a
caused the harm; whether societal changes          detention/mitigation facility in, over, and
require recognition of new duties; whether         across the tract of land for the purpose of
the creation of a new duty would be in             making additions to, improvements on, and
conflict with existing statutory law; and          repairs to said detention facility or an part
whether there are countervailing concerns          thereof.” A recital in the judgment noted
that would support or hinder the recognition       that the State sought the property “for
of a new duty. Regarding the first                 highway purposes.”
consideration, whether the Bank had
superior knowledge of the risk, the court               The State then began to remove a whole
first noted that the risk of harm in this case     lot of dirt and use it in another section of the
was allegedly created by the fact that the         Highway 35 widening project. The
Bank was in control of the construction            Brownlows protested that the excavated soil
account but was not under a statutory              was not part of the Agreed Judgment. They
obligation to withhold retainage in the            contend that as the fee simple owners of the
account. Because the subcontractors did not        land the soil belongs to them. They claimed
know that the Bank had control over the            that the State unconstitutionally took the
construction account, it did have superior         excavated      dirt,    entitling    them     to
knowledge of the risk associated with the          compensation. The State filed a plea to the
arrangement between the Bank and Agape.            jurisdiction. It argued that the Agreed
With respect to the second consideration,          Judgment gave it the right to use the dirt for
whether the subcontractors had a right to          highway construction purposes, it was
control the Bank, there is no evidence in the      within its rights to remove and use the dirt,
record that the subcontractors had a right to      and that it was immune from suit on the
exert control over the Bank.                       basis of sovereign immunity. The Court of
                                                   Appeals held that the dirt belonged to the
   Although the first two considerations           Brownlows and that they could maintain
weigh against the Bank, the remaining three        their takings suit.
do not. For instance, there are no societal
changes implicated in this case that would

2010 Texas Land Title Institute – Case Update                                                   51
     When the State acquires fee simple title     maintaining” a mitigation pond; it does not
to land through a condemnation proceeding,        grant the State rights to use the Brownlows’
it acquires the land as well as appurtenances     property for other purposes. Using the dirt
to and buildings on the land. However,            at a site remote from the Brownlows’
where only an easement is acquired, the           property to construct a highway does not
owner retains title to the land and all that is   constitute a use related to either (1) opening,
ordinarily considered part of the land. If        (2) constructing, or (3) maintaining a
only an easement is acquired, it is the State’s   mitigation pond on the Brownlows’
burden to assure that the document granting       property. The purpose of a mitigation pond
the easement expressly addresses any              is to hold water.
special arrangements or provisions in the
easement taking. The State’s burden flows             Nor does a recital in the Agreed
from the principle that an easement’s             Judgment that the State first sought the
express terms, interpreted according to their     Brownlows’      property    for   “highway
generally accepted meaning delineate the          purposes” expressly or implicitly grant the
purposes for which the easement holder may        State a right to use the dirt from the
use the property. An easement, unlike a           easement for highway construction. It was
possessory interest in land, is a                 incumbent on the State to be sure the
nonpossessory interest that authorizes its        property rights it needed were acquired and
holder to use the property for only particular    encompassed within the language of the
purposes. An easement does not transfer           Agreed Judgment.
rights by implication except what is
reasonably necessary to fairly enjoy the               The Agreed Judgment mentions
rights expressly granted. If the rule were        “highway purposes” a single time, and that
otherwise, easements would effectively            is in the recitals. In contrast, at five different
become        possessory,      rather     than    points—twice in the granting clauses and
nonpossessory, land interests. The emphasis       three times in the recitals—the Agreed
placed on an easement’s express terms             Judgement announces that the State is
serves the important public policy of             acquiring the easement for the purpose of
promoting certainty in land transactions.         “opening, constructing, and maintaining” a
                                                  detention facility. Express decretal language
     The State argued that the Brownlows          in a judgment controls over recitals.
failed to state a takings claim because the       Therefore, a single statement in the recitals
Agreed Judgment gave the State the right to       that the State “sought and prayed for the
use the dirt for highway construction             acquisition, for highway purposes” is not
purposes and the Brownlows did not have a         clear enough to carry the State’s burden. It
compensable interest in the dirt the State        does not unambiguously indicate that the
removed.      To     recover     under      the   State has the right to use the Brownlows’
constitutional takings clause, one must first     property for purposes unrelated to “opening,
demonstrate an ownership interest in the          constructing, or maintaining” the mitigation
property taken. The heart of the State’s          pond generally, or more specifically, as
argument is that the Agreed Judgment              highway construction material.
expressly or implicitly gives it the right to
remove the dirt excavated from the                    The State argues that under longstanding
Brownlows’ land and use it in highway             precedent, it has the right to use all materials
construction, or that, in any event, use of the   located in the easement for the purpose of
dirt is reasonably necessary for the State to     constructing, repairing, or improving
fully enjoy the easement rights it was            roadways. It argues this right tacitly inures
expressly granted. The Agreed Judgment,           to every condemned easement. But, while
however, sets out the purposes of the             courts have held that the cities could use
easement as “opening, constructing, and           materials removed from the streets during

2010 Texas Land Title Institute – Case Update                                                   52
the grading process to construct and grade
other roads, they were not considering                A government is vested with certain
materials removed from easements other           inherent powers commensurate with its
than easements for city streets. In contrast,    status as a sovereign, including the right of
the soil removed from the Brownlows’             “eminent domain” in which private property
property was not removed as part of the          is taken-in exchange for compensation-and
grading process nor was the property in the      converted for public use. Some “takings”
highway right of way. The materials could        are more conspicuous than others. This case
be removed only for the specific purpose of      would more appropriately be described as an
opening, constructing, and maintaining the       “inverse condemnation” action, in which an
mitigation pond.                                 owner claims his property has already been
                                                 taken-outside of proper condemnation
    The State also argues that it was entitled   proceedings-without compensation.
to use the dirt to construct a highway
embankment because doing so was                      To recover compensation for inverse
necessary to fully enjoy its easement. The       condemnation under Texas Constitution
court agreed that an unlimited easement          Article I, Section 17, a claimant must plead
carries with it all rights as are reasonably     and prove (1) an intentional governmental
necessary for enjoyment consistent with its      act; (2) resulted in a “taking” of his
intended use. But the rights reasonably          property; (3) for public use. Here, the
necessary for full enjoyment of an easement      parties' dispute focuses only on the second
are limited. They do not encompass rights        prong of this test, that is, the proof necessary
foreign to the purpose for which the             to establish a “taking” of property by
easement is granted. The servient estate         airplane overflights. To establish a taking
holder retains these rights.                     by aircraft overflights, a landowner must
                                                 show that the flights directly, immediately,
    Alewine v. City of Houston, 309              and substantially interfere with the land's
S.W.3d 771 (Tex.App.-Houston [14th Dist.]        use and enjoyment. However, the City
2010, pet. pending). Homeowners in a             contends the homeowners must also show
subdivision close to Bush Intercontinental       the overflights have rendered their homes
Airport sued the City because construction       uninhabitable-that is, unusable for their
of a new runway resulted in increased            intended purpose-to prove a constitutional
airplane flights over a corner of their          “taking” of property.
neighborhood. The City successfully moved
for summary judgment, arguing the                    In City of Austin v. Travis County
homeowners were not entitled to                  Landfill Co., 73 S.W.3d 234 (Tex.2002), the
compensation for inverse condemnation or         Texas Supreme Court held that, to establish
intentional nuisance because they had not        a taking by aircraft overflights, a landowner
shown their property was “taken” by the          must show that the flights directly,
government. The City argued that (1) the         immediately, and substantially interfere with
homeowners' complaints do not rise to the        the land's use and enjoyment. To meet this
level of a constitutional “taking” because       standard, the landowner must show that the
their homes remain habitable; (2) no             overflight effects directly and immediately
“taking” occurred because the average noise      impact the land so that the property is no
level in the neighborhood does not exceed        longer usable for its intended purpose. In
that approved by the federal government for      this case, then, the court held that, to
residential use; and (3) the “community          demonstrate a compensable taking-by-
damages rule” bars recovery because all          overflight under current Texas law, the
plaintiffs claimed similar injuries. The trial   homeowners were required to prove the
court granted summary judgment without           overflights directly, immediately, and
specifying the basis for its ruling.             substantially impacted the land so as to

2010 Texas Land Title Institute – Case Update                                                 53
render their property unusable for its            facial challenge is ripe when the restriction
intended purpose as a residence.                  is imposed, but an as-applied claim is not
                                                  ripe until the regulatory authority has made
     City of Houston v. Mack, 312 S.W.3d          a final decision regarding the application of
855 (Tex.App.-Houston [1st Dist.] 2009, no        the regulation to the property.
pet.). The Macks filed suit against the City
on September 30, 2008, alleging that after            Ripeness concerns whether, at the time a
FEMA approved the new Flood Insurance             lawsuit is brought, the facts have developed
Rate Maps, its property was within a newly        sufficiently such that an injury has occurred
delineated floodway. The Macks contend            or is likely to occur, rather than being
that, in light of that designation, the City's    contingent or remote. To establish that a
2006 amendments to section 19-43(a) of the        claim is ripe based on an injury that is likely
Code prohibited the issuance of building          to occur, the plaintiff must demonstrate that
permits to them for “new construction,            the injury is imminent, direct, and
additions to existing structures or substantial   immediate, and not merely remote,
improvement of any structure” on their            conjectural, or hypothetical. By focusing on
property. In addition, the Macks contend          the concreteness of injury, the ripeness
that the Code, as it applied until September      doctrine allows a court to avoid premature
1, 2008, prohibited the City Engineer from        adjudication and issuance of advisory
issuing any building permits for such             opinions.
construction. The Macks allege that during
that period of time, the City's ordinance             The City contends that the Macks have
deprived them of the use, benefit, and            not alleged that they suffered a “concrete
enjoyment of their property, amounting to a       injury.” However, in their petition, the
taking without just compensation.                 Macks allege they have been deprived of the
                                                  “use benefit and enjoyment of the Property”
     The City's alleged that the Macks failed     and that the property's value has been
to exhaust the administrative remedies            drastically reduced because “after the date of
allowed by the Code. The City further             the amendment, Plaintiffs could neither
alleged that, because the Macks had not filed     construct any improvement in or upon the
an application for a permit, nor had they yet     Property nor sell the Property to anyone who
appealed such a denial as allowed by the          desired to construct any improvements in or
Code, their claims were not ripe and the trial    upon the Property.” Moreover, the Macks
court lacked jurisdiction to consider their       allege that they had entered into a listing
petition. The Macks did not dispute the fact      agreement with a local real estate broker in
that they did not apply to the City for           furtherance of their intention of selling the
building or development permits before they       property for development.
filed suit. However, the Macks claimed that,
under the plain language of the 2006                  The court held that record does not
ordinance, their intended use for the             support the City's contention. In addition to
property was expressly forbidden and the          viewing the Macks' allegations in their
Code allowed no discretion or variances           favor, the court must take as true all
under such circumstances. Therefore, the          evidence favorable to the Macks and indulge
Macks argued, their application for a permit      every reasonable inference and resolve any
would have been futile.                           doubts in their favor. The Macks alleged
                                                  that their property was in a Houston
     Ripeness is an element of subject matter     floodway. They also alleged that the 2006
jurisdiction and, as such, is subject to de       amendments to the City Code deprived them
novo review. A regulatory-takings claim           of the “use, benefit, and enjoyment” of the
may challenge a land-use restriction on its       property because they could not sell it to
face or as applied to particular property. A      anyone who desired “to construct any

2010 Texas Land Title Institute – Case Update                                                 54
improvements in or upon the property.”             government action. A person's property
Considering these allegations, the court           may be taken, damaged or destroyed if an
concluded that the Macks have alleged a            injury results from either the construction of
“concrete injury.”                                 public works or their subsequent
                                                   maintenance and operation. However, a city
    City of San Antonio v. De Miguel, 311          has no duty to provide drainage or facilities
S.W.3d 22, (Tex.App.- San Antonio 2009,            adequate for all floods that may occur or
no pet.). The De Miguels’ lawsuit alleged          reasonably be anticipated as long as the city
in their inverse condemnation and nuisance         does nothing to increase the flow of surface
lawsuit that the City constructed a drainage       water across the land in question. The
facility near their residence that diverted        existence of such liability would tend to
surface water onto their property during           deter the city from providing even partial
rainfall.                                          relief from flooding. In determining the
                                                   extent of the protection to be provided, a
     Nuisance liability arises only when           city must weigh the needs of the entire
governmental immunity is clearly and               community and allocate available resources
unambiguously waived. In some cases, a             so as best to serve the interests of all its
city may be held liable for a non-negligent        citizens. Here, the De Miguels point to no
nuisance-that is, one that rises to the level of   new action taken by the City after the
a constitutional taking. In others, the Texas      conclusion of the 1989 lawsuit that resulted
Tort Claims Act may waive immunity from            in an increased flow of surface water across
nuisance claims (Civil Practice & Remedies         their property.
Code § 101.021). Here, the plaintiffs do not
assert there exists any statutory waiver of            State of Texas v. Bristol, 293 S.W.3d
immunity and the court found none;                 170, 52 Tex. Sup. Ct. J. 751 (Tex. 2009).
therefore, it concluded there is no statutory      When a taking occurs, all damages
waiver. Consequently, the City can only be         associated with the taking are not
liable for a non-negligent nuisance rising to      necessarily compensable, and diminished
the level of a constitutional taking.              value is compensable only when it derives
                                                   from a constitutionally cognizable injury.
     To properly assert a non-negligent            Remainder property damages are generally
nuisance claim against a governmental              calculated by the difference between the
entity, a party must plead and show the            market value of the remainder property
following elements: (1) the governmental           immediately before and after the
entity intentionally performed an act in the       condemnation, considering the nature of any
exercise of its lawful authority; (2) that         improvements and the use of the land taken.
resulted in the taking, damaging, or               While various methods can be used to
destruction of the party's property; (3) for       determine the market value of a remainder
public use. Here, the City's plea to the           property, the income approach is especially
jurisdiction challenged only the first             appropriate when, as with the hotel here,
element; therefore, the court limited its          property would be valued on the open
analysis to whether a fact issue exists on the     market according to the amount of income it
question of whether the City intentionally         already generates. The income approach
performed an act that rises to the level of a      consists of estimating the net operating
taking.                                            income stream of a property and applying a
                                                   capitalization rate to determine the
    The City argues the plaintiffs did not         property's present value.
plead or show the City knew a specific act
was causing identifiable harm or knew that             Lost profits or injury to a business are
specific property damage was substantially         not compensable over and above the value
certain to result from an authorized               of the land taken and the diminution in the

2010 Texas Land Title Institute – Case Update                                                 55
value of the remainder tract. Further, to the   were brought in her individual capacity and
extent that the taking affects access to the    not as a representative or fiduciary of the
remainder property, a partial, temporary        record title owner, and there is no pleading
disruption of access is not sufficiently        or evidence in the record to support a
material and substantial to constitute a        contention that Webb brought claims other
compensable taking. In addition, disruption     than on her own behalf. Further, Webb
of use due to construction activities of the    acknowledges Robert Webb as the record
condemning authority during a roadway           owner of the property at all relevant times.
expansion project are not compensable.
                                                    The evidence shows Webb was not a
           PART XIV                             property owner. The court concluded that
LA D USE PLA I G, ZO I G, A D                   Webb lacked standing for her causes of
        RESTRICTIO S                            action against the Association and the lot
                                                owners and, therefore, the trial court lacked
    Webb v. Voga, 316 S.W.3d 809                subject matter jurisdiction over those causes
(Tex.App.-Dallas 2010, no pet.). Kathy          of action.
Webb filed suit against the POA and other
property owners seeking a declaratory                Tellez v. City of Socorro, 296 S.W.3d
judgment that the POA and owners had            645 (Tex.App.-El Paso 2009, pet. denied).
abandoned and waived the restrictive            Under the common law, a non-conforming
covenants. The evidence showed that Webb        use of land or buildings is a use that existed
did not own a lot in the restricted             legally when the zoning restriction became
subdivision. Record title to the lot was in     effective and has continued to exist. When
her husband’s name.                             determining whether there is a legal non-
                                                conforming use in a particular case, the
     Subject matter jurisdiction is an issue    proper focus is on the legislative enactments
that may be raised for the first time on        of the regulation body.
appeal and may not be waived by the
parties. Standing is a component of subject          The City of Socorro's interpretation of
matter jurisdiction; therefore, standing        non-conforming use is consistent with the
cannot be waived and may be raised for the      common law. Its ordinance provides that
first time on appeal. Standing deals with       non-conforming use means the use of land
whether a litigant is the proper person to      or a building, or a portion thereof, which
bring a lawsuit. To establish standing, one     does not conform with the current land use
must show a justiciable interest by alleging    regulations of the zoning district in which it
an actual or imminent threat of injury          is located. A legal non-conforming use
peculiar to one's circumstances and not         which existed prior to the enactment of a
suffered by the public generally. As to each    regulation is permitted to continue but
of Webb's causes of action against the          cannot be expanded or enlarged. Further, the
Association and her cause of action against     non-conforming use be continuous. The
the Lot Owners, Webb's ownership of             ordinance provides that if the non-
property in the subdivision was critical to     conforming use ceases for any reason for
her standing to maintain her claims.            more than thirty days or six consecutive
                                                months or eighteen months during a three
    Although Webb claimed ownership, the        year period (depending on the value of the
evidence showed that the property had been      structure), any subsequent use must conform
deeded to her husband and her name did not      to the existing regulations for the property.
appear in record title. Webb's contention
that she had standing in a representative           Even if the evidence conclusively
capacity for the record title owner is          established that the Tellez property was
unfounded. Webb's suits as consolidated         being used as a salvage yard when the

2010 Texas Land Title Institute – Case Update                                              56
zoning ordinance was enacted, there is           Tree Ordinance is a purely aesthetic
conflicting evidence whether the property        regulatory scheme that does not regulate
was continuously used as a junkyard after        basic infrastructure, Milestone argues that
that time as required to maintain the non-       the Tree Ordinance is not a rule governing
conforming use status. The court below           plats and subdivisions of land.
specifically found that the 1991 post-
enactment aerial photograph admitted into             The court disagreed. A municipality is
evidence showed the property was vacant.         authorized to adopt as rules that “promote
Consistent with this evidence, the property      the health, safety, morals, or general welfare
was listed on the appraisal district's records   of the municipality and the safe, orderly, and
as vacant residential. Because there is no       healthful development of the municipality.”
evidence of the replacement cost of the          Moreover, the purpose of platting and
small cinder-block structure located on the      subdivision regulations is to ensure that
property, it is unclear which vacancy time       subdivisions are safely constructed and to
period would apply. However, there is            promote the orderly development of the
evidence from which the Board of                 community. Platting ensures that adequate
Adjustment could have found that the             provisions have been made for streets,
property was vacant for more than six            alleys,    parks     and     other   facilities
months, and therefore, it could have             indispensable to the particular community
concluded that the non-conforming use            affected. In this case, the Tree Ordinance
status had been lost under either subsection.    contains a statement of purpose explaining
                                                 the objectives or purposes the ordinance is
     Milestone Potranco Development, Ltd.        intended to accomplish. The court found
v. City of San Antonio, 298 S.W.3d 242           that the listed purposes offer more than
(Tex.App.-San Antonio 2009). The City            simply an aesthetic regulation. Instead, the
adopted a Tree Ordinance pursuant to the         Tree Ordinance was intended to, and does,
Local Government Code platting provisions.       regulate tree preservation to promote the
By its terms, the Tree Ordinance applied to      health of the municipality and the orderly
the City’s extra-territorial jurisdiction.       and healthful development of the
Milestone argues the Tree Ordinance cannot       community. Therefore, it concluded that the
be enforced in the City's ETJ because: (1)       Tree Ordinance is a rule “governing plats
the Tree Ordinance is not a “rule governing      and subdivisions of land” that the City was
plats and subdivisions of land” and,             authorized     to    adopt     under    Local
therefore, cannot be an ordinance adopted        Government Code § 212.002.
under Local Government Code § 212.002;
(2) the Tree Ordinance is overly broad in its        In the alternative, Milestone claims that
application; or (3) the Tree Ordinance           even if the Tree Ordinance is a rule
regulates the use of property which the City     “governing plats and subdivisions of land,”
is prohibited from regulating in the City's      the Tree Ordinance is overly broad because
ETJ by Local Government Code §                   it contains provisions unrelated to the
212.003(a)(1).                                   activities of platting and subdividing land.
                                                 Milestone asserts the Tree Ordinance applies
    Milestone asserts the Tree Ordinance         not only to those wishing to plat and
cannot be categorized as a rule governing        subdivide property but also to every person
plats and subdivisions because tree              who simply wants to reduce the number of
preservation is not one of the purposes for      trees on his or her property. To support this
requiring municipal approval of plats and        contention, Milestone quotes language from
subdivisions. Milestone contends platting        the Tree Ordinance that states the Tree
and subdivision ordinances are limited to        Ordinance “regulates all activities that result
those ordinances that regulate “basic            or may result in the removal of protected or
infrastructure.” Based on its belief that the    heritage trees.” The court disagreed and

2010 Texas Land Title Institute – Case Update                                                57
found that the Tree Ordinance does not           enumerated purposes. Planning or platting,
extend as broadly as Milestone contends.         on the other hand, contemplates adequate
                                                 provision for orderly growth and
    The Tree Ordinance itself also contains      development. In this case, the Tree
exceptions demonstrating the City's intent       Ordinance does not regulate the physical use
that the ordinance's application is limited to   of the land or the specific purpose for which
subdivisions or similar land development.        it is used but regulates the manner in which
For example, the Tree Ordinance does not         trees must be preserved in developing the
apply to “[t]rees located on property on         land for any use or purpose.
which construction of single-family, two-
family or three-family residential dwelling           Letkeman v. Reyes, 299 S.W.3d 482
units has been completed.” Therefore, the        (Tex.App.-Amarillo 2009, no pet.). This
Tree Ordinance does not purport to regulate      case involves restrictive covenants as they
property on which the construction of a          relate to a house being moved into the
home is complete.                                subdivision. The house was originally built
                                                 some years ago and subsequently acquired
    When the City amended its development        by the Letkemans. They had the house cut in
code to include the Tree Ordinance, the          half, moved into the subdivision, on a lot
caption of the amendment referred to the         that they intended to buy.           Before
Tree Ordinance as a “subdivision                 completing the process, they were told by
regulation.” The memorandum arranging            one or more home owners in the
the public hearing on the Tree Ordinance         development that their efforts violated
also described the ordinance as a regulation     several restrictive covenants. Despite
for the preservation of trees in conjunction     hearing these complaints, they continued
with     commercial       and     residential    their efforts. The homeowners sued and the
development activities.                          trial court enjoined the Letkemans from
                                                 allowing the structure to remain on the lot
    Because the Tree Ordinance was               and gave them 60 days to remove it.
properly adopted pursuant to Local
Government Code §212.002, the City may                The Letkemans appealed. Their first
extend the Tree Ordinance to the City's ETJ      issue was whether the house was “pre-
under Local Government Code § 212.003 of         fabricated” and therefore prohibited by the
the Code unless one of its exceptions apply.     restrictions. To the Letkemans, the word
Milestone argues the Tree Ordinance should       encompassed only structures built in a
be treated as a prohibited “land use”            factory and then moved in sections or by
regulation under subsection 212.003(a)(1),       wall panels onto a site where it was then
which contains an exception that prohibits a     constructed or assembled into a house.
municipality from regulating, “the use of
any building or property for business,                As written in the covenants, the word in
industrial, residential, or other purpose.”      question contains the root “fabricated” and
                                                 prefix “pre.” he definitions assigned to the
    The court held that the distinctions made    latter include “earlier than,” “prior to,”
in the case law between zoning or use            “before,” “in advance,” and “beforehand” to
ordinances and platting or subdivision           name a few of the most common. In turn,
regulations reveals that the Tree Ordinance      “fabricate” includes such meanings as to
does not regulate the “use” of property as       “invent,”        “create,”        “construct,”
that term is used in section 212.003 of the      “manufacture,” “to construct from diverse
Code. Zoning contemplates the prohibition        and usually standardized parts,” or to “make
of certain physical uses of land and allows a    by art or skill and labor,” and “make by
municipality to create districts where land      assembling parts or sections.” Combining
uses are limited or restricted to specific       this root and prefix, therefore, gives us a

2010 Texas Land Title Institute – Case Update                                               58
word meaning “to fabricate or construct         that they knew of the restriction and
beforehand,”      “to     manufacture      in   objections raised by their prospective
standardized parts or sections ready for        neighbors before completing the project. So
quick assembly and erection ...,” or to         too did their efforts continue despite having
“fabricate the parts of [as a house] at a       this knowledge. And though some evidence
factory so that construction consists mainly    appears of record indicating that the finished
of assembling and uniting standardized          structure could actually enhance neighboring
parts.” While those definitions do not          property values, it does not matter that the
mirror each other, they have one aspect in      home owners may suffer no actual damages.
common. Each connotes something that is
already or previously made (whether made             Hourani v. Katzen, 305 S.W.3d 239
as a whole or in parts for later assembly) as   (Tex.App.-Houston [1st Dist.] 2010, pet.
opposed to something that is erected from       denied).     Katzen owned Lot 7 in the
scratch.                                        subdivision. Lot 7 is surrounded, on the
                                                sides and rear, by property owned by others.
    In their next issue, the Letkemans          The lake extends almost completely across
claimed the trial court abused its discretion   the front of Lot 7. Hence, a narrow path of
by enjoining them to move the house from        approximately 15 feet, situated between the
the subdivision. This was purportedly so        eastern edge of the lake and the eastern
because their opponents failed to prove a       boundary line of the property, provides the
substantial violation of the restrictive        only street access to the dry portion of the
covenants and the equities did not favor        lot behind the lake. There is also a 15-foot
such relief.                                    setback line along the eastern boundary line,
                                                which comes near to or touches the edge of
    Whether to grant a permanent injunction     the lake. Katzen sought to either build a
lies within the trial court's discretion.       bridge over the edge of the lake or to obtain
Generally, that discretion is abused and        a variance to pour a driveway. Katzen was
subject to reversal when the court acted        granted a special variance from the City of
without reference to guiding rules or           Piney Point Village to build “a
principles or misapplied the law to the         driveway/bridge” within 15 feet of the edge
established facts. Next, injunctive relief      of the lake and within the setback zone.
ordinarily may issue when the applicant
proves the occurrence of a wrongful act             The subdivision’s restrictive covenants
giving rise to imminent and irreparable harm    required the homeowners association’s
for which there is no adequate remedy at        approval for improvements of the type in
law.                                            question.     Because the association had
                                                forfeited its existence, Katzen submitted his
     These elements change somewhat when        plans to the other owners in the subdivision.
the dispute concerns the enforcement of         Several owners told Katzen they
restrictive covenants. There, one need not      disapproved. Katzen filed suit against the
establish the presence of imminent and          other owners, alleging the restrictions were
irreparable injury. Nor must he prove the       preventing him from accessing his property.
presence of actual damages arising from the
breach. It is enough simply to prove a              Hourani, one of the objecting owners,
distinct or substantial breach.                 contended that the trial court disregarded the
                                                pre-construction approval process mandated
    As concluded in the first issue, the        by the restrictions. Katzen contended that
Letkemans      breached that      restrictive   he was not required to obtain that approval
covenant prohibiting them from moving a         because the homeowners association had
pre-fabricated structure into the sub-          forfeited its charter and there was no board
division. Furthermore, the record illustrates

2010 Texas Land Title Institute – Case Update                                              59
in existence to grant or withhold the            the Justice Court. The court granted a partial
approval of his plans.                           summary judgment to Peters and denied
                                                 Nash's action for injunctive relief.
    The record shows that the Association
“forfeited existence” in 1989 and was not             Nash's suit for breach of deed
reinstated April 4, 2006. Hence, in 2004,        restrictions was tried to a jury in the County
when Katzen sought to begin construction of      Court. The jury found that Peters violated
his driveway, he could not have complied         the restrictive covenant in question and
with Section 2.2, which required the written     awarded $20,262.50 in attorneys' fees. In
approval of an entity that had forfeited its     response, Peters moved for judgment in his
existence.     The court recognized that,        favor. The court agreed with Peters and
notwithstanding the status of the Board, any     rendered judgment that Nash take nothing,
person entitled to benefit under a restrictive   since he was not a prevailing party, and
covenant is entitled to enforce it. Hence,       ordered Nash to pay the costs of the suit.
here, any one or more of the property            After Nash's motion for rehearing was
owners could have compelled Katzen to            denied, he appealed.
seek pre-approval of the Board, had it
existed. Nothing in the Restrictions,                Nash contends that the County Court
however, requires Katzen to submit certain       abused its discretion by finding the Justice
plans to, or obtain written approval from,       Court lacked jurisdiction to grant him relief
each of the individual property owners in the    in the deed-enforcement suit, and second,
subdivision, in the absence of a board.          that the County Court erred in failing to
                                                 grant him attorneys' fees.
       ash v. Peters, 303 S.W.3d 359
(Tex.App.-El Paso 2009, no pet.).                    The applicable statutes at issue are
Contending Peters violated certain deed          Section 27.034 of the Government Code,
restrictions by maintaining junked cars on       which provides that a justice court has
his property and engaging in improper trash      concurrent jurisdiction with district courts in
burning, Nash filed suit in the Justice Court.   suits to enforce residential subdivisions'
Peters denied the allegations, but a jury        deed restrictions, and Section 5.006 of the
determined otherwise and found for Nash,         Property Code, which provides that “[i]n an
awarding him $3,500 in punitive damages          action based on breach of a restrictive
for breach of the restrictive covenant and       covenant pertaining to real property, the
$1,500 in attorneys' fees. Peters appealed       court shall allow to a prevailing party who
the jury's verdict to the County Court. There,   asserted the action reasonable attorney's fees
Nash also sought injunctive relief barring       in addition to the party's costs and claim.”
Peters' further violation of the deed
restrictions. Claiming that the County Court          Peters argues that only courts of record
lacked jurisdiction to consider Nash's           can enter a declaratory judgment and grant
contentions since Nash was seeking               injunctive relief, and since justice courts are
injunctive relief and could not prove any        not courts of record, the Justice Court lacked
monetary damages from Peters' alleged            jurisdiction to enter a declaratory judgment,
breach of the deed restrictions, Peters moved    and as such, could not have granted Nash
for summary judgment on traditional and          the requisite injunctive relief, thus failing to
no-evidence grounds. In addition to              make Nash the prevailing party.
responding to Peters' summary-judgment
motion, Nash filed a motion to sever all             Peters is correct that a justice court is
causes of action that were not pled in the       not a court of record. However, a justice
Justice Court. He also sought to sever the       court does not lack the ability to enter a
injunctive actions as the injunctive relief      declaratory judgment when faced with a suit
arose from the same core set of facts pled in    to determine whether restrictive covenants

2010 Texas Land Title Institute – Case Update                                                 60
have been violated. Although the general           any contract, the court's primary duty in
rule is that only courts of a record may           construing a restrictive covenant is to
render a declaratory judgment, Section             ascertain the drafter's intent from the
27.034, a much more specific statute,              instrument's language. In ascertaining the
inherently grants the justice court the ability    drafter's intent, the court must examine the
to enter a declaratory judgment in suits           covenant as a whole in light of the
relating to the enforcement of a deed              circumstances present when the covenant
restriction. By specifically granting the          was made.
justice court jurisdiction in deed-
enforcement suits, the justice court, in               Whether restrictive covenants are
essence, must declare the parties' rights and      ambiguous is a matter of law for the court to
status with respect to the enforcement of the      decide. A covenant is unambiguous if, after
deed restrictions. Section 27.034(j) states        appropriate rules of construction have been
that a justice court may not grant injunctive      applied, the covenant can be given a definite
relief to a party; however, that does not          or certain legal meaning. In contrast, if,
mean that a justice court could not grant a        after appropriate rules of construction have
declaratory judgment.                              been applied, a covenant is susceptible of
                                                   more than one reasonable interpretation, the
     Further, even if the court were to            covenant is ambiguous. Mere disagreement
conclude that the Justice Court lacked the         over a restrictive covenant's interpretation
authority to enter a declaratory judgment in       does not necessarily render the covenant
this matter, that does not mean that the court     ambiguous.
lacked jurisdiction to hear the case, much
less that Nash, having failed to obtain                 At common law, covenants restricting
injunctive relief, was not the prevailing          the free use of land are not favored but will
party in his suit to enforce the deed              still be enforced when they are confined to a
violations. Nor is there any requirement in        lawful purpose and are clearly worded.
such suits that the plaintiff must plead           Accordingly, under the common law, a
monetary damages to be labeled the                 restrictive covenant's words cannot be
prevailing party on a finding that a               enlarged, extended, stretched, or changed by
defendant violated a deed restriction. Rather,     construction.     All doubts concerning a
the plaintiff simply must prove that the           restrictive covenant's terms are resolved in
defendant intended to do an act which would        favor of the free and unrestricted use of the
breach the deed restriction or that the            land, and any ambiguity must be strictly
defendant violated the deed restriction.           construed against the party seeking to
                                                   enforce the covenant.
     Here, the Justice Court, by statute, had
jurisdiction to hear Nash's suit against Peters         In 1987, the Legislature amended the
for violating the deed restrictions. Having        Texas Property Code to provide that all
received a verdict that Peters breached the        restrictive   covenants     contained    in
restrictive covenants in question, Nash was        instruments governing certain residential
the prevailing party in his suit and entitled to   developments, regardless of the date on
recover attorney's fees.                           which the covenants were created, must be
                                                   liberally construed to give effect to their
     Uptegraph v. Sandalwood Civic Club,           purposes and intent. Property Code §§
312 S.W.3d 918 (Tex.App.-Houston [1st              202.002(a) and .003(a).
Dist.] 2010, no pet.). The subdivision's deed
restrictions are restrictive covenants                 Some courts of appeals have recognized
concerning real property.         Restrictive      that the common-law requirement of
covenants are subject to the general rules of      construing restrictions strictly and section
contract construction. As when interpreting        202.003(a)'s requirement of construing

2010 Texas Land Title Institute – Case Update                                                61
residential covenants liberally to effectuate   review board’s determination.           The
their purposes and intent might appear          following February First Reliance amended
contradictory. As a result, some courts of      its petition to add Woodway as a plaintiff.
appeals have held or implied that section       HCAD filed a plea to the court’s
202.003(a)'s     liberal-construction    rule   jurisdiction, arguing that the trial court
concerning residential covenants supersedes     lacked jurisdiction because First Reliance
the common-law rule of strict construction.     was not the owner of the property on
                                                January 1, 2007, that only the property
    In contrast, other courts of appeals,       owner on that date, Woodway, had the right
including the Houston 1st District, have        to protest and appeal, and that Woodway
concluded that there is no discernable          had failed to make a timely protest or
conflict between the common law and             appeal. The trial court agreed and dismissed
section 202.003(a). Even among the courts       the case.
that believe that the common law and
section 202.003(a) can be reconciled, there         As a general rule, only a property owner
exists a split in how to apply section          may protest tax liability before an appraisal-
202.003(a). Some of these courts have           review board and seek judicial review in
simply continued to apply the common-law        court. Section 42.21(a) of the Property Tax
rule without a precise explanation of how to    Code requires a party who appeals as
reconcile it with section 202.003(a). Other     provided by Chapter 42 of the Property Tax
courts of appeals have held that the            Code to timely file a petition for review with
common-law rule applies only when there is      the district court. Failure to timely file a
an ambiguity concerning the drafter's intent,   petition bars any appeal under the chapter.
but to determine if such an ambiguity exists,   A property owner may designate a lessee or
these courts first apply section 202.003(a)'s   an agent to act on the property owner's
liberal-construction mandate.                   behalf for any purpose under the Property
                                                Tax Code, including filing a tax protest.
     Some courts of appeals since 1987 have
simply continued applying the common-law             Therefore, to qualify as a “party who
strict-construction rule without referring to   appeals” by seeking judicial review of an
section 202.003(a) at all. Others have          appraisal-review board's tax determination
applied section 202.003(a)'s liberal-           under section 42.21(a), First Reliance had to
construction standard without referring to      be an owner of the property, a designated
the common-law construction principles at       agent of the owner, or the authorized lessee
all. The Texas Supreme Court has noted,         of the property under the circumstances
but not yet resolved, the potential conflict    stated in section 41.413. A party who does
between the common law and section              not meet one of the above criteria would
202.003(a).                                     lack standing under the Property Tax Code.
                                                If the litigant lacks standing, the trial court is
            PART XV                             deprived of subject-matter jurisdiction to
      AD VALOREM TAXATIO                        consider a suit for judicial review based on
                                                an ad valorem tax protest. Here, First
    Woodway Drive LLC v. Harris County          Reliance did not own the property as of
Appraisal District, 311 S.W.3d 649              January 1, 2007. It did not claim rights to
(Tex.App.-Houston [14th Dist.] 2010, no         protest under the Property Tax Code as
pet.). In December 2006, First Reliance sold    either a lessee or an agent. Therefore, First
the parcel to Woodway. Despite the year-        Reliance lacked standing to pursue judicial
end conveyance, First Reliance filed a notice   review as a “party who appeals” under
of protest with HCAD protesting the 2007        section 42.21(a).
tax assessment. The protest was denied.
First Reliance filed a suit challenging the                       PART XVI

2010 Texas Land Title Institute – Case Update                                                 62
           MISCELLA EOUS                       no one came forward to claim the money
                                               Huerta should get some sort of reward.
     State of Texas v. $281,420.00 in United   When no one came forward, Huerta
States Currency, 2010 WL 1933023 53 Tex.       contacted Torres about a reward but was
Sup. Ct. J. 741 (Tex. 2010). Johnny            told he would have to speak to Torres's
Mercado approached Gregorio Huerta, the        superiors. Huerta did not receive a reward
owner of Greg's Towing, at a race track in     for his role in the seizure.
Edinburg, Texas, and asked Huerta to tow a
disabled Freightliner truck-tractor from            The Hidalgo County District Attorney's
Alvin to Mercedes for approximately            Office commenced separate forfeiture
$2,800. Huerta agreed, drove to Alvin that     proceedings against the truck and the
night to retrieve the truck, and returned to   currency. Approximately one month after
his office in Edinburg. Huerta contacted       the State initiated the proceedings, Huerta
Mercado to request payment, and they           filed a petition seeking to intervene as the
planned for Huerta to follow Mercado with      last person in possession of the currency at
the truck to the final destination in          the time it was seized. According to Huerta,
Mercedes. When Mercado did not show up,        the currency was not contraband, Mercado
Huerta became worried that the truck might     and Pulido had abandoned any claims they
be stolen and contacted Department of          held to the currency by failing to answer or
Public Safety Trooper Cesar Torres. Torres     appear, and Huerta's interest in the currency
agreed to stop by Huerta's office to inspect   was superior to that of the State.
the truck, but before he got there Mercado
arrived and paid for the tow. Huerta               The trial court agreed, found the
informed Torres that it would no longer be     currency to be contraband, and ordered its
necessary for him to come by, but Torres       forfeiture to the Hidalgo County Criminal
still had concerns about the truck and         District Attorney and DPS. A divided court
insisted on inspecting it. Together they       of appeals reversed the trial court's
devised a plan whereby Huerta would            judgment, holding that the currency had not
intentionally exceed the speed limit so that   been shown to be contraband and that
Torres would have probable cause to pull       Huerta was entitled to the entire $281,420.
him over. When Torres stopped Huerta for
speeding in San Juan, Mercado circled the           Huerta first asserts that, as bailee of the
area several times and then drove away.        Freightliner, he is entitled to the currency
                                               because it was abandoned by Mercado while
    Huerta gave Torres verbal and written      in Huerta's possession. This argument,
permission to perform a road-side search of    however, presumes that Huerta established a
the truck cab. Unable to find anything         bailment as to the currency, something
during the field search, Torres asked Huerta   Huerta did not do. To create a bailment,
to move the truck to the United States         there must be (1) delivery of personal
Customs point of entry at the International    property from one person, the bailor, to
Bridge in Hidalgo for further inspection.      another, the bailee, for a specific purpose;
There law enforcement officers examined        (2) acceptance of delivery by the bailee; (3)
the truck, x-rayed it, and searched it with    an express or implied contract between the
drug sniffing dogs, but nothing was            parties that the specific purpose will be
discovered. At some point, officers            realized; and (4) an agreement between the
examined the center axle of the truck and,     parties that the property will be either
with Huerta's assistance, removed the          returned to the bailor or dealt with according
housing around one of the axles. Inside the    to the bailor's direction.
housing were a number of tightly-wrapped
bundles containing $281,420 in United             That a bailment may have existed
States currency. Torres told Huerta that if    concerning the Freightliner does not mean

2010 Texas Land Title Institute – Case Update                                               63
that a bailment existed as to the currency.        to valuables found hidden in the ground or
The bailee must, at a minimum, “knowingly          other private place, the owner of which is
[take the] property into possession or             unknown.        However, the court has
control” for there to be a bailment. Huerta        previously declined to recognize the
admitted at trial that he did not enter into an    treasure-trove doctrine as part of Texas law.
agreement with Mercado to transport the            Instead, the court applies the common law
currency and that he was not aware of the          distinctions of “lost” and “mislaid” property.
currency before it was discovered in the           Mislaid property includes property which
axle. A bailee's duty of care extends to           the owner intentionally places where he can
undisclosed items in a vehicle that are in         again resort to it, and then forgets. It is
plain view. But if the undisclosed items are       presumed that the owner or occupier of the
not in plain view, then the bailee's duty of       premises on which the mislaid property is
care extends to items that are “reasonably         found has custody of the property. In this
anticipated to be found in the car based on        case, it is undisputed that Huerta did not
the surrounding circumstances.”               If   own the “premises”-the Freightliner-on
undisclosed items are not in plain view and        which the currency was found. Accordingly,
the bailee could not have reasonably               Huerta cannot establish possession to the
anticipated that they would be in the vehicle,     currency by characterizing it as mislaid
the bailment contract does not extend to           property.
those items.
                                                       Neither can Huerta establish a right to
     Huerta appears to believe that, with or       possess the currency as lost property. In
without a bailment, he may claim the cash          contrast to mislaid property, “lost” property
because it was abandoned while in his              includes that which the owner has
possession. However, even if such a claim          involuntarily parted with through neglect,
were viable, one who seeks to acquire              carelessness or inadvertence. Unlike mislaid
abandoned property must take possession of         property, the owner or occupier of the
the property with an intent to acquire title.      premises on which lost property is found
Huerta contends he had possession of the           does not acquire title to the property.
currency before it was seized by law               Instead, the finder of lost property retains
enforcement officers because he was the            possession as against the owner of the
first to remove it from the axle and the first     premises on which the property is found, but
to discover that the bundles contained             not against the lost property's true owner.
currency. The court disagreed. Huerta              Where the owner does not part with property
removed the hub housing while assisting law        as a result of carelessness or neglect, but
enforcement and customs officials. By the          instead demonstrates a deliberate, conscious
time the currency was discovered, Huerta           and voluntary desire to hide his property in a
had already turned the vehicle over to law         place where he thought it was safe and
enforcement, and it had been subjected to a        secure, and with the intention of returning to
roadside search, an x-ray, and a sniff search      claim it at some future date, it is mislaid
by dogs. The fact that Huerta was the first to     property. The property in this case was
remove the currency bundles from the axle          clearly deliberately hidden. The manner in
does not establish that he was in legal            which the money was placed in the axle
possession of them. Huerta's theory of legal       forecloses any argument that it was lost
entitlement based upon simple abandonment          rather than mislaid.
is unavailing.
                                                       Del Lago Partners, Inc. v. Smith, 307
    Huerta also claims a right to possession       S.W.3d 762, 53 Tex. Sup. Ct. J. 514 (Tex.
of the currency under a common law                 2010). This appeal concerns a bar owner's
“treasure trove” or “finders keepers”              liability for injuries caused when one patron
doctrine. The treasure-trove doctrine applies      assaulted another during a closing-time

2010 Texas Land Title Institute – Case Update                                                 64
melee involving twenty to forty “very           Sweet observed the exchanges, describing
intoxicated” customers. The brawl erupted       them as “talking ugly” and consisting of
after ninety minutes of recurrent threats,      cursing, threats, and heated words. Sweet
cursing, and shoving by two rival groups of     testified that the participants appeared drunk
patrons. The jury heard nine days of            and that these confrontations recurred
conflicting evidence from twenty-one            throughout a ninety-minute period. Morgan
witnesses and found the owner fifty-one         observed that the bar patrons were “very
percent liable. The court of appeals affirmed   intoxicated” that night.
the roughly $1.48 million award: “A
reasonable person who knew or should have            The verbal confrontations led to
known of the one-and-a-half hours of            physical altercations. Witnesses described
ongoing ‘heated’ verbal altercations and        more than one “pushing” match that
shoving matches between intoxicated bar         evening. At least three witnesses described a
patrons would reasonably foresee the            particularly heated and intense shoving
potential for assaultive conduct to occur and   match that took place a few minutes before
take action to make the condition of the        the ultimate fracas. Tensions finally came to
premises reasonably safe.”                      a head when the bar staff attempted to close
                                                the bar. After the crowd refused to leave, the
     Bradley Smith was injured when a fight     staff went table to table and formed a loose
broke out among customers at the                line to funnel the customers toward a single
Grandstand Bar, part of the Del Lago resort     exit and into the conference center lobby.
on the shores of Lake Conroe. Smith             Smith testified that the staff was literally
attended a Sigma Chi fraternity reunion at      pushing the hostile parties out of the bar
Del Lago from Friday to Sunday, June 8-10,      through the exit, prompting a free-for-all. He
2001. On Saturday, fraternity members and       recalled that “it was just a madhouse,” with
guests attended a reception and dinner at the   punches, bottles, glasses, and chairs being
conference center. Del Lago provided a cash     thrown, and bodies “just surging.” In
bar. Around 9:00 p.m., Smith and other          Forsythe's words, “all heck broke loose”
fraternity members proceeded to the             with pushing, shoving, kicking, and
Grandstand Bar, which was very busy.            punching.
Later that evening, a group of ten to fifteen
mostly male members of a wedding party               Smith was standing against a wall
entered the bar. Fraternity member Toby         observing the fight when he saw his friend
Morgan testified that soon after the wedding    Forsythe shoved to the floor. Smith knew
party arrived, there was tension in the air,    Forsythe had a heart condition and waded
tension that grew as the night went on.         into the scrum to remove him. By this time,
Forsythe testified that within ten to fifteen   the fight had moved into the lobby. Before
minutes of the wedding party's arrival,         Smith could extri-cate himself, an unknown
verbal confrontations between the wedding       person grabbed him and placed him in a
party and some of the forty remaining           headlock. Momentum carried Smith and his
fraternity members began. These heated          attacker into a wall, where Smith's face hit a
confrontations involved cursing, name-          stud. Smith suffered severe injuries
calling, and hand gestures.                     including a skull fracture and brain damage.
                                                Smith brought a premises-liability claim
    The animosity between the two groups        against Del Lago. After a nine-day trial
arose when one of the fraternity members        involving twenty-one witnesses, the jury
made an offensive comment to the date of        sifted through the conflicting evidence and
one of the wedding-party members. The           found Del Lago and Smith both negligent,
comment led to men squaring up to each          allocating fault at 51-49 percent in favor of
other, with “veins popping out of people's      Smith.
foreheads.” Del Lago waitress Elizabeth

2010 Texas Land Title Institute – Case Update                                              65
    In a premises-liability case, the plaintiff       The court held that Del Lago had a duty
must establish a duty owed to the plaintiff,      to protect Smith because Del Lago had
breach of the duty, and damages                   actual and direct knowledge that a violent
proximately caused by the breach. Whether         brawl was imminent between drunk,
a duty exists is a question of law for the        belligerent patrons and had ample time and
court and turns on a legal analysis balancing     means to defuse the situation. Del Lago's
a number of factors, including the risk,          duty arose not because of prior similar
foreseeability, and likelihood of injury, and     criminal conduct but because it was aware
the consequences of placing the burden on         of an unreasonable risk of harm at the bar
the defendant. Here, Smith was an invitee,        that very night. When a landowner “has
and generally, a property owner owes              actual or constructive knowledge of any
invitees a duty to use ordinary care to reduce    condition on the premises that poses an
or eliminate an unreasonable risk of harm         unreasonable risk of harm to invitees, he has
created by a premises condition about which       a duty to take whatever action is reasonably
the property owner knew or should have            prudent” to reduce or eliminate that risk.
                                                      The court said that it did not announce a
     Generally, a premises owner has no duty      general rule today. It held only, on these
to protect invitees from criminal acts by         facts, that during the ninety minutes of
third parties. There is an exception when         recurrent hostilities at the bar, a duty arose
the owner knows or has reason to know of a        on Del Lago's part to use reasonable care to
risk of harm to invitees that is unreasonable     protect the invitees from imminent
and foreseeable. The nature and character of      assaultive conduct. The duty arose because
the premises can be a factor that makes           the likelihood and magnitude of the risk to
criminal activity more foreseeable. In this       patrons reached the level of an unreasonable
case, the fight occurred in a bar at closing      risk of harm, the risk was apparent to the
time following ninety minutes of heated           property owner, and the risk arose in
altercations among intoxicated patrons.           circumstances where the property owner had
                                                  readily available opportunities to reduce it
    More generally, criminal misconduct is
sometimes      foreseeable       because   of
immediately preceding conduct. In this
case, Del Lago observed-but did nothing to
reduce-an hour and a half of verbal and
physical hostility in the bar. From the
moment the wedding party entered, there
was palpable and escalating tension. Del
Lago continued to serve drunk rivals who
were engaged in repeated and aggressive
confrontations. That a fight broke out was
no surprise, according to the testimony of
three fraternity members. According to
Forsythe, everyone could tell serious trouble
was brewing. Another fraternity member
agreed that the fight was not unexpected but
merely “a matter of time.” A third
characterized the situation as “very, very
obvious”; if you did not see it you were
“blind or deaf or [didn't] care.”

2010 Texas Land Title Institute – Case Update                                                66

Shared By: