Affiliated Capital Corp. v. Southwest, Inc., 01-91-01030-CV

• Decision Date: 22 July 1993
• Docket Number: No. 01-91-01030-CV,01-91-01030-CV
• Citation: 862 S.W.2d 30
• Parties: AFFILIATED CAPITAL CORPORATION, Appellant, v. SOUTHWEST, INC. and Chester J. Reed, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 30

862 S.W.2d 30

AFFILIATED CAPITAL CORPORATION, Appellant, v. SOUTHWEST, INC. and Chester J. Reed, Appellees.

No. 01-91-01030-CV.

Court of Appeals of Texas Houston (1st Dist.).

July 22, 1993.

Herbert Lackshin, Houston, for appellant.

Kenneth T. Fibich, Michael J. Zomcik, Houston, for appellees.

Before DUGGAN, DUNN and MIRABAL, JJ.

OPINION

DUGGAN, Justice.

This is an appeal from a bench trial judgment in a suit arising from a failed land development agreement.

Affiliated Capital Corporation ("Affiliated"), the plaintiff and counter-defendant below, is the appellant. Southwest, Inc. ("Southwest") and Chester J. Reed ("Reed"), defendants and counter-plaintiffs below, are the appellees.

We affirm.

In March, 1987, Affiliated entered into an agreement with Mary Lou Hanzelka ("Hanzelka") to develop, primarily for residential purposes, 291.52 acres of land held by Hanzelka in trust for Southwest. The agreement was drafted by Affiliated's attorney. Affiliated's principal is Billy Goldberg. Reed, who wholly owns Southwest, guaranteed Hanzelka's and Southwest's obligations under the agreement. Sections seven and eight of the agreement read as follows:

7. Land Sales. As from time to time the Land will become available for sale, Affiliated shall undertake to find buyers for same at prices and under contracts agreeable to Owner. Net proceeds from sales of lots shall be divided equally between Owner and Affiliated. Said division of net proceeds shall not be construed as creating a partnership between Affiliated and Owner, but same is merely a device whereby it is determined what is to be paid to Affiliated for performing its services under this Agreement. The "net proceeds of sale" from the sale of any lot shall be determined by deducting from the gross sales proceeds the following items:

(i) The repayment of the land and development loan plus interest;

(ii) All closing costs, including without limitation, title company costs, title policy costs, attorneys fees, recording costs, tax prorations, real estate commissions, and other closing costs related to the sale of the land;

(iii) A sum equal to 2% of the gross sales price of the Land, which sum shall be paid to Affiliated for providing a project manager, general administrative costs, and for providing unaudited statements to owner on a regular basis. Affiliated will not receive any real estate commissions for sales of the land, that it arranges.

The sums to be paid to Affiliated pursuant to this Section 7, shall be the total consideration to be paid to Affiliated for the performance of its duties under this Agreement. The 2% sum referred to in iii above shall be paid to Affiliated from time to time as parcels of the land are sold. The net proceeds for a sale shall be applied as follows: (a) To a reserve account for income tax and then (b) To repay Affiliated for advances (hereinafter defined) with interest; then the remaining sums to (c) A reserve account for one year estimated carrying costs and (d) then to reduce any indebtedness on the property, and then any remaining sums to (e) be divided on a 50-50 basis between the parties upon a mutually agreement [sic] timetable.

8. Municipal Utility District Refunds. To the extent any sums extended in the development of the Land are refunded by the Municipal Utility District, said refunded sums including interest on all sums advanced shall be used to reduce any indebtedness on the land and then after such indebtedness is paid off divided equally between Owner and Affiliated. This provision shall survive the sale of the last parcel of land.

During the term of the agreement, Affiliated advanced funds to pay interest on existing loans and to pay ad valorem taxes. Affiliated was repaid $2,000,000 of these advances from a development loan, obtained from Heights Savings and secured by a lien against a large portion of the land, and $755,531.50 from utility district refunds. At the time the agreement terminated, the sum of $2,852,850 in advanced funds remained unpaid to Affiliated.

After several extensions, the development loan fell due and was not paid. Heights Savings then foreclosed on its lien and purchased the land at the trustee's sale. Affiliated then sued Southwest and Reed for breach of the development agreement and declaratory judgment; Southwest and Reed counterclaimed against Affiliated, alleging that Affiliated had breached the agreement. The trial court found as a conclusion of law that, pursuant to an agreement of the parties in open court during trial, the contract was not ambiguous.

The trial court's judgment (1) decreed that Affiliated and Southwest each owned an undivided one-half interest in the remaining 3.3932 acres of land, (2) awarded Affiliated attorney's fees of $60,000, (3) denied Affiliated reimbursement from Southwest and Reed for $2,852,850 in development funds Affiliated expended and did not recover, and (4) denied Affiliated's claims that Southwest and Reed breached the development agreement and their duty of good faith and fair dealing.

In its first six points of error, Affiliated argues that the trial court erred in not imposing liability on Southwest and Reed for the money spent by Affiliated in the development effort which was not repaid. Affiliated argues that section seven of the agreement is a covenant to repay rather than a condition precedent to repay, and that sections seven and eight do not provide the only two methods for repayment of the money Affiliated advanced.

Southwest and Reed do not contest Affiliated's position that section seven sets out a covenant, rather than a condition precedent. It is the position of Southwest and Reed that the agreement is clear and unambiguous, and the trial court properly construed its meaning.

The parties stipulated in the trial court that the contract is not ambiguous. The trial court's findings of fact included the following:

11. Affiliated contracted, pursuant to Section 6 of the Agreement, to arrange or obtain the funds so that the carrying costs, including interest accruing on the loan on the land and ad valorem taxes (the "advances"), would be timely paid when such costs became due.

12. The only two methods for repayments of Affiliated's advances were: (1) Section 7 of the Agreement, which provided that Affiliated's advances would be repaid from the proceeds of the sales of the land; and, (2) Section 8 of the Agreement, which provided that advances could also be repaid from Municipal Utility District ("MUD") refunds.

13. The Agreement did not impose on any Defendant an obligation to personally repay Affiliated's advances other than from the sales of land or MUD refunds pursuant to the terms of the Agreement.

Affiliated argues that the trial court's findings resulted in a forfeiture of more than $2,000,000 that Affiliated had advanced and was not repaid. Southwest and Reed respond that they never realized a penny out of Affiliated's efforts in the development of the land, and in fact they lost their land to foreclosure while Affiliated realized a total of more than $11,000,000 during the eight-year course of the land development.

While forfeitures are not favored in the law, Parham v. Glass Club Lake, Inc., 533 S.W.2d 96, 99 (Tex.Civ.App.--Texarkana 1976, writ ref'd n.r.e.), no forfeiture has occurred here. A forfeiture occurs where a party "loses some right, property, privilege or benefit in consequence of having done or omitted to do a certain act." State v. Compton, 179 S.W.2d 501, 503, 142 Tex. 494 (1944). That has not happened here; Affiliated was not repaid the monies it had advanced because the sale of land did not occur. No forfeiture took place.

Affiliated also argues that we should consider the parties'...