Eckland Consultants v. Ryder, Stilwell

• Decision Date: 01 July 2004
• Docket Number: No. 01-01-00194-CV.,01-01-00194-CV.
• Citation: 176 S.W.3d 80
• Parties: ECKLAND CONSULTANTS, INC., Appellant, v. RYDER, STILWELL INC., Cove Properties, Ltd., Ryder, Stilwell Properties, Inc., Individually, and Ryder, Stilwell Properties, Inc., Derivatively for Cove Properties, Ltd., Appellees.
• Court: Texas Supreme Court

Page 80

176 S.W.3d 80

ECKLAND CONSULTANTS, INC., Appellant, v. RYDER, STILWELL INC., Cove Properties, Ltd., Ryder, Stilwell Properties, Inc., Individually, and Ryder, Stilwell Properties, Inc., Derivatively for Cove Properties, Ltd., Appellees.

No. 01-01-00194-CV.

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

July 1, 2004.

Charles T. Fraizer, Jr., Cowles & Thompson, P.C., Dallas, for Appellant.

Steven A Fleckman, Austin, for Appellees.

Panel consists of Justices TAFT, HANKS, and HIGLEY.

OPINION

GEORGE C. HANKS, Jr., Justice.

After a bench trial, the trial court awarded appellees, Ryder, Stilwell Inc. (RS); Cove Properties, Ltd.(Cove); Ryder, Stilwell Properties, Inc.(RSP), individually and derivatively for Cove (collectively "the Plaintiffs"), $1,389,711.30 on their breach of contract claim against appellant, Eckland Consultants, Inc., which was based on Eckland's performance of an inspection of an apartment complex and its preparation of a property condition report.

In 11 points of error, Eckland challenges the judgment and argues that (1) the trial court erred in awarding judgment for RS; (2) the trial court erred in awarding judgment for RSP; (3) the trial court erred in finding that Cove was a party to the contract; (4) Cove was not a third-party beneficiary of the contract; (5) Cove did not have standing to sue Eckland; (6) the Eckland-RS contract was unambiguous as to standing; (7) Cove was not an "affiliate" of RS; (8) Eckland did not give prior written consent that RSP and/or Cove could rely on its property condition report; (9) the trial court only made findings of fact on the breach of contract cause of action; (10) the evidence was legally and factually insufficient to support DTPA and breach of warranty causes of action; and (11) in the event that this Court reverses and renders a take-nothing judgment, Eckland is entitled to recover its attorneys' fees and expenses.¹ We affirm the trial court's judgment.

Factual and Procedural Background

On February 23, 1996, RS, a corporation and holding company that provides investment and management services to its clients, entered into an earnest money contract with La Maison at Lakeside Residence, Ltd. to purchase an apartment complex for $3.85 million. The contract was signed by La Maison's president and by R.J. Considine, Jr., in his capacity as RS's senior vice president.

On March 27, 1996, RSP, a wholly-owned subsidiary of RS, entered into a contract with Eckland, wherein Eckland agreed to inspect and to provide a property condition report and phase one environmental assessment report of the 132-unit apartment complex. The contract was signed by Eckland's executive vice president and by R.J. Considine, Jr., in his capacity as RSP's president. The contract was in letter form, with a nine-page attachment outlining the details. The contract was sent to Considine, as president of RS, but was signed by him as president of RSP. The contract stated that

[i]t is agreed that the information provided by [Eckland] is for the exclusive use of [RS], Piper Jaffray, or its affiliated companies, and Holliday, Fenoglio, Dockerty and Gibson, and no other party shall have any right to so rely on any service provided by [Eckland] without prior written permission.²

The apartments were being sold "as is," and Considine testified that, to him, that meant that "all faults and flaws and so on of the building were my responsibility to determine. . . . [T]he seller was making no warranty on the condition of the property." Considine testified that he informed Eckland that he "needed to have a thorough evaluation of the large ticket items . . . things like the roof, the base structure, the mechanicals, appliances, HVAC." Eckland required an additional sum for the HVAC³ inspection, but not for its evaluation of the structural soundness of the complex. Considine further testified that, if Eckland's reports had reflected unfavorable environmental tests or significant structural problems in the complex, he was not obligated to close on the property.

On April 1 and 3, 1996, Cove was created, and its certificate of limited partnership was signed by its two general partners—one of whom was RSP. The certificate of limited partnership was filed with the Secretary of State on April 8.

That same day, Eckland sent RS the property condition report. Among other things, the report indicated that Eckland's licensed architect "did not observe any conditions that would indicate widespread deficiencies in the structural, mechanical, or electrical system of the improvements." The "Procedures and Limitations" section of the report provided, as follows:

This Report is written for the exclusive use of [RS], Piper Jaffray or its affiliated companies, American Select Portfolio, Inc., and Holliday, Fenoglio Dockerty & Gibson, Inc., their affiliates, designees and assignees, rating agencies, and prospective bondholders. No third party or other persons may use or rely on the information contained herein without the written consent of [Eckland].

On April 10, 1996, RS assigned Cove its rights and interests in the earnest money contract with La Maison for the purchase of the apartment complex. A purchase price of $3.85 million was agreed upon, and La Maison and Cove closed the sale a couple of days later.

In March and April 1997, after the complex's on-site manager had received tenant complaints of falling drywall and had noticed a tilting floor in one building, an architectural firm was hired to perform further inspections of the complex. Major structural problems were discovered in the building. A complete structural analysis revealed deflection and rolling of certain structural-support beams underneath the flooring of several buildings. Cove received bids from several structural engineers indicating that it would cost more than $1 million to repair the complex. Considine testified that, on at least one occasion, a couple of the buildings had to be evacuated for fear that they would collapse during a strong wind storm. On October 5, 1998, Cove sold the property for $3,052,257.18.

On February 20, 1998, Cove and RS sued Eckland for, among other things, breach of contract.⁴ On November 20, 2000, the trial court signed a final judgment awarding the Plaintiffs $735,242.82 in damages and $202,040.68 in pre-judgment interest. Pursuant to a rule 11 agreement, the judgment also awarded $312,427.80 in attorneys' fees and $140,000 in expenses. Appellate attorneys' fees and post-judgment interest were also awarded.

In conjunction with its judgment, the trial court made the following findings of fact and conclusions of law:

Findings of Fact

1. On February 23, 1996, [RS] entered into an earnest money contract to purchase La Maison at Lake Cove Apartments (sometimes referred to as "La Maison") (PX 1).

2. On April 10, 1996, [RS] assigned the earnest money contract for the purchase of La Maison to [Cove] at the price of $3,850,000.00 (PX 56).

3. [RSP] served as the general partner of [Cove].

4. On April 15, 1996, [Cove] purchased La Maison at Lake Cove Apartments paying a total purchase price, including costs, of $4,024,030.44 (PX 8).

5. On March 27, 1996, [RS], [Cove], and [RSP] contracted with [Eckland] for a property condition assessment to be performed on La Maison at Lake Cove Apartments (PX 2).

6. [RS], [Cove], and [RSP] were parties to the contract for the property condition assessment with [Eckland].

7. [Cove] and [RSP] were intended beneficiaries of the contract for [the] property condition report with [Eckland].

8. [Cove] and [RSP] were entitled to rely on the property condition report issued by [Eckland] as they were the affiliates, designees, and assignees of [RS] (PX 5, 6).

9. The limiting language in the Eckland March 26, 1996 contract does not preclude recovery by [Cove] because Cove is an assignee of [RS]; [Cove] is an affiliated company of [RS] and the affiliated language in the contract extends to [RS]; and, [Cove] is an intended third party beneficiary of the contract.

10. The buildings at La Maison contained serious structural defects at the time of Eckland's inspection on March 29, 1996, and at the time of the purchase by [Cove] on April 15, 1996.

11. Eckland failed to properly evaluate the visible building structures, thus failing to comply with the contract.

12. The failure to comply was a proximate cause of damages to [Cove] because James Considine would have canceled the deal or renegotiated the price of the apartments prior to the April 15, 1996 closing deadline had he known of the condition of the property as detectable by a proper visible inspection.

13. Plaintiffs sold La Maison on October 5, 1998 for $3,052,257.18, incurring closing costs associated with the sale of $145,931.22, netting Plaintiffs $2,906,325 (PX 22).

14. [Cove] has been damaged $797,742.82 (diminution of value represented by the purchase price of $3,850,000.00 less the net sales price of $3,052,257.18), resulting from the failure to comply, and the damages are a natural, probable, and foreseeable consequence of Eckland's failure to comply.

15. The reasonable and necessary cost to repair La Maison, at all material times from April 15, 1996 through the time of sale, was $1,557,057.00 (PX 15).

16. The difference between the price paid for La Maison by [Cove] and the value it received as of April 15, 1996, was $1,557,057.00 (PX 15).

17. The Court finds that La Maison could have been repaired without economic waste or impairing the structure as a whole.

18. The difference in the value of La Maison as represented, and the actual value received by [Cove] as of April 16, 1996, was $1,557,057.00 (PX 15).

19. Pursuant to [the] agreement of the parties, Plaintiffs shall recover from Eckland their reasonable and necessary attorneys' fees in the amount of one-third of the total recovery. [Eckland] shall pay $50,000.00 to Plaintiffs for the cost of appealing this case to the Houston Court of Appeals...