Lacy v. Ticor Title Ins. Co.

Decision Date15 June 1990
Docket NumberNo. 05-89-00976-CV,05-89-00976-CV
Citation794 S.W.2d 781
PartiesJ.H. LACY, Trustee, Appellant, v. TICOR TITLE INSURANCE COMPANY and Sullivan Investments, Inc., Appellees.
CourtTexas Court of Appeals

Kevin J. Keith, Bailey & Williams, Dallas, for appellant.

Harold F. Marshall, John W. Bickel, II, and David Mace Roberts, Bickel & Brewer, Dallas; and H. Dee Johnson, Jr., Lewisville, for appellees.

Before ENOCH, C.J., and T.C. CHADICK 1 and GERALD T. BISSETT 2, JJ. (Retired Sitting by Assignment).

OPINION

ENOCH, Chief Justice.

Appellant, J.H. Lacy, trustee for several joint venturers, brought suit against appellees, Sullivan Investments, Inc. (Sullivan), and Ticor Title Insurance Co. (Ticor), for breach of contract and breach of fiduciary duty, respectively. For the reasons discussed below, we reverse and render.

BACKGROUND

In September 1984, Lacy contracted with Sullivan to sell a tract of undeveloped land. The property consisted of approximately eleven acres near the intersection of Luna Road and Interstate Highway 635 in Dallas County, Texas. The contract of sale provided that Sullivan could undertake a feasibility study of the realty, and if Sullivan determined that the realty was not suitable for its purposes, Sullivan had the unilateral right to cancel the contract of sale by providing written notice of cancellation to the "Seller and Title Company" by the approval date as defined in the contract, "but in any case, no later than November 30, 1984." Sullivan initially tendered $200,000 to Ticor in the form of a check to be held subject to the terms of the contract of sale as earnest money. Thereafter, the parties substituted an irrevocable standby letter of credit for the check. The letter of credit was also in the amount of $200,000. Subsequently, the parties extended the expiration date of the letter of credit from December 15, 1984, to January 2, 1985.

By letter dated November 28, 1984, Sullivan attempted to cancel the contract of sale. The letter, however, was not addressed to either Lacy or Ticor but to Wayne Pickering at Davidson Real Estate, the named broker in the contract. In addition, the letter was not mailed, but delivered. There is nothing in the record showing the date of its delivery or receipt. The record does show that Pickering discovered the letter in his office on December 5, 1984, five days after expiration of the approval date. On the same day, he delivered the cancellation letter to Lacy through an employee. Ticor received a copy of this cancellation letter on December 6, 1984.

Lacy informed Ticor, by letter dated December 26, 1984, that Sullivan defaulted under the contract by failing to give Lacy timely written notice of cancellation. Lacy instructed Ticor to draw down on the letter of credit. This Ticor failed to do. The letter of credit expired by its own terms on January 2, 1985. Ticor claims that Sullivan instructed Ticor not to present the letter of credit for payment. Ticor, therefore, informed Lacy's attorney, by letter dated January 29, 1985, that because it had received conflicting demands as to whether to negotiate the letter of credit and since it had no authority to determine which demand should prevail, "[o]nly upon being advised by all the parties of the disposition to be made of the letter of credit are we (Ticor) authorized to take any action in connection therewith."

On Lacy's claim for breach of contract, the jury found that: (1) Davidson Real Estate was not an authorized agent of Lacy to receive communications concerning performance under the contract; and (2) Sullivan failed to give Lacy written notice of cancellation of the contract within a reasonable time of November 30, 1984. However, the jury also found that the parties entered into the contract based upon mutual mistake, and, as a result, the trial court entered judgment in favor of Sullivan on the breach of contract claim and in favor of Ticor on the issue of breach of fiduciary duty.

MUTUAL MISTAKE

In points of error one and two, Lacy alleges that the trial court erred in entering judgment against him because there was no evidence and insufficient evidence to support the jury finding of a material mutual mistake of fact in the formation of the contract. To prove a mutual mistake, the evidence must show that both parties were acting under the same misunderstanding of the same material fact. A.L.G. Enterprises v. Huffman, 660 S.W.2d 603, 606 (Tex.App.--Corpus Christi 1983), affirmed as modified, 672 S.W.2d 230 (Tex.1984); Newson v. Starkey, 541 S.W.2d 468, 472 (Tex.Civ.App.--Dallas 1976, writ ref'd n.r.e.).

We state the principles we must follow in determining no evidence and insufficient evidence. In reviewing legal sufficiency, we must consider only the evidence and reasonable inferences therefrom, which, when viewed in their most favorable light, support the findings. The court must disregard all evidence and inferences to the contrary of the fact finding. Stafford v. Stafford, 726 S.W.2d 14, 16 (Tex.1987); Alm v. Aluminum Co. of America, 717 S.W.2d 588, 593 (Tex.1986). If there is more than a scintilla of evidence to support the finding, the challenge fails. Stafford, 726 S.W.2d at 16. When reviewing a factual sufficiency point, we consider all of the evidence that is in the record and relevant to the fact being challenged. We may set aside the verdict only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986). Applying these principles, we must first determine if there is evidence of probative value to support the trial court's judgment. If a no evidence point is sustained and the proper procedural steps have been taken, the finding under attack may be disregarded entirely and judgment rendered for appellant, unless the interest of justice requires another trial. United States Fire Ins. Co. v. Carter, 473 S.W.2d 2, 3 (Tex.1971); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). Therefore, when both "no evidence" and "insufficient evidence" points of error are raised, the court should rule on the "no evidence" point first. Glover v. Texas Gen. Indem. Co., 619 S.W.2d 400, 401 (Tex.1981).

At trial, Sullivan testified that at the time of the formation of the contract, both parties believed that only the "neck" of the tract of land in question, which extended from the northern part of the property, was within the United States Government 100-year flood plain designation. In mid-October 1984, during the pendency of the contract, Sullivan reviewed the survey of the property. It is this survey, dated October 19, 1978, recertified on September 13, 1984, revised on October 3, 1984 and again on October 10, 1984, which Sullivan claims shows that the entire tract of land was within the 100-year flood plain designation, thereby proving a mutual mistake of fact in the formation of the contract. However, the undisputed evidence also is that Sullivan knew there was a flood plain restriction. Further, it is undisputed that Sullivan had the unilateral right to cancel the contract of sale after it had the opportunity to review the survey of the realty to determine, among other things, the extent of the flood plain. Finally, it is undisputed that Sullivan and Lacy modified the contract of sale to extend the schedule for closing after Sullivan had obtained the very survey he claims demonstrates his mistaken belief about the flood plain. In short, the contract that Sullivan executed ensured that he could cancel if he later learned that the property could not be developed as he intended (the extent of the flood plain being one of the considerations). Whatever the parties understood about the flood plain at the formation of the contract, there is no evidence that rises to the level of a mistake justifying cancelling the contract. See Johnson v. Smith, 697 S.W.2d 625, 630 (Tex.App.-Houston [14th Dist.] 1985, no writ). Point of error one is sustained; therefore, we do not reach point of error two, nor do we reach point of error three. 3

BREACH OF FIDUCIARY DUTY
The Letter Of Credit

In point of error four, Lacy contends that it established, as a matter of law on the undisputed evidence, that Ticor breached its fiduciary duty to Lacy. To address this point, we must review the law regarding letters of credit. The letter of credit is an instrument that obliges the issuer to pay money to the beneficiary upon proper presentment under the letter. Westwind Exploration, Inc. v. Homestate Savings Ass'n, 696 S.W.2d 378, 380-81 (Tex.1985). The essential purpose of the letter of credit is to insure payment to the beneficiary. GATX Leasing Corp. v. DBM Drilling Corp., 657 S.W.2d 178, 181 (Tex.App.--San Antonio 1983, no writ). The letter of credit situation involves three functionally related, but legally separate contracts: the underlying contract between the customer and beneficiary, the contract between the issuer and the customer arranging the credit, and the executory letter of credit contract between the issuer and the beneficiary. Westwind, 696 S.W.2d at 381; Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461, 464-65 (2d Cir.1970).

In defense, Ticor argues that the language of Paragraph 6D in the Contract of Sale defined its duties under the letter of credit. 4 Lacy, however, correctly points out that Ticor was not a party to that contract. The record reflects that Ticor was not a party to either the contract of sale between Lacy and Sullivan or to the contract amendments. We also note that the record is devoid of any escrow agreement or separate and distinct contract among Ticor, Lacy, and Sullivan defining Ticor's obligations under the letter of credit. 5 In the escrow situation, it is most important to include a carefully drawn list of instructions that defines the duties of the escrow agents. These instructions should be signed by the purchaser, the seller, and the escrowee. Walker &...

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