Medallion Homes, Inc. v. Thermar Investments, Inc.

• Decision Date: 19 September 1985
• Docket Number: No. A14-85-070-CV,A14-85-070-CV
• Citation: 698 S.W.2d 400
• Parties: MEDALLION HOMES, INC., Appellant, v. THERMAR INVESTMENTS, INC., et al, Appellees. (14th Dist.)
• Court: Texas Court of Appeals

Page 400

698 S.W.2d 400

MEDALLION HOMES, INC., Appellant, v. THERMAR INVESTMENTS, INC., et al, Appellees.

No. A14-85-070-CV.

Court of Appeals of Texas,

Houston (14th Dist.).

Sept. 19, 1985.

Foster Wooten, Pro Se of Houston.

Stephen E. Ulrich, Russell T. Van Keuren, James McIver, Houston, for appellant.

Mary Ann Starks, Houston, for appellees.

Before J. CURTISS BROWN, C.J., and SEARS and ELLIS, JJ.

OPINION

SEARS, Justice.

Appellant, Medallion Homes, Inc., sued Thermar Investments, Inc., T.C. Simmons, C. Foster Wooten, Inc., and C. Foster Wooten for damages resulting from an alleged breach of contract to sell real property and for violations of the Texas Deceptive Trade Practices Act (DTPA), Tex.Bus. & Com.Code Ann. §§ 17.41-17.63 (Vernon Supp.1985). A jury was waived, and the trial court found that appellee Thermar Investments, Inc. breached its contract with appellant and awarded appellant $30,000.00 in damages and $10,000.00 in attorney's fees. No liability was imposed on T.C. Simmons, Individually, or on C. Foster Wooten, Inc. C. Foster Wooten, Individually, was dismissed by agreement. We affirm.

In early 1982, First City National Bank of Houston (First City) acquired substantially all of a residential subdivision in Northwest Harris County known as Quail Forest. At about the same time, C. Foster Wooten, President of C. Foster Wooten, Inc., (Wooten, Inc.), began making plans to develop the subdivision. Because he lacked the financial strength to develop the subdivision, Wooten contacted T.C. Simmons, President of Thermar Investments, Inc. (Thermar), and told him of the availability of the lots. Simmons contacted First City, and they agreed that Thermar could purchase the lots. On July 8, 1982, Thermar signed a contract of sale, granting Thermar the right to purchase and resell specified lots in Quail Forest, and presented the contract to First City for execution. The agreement provided that Thermar could not assign the contract without the prior written consent of First City. However, Thermar and Wooten, Inc., in expectation of First City's approval, executed a document on July 8, 1982, which purported to assign to Wooten, Inc. an undivided one-half interest in Thermar's contract. On July 15, First City executed the contract of sale with Thermar but did not approve Thermar's assignment to Wooten, Inc. Therefore, pursuant to the terms of the contract, Thermar's purported assignment to Wooten, Inc. had no validity.

On January 21, 1983, Thermar and Medallion Homes, Inc. (Medallion) executed a contract of sale which provided for the conveyance to Medallion of twenty-one lots in the subdivision on a "take-down" schedule. The terms of the contract provided that Medallion purchase one lot in Section 1 and twenty lots in Section 2 at the rate of five lots every six months. Thermar was obligated to convey marketable title at the time of closing. Pursuant to the contract, Medallion "took down" four lots and paid Thermar for them in February, 1983. Medallion built and sold houses on each of the four lots. Thermar then paid Wooten, Inc. a "commission" of $500.00 per lot from the profits of Medallion's purchase. When Wooten did not receive the expected one-half interest, he recorded the July 8 "assignment" in the real property records of Harris County on March 23, 1983. Pursuant to its contract, Medallion attempted to purchase two more lots from Thermar in April. However, Medallion's title company refused to issue an owner's title policy because the recordation of the assignment between Thermar and Wooten, Inc. clouded title to the lots Thermar was to convey.

The contract of sale between First City and Thermar was terminated by agreement soon thereafter. Mac-Carey Properties, Inc. (Mac-Carey) then purchased the Quail Forest subdivision, and Medallion subsequently purchased twelve lots from Mac-Carey at an increase in price of $2,500.00 per lot.

At trial, the court found Thermar had breached its contract with Medallion and fixed damages at $30,000.00, plus attorney's fees. The $30,000.00 represented the increase in price Medallion was required to pay Mac-Carey for the twelve lots.

Appellant argues in its first point of error that the trial court erred in failing to find Thermar breached an implied warranty of title by conveying property it did not own. According to appellant, this breach of warranty is actionable under Section 17.50(a)(2) of the DTPA, which provides that a consumer may maintain an action if the breach of an express or implied warranty is a producing cause of actual damages. Appellant further argues that Thermar's breach was knowing, and a trebling of damages is therefore permitted under Section 17.50(b)(1) of the Act.

Although the DTPA applies to the breach of an implied warranty of title, Holifield v. Coronado Building, Inc., 594 S.W.2d 214 (Tex.Civ.App.--Houston [14th Dist.] 1980, no writ), we find no such breach. First City's ownership of the subdivision was recorded in the Real Property Records of Harris County as of October, 1982. This recordation is constructive notice to all persons that First City was the owner of the lots in question. Tex.Prop.Code Ann. § 13.002 (Vernon Supp.1984). The constructive notice provided by a recording statute is a defense to an action under the DTPA. Jernigan v. Page, 662 S.W.2d 760 (Tex.App.--Corpus Christi 1983, writ ref'd n.r.e.).

Furthermore, there is evidence that Medallion had actual notice that First City, not Thermar, was the owner of the lots at the time Medallion and Thermar entered into their agreement. The lots were conveyed to Medallion and other builders at simultaneous closings where First City (through the Mischer Corporation) sold the lots to Thermar, who then reconveyed to Medallion. Also, during contract negotiations with Medallion, Thermar's representative indicated that because of Thermar's contract with First City, certain provisions of the Medallion contract were dictated by and required to be consistent with the terms of the Thermar/First City agreement. Additionally, a provision of the contract between Thermar and Medallion incorporated by reference a copy of the recorded subdivision plat which prominently depicts First City as the owner. This evidence was sufficient for the court below to find that Medallion had actual knowledge of First City's ownership.

Medallion contends, however, that the purported partial assignment from Thermar to Wooten, Inc. created a cloud on the title to the lots, thereby causing a breach of the implied warranty of marketability. A title is not marketable if clouded by any outstanding contract, covenant, interest, lien, or mortgage sufficient to form a basis of litigation, or if it exposes its holder to a reasonable probability of litigation with the least chance of defeat. Ryan Mortgage Investors v. Fleming-Wood, 650 S.W.2d 928, 936 (Tex.App.--Fort Worth 1983, writ ref'd n.r.e.). Further, the law implies with respect to executory contracts for the sale of land that the seller will furnish the buyer good and marketable title, absent any provision in the contract to the contrary. Tiffany Development Corp. v. Cangelosi, 514 S.W.2d 321, 324 (Tex.Civ.App.--Houston [1st Dist.] 1974, no writ). However, a title need not be absolutely free from every technical and possible suspicion to be marketable. Lund v. Emerson, 204 S.W.2d 639, 641 (Tex.Civ.App.--Amarillo 1947, no writ). The mere possibility of a defect which has no probable basis according to...