Medical Towers, Ltd. v. St. Luke's Episcopal Hosp.

• Decision Date: 24 March 1988
• Docket Number: No. B14-86-751-CV,B14-86-751-CV
• Citation: 750 S.W.2d 820
• Parties: MEDICAL TOWERS, Ltd., Appellant, v. ST. LUKE'S EPISCOPAL HOSPITAL, et al, Appellees. (14th Dist.)
• Court: Texas Court of Appeals

Page 820

750 S.W.2d 820

MEDICAL TOWERS, Ltd., Appellant, v. ST. LUKE'S EPISCOPAL HOSPITAL, et al, Appellees.

No. B14-86-751-CV.

Court of Appeals of Texas,

Houston (14th Dist.).

March 24, 1988.

Rehearing Denied May 5, 1988.

Will G. Dickey, William H. Scott, Jr., W. James Kronzer, Sidney N. Floyd, Houston, for appellant.

Jeffrey S. Wolff, Tom Alan Cunningham, Houston, for appellees.

Before PAUL PRESSLER, MURPHY and ROBERTSON, JJ.

OPINION

MURPHY, Justice.

St. Luke's Episcopal Hospital and the Third National Bank as Trustee, Appellees, initiated this action for a declaratory judgment pursuant to Chapter 37 of the Texas Civil Practice and Remedies Code to clarify the interpretation of a lease agreement. On April 3, 1954, the predecessor in interest of St. Luke's and the Bank, as lessor, negotiated a ninety-nine year lease for a tract of land located in the heart of the Texas Medical Center with the predecessor in interest of Medical Towers Ltd., as lessee. After the execution of the lease, the original lessee constructed an eighteen story medical office building, which is today known as the Medical Towers Building. Medical Towers, Ltd. which is a Texas limited partnership, purchased the Medical Towers building in 1983 and is the current lessee under the lease agreement. Rentals covering the term of the lease up to April 1, 1979, including periodic increases, were fixed by the lease agreement. After April 1, 1979, however, the calculated rental was to be "5% of the appraised value of the property," as adjusted at fifteen year intervals. At issue in this case is the proper appraisal method to be used in determining the appraised value of the property which will serve as a basis for calculation of the rental.

St. Luke's and the Bank (hereinafter St. Luke's) contended at trial that the unambiguous language of the lease agreement compels the use of an appraisal method "such as the comparable sales approach by which the value of the subject property reflects the market conditions in the area taking into consideration the use to which the subject property is dedicated." St. Luke's further plead, in the alternative, that if the lease agreement were construed to be ambiguous, the appraisal technique that best recognized the intent of the parties was the comparable sales approach. Expert testimony at trial established that the comparable sales approach takes sales of properties similar or comparable to the property in question and adjusts them for time, location, size and other factors such as dedicated land use to arrive at an estimate of value for the subject property.

In contrast, Medical Towers, Ltd. (hereinafter Medical Towers) insisted that the lease agreement unambiguously requires the use of the land residual technique of appraisal by which the value of the subject property is restricted by the dimensions income and expenses of the improvements on the property. The land residual technique is defined in the Real Estate Appraisal Terminology, First Printing, 1981, compiled and edited by Byrl N. Boyce, Ph.D. and sponsored jointly by the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers, as follows:

A valuation technique which presumes that income can be split between land and improvements and that the residual to land can then be capitalized into value. Typically, the building is valued independently of the land, and the annual return on the building value (return on investment and provision for capital recapture) is deducted from the anticipated net operating income to the property (land and building). The residual amount is said to be attributable to the land and is capitalized at the appropriate risk (discount) rate to indicate the land value.

Under this method, no weight is given to the location of the subject property or to the value of other properties in the surrounding area.

Following six days of testimony, the trial court submitted the case to the jury, which unanimously found that the original parties to the lease agreement intended use of the comparable sales appraisal method urged by St. Luke's. Based upon evidence obtained and interpreted in accordance with this comparable sales approach, the jury further found the appraised value of the property to be $39.00 per square foot. After denying appellant's post-judgment motion for instructed verdict, motion to disregard the jury's answers to Special Issues No. 1 and No. 2, and Motion for Judgment Non-Obstante Veredicto, the trial court rendered judgment on the jury's verdict. We affirm the judgment of the trial court.

Appellant contends by four points of error that (1) the trial court erred in overruling appellant's post-verdict motions because the lease is unambiguous as a matter of law; (2) the lease unambiguously requires an appraised value which takes into account the fact that the land was restricted solely for use by the Medical Towers Building; that (3) Special Issue No. 1 erroneously submitted to the jury a question of law because (4) absent a judicial determination on the record that the lease was ambiguous, no material issue of fact was raised by the evidence thus rendering the jury's answers to Special Issues Nos. 1 and 2 immaterial and irrelevant. For convenience, we will first consider points one and two and the question of ambiguity in the contract.

Texas law has long accepted the rule that the question of whether a contract is ambiguous is a question of law for the court. R & P Enterprises v. LaGuarta, Gavrel & Kirk, 596 S.W.2d 517, 518 (Tex.1980). The law also provides extensive guidance to assist the court in making this determination. A contract is ambiguous when it is subject to more than one reasonable meaning, unresolvable by rules of interpretation. Skelly Oil Company v. Archer, 163 Tex. 336, 356 S.W.2d 774, 778 (1962). On the other hand, the disagreement over the interpretation of an instrument does not automatically make it ambiguous. Sun Oil Company (Delaware) v. Madeley, 626 S.W.2d 726, 727 (Tex.1982); Maxwell v. Lake, 674 S.W.2d 795, 801 (Tex.App.--Dallas 1984, no writ). Nor does uncertainty or a lack of clarity in the language chosen by the parties suffice to render a contract ambiguous. Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (1951); City of Houston v. Howe & Wise, 323 S.W.2d 134, 141-142 (Tex.Civ.App.--Houston 1959, writ ref'd n.r.e. 373 S.W.2d 781). Ambiguity results when the intention of the parties is expressed in language susceptible of more than one meaning, but when a contract is silent, the question is not one of interpreting the language but rather one of determining its effect. Maxwell v. Lake, 674 S.W.2d at 802; Summit Insurance Company of New York v. Central National Bank of Houston, 624 S.W.2d 222, 226 (Tex.App.--Houston [1st Dist.] 1981, writ ref'd n.r.e.). On the contrary, when the contract is so worded that a court may properly give it a certain or definite legal meaning, it is not ambiguous. R & P Enterprises, 596 S.W.2d at 519; Alba Tool and Supply Company Inc. v. Industrial Contractors, Inc., 585 S.W.2d 662, 664 (Tex.1979). An unambiguous contract must be interpreted by the court as a matter of law. Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983).

Evidence of circumstances surrounding its execution may be considered in the construction of an unambiguous contract, Sun Oil Co., 626 S.W.2d at 731, even though oral statements of the parties' intent are inadmissible to vary or contradict the terms of the agreement. Summit Insurance Company, 624 S.W.2d at 226. Such circumstances help to illuminate the contractual language chosen by the parties and enable evaluation of "the objects and purposes intended to be accomplished by them in entering into the contract." Garcia v. King, 139 Tex. 578, 164 S.W.2d 509 (1942); Skyland Developers, Inc. v. Sky Harbor Associates, 586 S.W.2d 564, 570 (Tex.Civ.App.--Corpus Christi 1979, no writ). With the surrounding circumstances as a background, City of Pinehurst v. Spooner Addition Water Co., 432 S.W.2d 515, 519 (Tex.1968), the court is to examine the document in its entirety in an effort to harmonize and give effect to all the provisions so that none will be rendered meaningless. Universal C.I.T., 243 S.W.2d at 158.

At the trial of the case before us, all parties agreed that the lease in question was unambiguous although they could not agree on the interpretation to be given paragraph II in particular. After establishing regularly escalating rentals for the first twenty-five years of the lease, paragraph II provides in pertinent part as follows:

Lessee, in consideration of the leasing of said premises as herein provided, covenants and agrees with lessor to pay lessor the following rents during the term of this lease ...

(d) For each of the next fifteen years of the lease, beginning April 1, 1979, and ending March 30, 1994, a sum equal to 5% of the appraised value of the property herein leased to lessee, which appraised value shall be determined at the beginning of such period in the manner herein provided ...

The appraised value of the property covered by the lease shall be determined, for the purpose of fixing rental hereunder during a portion of the term hereof as provided above, in the following manner: On or before six (6) months prior to the commencement of the twenty-sixth (26th) year of the term hereof, lessor and lessee each shall designate as its respective representative a party familiar with the value of real estate in the area in which the above...