Muzquiz v. Para Todos, Inc.

• Decision Date: 31 March 2021
• Docket Number: No. 08-19-00005-CV,08-19-00005-CV
• Court: Texas Court of Appeals
• Parties: Joe Frank MUZQUIZ/Para Todos, Inc., Appellant/Cross-Appellant, v. PARA TODOS, INC./Joe Frank Muzquiz, Appellee/Cross-Appellee.

624 S.W.3d 263

Joe Frank MUZQUIZ/Para Todos, Inc., Appellant/Cross-Appellant,

v.PARA TODOS, INC./Joe Frank Muzquiz, Appellee/Cross-Appellee.

No. 08-19-00005-CV

Court of Appeals of Texas, El Paso.

March 31, 2021

ATTORNEY FOR APPELLANT/CROSS-APPELLEE: Anthony R. Cuesta, Decker Jones, P.C., 801 Cherry Street, Suite 2000, Unit #46, Fort Worth, TX 76102.

ATTORNEY FOR APPELLEE/CROSS-APPELLANT: Dee J. Kelly Jr., Kelly, Hart & Hallman LLP, 201 Main St., Ste. 2500, Fort Worth, TX 76102.

Before Rodriguez, C.J., Palafox, and Alley, JJ.

OPINION

YVONNE T. RODRIGUEZ, Chief Justice

This is an appeal and cross-appeal from a final judgment rendered by the trial court largely in favor of Appellee, Para Todos, Inc. Appellant Joe Muzquiz attempted to terminate a lease in which the term is purportedly "in perpetuity" and renegotiate it with his lessee, Para Todos. When Para Todos refused, Muzquiz filed a declaratory judgment action and breach of contract claim, seeking a declaration of his rights as lessor under a lease which, as written, contains a perpetual lease term, was terminable only at the will of Para Todos except in the event of default, contained no provision for increasing the rent amount, and required Muzquiz to pay for property taxes, insurance, and common area maintenance.

Following a bench trial, the trial court found, among other things, the parties intended to create a lease with a right of perpetual renewal, the lease language did not create a tenancy at will, and Muzquiz failed to meet his burden to prove unconscionability or the lease violated public policy. The trial court also found Para Todos failed to meet its burden of proving Muzquiz's claims were barred by the statute of limitations. Muzquiz and Para Todos, Inc. appeal.

BACKGROUND

Leticia Grimaldo and her late husband purchased the Arlington property at issue in this appeal in the 1960s.¹ When they purchased the property located at 4713 Camp Bowie Rd. (the Property), it included a commercial building partially occupied by a restaurant. Over time, the restaurant expanded into the commercial space. At the present time, the restaurant occupies the entire building except for a small portion which houses a salon. In 1999, Para Todos began occupying the restaurant space without a lease. The restaurant's prior occupants also operated in the space without a lease.

The Lease

In 2003, Para Todos and Ms. Grimaldo executed a lease (the Lease) for the restaurant space. Robert Self, Para Todos' owner, prepared the lease form and presented it to Ms. Grimaldo.² When Ms. Grimaldo executed the Lease, she was eighty years old and in "okay" health, according to her son, Appellant, Frank Muzquiz. Muzquiz testified his mother did not hire an attorney to review the lease prior to her signing it, but admitted she could have hired an attorney if she had so chosen. Pursuant to the lease, Para Todos rents ninety-two percent of the building's square footage and pays $27,000 in rent each year. The remaining portion of the building is rented to the salon, which pays $1,200 in rent each month.

The following provisions in the lease are relevant in this appeal:

2. TERM: Subject to and upon the conditions set forth herein, the term of this lease shall commence on ... June 1, 2003 and shall be perpetual and terminable at Lessee's sole discretion upon thirty days written notice to Lessor. Lessor's assignees, assigns, heirs and executives are hereby bound, and Lessor agrees that same are bound, by the terms hereof. Lessee shall continuously use and occupy the leased premises for use as a restaurant and for such other lawful purposes as Lessee desires.

...

7. REPAIRS AND MAINTENANCE: Lessor shall be responsible for all external walls, roof and front parking lot of leased premises.

...

8. ASSIGNMENT OR SUBLEASE: Lessor shall have the right to transfer in assign, in whole or in part, its rights and obligations in the Building and property that are the subject of this lease. Lessee shall have the right to assign this lease or sublet all or any part of the leased premises without the prior written consent of Lessor.

...

15. FIRE AND CASUALTY DAMAGE: Lessor shall, at all times during the term of this lease, at Lessor's expense, maintain a policy or policies of insurance, insuring the Building against loss or damage by fire.³

Muzquiz was unaware of the terms of the Lease until 2010 when his mother asked him to review it. Muzquiz testified Ms. Grimaldo wanted to know if she could raise Para Todos' rent. Muzquiz found an attorney to review the lease to ascertain the validity of the lease. The attorney told Muzquiz, on December 28, 2010, he was "still doing research on the question of whether the lease with the Original restaurant can be enforced or not. I will let you know as soon as I come to a conclusion." No answer was ever provided to Muzquiz.

Ms. Grimaldo passed away in 2014. Muzquiz inherited her entire estate, including the Property, subject to the Lease. Muzquiz engaged a different lawyer to determine if he could raise Para Todos' rent or terminate the lease. On October 26, 2015, Muzquiz's attorney contacted Para Todos and informed them the Lease was unenforceable and requested the parties renegotiate the lease.

Procedural History and Trial Testimony

Muzquiz filed his original petition on September 27, 2016. He filed a second amended original petition on December 7, 2017 (the Petition), which was his live pleading at the time of trial. In the petition, he asks for the following:⁴

9. Pursuant to Section 37.001 et. seq. of the Texas Civil Practice and Remedies Code, Plaintiff asks this court to declare the rights, status and other legal relations between the parties to this suit arising out of the Lease and to declare the Lease terminable at will or to declare the Lease unenforceable.

10. Plaintiff would show the following grounds for the relief sought:

a. The Lease is unconscionable. The Lease is unconscionable because it is unfair due to its overall one-sidedness or the gross one-sidedness of one or more of its terms.

b. The Lease is terminable at will. The Lease is clearly terminable at the will of the Lessee. Texas law is clear that a lease that is terminable at will by one party is terminable at will by the other.

c. Perpetual Leases Are Not Enforceable in Texas. The Texas Supreme Court has determined that such leases are terminable at will by either party.

d. The Lease is void as against public policy. The law does not favor perpetual rights. It would be contrary to the public policy of this state to enforce agreements which have no end but place increasing burdens on one party only.

Para Todos filed its answer and asserted the affirmative defense of limitations, in addition to counterclaims which are not a subject of this appeal. Both sides later filed motions for summary judgment on their respective claims, which the trial court denied.

The parties agreed to a bench trial. Muzquiz testified 92 percent the 2018 property tax and insurance on the Property, which corresponds with the portion of square footage occupied by Para Todos and which the Lease requires him to pay, was approximately $26,000. According to Muzquiz, property taxes have escalated steadily since 2003, and he expects they will continue to increase. Muzquiz's son, who assists him with maintenance on the property, testified he anticipates having to replace the roof within ten years at an estimated cost of $100,000. He also testified the parking lot needs repairs which will cost $20,000.

In its final judgment, the trial court found Muzquiz's claims for declaratory relief were not barred by limitations. It further declared as follows:

1. The Lease does not create a tenancy at will.

2. The provisions of the Lease are plain and unambiguous and evidence an intent and purpose to create a right of perpetual renewal.

3. The Lease is not unenforceable or void because it contains a perpetual term.

4. Plaintiff did not meet his burden of proof that the lease is unconscionable.

5. Plaintiff did not meet his burden of proof that the lease is void as against public policy.

Muzquiz timely filed a notice of appeal, and Para Todos timely filed its notice of cross-appeal.

DISCUSSION

We first consider Muzquiz's three issues on appeal:

1. Did the trial court err by finding that a perpetual renewal lease is a valid exception to the undisputed rule that a perpetual term lease is not enforceable when there is no discernable difference between the two?

2. Did the trial court err in finding that the parties intended to create a perpetual renewal lease, instead of a perpetual term lease, when the only evidence in the record of the parties' intent is the lease itself, which unambiguously states that the term shall be perpetual?

3. Did the trial court err in finding that the lease does not violate public policy, even though it binds the lessor and his heirs to pay escalating property taxes and maintain the property, for eternity, but also prohibits the rent from ever being adjusted beyond the initial amount that was set in 2003?

Standard of Review

Interpretation of a contract is reviewed by an appellate court de novo. URI, Inc. v. Kleberg Cty. , 543 S.W.3d 755, 763 (Tex. 2018). Our "primary concern" in construing a contract's language "is to give effect to the written expression of the parties' intent." Forbau v. Aetna Life Ins. Co. , 876 S.W.2d 132, 133 (Tex. 1994).

Perpetual initial term versus Perpetual renewal term

Muzquiz asserts the "undisputed rule" is perpetual leases are unenforceable. However, our review of Texas law finds leases which renew in perpetuity are disfavored but upheld when a lease's language clearly indicates the parties' intent to create such an obligation. See Hull v. Quanah Pipeline Corp. , 574 S.W.2d 610, 612 (Tex.Civ.App.—San Antonio 1978, writ ref'd n.r.e.). On the other hand, leases with a perpetual term are not, per se , unenforceable. See, e.g. Philpot v. Fields , 633 S.W.2d 546 (Tex.App.—Texarkana 1982, no writ). Rather, leases with indefinite initial...