Paciwest, Inc. v. Warner Alan Properties

• Decision Date: 11 September 2008
• Docket Number: No. 2-07-443-CV.,2-07-443-CV.
• Parties: PACIWEST, INC., Appellant and Cross-Appellee, v. WARNER ALAN PROPERTIES, LLC, and Warner Alan/Westcliff, Ltd., Appellees and Cross-Appellants.
• Court: Texas Court of Appeals

266 S.W.3d 559

PACIWEST, INC., Appellant and Cross-Appellee, v. WARNER ALAN PROPERTIES, LLC, and Warner Alan/Westcliff, Ltd., Appellees and Cross-Appellants.

No. 2-07-443-CV.

Court of Appeals of Texas, Fort Worth.

September 11, 2008.

Rehearing Overruled October 2, 2008.

Decker, Jones, McMackin, McClane, Hall & Bates; Mark S. Dugan, Brian K. Yost, and Leslie L. Hunt, Fort Worth, TX, for Appellant/Cross-Appellee.

Carrington, Coleman, Sloman & Blumenthal, L.L.P.; Tim Gavin, Brett Kutnick, and Tim Chastain, Dallas, TX, for Appellees/Cross-Appellants.

PANEL: LIVINGSTON, DAUPHINOT, and McCOY, JJ.

OPINION

TERRIE LIVINGSTON, Justice.

Introduction

This case involves competing motions for summary judgment in a suit over a failed real estate transaction. The trial court granted summary judgment for the purchaser, appellee Warner Alan/Westcliff, Ltd. (Westcliff), and appellee Warner Alan Properties, LLC (Warner Alan), Westcliff's predecessor-in-interest in the purchase and sale contract. It also ordered that Westcliff was entitled to specific performance of the contract as a remedy for the seller's default. The seller, appellant Paciwest, Inc., brings three issues on appeal in which it contends that the trial court erred by sustaining appellees' objections to Paciwest's summary judgment proof, by denying Paciwest's motion for summary judgment and granting appellees', and by granting appellees' request for specific performance. In a single issue in a cross-appeal, appellees contend that the trial court erred by determining that they were precluded from recovering damages in addition to specific performance because of the election of remedies doctrine. We affirm in part and reverse and remand in part.

Background Facts

On July 28, 2005, Paciwest and Warner Alan entered into a Purchase Agreement under which Paciwest would sell Warner Alan its interest in the Westcliff Manor Apartments in Fort Worth, Texas. The agreement provided that the purchase price for the property would be $5,780,000, payable as follows:

(a) a portion of the Purchase Price shall be paid by [Warner Alan's] assuming (subject to any limitations on personal liability applicable thereto) the outstanding principal balance owing on the Closing Date (hereinafter defined) on that certain Promissory Note (the "Note") dated October 10, 2002, in the original principal amount of $4,000,000, executed by [Paciwest]. ...

(b) The balance of the Purchase Price shall be payable at the Closing (hereinafter defined) in immediately available funds.

"Closing" was defined as "9:00 a.m. on the date fifteen (15) days after written approval of [Warner Alan's] assumption of the Note by [the] Lender." The contract also provided that closing could be extended if the lender had not timely sent the title company the signed documents required to evidence the lender's approval of the loan assumption.

Shortly after the parties executed the contract, Ted Broadfoot and Chris Neill of Warner Alan began discussing with Dziem "Jim" Nguyen of Paciwest the possibility that Warner Alan would seek third party financing rather than assume Paciwest's note. On August 6, 2005, Nguyen sent Warner Alan a letter to Neill's attention in which he stated the following:

I am writing you this letter just want to recap my conversation with you and Ted regarding financing of the sale:

1) You will run the number[s] and look into the alternative of paying off the existing note including defeasance or yield maintenance by financing with another third party; and you will decide which way this coming week and will send in the 2 assumption fees check of $3,000 each to [the lender] then if assumption is still the choice.

2) To accommodate that, I will prepare the assumption paper to send to [the lender] but will not send in until Wednesday or next Thursday morning. ...

. . . .

4) If you choose to assume the note, Parking [repairs] will have to be done prior to the assumption's approval. Then, let me know to what extent you want that done and we will need an addendum to do the repair and increase the contract price. [Emphasis added.]

On August 17, 2005, Neill faxed Nguyen a letter stating, "Please allow this to serve as notice that we will not be assuming the current ... loan which is in place for Westcliff Manor. We will be placing new debt on this property through La Jolla Bank." Subsequently, on August 30, 2005, Nguyen sent a letter to Paciwest's lender, stating, "Please accept this letter as our intent to pay off Loan 01-0207891 within thirty (30) days (by September 30, 2005). At this time we are requesting payoff information be faxed to (972) 613-[illegible.]."

Nguyen faxed Broadfoot a proposed First Amendment to the contract on August 31, 2005. The amendment included the following terms: (1) Warner Alan would pay, in addition to the purchase price, "all the fees in connection with paying off the existing note early, including but not limited to the pre-payment yield maintenance," (2) Warner Alan's inspection period would end at 5 p.m. on September 7, 2005, and (3) closing would take place on or before September 30, 2005, with the option to extend for an additional fifteen days upon Warner Alan's depositing an additional, nonrefundable earnest money of $10,000. It also included a representation that neither party had defaulted under the contract up to that time and a statement that "[a]ll of [Paciwest's] warranty and indemnification to [Warner Alan] in the [a]greement with respect to the existing Loan documents now becomes null and void."

The next correspondence between the parties occurred on September 5, 2005, when Neill faxed a letter to Nguyen asking for a price reduction of $300,000. In the letter, Neill stated that "the appraiser has indicated that the value is much lower than expected and there is a lot of deferred maintenance outside of our original rehab scope." Additionally, he noted that "[t]he occupancy on the property has declined as has the economic collection" and that the "sizeable drop in collections is greatly impacting the value of the property." Neill goes on to state that

[a]ll of these items are causing our lender to lower the amount they are willing to finance[.] While I fully admit that the property is a nice property in a good area[,] I also have to realistically point out that on paper the property is worth significantly less than 5[.]8 million and is in fact worth 2.8 million at an 8 percent capitalization rate[.] We are willing to purchase a sizeable portion of the upside, but simply cannot put 2[.]5 million in cash in this deal[.] The unfortunate reality is that we are at a point where we can move forward and try to increase funding but the chances of that are slim[.] We want to do the deal but are at the 23rd hour and are running out of options and need some help from you.

Nguyen was angry when he received this letter and decided not to go forward with the transaction under any terms other than those in the original contract; in other words, Paciwest would perform its obligations under the contract only if Warner Alan was still able to assume Paciwest's note.

The next day, September 6, 2005, Broadfoot faxed Nguyen a letter with changes to the proposed First Amendment. In the cover letter, he noted that the lender had

indicated that part of prepaying the notes is paying the accrued interest expense which is a full month regardless of prepay date. We do not want to double pay interest and therefore would not want to close anytime other than month end. Currently, our lender believes they will be ready for September 30th but in case they are not, we would want to extend for 30 days instead of 15.

The only changes marked on the amendment are the addition "to the best of their knowledge" to the end of the provision in which each party was to acknowledge that there had been no breach or default of the contract, the deletion of the provision that Paciwest's representations and warranties in the agreement about the existing loan documents are null and void, and the change from fifteen to thirty days on the extension date. According to Neill, Warner Alan did not think an amendment to the contract was necessary, but they "were trying to be accommodating."

Nguyen sent another letter on September 9, 2005, in which he stated that Paciwest could not approve either the price reduction requested by Warner Alan, nor the requested modifications to the amendment. Thus, Nguyen said, "the contract stands unchanged, as written." On September 20, 2005, Warner Alan's attorneys sent a letter to Paciwest by fax and certified mail indicating that Warner Alan was "ready, willing and able to close this transaction on September 30, 2005" and that Westcliff,¹

the affiliate of [Warner Alan] to which the Contract will be assigned, will be present at the September 30 closing and will tender full performance of all its obligations under the Contract, including but not limited to full payment of the Purchase Price. The Note will be fully discharged out of the sale proceeds and any prepayment penalty will be paid by the purchaser. Therefore the net amount received by [Paciwest] will be the same as the net amount it would have received had the Note been assumed.

On September 28, 2005, Paciwest's attorney sent Warner Alan a letter indicating that the contract had automatically terminated by its own terms as of September 26, 2005 because Warner Alan had failed to obtain lender approval to assume Paciwest's loan. Neill and Broadfoot both attended the scheduled closing. Warner Alan wired $5,621,031.91 to the title company, representing the purchase price, less the initial escrow deposit of $35,000, rent and tax prorations, and a credit for security deposits held by Paciwest. Warner Alan also wired an additional $250,000 and had additional funds available if more money was needed. However, Paciwest did not attend and refused to close the transaction.

Appellees sued Paciwest on October 3, 2005...