RE/MAX of Texas, Inc. v. Katar Corp., 01-96-01047-CV

• Decision Date: 24 July 1997
• Docket Number: No. 01-96-01047-CV,01-96-01047-CV
• Parties: RE/MAX OF TEXAS, INC., Appellant, v. The KATAR CORPORATION, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 324

961 S.W.2d 324

RE/MAX OF TEXAS, INC., Appellant, v. The KATAR CORPORATION, Appellee.

No. 01-96-01047-CV.

Court of Appeals of Texas Houston (1st Dist.).

July 24, 1997.

Rehearing Overruled Sept. 23, 1997.

Paul Leggett, Houston, for Appellant.

Steven P. Kearney, David C. Holmes, Houston, for Appellee.

Before TAFT, COHEN and O'CONNOR, JJ.

OPINION

TAFT, Justice.

This is an unusual case where the party who first defaulted on its payment obligation successfully sued the other party for its subsequent breach. We decide whether a party who has the contractual right to terminate a contract because of default by the other party also has the right to terminate part of the contract. We uphold the trial court's decision that partial termination constituted a breach of the contract.

Background

In July 1987, appellant, RE/MAX of Texas, Inc. (RE/MAX), and appellee, Katar Corporation (Katar), owned by A.M. and Ruth Attar, entered into a license agreement. The agreement provided Katar with the exclusive right to operate a RE/MAX realty office franchise in the Houston Galleria area. No other RE/MAX franchises could locate in the map grid assigned to Katar, and no other RE/MAX franchisee could operate an office within one mile of Katar's office. The exclusivity provision was critically important to the Attars, because the value of the franchise would be significantly diminished if other RE/MAX franchisees could set up offices in Katar's territory. In exchange for the grant of the exclusive franchise in the Galleria area, Katar agreed to pay certain fees to RE/MAX.

In early April 1990, the Attars had many agents in the office who shared overhead expenses, management fees, and advertising costs under the franchise agreement. Katar collected these fees and sent part of them to RE/MAX on a monthly basis. The Attars heard that a nearby RE/MAX franchisee had sold her franchise for a profit. They decided it would be a good time to sell their franchise. The other franchisee told the Attars she contacted RE/MAX's regional office to assist her in finding a buyer for her franchise. RE/MAX International advertises in trade magazines for persons interested in buying franchises. The franchise agreement also required RE/MAX's approval of any buyer.

Many of the agents became nervous when they heard the Attars were selling the franchise, and left. Therefore, the Attars had trouble making the monthly payments to RE/MAX. In late April 1990, Katar defaulted on monthly fees due to RE/MAX under the agreement. RE/MAX sent Katar notice to cure letters giving the Attars 10 days to cure the financial deficiencies or else RE/MAX would terminate the franchise. RE/MAX sent the same "notice to cure" form letter to Katar in April, July, and August. RE/MAX never sent notice that it would revoke the exclusivity of the franchise if Katar did not cure its delinquency.

Meanwhile, Joe Compian, of RE/MAX, was helping Katar find a buyer. Compian negotiated with Henry Heldner, a potential buyer, from May or June, 1990 to October 1990. RE/MAX and Katar agreed Katar would pay RE/MAX the delinquent payments from the sale of the franchise. Many of the remaining agents got nervous about whether the sale was going to go through, and more agents left. Heldner changed his mind about buying and the deal fell through.

The Attars called in an attorney, Don DeGrasse, and contacted RE/MAX regional marketing director, Richard Philip, asking if he had any more potential buyers. The Attars requested Philip get a letter of intent, a signed purchase agreement and some earnest money from any potential buyers because time was of the essence. Compian and DeGrasse negotiated a sale with another potential buyer, Francisco Milan/Noble Trading Group (MN). The sale was set to close on January 7, 1991. The parties understood Katar would pay the delinquent fees to RE/MAX at the closing of the sale of the franchise. On October 23, 1990, DeGrasse sent Compian a letter stating Katar had debt which must be paid at the closing of the sale of the franchise, including the $7,000 of delinquent fees owed to RE/MAX. Katar remained in default.

On November 30, 1990, RE/MAX sent notice to Katar it was terminating the exclusivity provision of the franchise agreement. RE/MAX stated in its letter it would reinstate the exclusivity of the franchise upon Katar paying the entire amount of delinquent fees. RE/MAX also made clear that despite the change in the nature of the license to a nonexclusive franchise, Katar was expected to maintain the same responsibilities it had assumed under the exclusive franchise.

On January 2, 1991, Compian faxed a letter to DeGrasse stating RE/MAX would accept 50% of the past due fees to cure the default and the franchise would transfer to the buyer as nonexclusive. On January 3, 1991, MN's attorney sent a letter to DeGrasse stating she had received a copy of Compian's January 2 fax and MN would not be interested in acquiring the franchise on a nonexclusive basis. On January 4, 1991, Katar offered to pay RE/MAX 100 percent of the delinquent fees in exchange for transfer of the license as an exclusive franchise to the buyer. On January 7, 1991, Compian refused to agree to reinstate the exclusivity provision of the franchise upon transfer of the license to the new buyer even if Katar paid the entire amount of delinquent fees. On January 15, 1991, RE/MAX sent Katar a letter giving it seven days to cure the seven-month default or RE/MAX would terminate the franchise agreement. Katar did not cure the default. RE/MAX terminated the franchise.

Katar sued RE/MAX alleging: (1) RE/MAX breached the franchise agreement; and (2) RE/MAX tortiously interfered with Katar's pending sale of the franchise to a third party. After a bench trial, the trial court found in favor of Katar on the breach of contract claim and awarded $65,000 in actual damages. The trial court found against Katar on its tortious interference claim, but Katar does not challenge that finding. RE/MAX appeals the breach of contract disposition in eight points of error.

Standard of Review

We interpret RE/MAX's arguments, and relief requested, as raising claims of legal insufficiency or "no evidence." In deciding legal sufficiency we consider only the evidence and inferences that tend to support the finding, and disregard all evidence and inferences to the contrary. King v. Bauer, 688 S.W.2d 845, 846 (Tex.1985); Otis Elevator Co. v. Joseph, 749 S.W.2d 920, 923 (Tex.App.--Houston [1st Dist.] 1988, no writ). If there is more than a scintilla of evidence to support the finding, we must overrule the legal insufficiency challenge. Joseph, 749 S.W.2d at 923.

Breach by RE/MAX

In RE/MAX's first, second, seventh, and eighth points of error, it contends the trial court erred in finding: (1) the license did not allow RE/MAX to terminate the exclusivity of Katar's franchise in the event of Katar's default; and (2) therefore RE/MAX breached its agreement with Katar by unilaterally terminating the exclusivity of Katar's franchise.

RE/MAX does not offer any argument or authority challenging the trial court's interpretation of the license agreement or the trial court's finding that RE/MAX breached the contract. In the fact section of its brief, RE/MAX cites paragraph 9(C) of the license agreement as authority for terminating the exclusivity provision of the contract. It provides:

Upon occurrence of a default and at any time thereafter during the continuation of such default, RE/MAX shall have the right but shall not have the obligation, to terminate this Agreement. Termination of this Agreement by RE/MAX shall not be an exclusive remedy and shall not in anyway effect the rights of RE/MAX to receive or collect fees or other amounts payable by Licensee hereunder, to enforce the provisions of this Agreement against the Licensee, or to sue for damages including but not limited to all sums due and owing pursuant to the terms hereof, interest, court costs and attorneys' fees, seek and obtain injunctive relief or to pursue any other legal or equitable remedy available to RE/MAX.

(Emphasis added.)

The terms of the agreement do not provide RE/MAX the right to change the franchise from exclusive to nonexclusive in the event of default. Terminating the franchise and terminating the exclusivity of the franchise are not the same. Without exclusivity, the value of the franchise was diminished. RE/MAX had never sold a nonexclusive franchise at the time it revoked Katar's exclusivity provision. Upon learning the franchise was nonexclusive, MN refused to close the sale. The Attars would never have bought a nonexclusive franchise.

Despite...