Regency Advantage Ltd. Partnership v. Bingo Idea-Watauga, Inc.
| Decision Date | 12 July 1996 |
| Docket Number | INC,No. 95-0481,IDEA-WATAUG,95-0481 |
| Parties | 39 Tex. Sup. Ct. J. 1040 REGENCY ADVANTAGE LIMITED PARTNERSHIP, Ronald Berman, and Marc Eller, Petitioners, v. The BINGOand Steven S. Bailey, Respondents. |
| Court | Texas Supreme Court |
Francis Y. Pan, Austin, for Petitioner.
Phil King, Weatherford, David F. Bragg, Joseph G. Chumlea, Dallas, for Respondent.
This case presents the question of an assignee's liability for its predecessor-in-interest's alleged breach of a lease and a contract to pay a real estate commission. Because any breach of the lease occurred before the original lessor transferred its interest in the lease to the assignee and the lease obligation was not capable of successive independent breaches, we reverse the judgment of the court of appeals and render judgment for the assignee.
The Bingo Idea-Watauga, Inc. leased space in a shopping center from Texas American Bank (TAB). Bingo and TAB executed an amendment to the lease on June 1, 1989, that provided that Bingo had sixty days to obtain all necessary approvals to operate a bingo facility on the premises or the lease would terminate. If Bingo obtained all necessary approvals, TAB then had forty-five days to complete the build out of the space as required by the lease. 1
On June 10, 1989, the Comptroller issued Bingo a sixty-day "Temporary Authorization To Lease Bingo Premises" that expired on August 9, 1989. Bingo obtained two more temporary authorizations, but its application for a license was eventually denied on September 11, 1989. Bingo appealed this denial and on November 1, 1995, the Comptroller's office withdrew its objection to Bingo's application. Bingo, however, did not obtain an annual license. The lease space was never built out and Bingo never occupied it.
Regency Advantage Limited Partnership and its general partners, Ronald Berman and Marc Eller (collectively, "Regency"), obtained the shopping center by special warranty deed effective November 10, 1989. In a separate instrument, TAB conveyed all leases covering the shopping center to Regency in an assignment in which Regency agreed to perform all terms and covenants of the leases after, but not prior to, November 10, 1989. 2 Regency was aware of TAB's potential dispute with Bingo, however, and negotiated a $100,000 reduction in the purchase price of the shopping center in return for indemnifying TAB for any liabilities TAB incurred in connection with the Bingo lease.
Regency sued Bingo, requesting a declaratory judgment that the lease between TAB and Bingo had terminated on its terms. Alternatively, Regency claimed that Bingo had breached the lease by failing to pay rent. Bingo counterclaimed, alleging that Regency breached the lease by failing to build out the leased space. Both parties moved for summary judgment on the issue of liability under the lease, and the trial court granted partial summary judgment for Bingo and against Regency. After a nonjury trial, the trial court entered judgment jointly and severally against Regency for over $1,057,064 in damages, including prejudgment interest and attorneys' fees. The trial court further held that Regency was liable to Stephen Bailey, Bingo's real estate broker, for a broker's commission, prejudgment interest, and attorneys' fees totaling $63,873.15. The court of appeals reversed the trial court's award in favor of Bailey and rendered judgment that Bailey take nothing. It also reversed the award of attorneys' fees against Regency and prejudgment interest on those fees, but otherwise affirmed the judgment against Regency. All parties--Regency, Bingo, and Bailey--filed applications for writ of error in this Court.
The issue here is straightforward. Even assuming that TAB breached the lease in failing to build out the leased space within forty-five days after Bingo obtained a temporary authorization to sublet the premises for bingo games and assuming that the obligation to build out the space ran with the lease, Regency did not breach the lease because the obligation to build out the premises accrued before the lease was assigned to Regency.
The Restatement of Property (Second) succinctly states the controlling principle: "The transferee [of an interest in leased property] will not be liable for any breach of the promise which occurred before the transfer to him." RESTATEMENT (SECOND) OF PROPERTY § 16.1(3) (1977). As the writers of the Restatement explain,
A transferee is liable on a promise that runs with the transferred interest only to the extent of a breach of the promise that occurs while the transferee is in privity of estate with the person entitled to enforce the promise. If the promise is capable of being broken only once and was broken before the transfer, the transferee does not incur any personal liability with respect to it. If the promise is capable of successive independent breaches, the breaches that occur before the transfer cannot subject the transferee to any personal liability.
Id. § 16.1 cmt. h.
The court of appeals recognized this well-established principle, stating that "a transferee of a landlord's reversion is not liable for a breach of a landlord's covenant that occurred before the transfer." 928 S.W.2d at 59 (citing 3 FRIEDMAN, FRIEDMAN ON LEASES § 36.2 (3d ed.1990)). However, the court of appeals then concluded that failure to build out the space at issue was a continuing breach. The court of appeals held that both "TAB and Regency breached the lease covenant that required the build-out of the commercial space." 928 S.W.2d at 59.
We disagree. Under the lease, the landlord's duty to build out the leased premises was a one-time obligation, accruing forty-five days from the receipt of the approvals necessary for the lessee to operate a bingo facility. The Comptroller issued a temporary authorization to Bingo on June 10, 1989, and Bailey notified TAB of that approval on June 27, 1989. Bingo held a permit...
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