Stewart Title Guar. Co. v. Old Republic Nat. Title Ins. Co., 95-20524

• Decision Date: 29 May 1996
• Docket Number: No. 95-20524,95-20524
• Citation: 83 F.3d 735
• Parties: , 10 Tex.Bankr.Ct.Rep. 170 STEWART TITLE GUARANTY COMPANY, Plaintiff-Appellant, v. OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, formerly known as Title Insurance Co.; Land Title Company of Dallas, doing business as Southwest Land Title Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 735

83 F.3d 735

29 Bankr.Ct.Dec. 184, 10 Tex.Bankr.Ct.Rep. 170

STEWART TITLE GUARANTY COMPANY, Plaintiff-Appellant, v. OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, formerly known as Title Insurance Co.; Land Title Company of Dallas, doing business as Southwest Land Title Company Defendants-Appellees.

No. 95-20524.

United States Court of Appeals Fifth Circuit.

May 29, 1996.

James Dean Salyer, Russell D. Weaver, Morris, Lendais, Hollrah & Brown, Houston, TX, for Stewart Title Guaranty Company, plaintiff-appellant.

Pamela D. Nielson, Michael P. Massad, Jr., Sheinfeld, Maley & Kay, Dallas, TX, for defendants-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, DAVIS and BARKSDALE, Circuit Judges.

PER CURIAM:

Stewart Title Guaranty Company ("Stewart Title") appeals the district court's granting of summary judgment against Stewart Title and in favor of Old Republic National Title Insurance Company f/k/a Southwest Title Insurance Company of Minnesota and Land Title Company of Dallas d/b/a Southwest Land Title Company (collectively "Southwest"), in a suit brought by Stewart Title to enforce certain contractual rights purchased by Stewart Title from a bankruptcy trustee and derived from a personal property lease agreement that had been rejected by the trustee pursuant to 11 U.S.C. § 365. We reverse.

I. BACKGROUND

With respect to their competing motions for summary judgment in the district court, Stewart Title and Southwest stipulated to certain facts. The stipulated facts may be summarized as follows: In November 1970, Dallas Title Company ("Dallas Title"), as lessor, and Dallas-Texas-National Title Company ("DTNT"), as lessee, entered into a thirty-two year lease agreement (the "Lease") for the personal property in an abstract plant owned by Dallas Title. ¹ The abstract plant contained abstracts, records, files, computer-stored material, and other property necessary to the title-insuring and abstract business. In return for use of the abstract plant, Dallas Title agreed to pay $3000 a month and certain taxes levied or based on the plant, to purchase insurance, and to maintain the plant by means of day-by-day posting of all records pertaining to the business of abstracting. The agreement provided that all additions to the plant became the property of the lessor, but that, upon termination of the Lease, Dallas Title could copy for its own use any of the records pertaining to matters filed in Dallas County, Texas since November 30, 1961 (the "Reproduction Rights"). ² The Lease terminated a previous lease between Dallas Title and DTNT dated November 1, 1966.

On June 20, 1990, DTNT filed for protection under Chapter 11 of the Bankruptcy Code. The proceeding was subsequently converted to a Chapter 7 liquidation and a trustee was appointed. On June 10, 1991, in an agreed order signed by the bankruptcy court, the trustee rejected the Lease pursuant to § 365 of the Bankruptcy Code. ³ The trustee held an auction to sell the Reproduction Rights as a "potential asset" of the bankruptcy estate. Southwest, the successor and assignee of Dallas Title, made an offer to purchase the Reproduction Rights for $26,000. Stewart Title bid $30,000. The bankruptcy trustee accepted Stewart Title's offer. The bankruptcy court approved the sale of the Reproduction Rights to Stewart Title, and on September 24, 1991, the trustee executed a Bill of Sale. ⁴

When Southwest refused to allow Stewart Title to exercise the Reproduction Rights, Stewart Title brought suit against Southwest in the 127th Judicial District Court of Harris County, Texas, asserting a claim for breach of the Lease and seeking specific performance. Southwest removed the case to the United States District Court for the Southern District of Texas. The parties filed cross motions for summary judgment on the limited legal issue of the enforceability of the Reproduction Rights that Stewart Title had purchased from the trustee. ⁵ Finding that the trustee's rejection of the Lease excused Southwest from its obligations to the lessee, the district court concluded that the Reproduction Rights were unenforceable. On June 9, 1995, the district court entered an order granting summary judgment in favor of Southwest and against Stewart Title. Three weeks later, Stewart Title timely filed a notice of appeal.

II. ANALYSIS

We review the granting of summary judgment de novo, applying the same criteria used by the district court in the first instance. Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir.1994); Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir.1994). First, we consult the applicable law to ascertain the material factual issues. King v. Chide, 974 F.2d 653, 655-56 (5th Cir.1992). We then review the evidence bearing on those issues, viewing the facts and inferences to be drawn therefrom in the light most favorable to the nonmoving party. Lemelle v. Universal Mfg. Corp., 18 F.3d 1268, 1272 (5th Cir.1994); FDIC v. Dawson, 4 F.3d 1303, 1306 (5th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 2673, 129 L.Ed.2d 809 (1994). Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

The sole issue on appeal is whether the Reproduction Rights acquired by Stewart Title are enforceable as a matter of law. It is uncontested that, under applicable choice-of-law principles, Texas law governs in this case because the subject matter of the lease, the place of performance of the lease, and the residence and place of business of the parties are all in Texas. Neo Sack, Ltd. v. Vinmar Impex, Inc., 810 F.Supp. 829, 838-39 (S.D.Tex.1993) (listing factors to consider in determining applicable law). The district court concluded that under Texas law the Reproduction Rights are not enforceable because the bankruptcy trustee's rejection of the Lease constituted a material breach that excused Southwest from its contractual obligations. Oil Country Specialists, Ltd. v. Philipp Bros., Inc., 762 S.W.2d 170, 179 (Tex.App.--Houston [1st Dist.] 1988) (noting that when one party materially breaches a contract, the other party is discharged from his obligation to perform), writ denied, 787 S.W.2d 38 (Tex.1990). Stewart Title maintains that the Reproduction Rights are enforceable despite the trustee's rejection.

Stewart Title argues that the Lease consisted of two severable agreements: (1) an executory agreement regarding the use of the records and other materials contained in the abstract plant (the "Use Rights"); and (2) an executed agreement regarding the Reproduction Rights. Stewart Title contends that the Reproduction Rights vested in the lessee on the effective date of the Lease and thereafter were an enforceable and assignable asset. According to Stewart Title, because the Reproduction Rights required no further performance on the part of the lessee, the bankruptcy trustee's § 365 rejection pertained only to the Use Rights--the executory portion of the Lease. Therefore, the first question we must answer is whether the Lease was a severable contract such that the fulfilled portion would remain enforceable, notwithstanding the bankruptcy trustee's rejection.

A. Severability

A severable contract "includes two or more promises which can be acted on separately such that the failure to perform one promise does not necessarily put the promisor in breach of the entire agreement." Black's Law Dictionary 1373-74 (6th ed. 1990). Black's Law Dictionary defines divisible and severable contracts in similar terms. ⁶ Under Texas law, a contract is divisible, or severable, when one party's performance consists of more than one "distinct and separate item[ ] and the price paid by the other party is apportioned to each item." In re Ferguson, 183 B.R. 122, 124 (Bankr.N.D.Tex.1995) (quoting Johnson v. Walker, 824 S.W.2d 184, 187 (Tex.App.--Fort Worth 1991, no writ)). No one test or rule of law can be used to ascertain whether a contract is divisible or indivisible. Johnson, 824 S.W.2d at 187. "Determination of the issue depends primarily on the intention of the parties, the subject matter of the agreement, and the conduct of the parties." Id. (citations omitted).

The intent of the parties is the principal determinant of divisibility. Lake LBJ Mun. Util. Dist. v. Coulson, 771 S.W.2d 145, 153 (Tex.App.--Austin 1988), rev'd on other grounds, 781 S.W.2d 594 (Tex.1989); see also Sheline v. Dun & Bradstreet Corp., 948 F.2d 174, 177 (5th Cir.1991) (finding that unenforceable covenant not to compete could not be severed from the remainder of a severance agreement because severability "is governed by the intent of the parties"); Nat'l Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 333 (5th Cir.) (noting that "whether [an agreement] is entire or severable turns on the parties' intent at the time the agreement was executed, as determined from the language of the contract and the surrounding circumstances"), cert. denied, 484 U.S. 943, 108 S.Ct. 329, 98 L.Ed.2d 356 (1987). In construing a contract, its unambiguous language alone will generally be deemed to express the intent of the parties. Norman v. Apache Corp., 19 F.3d 1017, 1024 (5th Cir.1994). "The issue as to severability is whether or not the parties would have entered into the agreement absent the [severed] parts." McFarland v. Haby, 589 S.W.2d 521, 524 (Tex.Civ.App.--Austin 1979, writ ref'd n.r.e.) (holding that contract was unseverable where party would not have signed contract absent illegal parts).

In the instant case, the terms of the Lease evidence the parties' intent that the Use Rights and the Reproduction Rights be distinct and separate items. The Use Rights permitted the lessee to use the abstract books, records, and equipment of the plant but not to ...