Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc.

• Decision Date: 12 December 1996
• Docket Number: No. 14-95-00685-CV,14-95-00685-CV
• Citation: 938 S.W.2d 102
• Parties: TWELVE OAKS TOWER I, LTD., Appellant, v. PREMIER ALLERGY, INC., Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 102

938 S.W.2d 102

TWELVE OAKS TOWER I, LTD., Appellant, v. PREMIER ALLERGY, INC., Appellee.

No. 14-95-00685-CV.

Court of Appeals of Texas Houston (14th Dist.).

Dec. 12, 1996.

Rehearing Overruled Feb. 20, 1997.

John Christopher Dunne, Michael J. Mazzone, Houston, for appellant.

Laura J. Ware Doerre, Solace H. Kirkland, Houston, for appellee.

Before EDELMAN, O'NEILL and DRAUGHN ^*.

OPINION

JOE L. DRAUGHN, Justice (Assigned).

This appeal arises from a dispute concerning a lease. The appeal is from the trial court's judgment in favor of Twelve Oaks Tower I, Ltd. (Twelve Oaks) under which Twelve Oaks recovered $18,333.47 in rent and other charges due under the lease from Premier Allergy, Inc. (Premier). Though it recovered in the trial court, Twelve Oaks brings this appeal complaining about the judgment. Additionally, Premier brings two cross-points challenging the trial court's judgment. We reverse and remand.

In 1988, Twelve Oaks Associates, Ltd. and Dr. Mathew D. Burnett entered into a lease agreement whereby Dr. Burnett agreed to lease a suite in the Twelve Oaks Medical Tower from July 10, 1988, through July 10, 1994. Under the terms of the lease, Dr. Burnett was to use the suite as offices for an allergy clinic.

In March of 1991, the Federal Deposit Insurance Corporation (FDIC) foreclosed on Twelve Oaks Medical Tower. According to Twelve Oaks, the FDIC became the owner and landlord under the lease. However, Premier argues that for the lease to have survived the foreclosure, notice had to be given to Dr. Burnett of the FDIC's intention to "deem the Lease prior to its lien," and there is nothing in the record showing Dr. Burnett received such notice. Dr. Burnett did, however, pay rent to the FDIC during the time the FDIC owned Twelve Oaks Medical Tower.

Later in 1991, Dr. Burnett and Premier entered into an Asset Purchase Agreement, effective June 1, 1991, under which Premier purchased substantially all of the assets of Dr. Burnett's allergy practice. Under the agreement, Dr. Burnett was to assign his interest in the lease to Premier; however, Premier claims that, although it agreed to continue forwarding checks for rent payment, it never actually assumed the lease because there was no consent from the landlord as required under the agreement. Though Premier never actually took over the lease, it paid rent, took possession of the suite, and had the new clinic name, Allergy and Asthma Centre of Houston, put on the door to the suite and on the building directory. The FDIC accepted rent payments from Premier. As for Dr. Burnett, he became an employee of Premier under an employment agreement.

On October 24, 1991, Dr. Burnett died. Premier continued to occupy the suite at Twelve Oaks Medical Tower and continued to pay rent. In July of 1992, Twelve Oaks purchased the medical tower from the FDIC. Premier began making rent payments to Twelve Oaks, and Twelve Oaks accepted them. Premier claims it tried for months to make a go of the allergy clinic without Dr. Burnett; however, Premier admits it became apparent that the allergy clinic was not viable without Dr. Burnett. So, in a letter dated August 31, 1992, Premier advised Twelve Oaks:

[W]e are giving you (30) days notice on our lease with you. September 30, 1992 we will be vacating the premises at 1500 Twelve Oaks Tower, 4126 Southwest Freeway.... We are also requesting at this time for the refund of our deposit in the amount of $2,918.62.

Premier stopped paying rent after September and vacated the suite. On September 9, 1992, Twelve Oaks' attorneys sent Premier a letter challenging its right to terminate the lease. The letter stated the attorneys could find no basis, in law or fact, to support Premier's belief that it could terminate the lease on thirty days notice. The letter also asked Premier to inform the attorneys of the basis on which Premier believed it could terminate. Ultimately, Premier propounded two theories on which it claimed it could terminate the lease: (1) the FDIC foreclosure terminated the lease, and thereafter, Dr. Burnett and Premier occupied the premises on a month-to-month tenancy; or (2) the "death and disability" clause terminated the lease.

On December 1, 1992, Sandra L. Burnett, the executrix and widow of Dr. Burnett, sent a letter to Twelve Oaks stating it was her belief that the lease terminated, by its terms, upon her husband's death. On January 25, 1993, an attorney for Mrs. Burnett sent a second letter to Twelve Oaks stating that the December 1, 1992, letter was a termination of the lease to be effective on December 30, 1992. Twelve Oaks rejected Mrs. Burnett's termination notices and filed suit against Premier and Mrs. Burnett in her capacity as executrix of the Estate of Mathew D. Burnett, M.D.

Twelve Oaks alleged Premier and Dr. Burnett breached the lease. Premier answered, cross-claimed, and counterclaimed. Before opening statements, Mrs. Burnett and Twelve Oaks non-suited their claims against each other; these claims are not part of this appeal. Additionally, Premier settled with Burnett's estate for $12,500.00; these claims are also not part of this appeal. Twelve Oaks' claim against Premier proceeded to a jury trial. The jury found: (1) Dr. Burnett and Premier agreed to an assignment of the lease; (2) the lease was terminated on December 1, 1992; and (3) reasonable attorney's fees for Twelve Oaks were $12,637.50 for trial, $3,212.50 for an appeal to the court of appeals, $1,000.00 for making or respond to an application for writ of error to the supreme court, and $1,000.00 if application for writ of error is granted by the supreme court.

Twelve Oaks moved for judgment on the jury's verdict, but asked the court to disregard the jury's answers to the questions on the termination of the lease; the trial court entered judgment, but refused Twelve Oaks' request to disregard the jury's answers on termination. Premier asked the court to deny Twelve Oaks' motion for entry of judgment and grant judgment in favor of Premier for the amount of the security deposit; the court refused. In its judgment, the trial court ordered that Twelve Oaks recover $18,333.47 from Premier, plus pre- and post judgment interest. The court stated the amount of recovery represented rent and other charges due under the lease upon termination effective December 31, 1992. As to the attorney's fees, the trial court reduced the amounts found by the jury and awarded Twelve Oaks $3,033.39 for trial, but refused to award any appellate attorney fees. Both parties appeal from the judgment.

Twelve Oaks has raised twelve points of error and Premier has raised two cross-points. Because Premier's cross-points concern the initial question of the validity of the assignment, we shall address them first.

In its first cross-point, Premier claims the trial court erred in entering judgment in favor of Twelve Oaks because the foreclosure on the property by the FDIC in 1991 terminated the lease as a matter of law. Thus Premier claims that after foreclosure, its occupancy was nothing more than a tenancy at will which was terminable at will by either Premier or Twelve Oaks. In support of its position that the foreclosure terminated the lease and thereafter only a tenancy at will existed, Premier cites ICM Mortgage Corp. v. Jacob, 902 S.W.2d 527 (Tex.App.--El Paso 1994, writ denied). While we agree that the lease terminated when the FDIC foreclosed on the property in 1991, we do not agree that a tenancy at will was created following the foreclosure.

When a tenant's landlord-mortgagor is foreclosed upon by the landlord's mortgagee, the tenant's lease is ordinarily terminated. Id. at 530 (citing B.F. Avery & Sons' Plow Co. v. Kennerly, 12 S.W.2d 140, 140-41 (Tex.Comm'n App.1929, judgm't adopted); Gainesville Oil & Gas Co. v. Farm Credit Bank of Texas, 847 S.W.2d 655 (Tex.App.--Texarkana 1993, no writ); Bateman v. Brown, 297 S.W. 773 (Tex.Civ.App.--Amarillo 1927, writ dism'd)). The Jacob court initially characterized termination following foreclosure as a "general" occurrence because it recognized that certain Texas caselaw seemed to pronounce a contrary rule. 902 S.W.2d at 530.

In Lockhart v. Ward, Dewey & Co., 45 Tex. 227, 228 (1876), Lockhart, the purchaser of property at a foreclosure sale, sued to evict a tenant from the property he purchased. The Texas Supreme Court held that a tenant is a necessary party to a foreclosure action against his landlord, and therefore, the tenant could assert his right to redeem against the purchaser at his first opportunity, i.e., the suit to evict him. Id. at 231. Oddly enough, after stating this rule and noting the tenant's desire to redeem, the court awarded the property to Lockhart. Id. The court's actions could be interpreted to mean that the failure to join the tenant as a party to the foreclosure merely meant that the foreclosure proceedings did not conclusively determine the tenant's rights, not that the tenant actually had any greater rights. See Jacob, 902 S.W.2d at 531.

In Kennerly, a case with similar facts, the court, citing Lockhart, noted that a tenant's rights were not determined when his landlord's mortgagee foreclosed. Kennerly, 12 S.W.2d at 140-41. However, the court then held that the foreclosure sale purchaser received a title free from the obligations of the lease and was entitled to immediate possession of the property. Kennerly, 12 S.W.2d at 140-41. Though citing Lockhart for the contrary proposition, the Kennerly court, by holding that the foreclosure sale purchaser received a title free from the lease, implicitly held that foreclosure did determine the tenant's rights. Further, the Kennerly court went further than the Lockhart decision and expressly found the lease terminated by the foreclosure sale. Id. Therefore, even if the Lockhart court meant to hold that a tenant can enforce a lease against a foreclosure sale purchaser, that holding was implicitly overruled when the court adopted the ...