“Specifically Perform This” Says David McDavid

How can something so beautifully simple as a written contract become so confused that it takes from 1997 to 2002 to decide whether there is or is not a contract via litigation? Make the subject of the contract real estate, and amend it with several oral agreements.

If most lawyers had their choice, they would almost always choose certainty over doubt. (Actually this might not apply to trial lawyers, who generally look for ways to muck things up.) We real estate types have a major weapon on our side: the Statute of Frauds requires that certain types of agreements must be in writing to be enforceable. On top of that list are agreements relating to real estate.

And so, in accordance with the Statute of Frauds, and on recommendation of their respective lawyers, on February 25, 1997, David McDavid and 17090 Parkway, Ltd. signed a written contract for the sale of an office building. The closing date was set at March 31, 1997, and the contract provided “Time is of the essence.” This provision is very important in real estate contracts; it means that performance must occur within the specified time and if it does not, the other party may enforce the contract by specific performance.

Well, time must not have really been of the essence after all, at least not literally. Parkway and McDavid orally agreed to extend the contract to April 14, 1997. Both parties dutifully got their lawyers to draft up a written amendment stating such, which both parties signed. The amendment also allowed an additional extension to April 30, 1997, upon McDavid’s payment of another $50,000 earnest money. So far, so good. But it only goes downhill from here.

Parkway allowed McDavid to extend the contract from April 14 to April 30 with payment of only $25,000. Then the parties again orally agreed the contract could be further extended to May 30 upon payment of an additional $75,000 in earnest money. And on or prior to April 30, both parties yet again dutifully got their lawyers involved to draft up the written amendment, but this time the check got cashed first, and then Parkway marked up some changes to the amendment and sent it back to McDavid’s lawyer. McDavid’s lawyer approved and made the changes, and delivered the revised agreement to McDavid.

Then the train came off the tracks. The parties never signed this second amendment. And in just a few short days, on May 13, 1997, Parkway delivered a letter to McDavid claiming that the contract terminated on April 30, 1997. Never mind that Parkway still held the $75,000 extra earnest money that had been paid at the same time the agreement was reached.

Well, McDavid not only didn’t necessarily want its $75,000 back, but it wanted the property. And when dealing with real property, specific performance of the contract is an available remedy. Specific performance is where the court orders the parties to complete the transaction.

With few good options, on May 30, 1997, McDavid filed a lawsuit against Parkway for specific performance of this agreement. Of course, the first question was, “what’s the agreement?” And in order to prove the agreement, both McDavid’s lawyer and Parkway’s lawyer who participated in negotiating and drafting the agreement and various amendments, had to testify. The Court of Appeals’ opinion states: “The parties’ attorneys….testified as to their correspondence with one another regarding a draft amendment memorializing the oral agreement between [McDavid] and [Parkway]. Their written correspondence and drafts of the amendment were introduced into evidence.

At trial the jury found that Parkway’s actions waived the “time is of the essence” requirement owed by McDavid, and since that provision was no longer effective against McDavid, McDavid was not in breach, had an enforceable contract, and was entitled to specific performance against Parkway. And it only took the case just over 5 years (and probably a whole bunch of attorneys fees) to be decided. All because the parties didn’t sign an amendment that they instructed their lawyers to prepare.

What can be learned from such lunacy, you may ask. I see at least the following lessons:

1. What you do affects what you write, and may change its meaning and effect altogether. Keep your lawyer involved as you perform your written contracts; and

2. Sign the documents your lawyer asks you to sign in a timely manner. It’s one of those “help me help you” matters.

17090 Parkway, Ltd., v. David McDavid, Case No. 05-00-1-01362-C (Tex. App.-Dallas, June 18, 2002)

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Enviropinions are original writings of Mark McPherson.
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Show Me the Money for Violating an Easement

A cable television provider negotiated a “Joint Use Agreement” with Hill County Electric Cooperative, where it was able to attach its cable transmission lines to the electric poles, by compensating Hill County Electric of course. Marcus Cable later bought this cable TV provider.

This Joint Use Agreement only allowed Marcus Cable to attach its lines “to the extent [Hill County Electric] may lawfully do so.” In other words, if the easements held by Hill County Electric could be read to include cable TV lines, then Marcus Cable could use Hill County’s poles and easements and string up their lines; if not, Marcus Cable would have to buy an easement from the landowner across whose land they wanted to string their lines. It’s all about the money.

Apparently Marcus Cable decided to either take its chances, or to not pay close enough attention, because it just strung up its lines. They must have thought they were in the clear, but 7 years after running their lines across the Krohns’ land, the Krohns sued Marcus Cable, alleging Marcus Cable had no right to run their lines across the Krohn land. And they went for the jugular, suing for trespass, negligence, both actual and punitive damages, and they turned up the heat further by going after an injunction to force Marcus Cable to remove the lines. Marcus Cable had really put itself in a box and subjected itself to lots of uncertainty.

The easement agreement at issue had been given to Hill County Electric by H.W. and Ruth Curtis, in 1939. This easement transferred with the land through successive owners, to include the Krohns. It gave Hill County Electric the easement for the purpose of constructing and maintaining “an electric transmission or distribution line or system.”

Marcus Cable took the position that this easement grant included cable TV transmission lines. It said, basically, that:

(1) a television cable is a “line”,

(2) a television signal is “electric”,

(3) sending the signal is an “electric transmission, and

(4) transmitting it among a number of users is an “electric distribution.”

Thus, a television cable is within the exact words of the easement granted. Furthermore, television cables are nearly indistinguishable when laid right next to each other, especially many yards up in the air on a utility pole. And that argument got exactly one vote in the Texas Supreme Court.

Eight Texas Supreme Court justices voted for the landowner, ultimately holding that the easement at issue did not include cable TV lines. These justices basically characterized the cable TV lines as communications lines, not electrical lines. If the easement grant language had allowed lines for electrical and communications, such as phone lines, then Marcus Cable would have won. But, given the language of this easement, it was left only to hold a jury trial to determine the amount of money Marcus Cable owed for trespassing on the Krohns’ land. Intentionally. Ca-ching.

Here are the rules of easements as confirmed by the Texas Supremes in this case:

1. An easement is a nonpossessory interest in land that authorizes its holder to use the property for only particular purposes.

2. Easement agreements are interpreted to give effect to the intention of the parties ascertained from the language used in the agreement, or the circumstances surrounding the creation of the easement, and to carry out the purpose for which it was created.

3. Nothing passes by implication except what is reasonably necessary to fairly enjoy the rights expressly granted. If a particular purpose is not provided for in the grant, a use pursuing that purpose is not allowed.

4. The manner, frequency, and intensity of an easement’s use may change over time to accommodate technological development, but such changes must fall within the purposes for which the easement was created, as determined by the grant’s terms.

The public policies behind these rules of easements are to promote certainty in land transactions, and for owners to be assured that their conveyances will not be construed to undermine private-property rights.

For landowners giving easements, make sure the easements are limited in their grants as to what may and may not be put in the easement premises. Make sure you are compensated. And draw these grant provisions narrowly to make sure you are compensated yet again, and again, and again, every time the easement is used for additional or different purposes. Of course, if you’re acquiring the easement, pay once, and get everything, including the right to assign parts of your easement rights. Then you can be the one compensated over and over.

Marcus Cable Associates, LP, v. Krohn, Case No. 01-1291, Texas Supreme Court, decided November 5, 2002.

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Enviropinions are original writings of Mark McPherson.
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15950 Dallas Parkway, Suite 400
Dallas, TX 75248
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mark@texasenvironmentallaw.com
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Preserving Your Ability to Collect Damages When You Buy Damaged Property

The Senns bought the surface estate to 23,013 acres on June 5, 1997. Part of this land had been used for active oil production since 1948, which had left oil and gas related roads, well locations, treatment plants, exposed pipelines, and tank batteries scattered around, by the time the Senns bought it.

The deed transferring title to the Senns contained normal language often considered boilerplate:

AS IS WHERE IS, AND WITH ALL FAULTS AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER EXPRESS OR IMPLIED, WRITTEN OR ORAL, EXCEPT SOLELY THE WARRANTY OF TITLE EXPRESSLY SET FORTH HEREIN ABOVE; IT BEING THE INTENTION OF GRANTOR AND GRANTEE TO EXPRESSLY REVOKE, RELEASE, NEGATE AND EXCLUDE ALL REPRESENTATIONS AND WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES AS TO…..(viii) ANY ENVIRONMENTAL, GEOLOGICAL, METEOROLOGICAL, STRUCTURAL, OR OTHER CONDITION OR HAZARD OR THE ABSENCE THEREOF HERETOFORE, NOW, OR HEREAFTER AFFECTING IN ANY MANNER ANY OF THE PROPERTY, INCLUDING, WITHOUT LIMITATIONS, CONCERNING WATER IN, ON, UNDER, OR ABOUT THE PROPERTY.

Then, the Senns sued Texaco, Exxon, and seemingly every other oil company in sight, to recover for all these surface damages to their land, as well as additional damage caused to the underground water aquifer. Needless to say, the oil companies were less than impressed. They basically walked right into court and said “the damage had already been done, so there’s no way the Senns can win.” The rule the oil companies relied on is simply this:

a cause of action for damages to real property is a personal right which belongs to the person who owns the property at the time the thing that causes the damage commences to affect the land. It is not a right that “runs with the land” from owner to owner.

Strike one.

But the Senns said “not so fast” and threw out a few “come backs”: (1) the seller conveyed us their rights against these big, bad oil companies for surface damages, and (2) we, and nobody before us, discovered the aquifer damage, so since we discovered it, that cause of action, at least, is ours, all ours.

Said the court “well, let’s take a peek at the written documents you signed or accepted.” And that was pretty much the end of the case. In response to the Senns’ first comeback argument, the court simply read from the deed:

Nothing contained herein is intended to limit the right of [Seller]….to seek to recover whatever surface damages to which [Seller]…..may be entitled under Texas law in the event of the production or mining of any of the foregoing minerals and other substances.

The Sellers expressly kept to themselves the right to sue the oil companies for damages relating to oil and gas production. If the Sellers kept it, by definition they couldn’t have also conveyed it to the Senns. Strike Two.

On the Senns’ comeback argument No. 2, the Court said the whole “I discovered it first” applies to statutes of limitations, where, for example, a person has 2 years to bring a lawsuit, and they don’t bring it until 3 years after the damaging event, but they argue “the statute of limitations should be extended because I only now discovered the injury.” The court basically said “this is an irrelevant argument for land damage. The question of statute of limitations can’t even apply unless and until a party has the right to bring a cause of action, and the Senns have absolutely no right to bring any cause of action for surface damages. Strike three, and the Senns were poured right out of court.

In a very similar case, David Pluff bought the surface estate to 10 acres in Rusk County, Texas, for $1,000 per acre. The year was 1992. By this time all oil production on this land had come to a halt. He moved “two cattle and some horses” onto it, but soon had to get them back off the property because there was just too much abandoned oil production material. It had all been, DOM DoM dom……..Left Behind.

So he sued all these oil companies that had operated on his land, and he actually won a jury trial verdict against Exxon for $30,000. Unfortunately, the Court of Appeals overturned the verdict and awarded him a big, fat zero. Why? Because he didn’t own any cause of action against Exxon. The damage had been done to the land before he bought it.

In technical legal terms, we call it “standing.” A plaintiff must have standing to come before the court. Standing requires the plaintiff to have a legally recognized injury producing legally recognized damages, and a defendant that has caused those damages.

Pluff’s case went a little further, though. He also argued that the terms of the oil and gas lease required these oil companies to remove all their equipment from the land. But here’s the language from the lease:

[Exxon] shall have the right at any time during or after the expiration of this lease to remove all property and fixtures placed by [Exxon] on said land including the right to draw and remove all casings.

The court decided that “shall have the right” doesn’t mean “must” but rather made it optional at Exxon’s discretion. Here’s another example of language that just doesn’t quite impose a duty to remove equipment:

upon termination of this lease, lessee shall have 90 days to remove its machinery, structures and other property erected on the land by lessee.”

There is no implied duty to repair damage done to land caused by rightful and necessary use. Aren’t written documents wonderful? They can clear up a lot of misunderstandings, if people would just believe what they said.

So what are the morals to these stories? Well, there are several:

As buyer:

1. Put an express provision in deeds or the sales contract conveying all the seller’s personal rights to damages for prior surface damage to the real property. This is in the nature of an assignment of a personal right.

2. Make sure you understand the effect of prior leases affecting the property, so you know what can be enforced against prior users of the property, assuming you do get the assignment of the seller’s rights to sue for those damages. That effect could well be zero, or several hundred thousand dollars.

3. Bargain for warranties in the deed about the condition of the land and any subsurface aquifer.

4. Perform a complete inspection of the land and any subterranean waterways before purchasing the land. This is typically referred to as “due diligence.” Do your homework.

As Seller, make sure whatever warranties you agree to make, whether about title, land condition, improvements, aquifer condition, or any other matter, are accurate. And as the Buyer bargains for more warranties, bargain for more cash. Lots more cash.

Exxon Corp. v. Pluff, Case No. 12-01-000009-CV, Texas Court of Appeals, Tyler, May 31, 2002; Senn, et al., v. Texaco, Inc., et al., 55 S.W.3d 222 (Tex. App.–Eastland 2001).

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Enviropinions are original writings of Mark McPherson.
© 2014, Mark McPherson. All rights reserved.
15950 Dallas Parkway, Suite 400
Dallas, TX 75248
214-722-7096 Office
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mark@texasenvironmentallaw.com
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When a Lie Goes Unpunished: Due Diligence Is Critical

Along about 1981, Lawrence Marshall decided to buy up land in South Texas around Uvalde. He eventually ended up with 6,828.2 acres at a cost of $2,047,985.16. Then, he went to building a hunting lodge, roads, game proof fencing, machine shops, deer feeders and barns. I like this guy. These extras cost $820,534.90. Then, he stocked the ranch with exotic deer, sheep and goats.

Alas, an outbreak of anthrax in 1987 killed some of the animals, and in 1991 Marshall decided he’d better sell the ranch. It took awhile, but finally in 1996 Marshall sold the ranch to Gilmore-Barclay, Ltd., a real estate investment limited partnership, for the bargain basement price of $822,000, $616,500 of which he seller-financed non-recourse. In April of 1997, Gilmore-Barclay, Ltd., sold the ranch to M. F. Kusch, for $1.2 million, consisting of $298,049.62 in cash and assumption of the non-recourse note. Later that same year, there was another outbreak of anthrax on the ranch that again killed many animals.

Kusch didn’t bargain for anthrax, so he sued everybody in sight: Marshall, Gilmore-Barclay, Ltd., its general partner Terracotta Land Company, Inc., and both real estate brokers involved in the sale to Kusch.

And so to court everyone went. Fraud, Deceptive Trade Practices, and Conspiracy were the themes. Everybody settled out before trial except for Marshall. The jury found that Marshall had committed fraud and violated the DTPA, awarding $369,502 in actual damages, $3 million in punitive damages, additional damages in the amount of $737,004, plus pre-judgment interest, post-judgment interest, and attorneys fees. Ouch. Right about then, it looked like the settlement option was the best way to go. And so, at that point Marshall did the only rational thing to do, which was to appeal.

Marshall’s problems stemmed from some comments he had made way back in 1996 to the effect that there was no anthrax on this land. Those comments were made to the broker for Gilmore-Barclay, Ltd. In 1997, those comments were repeated by that broker to Kusch’s broker. I can imagine Marshall’s lawyer saying “you don’t want this case to go to trial, because your defense is going to be “I lied about the anthrax but it makes no difference that I lied,” not exactly a compelling defense. Kusch had to be licking his chops once he got the case to the jury.

But Kusch had problems of his own. Fraud requires:

(1) a material misrepresentation;

(2) that was either known to be false when made or was asserted without knowledge of its truth;

(3) which was intended to be acted upon; and

(4) which caused injury.

Under Texas law, a misrepresentation does not have to be made directly to the relying party, it can go through intermediaries such as brokers. But it must, at some point, reach the relying party. The relying party, in other words, must have heard something he relied on. Which brings us back to Kusch’s problem: Kusch never asked, nor was affirmatively told, anything about anthrax. Since the misrepresentation was never communicated to Kusch, he had nothing to rely on, and so Marshall could not be liable to Kusch for fraud as a matter of law. In other words, the trial court should never have entered a verdict against Marshall based on fraud. That settlement option wasn’t looking so good right about now.

Next up was “fraud by omission.” Kusch claimed he was the beneficiary of Texas law of fraudulent omission, which is basically as follows: a seller of real estate is under a duty to disclose material facts that would otherwise not be discoverable by the exercise of ordinary care and diligence on the part of the purchaser, or that a reasonable investigation and inquiry would not uncover. The court disposed of this argument rather quickly: that duty is owed from buyer to seller. Kusch was indeed the buyer, but Marshall wasn’t the seller. And so it’s Marshall 2, Kusch 0, with one huge battle to go, the infamous DTPA.

Marshall took the same tack on the DTPA: “even though I misrepresented the anthrax, nothing I said made it to Kusch’s ears so I’m not liable.” Kusch countered that Marshall’s misrepresentation was connected to his transaction due to the non-recourse note and lien on the property. Interestingly, both parties here relied on the very same case to argue the exact opposite meaning.

The court decided that Marshall’s benefit came from his sale of the property to Gilmore-Barclay, Ltd. That the note was later assigned to and assumed by Kusch made no difference in that benefit; it didn’t connect the note and lien to Kusch’s purchase transaction. There being no connection, and no privity of contract (Kusch didn’t buy the property directly from Marshall), the DTPA didn’t apply to this case as a matter of law. Game, Set, Match. Now, finally, a settlement definitely looked like not the way to go in this case.

For those of you interested in some sort of reckoning for Marshall, answering for his misrepresentation in some way, don’t forget that Marshall still had to pay his attorneys fees incurred in this matter, which probably were fairly substantial. And he had to deal with the emotional torment of uncertainty which is inherent for all parties in litigation.

This case illustrates how critical it is for buyers of property to conduct adequate due diligence. What is adequate due diligence? It is a review and analysis that turns up every material fact that impacts a land’s fair market value and how the buyer intends to use the property in the future. Land situated in urban areas or subject to multiple uses and zoning requires even more due diligence.

In this case, whatever due diligence Kusch undertook wasn’t enough. He got stuck with some land with a history of anthrax, which probably will affect the fair market value of that land for some time in the future. He may have grossly overpaid for the land. The red flag was there to prompt additional questions-why didn’t Kusch ask probing questions until somebody mentioned the word “anthrax”?

Marshall v. Kusch, Case No. 05-00-01791-CV, Texas Court of Appeals for the Fifth District, Dallas, Texas, August 22, 2002

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CREDITS

Enviropinions are original writings of Mark McPherson.
© 2014, Mark McPherson. All rights reserved.
15950 Dallas Parkway, Suite 400
Dallas, TX 75248
214-722-7096 Office
214-540-9866 Facsimile
mark@texasenvironmentallaw.com
www.TexasEnvironmentalLaw.com