Monday, August 20, 2012

Real Estate Deals Must Be Written - - Are You Sure?

Tom Sibley is a Beaumont real estate lawyer, first licensed in Texas in 1964. Mr. Sibley formed a professional corporation in 1981, and he signed a commercial office Lease in 2001 for space in Beaumont on behalf of his PC. The Landlord – Brentwood Investment Development Company, LP, did not sign it. The appellate opinion does not give us any guidance as to why Brentwood failed to do so.

The Lease was for 4,072 square feet, 10 year term, $13.50 PSF for the first five years, $14.50 for the second five years, plus some ‘net’ expenses of approximately $1,272 per month.

Sibley PC moved in before October 1, 2001 – just about 10 years ago as I write this. For unstated reasons, Sibley did not make full rent payments for 38 months, to November 2005. In that period, Sibley only made partial rental payments in July, August and September 2005, according to Brentwood’s records.

Brentwood filed a lawsuit against Sibley PC in March 2008. Brentwood alleged that Sibley PC owed $214,993 in unpaid rent, plus other expenses. Brentwood won at trial; Sibley PC appealed.

Predictably, Sibley PC claimed at trial on appeal that there was no enforceable contract. The facts were clear and undisputed: Sibley signed the Lease; Brentwood did not.

The Appellate Court determined that the parties proceeded with the Lease as if it had been signed. Sibley PC occupied the space and operated a law firm from the premises. Sibley PC made a few rent payments. Brentwood maintained the building and common areas.

The Beaumont Court of Appeals then stated that “. . . the absence of a party’s signature does not necessarily destroy an otherwise valid contract [citation omitted]. A party may accept a contract, and indicate its intent to be bound to the terms by acts and conduct in accordance with the terms.”

Hmmm you say? Sounds logical you said? Well, do a Google search on Texas “black-letter” law on this point. Check out 26.01(b)(4) and (5) of the Texas Business & Commerce Code:

The Sibley PC Lease had a 10-year term, so it is not excluded from the Statute of Frauds exception of 26.01(b)(5) or (6), regarding agreements with a term that is one year or less.

Texas law seems clear that for all leases with a term longer than one year, it must be in writing and signed to be enforceable. The Beaumont Court of Appeals is equally clear – no writing and no signature required in situations where the failure to sign appears to be inadvertent, and the parties performed as if there were an executed lease.

Brentwood Investment (the Landlord) wins. Sibley PC (the Tenant) loses. Thomas J. Sibley, P.C. v. Brentwood Investment Development Company, LP, No. 08-10-00033-CV, Texas 8th Court of Appeals, September 6, 2011.

Lessons learned:

1. Texas laws are written as statutes and govern our conduct in many areas, including business.

2. Texas judges and justices interpret those laws, and apply them to the facts of the case.

3. In a battle between law and doing what is fair and right, occasionally the law loses.

4. When the law loses to a just and correct decision, it may be difficult to thereafter plan future business decisions. Should you be guided by Texas law, or Texas judges and justices that may disregard Texas law?

5. If I had an answer to # 4, I would probably go to Tel Aviv because surely I could also resolve the mid-east conflict too.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Tuesday, August 7, 2012

Jury Decisions are Inviolate - - Right?

Do you remember from your US History or US Government class the text of the Seventh Amendment to the US Constitution (Bill of Rights)? In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any court of the United States, than according to the rules of the common law. Adopted in 1789, the Bill of Rights became effective through state ratification in 1791.

Is it coming back to you now? Recently Courts have become more willing to erode the power of juries and ignore the Constitutional prohibition from re-examining jury decisions. The case of Drury Southwest v. Louie Ledeaux is a good example.

Drury (as in Drury hotels) owned property in San Antonio, and leased some to Louie to operate Louie’s Mexican Hacienda Restaurant. Problems arose regarding a construction permit, signage, and Loop 410 highway access. So Louie met with Drury to consider changing the restaurant format, and Drury responded by changing the door locks and filing a lawsuit. It seems that Louie was not delinquent in the payment of rent, although that part is not clear from the Court’s opinion.

Louie counterclaimed for breach of contract and other matters. The Texas jury, hearing the evidence, awarded Louie $625,000 in actual damages. Drury appealed, stating that the evidence heard by the jury was insufficient for them to grant such a large award.

The Texas Court of Appeals analyzed Louie’s damages, tabulating a $95,000 loan from Sterling Bank, $50,000 line of credit also from Sterling Bank, $176,500 loan from American Equipment Finance, $18,000 bill owing to Sysco Foods, plus another $35,000 in signage expenses. The sums total approximately $375,000, not $625,000.

Louie argued that the difference of $250,000 was “sweat equity,” reflecting the value of Louie’s labor and the other owners who worked 14 to 16 hours a day to finish-out and then operate the restaurant. The Texas Court of Appeals, not persuaded by the “sweat equity” argument, could not readily find other evidence to support the balance of the $625,000 award. So instead of refusing to re-examine the jury decision (see the Seventh Amendment to the Bill of Rights!), the Appellate Court reversed the decision of the jury and trial court, and remanded for further proceedings.

Jury decisions inviolate? Not so much. Not anymore. Both trial and appellate Courts have shown a willingness to erode and disregard jury decisions in Texas and elsewhere. And we wonder why it is so difficult to get citizens to serve as jurors . . . sorry . . . I digress.

Drury Southwest, Inc. v. Louie Ledeaux #1, Inc., No. 04-10-00016-CV, Texas 4th Court of Appeals, July 6, 2011.

Lessons learned:

1. Jury decisions will be reviewed on appeal.

2. Jury decision may be overturned on appeal.

3. The Seventh Amendment is dying.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.