Thursday, April 3, 2014

Stop the Presses! [reboot]

Remember last month’s article? Well, evidently the same Texas appellate court came to an opposite conclusion just a few weeks ago. As Ricky Ricardo would say, "let me ‘splain."

Moody National Kirby Houston S, LLP, entered into a contract to sell a vacant lot in Houston to Capcor at KirbyMain, LLC. Seller and Buyer used TREC Form 9-10 “Unimproved Property Contract” for that purpose.

Capcor deposited $25k with Moody National Title Company, LP. Note the similarity in names? Both Moody Title Company and Moody Kirby were owned by Brett Moody.

On the day before closing Moody Title escrow agent Kay Street told Capcor’s lawyer that Moody Title needed to receive the purchase funds in the form of a wire transfer. Kay Street told Capcor’s principal, Josh Aruh, the same requirement when he arrived at the title agency offices the next morning to sign closing docs.

Capcor’s lender timely wired funds to Moody Title. Regardless, sometime after 5p.m. on the day of closing Capcor principal Avi Ron arrived at Moody Title with a cashier’s check.

Kay Street told Ron that she was leaving for the day and could not accept the check. Ron left it with her anyway. Capcor’s attorney offered to replace it the next day with a wire transfer. Moody Kirby however, sent notice that it was terminating the contract.

Capcor refused to sign a Release and instead sued Moody Kirby and Moody Title. Moody Kirby counterclaimed, demanding the earnest money and three times the amount of the earnest money, as provided by Section 18.D. of TREC Form 9-10.

Starting to sound familiar? See last month’s article if it doesn’t.

The jury found that Capcor had breached the contract and that Moody Kirby had the right to terminate the deal since Capcor had not timely performed its obligations. Paying for land with a check on the day of closing was not allowed when, the jury held, Kay Street had specifically told Capcor that Moody Title needed to receive all funds by wire.

The jury also found that Moody Title did not breach any fiduciary duties owing to Capcor. So the trial court entered judgment against Capcor, awarding Moody Kirby its attorney’s fees, escrowed funds, and earnest money plus liquidated damages equal to three times the amount of the earnest money.

Capcor appealed.

The Appellate Court first analyzed Moody Title’s obligations and whether or not they were properly discharged. They were. Then, the Court turned its attention to Moody Kirby’s right to terminate the deal because Capcor attempted to buy the land with a check when a wire was required and Capcor had been advised of that requirement.

Moody Kirby evidently had the right to terminate.

Strangely, there is nothing written about liquidated damages, other than to uphold the jury’s verdict and the trial court’s judgment. How interesting from the same Court that, barely eight months ago, invalidated TREC’s concept of “liquidated damages are always equal to three times the earnest money.”

The trial court’s Judgment was affirmed for Moody Title and Moody Kirby. See Capcor at KirbyMain, LLC v. Moody National Kirby Houston S, LLC; No. 01-13-00068-CV, Texas Court of Appeals – First District, March 13, 2014.

Lessons learned:

1.      In July 2013 the same Appellate Court reached the opposite conclusion regarding liquidated damages. Could it be that liquidated damages were not contested by Capcor in this appeal?

2.      Contact the title agent well before closing, so you will know their unique requirements and be prepared.

3.      I counsel my clients to avoid the situation where a party to a contract is also affiliated with the title agency. Although it appears that Kay Street was impartial in this case and should be commended for it, I am painfully aware of other circumstances where those who are connected receive more favorable treatment.

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