The Janowitz Edmiston Family Living
Trust entered into two contracts to sell Texas real estate to Rima Group, Inc.
Both contracts contained a Seller Financing Addendum, under which Rima agreed
to deliver credit reports to the Trust within five days after December 9, 2016.
Rima did not deliver the credit
reports to the Trust by that date. The Trust terminated both contracts on the
last day allowed for the Trust to do so.
Two weeks later, Rima filed a
lawsuit against the Trust seeking specific performance.
The trial court rendered judgment
for the Trust, declaring that the Trust properly terminated both contracts.
Rima appealed.
The Court of Appeals started by
reviewing the contracts. Both unconditionally obligated Rima to deliver credit
reports; both gave the Trust unconditional authority to terminate if the
reports were not timely delivered, or if the Trust determined from the reports
that Rima’s credit was not satisfactory.
Both
contracts were unambiguous on this point.
On appeal Rima argued that Rima’s
President had been assured by the trustee of the Trust that the credit report
was merely a formality, since Rima was paying 25% of the purchase price at
closing. And regardless, that the trustee would obtain the required credit
report from Dunn & Bradstreet so that Rima would be relieved of this duty.
Rima argued that based on the email
where the trustee agreed to order the business credit report, Rima’s President
understood that the condition of furnishing a credit report on Rima had been
satisfied.
The trustee disputed Rima’s
allegation that the trustee would obtain the reports and release Rima from that
duty. The Appellate Court agreed with Rima that the trial court should not have
dismissed Rima’s claims and that the parties had genuine issues of material
fact as to whether the Trust relinquished the obligation of Rima to furnish
credit reports.
Now
on to our issue.
Rima also asserted that the Trust
failed to terminate the contracts in good faith because the Trust used its
discretion to determine that Rima’s performance was unsatisfactory.
Neither of the contracts contained
any provisions requiring the Trust to act in good faith. Absent good faith
provisions, the Trust had the right to take whatever action the Trust deemed
appropriate if Rima failed to timely deliver a credit report.
Consequently, the Trust had the
right to terminate the contracts based on Rima’s failure to timely deliver the
reports. Further says the Appellate Court citing Texas Supreme Court authority:
“Under Texas common law, contracts do not impose a general duty of good faith
and fair dealing.”
The Trust wins the point that it had
no duty to act in good faith. That obligation is not inherent in Texas
contracts, and is only applicable when a Texas contract contains that specific language
and in other unusual circumstances evidently not presented in this case.
See
Rima Group, Inc. v. Janowitz Edmiston Family Living Trust; Texas Court
of Appeals, 14th District, Cause Number 14-17-00466-CV; April 23,
2019: https://scholar.google.com/scholar_case?case=15478969053425728452&q=Rima+Group+v.+Janowitz&hl=en&as_sdt=6,44.
Lessons
Learned / Questions Asked:
1. Many
States have cases and laws that impose duties of good faith and fair dealing in
real estate transactions. Texas does not.
2. Texas
does, however, recognize such an obligation when the parties are in a “special
relationship.” That issue does not appear to have been argued in this case.
3. One
might only wonder if the outcome would have been different if Texas had imposed
such a duty, or otherwise if the contracts had provisions to the same effect.
* Board Certified, Commercial (1989) and
Residential (1988) Real Estate Law,
Texas Board of
Legal Specialization
Licensed in the
States of Texas and New York
Higier Allen
& Lautin, PC
2711 N. Haskell
Avenue, Suite 2400
Dallas Texas
75204
P: 972.716.1888
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