Bryan Parmelly owned 700 acres in Taylor County. The acreage was naturally divided by a steep bluff into “upper” and “lower” portions. In 1999, Bryan signed a surface lease covering most of the property, for a 20-year term with renewal options.
Under the lease, Vulcan Construction had the right to remove rock, dump dirt and waste, construct plants, and conduct mining operations. Vulcan started its operations upon the upper portion of the property, although its lease allowed it to conduct similar operations on the lower part as well.
Bryan hired A.E. Nelson Jr. to sell the lower tract in 2013, consisting of 225 acres. Gary McCall, principal of McCall Motors and experienced real estate investor, saw an advert and expressed his interest.
Gary viewed the property several times and observed Vulcan’s mining operations on the upper tract. The lower tract border was merely feet from the edge of the rock quarry.
McCall Motors elected to purchase the 225-acre lower parcel for $1,500 per acre. The Contract of Purchase and Sale failed to disclose the existence of any surface leases and instead affirmatively provided: “None at time of closing.”
Remember those five words – they become relevant later.
Before closing Gary received a title commitment which specifically excluded coverage for the Vulcan lease and two other oil and gas leases that were recorded in Taylor County. Under the terms of the contract, Gary had the right to object to adverse title matters and if Bryan did not provide a remedy, then Gary could terminate the deal and receive the full return of all earnest monies.
Gary acknowledged receipt but claimed he did not review. Regardless, Gary neither objected nor terminated. So, McCall Motors purchased the lower acreage subject to the Vulcan lease.
McCall Motors elected to sell the property in 2015 to Jeremy and Jennifer Britten, who offered $500,000 – a substantial and quick profit. Ultimately M/M Britten terminated the deal when they objected to the title commitment, which disclosed the existence of the Vulcan lease.
McCall Motors sued Bryan Parmelly, A.E. Nelson Jr., and others claiming the existence of the Vulcan lease was not properly disclosed; Bryan Parmelly settled his portion before trial. 11 members of the jury determined that Nelson committed fraud. The jury awarded McCall Motors $16,000 in damages and $30,000 for lost profits on each of McCall’s fraud claims.
The trial court ultimately converted the jury’s award into a judgment for McCall of $130,660 for actual damages and $177,500 attorney’s fees. Nelson appealed, claiming that McCall had no right to claim it relied upon the statement in the Contract of Purchase and Sale.
On appeal McCall contended that Nelson made a representation that there would be no surface leases on the property at the time of closing. See the magic five words. Although the Vulcan lease was in existence at the time the Contract was signed, Seller would cause it to be terminated by closing at least to the target 225-acre parcel.
That was McCall’s position, anyway.
The Appellate Court started by enumerating “red flags” (that’s the term in the decision): (a) the neighboring quarry operation was “very apparent”; (b) there was a sign present on the site identifying Vulcan; (c) Parmelly intended to maintain ownership of all minerals at and under the property; (d) Gary McCall, a sophisticated real estate investor, failed to object to the Vulcan lease when he received the title commitment; and (e) Gary had been engaged in over 160 real estate deals and understood the significance of a title commitment.
The Court of Appeals concluded that McCall did not justifiably rely on the statement “None at time of closing” with regard to the Vulcan lease. Consequently, the trial court’s Judgment was reversed; Nelson wins and McCall loses. See Nelson v. McCall Motors; Case No. 11-17-00307-CV; Eastland Court of Appeals of Texas, 11th District; May 29, 2020; https://scholar.google.com/scholar_case?case=2214463018347336545&hl=en&as_sdt=6&as_vis=1&oi=scholarr.
Lessons / Questions
- Question: Is this the correct decision – what gives an appellate court the right to re-examine the facts and determine that Gary McCall did or did not rely – isn’t that the sole job of the trial jury?
Will this cause you to rethink how you disclose title and survey matters?
- Question: Why was the broker tagged with this trial court Judgment anyway – shouldn’t it have been only against the property owner since the broker is merely the agent for the owner?
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,Texas Board of Legal Specialization
Licensed in the States of Texas and New York