Friday, March 31, 2023


            In 2011 Gulley-Hurst sold a partial interest in a landfill to MSW Corpus Christi for $7.5 million in a seller-financed transaction. Following some disagreements, MSW and GH entered into a contract that allowed MSW to purchase the remaining interest from GH within 120 days.

But if the closing did not occur within the 120-day deadline, then MSW was required to convey its interest back to GH.

            MSW did not close the purchase by the deadline. As a result, in a role-reversal MSW became the seller and GH became the buyer of MSW’s partial interest in the landfill. As partial consideration, it was also GH’s obligation to refinance a $5 million mortgage loan from AmeriState Bank, for which MSW was liable.

            MSW fulfilled its requirements as seller, and timely conveyed the property to GH subject to the AmeriState bank loan. Thereafter, GH failed to refinance the AmeriState debt.

            So MSW sued GH for breach of contract, requesting damages caused by GH’s failure or refusal to pay off the mortgage debt incurred by MSW to purchase the partial interest in 2011, which release MSW required to protect MSW’s credit standing and that of the loan guarantors, and so MSW could borrow more funds for more projects.

            At the time of trial the value of MSW’s ownership interest in the landfill had appreciated from $7.5 million to $17+ million. So, through some fancy footwork, the jury was convinced to reach a verdict awarding MSW “benefit of the bargain” damages of $10+ million.

            Again, remember that MSW was pursuing a breach of contract claim, caused by the failure of GH to pay off or refinance a $5 million mortgage loan. This is not a damages claim asserted by a buyer, caused by a seller’s refusal to convey the property.

In any event, after return of the jury’s verdict the trial court reduced it to $00, stating “I did not submit the proper measure of damages to the jury.”

MSW appealed, hoping for reinstatement of the $10+ million jury verdict. The Court of Appeals affirmed the trial court’s $00 judgment.

MSW further appealed to the Supreme Court of Texas, again requesting reinstatement of the “benefit of the bargain” damages of $10+ million.

The Supreme Court starts by stating the general rule for measuring benefit of the bargain damages is to calculate the difference between what was promised and what was received. But when the property’s market value at the time of breach exceeds the contract price, the correct measure of damages is the difference between the promised contract price and what the seller received.

Permitting a seller to recover more than the contract price would be an unlawful windfall, at buyer’s expense.

Had the contract been fully performed, MSW was entitled to receive $7.5 million for its ownership in the landfill – not $10+ million. As MSW expected to receive $7.5 million, the damages to which MSW is entitled are the difference between $7.5 million and what MSW actually received.

MSW expected to receive $7.5 million. MSW received $7.5 million. 7.5 – 7.5 = 00.

And, since GH still remains obligated to finance the AmeriState Bank loan, MSW is not entitled to more.

            GH wins, again. See MSW Corpus Christi Landfill, Ltd., v. Gulley-Hurst, L.L.C.; Supreme Court of Texas; March 24, 2023:

             Questions / Issues:

  1. What happened here? A seller sold real estate “subject to” existing debt. The deal closed, on time and without issues. It was, thereafter, buyer’s obligation to pay off or refinance the debt, but buyer failed to do so. How was seller able to convince a jury that seller was entitled to anything more than what was stated in the contract?
  1. Why was this litigated all the way to the Supreme Court, since the outcome seems obvious?

                                                                                    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


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