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.
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.”
appealed, hoping for reinstatement of the $10+ million jury verdict. The Court
of Appeals affirmed the trial court’s $00 judgment.
further appealed to the Supreme Court of Texas, again requesting reinstatement
of the “benefit of the bargain” damages of $10+ million.
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.
a seller to recover more than the contract price would be an unlawful windfall,
at buyer’s expense.
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.
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: https://scholar.google.com/scholar_case?case=16400040108480824489&hl=en&as_sdt=6&as_vis=1&oi=scholarr.
Questions / Issues:
- 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?
- 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.