Casa El Sol-Acapulco, S.A. v. Fontenot

919 S.W.2d 709, 1996 WL 44223
CourtCourt of Appeals of Texas
DecidedMay 2, 1996
Docket14-92-01345-CV
StatusPublished
Cited by45 cases

This text of 919 S.W.2d 709 (Casa El Sol-Acapulco, S.A. v. Fontenot) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Casa El Sol-Acapulco, S.A. v. Fontenot, 919 S.W.2d 709, 1996 WL 44223 (Tex. Ct. App. 1996).

Opinions

MAJORITY OPINION

HUDSON, Justice.

This appeal arises from a dispute regarding the satisfaction of terms in an option contract. Based upon factual findings made by the jury, the trial court entered judgment in favor of appellees, Dallas Fontenot and Robert Watters (“Fontenot and Watters”). The jury found Fontenot and Watters failed to fulfill certain conditions of an option contract that would have entitled them to purchase properties and rights belonging to Casa El Sol Acapulco, S.A. (“CESA”). The jury found, however, that their failure to satisfy the conditions for acceptance should be excused. The trial court granted Fonte-not and Watters specific performance by giving them another thirty days to accept the option. We reverse and render judgment in favor of appellants.

Although the events which preceded the attempted closing on March 5,1991, are complicated, a brief outline will suffice here to set the context of the specific issues on appeal. The present dispute has its genesis in a settlement agreement effected on September 10, 1989, when numerous lawsuits between the parties were “resolved.” At issue in these lawsuits was the management and control of a sexually oriented business known as Rick’s Restaurant and Bar (“Rick’s”). The settlement agreement awarded CESA the tangible assets of Rick’s, namely, the property and building which accommodate the nightclub, and a note for 1.7 million dollars. Fontenot and Watters were awarded the intangible aspects of the business, namely, the ownership and management of Rick’s. To implement this division, CESA obtained all the stock in three corporations, known as Zu, Bering, and Northland, which own or hold the rights to all the realty and appurtenant fixtures used by Rick’s. Fonte-not and Watters, on the other hand, acquired all the stock in Trumps, Inc. (“Trumps”). Trumps is the corporation that owns and manages Rick’s. Trumps also agreed, as [712]*712part of the settlement, to make rental payments for the use of Zu’s property pursuant to the terms of a lease contract. In addition, Fontenot and Watters were given the option to purchase all the stock in Zu, Bering, and Northland on or before March 5, 1991, provided they satisfied numerous conditions set forth in the settlement agreement. In February of 1991, Fontenot and Watters notified CESA that they wished to exercise the option. On the scheduled closing day, March 5, 1991, CESA refused to close on the transaction, alleging that Fontenot and Watters had failed to meet all the conditions required as part of their acceptance of the option contract.

At the conclusion of trial, three questions were presented to the jury. In its first two points of error, CESA attacks the propriety of jury questions two and three. Question number one asked the jury to determine whether Fontenot and Watters accepted the “stock purchase agreement option” on or before midnight of March 5,1991. The instruction accompanying the question informed the jmy that acceptance of the option means “performance of the conditions of the agreement.” The jury found that Fontenot and Watters did not accept the option before it expired. Question number two asked whether the failure of Fontenot and Watters to meet the option conditions should be excused under the doctrine of disproportionate forfeiture. The third question asked the jury to decide whether the failure of Fontenot and Watters to satisfy the option conditions was due to CESA’s conduct, namely, whether CESA concealed material facts from Fonte-not and Watters. CESA argues that questions two and three are erroneous because: (1) question number two is a question of law for the court, and is legaEy immaterial in this case because disproportionate forfeiture is not applicable to disputes regarding unilateral “option” contracts; and (2) question three presents the issue of equitable estoppel which cannot create contract rights where none exist and which, by the terms of the question, was fatally flawed from the inception because it did not apprise the jury that estoppel by silence is applicable only where there is an affirmative duty to speak.

Before addressing the legal reasons which compel us to reverse the trial court’s judgment, we recite the evidence presented by both sides regarding the attempted satisfaction of conditions of the option agreement. One of the conditions of the option agreement flowing from the 1989 settlement was that Fontenot and Watters satisfy the “Gentry Lien” and have it released of record. This lien was named after Ben Gentry, a former Trumps shareholder, who had previously sold his interest in the nightclub and who, because he was still owed approximately $200,000, held a lien on the property. On the final day of the option period, Fontenot and Watters retired the debt and obtained a release from Gentry. CESA refused to accept the release on the ground it had not been filed in the real property records of the Harris County Clerk.

Another disputed condition also concerned an encumbrance upon the property known as the “Sunbelt Lien.” Pursuant to the 1989 settlement agreement, Fontenot and Watters had given CESA a first lien deed of trust on Trump’s leasehold estate as a means of securing their debt to CESA. This condition was to protect CESA in the event of a possible default by Fontenot and Watters. In other words, if Fontenot and Watters defaulted, CESA could then become the tenant under the lease with Zu and continue operation of the nightclub. Fontenot and Watters, however, had previously borrowed $575,000 from Sunbelt National Bank on a promissory note secured by a deed of trust on real property owned by Zu. If Trumps defaulted on its loan, CESA wanted to make certain that its first lien deed of trust on Trumps leasehold estate was superior to Sunbelt’s lien on the property being leased. To protect itself from such a default, CESA insisted that it have the right to take over the management of Rick’s without fear that a foreclosure by Sunbelt would void its lease and effectively terminate the business. One of the conditions of the option agreement, therefore, was that the Sunbelt Lien be subordinate to the lease.

To comply with this condition, Fontenot and Watters obtained a “nondisturbance and attornment agreement” from Sunbelt Nation[713]*713al Bank that they contend made Sunbelt’s lien subordinate to the lease. CESA contends, however, that the attornment agreement does not sufficiently protect its interest in Trumps’ leasehold estate.

A less specific condition of the option agreement called for Fontenot and Watters to satisfy all liens and encumbrances on the land. Sometime after 1989, a tax lien was placed on the property by the Internal Revenue Service. Fontenot and Watters tried to persuade CESA to pay the debt because CESA owns Zu, and the lien was placed against the property when Zu failed to fully pay its taxes. CESA refused to satisfy the lien because the taxes accrued before the settlement agreement and at a time when Fontenot and Watters owned Zu. Because they never resolved this dispute, Fontenot and Watters put $10,000 in an escrow account to satisfy the tax lien. CESA claims this action falls well short of satisfying the condition that all liens and encumbrances be satisfied.

A final point of contention arose between the parties regarding the payment of money. To exercise the option, Fontenot and Watters had to tender $550,000 “in cash” to CESA, On the last day of the option period, Fonte-not and Watters tendered a check from Heritage Title Company. CESA rejected the tender on the ground that the option agreement specified “cash.”

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Cite This Page — Counsel Stack

Bluebook (online)
919 S.W.2d 709, 1996 WL 44223, Counsel Stack Legal Research, https://law.counselstack.com/opinion/casa-el-sol-acapulco-sa-v-fontenot-texapp-1996.