Harstan, Ltd. v. Si Kyu Kim

441 S.W.3d 791, 2014 WL 3696114, 2014 Tex. App. LEXIS 8126
CourtCourt of Appeals of Texas
DecidedJuly 25, 2014
DocketNo. 08-12-00086-CV
StatusPublished
Cited by5 cases

This text of 441 S.W.3d 791 (Harstan, Ltd. v. Si Kyu Kim) 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
Harstan, Ltd. v. Si Kyu Kim, 441 S.W.3d 791, 2014 WL 3696114, 2014 Tex. App. LEXIS 8126 (Tex. Ct. App. 2014).

Opinion

OPINION

YVONNE T. RODRIGUEZ, Justice.

In this statutory fraud action involving the “as is” sale of commercial real property, Harstan, Ltd. and TBI, Inc., (collectively, “Harstan”) appeal the trial court’s judgment in favor of Si Kyu Kim and Sarah Kyung-Al Kim (collectively, “the Kims”). In three issues, Harstan argues that the “as is” nature of the sale precludes the Kims from recovering on their claim and that the evidence is legally insufficient to support the jury’s verdict and damages award. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In November 2001, the Kims purchased a dilapidated apartment complex from Harstan, an entity owned and operated by Ronald Stading.1 Approximately seven months earlier, some of the buildings comprising the complex had sustained damage from severe windstorms. At that time, the complex was owned by Roberto Lopez, who had purchased it six months earlier from Harstan’s predecessor-in-interest, CEDB, LLC, an entity owned by Stading, a then-practicing attorney. Lopez hired Antonio Velasquez, a registered professional civil engineer, to examine the extent of the damage sustained by the complex. Velasquez concluded that Building B had “experience^ ... structural failure” and recommended that its roof be replaced and its exterior walls and second floor walkway be reinforced. The Kims never received Velazquez’s report, nor were its contents discussed with them.

Lopez, who was represented by Stad-ing’s law firm, filed an insurance claim. Stading informed Lopez’s insurance agent in May 2001 that tenants were vacating the property because of structural issues. While his insurance claim was pending, Lopez received a letter from the City of El Paso in June 2001. The letter stated, in relevant part, that an inspection had revealed the “structure” was unsafe and that, if Lopez failed to correct the violations identified in the letter, “the case will be submitted to the City Attorney’s Office for condemnation proceedings.” Stading received a copy of the letter, which, according to him, constituted the first written notice he had received from the City concerning the property’s condition.

[795]*795In July 2001, Stading submitted Velasquez’s report to the insurance company iii support of Lopez’s claim. Lopez, however, defaulted on his loan the following month, and Harstan acquired the complex by deed in lieu of foreclosure. Shortly thereafter, Harstan listed the complex for sale.

As the new owner, Harstan continued to pursue the insurance claim filed by Lopez. Stading forwarded several documents to the insurance company, including the June 2001 letter from the City. Stading also hired Salvador Nunez, a structural engineer, to inspect Building B. Nunez, like Velazquez, concluded that Building B had sustained structural damage, and he recommended that a portion of the building’s roof be replaced and that some of its masonry walls be reinforced.

On November 13, 2001, Mr. Kim submitted an offer to purchase the complex after his real estate agent showed it to him. Before Stading accepted the offer or made a counteroffer on behalf of Harstan, he asked to meet Mr. Kim to discuss several issues, chief among them Mr. Kim’s qualifications to operate an apartment complex and “the condition of the damage of Building B and the City and the threat of condemnation.” At this meeting, Stading explained to Mr. Kim that Nunez’s report was the basis for the repairs to Building B required by the City and represented to Mr. Kim that “[he] would correct Building B as required by the City .... ” Following further negotiations, Mr. Kim signed a commercial property contract to purchase the complex “as is” for $515,000, based in part on Stading’s representation “that at the time ... all the repairs the City was requesting were done.”

Ten days after Mr. Kim submitted his original offer, the parties closed on the complex. At closing, the Kims signed three documents — a purchase contract, a deed of trust, and a lien note — each containing an “as is” clause. The “as is” clause in the one-page “Contract for Sale of Real Estate” provides:

(1) Buyer has had full opportunity to inspect the conditions of the units, knows the apartment complex is in need of repair and upgrade to meet City building code requirements and accepts the property ‘AS IS— WHERE IS’, without representation of condition or occupancy. [Emphasis in orig.].

The “as is” clauses in the deed of trust and lien note both state:

• a. The property is sold in an ‘AS IS— WHERE IS’ condition. Grantor [Maker] acknowledges and represents he has had an opportunity to conduct extensive examination of the property, is aware of the property condition and repairs needed to the exterior and interior of the property, as well as the condition of the apartments contained within the complex.

Both the deed and trust also contain clauses representing the condition of the complex and, in particular, Building B:

Beneficiary [Payee] has disclosed to Grantor [Maker] the property condition and any repairs and claims exercised against the property prior to Grantor’s [Maker’s] purchase of said property. The following Building ‘B’ repairs will be completed by Beneficiary: repairs and/or replace cinder block front [from] walls of three (3) units sustaining wind damage; install GFI electrical outlets in kitchen and baths of all eighteen (18) units; repair stairwell; replace electrical panels and meter boxes to all units. The City of El Paso, when learning of alleged structural damage to Building ‘B’, initially sought the authority to condemn the building. Structural Engineers and City Inspectors have since determined the building is in excellent [796]*796structural condition [structurally sound] and have removed all concerns regarding the building.2

With regard to the repairs required by the City, Stading told Mrs. Kim at closing “that everything required by the City are all fixed and that the building’s in very good condition.”

Three days after closing, Stading sent the Kims a letter informing them that “the repairs to Building B have been completed” and that he “will soon complete modification and repair of the stairwell for Building B.” Shortly thereafter, the Kims listed the complex for sale because, among other reasons, they were experiencing difficulty in collecting rents. The Kims received and accepted an offer in May 2002. But the sale fell through primarily because they received a letter from the City of El Paso in June 2002 informing them that the “structure” was unsafe and that “[t]his case is being submitted to the City Attorney’s office for condemnation proceedings.”

Some of the code violations identified in this letter included:

b. The walls have not been maintained in a safe manner free of holes and cracks.
c. The roof structure has not been maintained free of defects that may cause leaks.
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e. The electrical system is inadequate and does not meet minimum code requirements.

As Stading himself admitted at trial, the violations identified in the June 2002 letter are nearly identical to those identified in the June 2001 letter. Stading too received a copy of the June 2002 letter.

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441 S.W.3d 791, 2014 WL 3696114, 2014 Tex. App. LEXIS 8126, Counsel Stack Legal Research, https://law.counselstack.com/opinion/harstan-ltd-v-si-kyu-kim-texapp-2014.