New Braunfels Factory Outlet Center, Inc. v. IHOP Realty Corp.

872 S.W.2d 303, 1994 WL 69686
CourtCourt of Appeals of Texas
DecidedApril 20, 1994
Docket3-92-556-CV
StatusPublished
Cited by56 cases

This text of 872 S.W.2d 303 (New Braunfels Factory Outlet Center, Inc. v. IHOP Realty Corp.) 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
New Braunfels Factory Outlet Center, Inc. v. IHOP Realty Corp., 872 S.W.2d 303, 1994 WL 69686 (Tex. Ct. App. 1994).

Opinion

KIDD, Justice.

This is an appeal from a suit between the buyer and seller of real property for reformation and construction of a restrictive covenant. Appellee, IHOP Realty Corp. (“IHOP”), the buyer, contended that the restrictive covenant prohibited appellants, New Braunfels Factory Outlet, Edward K. Kop-plow, and Rob Eversberg (collectively “New Braunfels”), the sellers, from selling a tract of land adjacent to IHOP’s tract to Cracker Barrel Old Country Store (“Cracker Barrel”). After a jury trial, the district court rendered judgment denying reformation, holding that the restrictive covenant prohibited a sale to Cracker Barrel, and awarding attorney’s fees to IHOP. New Braunfels appeals.

*305 THE CONTROVERSY

The origin of this dispute was IHOP’s purchase from New Braunfels of a tract of land to use for a restaurant operation. The land was part of a six-acre tract located on Interstate 35 and U.S. Highway 81 in New Braun-fels, Texas. In 1989, Rob Eversberg and Ed Kopplow formed New Braunfels Factory Outlet Center, Inc., with the goal of developing the entire tract as a factory outlet store. Though the factory outlet project fell through, they continued to work on developing the tract, sending letters promoting the site to several national restaurant chains. IHOP responded to such a letter, expressing interest in purchasing a portion of the tract. Negotiations between IHOP and New Braun-fels began in April 1989.

A significant part of the negotiations between IHOP and New Braunfels concerned the degree to which New Braunfels and its successors would be restricted from using the balance of the tract not sold to IHOP as a restaurant. In a letter of intent submitted to New Braunfels in December 1989, IHOP initially proposed relatively strict restrictions that would have prohibited New Braunfels from using, leasing or permitting others to use or lease the balance of the tract “for any kind of restaurant operation, such as Denny’s, Coco’s, Allie’s, Shoney’s, Bob’s Big Boy or Baker’s Square.” (emphasis added). New Braunfels objected to the breadth of this restriction, and altered the wording so that the restriction prohibited use only “for such kind of restaurant operation as Denny’s, Coco’s,....” (emphasis added). New Braunfels returned the letter of intent to IHOP with these and other changes.

After negotiating for several months, New Braunfels and IHOP settled on the following prohibitive language, which appeared in section 10.2 of the contract of sale:

Seller, for itself and its successors and assigns shall covenant at closing that, for a period of thirty (30) years after the closing, it will not permit, lease, allow or use, either by itself or any tenants thereof, directly or indirectly, any portion of the Shopping Center (exclusive of the Property) acquired by Seller or any of its affiliates or any property located within one (1) mile of the boundaries of the property owned or controlled by Seller or its affiliates for any kind of family-oriented, coffee shop styled restaurant that ivould directly compete with the purchaser’s restaurant operation, such as, but not limited to, the Village Inn, Bob’s Big Boy, Shoney’s, Denny’s, Perkins’, Waffle House, Baker’s Square, Coco’s, JB’s or Allie’s.

(emphasis added). The contract for sale also provided that the use restriction was to be incorporated into the general warranty deed conveying the tract to IHOP. However, instead of the version that appeared in the contract for sale, a restriction that differed by one word was incorporated into the deed. While the contract for sale version prohibited “any kind of family-oriented, coffee shop styled restaurant that would directly compete,” the restriction in the deed prohibited “any kind of family-oriented coffee shop or restaurant that would directly compete.” The or-worded restriction of the deed was also incorporated into the grant of easements and restrictions (hereinafter “the restrictive covenant”), a separate instrument. The sale to IHOP closed on June 3, 1991.

Meanwhile, prior to closing with IHOP, New Braunfels was contacted by a real estate broker from the Dallas-Fort Worth area with a “prospect” interested in purchasing a portion of the remainder of the six-acre tract. New Braunfels began negotiating through the broker in early May 1991. At trial, Eversberg testified that he told the broker about the restrictive covenant and the upcoming closing with IHOP, and that ultimately IHOP would have to be notified and consent to the sale. Eversberg testified that the broker did not identify his prospect, but told him that it was neither a “coffee shop styled restaurant” nor a direct competitor of IHOP’s.

Eversberg testified that he learned the broker’s prospect was Cracker Barrel when the broker visited his office on May 15. At this meeting, Eversberg gave a copy of the restrictive covenant to the broker who, after reviewing it, stated that he did not think it would prohibit Cracker Barrel. In a later meeting, on May 29,1991, a representative of Cracker Barrel visited Eversberg’s office and *306 made an offer for the adjacent tract. Negotiations between New Braunfels and Cracker Barrel continued. By July, Cracker Barrel and New Braunfels had agreed on a price. Eversberg testified that at this point, he decided that IHOP should be notified of Cracker Barrel’s interest in purchasing the adjoining tract.

When New Braunfels notified IHOP, seeking consent for the sale to Cracker Barrel, IHOP requested a Cracker Barrel menu and other information concerning the restaurant. On July 31, 1991, after reviewing the information, IHOP refused to consent to the sale, contending that Cracker Barrel was a direct competitor and therefore prohibited by the restrictive covenant.

New Braunfels sued IHOP, 1 seeking damages under various tort and contract theories, 2 seeking to void the restrictive covenant for lack of consideration, and seeking reformation of the restrictive covenant based on mutual mistake. IHOP responded with a general denial and pleas of waiver and estop-pel, and counterclaimed against New Braun-fels for damages and attorney’s fees, alleging breach of the restrictive covenant by New Braunfels. IHOP also sought a declaratory judgment that the restrictive covenant prohibited a sale to Cracker Barrel.

At trial, the jury rejected New Braunfels’ claims except for making a finding that the difference in wording between the restrictive covenant and the contract for sale was the result of a mutual mistake. The jury findings on IHOP’s claims were favorable, notably that both versions of the restrictive language prohibited a sale to Cracker Barrel and that New Braunfels was estopped from complaining of the wording in the restrictive covenant. New Braunfels filed a motion for judgment seeking reformation of the restrictive covenant based on the jury’s finding of mutual mistake. IHOP, in turn, filed a motion to disregard the mutual mistake finding based on the jury’s finding that New Braun-fels was estopped from complaining of the wording in the restrictive covenant.

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Bluebook (online)
872 S.W.2d 303, 1994 WL 69686, Counsel Stack Legal Research, https://law.counselstack.com/opinion/new-braunfels-factory-outlet-center-inc-v-ihop-realty-corp-texapp-1994.