T.F.W. Management, Inc. v. Westwood Shores Property Owners Ass'n

162 S.W.3d 564, 2004 WL 2514825

• Court: Court of Appeals of Texas
• Decided: April 28, 2005
• Docket: 14-03-01358-CV
• Status: Published

Opinions

MAJORITY OPINION

WANDA McKEE FOWLER, Justice.

T.F.W. Management, Inc. (“TFW”) filed this accelerated appeal to protest a temporary injunction granted to the Westwood Shores Property Owners Association (“the Association”). TFW argues the trial court abused its discretion in granting the temporary injunction because (1) the evidence demonstrated TFW did not breach its contract with the Association, (2) the trial court misinterpreted the contract, (3) the trial court impermissibly granted specific performance, (4) the trial court lacked authority to alter the terms of the contract, (5) equity favors TFW, and (6) the Association was unable to show a probable injury. We hold that the trial court abused its discretion because the trial court misinterpreted the contract and we do not reach TFW’s alternate arguments. Finding that a new water rate implemented by the Trinity River Authority was substantially different that the rate TFW agreed to pay, we reverse the trial court’s order granting the temporary injunction.

FACTUAL AND PROCEDURAL BACKGROUND

In 1972, BRL Joint Venture, later known as Westwood Shores, Inc. (“the Developer”), developed nineteen subdivisions collectively known as Westwood Shores. The subdivisions were centered around the Westwood Shores Country Club, which included a golf course and other amenities.

On October 31, 1996, the Developer sold the Westwood Shores Country Club to TFW. In conjunction with the sale, the Developer executed a Deed Without Warranty (“the Deed”) conveying Westwood Lake to the Association, and an Assignment of Water Rights (“the Assignment”) assigning TFW an easement right in use of water from the lake. The Deed provided that:

[The Association] acknowledges that Grantor’s reservation of water rights could possibly result in the availability of little or no water within Westwood Lake for purposes other than those benefiting the property commonly referred to as Westwood Shores Country Club, and [the Association] agrees to accept this conveyance subject to and burdened by such reservation of water rights. However, [TFW] shall have the duty and obligation to maintain the water at a sufficient level so that Members of [the Association] may also enjoy the benefits of Westwood Lake for aesthetic and recreational purposes so long as water sufficient for these purposes is reasonably available from Trinity River Authority of Texas under terms substantially similar to those contained within the Limited Raw Water Sales Agreement from Reservoir, by and between [the Developer] and the Trinity River Authority in effect as of the date of this Deed Without Warranty, -with adjustments for inflation.

The Assignment similarly provided that:

TFW shall have the duty and obligation to maintain the water [within Westwood Lake] at a sufficient level so that Association members may also enjoy the benefits of Westwood Lake for aesthetic and recreational purposes so long as water suitable for these purposes is reasonably available from Trinity River Authority of Texas under terms substantially similar to those contained within the Limited Raw Water Sales Agreement From Reservoir, between [the Developer], and Trinity River Authority in effect as of the date of this Assignment of Water Rights, with adjustments for inflation.

In 1997, TFW and the Trinity River Authority entered into a Limited Raw Water Sales Agreement From Reservoir (the “Sales Agreement”) substantially similar to the one referenced in the Deed and the Assignment. The Sales Agreement provided that TFW was to pay the Trinity River Authority a minimum annual charge of $1551, and that TFW would be able to divert up to 470 acre-feet of water. TFW could also divert additional water, at a rate of $3.30 per acre-foot.

But, in December of 1999, the Trinity River Authority implemented new, greatly increased water rates. The rate was increased to $35 per acre-foot effective December 1, 2000, with additional escalation to $55 in 2002, $75 in 2004, and $95 in 2006. After the rate increases went into effect, TFW stopped replacing the water it used for irrigation of the Westwood Shores Country Club.

The Association filed a petition for temporary injunction, requesting that TFW cease irrigation of the Westwood Shores Country Club and replenish Westwood Lake to its original level. The trial court granted the temporary injunction, prompting this accelerated appeal.

ANALYSIS

I. Standard of Review

“To obtain a temporary injunction, the applicant must plead and prove three specific elements: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim.” Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex.2002). A trial judge has broad discretion in deciding whether to grant or deny temporary injunctions, and the standard of review is a clear abuse of discretion. See Liberty Mut. Ins. Co. v. Mustang Tractor & Equip. Co., 812 S.W.2d 663, 666 (Tex.App.Houston [14th Dist.] 1991, no writ). The trial court abuses its discretion when “the law is misapplied to established facts, or when the evidence does not reasonably support the conclusion that the applicant has a probable right of recovery.” State v. Southwestern Bell Tel. Co., 526 S.W.2d 526, 528 (Tex.1975).

II. Water Was Not Available Under Terms Substantially Similar to Those in Effect in 1996.

TFW argues that it was no longer obligated to replenish Westwood Lake because the rate per acre-foot of water increased from $3.30 in 1996 to $35 in 2000. TFW bases its argument on the language in the Deed and the Assignment that conditions its obligation to purchase water on water being available “under terms substantially similar to those contained within the Limited Raw Water Sales Agreement from Reservoir, ... with adjustments for inflation.” The primary question before us in this case is whether the new rates the Trinity River Authority implemented were substantially similar to those contained in the Raw Water Sales Agreement. A secondary question is whether the increase in the price of water was a result of inflation.

When examining the language of the Deed and the Assignment, we must give effect to the true intention of the parties as expressed in the instruments. See Lenape Res. Corp. v. Tenn. Gas Pipeline Co., 925 S.W.2d 565, 574 (Tex.1996). The language in a contract is to be given its plain meaning unless doing so would defeat the parties’ intent. DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 101 (Tex.1999). We presume that the parties intended every clause to have an effect. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex.1996).

A. The Rate Was Substantially Different.

The evidence before us indicates that the rate for one acre-foot of water increased from $3.30 in 1996 to $35 in 2000, an increase of approximately 960%. The parties agree that all other terms of the water purchase agreement are substantially similar to those in 1996.

The rate at which water is available does not appear to be substantially similar to the rate at which it was available in 1996. The price of a good is a material element of a contract. John Wood Group USA, Inc. v. ICO, Inc., 26 S.W.3d 12, 20 (Tex.App.-Houston [1st Dist.] 2000, pet. denied). In fact, price is often the very essence of the contract, without which there cannot be a contract. See Gerdes v. Mustang Exploration Co., 666 S.W.2d 640, 644 (Tex.App.-Corpus Ghristi 1984, no writ) (holding that a contract for the sale of water was not binding because the price was not specified). Thus, although the remainder of the terms are similar, we cannot say that the “terms are substantially similar” when the evidence indicates the rate at which water was available changed drastically.

The Association points to language in the Sales Agreement providing for possible rate increases. The Sales ' Agreement states that the “Annual Standby Charge may be revised from time to time to conform to [the Trinity River Authority’s] Resolution No. R-157....” However, while the anticipation of rate increases indicates that the Trinity River Authority did not breach the contract, it does not indicate that water is still available under the original terms.

We determine that the Association has not demonstrated that water to replenish Westwood Lake was available under substantially similar terms to those available at the time the Deed and the Assignment were entered into. However, the Deed and the Assignment also provided that inflation could cause a difference in the terms. Therefore, we next address whether the change in terms could have been due to inflation.

B. The Difference Is Greater than Could Be Accounted for by Inflation.

1. We Apply the Ordinary Definition of Inflation.

Although the term “inflation” was used in the Deed and the Assignment, it is never defined. We will therefore apply the plain, ordinary, and generally accepted meaning of the term. Heritage Res., 939 S.W.2d at 121. Inflation is defined as “[a]n overall rise in prices which results in a decline in the real value of the dollar,” Black’s Law Dictionary 779 (6th ed.1990), and “an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.” WEBSTER’S THIRD New INTERNATIONAL DICTIONARY Unabridged 1159 (1993). These definitions of inflation indicate that inflation affects the general prices of goods; thus, a price increase due to scarcity of a particular good would not be inflationary. See id.

2. The Rate Increase Was Greater than Inflation.

The Deed and the Assignment do not supply an index to measure inflation against, nor have the parties supplied us with any historical data to compare this rate to. In the absence of a specified measure of inflation, we will look to the Consumer Price Index prepared by the Bureau of Labor Statistics. See Black’s Law Dictionary 779 (6th ed. 1990) (“The primary indexes for measuring the rate of change are the Consumer Price Index and the Producer Price Index.”); Ark. La. Gas Co. v. Fed. Energy Regulatory Comm’n, 654 F.2d 435, 443 n. 19 (5th Cir.1981) (stating that the Consumer Price Index is one of the three measures of inflation traditionally relied upon by economists). According to the Consumer Price Index, the total inflation from 1996 to 2000 was approximately 10%. See U.S. Department of Labor, Bureau of Labor Statistics, Inflation and Consumer Spending, Inflation Calculator (Aug. 30, 2004), available at http://www.bls.gov/cpi/home.htm. The rate increase from $3.30 in 1996 to $35.00 in 2000 corresponds to an increase of approximately 960%. This rate increase thus appears to be greater than could be accounted for by inflation alone.

3. The Trinity River Authority Indicated that the Rate Increase Was Due to More than Just Inflation.

Further, the evidence indicated that the rate increase was due, at least in part, to factors other than inflation. Robert Stevens of the Trinity River Authority stated:

Q: Why did the TRA institute an increase in price?

A: Well, there were several reasons. The rates have not increased since 1972. As I say, times are changing. Water is becoming very valuable. It’s a valuable resource. It’s declining in quantities; and we had a firm do a study, first of cost of service, the cost for us to provide that amount of water to replace the amount of water in Lake Livingston, as well as a market survey. And our rates were — since they had not been increased in thirty years— were way too low.

Q: So the changes were based upon inflation and costs of water in general; is that correct?

A: Just in general in Texas, yes.

Thus, there were at least two factors responsible for the increase in the water rate: (1) inflation, and (2) the increased value of water. The Association argues that the rate increase could be the result of inflation despite the presence of additional factors, but the Deed and the Assignment provide only for increases due to inflation, not for increases due to other causes. The mention of only inflation supports an inference that the parties did not mean to include the increased value of water. See Baty v. ProTech Ins. Agency, 63 S.W.3d 841, 854 (Tex.App.-Houston [14th Dist.] 2001, pet. denied) (applying the maxim expressio unius est exclusio alterius — that the naming of one thing excludes another).

Stevens also testified that the price increase had not been changed since 1972. However, the Deed and the Assignment appear to provide only for inflation increasing the price since 1996, not retroactively-applied inflation; the applicable language refers to the terms “in effect as of the date of this Deed ..., with adjustments for inflation” and “in effect of the date of this Assignment ..., with adjustments for inflation.” Reading the Deed and the Assignment otherwise could lead to the anomalous result that twenty-four years of inflation would have been applicable the date the agreements took effect. Cf. Bode v. United States, 919 F.2d 1044, 1053 n. 8 (5th Cir.1990). As a result, the appropriate base date appears to be 1996. Cf. id. (“[T]he effective date of the current version of the statute is the appropriate base date for a cost-of-living adjustment. ...”). Thus, the portion of the rate increase that was due to inflation that occurred before 1996 would not be within the language of the Deed or the Assignment.

In short, we conclude the Association has not demonstrated that adjustments for inflation caused the rate increase. Under the terms of the Deed and the Assignment, TFW would be excused from having to supply water to replenish Westwood Lake. However, before we can determine that the trial court erred in granting the temporary injunction, we must address the Association’s arguments that TFW should be estopped from asserting the contract provision.

III. The Clause Requiring Substantially Similar Terms is a Condition Precedent, Not a Covenant.

First, the Association argues that the clause requiring that water be available under substantially similar terms is a covenant, not a condition precedent. A condition precedent may be either a condition to the formation of a contract or to an obligation to perform an existing agreement. Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex.1976). A condition precedent to an obligation to perform is an act or event, which occurs subsequently to the making of a contract, that must occur before there is a right to immediate performance and before there is a breach of contractual duty. Id. However, when the intent of the parties is doubtful or when a condition would impose an absurd or impossible result, then the agreement will be interpreted as creating a covenant rather than a condition. Id. Because of their harshness in operation, conditions are not favorites of the law. Criswell v. European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 948 (Tex.1990). Thus, in construing a contract, forfeiture by finding a condition precedent is to be avoided when another reasonable reading of the contract is possible. Id.

We reject the Association’s contention that the clause is not a condition precedent, because the Deed and Assignment unambiguously state that TFW is only obligated to maintain the water level “so long as water sufficient for these purposes is reasonably available from Trinity River Authority of Texas under terms substantially similar [to the 1996 terms].” Further, the Deed provides that the Association “acknowledges that Grantor’s reservation of water rights could possibly result in the availability of little or no water within Westwood Lake.... ” To construe the clauses within the Deed and the Assignment as other than conditions precedent would be to ignore their plain language.

IV. TFW Did Not Breach a Duty to Protest the Rate Increase.

Second, the Association argues that TFW cannot assert a condition precedent because TFW made the performance of the condition precedent impossible. The Association argues that TFW did not protest the rate increase to the Trinity River Authority, and thus should not be allowed to use the rate increase to escape its obligation to replenish Westwood Lake.

A. TFW Did Not Have a Duty To Protest the Rate Increase.

Although the Association claims that TFW had an express duty to protest any rate increase, an examination of the Sales Agreement does not reveal any such express duty. The Sales Agreement provided:

This Agreement is subject to all applicable Federal, State and local laws and any applicable ordinances, rules, orders and regulations of any local, State or Federal governmental authority having or asserting jurisdiction including, but not limited to, the rate-fixing power of the Texas Natural Resource Conservation Commission under Section 12.013, Water Code. Provided, however, that nothing contained herein shall be construed as a waiver of any right to question or contest any such law, ordinance, order, rule or regulation in any forum having jurisdiction, and each party agrees to make a good faith effort to support such proposed laws and regulations which would be consonant with the performance of the Agreement in accordance with its terms.

The Sales Agreement thus only provides that TFW is required to comply with the applicable laws, not that TFW is required to avail itself of the procedures provided by the applicable laws. Because there is no indication that TFW failed to comply with the applicable laws, TFW has not breached an express duty.

B. There is No Evidence that a Protest Would Have Been Effective.

The Association also argues that TFW prevented or made impossible the condition precedent. See Dorsett v. Cross, 106 S.W.3d 213, 217 (Tex.App.-Houston [1st Dist.] 2003, pet. denied) (“Prevention of performance by one party excuses performance by the other party, both of conditions precedent to performance and of promise.”).

The Association asserts that TFW should have been required to protest the rate increase. However, the only evidence before us indicates that any such protest would have been ineffective. Stevens stated that the price of water had not been raised since 1972, and he also stated that water has been increasing in value. Thus, there appears to have been a reasonable basis for the rate increase. The applicable statute only provides for protest when the increase is unreasonable, not when the increase is greater than inflation. See Tex. Water Code § 12.013(a) (“The commission shall fix reasonable rates for the furnishing of raw or treated water-”). Because the evidence indicates the price increase was due to the Trinity River Authority’s failure to raise its rates since 1972 and the increased value of water, TFW’s inactivity would not have prevented occurrence of the condition precedent.

CONCLUSION

We hold that the Association has not proven a probable right to the relief sought because it has not demonstrated that water was available under terms substantially similar to those available in 1996. Under the terms of the Deed and the Assignment, TFW would therefore not be obligated to replenish water in the lake. Further, we hold that TFW was not es-topped from asserting it was not obligated to replenish water in the lake. Because the trial court erred in granting the temporary injunction, we affirm appellant’s first issue.¹

We reverse the judgment of the trial court and order the temporary injunction dissolved.

1 . Because we reverse the judgment of the trial court, we do not reach appellant’s remaining issues.