H. Frank Faucette and J. Lawrence Schadler v. Grace C. Chantos and A.J. Chantos & Associates, Inc. d/b/a Sarco of Texas--Appeal from 151st District Court of Harris County
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Affirmed and Majority and Concurring and Dissenting Opinions filed September
23, 2010
In The
Fourteenth Court of Appeals
NO. 14-08-00536-CV
H. FRANK FAUCETTE AND J. LAWRENCE SCHADLER, Appellants/CrossAppellees
V.
GRACE C. CHANTOS AND A.J. CHANTOS & ASSOCIATES, INC. D/B/A
SARCO OF TEXAS, Appellees/Cross-Appellants
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Cause No. 2004-25975
CONCURRING AND DISSENTING OPINION
To the extent this court affirms the trial court’s judgment notwithstanding the
verdict as to the tortious-interference-with-contract claims, I concur in the judgment. To
the extent this court affirms the trial court’s judgment awarding recovery on the breachof-contract claims and declines to render a take-nothing judgment on these claims, I
respectfully dissent.
Under the unambiguous language of the agreement in question, to exercise their
option to acquire the remaining shares of the corporation, the option holders had to make
the purchase by means of a lump-sum payment within a specified time from the
execution date of the contract, and if this purchase did not occur within that time frame,
the agreement and the option in it would terminate. It is undisputed that the option
holders never purchased the remaining shares, and the plaintiffs judicially admitted that
the contract upon which they base their breach-of-contract claims terminated at the
expiration of the time period specified in the contract. Because the option holders did not
exercise their option in the manner required by the contract and because the contract
terminated by its own terms, the trial court erred in granting summary judgment in the
plaintiffs’ favor as to liability on the breach-of-contract claims and in denying the
defendants’ motion for summary judgment as to these claims. Accordingly, the trial
court’s judgment should be reversed, and this court should render a take-nothing
judgment.
Relevant Background
Plaintiffs/appellees/cross-appellants Grace C. Chantos and A. J. Chantos &
Associates, Inc., d/b/a Sarco of Texas (hereinafter collectively, the ―Chantos Parties‖)1
sued defendants/appellants/cross-appellees H. Frank Faucette and J. Lawrence Schadler
(hereinafter collectively, the ―Option Holders‖) for breach of a written contract entitled
―Sale and Purchase Agreement‖ (hereinafter, the ―Contract‖). Grace Chantos, Grace’s
husband Andrew J. Chantos, Faucette, and Faucette’s wife executed the Contract on May
25, 2001. Schadler and his wife executed the Contract on July 24, 2001.
In a section of the Contract entitled ―Sale and Purchase,‖ the parties detailed the
contemplated sale of the shares of A. J. Chantos & Associates, Inc., d/b/a Sarco of Texas
1
Though Sarco was a plaintiff in the trial court, it was not a party to the Contract, and the trial court
rendered judgment only in favor of Grace. References in this opinion to the ―parties‖ pertain to the
contracting parties, not to the parties to the litigation, and do not include Sarco.
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(hereinafter, ―Sarco‖) by Grace and her husband to the Option Holders and Andrew J.
Chantos (collectively hereinafter, the ―Buyers‖). The parties agreed that during the first
thirty months of the Contract or until the Buyers acquired forty-nine percent of the Sarco
shares, whichever occurred first, the Option Holders were required to purchase at least
four Sarco shares per month. Under the terms of the Contract, if the Buyers acquired at
least forty-nine percent of the outstanding Sarco shares, then the Buyers had ―the option
to purchase the remaining shares, but only in a lump sum wherein Buyers purchase all
remaining shares.‖ The parties agreed that ―[t]his Agreement shall terminate unless the
Sale and Purchase contemplated is completed in its entirety within thirty-two (32) months
from the date of execution of the Agreement‖ (hereinafter, the ―Termination Provision‖).
(emphasis added). The parties did not specify a date of execution in the Contract. But in
light of the two dates on which parties executed the Contract, this thirty-two month
period ended no later than on March 24, 2004 (hereinafter, the ―End Date‖).
It is undisputed that, by July 22, 2003, the Buyers had acquired forty-nine percent
of the Sarco shares and that they had the option to purchase the remaining Sarco shares
provided in the Contract (hereinafter, the ―Option‖). The Chantos Parties moved for
partial summary judgment as to the Option Holders’ liability on the breach-of-contract
claims. In their sole ground for summary judgment, the Chantos Parties asserted that the
summary-judgment evidence conclusively proves that (1) the Option Holders exercised
the Option by giving oral notice to Grace at the July 22, 2003 meeting of their acceptance
and intent to exercise the Option; and (2) the Option Holders breached the Contract by
failing and refusing to purchase the remaining Sarco shares from Grace. The Chantos
Parties agreed that acceptance of an option must be unqualified, unambiguous, and
strictly in accordance with the terms of the agreement; but they asserted that the Contract
did not contain any terms regarding the manner for exercising the Option. Therefore, the
Chantos Parties argued, the Option Holders could accept and exercise the Option by
giving oral notice to Grace at the July 22, 2003 meeting of their acceptance and intent to
exercise the Option.
3
Both in response to the Chantos Parties’ motion and as a ground for summary
judgment in their own motion for final summary judgment, the Option Holders asserted
that, under the Contract, the parties specified the manner in which the Option Holders had
to exercise the Option—they had to purchase Grace’s remaining shares in a lump-sum
payment by the End Date. The summary-judgment evidence conclusively proves that the
Option Holders did not purchase Grace’s remaining shares by the End Date. Therefore,
the Option Holders asserted, (1) the Contract terminated by its own terms; and (2) the
Option Holders had no obligation to purchase the remaining shares under the Contract
and did not breach any of its terms. The Option Holders attached to their motion for
summary judgment responses to requests for admissions, in which the Chantos Parties
judicially admitted that the Contract terminated within thirty-two months of the
Contract’s execution date and that the Contract was currently terminated.
The trial court denied the Option Holders’ summary-judgment motion and granted
the Chantos Parties’ motion, ruling that, as a matter of law, the Option Holders breached
the Contract and are liable to Grace for the breach.
Principles of Option Law
When one acquires an option to purchase property, the holder of the option
purchases the right to compel a sale of the property on the stated terms before expiration
of the option. See Comeaux v. Suderman, 93 S.W.3d 215, 219–20 (Tex. App.—Houston
[14th Dist.] 2002, no pet.). Option contracts have two components: (1) an underlying
contract that is not binding until accepted and (2) a covenant to hold open to the option
holder the opportunity to accept. See id. at 220. Before the option can ripen into an
enforceable contract of sale, however, the option holder must manifest his acceptance.
See id. Acceptance of an option must be unqualified, unambiguous, and strictly in
accordance with the terms of the agreement. See id. For this reason, a failure to exercise
an option according to its terms, including untimely or defective acceptance, is simply
ineffectual, and legally amounts to nothing more than a rejection. See id. If the contract
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is silent regarding the method of exercising the option, the option holder may exercise the
option by timely giving notice to the optionor of the option holder’s intent to exercise the
option, and the option holder also may be required to tender performance within a
reasonable time.2 See English v. English, 44 S.W.3d 102, 105 (Tex. App.—Houston
[14th Dist.] 2001, no pet.).
Principles of Contract Interpretation
In construing contracts, this court’s primary concern is to ascertain and give effect
to the intentions of the parties as expressed in the contract. Kelley-Coppedge, Inc. v.
Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). To ascertain the parties’ true
intentions, this court must examine the entire agreement in an effort to harmonize and
give effect to all provisions of the contract so that none will be rendered meaningless.
MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999).
Whether a contract is ambiguous is a question of law for the court. Heritage Res., Inc. v.
NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). A contract is ambiguous when its
meaning is uncertain and doubtful or is reasonably susceptible to more than one
interpretation. Id. But, when a written contract is worded so that it can be given a certain
or definite legal meaning or interpretation, it is unambiguous, and the court construes it as
a matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).
2
Various cases state that, if the contract is silent regarding the method of exercising the option, the option
holder may exercise the option by timely giving notice to the optionor of the option holder’s intent to
exercise the option and by subsequently tendering performance within a reasonable time. See, e.g.,
English v. English, 44 S.W.3d 102, 105 (Tex. App.—Houston [14th Dist.] 2001, no pet.) (stating that ―we
conclude and hold that where the option instrument is silent regarding the method of exercising the
option, giving timely notice to the optionor and subsequently tendering performance within a reasonable
time is sufficient to exercise the option‖). But, given that the overwhelming majority of option cases
involve option holders seeking to enforce the option, it may be that the tender of performance is required
in these cases because the option holder seeks to enforce the option rather than as part of the exercise of
the option. See id. (stating that ―if [option holder] gave notice of her intent to exercise the option within
the applicable 180 day period, such notice would be sufficient to trigger her rights under the divorce
decree‖). This court need not address this issue to dispose of this appeal, and it is not addressed in this
opinion.
5
This court cannot rewrite the Contract or add to its language under the guise of
interpretation. See id. at 162. Rather, this court must enforce the Contract as written.
See Royal Indem. Co. v. Marshall, 388 S.W.2d 176, 181 (Tex. 1965).
Analysis of the Contract
In the Contract, the parties agreed that, if the Buyers acquired at least forty-nine
percent of the outstanding Sarco shares, then the Buyers would have the option to
purchase the remaining shares, but only through a lump-sum payment by which the
Buyers would acquire all remaining shares.
The parties also agreed that the entire
Contract would terminate unless the contemplated purchase of the Sarco shares was
completed in its entirety by the End Date. The parties did not agree that any provisions
of the Contract would survive termination of the Contract. If the Option Holders could
have exercised the Option simply by giving notice to Grace of their acceptance and intent
to exercise the Option and without purchasing the remaining shares from Grace, such an
exercise would have imposed a binding obligation on the Option Holders to purchase the
remaining shares by a lump-sum payment. But this construction of the Contract would
render the Termination Provision meaningless. See Kruegel v. Berry, 9 S.W. 863, 863–
64 (Tex. 1888) (stating that option holder under lease had to tender purchase price before
lease terminated in order to exercise option to buy leased premises for a specified price);
Nguyen v. Woodley, 273 S.W.3d 891, 898 (Tex. App.—Houston [14th Dist.] 2008, no
pet.) (holding that contract for purchase of real property terminated by its own terms
upon buyer’s giving of a certain notice and that therefore the contract was no longer valid
and enforceable); Cate v. Woods, 299 S.W.3d 149, 153 (Tex. App.—Texarkana 2009, no
pet.) (holding that trial court erred as a matter of law by enforcing contract for purchase
of real property that had terminated by its own terms).3
3
The Chantos Parties rely upon the English case. See English, 44 S.W.3d at 103–5. But, in that case, the
divorce decree in question contained language materially different from the language in the Contract. See
id. The divorce decree did not contain language similar to the Termination Provision, and the decree was
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If the Termination Provision is given effect, then the Option Holders could not be
bound to purchase the remaining shares because they could wait until the End Date
passed and any obligation to purchase the remaining shares would terminate.
Harmonizing and giving effect to all provisions of the contract so that none will be
rendered meaningless, this court should conclude that, under the unambiguous language
of the Contract, the parties specified the manner in which the Option Holders had to
exercise the Option—they had to purchase the remaining shares by the End Date. See
MCI Telecomms. Corp., 995 S.W.2d at 652. The summary-judgment evidence proves as
a matter of law that the Option Holders did not do so, and therefore, they did not exercise
the Option. After the End Date passed, the Contract terminated without any exercise of
the Option. Indeed, the Chantos Parties have judicially admitted that the Contract upon
which the trial court’s judgment is based terminated on or before the End Date, which
was before the Chantos Parties filed this lawsuit in the trial court.
In their Contract, the parties required the Option Holders to purchase Sarco stock
up to the forty-nine-percent threshold.
The parties could have required the Option
Holders to purchase the remaining stock; however, the parties chose not to do so.
Instead, they agreed to contractual language under which the Option Holders had the
ability to choose whether they wanted to exercise the Option by purchasing the remaining
shares from Grace no later than the End Date. This court cannot rewrite the Contract or
add to its language under the guise of interpretation; instead, the court must enforce the
Contract as written. See Schaefer, 124 S.W.3d at 157; Marshall, 388 S.W.2d at 181.
silent as to the manner in which the option should be exercised. See id. Therefore, the English case is not
on point.
7
Conclusion
The sole ground asserted in the Chantos Parties’ motion for summary judgment
lacks merit.4 In their cross-motion, the Option Holders proved as a matter of law that
they did not exercise the Option and that the Contract terminated by its own terms.5
Though the majority notes the Option Holders’ arguments in this regard, the majority
does not address these arguments or explain why they lack merit. The court should
address these arguments, sustain the Option Holders’ first issue, and hold that the trial
court erred by failing to grant the Option Holders’ motion.6 Accordingly, this court
should reverse the trial court’s judgment and render judgment that the Chantos Parties
take nothing.
/s/
Kem Thompson Frost
Justice
Panel consists of Justices Frost, Brown, and Senior Justice Hudson.* (Brown, J.,
majority)
*Senior Justice J. Harvey Hudson, sitting by assignment.
On appeal, the Chantos Parties assert, in the alternative, that this court should affirm the trial court’s
judgment on the breach-of-contract claims based on an alleged modification of the Contract by the parties
at the July 22, 2003 meeting. Significantly, however, the Chantos Parties did not assert any alleged
modification of the Contract as a ground in their summary-judgment motion. Therefore, this court cannot
affirm the trial court’s summary judgment on this unasserted ground. See Stiles v. Resolution Trust
Corp., 867 S.W.2d 24, 26 (Tex. 1993)
4
5
Presuming for the sake of argument that the Option Holders could have exercised the Option by notice
alone and that they did so, the Chantos Parties still could not prevail on a breach-of-contract claim
because the Contract terminated on the End Date and the parties did not agree that any contractual
obligations would survive termination. See Nguyen, 273 S.W.3d at 898; Cate, 299 S.W.3d at 153.
This court appropriately holds the trial court did not err in granting the Option Holders’ motion for
judgment notwithstanding the verdict as to the tortious-interference-with-contract claims.
6
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