C.L. Thomas Petroleum, Inc. v. Wellborn Petroleum Company, Inc.--Appeal from 361st District Court of Brazos County

IN THE

TENTH COURT OF APPEALS

No. 10-96-050-CV

C.L. THOMAS PETROLEUM, INC.,

Appellant

v.

WELLBORN PETROLEUM COMPANY, INC.,

Appellee

From the 361st District Court

Brazos County, Texas

Trial Court # 40,927-361

O P I N I O N

Appellant C.L. Thomas Petroleum Company sued Appellee Wellborn Petroleum Company seeking specific performance of a contract for the purchase of real property after Wellborn refused to recognize Thomas right of first refusal to purchase the property. After a bench trial, the court ordered Wellborn to convey the property, an Exxon service station, to Thomas. The court also required Thomas to purchase the motor fuel and other petroleum products sold at the station from Wellborn until January 4, 2013 and to execute a purchase option and right of first refusal option in favor of Wellborn. In five points of error, Thomas complains about the purchase and options provisions, the court s failure to award it damages or a credit to the sales price, and the court s refusal to award it attorney s fees. Also dissatisfied with the judgment, Wellborn brings two cross points, arguing that the court erred in ordering it to convey the property to Thomas. We will modify the trial court s judgment and affirm it as modified.

BACKGROUND

Dealings Between the Parties

On January 5, 1993, Wellborn purchased an Exxon service station at the intersection of Texas Avenue and Harvey Road in College Station from Exxon Corporation. As part of the transaction, Wellborn executed a "Purchase Option and Right of First Refusal" in favor of Exxon covering the property. Wellborn granted Exxon an option to repurchase the station upon the occurrence of any one of several events, among which was its failure to sell Exxon-branded motor fuel there. Exxon also obtained a right of first refusal option, which prohibited Wellborn from selling the station without first offering it to Exxon on the same terms and conditions as a bona fide offer for purchase made by a third party. Exxon could "purchase [the station] at the same price and on the same terms and conditions as [were] contained in said offer."

Twenty days after purchasing the station from Exxon, Wellborn received an offer for it from Robert Miksch, Sr. Paragraph 23 of the earnest money contract between Wellborn and Miksch provided:

So long as the Buyer remains obligated to purchase Exxon branded gasoline and other petroleum products, and the Seller remains an Exxon Distributor and capable of supplying such branded products, the Buyer shall purchase its gasoline and other petroleum products from Seller. The prices, terms and conditions shall be the same as charged similarly situated customers. The buyer agrees that he will execute a separate sales agreement on the form promulgated by Sellers at the time of closing.

In accordance with the requirements of the agreement with Exxon, Wellborn notified Exxon of the offer by sending it a copy of the earnest money contract.

Apparently, Exxon advised Thomas that it held a matured right of first refusal on the property. After investigating the location and the facility, Thomas determined that it was interested in acquiring the station and began negotiating with Exxon for an assignment of Exxon's right of first refusal. However, on March 30, before Exxon and Thomas could agree to the assignment, Wellborn's attorney notified Exxon that the earnest money contract had been canceled and that "the right of first refusal is no longer operative." This development did not stop the negotiations between Thomas and Exxon, and on April 6, Thomas took an assignment of Exxon's right of first refusal. After identifying the property involved, the assignment provided:

3.Assignee may take title in the name of C. L. THOMAS PETROLEUM, INC., Assignee of EXXON CORPORATION. Assignee assumes all obligations of Assignor under the RIGHT OF FIRST REFUSAL OPTION portion of [the Wellborn-Exxon contract], as they relate to the properties herein assigned. Upon conveyance into Assignee, then Assignor shall have no further RIGHT OF FIRST REFUSAL with respect to the aforesaid contract described on Exhibit "A". However, as further consideration of this Assignment, Assignee agrees at the time it acquires the properties in question to execute in favor of Assignor a new PURCHASE OPTION AND RIGHT OF FIRST REFUSAL in a form substantially similar to that shown on Exhibit "A".

4.As a condition of this Assignment, no obligation is imposed upon Assignee to purchase EXXON branded gasoline and other petroleum products with respect to the property in question, but Assignee may buy its petroleum products, whether branded or unbranded, for sale on the property described herein, directly from Assignor.

The next day, Thomas notified Wellborn of the assignment and that it was exercising the right, stating that Thomas was "ready, able and willing to perform in accordance with the terms of the first right of refusal executed by and between [Wellborn] and EXXON CORPORATION", and sending an earnest money check for over $23,000.

Wellborn, however, refused to accept Thomas' exercise of the right. It returned Thomas' check, with a letter addressed to both Exxon and Thomas reminding them that the Miksch contract had been canceled. Thus, according to Wellborn, the right of first refusal was "no longer operative." Additionally, Wellborn believed that Thomas acceptance of the offer did not "comply strictly with the terms of the option contract, as was required." Therefore, Wellborn found that "the exercise of the option and the attempt at its assignment was not acceptable", and refused to carry out the transaction.

The parties presented their evidence and arguments to the court during a two day bench trial in July-August 1995. After considering the issues, the court signed its judgment on January 24, 1996. In that judgment, the court decreed that (1) Wellborn convey the property to Thomas; (2) Thomas purchase all motor fuels and other petroleum products" sold at the station from Wellborn until January 4, 2013; (3) the parties execute a motor fuel sales agreement to that effect at closing; (4) Thomas execute a purchase option and right of first refusal in favor of Wellborn on the same terms as those provisions in the Exxon-Wellborn sales agreement; and (5) no damages or attorneys fees be awarded to either side. The court attached an earnest money contract reflecting its decision to the judgment. Both parties have appealed.

WELLBORN'S CROSS POINTS

Wellborn raises two cross points which, if meritorious, would result in a rendition of judgment in its favor denying Thomas' petition for specific performance. Thus, we address its claims before turning to Thomas' arguments. In its first cross point, Wellborn argues that the court erred in decreeing specific performance because Thomas' exercise of the right of first refusal did not constitute an unequivocal acceptance of the terms of the contract between Wellborn and Miksch.

A right of first refusal ripens into an option when the owner of the land elects to sell the burdened property. T.S.O. v. Wiggins, 882 S.W.2d 8, 10 (Tex. App. Houston [1st Dist] 1994, no writ); Riley v. Campeau Homes (Texas), Inc., 808 S.W.2d 184, 188 (Tex. App. Houston [14th Dist.] 1991, writ dism'd by agr.); Holland v. Fleming, 728 S.W.2d 820, 822-23 (Tex. App. Houston [1st Dist.] 1987, writ ref'd n.r.e.). As with any option, exercise of a matured right of first refusal must be positive, unequivocal, and strictly in accordance with the option's terms. Austin Presbyterian Theological Seminary v. Moorman, 391 S.W.2d 717, 720 (Tex. 1965); T.S.O., 882 S.W.2d at 10-11; Suiter v. Woodard, 635 S.W.2d 639, 641 (Tex. App. Waco 1982, writ ref'd n.r.e.). Any attempt to modify the terms of the agreement when exercising the option is, in effect, a rejection of the option's terms and is ineffective. Id.

Wellborn asserts that Thomas incorporated the terms of the assignment of the right of first refusal into its exercise of that right, thus modifying the right and rendering its acceptance ineffective. Thomas referenced the assignment when exercising the right as follows:

NOTICE OF EXERCISE OF FIRST RIGHT OF REFUSAL

Under the terms of a first right of refusal, a copy of which is attached to the attached Assignment of First Right of Refusal executed by EXXON CORPORATION as assignor to C. L. THOMAS PETROLEUM, INC. as assignee, and made a part of this notice by reference, the undersigned, C. L. THOMAS PETROLEUM, INC., as assignee of and on behalf of the EXXON CORPORATION, herenow exercises its first right of refusal[.]

(emphasis added). We do not believe Wellborn's reading of this notice is correct. As shown by our emphasis, the notice merely references the assignment as the location of a copy of the right of first refusal and actually incorporates only the terms of the right itself. Therefore, we do not believe that the court erred on this basis when it concluded that Thomas "properly exercised" the right of first refusal. Wellborn's first cross point is overruled.

In its second cross point, Wellborn argues that the presence of the yet-to-be executed "separate sales agreement" referenced in paragraph 23 of the Miksch earnest money contract renders the contract incomplete and, thus, unenforceable by an action for specific performance. As a threshold matter, an action for specific performance must be based on an enforceable contract. Lynx Exploration and Production Co. v. 4-Sight Operation Co., 891 S.W.2d 785, 787 (Tex. App. Texarkana 1995, writ denied); Guzman v. Acuna, 653 S.W.2d 315, 318 (Tex. App. San Antonio 1983, writ dism'd). If an agreement is so indefinite that a court cannot fix the legal obligations of the parties, the agreement is not an enforceable contract. Lynx Exploration, 891 S.W.2d at 788. The standard for determining if the contract is enforceable by specific performance is one of reasonable certainty. Condovest Corp. v. John Street Builders, Inc., 662 S.W.2d 138, 140 (Tex. App. Austin 1983, no writ). The agreement must contain the essential terms of a contract, expressed with such certainty and clarity that it may be understood without recourse to parol evidence to show the intention of the parties." Id. (quoting Wilson v. Fisher, 144 Tex. 53, 56, 188 S.W.2d 150, 152 (1945)).

Here, Wellborn and Miksch agreed in paragraph 23 that Miksch would "execute a separate sales agreement on the form promulgated by" Wellborn. The specifics of the agreement, i.e. the prices, terms and conditions, were to be "the same as charged similarly situated customers." We believe that this provision of the earnest money contract is sufficiently clear and definite for a court to fix the parties legal obligations. Lynx Exploration, 891 S.W.2d at 788. Without recourse to parol evidence, the court is able to determine that the parties intended Miksch to enter into a motor fuel sales contract as part of his purchase of the station which comported with the standard motor fuel sales contract Wellborn maintained with its other resale customers. Condovest Corp., 662 S.W.2d at 140. Essentially, Miksch agreed to be bound to an adhesion contract. Given that Wellborn had such agreements with 60 to 70 service stations, paragraph 23 presented customary and definite terms which could be enforced against both Wellborn and Miksch. Thus, the court did not err when it concluded that the "contract between Wellborn and Miksch was an enforceable contract." Wellborn's second cross point is overruled.

THOMAS' ATTACKS ON THE FUEL SALES AGREEMENT

In its first point, Thomas argues that the court erred by requiring it to purchase the petroleum products sold at the station from Wellborn. Initially, Thomas argues that the requirements of paragraph 23 do not apply to it as a matter of law because Wellborn included the provision for the express purpose of deterring Exxon from exercising its right of first refusal. See T.S.O., 882 S.W.2d at 11 (citing West Texas Transmission, L.P. v. Enron Corp., 907 F.2d 1554, 1566 (5th Cir. 1990)). However, Thomas has not shown where it requested that the trial court remove specific provisions of the earnest money contract, alleged to have been imposed in bad faith with the purpose of defeating Thomas' right of first refusal. Id. Thus, we consider this argument waived. Tex. R. App. P. 52(a), 49 Tex. B.J. 573 (Tex. Crim. App. 1986, repealed 1997). //

Next, Thomas argues that the court erred because the obligation imposed by paragraph 23 is only operative "so long as [the purchaser] remains obligated" to purchase Exxon products, and it has never been obligated to purchase such products for sale at the station. For support, Thomas points to paragraph four (4) of the assignment, where Exxon acknowledged that the assignment itself did not create an obligation on Thomas' part to purchase Exxon branded products. However, Thomas ignores the obligation imposed by paragraph three (3) of the same agreement, in which it bound itself to execute a purchase option and right of first refusal option in Exxon's favor containing the same terms as in the Exxon-Wellborn agreement. The trial court found that the options in the Exxon-Wellborn agreement "effectively obligated Wellborn and its successors to sell Exxon branded motor fuels from the site." Thus, the issue becomes whether the court's interpretation of the options is correct.

Thomas argues that the court's interpretation of the effect of these options is not supported by legally or factually sufficient evidence. Unless the contract is ambiguous, interpretation of its terms is a matter of law for the court. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983); City of Austin v. Houston Lighting & Power Co., 844 S.W.2d 773, 783 (Tex. App. Dallas 1992, writ denied). The primary concern of contract construction is to ascertain the intentions of the parties as expressed in the language of the instrument. Gracia v. RC Cola-7-Up Bottling Co., 667 S.W.2d 517, 520 (Tex. 1984). The court should apply the common, ordinary meanings of words used in an unambiguous contract. Reilly v. Rangers Management, Inc, 727 S.W.2d 527, 529 (Tex. 1987); General Financial Services, Inc. v. Practice Place, Inc., 897 S.W.2d 516, 522 (Tex. App. Fort Worth 1995, no writ).

Neither party alleges that the agreements at issue in this cause are ambiguous. Thus, the trial court was called upon to interpret the language as a matter of law. Coker, 650 S.W.2d at 393; City of Austin, 844 S.W.2d at 783. Miksch agreed to purchase fuel from Wellborn as long as he was "obligated" to sell Exxon branded products. Thomas essentially argues that "obligated" in this context must mean "mandated."

Black s Law Dictionary gives the following definitions among others for the term obligate :

to bind or constrain;

to bind to the observance or performance of a duty.

Black s Law Dictionary 1073 (6th ed. 1990). Webster s defines the term in this manner: to bind legally or morally. Merriam-Webster s Collegiate Dictionary 801 (10th ed. 1993).

Given these common, ordinary definitions of "obligate", we conclude that the court's interpretation is correct, and the options agreements bound Thomas to purchase Exxon branded products within the meaning contemplated by paragraph 23. We overrule Thomas' first point.

THOMAS' ATTACK ON THE OPTIONS IN FAVOR OF WELLBORN

The court required Thomas to execute a purchase option and a right of first refusal in favor of Wellborn on the same terms and conditions as the agreements between Exxon and Wellborn. In its second point, Thomas complains that this order constitutes an abuse of the court's equity power. We agree. "[T]he court has no power to decree specific performance in any manner except in keeping with the terms of the agreement made by the parties." Hubler v. Oshman, 700 S.W.2d 694, 699 (Tex. App. Corpus Christi 1985, no writ); Brantley v. Etter, 662 S.W.2d 752, 757 (Tex. App. San Antonio 1983), writ ref'd n.r.e. per curiam, 677 S.W.2d 503 (Tex. 1984); Martin v. Martin, 230 S.W.2d 547, 551 (Tex. Civ. App. San Antonio 1950, writ ref'd n.r.e.). The Miksch-Wellborn contract does not call for Miksch to execute these options in favor of Wellborn. // The court should not have created new obligations not present in the agreement sought to be enforced. Id. Thus, we sustain point two.

THOMAS' CLAIM FOR DAMAGES

Thomas next complains that the court failed to award it compensation for damages it claimed it sustained as a result of Wellborn's refusal to convey the station. As a general rule, a suit for damages is an alternative remedy to specific performance. Foust v. Hanson, 612 S.W.2d 251, 253 (Tex. Civ. App. Beaumont 1981, no writ). However, in an action for specific performance, the court may make allowances between the parties for such items as rents, profits, or delay costs, not as "damages" for the breach of the contract, but to balance the equities among the parties. Heritage Housing Corp. v. Ferguson, 674 S.W.2d 363, 366 (Tex. App. Dallas 1984, writ ref'd n.r.e.); Hage v. Westgate Square Commercial, 598 S.W.2d 709, 713 (Tex. Civ. App. Waco 1980, writ ref'd n.r.e.). The court enforces the equities with the goal of putting the parties back into the position they would have occupied had the transaction been completed as contemplated by the contract. Heritage Housing, 674 S.W.2d at 366. Loss caused by any delay may be equalized by offsetting money payments. Id.

The court ruled that Thomas "failed to prove its claim for damages." Thomas argues that this conclusion is not supported by sufficient evidence and that it conclusively proved its damages. For support, Thomas points to evidence in the record showing that Wellborn received $5,000 a month in rental payments from Miksch from April 1993 forward. However, the evidence also indicated that the $5,000 a month "basically [covered] interest payments and the taxes and insurance and maintenance" on the station. We conclude that the court did not abuse its discretion by finding that Thomas failed to show that it was entitled to additional compensation in this action. See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); Thomas v. Thomas, 895 S.W.2d 895, 896 (Tex. App. Waco 1995, writ denied). Point three is overruled.

DELETION OF CREDIT FOR RENT PAID

The contract between Miksch and Wellborn provided that Miksch would take possession of the station in January 1993 and begin paying $5,000 a month in rent. Upon closing, Miksch was entitled to a dollar-for-dollar credit against the purchase price for rent paid. The court deleted this provision from the earnest money contract it ordered the parties to execute. In its fourth point, Thomas complains about this deletion.

We apply the rule that "the court has no power to decree specific performance in any manner except in keeping with the terms of the agreement made by the parties." Hubler, 700 S.W.2d at 699; Brantley, 662 S.W.2d at 757; Martin, 230 S.W.2d at 551. Miksch and Wellborn agreed that Miksch would pay Wellborn $5,000 a month until closing and Wellborn would reduce the purchase price to match the payments. If the court were to include a provision in keeping with this term in the contract between Thomas and Wellborn, Thomas would be required to pay Wellborn $5,000 a month for the period between January 1993 and closing and Wellborn would be required to reduce the purchase price accordingly, a net exchange of zero. Rather than include this useless provision in the contract, the court merely deleted the term. This is not an abuse of discretion. Thomas, 895 S.W.2d at 896; see also Landon v. Jean-Paul Budinger, Inc., 724 S.W.2d 931, 934-35 (Tex. App. Austin 1987, no writ). Point four is overruled.

ATTORNEYS FEES

In its last point, Thomas complains that the court denied its request for attorney s fees. The court may award attorney s fees to the prevailing party in a specific performance action based on a contract. Tex. Civ. Prac. & Rem. Code Ann. 38.001(8) (Vernon 1989); Jones v. Kelley, 614 S.W.2d 95, 100 (Tex. 1981). However, the decision to award fees after a bench trial lies within the sound discretion of the trial judge, and absent a showing of an abuse of that discretion, we will not disturb the court's decision. Simms v. Lakewood Village Property Owners Ass'n, Inc., 895 S.W.2d 779, 787 (Tex. App. Corpus Christi 1995, no writ). A party is generally entitled to recover attorney's fees only on the portion of the cause of action on which it prevails. Transcontinental Gas Pipe Line Corp. v. American Nat l Petroleum Co., 763 S.W.2d 809, 823 (Tex. App. Texarkana 1988), rev'd on other grounds, 798 S.W.2d 274 (Tex. 1989) (citing Kosberg v. Brown, 601 S.W.2d 414, 418 (Tex. Civ. App. Houston [14th Dist.] 1980, no writ)). Because Thomas prevailed on its claim for specific performance, but lost on its resistance to the obligations contained in paragraph 23, we conclude that it was both a prevailing and losing party. Thus, the trial court had the discretion to determine that it was not entitled to attorney's fees. Id. We overrule Thomas fifth point.

DISPOSITION

Because we have sustained point two, we modify the judgment by deleting the provision requiring Thomas to execute a purchase option and right of first refusal option in favor of Wellborn. Accordingly, the second sentence in paragraph 20 of the earnest money contract attached to the judgment is ordered stricken. Otherwise, we affirm the judgment of the trial court as modified.

REX D. DAVIS

Chief Justice

Before Chief Justice Davis,

Justice Cummings, and

Justice Vance

Modified and Affirmed as modified

Opinion delivered and filed December 17, 1997

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