Residencial Santa Rita, Inc. v. Colonia Santa Rita, Inc.--Appeal from 49th Judicial District Court of Webb County

MEMORANDUM OPINION
No. 04-06-00778-CV
RESIDENCIAL SANTA RITA, INC.,
Appellant
v.
COLONIA SANTA RITA, INC.,
Appellee
From the 49th Judicial District Court, Webb County, Texas
Trial Court No. 2004-CVQ-000759-D1
Honorable Manuel R. Flores, Judge Presiding

Opinion by: Alma L. L pez, Chief Justice

 

Sitting: Alma L. L pez, Chief Justice

Sandee Bryan Marion, Justice

Phylis J. Speedlin, Justice

 

Delivered and Filed: September 12, 2007

 

AFFIRMED IN PART; REVERSED AND REMANDED IN PART

Residencial Santa Rita, Inc. appeals the summary judgment granted in favor of Colonia Santa Rita, Inc. in an action seeking to enforce a residential-only restrictive covenant. We reverse the trial court's judgment as to Residencial's claims of fraud and statutory fraud and as to its affirmative defense of estoppel. We affirm the trial court's judgment as to all other claims and affirmative defenses asserted by Residencial.

Background

Viewing the evidence in the light most favorable to Residencial, on November 4, 1996, Santa Rita Plaza, L.C. filed a condominium declaration for Los Balcones De Santa Rita Condominiums, consisting of twelve condominiums. The declaration restricted the use of the condominiums to private residential use. At some point, ownership of the condominiums was transferred to Santa Rita Development, Inc. ("SRD"). Camilo Prada, Cristina Prada, and Begonia Portugal were the three directors of the condominium association.

In 1999-2000, a construction company was permitted to operate out of one of the condominium units for a period of twenty-four months. In 2000-2001, a company that sold water purification/filtration products and equipment also was permitted to operate out of a condominium unit for twelve months.

On March 2, 2001, Camilo Prada died. Camilo's will made a division of the shares of SRD such that Cristina and Begonia would each own 50% of SRD. On October 3, 2002, Cristina and Begonia entered into a settlement agreement pursuant to which one-half of assets of SRD would be conveyed to a corporation owned by Cristina, and the other one-half of the assets would be conveyed to a corporation owned by Begonia. During the negotiations culminating in the execution of the settlement agreement, Cristina asked Begonia's son, Eduardo, if she could continue to share the office that had been used by SRD. Although Eduardo routinely made the decisions involving SRD by himself, he told Cristina he would need to ask Begonia. After speaking with Begonia, Eduardo told Cristina she could use one of the condominium units her corporation would receive as an office. Eduardo told Cristina she could begin the renovations immediately so the unit would be ready by the time the separation was final. Cristina began renovating the condominium unit for this purpose in January of 2003.

In April of 2003, deeds were executed in furtherance of the settlement agreement conveying units 1-6 to Colonia, the corporation owned by Begonia, and conveying units 7-12 to Residencial, the corporation owned by Cristina. At the same time that the deeds were executed, Begonia and Cristina executed releases in favor of each other. In April of 2004, Colonia sent notice to Residencial that the use of the unit by Cristina for Residencial's office violated the condominium's restrictive covenants. The underlying lawsuit was a consolidation of separate lawsuits filed by each party.

Standard of Review

A traditional motion for summary judgment is properly granted only when the movant establishes that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law on a ground expressly set forth in the motion. Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 156 (Tex. 2004). In reviewing the grant of a summary judgment, we indulge every reasonable inference and resolve any doubts in favor of the non-movant. Id. Additionally, we assume all evidence favorable to the non-movant as true. Id. If a non-movant opposes a summary judgment by relying on an affirmative defense, the non-movant must present sufficient evidence to raise a genuine issue of material fact on each element of the defense to avoid summary judgment. Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984).

In reviewing a no-evidence summary judgment motion, we examine the record in the light most favorable to the nonmovant; if the nonmovant presents more than a scintilla of evidence supporting the disputed issue, summary judgment is improper. Forbes, Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 172 (Tex. 2003). Less than a scintilla of evidence exists when the evidence is so weak as to do no more than create a mere surmise or suspicion of a fact. Id. More than a scintilla of evidence exists if it would allow reasonable and fair-minded people to differ in their conclusions. Id.

Discussion

Residencial asserts that the trial court erred in granting Colonia's traditional motion for summary judgment because: (1) neither the statute of frauds nor the Uniform Condominium Act precludes Residencial from establishing that Colonia is estopped from enforcing the restrictive covenant; and (2) the releases executed by the parties in connection with the settlement agreement released Colonia's claim seeking to enforce the restrictive covenant. In addition, Residencial asserts the trial court erred in granting Colonia's no-evidence motion for summary judgment because the evidence raised a genuine issue of material fact with regard to Residencial's claims for fraud, statutory fraud, agency/alter ego, and waiver.

Although Colonia asserted a right to judgment pursuant to the statute of frauds which requires a writing in order to enforce a sale of real property, the issue presented in this case is not whether the real estate conveyance is enforceable because that conveyance is evidenced by a written agreement. Instead, the issue is whether Colonia is estopped from enforcing the restrictive covenant because of Eduardo's representation and the parties' subsequent actions. See American Garment Properties, Inc. v. CB Richard Ellis-El Paso, L.L.C., 155 S.W.3d 431, 437 (Tex. App.--El Paso 2004, no pet.) (discussing whether party was estopped from relying on statute of frauds); see also Moritz v. Bueche, 980 S.W.2d 849, 856 (Tex. App.--San Antonio 1998, no pet.) (noting statute of frauds only bars claim seeking damages for breach of contract). Similarly, although section 82.067 of the Uniform Condominium Act requires the filing of an amendment to a condominium declaration, the issue is whether Colonia can be estopped from enforcing the restrictive covenant notwithstanding the absence of a filed amendment.

To defeat summary judgment based on its affirmative defense of estoppel, Residencial was required to present sufficient evidence to raise a fact issue with regard to each of the following elements: (1) false representation or concealment of material facts; (2) made with actual or constructive knowledge of the facts; (3) to a party without knowledge or the means to obtain knowledge of the real facts; (4) made with the intention that such misrepresentation or concealment should be acted upon; and (5) the party to whom it was made must have relied upon or acted upon it to his prejudice. Pebble Beach Property Owners' Ass'n v. Sherer, 2 S.W.3d 283, 291 (Tex. App.--San Antonio 1999, pet. denied). Here, Residencial introduced testimony that Eduardo represented to Cristina that she could use one of the units that would be owned by Residencial as an office. (1)

Cristina had no knowledge that Colonia would subsequently act contrary to this representation after Cristina had invested a substantial amount of money in renovating the unit and had been operating the office out of the unit for approximately one year. Because this evidence is sufficient to raise a genuine issue of material fact with regard to the affirmative defense of estoppel, the trial court erred in granting the summary judgment in favor of Colonia on its claim that Residencial violated the restrictive covenant.

With regard to Residencial's affirmative defense of release, under Texas law, a release is a contract, and, as such, a release should be interpreted like any other contract. Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990); Coats v. Ruiz, 198 S.W.3d 863, 879 (Tex. App.--Dallas 2006, no pet.). As part of the settlement agreement, Begonia and Cristina each agreed to execute releases for all "disputed claims." Reading the definition of "disputed claims" in the context of the agreement, it is clear that Colonia's claim for violating the restrictive covenant was not within the scope of the "disputed claims" as that term was defined. The "disputed claims" related to controversies arising from the interpretation of a premarital agreement between Camilo and Cristina and other claims relating to the estate and its distribution. At the time the settlement agreement was signed, and the term "disputed claims" was defined, Residencial had taken no action in violation of the restrictive covenant. Therefore, reading the definition of "disputed claims" in the context of the parties' agreement, Colonia's claim against Residencial for violating the restrictive covenant was not within the scope of the release.

Similarly, Colonia's argument that the merger clause in the settlement agreement precludes Residencial's fraud claim fails. The settlement agreement contained the following merger clause:

The Parties represent, covenant and warrant that they or their duly authorized representatives have read this Agreement and fully understand it; that they have executed this Agreement with the intent to be fully bound according to its terms; that in signing this Agreement, they have relied solely on their own knowledge or their duly authorized representatives' knowledge and judgment and/or advice of their own attorneys and not in reliance upon any representation, warranty, advice, statement or action of any kind of the other Parties, except to the extent such representations, warranties, advice, statements, or actions are expressly set forth in this Agreement. The Parties expressly disclaim reliance on any fact or representation made by the other if not expressly contained in this Agreement.

Whether a merger clause is sufficient to disclaim the reliance element of a fraud claim depends on the contract and the circumstances surrounding the formation of the contract. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179-80 (Tex. 1997). In this case, when the settlement agreement was executed, the parties were attempting to settle disputes over Cristina's contractual right of reimbursement and to partition and distribute the assets of Camilo's estate. Although the condominium units were an asset of the estate involved in the distribution, Colonia did not present any evidence that the parties engaged in lengthy negotiations with regard to the terms of the conveyance of the condominiums. Because the terms of the conveyance, particularly the enforceability of the restrictive covenants, were not in dispute, the merger clause does not bar Residencial's fraud claims. See Harris v. Archer, 134 S.W.3d 411, 431 (Tex. App.--Amarillo 2004, pet. denied) (noting preclusion of claim based on merger clause based, in part, on fact that discussions during negotiations involved the very subject matter which the plaintiffs claimed was misrepresented to them); Burleson State Bank v. Plunkett, 27 S.W.3d 605, 616 (Tex. App.--Waco 2000, pet. denied) (allowing fraud claim despite merger clause under fact and circumstances presented in the case); but see Schlumberger, 959 S.W.2d at 180-81 (merger clause barred fraud claim based on alleged misrepresentation regarding the feasibility and value of sea-diamond project where sole purpose of release was to end dispute about the value of the project); IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 126-28 (Tex. App.--Houston [1st Dist.] 2003, pet. denied) (merger clause barred misrepresentation claims regarding job description where job description was subject of lengthy and intense dispute and negotiation during contract formation).

To raise a fact issue on its fraud claim, Residencial had to offer evidence that Colonia, or its agent, made a material, false promise to Residencial and failed to fulfill that promise, to Residencial's detriment. See DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990);Gonzales v. American Title Co. of Houston, 104 S.W.3d 588, 594 (Tex. App.--Houston [1st Dist.] 2003, pet. denied). Similarly, fraud is statutorily defined as a false representation of a material fact, made to a person for the purpose of inducing that person into a contract, on which representation the person relies in entering into the contract. Tex. Bus. & Com. Code Ann. 27.01(a)(1)(A)-(B) (Vernon 2002). The same evidence that raises a fact issue with regard to Residencial's estoppel defense also raises a fact issue sufficient to defeat Colonia's no-evidence summary judgment as to Residencial's fraud and statutory fraud claims. Viewed in the light most favorable to Residencial, the evidence raised a fact issue as to whether Colonia, through its agent Eduardo, made a false promise or representation during the negotiation of the settlement agreement that Residencial could use one of the condominium units as an office and whether Residencial relied on the promise or representation to its detriment when it renovated and used the unit as an office for a year.

In order to defeat Colonia's no-evidence summary judgment as to its waiver defense, Residencial was required to raise a fact issue as to whether Colonia voluntarily and intentionally relinquished its right to enforce the restrictive covenant. Pebble Beach Property Owners' Ass'n, 2 S.W.3d at 290. In order to establish a waiver of a restrictive covenant, the waiver must be established under one of two distinct rules of law:

(a) homeowners have acquiesced to such substantial violations within the restricted area as to amount to an abandonment of the covenant or a waiver of a right to enforce it; or

 

(b) there has been such a change in the conditions in the restricted area or areas surrounding it that it is no longer possible to secure any substantial degree of the benefits sought to be realized through the covenants.

 

Id.

Among the factors to be considered when determining whether a waiver has occurred are the number, nature, and severity of any then-existing violations, any prior acts of enforcement of the restrictions, and whether it is still possible to realize to a substantial degree the benefits intended through the covenant. Id. In order to raise a fact issue, Residencial was required to present some evidence that the violations then existing were so extensive and material as to reasonably lead to the conclusion that the restrictions had been abandoned. Id.

In this case, although Residencial's evidence established two prior violations during the time SRD owned the condominiums, the only "then-existing" violation was the violation by Residencial in its use of one of the twelve condominium units as a business office. "Considering the number, nature and severity of the existing violations, any prior acts of enforcement, and whether it is still possible to realize to a substantial degree the benefits sought to be obtained by way of the covenants, [Colonia] has not yet reached the point where it is no longer possible to still realize the benefit sought to be obtained by the [restriction to residential use]." Id. at 291. Accordingly, the trial court did not err in granting the no-evidence summary judgment on Residencial's waiver defense.

Conclusion

The trial court erred in granting Colonia's motion for traditional summary judgment because a genuine issue of material fact was presented on Residencial's affirmative defense of estoppel. In addition, the trial court erred in granting Colonia's no-evidence motion for summary judgment as to Residencial's claims for fraud and statutory fraud. The trial court properly granted summary judgment as to all other claims and affirmative defenses asserted by Residencial.

 

Alma L. L pez, Chief Justice

1. Cristina testified in her deposition that Begonia told her that Eduardo was going to take her place and that "whatever he says is like if I had said it." This is sufficient to raise a fact issue as to whether Eduardo had apparent authority to act on behalf of Begonia and Colonia. See NationsBank, N.A. v. Dilling, 922 S.W.2d 950, 952-53 (Tex. 1996) (noting apparent authority established by showing a principal either knowingly permitted an agent to hold itself out as having authority or showed such lack of ordinary care as to clothe the agent with indicia of authority). Furthermore, Eduardo represented that he had directly spoken with Begonia about the office situation and stated that Cristina could use one of the condominium units as an office for Residencial. Although Residencial appears to brief the agency/alter ego/joint enterprise issue as a separate claim, the issue is not a separate claim but only a theory by which Colonia can be held liable for the statements made by Eduardo.