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holding defendant was prevailing party when court entered take-nothing judgment in his favor on breach of contract claim and affirming award of attorney's fees
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No. 01-07-00370-CV
Opinion issued May 20, 2010.
On Appeal from the 157th District Court, Harris County, Texas, Trial Court Cause No. 2005-63497.
Panel consists of Justices JENNINGS, HANKS, and BLAND.
MEMORANDUM OPINION ON REHEARING
Appellant, Silver Lion, Inc. and appellees, Dolphin Street, Inc. and R. Kent Larsen, have filed motions for rehearing of our May 21, 2009 memorandum opinion and judgment. We deny those motions. We do, however, withdraw our May 21, 2009 memorandum opinion and judgment and issue this memorandum and judgment in their stead.
We affirm the trial court's judgment in part, holding that the evidence is legally and factually sufficient to support the trial court's findings that (1) Silver Lion tortiously interfered with the sale of Dolphin Street and (2) Dolphin Street and Larsen did not breach the Lease and Guaranty at issue.
We sustain Silver Lion's fourth issue in part, holding that the trial court properly awarded attorney's fees to Larsen as a signatory to the Guaranty but erred in awarding attorney's fees to Dolphin Street because it was not a signatory to that Guaranty. Accordingly, we reverse that part of the trial court's judgment awarding attorney's fees to Dolphin Street and render judgment in favor of Silver Lion on that issue.
We also sustain Silver Lion's second issue and reverse the trial court's finding that Silver Lion breached the Management Agreement. We render judgment for Silver Lion on Dolphin Street and Larsen's breach of contract claims based upon the Management Agreement and vacate the trial court's award of $100 to Dolphin Street and Larsen.
BACKGROUND
In April 2002, Silver Lion, as landlord, leased commercial space to Dolphin Street for the operation of a nightclub. The lease agreement ("the Lease") had a five-year term and was secured by a guaranty agreement executed by Larsen, Dolphin Street's owner (the "Guaranty"). Under the Lease, Dolphin Street agreed to pay monthly rent, which would increase on an annual basis, and to pay for maintenance of common areas of the premises.
In November 2002, shortly after opening for business, Dolphin Street fell behind on its rent. In January 2003, Dolphin Street executed a promissory note, assigning Esperanza Martinez a lien on the furniture, fixtures, equipment and other assets of the club in exchange for $163,000. Ms. Martinez then forwarded a check for January's rent to Silver Lion. On January 29, 2003, Doug Butcher, Silver Lion's representative, signed a subordination agreement agreeing that any security interest Silver Lion had or obtained in the future would be subordinated to Martinez's interest.
In March 2003, Larsen informed Butcher that Dolphin Street would not be able to continue to pay rent. Larsen and Butcher agreed that it would be a "win/win" situation for both of them if Butcher managed the club to keep it open until Larsen could find a buyer for the business. They believed that such an arrangement would maintain Dolphin Street as a viable, ongoing business, something Larsen could sell, and assist Butcher by "keeping his premises leased and looking busy and keeping the value up." Larsen and Butcher then entered into a Management Agreement that they both drafted, effective March 31, 2003, under which Silver Lion agreed to pay for the continued operation of the club for 90 days to enable Dolphin Street to "find a buyer for the operations and to maintain continuity of Dolphin Street nightclub, to protect the value of the operations, supporting lease and location and to stop any accrual of additional operating debt on the part of Dolphin Street, Inc." The Lease and Larsen's Guaranty are attached to the Management Agreement. In the Management Agreement, the parties agreed that any potential buyer of the business would be subject to the approval of Silver Lion, and that Silver Lion would not unreasonably withhold that approval.
The Management Agreement directly addressed the issue of future rent that would come due under the existing Lease. Paragraph 5 of the Management Agreement states that Silver Lion would either "forgive or pay as an operating expense all rents due during the period of the agreement." Further, the Management Agreement called for Silver Lion to pay two types of operating expenses: (1) those incurred prior to April 1, 2003 — the time Larsen was operating the club — which the Management Agreement called "prior obligations;" and (2) those incurred between April 1, 2003 and the prospective sale of the club — the time Silver Lion was operating the club — which Silver Lion would pay and for which it would not seek reimbursement. As to the first category, the Management Agreement called for Dolphin Street and Larsen to reimburse Silver Lion for "the amount of prior obligations actually paid," less $750. This reimbursement was to be made from the proceeds of the sale of the club. The Management Agreement also stated that the list of "prior obligations" was to be attached to the Agreement, and was to be updated to reflect all of the payments incurred prior to April 1, 2003:
Dolphin Street, Inc. has the supporting Accounts payable (attachment #2) as of 26 March 2003 and Tax Liability. This list does not include an unknown amount owed to Reliant Energy for electricity that has not been billed. It is agreed that this list will be adjusted to include all liabilities that were incurred or payable prior to 01 April 2003 that are not listed (collectively, prior obligations). Landlord warrants that landlord will pay all liabilities Dolphin Street, Inc. may owe to any taxing authority or governmental entity in a manner to avoid incurring additional penalties.
A copy of the Management Agreement was admitted into evidence at trial by both sides. The copy admitted by Dolphin Street and Larsen contained two attachments relating to accounts payable. The first, entitled "Vendor Balance Summary," listed several vendors with outstanding invoices as of March 26, 2003, totaling $20,494.15. Several handwritten codicils addressed various vendors, with Larsen promising to pay certain vendors directly, despite the Management Agreement's requirement that Silver Lion do so, "upon dispursal [sic] of fund [sic] from sale of club." A second document, entitled "Dolphin Street Texas 1st Quarter 2003," listed the taxes Larsen estimated were due to taxing authorities for January, February, and March of 2003, totaling $ 13,955.86.
In contrast, Silver Lion's copy of the Management Agreement did not contain these attachments. Instead, at trial, Butcher testified that he had never seen the attachments to Larsen and Dolphin Street's copy of the Management Agreement, and that those documents did not match his recollection of the list of accounts payable that Larsen gave him at the time they executed the Management Agreement. Butcher testified that a different document had been attached as the list of accounts payable, but that the vendors listed had been substantially similar. The document Butcher testified was attached contained the notation "Insurance Cancelled Apr 03" and indicated that three of the accounts were "paid and current" despite showing a balance. Larsen stated that Butcher himself made those notations.
The Management Agreement also lists several vendors to whom Dolphin Street acknowledged it owed money, and noted that these vendors held personal guarantees from Larsen. Silver Lion promised to keep current on the payments to these vendors "so as to limit credit or legal action against Mr. Larsen." Silver Lion promised to indemnify and hold Larsen harmless from "any and all liabilities, claims and causes of action raised by third parties, taxing authorities or governmental entities which in any way relate to the management of the business of Dolphin Street, Inc. or the operation of Dolphin Street nightclub after the date of this agreement."
Soon after Butcher, on behalf of Silver Lion, began managing the nightclub, he discovered that Dolphin Street and Larsen had not provided him a complete list of accounts payable. Various vendors began demanding past due payments. Butcher testified that the cash flow of the business was so poor that he had his family members work in the business to reduce costs, and that he worked in the club on weeknights as a DJ to save money on entertainment. In May 2003, almost three months after Silver Lion began operating Dolphin Street, the Texas Comptroller placed a freeze on Dolphin Street's assets for failure to pay franchise, sales, and mixed beverage gross receipts taxes. Other expenses incurred during this time also went unpaid, as did obligations incurred prior to Silver Lion's assumption of the nightclub's management. In all, Larsen testified at trial that he eventually paid $32,369.91 in past due debts, penalties, and interest that he claimed were either incurred while Silver Lion was managing the club or were pre-existing debts that Silver Lion had agreed to pay under the Management Agreement. In mid-May, Larsen learned that the insurance on the nightclub had been cancelled because the premiums had not been paid. Based on these developments, Larsen and Butcher agreed to close the nightclub.
Prior to the club's closure, a potential buyer had expressed interest in the business. The buyer, Jack Speer, offered to purchase Dolphin Street from Larsen for $115,000. During the negotiations between Larsen and Speer, Butcher sent Speer's attorney two letters indicating that Dolphin Street owed Silver Lion $19,288.26 in back rent for the months of April, May and June 2003, plus an additional amount for the expenses that Silver Lion had paid on Dolphin Street's behalf. According to Larsen, Butcher stated that Silver Lion would withhold its approval of Speer as a purchaser for the club unless Speer paid Silver Lion for the club's rent in April, May and June of 2003, plus additional expenses that Silver Lion had incurred by managing the club.
Speer ultimately decided not to purchase Dolphin Street. Dolphin Street was not reopened after its initial closure. Instead — months later — Speer opened an entirely new nightclub in the same space by forming a new corporation, purchasing many of Dolphin Street's assets from Esperanza Martinez and entering into a new and independent lease with Silver Lion.
Silver Lion sued Larsen and Dolphin Street, Inc. for breaching the original Lease and the Management Agreement, and for fraud. Dolphin Street and Larsen counterclaimed for breach of the Management Agreement, conversion, indemnity, and tortious interference with a prospective contract, namely Speer's purchase of the club. Both sides sought attorney's fees. After a bench trial, the trial court entered judgment that Silver Lion take nothing on its claims and awarding damages to Dolphin Street and Larsen on their claims for tortious interference ($115,000), breach of contract ($100), and attorney's fees. The trial court entered findings of fact and conclusions of law, including the following findings of fact:
. . . .
3. Effective April 01, 2003, when Dolphin Street, Inc. could no longer continue making its lease payments the parties materially amended the lease by a Management Agreement whereby Silver Lion, Inc., at its sole expense and liability would operate the "Dolphin Street" nightclub for 90 days while the parties sought a purchaser.
4. Silver Lion, Inc. materially breached the Management Agreement relieving both Dolphin Street, Inc. and R. Kent Larsen from performance of the lease and guaranty.
5. Silver Lion, Inc.'s breach of the Management Agreement resulted in nominal $100 damages to Dolphin Street, Inc. and R. Kent Larsen.
6. Silver Lion, Inc. tortiously interfered with the purchase and sale contract for Jack Speer to purchase Dolphin Street, Inc. and satisfy the lease obligations.
7. The tortious interference by Silver Lion, Inc. with the purchase and sale contract has damaged R. Kent Larsen, in the amount of $115,000.00.
On appeal, Silver Lion argues that the evidence is legally and factually insufficient to support the trial court's findings that (1) Silver Lion tortiously interfered with a prospective contract between Dolphin Street, Larsen and Speer; (2) Silver Lion breached the Management Agreement; and (3) Dolphin Street and Larsen's failure to pay rent was excused. Additionally, Silver Lion argues that Dolphin Street and Larsen failed to plead the affirmative defense of excuse. Finally, Silver Lion challenges the trial court's award of attorney's fees to Dolphin Street and Larsen on the grounds that the trial court awarded only nominal damages for their breach of contract claims, and they raised no other grounds upon which they could be awarded attorney's fees.
Dolphin Street appeals the trial court's award of only $100 in damages for Silver Lion's alleged breach of the Management Agreement.
ANALYSIS
I. Tortious Interference
In its first issue, Silver Lion complains that the evidence is legally and factually insufficient to support the trial court's finding that it tortiously interfered with a prospective contract. We disagree.
A. Standard of Review
Findings of fact in a nonjury trial have the same force and dignity as a jury's verdict; however, they are not conclusive when a complete reporter's record appears in the appellate record. Lewis v. Dallas Soundstage, Inc., 167 S.W.3d 906, 912 (Tex. App.-Dallas 2005, no pet.); see also Bernal v. Chavez, 198 S.W.3d 15, 18 (Tex. App.-El Paso 2006, no pet.). When a complete reporter's record is filed, the trial court's fact findings may be reviewed for legal and factual sufficiency under the same standards as jury verdicts. Lewis, 167 S.W.3d at 912. In doing so, we do not substitute our judgment for that of the fact finder, even if we would have reached a different conclusion when reviewing the evidence. Id.
In deciding whether legally sufficient evidence supports a challenged finding, we must consider evidence favorable to the finding if a reasonable fact finder could consider it and disregard evidence contrary to the finding unless a reasonable fact finder could not disregard it. City of Keller v. Wilson, 168 S.W.3d 802, 822, 827 (Tex. 2005). Circumstantial evidence may be used to establish any material fact, but it must establish more than mere suspicion. Lozano v. Lozano, 52 S.W.3d 141, 149 (Tex. 2001) (citing Browning-Ferris, Inc. v. Reyna, 865 S.W.2d 925, 928 (Tex. 1993)). Only reasonable inferences drawn from the known circumstances establish a material fact. Id. (inference is merely a deduction from proven facts). We consider the totality of the known circumstances in determining the legal sufficiency of the circumstantial evidence and the reasonable inferences to be drawn from it. See Felker v. Petrolon, Inc., 929 S.W.2d 460, 464 (Tex. App.-Houston [1st Dist.] 1996, writ denied).
When an appellant attacks the legal sufficiency of an adverse finding on an issue on which it did not have the burden of proof, it must demonstrate that no evidence supports the finding. Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). When attacking the legal sufficiency of the evidence to support an adverse finding on an issue for which they had the burden of proof, appellants must demonstrate the evidence conclusively established all vital facts in support of the issue. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); Marrs Smith P'ship v. D.K. Boyd Oil Gas Co., 223 S.W.3d 1, 13-14 (Tex. App.-El Paso 2005, pet. denied).
In reviewing the factual sufficiency of the evidence to support a trier of fact's finding, we conduct a neutral review of all the evidence and set aside the finding only if it is "so against the great weight and preponderance of the evidence as to be clearly wrong and unjust." Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996); see also Minucci v. Sogevalor, S.A., 14 S.W.3d 790, 794 (Tex. App.-Houston [1st] 2000, no pet.).
B. Elements of Claim
To establish a cause of action for tortious interference with prospective business relationships, a plaintiff must show that (1) there was a reasonable probability that the parties would have entered into a business relationship; (2) the defendant committed an independently tortious or unlawful act that prevented the relationship from occurring; (3) the defendant either acted with a conscious desire to prevent the relationship from occurring or knew the interference was certain or substantially certain to occur as a result of the conduct; and (4) the plaintiff suffered actual harm or damages as a result of the defendant's interference. Richardson-Eagle, Inc. v. William M. Mercer, Inc., 213 S.W.3d 469, 475 (Tex. App.-Houston [1st] 2006, pet. denied) (citing Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 713 (Tex. 2001)); Brown v. Swett Crawford of Texas, Inc., 178 S.W.3d 373, 381-82 (Tex. App.-Houston [1st] 2005, no pet.) Here, Silver Lion argues that the evidence is legally and factually insufficient to establish a claim for tortious interference because Dolphin Street produced no evidence that Silver Lion's actions amounted to an independent tort or unlawful act that actually prevented the sale from going forward. Silver Lion also argues that the evidence is legally and factually insufficient to establish a claim because Silver Lion did not intend for its representations to interfere with the sale. We examine each of these arguments in turn.
1. Independent Tort or Unlawful Act
To establish a tortious interference claim, Dolphin Street was required to provide evidence that Silver Lion's conduct amounted to an independent tort or unlawful act. See, e.g., Richardson-Eagle, Inc., 213 S.W.3d at 475. It is undisputed that, in a letter dated May 3, 2003, Silver Lion represented to Speer, the prospective buyer, that upon the closing of the sale, Silver Lion was owed $19,288.26 in past due rent for the months of April, May and June of 2003, in addition to the expenses that Silver Lion had paid on behalf of Dolphin Street. It is also undisputed that Silver Lion wanted Speer to pay these sums to Silver Lion from his escrow account and that Silver Lion would withhold its approval of the sale to Speer if payment was not made. In this case, Dolphin Street provided legally and factually sufficient evidence that these statements to Speer were fraudulent misrepresentations.
First, Dolphin Street produced evidence that these representations regarding the amount of past due rents were false and that Silver Lion either knew that the statements were false or made them recklessly without any knowledge of the truth and as a positive assertion. Specifically, there is evidence demonstrating that, in the Management Agreement, Silver Lion had promised to forgive, or itself pay, the rent for April, May, and June of 2003, and it therefore had no contractual right to receive these payments from anyone upon the sale of Dolphin Street. At trial, Larsen testified that, under the terms of the Management Agreement, the rents for April, May, and June 2003 were to be forgiven and were not to be paid to Silver Lion from the club's sale proceeds. Similarly, the clear and unequivocal language of Paragraphs 5 and 14 of the Management Agreement mandated that rents coming due during the period of the Management Agreement were to be either (1) forgiven outright or (2) paid as operating expenses by Silver Lion and then used to calculate whether Silver Lion made a profit or a loss from its operation of the club. This profit or loss would accrue to Silver Lion, not to Dolphin Street or a subsequent buyer:
5. Landlord will forgive or pay as an operating expense all rents due Silver Lion, Inc. during the period of this agreement.
. . . .
14. It is understood that any profit or loss from the operation of the Dolphin Street Club during the period of landlord's management hereunder shall be for the account of the landlord.
(emphasis added).
Second, the evidence shows that Silver Lion intended Speer to rely on Butcher's statements that these three months' rent was due and had to be paid to Silver Lion at the time of the closing. Butcher, acting on behalf of Silver Lion, made these representations when responding to an inquiry by Speer's attorney, who was trying to determine the amount of Dolphin Street's outstanding liabilities that would need to be paid if the sale was completed. At the time these representations were made, Speer had in fact already paid some of Dolphin Street's outstanding liabilities in anticipation of the sale going through. Speer had also set up an escrow account to pay any additional outstanding liabilities that needed to be paid at the time of closing. In addition, Larsen testified that Butcher told him that Silver Lion would withhold its consent to the sale unless it received payment of the rent for April, May, and June of 2003 from the sales proceeds. Larsen's testimony is supported by the language of the Landlord's Consent to the sale to Speer, signed by Silver Lion but never signed by either Speer or Larsen, requiring Speer to agree to pay Silver Lion these allegedly past due rents from the sales proceeds.
As the Texas Supreme Court explained in Sturges, such evidence of fraudulent statements can support a claim for tortious interference with a prospective contract:
By independently tortious we do not mean that the plaintiff must be able to prove an independent tort. Rather, we mean only that the plaintiff must prove that the defendant's conduct would be actionable under a recognized tort. Thus, for example, a plaintiff may recover for tortious interference from a defendant who makes fraudulent statements about the plaintiff to a third person without proving that the third person was actually defrauded. If, on the other hand, the defendant's statements are not intended to deceive . . . then they are not actionable. . . . These examples are not exhaustive, but they illustrate what conduct can constitute tortious interference with prospective relations.
52 S.W.3d at 713 (emphasis added).
Silver Lion has not presented, nor have we found, any case law holding that a party cannot prove a claim for tortious interference unless it has specifically pled each of the elements of the underlying independent tort or unlawful act. Nor do we believe that Sturges imposes such a requirement where, as here, Silver Lion did not specially except to Dolphin Street's tortious interference pleadings.
Nevertheless, Silver Lion, relying in part on paragraph 8 of the Management Agreement, contends that there is evidence that its representations to Speer regarding past due rents were "reasonable" and made in "good faith" under the terms of the Management Agreement, and therefore there is no evidence that it intended to deceive Speer and these representations cannot serve as the basis of a tortious interference claim. We disagree.
Contrary to Silver Lion's argument on appeal, paragraph 8 of the Management Agreement does not provide any "good faith" or "reasonable" basis for Butcher's representations to Speer. This paragraph states that, upon the sale of the nightclub, Silver Lion shall be repaid only for those amounts that were (1) incurred prior to the formation of the Management Agreement and (2) actually paid by Silver Lion. This paragraph provides in pertinent part that:
8. Upon the sale of Dolphin Street, Inc. or Dolphin Street nightclub the amount of the prior obligations actually paid by landlord (less $750 pass on at transfer) will be reimbursed to landlord from the sales proceeds. In the event the amount that is due at the time of sale is less than the prior obligations actually paid by landlord the entirety of the net sales proceeds will be paid to the landlord.
(emphasis added). In this case, it was undisputed that the rent obligations that Butcher represented to Speer's attorney were due were incurred after the date of the Management Agreement — March 31, 2003. Thus, they are not "prior obligations" eligible for reimbursement under the Management Agreement. Further, there is no evidence that Silver Lion accounted for these rents as "actually paid" on its books.
At oral argument, Silver Lion contended that paragraph 2 of Agreement also supports its argument that Speer was required to pay these rents upon purchasing the nightclub. This paragraph provides in pertinent part that:
2. . . . However, this agreement does not transfer, relieve or indemnify Dolphin Street, Inc. from any and all liabilities, regarding the supporting lease.
This paragraph, however, cannot be read in isolation from the clear language of the rest of the Management Agreement. See Phillips Petroleum Co. v. St. Paul Fire Marine Ins. Co., 113 S.W.3d 37, 40 (Tex. App.-Houston [1st] 2003, pet. denied). When read with the entire Agreement, this paragraph merely provides that Dolphin Street continued to incur obligations under the lease after March 31, 2003. In paragraph 5, the parties specifically agreed how they would treat rent coming due during the time Silver Lion operated the club — i.e., it was to be forgiven outright or paid by Silver Lion as an operating expense.
Finally, Silver Lion argues that its representations to Speer regarding past due rents cannot be the basis of a tortious interference claim because they are representations regarding a point of law or the legal effect of a document and, as such, are not actionable. We disagree. As a general rule, a representation regarding a point of law or the legal effect of a document is a statement of opinion rather than of fact and will not ordinarily support an action for fraudulent misrepresentation. Fina Supply, Inc. v. Abilene Nat'l Bank, 726 S.W.2d 537, 540 (Tex. 1987); see also Transport Ins. Co. v. Faircloth, 898 S.W.2d 269, 276 (Tex. 1995) ("[A]n actionable representation is one concerning a material fact; pure expressions of opinion will not support an action for fraud."). However, even a misrepresentation regarding the law or the legal effect of a document is actionable if it amounts to a misrepresentation of fact or was intended and understood as a statement of fact. See, e.g., Placer Energy Corp. v. E S Oil Co., Inc., 692 S.W.2d 197, 200 (Tex. App.-Fort Worth 1985, no writ) (defendant who misrepresented that requirement of statute of frauds was satisfied was liable for resulting damages); Marlow v. Medlin, 558 S.W.2d 933, 938 (Tex. Civ. App.-Waco 1977, no writ) (statement as to statute of frauds was actionable because intended and understood as statement of fact).
Here, there is evidence that these representations were positive assertions of material fact made in response to Speer's attorney's inquiry as to the total amount of Dolphin Street's outstanding liabilities that needed to be paid at the closing. The representations that serve as the basis of Dolphin Street's claim for tortious interference are found in the May 3, 2003, letter written by Butcher in response to inquiries by Speer's attorney regarding the total amount of liabilities owed by Dolphin Street. In this letter Butcher, on behalf of Silver Lion, states the following to Speer's attorney:
Travis:
Please allow this fax to serve as to the items owed to Silver Lion, Inc upon the closing of the transaction with Kent Larson [sic] for the acquisition of Dolphin St. Inc.
$1,164.75 $162.46
April Base Rent $5,264.67 April CAM $1,164.75 May Base Rent $5,264.67 Base Rent June $5,264.67 June CAM Total Lease Obligations Due $19,288.26 Water Bill City $493.59 Water Bill City Total Water Bills Paid by Landlord $656.05 Total Due Silver Lion, Inc. on Closing $19,944.31
These items are all owed to the landlord/Silver Lion, Inc. to bring the lease and all obligations current through June.
James D. Butcher
Co-President, Silver Lion
Contrary to Silver Lion's arguments, nowhere in Butcher's letter does he state that his representations are based on his interpretation of the legal effect of the Management Agreement between Silver Lion and Dolphin Street, an agreement to which Speer was not a signatory. In fact, the Management Agreement is not even referenced, in any way, in the letter to Speer. There is also no evidence that Speer was involved in the negotiation or formation of this agreement between Silver Lion and Dolphin Street. Instead, Butcher states as a positive assertion of fact that these items are owed to Silver Lion upon the closing of the sale and sets out the items and specific amounts due in his letter in response to Speer's inquiry. As we held above, Dolphin Street produced evidence that these representations regarding the amount of past due rents were false and that Silver Lion either knew that the statements were false or made them recklessly without any knowledge of the truth and as a positive assertion.
We agree with Silver Lion that, under the holding in Fina Supply, Inc. v. Abilene Nat'l Bank, 726 S.W.2d 537, 540 (Tex. 1987), Dolphin Street has no basis for a claim that Dolphin Street itself was defrauded by Silver Lion in this action. However, such a claim is not necessary for Dolphin Street to establish a claim for tortious interference. As the Texas Supreme Court held in Sturges, a plaintiff may also recover for tortious interference from a defendant who makes fraudulent statements about the plaintiff to a third person without proving that the third person was actually defrauded. Sturges, 52 S.W.3d at 713.
We also disagree with Silver Lion's argument that no fraudulent representation regarding unpaid past rents can be shown because (1) Butcher signed a document in the offices of Speer's attorney stating that Speer agreed to pay approximately $25,000 from the escrow funds for unpaid rent to Silver Lion upon closing and (2) this document constitutes evidence that Larsen and Dolphin Street participated in making the fraudulent representations to Speer. A review of this document reveals that, although the document contains signatures blocks for both Larsen and Speer, neither of them ever executed this document. Further, Larsen testified that he later learned that Butcher had continued to identify to Speer additional moneys he wanted from the escrow for the sale and Speer apparently became concerned about the adequacy of the escrow funds and Butcher's "appetite for money" and decided to not go through with the sale.
We hold that the evidence was legally and factually sufficient to establish that Silver Lion committed an independent tort or unlawful act. See, e.g., City of Keller, 168 S.W.3d at 822, 827; Ortiz v. Jones, 917 S.W.2d at 772.
2. Actual Interference
To establish a tortious interference claim, Dolphin Street had the burden to show that Silver Lion's fraudulent representations prevented the sale from occurring. Texas courts have construed this element to require, at a minimum, that the fraudulent representations constitute a cause in fact that prevented a contract from forming. The test for cause in fact, or "but for causation," is whether the act or omission was a substantial fact in causing the injury without which the harm would not have occurred. Johnson v. Baylor Univ., 188 S.W. 3d 296, 304 (Tex. App.-Waco 2006, pet. denied).
Silver Lion argues that there is no evidence that Butcher's representations caused the sale to fall through because Speer's testimony at trial conclusively establishes that it was Speer caused the deal to fail, not any false statements made by Butcher. Silver Lion points to Speer's testimony, in response to a question as to whether he would have purchased the club if not for Butcher's actions, that "It wasn't just Mr. Butcher I was having problems with, it was several things. . . . It was several things, it wasn't just Mr. Butcher or it wasn't just Mr. Larsen, most of it was Mr. Speer, I didn't feel comfortable."
Other evidence, however, contradicts Speer's testimony. For example, Larsen testified about the circumstances surrounding the sale, including those that prevented the sale from going through. This testimony reveals that both Larsen and Speer thought that they had a "done deal" sometime in late June 2003: (1) all of the papers had been prepared, and Larsen signed them and returned them to Speer for signature; (2) Speer signed a letter of intent outlining the deal and his accountant had prepared a detailed loan proposal to be submitted to a bank; (3) Speer's lawyer prepared a draft purchase and sale agreement, a seller's indemnity agreement, a landlord's indemnity agreement and a purchaser's indemnity agreement; and (4) Speer paid the July rent to Silver Lion. According to Larsen's testimony, the reason the sale did not go through after all this work had been completed was because "Mr. Butcher persisted in demanding additional moneys outside the scope of our management agreement" from the proceeds of the sale to Speer and Speer was concerned about the possibility that Silver Lion might file a lawsuit.
The resolution of whether Butcher's false representations prevented the sale from occurring turns almost entirely on the credibility of the testimony of the two parties to the sale of Dolphin Street: Speer and Larsen. The trial court, sitting as fact finder, was the sole judge of the witnesses' credibility and the weight to give their testimony. City of Keller, 168 S.W. 3d at 819. It was free to believe one witness and disbelieve another. See id. As a reviewing court, we cannot impose our own opinion to the contrary. Id. Instead, we must assume that the trial court decided credibility questions in accordance with its fact findings if a reasonable person could do so. See id. Reviewing all the evidence under this standard, we assume that the trial court credited testimony that supports its findings of fact and disbelieved testimony contrary to them. See id. Nor is it necessary to have testimony from both parties before the trial court may disbelieve either. Id. at 819-20. A trial court may disregard even uncontradicted and unimpeached testimony from disinterested witnesses. Id. Of course, a trial court's credibility decisions must be reasonable. Id. It cannot ignore undisputed testimony that is clear, positive, direct, otherwise credible, free from contradictions and inconsistencies, and could have been readily controverted. Id. Furthermore, it is not free to believe testimony that is conclusively negated by undisputed facts. Id. But whenever a trial court may decide what testimony to discard, a reviewing court must assume that the trial court did so consistently with its fact findings, and disregard it in the course of legal sufficiency review. See id.
Here, both Speer and Larsen testified that the sale was almost complete at or near the time of Butcher's misrepresentations and Larsen specifically testified that these false statements were a cause of the sale falling through. The record does not contain any undisputed facts that would conclusively negate Larsen's testimony. See id. Furthermore, Speer's testimony is far from clear, positive and direct on the issue of whether Butcher's representations were a cause in fact of the sale not occurring. At first, Speer testified that there were "several reasons" for the sale falling through, including "another investment" that was not identified as well as the conduct of both Larsen and Butcher:
Q: Do you recall why your purchase for Dolphin Street did not go through?
A: Yes, there were several reasons it didn't go through. First off, it was my decision. I was looking at another investment. I was buying the whole corporation. I couldn't get an answer from Mr. Butcher or Mr. Larsen as to exactly what was owed and where. And I know your indemnity agreements and stuff like this, but it wasn't my first time around the block.
Q: Okay. Can you recall some of the critical reasons?
A: . . . I just didn't feel comfortable with it. I couldn't get a — the main reason is Mr. Butcher or Mr. Larsen couldn't tell me the debt load on it, the liabilities against it, not down to the penny, not down to the hundred, not even a thousand, not even $10,000, because they were both — it was getting kind of touchy between the two of them. And I started feeling like a piece of meat between two pieces of bread, and I'm not going to feel that way when I'm trying to buy a business. That was a critical part.
When pressed further, Speer testified that it was not "just" Butcher's or "just" Larsen's conduct that caused the deal to fail but that "most of it was Mr. Speer" because Speer became uncomfortable with the deal. Speer testified as follows:
Q: If you had not encountered the problems with Mr. Butcher, would you have completed the purchase for Dolphin Street?
A: It wasn't just with Mr. Butcher I was having problems with, it was with several things.
Q: Go ahead.
A: It was several things, it wasn't just Mr. Butcher or it wasn't just Mr. Larsen, most of it was Mr. Speer, I didn't feel comfortable.
It was not unreasonable for the trial court to conclude that Speer's testimony was not credible and disregard this testimony in reaching its verdict. The trial court could have discredited Speer's testimony because he appeared to have a reason to testify favorably to Silver Lion and Butcher. The record reflects that Speer had ongoing business relations with Silver Lion at the time of trial and would not have appeared at trial without a subpoena. After the deal fell through with Larsen, Speer purchased the physical assets of Dolphin Street from Esperanza Martinez, and Silver Lion was his current landlord. Finally Speer's testimony as to his state of mind at the time of the closing, i.e., that he did not close the sale because he was not "comfortable" with the deal, is not conclusive on the issue of causation in light of the other evidence presented at trial. See City of Keller, 168 S.W. 3d at 819-20.
Under these facts and reviewing the record as a whole, under the applicable standard of review, we hold the evidence is legally sufficient to establish the causation element of Silver Lion's tortious interference claim. See, e.g., City of Keller, 168 S.W.3d at 822, 827. Similarly, reviewing the entire record as a whole and giving deference to the trial court's credibility determinations, we also hold that the evidence is factually sufficient to establish that Butcher's representations were a cause in fact of the failure of the sale. See, e.g., Ortiz v. Jones, 917 S.W.2d at 772.
3. Intent to Interfere
To establish a tortious interference claim, Dolphin Street also had the burden to show that Silver Lion intended its representations to interfere with the sale. "Interference is intentional if the actor desires to bring it about or if he knows that the interference is certain or substantially certain to occur as a result." Baty v. Protech Ins. Agency, 63 S.W. 3d 841, 859-60 (Tex. App.-Houston [14th] 2001, pet. denied).
In this case, the evidence establishes that Silver Lion intended to interfere with the formation of a contract between Dolphin Street and Speer by making false statements about the past due rent owed. Specifically, Larsen testified that Silver Lion told him that it would withhold consent to the sale unless Speer paid Dolphin Street's past due rent with the sales proceeds. Silver Lion made clear in the language of the Lease Extension, which was necessary to allow time for closing the sale of the nightclub, that it would require Speer to pay the past rent for April 2003. Similarly, the Landlord's Consent through which Silver Lion agreed to the sale to Speer, also required Speer to agree to pay Silver Lion the past due rents for April, May, and June 2003 from the sales proceeds of any contract between Speer and Dolphin Street. Both of these documents were executed by Butcher on behalf of Silver Lion. Finally, both Larsen and Speer testified that the false statements were made directly to Speer at or near a time when they considered the sale close to completion.
Nevertheless, Silver Lion argues that the evidence that it intended to interfere with the Speer/Dolphin Street relationship is insufficient because there is undisputed evidence that Silver Lion wanted the sale to close and not fail. We find this argument unpersuasive. While Silver Lion may have desired a sale to be completed, the evidence reviewed above establishes that (1) Silver Lion did not want any sale to be completed if it did not include the payment of the rents it alleged were owed to it, in spite of the Management Agreement, and (2) Silver Lion made the false representations to Speer and drafted language into the Lease Extension and Landlord Consent to ensure that Silver Lion would receive such payment from the proceeds of the sale of Dolphin Street to Speer. Particularly in light of the specific language of the Management Agreement — which did not entitle Silver Lion to the rents it demanded Speer pay — we conclude the evidence supports a finding that Silver Lion intended to interfere with the formation of a contract between Dolphin Street and Speer and not merely that Silver Lion's legitimate conduct resulted in incidental interference. Accordingly, reviewing the record under the applicable standards of review, we hold that there is also legally and factually sufficient evidence to establish this element of a tortious interference claim. See, e.g., City of Keller, 168 S.W.3d at 822, 827; Ortiz v. Jones, 917 S.W.2d at 772.
We overrule Silver Lion's first issue.
II. Breach of Management Agreement
In its second issue, Silver Lion argues that the evidence supporting the trial court's finding that it breached the Management Agreement is legally and factually insufficient, and that this Court should set aside the trial court's award of even nominal damages to Dolphin Street because there was no evidence that Dolphin Street or Larsen sustained any damages at all.
A. Standard of Review
Silver Lion challenges the trial court's finding that it breached the Management Agreement for legal and factual sufficiency. Accordingly, we apply the same standard of review under which we analyzed the previous points. See, e.g., City of Keller, 168 S.W.3d at 822, 827; Ortiz v. Jones, 917 S.W.2d at 772.
B. Elements of Claim
The essential elements in a suit for breach of contract are: (1) the existence of a valid contract; (2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4) the plaintiff was damaged as a result of the breach. Hussong v. Schwan's Sales Enters., Inc., 896 S.W.2d 320, 326 (Tex. App.-Houston [1st] 1995, no pet.). Whether a party's conduct constitutes a breach of contract is a question of law, reviewed de novo. See E.P. Towne Center Partners, L.P. v. Chopsticks, Inc., 242 S.W.3d 117, 123 (Tex. App.-El Paso 2007, no pet.).
Here, Dolphin Street pled that Silver Lion breached the Management Agreement by (1) "mandating that rent . . . for April 1, 2003 through June 30, 2003 be paid by Larsen or Speer prior to purchase of Dolphin Street, Inc."; (2) failing to file and pay all mixed beverage and sales taxes from April 1, 2003 to June 30, 2003; (3) closing Dolphin Street's operations prior to June 30, 2003; (4) failing to pay operating expenses from April 1, 2003 to June 30, 2003; (5) cancelling Dolphin Street's insurance in April 2003; and (6) removing assets of Dolphin Street from the leased premises and failing to return them.
Silver Lion argues that the evidence does not support the trial court's findings that it breached the Management Agreement. For example, Silver Lion argues that the trial court's award of only nominal damages defeats its finding that Silver Lion materially breached the Management Agreement. Further, Silver Lion refutes Dolphin Street's claim that it breached the Management Agreement by demanding Larsen or Dolphin Street pay past due rents, arguing that Butcher made those demands in good faith. Finally, Silver Lion points out that the evidence admitted at trial regarding the unpaid mixed beverage and sales taxes or operating expenses from April 1, 2003 to June 30, 2003 did not show that Silver Lion had actually received any notice that these sums were due and owing and that the evidence does not support any other damages suffered by Larsen or Dolphin Street.
C. Nominal Damages
Silver Lion first argues that the trial court's finding that it "materially" breached the Management Agreement is legally inconsistent with the trial court's award of only "nominal" damages to Dolphin Street and Larsen. However, a trial court's award of nominal damages for a breach of contract is not necessarily a comment on the materiality of the breach. Instead, the award of nominal damages relates to the proof admitted at trial of the type of loss sustained by the plaintiff:
As the Texas Supreme Court recently noted, "[T]he usual meaning of the phrase `nominal damages' refers to an award of one dollar." MBM Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 665 (Tex. 2009) (holding that award of $1,000 is not an award of "nominal" damages). None of the parties in this case, however, challenge the trial court's characterization of its award to Dolphin Street and Larsen $100 as "nominal damages" and we therefore accept this characterization for purposes of this appeal. Id. (noting that some courts have awarded $100 as "nominal damages," although "nominal damages are supposed to be a `trifling sum'").
The law is that, if the contract is proved to be broken, the law would give some damage, sufficient to authorize a verdict for the plaintiff, although in the absence of proof of special loss, the damages would be nominal only.
MBM Financial Corp., 292 S.W.3d at 664. Thus, we decline to hold that an award of nominal damages must logically defeat a finding of breach of contract. Instead, we examine each alleged breach in turn.
D. Alleged Breaches
1. Did Silver Lion breach the Management Agreement by "mandating that rent . . . for April 1, 2003 through June 30, 2003 be paid by Larsen or Speer prior to purchase of Dolphin Street, Inc."?
We have already determined that Silver Lion's demands of payment of the allegedly past due rents for April, May and June 2003 upon the completion of the sale of the business to Speer were neither made in good faith nor reasonable under the terms of the agreement between Silver Lion, Larsen and Dolphin Street. An action that is not grounded in good faith, however, is not necessarily a breach of a contract. "The general rule is that, absent a special relationship, there is no duty between parties to a contract to act in good faith." El Paso Natural Gas Co. v. Minco Oil Gas, Inc., 8 S.W.3d 309, 313 (Tex. 1999).
In this case, however, Silver Lion did more than demand rents to which it was not entitled. The Management Agreement affirmatively required Silver Lion to forgive, or pay as an operating expense, the rents for April, May, and June of 2003. There is no evidence that Silver Lion complied with this obligation. On the other hand, there is no evidence in the record to support a finding that Larsen or Dolphin Street suffered any pecuniary damages under the contract for Silver Lion's demand for rent to which it was not entitled. Neither Larsen nor Speer ever paid the rents for the month at issue, nor did Silver Lion attempt to evict Dolphin Street for the nonpayment of rent for these months.
"A breach of contract claim cannot survive if the plaintiff was not damaged by the breach." Eckland Consultants, Inc. v. Ryder, Stilwell, Inc., 176 S.W.3d 80, 89 (Tex. App.-Houston [1st] 2004, no pet.); see also Pagosa Oil and Gas, L.L.C. v. Marrs and Smith P'ship, No. 08-07-00090-CV, 2010 WL 450910 (Tex. App.-El Paso, Feb. 10, 2010, pet. filed) (summary judgment on liability for breach of contract improper where there was no evidence of injury caused by the breach). "The burden is on the plaintiff to produce evidence from which the [fact finder] may reasonably infer that the damages claimed resulted from the defendant's conduct." Bernstein v. Thomas, 298 S.W.3d 817, 825 (Tex. App.-Dallas 2009, no pet.) (citing Texarkana Mem'l Hosp., Inc. v. Murdock, 946 S.W.2d 836, 838 (Tex. 1997)). "A plaintiff satisfies this requirement when it presents the [fact finder] with proof that establishes a direct causal connection between the damages awarded, the defendant's actions, and the injury suffered." Id.
Not even nominal damages may be awarded for a failure to comply with a contractual obligation if the damages are economic but not sufficiently proved. MBM Financial Corp., 292 S.W.3d at 664 ("[I]n recent decades the rule in Texas has been that nominal damages are not available when the harm is entirely economic and subject to proof (as opposed to non-economic harm to civil or property rights))." Thus, under these facts, there is no evidence to support the trial court's finding that the demand for rent to which Silver Lion was not entitled constituted a breach of the Management Agreement that caused damages to Larsen or Dolphin Street.
2. Did Silver Lion breach the Management Agreement by failing to pay taxes and operating expenses during the period of the Management Agreement?
The Management Agreement called for Silver Lion to pay certain invoices and operating expenses of the nightclub, and to file and pay the necessary taxes on the club. Larsen admitted that Silver Lion and Butcher paid some of the invoices due to alcohol suppliers, but contended that Silver Lion failed to pay employees' wages and other obligations. At trial, Larsen testified that, in the summer of 2003, he paid for taxes, utilities, employee wages, supplies and other items for the club that were Silver Lion's responsibility under the Management Agreement. He admitted documents substantiating his claims that he, not Butcher or Silver Lion, had paid these claims.
However, none of the documents Larsen relied upon to substantiate his damages testimony showed that Butcher and Silver Lion actually received and failed to pay any of the invoices upon which Larsen and Dolphin Street based their claim for breach of the Management Agreement. Instead, with the exception of one document, all of these invoices and statements appeared to have been sent to Larsen or his girlfriend at their home addresses. For his part, Butcher testified that he never received notices from the TABC or other taxing entities. The sole exhibit that appears to have been sent to the club, and thus presumably received by Butcher, is an invoice for liquor that is signed by Butcher's wife and marked "paid."
In construing a written contract, our primary concern is to ascertain and give effect to the intentions the parties have objectively manifested in that instrument. Frost Nat'l Bank v. L F Distribs., Ltd., 165 S.W.3d 310, 311-12 (Tex. 2005) (per curiam); see Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006) ("[T]he parties' intent is governed by what they said, not by what they intended to say but did not."). In determining the meaning of contract terms, we may also consider the context of the circumstances existing at the time the contract was executed and the particular business activity sought to be served. See Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex. 1996); Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987). If we can give the contract a definite or certain legal meaning, it is unambiguous and we construe it as a matter of law. Willis v. Donnelly, 199 S.W.3d 262, 275 (Tex. 2006); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).
In this case, the evidence at trial was that Butcher and Larsen negotiated the Management Agreement because Larsen was no longer able to operate the nightclub and instead desired to return for a time to Alaska, where he was employed. The Management Agreement noted that the list of accounts payable attached was incomplete and it called for the list to be updated, presumably by Larsen, who was the custodian of such information. In keeping with this provision, and in light of the circumstances under which the Management Agreement was negotiated and its stated purpose, we construe the Management Agreement as placing an obligation upon Larsen and Dolphin Street to update the mailing addresses to which the invoices and tax statements were sent, or to inform Silver Lion and Butcher that the invoices and statements would not be sent to the nightclub. There is no evidence that this was done. Similarly, we decline to construe the Management Agreement as obliging Silver Lion to pay invoices and taxes for which there is no evidence that it received statements or documentation.
Larsen and Dolphin Street failed to provide any evidence that Silver Lion received but neglected to pay any invoices or obligations, or that Silver Lion was provided the proper information with which to file taxes for the nightclub but failed to do so. Accordingly, there is no evidence to support a finding that Silver Lion breached the Management Agreement by failing to file and pay the taxes and pay the operating expenses that Larsen testified he paid in the summer and fall of 2003.
3. Did Silver Lion breach the Management Agreement by closing Dolphin Street's operations prior to June 30, 2003 or by removing assets of Dolphin Street from the leased premises and failing to return them?
There was no evidence regarding any specific damages that Larsen or Dolphin Street sustained as a result of the nightclub ceasing to operate prior to June 30, 2003. Similarly, there was no evidence regarding any damages sustained as a result of Silver Lion's alleged removal of Dolphin Street's assets from the premises. Accordingly, there is no evidence to support a finding that Silver Lion breached the Management Agreement on these grounds. See, e.g., Eckland Consultants, 176 S.W.3d at 89.
4. Did Silver Lion breach the Management Agreement by cancelling Dolphin Street's insurance in April 2003?
Finally, Dolphin Street and Larsen allege that Silver Lion breached the Management Agreement by failing to maintain insurance on the nightclub. The record reveals that Larsen's claim that Silver Lion failed to maintain insurance on the nightclub — despite its promise to "renew or keep current all insurance currently carried by Dolphin Street . . . or needed to secure the assets of Dolphin Street" — went unrefuted. Although Butcher and Larsen each blamed the other for the lapse in coverage, Butcher nonetheless admitted that the insurance lapsed after the Management Agreement took effect, and he did not testify that either he or Silver Lion made any effort to maintain or renew the insurance as required by the Management Agreement. Thus, Silver Lion failed to comply with this obligation under the Management Agreement. Larsen did not testify however, that the lapse in insurance actually caused him or Dolphin Street any damages. While we agree that it was Silver Lion's contractual obligation to maintain insurance on the nightclub, we decline to speculate as to any damages or injury Dolphin Street or Larsen may have sustained as a result of Silver Lion's failure to do so. See, e.g., Eckland Consultants, 176 S.W.3d at 89.
None of the breaches alleged by Dolphin Street and Larsen, when examined in the light of the record and the Management Agreement itself, support the trial court's conclusion that Silver Lion breached the Management Agreement. Accordingly, we hold that the trial court erred by concluding that Silver Lion breached the Management Agreement. We sustain Silver Lion's second issue.
III. Trial Court's Finding Dolphin Street and Larsen did not Breach Lease or Guaranty
In its third issue, Silver Lion contends that the evidence shows that Dolphin Street and Larsen breached the Management Agreement, the Lease and Larsen's Guaranty by not paying the rents due in April, May and June 2003 in the amount of $19,288.26 and thus, despite the trial court's ruling that Silver Lion breached the Management Agreement, it should have awarded this sum in damages to Silver Lion. We find this argument unpersuasive. The construction of an unambiguous contract is a question of law for the reviewing court to consider de novo. MCI Tel. Corp. v. Texas Utilis., 995 S.W.2d 647, 650-51 (Tex. 1999). Under Texas law, instruments pertaining to the same transaction may be read together, even if the parties execute the instruments at different times and the instruments do not expressly refer to each other. See Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000). In appropriate instances, a court may construe all the transactional documents as if they were part of a single, unified instrument. Id.
Under the facts of this case, the Management Agreement, Lease and Guaranty all pertain to the same transaction, and, accordingly, we construe them together as one instrument. Both the Guaranty and the Lease are attached to the Management Agreement. The Management Agreement refers to the Lease Agreement and specifically addresses Dolphin Street's obligation regarding the rents due in April, May, and June of 2003 under the Lease. In turn, the Guaranty refers to the Lease and is a promise by Larsen to pay any and all of Dolphin Street's obligations under the Lease.
The Management Agreement provides in pertinent part, "Landlord will forgive or pay as an operating expense all rents due Silver Lion, Inc. during the period of this agreement."
The Guaranty provides in pertinent part that "Guarantor [Larsen] guarantees the performance of the Tenant's obligations under the Lease."
As we held above, under the clear and unequivocal language of Paragraphs 5 and 14 of the Management Agreement, Dolphin Street had no obligation under the Lease to pay Silver Lion the amount of $19,288.26 for the rents due in April, May, and June of 2003. These rents were to be either forgiven outright or used in calculating Silver Lion's profits and losses for its operation of the nightclub during the 90-day period. Since Dolphin Street had no obligation to pay Silver Lion these rents under the Lease, Larsen cannot have any obligation to pay Silver Lion for these rents under the Guaranty. Accordingly, we hold that the trial court did not err in concluding that Silver Lion was not entitled to recover for breach of the Management Agreement, the Lease or the Guaranty.
Silver Lion argues that the trial court's conclusion that Silver Lion's breach of the Management Agreement relieved Dolphin Street and Larsen of performance under the Guaranty and Lease cannot stand because neither pled the affirmative defense of excuse. However, under the facts of this case, neither this conclusion nor an affirmative pleading of excuse is required to uphold the trial court's take-nothing judgment on Silver Lion's claims.
In a sub-argument, Silver Lion contends that, even if under the Management Agreement and Lease Dolphin Street does not owe the rent for April, May, and June of 2003, the Guaranty still obligates Larsen to pay these sums to Silver Lion. Silver Lion cites the following language from the Guaranty in support of this argument:
Guarantor [Larsen] guarantees the performance of the Tenant's obligations under the Lease. . . .
This is a primary, irrevocable, and unconditional guaranty of payment and performance of and not of collection and is independent of Tenant' obligations under the Lease. . . .
This guaranty will remain in effect regardless of any modifications or extension of the Lease. . . .
[Larsen's] obligations will not be diminished by any compromise or release agreed on by Tenant and Landlord.
However, for purposes of determining the payment of rents, this language cannot be read in isolation from the Lease because, as the plain language of the Guaranty states, it is a guarantee of "the performance of the Tenant's obligations under the Lease." It is axiomatic that if the tenant has no obligation to pay rents under the Lease, the guarantor has no obligation to pay the rents either.
Finally, Silver Lion contends that, at the very least, it is entitled to recover sums for "prior obligations" it paid on behalf of Dolphin Street while it operated the club under the Management Agreement. However, the record reveals that Silver Lion failed to present adequate evidence of which payments it made and which payments it was owed under the Management Agreement. Further, such reimbursement was to be made from the proceeds of the sale of the nightclub — a sale that was never completed. Accordingly, the trial court could have reasonably concluded that Silver Lion failed to meet its burden of establishing its right to such payments and that Dolphin Street or Larsen had breached their contracts with Silver Lion. We therefore overrule Silver Lion's third issue challenging the trial court's finding that Dolphin Street and Larsen did not breach the contracts at issue.
IV. Attorney's Fees
Finally, in its fourth issue, Silver Lion challenges the trial court's award of attorney's fees to Dolphin Street and Larsen on the grounds that the trial court awarded only nominal damages for their breach of contract claims, and they raised no other grounds to support an award of attorney's fees. Dolphin Street and Larsen counter by arguing that the Guaranty signed by Larsen had a provision awarding the "prevailing party" its fees, Silver Lion based its lawsuit against Larsen on this Guaranty, and Larsen was awarded judgment in his favor on Silver Lion's claims against him.
Under Texas statutory law, a party may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for breach of an oral or written contract. See TEX. CIV. PRAC. REM. CODE ANN. § 38.001(8) (Vernon 2008). Parties to a contract may also recover attorney's fees, however, if they arrange for such recovery as a contractual term. Alma Group, L.L.C. v. Palmer, 143 S.W.3d 840, 845 (Tex. App.-Corpus Christi 2004, pet. denied) (citing New Amsterdam Cas. v. Tex. Indus., Inc., 414 S.W.2d 914, 915 (Tex. 1967)). "Parties are free to contract for a fee-recovery standard either looser or stricter than Chapter 38's . . ." Intercontiental Group P'ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009). In such cases, it is the language of the contract, not the statute, which governs. Id. (reviewing definition of "prevailing party" under contract to determine whether plaintiff who had not recovered any actual damages was entitled to recover attorney's fees); Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc., 938 S.W.2d 102, 118 (Tex. App.-Houston [14th] 1996, no writ). As Dolphin Street and Larsen correctly point out, Silver Lion sued Larsen for breach of the Guaranty, which states that "[t]he prevailing party in any dispute arising out of this guaranty will be entitled to recover reasonable attorney's fees." Where a contract does not define "prevailing party," we are to "presume the parties intended the terms ordinary meaning." Intercontinental, 295 S.W.3d at 653.
In Intercontinental, the Texas Supreme Court analyzed the issue of whether a plaintiff who does not recover damages on its breach of contract claim can still be the "prevailing party" to recover attorney's fees under a contract. Id. The court in Intercontinental did not reach the issue of whether the defendant in that case could instead be the "prevailing party," holding that the defendant had waived that issue for appeal. Id. at 657. Accordingly, we look to other authority to decide whether Larsen, as a defendant who was awarded a take-nothing judgment on a claim of breach of contract against him, can be the "prevailing party" under the Guaranty Agreement.
A prevailing party is the party "who successfully prosecutes the action or successfully defends against it, prevailing on the main issue, even though not to the extent of its original contention." Johns v. Ram-Forwarding, Inc., 29 S.W.3d 635, 637-38 (Tex. App.-Houston [1st Dist.] 2000, no pet.) (citing City of Amarillo v. Glick, 991 S.W.2d 14, 17 (Tex. App.-Amarillo 1997, pet. denied)). To be a "prevailing party," a party must be successful on the merits of the claim even if the party is not awarded damages. Robbins v. Capozzi, 100 S.W.3d 18, 27 (Tex. App.-Tyler 2003, no pet.). A prevailing party is vindicated by the court's judgment. Id. (in suit brought by buyer of real estate against seller of real estate under contract provision awarding fees to prevailing party, defendant was entitled to attorney's fees for successfully defending claims).
Larsen prevailed in the trial court when the court entered a take-nothing judgment in his favor on Silver Lion's claim against him for breach of the Guaranty, and he is therefore entitled to his attorney's fees under the Guaranty's terms for his defense of the claims related to the Guaranty. Because Dolphin Street was not a signatory to the Guaranty, however, we find no basis for awarding it attorney's fees. We therefore sustain Silver Lion's fourth issue, in part, and reverse the trial court's award of fees to Dolphin Street.
V. Dolphin Street and Larsen's Cross-Point
By way of a cross-point, Dolphin Street and Larsen complain that the trial court erred by awarding only nominal damages of $100, in spite of its finding that Silver Lion materially breached the Management Agreement. Accordingly, they ask us to reverse that portion of the judgment and render judgment in their favor in the amount of $32,368.91 on their breach of contract claim against Silver Lion.
In light of our holding above that there was no evidence to support a finding that Dolphin Street or Larsen sustained any damages as a result of any of Silver Lion's alleged failures to comply with the Management Agreement, neither Dolphin Street nor Larsen is entitled to any damages on their breach of contract claim. Accordingly, we overrule Dolphin Street and Larsen's cross-point and reverse the trial court's award of damages for breach of the Management Agreement.
CONCLUSION
We affirm the trial court's judgment in part, holding that the evidence is legally and factually sufficient to support the trial court's findings that (1) Silver Lion tortiously interfered with the sale of Dolphin Street and (2) Dolphin Street and Larsen did not breach the Lease and Guaranty at issue.
We sustain Silver Lion's fourth issue in part, holding that the trial court properly awarded attorney's fees to Larsen as a signatory to the Guaranty but erred in awarding attorney's fees to Dolphin Street because it was not a signatory to that Guaranty. Accordingly, we reverse that part of the trial court's judgment awarding attorney's fees to Dolphin Street.
We also sustain Silver Lion's second issue and reverse the trial court's finding that Silver Lion breached the Management Agreement. We render judgment for Silver Lion on Dolphin Street and Larsen's breach of contract claims based upon the Management Agreement and vacate the trial court's award of $100 to Dolphin Street and Larsen.