Nextera Retail of Texas, LP v. Investors Warranty of America, Inc.
418 S.W.3d 222
Tex. App.2013Background
- NextEra (formerly Integrys) contracted on Oct 3, 2008 to supply electricity to CFS Northwind, L.P. under a five-year agreement with an assignment clause and an early-termination remedy.
- CFS defaulted on its mortgage; under a Deed in Lieu of Foreclosure, CFS assigned its contractual rights in the electricity agreement to lender Investors Warranty, which expressly disclaimed assuming any of CFS’s contractual obligations.
- Investors Warranty operated the property and paid monthly electricity bills for nine months after the assignment, then switched providers; it also sent NextEra a letter saying it had not assumed the prior power contract and sought a new agreement.
- NextEra sued CFS and Investors Warranty for early-termination damages; default judgment was entered against CFS; Investors Warranty answered and moved for summary judgment.
- Trial court granted Investors Warranty’s summary-judgment motion (denying NextEra’s cross-motion). The court of appeals affirmed, holding Investors Warranty did not expressly or impliedly assume, nor ratify, CFS’s contract obligations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Investors Warranty expressly assumed CFS's electricity-contract obligations by accepting assignment in the Deed in Lieu | Acceptance of assignment equals assumption of duties; signing the Deed showed acceptance and thus assumption | The Deed contains an express disclaimer: lender does not assume owner’s liabilities; mere acceptance of assignment does not create express assumption | No express assumption; disclaimer controls and acceptance alone is insufficient |
| Whether Investors Warranty impliedly assumed obligations (unjust enrichment/equity) by operating under the contract and taking benefits for nine months | By enjoying long-term fixed rates and operating under the contract, Investors Warranty was unjustly enriched and should be held to implied assumption | Implied covenants are disfavored; evidence shows contrary intent (express disclaimer and a letter denying assumption); Investor paid monthly bills so not unjustly enriched | No implied assumption; contrary intent and payment of bills defeat unjust-enrichment argument |
| Whether Investors Warranty ratified CFS’s contract by its actions after acquiring the property | Operating under the contract and communications indicate intent to ratify CFS’s contract | Ratification requires that the principal authorized or later affirmed an unauthorized act done on its behalf; CFS did not act on Investors Warranty’s behalf | No ratification; factual record does not show CFS acted for Investors Warranty or that Investors Warranty affirmed an unauthorized act |
| Relevance of statute of frauds to recovery | NextEra argued statute of frauds irrelevant to assumption/ratification claims (alternative issue) | Investors Warranty argued statute of frauds would bar recovery (trial court rejected need to reach this) | Court declined to decide statute-of-frauds issue because judgment on non-assumption grounds was dispositive |
Key Cases Cited
- Jones v. Cooper Indus., 938 S.W.2d 118 (Tex. App.—Houston [14th Dist.] 1996) (an assignee is not liable for assignor's obligations absent express or implied assumption)
- Seagull Energy E&P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342 (Tex. 2006) (assignor remains liable after assignment; assignee not liable unless assumption occurs)
- Lone Star Gas Co. v. Mexia Oil & Gas, Inc., 833 S.W.2d 199 (Tex. App.—Dallas 1992) (implied assumption requires clear evidence and is not lightly found)
- McKinnie v. Milford, 597 S.W.2d 953 (Tex. Civ. App.—Tyler 1980) (absence of an express contrary intention may allow implication of assumption, but contrary evidence disproves it)
- Kirby Lumber Co. v. R.L. Lumber Co., 279 S.W. 546 (Tex. Civ. App.—Beaumont 1926) (where benefit and burden are inseparably entwined, assignee may be held to obligations to prevent unjust enrichment)
- Danciger Oil & Ref. Co. of Tex. v. Powell, 154 S.W.2d 632 (Tex. 1941) (basis for implying covenants when clearly within parties' contemplation)
- Land Title Co. of Dallas v. F.M. Stigler, Inc., 609 S.W.2d 754 (Tex. 1980) (ratification requires retention of benefit after knowledge of an unauthorized act)