R & L Investment Property, L.L.C. v. Hamm
715 F.3d 145
5th Cir.2013Background
- R&L purchased two tracts (Lakefront and Marina) in Hunt County, TX, with Upchurch as broker; the Lakefront Property was marketed as development-ready with an active waste-water permit which expired March 1, 2006.
- R&L signed the Land Sales Contract June 19, 2006 and the promissory note and deed of trust for $1.4 million; financing terms were outlined in the Commercial Contract Financing Addendum.
- The Hamms allowed the permit to expire before the sale and provided an expired permit envelope at Lakefront closing on Sept. 29, 2006; R&L did not discover fraud until March 8, 2007.
- R&L learned of the expired permit in March 2007 but continued possession and payments; it defaulted on the Real Estate Lien Note by 2009; foreclosure proceedings were initiated by the Hamms.
- In July 2009, R&L signed the Reinstatement, Modification, and Extension Agreement, which extended the repayment term to December 31, 2013 and renewed the Real Estate Lien Note and Deed of Trust; the modification acknowledged there were no claims or offsets against the Note.
- The district court granted summary judgment finding that the Modification Agreement ratified the Lakefront transaction and that ratification foreclosed R&L’s fraud damages claim; the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether R&L ratified the Lakefront Property sale. | R&L did not ratify the sale; modification applied only to the Note. | Modification renewed obligations and ratified the Lakefront sale. | Yes; R&L ratified the sale. |
| Whether ratification forecloses damages for fraud. | Fortune Production allows damages despite ratification. | Ratification forecloses rescission and damages when benefit of the bargain is received. | Yes; ratification foreclosed damages. |
| Whether ratification bars claims against Upchurch. | Upchurch should not be barred. | Ratification extends to all parties tied to the transaction. | Yes; claims against Upchurch foreclosed. |
Key Cases Cited
- Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671 (Tex. 2000) (limits when ratification bars damages based on benefit received)
- B & R Development, Inc. v. Rogers, 561 S.W.2d 639 (Tex.Civ.App.1978) (ratification after discovery of fraud forecloses damages)
- Hunter v. Lanius, 18 S.W. 201 (Tex. 1892) (renewal of obligation after fraud ratifies the contract)
- Franke v. Jones, 170 S.W.2d 795 (Tex.Civ.App.1943) (ratification related back to beginning of transaction)
- Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831 (Tex.2000) (read instruments as a unified contract to ascertain intent)
- Wise v. Pena, 552 S.W.2d 196 (Tex.Civ.App.1977) (defines ratification by knowledge of fraud and new agreement seeking to adjust rights)
- Sulzer Carbomedics v. Oregon Cardio-Devices, Inc., 257 F.3d 449 (5th Cir.2001) (addresses contract interpretation and objective intent)