Rex Smith v. Kelly Davis and Amber Davis
462 S.W.3d 604
| Tex. App. | 2015Background
- Rex and Nancy Smith owned Tall Oaks Estates. Rex signed an executory contract (contract for deed) conveying lot 7 to Kelly and Amber Davis in 2005; Rex had earlier conveyed lot 9 to the Davises and later took lot 9 back as part of the lot 7 transaction.
- The Davises paid $19,520 toward lot 7 (including $3,700 applied from lot 9) and made 28 monthly payments of $565 before dispute arose.
- The Davises alleged multiple statutory violations under the Texas Property Code (including failure to provide annual accounting statements under §5.077 and the §5.072 written-notice requirement) and DTPA claims; jury found for Davises on several theories.
- On remand after an earlier appeal, the Davises elected relief under §5.077; trial court awarded $65,100 (liquidated damages) plus alternative recovery and attorney’s fees.
- The court of appeals held Chapter 41 (limits on exemplary damages) applies to §5.077 claims, found Davises failed to prove actual damages required as predicate to exemplary/liquidated damages, reversed the §5.077 award and attorney’s fees, and instead rendered rescission/cancellation of the contract, returned title to the Smiths, and ordered a full refund of $19,520 to the Davises (with remand to recalculate prejudgment interest).
Issues
| Issue | Plaintiff's Argument (Davises) | Defendant's Argument (Smiths) | Held |
|---|---|---|---|
| Enforceability of executory contract under §5.072 (oral agreements / missing spouse signature) | Contract is enforceable; written contract controls; no oral terms should vary it | Contract invalid/unenforceable because parties orally agreed to convert later and Nancy (community-owner) didn’t sign | Court: §5.072 limits rights to written contract; judgment was against Rex (who signed), not Nancy; issues overruled — contract enforceable as to Rex |
| Whether Chapter 41 applies to §5.077 liquidated damages | §5.077 provides liquidated (penal) damages independent of Chapter 41 | Chapter 41 limits exemplary damages and therefore applies to §5.077 | Court: Chapter 41 applies and its requirements (predicate actual damages) control recovery under §5.077 |
| Sufficiency of evidence of actual damages to support §5.077 liquidated damages | Davises argued statutory liquidated damages suffice without proving actual harm | Smiths argued Chapter 41 requires proof of actual damages; Davises failed that proof | Court: Davises failed to prove actual damages; evidence insufficient; §5.077 award reversed and rendered for rescission/refund |
| Remedy of cancellation/rescission and offset for rental value | Davises sought rescission and full refund of payments made | Smiths sought offset/setoff for rental value and alleged inability to return parties to prior position | Court: Davises entitled to statutory rescission/refund ($19,520); Smiths waived offset (did not plead/prove); rescission rendered in favor of Davises |
| Attorney’s fees for statutory violations (5.069, 5.070, 5.072) | Davises claimed fees under DTPA based on those statutory violations | Smiths argued fees not authorized absent §5.077 recovery or DTPA recovery | Court: With §5.077 award reversed and no DTPA recovery, attorney’s fees awards reversed; Davises not entitled to fees |
Key Cases Cited
- Flores v. Millennium Interests, Ltd., 185 S.W.3d 427 (Tex. 2005) (held §5.077 liquidated damages penal in nature and addressed when defective annual statements trigger damages)
- Morton v. Nguyen, 412 S.W.3d 506 (Tex. 2013) (explains rescission/recoupment under executory-contract statutes and requirement that seller plead setoff for rental value)
- Henderson v. Love, 181 S.W.3d 810 (Tex. App.—Texarkana 2005, no pet.) (concluded pre-2005 §5.077 liquidated damages fall within Chapter 41’s definition of exemplary damages)
- Cruz v. Andrews Restoration, Inc., 364 S.W.3d 817 (Tex. 2012) (discusses seller’s right to plead and prove offset against buyer’s rescission remedy)