Chevron Phillips Chemical Co. v. Kingwood Crossroads, L.P.
2011 WL 2040394, 346 S.W.3d 37 (2011)
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Rule of Law:
A party's contractual duty to perform is discharged under the doctrine of impracticability when performance is made impracticable without the party's fault by the occurrence of an event, the non-occurrence of which was a basic assumption of the contract.
Facts:
- In 1994, Exxon Land Development, Inc. (ELDI) sold a 69-acre property to a Chevron entity, CP Chem's predecessor, and filed an 'Annexation Document' in public records to subject the property to certain covenants and restrictions, though the document lacked a legal description.
- In December 2002, Chevron Phillips Chemical Company LP (CP Chem), the current owner, entered into a contract to sell the property to Kingwood CrossRoads, L.P.
- The contract required CP Chem to furnish a title insurance policy at closing subject only to permitted exceptions.
- The title insurer, First American Title Company, initially included an exception for the annexation, which Kingwood CrossRoads objected to. In early 2003, CP Chem persuaded First American to remove the exception, and First American issued clean title commitments for over a year.
- Throughout this period, ELDI continued to insist that the property was validly annexed, creating an ongoing dispute.
- Days before the scheduled closing in August 2004, CP Chem sent a letter to First American disclosing the full extent of the ongoing dispute with ELDI, including documents supporting ELDI's position, to ensure full disclosure.
- On the rescheduled closing date, September 15, 2004, First American reinserted the annexation exception in the title commitment, citing the risk of litigation stemming from the dispute with ELDI.
- Because CP Chem could not provide a title policy without the annexation exception, the sale did not close, and CP Chem subsequently terminated the contract in January 2005.
Procedural Posture:
- Kingwood CrossRoads sued CP Chem, ELDI, and others in Montgomery County trial court, alleging breach of contract, fraud, and tortious interference, and seeking damages, a declaratory judgment, and specific performance.
- CP Chem and ELDI filed counterclaims.
- Following a trial, a jury found that CP Chem failed to comply with the contract but that its failure was excused by impracticability.
- The jury also found that CP Chem committed fraud against Kingwood CrossRoads, causing $2.5 million in damages for attorneys' fees.
- The trial court entered a final judgment that, among other things, ordered specific performance of the contract and awarded Kingwood CrossRoads $2.5 million in fraud damages against CP Chem.
- CP Chem and ELDI appealed the judgment to the Texas Court of Appeals, and Kingwood CrossRoads filed a cross-appeal challenging the impracticability finding and an award of attorneys' fees to CP Chem.
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Issue:
Is a seller's contractual duty to provide a title insurance policy without a specific exception excused under the doctrine of impracticability when the title company unexpectedly reinserts the exception shortly before closing due to a disclosed, ongoing dispute with a third party?
Opinions:
Majority - Justice Charles W. Seymore
Yes, the seller's duty is excused. A party's performance is made impracticable without its fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made. Here, the court upheld the jury's finding that CP Chem's failure to furnish a title policy without the annexation exception was excused by impracticability. The court reasoned that CP Chem did not assume the risk of the title company reinserting a cured exception after the feasibility period had expired, as the contract's cure provisions did not contemplate such a scenario. Furthermore, there was legally sufficient evidence that performance became impracticable 'without fault' of CP Chem; the jury could have reasonably concluded that CP Chem's letter to First American was a good-faith effort at full disclosure to avoid fraud liability, not an act to sabotage the deal. Finally, the court found evidence that CP Chem used 'reasonable efforts' to surmount the obstacle by negotiating with ELDI for months and extending closing dates before the title company's final decision made performance impracticable.
Analysis:
This decision clarifies the application of the impracticability defense in complex real estate transactions where the actions of a third party, like a title insurer, are critical to performance. The case establishes that a seller's good-faith disclosure of a title dispute to an insurer, even if it causes the insurer to refuse coverage, does not necessarily constitute 'fault' that would bar an impracticability defense. It highlights that courts will look to the contractual scheme for resolving issues to determine whether a party assumed the risk of a particular unanticipated event. This precedent reinforces the high evidentiary bar for proving fraud based on a broken promise, requiring proof of intent not to perform at the time the promise was made, not just subsequent non-performance.
