R. Conrad Moore & Associates, Inc. v. Lerma
1997 WL 112267, 946 S.W.2d 90 (1997)
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Rule of Law:
A party intentionally waives a contractual right, such as the right to a refund of earnest money under a failed financing contingency, through conduct that is inconsistent with an intent to claim that right.
Facts:
- On January 30, 1990, the Lermas and R. Conrad Moore & Associates, Inc. entered a contract for two lots, with the Lermas tendering $13,500 in earnest money.
- On April 16, 1990, the parties executed a new home construction contract for a total price of $180,000, which incorporated the previous agreement.
- The new contract required the Lermas to apply for an $80,000 conventional loan and stated that if the loan was not approved within 60 days, the contract would terminate and the earnest money would be refunded.
- A special handwritten provision stated: 'On Lot held more than 60 days, Earnest Money is non-refundable.'
- After the 60-day financing period expired on June 15, 1990, the Lermas participated in designing the house, approved blueprints in July, and paid an additional $6,500 in earnest money in October.
- Construction began in December 1990, and the Lermas subsequently monitored its progress, paid for a tile upgrade in March 1991, and financed the addition of another room in June 1991.
- The Lermas were ultimately denied credit and were unable to close on the completed house in the summer of 1991.
Procedural Posture:
- The Lermas sued R. Conrad Moore & Associates, Inc. in a Texas trial court for breach of contract.
- After a trial, the jury found in favor of the Lermas.
- The jury awarded the Lermas $20,000 in damages.
- The trial court entered a judgment on the verdict in favor of the Lermas.
- R. Conrad Moore & Associates, Inc. (Appellant) appealed the judgment to the Court of Appeals for the Eighth District of Texas.
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Issue:
Does a home buyer waive their contractual right to a refund of earnest money, which is triggered by the failure of a financing contingency, by continuing to act as if the contract is in full effect after the contingency period has expired?
Opinions:
Majority - Larsen, Justice
Yes. A home buyer waives their contractual right to a refund of earnest money when their conduct following the expiration of a financing contingency period is inconsistent with terminating the contract. A waiver is an intentional relinquishment of a known right, which can be inferred from a party's actions. Here, the Lermas had a right to the return of their earnest money on June 15, 1990, when the 60-day financing period expired without loan approval. However, their subsequent actions—approving blueprints, paying additional earnest money, monitoring construction, and paying for upgrades—were entirely inconsistent with an intent to terminate the contract and claim a refund. A person who signs a contract is presumed to know its contents, so the Lermas had constructive knowledge of their right. The court reconciled the two seemingly contradictory clauses by interpreting the handwritten provision as giving the Lermas the option to continue the contract (and thus waive the refund right) if they so chose, which their conduct conclusively demonstrated they did.
Analysis:
This case serves as a strong illustration of the doctrine of waiver by conduct, demonstrating how a party's actions can override an express contractual right established for their benefit. The court's decision emphasizes that parties cannot treat a contract as ongoing and later attempt to retroactively enforce a right to terminate that arose earlier. This ruling reinforces the principle that courts will strive to interpret and harmonize all clauses within a contract, including handwritten additions, to give effect to the parties' entire agreement. For future litigants, it underscores the importance of acting promptly and consistently to assert one's contractual rights, as continued performance following the failure of a condition precedent can result in the forfeiture of those rights.
