JIMMY CHANGAS INC v. CITY OF LEAGUE CITY (2025)

OPINION

Jimmy Changas, Inc., appeals the summary-judgment rendered in its breach-of-contract claim against the City of League City. We agree with the trial court that the contract was automatically revoked when Jimmy Changas failed to comply with a condition precedent to the City's obligation to pay Jimmy Changas the promised economic-development incentives. We further agree with the trial court that the City did not waive the condition precedent and was not required to notify Jimmy Changas of the default by certified mail or provide an opportunity for cure. We agree with Jimmy Changas, however, that the contract's revocation rendered its attorney-fee provision “of no further force and effect.” We accordingly modify the judgment to delete the City's attorney-fee award, and as modified, we affirm the trial court's judgment.

I. Background

Jimmy Changas wished to build a restaurant in League City, and Chapter 380 of the Texas Local Government Code authorizes municipalities to offer incentives to stimulate business and commercial activity in the municipality. See Tex. Loc. Gov't Code § 380.001. Hoping to obtain economic incentives from the City, Jimmy Changas submitted to the City its “Economic Impact Statement & Proposed Incentives,” in which it predicted that the total value of its investment would be $5 million and that the restaurant would create eighty full-time jobs.

In December 2012, the parties agreed to terms and executed the “Chapter 380 Economic Incentives Grant Agreement,” which attached and incorporated by reference some of the representations in Jimmy Changas's Economic Impact Statement. Section 6 of the Agreement required the City to reimburse a portion of Jimmy Changas's sales tax for five years. If Jimmy Changas delivered documents to the City showing that the total value of its investment in the property was at least $5 million, and if Jimmy Changas created at least eighty “full-time” jobs, then section 5(a) of the Agreement required the City to additionally reimburse Jimmy Changas for the fees paid for building permits and plat approval. If Jimmy Changas satisfied these requirements within ninety days after the City issued a certificate of occupancy, then section 5(b) of the Agreement required the City to pay the fee-reimbursement within the same ninety-day period.

Section 7(b), however, made the contract an all-or-nothing affair. That provision states that if, within ninety days after the City issues a certificate of occupancy for the restaurant, Jimmy Changas fails to deliver documents to the City substantiating its $5 million investment and its creation of eighty full-time jobs, then all of the economic-incentive grants promised by the City “shall be considered revoked and this Agreement shall be considered of no further force and effect.”

The certificate of occupancy is not in the record, but the parties appear to agree that the City issued it in December 2012 or January 2013, so the ninety-day period ended in March or April of 2013. Jimmy Changas first sent the City employment documents in May 2014. The City has paid nothing.

Jimmy Changas sued for damages, and the City pleaded the affirmative defense of failure of conditions precedent—specifically, failure to satisfy the documentation deadline and to create eighty full-time jobs. Jimmy Changas pleaded the counter-affirmative defenses that the City waived the deadline and that “full-time” is ambiguous. Jimmy Changas additionally maintained that the ninety-day deadline is not a condition precedent such that failure to satisfy it excuses the City's payment obligations. Jimmy Changas argued that this provision instead is a covenant, and thus, the City's payment obligations would be excused only if a factfinder found that the breach was material.

As authorized by Texas Rule of Civil Procedure 166(g), the City asked the trial court to narrow the issues for trial by resolving several issues as matters of law. The trial court did so, striking Jimmy Changas's counter-affirmative defense of waiver and holding, as a matter of law, that

• “[W]aiver is not a cause of action under which Plaintiff can recover”;

• Only the city council could have waived a contract provision, and it did not do so;

• The Agreement is unambiguous;

• Jimmy Changas's satisfaction of sections 5(a) and 7(b) of the Agreement are conditions precedent to the City's payment obligations;

• “Full-time” employees, as used in the Agreement, means an employee who works at least forty hours per week; and

• No default notice was required if the Agreement terminated under section 7(b).

Armed with these rulings, the City moved for summary judgment on the grounds that Jimmy Changas admitted both that it missed the ninety-day deadline and that it failed to hire enough full-time employees. The City asked the trial court to render a take-nothing judgment on Jimmy Changas's breach-of-contract claim and award the City its attorneys’ fees as authorized by the Agreement. In response, Jimmy Changas challenged the trial court's earlier legal rulings, denied admitting to staffing shortages, and reasserted its waiver and ambiguity arguments. In addition, Jimmy Changas argued that the City was required to notify it by certified mail of the default and that the City's failure to do so deprived Jimmy Changas of the opportunity to cure. Finally, Jimmy Changas argued that if the Agreement was “of no further force and effect” as the City contended, then the Agreement's attorney-fee provision was unenforceable.

The trial court rendered summary judgment for the City and subsequently granted the City's motion to amend the judgment to include an award of attorneys’ fees. The trial court did so, awarding the City $180,000 for representation through trial and conditionally awarding appellate attorneys’ fees.

II. Issues Presented

As we have reordered the six appellate issues, Jimmy Changas argues that

1. The City waived the ninety-day deadline;

2. The Agreement's hiring requirements and documentation deadlines are covenants, not conditions precedent, but if they are conditions precedent, then enforcing them would produce an absurd result;

3. The Agreement required the City to notify Jimmy Changas by certified mail of its alleged default under section 7(b), and its failure to do so deprived Jimmy Changas of the opportunity to cure its noncompliance;

4. The Agreement's references to “full-time” employees are ambiguous;

5. If Jimmy Changas's noncompliance caused the Agreement's automatic revocation as the City contends, then the City cannot rely on the Agreement's provision authorizing the prevailing party in a contract dispute to recover its attorneys’ fees; and

6. Insufficient evidence supports the amount of the City's attorneys’ fees awarded.1

III. Standard of Review

Traditional summary judgments and pretrial rulings under Rule 166(g) are reviewed de novo under the same standard of review. See JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653 (Tex. 2018). The movant prevails by showing that there is no genuine issue of material fact and that the movant is entitled to the requested ruling as a matter of law. See Inwood Nat'l Bank v. Fagin, 706 S.W.3d 342, 346 (Tex. 2025). If the movant makes this showing, then the burden shifts to the non-movant to raise a genuine issue of material fact. Lujan v. Navistar, Inc., 555 S.W.3d 79, 84 (Tex. 2018). We review the ruling by viewing the evidence in the light most favorable to the nonmovant, drawing all inferences in the nonmovant's favor if a reasonable factfinder could, and disregarding contrary evidence and inferences unless a reasonable factfinder could not. See Orca Assets, 546 S.W.3d at 653.

IV. Waiver

Waiver requires intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right. Shields Ltd. P'ship v. Bradberry, 526 S.W.3d 471, 474 (Tex. 2017). Jimmy Changas argues that City employees waived the ninety-day deadline by conduct inconsistent with the contract's revocation. As stated in its response to the City's Rule 166(g) motion, Jimmy Changas maintains that “the City Council, with full knowledge of the fact Jimmy Changas did not comply with the 90 day requirement, authorized its officials to work with Jimmy Changas to obtain the documentation that confirms the investment and employment criteria.”

The City argues that only the City Council can waive the deadline, but even if the City's employees could waive the deadline, they did not. We need not address the question of whether the City Council alone could waive the deadline, because Jimmy Changas's waiver argument relies entirely on the actions of city employees, and we agree with the City's contention that the employees did not waive the deadline.

As the City pointed out in its Rule 166(g) motion, its employees “discussed the possibility of presenting a potential amended agreement to the City Council.”² The City further pointed out that, by its express terms, the Agreement requires any amendment to be made in writing signed by both parties. There is no such written amendment, nor does Jimmy Changas contend otherwise.

In its communications with Jimmy Changas, the City repeatedly stated two things. First, Jimmy Changas's default under section 7(b) relieved the City of any payment obligations under the existing Agreement. And second, if the City were to take on those payment obligations, it would do so through a new or amended agreement.

The City has maintained this position since Jimmy Changas first began to send the City documents required by the Agreement. In May 2014, Jimmy Changas emailed the City sales-tax reports from 2013 and some payroll reports (but no evidence to show that Jimmy Changas's investment was valued at $5 million). City employee Owen Rock responded, “you are currently in default of the contract (See section 7(b)).” A few hours later, Rock added further comments about the Agreement's “Exhibit B,” which is the Economic Impact Statement containing Jimmy's Changas's representations that are incorporated into the Agreement:

If you have not reached the total investment of $5,000,000 I will need to change Exhibit B to reflect the value of the investment. Also it does not look like you have created the number of new full time jobs as stated in Exhibit B. Please let me know what is a good number to put in for full time employees and I will change that in the Exhibit. Sorry for all the paperwork but this is what I have to do to get you guys paid.”3

Rock did not suggest the City would pay Jimmy Changas under the existing contract and simply overlook the missed deadline. To the contrary, these statements are consistent with the City's position that Jimmy Changas's failure to meet the deadline rendered the existing Agreement ineffective, and that the City would not pay unless the Agreement were revised in writing or the parties entered into a new agreement. Jimmy Changas tacitly acknowledged this by responding to the email with its own suggested revisions: “I suggest we go with a flat rate of 65 full time and 20 part time if you think that will be ok.”

The record contains no further exchanges until 2017, when Jimmy Changas resumed sending documents to the City. In December of that year, Scott Livingston, the City's Director of Economic Development, emailed Jimmy Changas, repeating that Jimmy Changas did not comply with section 7(b) of the Agreement and therefore did not qualify to receive any incentive payments. Livingston added that the city manager, the assistant city manager, and the director of planning and development for the City agreed with him that Jimmy Changas satisfied the Agreement's “spirit” and intended purpose. He explained that, as a result, “my bosses directed me to thoroughly review the information you sent me, and then request additional information, as necessary, to prepare for a discussion with the City Council in Executive Session (i.e. not in public) in early 2018.”⁴

Livingston clarified the purpose of “a discussion with the City Council” a few days later. He emailed Jimmy Changas, “According to Section 7(b) on Pg.6 of the development agreement, Jimmy Changas does not qualify to receive any incentive payments. Therefore, in order for any incentive payments to be considered, the existing development agreement will have to be revised and approved by the City Council.”

In January 2018, Livingston repeated, “According to Sections 5(b) and 7(b) of the development agreement, Jimmy Changas does not qualify to receive any incentive payments. In order for any incentive payments to be considered for payment at the discretion of the City Council, the existing development agreement will have to be revised and approved by the City Council.”

The matter of Jimmy Changas's incentive payments was placed on the City Council's agenda for March 8, 2018. Under “Jimmy Changas’ Incentive Payment,” the City's agenda for that date states in pertinent part, “Investment of $5 million required—Have shown proof of $4.2 Million” and “Employment of 80 Full Time and 40 Part Time required. (2013—No Information Provided ․).”

Jimmy Changas attaches particular significance to an email from Livingston two weeks after the City Council meeting. The email's stated subject is, “Capital Recovery Fees and Building Permit Fees ․ what I have.” Livingston wrote,

I have the following on file to represent the Capital Recovery Fees and Building Permit Fees paid for Jimmy Changas #2 in League City, TX:

• $45,360.19

• $48,030.09

• $7,893.00 ․

My understanding is that the amount we owe you is either $48,030.09 or $45,360.19, rather than the sum of both. I don't know what will be decided regarding the amount of $7,893.

I am preparing this information for the City Auditor to start reviewing, after I receive your 2013 employment information in the same format as that which you provided for 2014–2017.

Although Jimmy Changas attaches significance to Livingston's reference to “the amount we owe you,” this language is insufficient to raise a fact issue as to whether the City waived the ninety-day deadline. Not only does Livingston qualify the statement as reflecting only his own understanding, but he already had repeatedly stated that any payments by the City would be made only if the Agreement were revised and approved by the City Council.

Livingston's email is consistent with those representations. For example, Livingston also states that Jimmy Changas provided the City with documents about its employees for the years 2014 through 2017. Jimmy Changas acknowledges that the City requested these documents, which the existing Agreement did not require. These requests could have been made, and acceded to, in contemplation of a revised or superseding Agreement, not in fulfillment of the existing one.

We overrule this issue.

V. Covenant v. Condition Precedent

The City maintains that section 7(b) of the Agreement contains a condition precedent, while Jimmy Changas argues that section 7(b) contains only a covenant. The distinction affects the enforceability of the City's obligation to pay Jimmy Changas the economic incentives described in the Agreement.

A condition precedent to a party's obligation to perform a contractual duty is an act or event that must occur before there is an immediate right to performance, and thus, before the party can be said to have breached the duty to perform. See Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976). An unsatisfied condition renders the conditioned performance unenforceable. See Cajun Constructors, Inc. v. Velasco Drainage Dist., 380 S.W.3d 819, 826 (Tex. App.—Houston [14th Dist.] 2012, pet. denied). Terms such as “if,” “provided that,” or “on condition that” usually connote the parties’ intention that the provision be construed as a condition rather than a covenant. See Hohenberg Bros., 537 S.W.2d at 3.

A covenant, on the other hand, is simply an agreement to act or refrain from acting in a certain way. Solar Applications Eng'g, Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 108 (Tex. 2010). A party to the contract may recover damages for breach of a covenant, but unless the breach is a material or total breach, the contract's other provisions are unaffected and remain enforceable. Id. If the provision lacks conditional language and another reasonable construction is possible, the provision will be construed as a covenant so as to prevent forfeiture. Id. at 109. The provision also will be construed as a covenant if a condition would cause an absurd or impossible result. See Criswell v. European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 948 (Tex. 1990) (op. on reh'g).

To determine if satisfaction of the ninety-day deadline is a condition or a covenant, we must examine its language. Section 7(b) of the Agreement states,

If, within 90 days from the date upon which a Certificate of Occupancy is issued for the Improvements, the Grantee fails to deliver to the City documentation ․ evidencing that the construction cost of the improvements which are the subject of this agreement is equal to or greater than [$5 million] and/or the number of new full time jobs [is less than eighty], then all of the grants to be provided by the City to the Grantee under this Agreement shall be considered revoked and this Agreement shall be considered of no further force and effect.5

The provision's express “if-then” language signals the parties’ intent to create a condition precedent. If Jimmy Changas fails to perform its obligations within ninety days, “then all of the grants to be provided by the City ․ shall be considered revoked and [the parties’] Agreement shall be considered of no further force and effect.”⁶ This provision unambiguously conditions all of the City's obligations on Jimmy Changas's satisfaction of the ninety-day deadline.

Jimmy Changas argues that even if section 7(b) is considered a condition precedent, its enforcement would lead to an “absurd” result. That is a high threshold: an absurd result is one that is “ ‘quite impossible’ that a rational person could have intended.” Fairfield Indus., Inc. v. EP Energy E&P Co., L.P., 531 S.W.3d 234, 248–49 (Tex. App.—Houston [14th Dist.] 2017, pet. denied).

But Jimmy Changas's argument stops here, without addressing the test or discussing any authorities applying it. Jimmy Changas instead offers only the circular argument that enforcing the forfeiture provision would be absurd because it would result in forfeiture. But if that were the law, then forfeiture provisions would be per se unenforceable, which is not the case. The law only disfavors forfeiture provisions; it doesn't forbid them.

We cannot conclude that the result of enforcing section 7(b) as written is manifestly absurd. The economic incentives offered to Jimmy Changas were to be paid with public monies, a resource for which demand commonly exceeds supply. The City may have treated the incentives as a limited-time offer for greater predictability in budgeting, or so that, if the economic impact of the new restaurant was not as represented, the City could extend the same offer to another business with more favorable prospects.

We conclude that section 7(b) is a condition precedent, and because Jimmy Changas failed to satisfy it, the Agreement was automatically revoked. We overrule this issue.

VI. Notice of Default

In its next issue, Jimmy Changas contends that section 7(a) of the Agreement required the City to notify it by certified mail of a default, after which Jimmy Changas would have sixty days to cure the default. Jimmy Changas reasons that because the City never provided the required notice, the deadline for Jimmy Changas to cure the default has not expired.

We disagree with this construction of the Agreement. Section 7(a) states as follows:

If either party should default (the “Defaulting Party”) with respect to any of its obligations under this Agreement and should fail, within sixty days after delivery of written notice of such default from the other party (the “Complaining Party”) to cure such default, the Complaining Party, by action or proceeding at law or in equity, may be awarded its damages, if any, for such default.

By its unambiguous language, Section 7(a) merely states preconditions to the Complaining Party's recovery of damages for the other party's default. Because the City seeks no damages, it had no obligations under Section 7(a).

We overrule this issue.

VII. Ambiguity

The Agreement required Jimmy Changas to create “the number of new full time jobs ․ as represented in the Economic Impact Statement dated October 5, 2011 submitted to the City.” Neither the Agreement nor the Economic Impact Statement defined “full time,” and Jimmy Changas maintains that the term is ambiguous. However, our conclusion that the Agreement was automatically revoked when the ninety-day deadline passed renders this issue moot, and we do not address it.

VIII. Attorneys’ Fees

In its final issues, Jimmy Changas challenges both the existence and the amount of the City's attorney-fee award.

In its pleadings, the City sought recovery of its attorneys’ fees only under section 12 of the Agreement, which states, “In the event any legal action or proceeding is commenced to enforce or interpret provisions of this Agreement, the prevailing party in any such legal action shall be entitled to recover its reasonable attorney's fees and expenses incurred by reason of such action.” But as we have seen, the parties agreed in section 7(b) that if Jimmy Changas missed the ninety-day deadline, the Agreement “shall be considered revoked and this Agreement shall be considered of no further force and effect.”

On this issue, we agree with Jimmy Changas: the City cannot have it both ways. If the Agreement is revoked and “of no further force and effect,” then the City cannot selectively enforce the attorney-fee provision. See URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755, 764 (Tex. 2018) (courts “presume parties intend what the words of their contract say” (quoting Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 126 (Tex. 2010) (sub. op. on denial of reh'g))).

The City cites two cases as authority that an attorney-fee provision in a revoked contract are enforceable. But both cases concerned provisions for terminating a contract, not revoking it ⁷ —and in neither case was the contract terminated. See Emery Air Freight Corp. v. General Transp. Sys., 933 S.W.2d 312, 315 (Tex. App.—Houston [14th Dist.] 1996, no writ) (contract gave party the option to terminate the contract for cause, but the option was not exercised); Weng Enters., Inc. v. Embassy World Travel, Inc., 837 S.W.2d 217, 222–23 (Tex. App.—Houston [1st Dist.] 1992, no writ) (fees were properly awarded to the party that defeated a claim to terminate the contract).

We sustain this issue, and we modify the judgment to eliminate the City's attorney-fee award. This modification renders moot Jimmy Changas's challenge to the amount of the fee award.

IX. Conclusion

When the deadline passed for Jimmy Changas to satisfy the Agreement's condition precedent, the Agreement was revoked in its entirety. The contractual provision obligating the City to pay Jimmy Changas and the provision authorizing a prevailing party in a suit on the contract to recover its attorneys’ fees all were rendered equally ineffective. We accordingly modify the trial court's judgment to eliminate the award of the City's attorneys’ fees, and as modified, we affirm the judgment.

FOOTNOTES

1.   For the parties’ reference, these correspond to Issues 4, 2, 3, 1, 6, and 5.

2.   Italics and underlining in original.

3.   Emphasis added.

4.   Emphasis added.

5.   Emphasis added.

6.   Emphasis added.

7.   Termination merely ends a contract, but revocation annuls it, as if it had never been. Compare Terminate (“To end; to conclude.”) with Revoke (“To annul or make void by taking back or recalling; to cancel, rescind, repeal, or reverse.”), Black's Law Dictionary (12th ed. 2024).

Tracy Christopher, Chief Justice