Unreported / Non-Citable
Background
Azhar Rauf agreed to sell a Houston property to Manhattan Life Group for $1.1 million. Although Rauf had previously executed a long-term, below-market lease with BR Shawn, an entity he controlled, he did not tell his broker, Steve Cumley, about it. Cumley continued marketing the entire property as available, and Manhattan entered the sale contract believing the property was not leased.
Manhattan funded the scheduled closing, but Rauf did not appear. The lease was revealed only after the closing date, and Manhattan sued for breach of contract, specific performance, and fraud. The trial court directed a verdict for Manhattan on breach and ordered specific performance without assignment of the lease. A jury found common-law and statutory fraud, awarded no actual damages, and awarded $58,000 in exemplary damages. The final judgment also awarded Manhattan attorney’s fees.
The Court’s Holding
The court held that legally sufficient evidence supported the fraud findings. Cumley’s marketing materials represented that the entire building was available, even though the purported lease extended through 2032. The evidence permitted the jury to attribute those representations to Rauf, who knew of the lease because he had signed it as both landlord and tenant. Although Rauf objected at trial to the jury instruction making him responsible for his agent’s misrepresentations, his appellate brief did not directly challenge the application of principal-agent doctrine or the relevant statutory basis.
The court nevertheless reversed the exemplary-damages award. Texas Civil Practice and Remedies Code section 41.004 permits exemplary damages only when damages other than nominal damages are awarded. Specific performance is an equitable substitute for monetary damages, not actual damages, and the jury had declined to award Manhattan any actual damages despite being given the opportunity to do so.
The court affirmed the attorney’s-fee award because Manhattan obtained the specific performance it requested. It also rejected BR Shawn’s claim that it was a prevailing party entitled to costs: BR Shawn asserted no independent claim, lost its leasehold interest under the judgment, and identified no taxable costs. The court rendered a take-nothing judgment on exemplary damages and affirmed the remainder of the judgment.
Key Takeaways
- A seller may be held liable for fraudulent representations communicated through the seller’s broker when legally sufficient evidence supports attribution of those representations to the seller.
- Later disclosure did not defeat the fraud findings because Manhattan had already entered the contract based on false representations that the property was fully available.
- Under Texas law, specific performance without an award of actual damages cannot support exemplary damages.
Why It Matters
The decision underscores the risk of marketing property as fully available while concealing a lease that materially affects possession, use, and income. A seller cannot necessarily avoid fraud liability merely because the seller did not communicate directly with the buyer.
The opinion also draws a firm remedial line: even when fraud supports equitable relief, exemplary damages generally remain unavailable unless the claimant receives actual, non-nominal damages.