Texas Business Court Enforces ‘Put Right’ Trigger: Business Considerations For Contract Default Language

The Texas Business Court continues to shape commercial law in the Lone Star State, offering guidance on contract interpretation and enforcement. In a recent opinion in The Mark at Weatherford Owner, LLC v. Darwin German, Judge Brian Stagner of the Eighth Division granted summary judgment in favor of a seller who exercised a “put right” after a multi-million-dollar real estate transaction stalled after closing. The decision offers practical guidance for businesses on how courts may enforce deal protection mechanisms and interpret contractual terms like “default” and “payable.”

A Deal That Closed on Paper But Stalled in Practice

The case arose from the sale of a residential apartment complex in Weatherford, Texas. When the buyers struggled to raise sufficient capital, the seller agreed to extend $4.7 million in seller financing — accepting membership units in the purchasing entity as collateral with the expectation of prompt repayment.

To protect its investment, the seller negotiated several safeguards in a “side letter,” including:

• Requiring the acquiring entity’s principal to make “reasonable efforts” to repurchase the seller’s interest in the purchasing entity by the end of 2023;
• Prohibiting the defendants from retaining any fees or distributions from the property until they repaid the seller; and
• A “put right” allowing the seller to demand immediate cash repurchase of the seller’s interest in the purchasing entity if certain “automatic triggers” occurred — including a default under any material agreement related to the property or the purchasing entity.

At closing, the defendants were owed two fees totaling over $1 million under the transaction documents. Under the side letter, however, these amounts were supposed to be paid to the seller instead. They never were. More than two years later, with no repayment forthcoming, the seller exercised its put right. The defendants allegedly refused to honor it, which led to litigation.

The Court’s Key Holdings

“Payable” Means Legally Owed — Regardless of Liquidity. The central dispute turned on a single word: “payable.” Defendants argued that the fees were not truly “payable” at closing because there were insufficient funds available to pay them. The court rejected this reasoning, holding that “payable” refers to amounts that are legally due or owed, regardless of the obligor’s present ability to pay. “A debt may be both payable and unpaid at the same time,” the court observed. “That is, in fact, the ordinary premise of a breach-of-contract action.” The court emphasized that economic impracticability is not a recognized defense under Texas law — a contractual obligation does not evaporate simply because the obligor lacks liquidity. 

“Default” Is Unambiguous and Requires No Qualifying Language. Defendants also argued that the term “default” was ambiguous because related agreements used different categories of defaults (e.g., material defaults, curable defaults, etc.). The court disagreed, holding that when parties use the unmodified term “default,” courts will not supply limitations the parties did not include. 

Notably, the side letter used the phrase “material default” in one provision but used the unqualified term “default” in defining the automatic triggers. This drafting choice, the court found, was deliberate and meaningful. 

Not Every Theory Succeeded. While the court granted summary judgment on the fee-remittance default, it declined to grant summary judgment on other grounds. The court found that the issue of whether defendants exercised “reasonable efforts” to repurchase the seller’s interest presented a fact issue. Similarly, the court found that an alleged confidentiality breach was not conclusively established on the record and declined to grant summary judgment on that ground.

Practical Takeaways for Texas Businesses

 Businesses drafting contracts may wish to consider the following:

1. Draft Protection Clauses with Precision. The seller’s put right was enforceable because the parties clearly defined what would trigger it. Businesses negotiating similar protections should consider including specific trigger conditions.
2. Obligations Exist Regardless of Ability to Pay. Texas courts may not excuse performance simply because a party lacks available funds.
3. Cross-Default Provisions Have Consequences. Tying rights in one agreement to defaults under other agreements sometimes serves as a powerful tool — but parties should understand that courts may enforce such provisions as written.
4. Use Qualifying Language Deliberately. If parties want terms like “default” to be limited to material or uncured defaults, they should consider noting that explicitly. Courts may enforce general and unmodified terms according to their ordinary meaning.