Texas Supreme Court holds leasing of lakefront property is proprietary for purposes of beach-of-contract claim


Wasson Interests, Ltd. vs. City of Jacksonville,17-0198, — S.W.3d. — (Tex. June 1, 2018)

In 2016 the Texas Supreme Court held the proprietary/governmental dichotomy applies in a breach of contact case. Summary found here. In this companion case, the Court held the contract was entered into as part of the City’s proprietary function and immunity is not implicated when the City leased lakefront property.

The City of Jacksonville constructed Lake Jacksonville in the late 1950s to serve as the City’s primary source of water. In the 1990s, the Wassons assumed an existing 99-year lease of lakefront property owned by the City of Jacksonville. The lease specifies, among other things, that the property is to be used for residential purposes only. After living on the property for several years, the Wassons moved and conveyed their interest in the lease to Wasson Interests, Ltd. (“WIL”). WIL then began renting the property for terms of less than one week, which the City asserted violated the terms of the lease.  This began a series of suits and opinions involving the parties.  In its 2016 opinion the Texas Supreme Court held the proprietary/governmental dichotomy applied to contracts and remanded the case to the trial court. In this appeal, the question is whether the City’s action of leasing the property was proprietary or governmental. The trial court held the actions were governmental and WIL appealed.

The City argued the function of developing and maintaining the lake was a governmental function. As a result, all aspects, including the leasing of land to tenants, is governmental. However, the Court went through several prior cases and indicated it is the action committed at the time (i.e. the lease contract) which counts in determining the proprietary/governmental purpose. “We hold that, to determine whether governmental immunity applies to a breach-of-contract claim against a municipality, the proper inquiry is whether the municipality was engaged in a governmental or proprietary function when it entered the contract, not when it allegedly breached …Stated differently, the focus belongs on the nature of the contract, not the nature of the breach. If a municipality contracts in its proprietary capacity but later breaches that contract for governmental reasons, immunity does not apply. Conversely, if a municipality contracts in its governmental capacity but breaches that contract for proprietary reasons, immunity does apply.” In making that determination, the court held “we consider whether (1) the City’s act of entering into the leases was mandatory or discretionary, (2) the leases were intended to benefit the general public or the City’s residents, (3) the City was acting on the State’s behalf or its own behalf when it entered the leases, and (4) the City’s act of entering into the leases was sufficiently related to a governmental function to render the act governmental even if it would otherwise have been proprietary.” After utilizing this test to the facts, the Court held the leasing of property is not essential or related to the waterworks operation. Merely because an activity “touches” upon a governmental function does not make it governmental in all things. As a result, it is proprietary in nature. The case is remanded for trial.

If you would like to read this opinion click here. Opinion by Justice Boyd. The docket page for this case is found here.

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