Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc. , 518 S.W.3d 432 ( 2017 )

IN THE SUPREME COURT OF TEXAS
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No. 16-0054
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BARTUSH-SCHNITZIUS FOODS CO., PETITIONER,
v.
CIMCO REFRIGERATION, INC., RESPONDENT
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS
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PER CURIAM
This contract dispute involves competing breach claims by a food-product manufacturer,
Bartush-Schnitzius Foods Co. (Bartush), and a refrigeration contractor, Cimco Refrigeration, Inc.
(Cimco). The jury found that both parties failed to comply with their agreement and assessed
damages accordingly, but the trial court rendered judgment solely for Bartush. The court of
appeals reversed and remanded for entry of judgment solely in Cimco’s favor. We hold that neither
the trial court nor the court of appeals properly effectuated the jury’s verdict. We reverse the court
of appeals’ judgment and remand the case to that court to consider unaddressed issues.
In 2010, Bartush planned to expand its line of food products to include seafood dips.
Manufacturing the dips required Bartush’s production facilities to maintain a constant temperature
no higher than thirty-eight degrees—lower than Bartush’s existing refrigeration system could
sustain. Bartush therefore contracted with Cimco to install a new system. Cimco sent Bartush an
offer letter with three quoted options. The offer letter did not reference a particular temperature
range. Bartush orally selected the most expensive of the three options, confirming the selection
via email. Bartush then began paying Cimco in agreed-upon installments.
After installation, Bartush started to operate the new system at a temperature setting of
thirty-five degrees. However, this resulted in ice forming on the fan motors because the system’s
defrost unit was not designed to support operation at such a low temperature. The ice caused the
motors to overheat and fail, leading to higher temperatures that at times climbed into the 50s and
60s. When Bartush discovered the problem, it had already paid Cimco $306,758 on the contract
but still owed $113,400. Bartush communicated with Cimco about a repair, but after several weeks
without receiving what it considered a workable plan, Bartush withheld further payment and
contacted an independent refrigeration engineer. The engineer recommended a warm-glycol
defrost unit, and Bartush contracted with Jax Refrigeration, Inc. to install the unit at a cost of
$168,079. After the warm-glycol defrost unit was installed, the system was able to maintain the
target temperature of thirty-five degrees.
In response to Bartush’s nonpayment, Cimco sued Bartush to recover the balance owed on
the contract.1 Bartush counterclaimed for breach of contract, seeking damages for, among other
things, the costs associated with the warm-glycol defrost unit.2 Bartush also alleged that its failure
to pay was justified by Cimco’s prior material breach. Cimco asserted that the equipment it
installed was exactly as described in the accepted purchase order and denied that it had made any
guarantee regarding the equipment’s capacity to maintain a specific temperature.
1
Cimco brought an alternative claim for quantum meruit and also asserted claims for violation of the Prompt
Pay Act and foreclosure of a mechanic’s and materialmen’s lien. Only the contract claim was submitted to the jury.
2
Bartush also brought several tort claims against Cimco. The jury found in Cimco’s favor on those claims,
and Bartush did not challenge the findings on appeal.
2
The parties’ claims were tried to a jury. The jury answered the relevant liability portions
of the charge as follows: “YES” to Question 1, which asked whether Bartush failed to comply with
the agreement; “YES” to Question 2, which asked whether Cimco failed to comply with the
agreement; “CIMCO” to Question 3, which asked who failed to comply with the agreement first;
and “NO” to Question 4, which asked whether Bartush’s failure to comply was excused. The jury
awarded Bartush $168,079 in damages (the cost of installing the warm-glycol defrost unit), plus
$215,000 in trial and conditional appellate attorney’s fees. The jury also awarded Cimco $113,400
(the balance due on the contract). The jury did not answer the question regarding Cimco’s
attorney’s fees because the question was conditioned in part on a finding that Bartush breached
first.
Despite the jury’s findings that both parties failed to comply and Bartush’s failure to
comply was not excused, the trial court stated in its final judgment that “it appears to the Court
that the verdict of the jury was for [Bartush] and against [Cimco],” and rendered judgment in
Bartush’s favor for $168,079 in damages, plus pre- and post-judgment interest, costs, and
attorney’s fees. The judgment awarded nothing to Cimco, and Cimco appealed.
The court of appeals reversed and remanded to the trial court for entry of judgment that
Bartush take nothing and that Cimco recover $113,400 in damages, plus interest and costs. ___
S.W.3d ___ (Tex. App.—Fort Worth 2015). The court of appeals held that the jury’s express
finding that Bartush’s failure to comply was not excused necessarily included an implied finding
that Cimco’s prior breach was nonmaterial. Id. at ___. The court further held that Bartush’s failure
to pay the balance due was a material breach of the contract as a matter of law, which rendered
irrelevant the jury’s finding that Cimco breached first and precluded Bartush’s recovery. Id.
3
Finally, the court of appeals held that Cimco waived its challenge to the jury’s failure to award
attorney’s fees. Id. at ___ n.9.
Both parties filed petitions for review. Bartush argues the trial court’s judgment should be
reinstated because Cimco’s “first” breach was material as a matter of law and thus excused
Bartush’s subsequent failure to comply with the agreement. Alternatively, Bartush argues that
both damages awards should be given effect, resulting in Bartush’s net recovery of $54,679 in
compensatory damages. Cimco responds that the court of appeals correctly concluded that
Bartush’s material breach excused Cimco’s nonmaterial breach.3 In a cross-petition, Cimco
challenges the court of appeals’ holding that Cimco waived error regarding the jury’s failure to
award attorney’s fees.
We first address Bartush’s argument that the trial court properly rendered judgment entirely
in its favor because Bartush’s failure to comply (i.e., nonpayment) was excused as a matter of law
by Cimco’s prior material breach. “It is a fundamental principle of contract law that when one
party to a contract commits a material breach of that contract, the other party is discharged or
excused from further performance.” Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d
195, 196 (Tex. 2004) (citing Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994)).
By contrast, when a party commits a nonmaterial breach, the other party “is not excused from
future performance but may sue for the damages caused by the breach.” Levine v. Steve Scharn
3
As an alternative basis to affirm the court of appeals’ judgment, Cimco argues that no evidence supports
the jury’s finding that it failed to comply with the parties’ agreement because the parol evidence rule bars enforcement
of the disputed term regarding temperature. Cimco also made this argument in the court of appeals, but because that
court reversed the trial court’s judgment on other grounds, it did not reach the issue. We will leave it to the court of
appeals to address the issue in the first instance on remand.
4
Custom Homes, Inc., 448 S.W.3d 637, 654 (Tex. App.—Houston [1st Dist.] 2014, pet. denied).4
The latter principle is consistent with settled Texas law regarding the elements of a contract claim.
The claim requires a finding of breach, not a finding of material breach. See, e.g., Mays v. Pierce,
203 S.W.3d 564, 575 (Tex. App.—Houston [14th Dist.] 2006, pet. denied) (“A breach of contract
occurs when a party fails or refuses to do something he has promised to do.”). Accordingly, a
material breach by Cimco would have excused Bartush from making further contractual payments,
while a nonmaterial breach would have simply given rise to a claim for damages.
In this case, as noted, the jury found that both parties failed to comply with the agreement.
The jury was instructed that Bartush’s failure to comply was excused if Cimco previously “failed
to comply with a material obligation of the same agreement,” and listed five nonexclusive
“circumstances to consider in determining whether a failure to comply is material.” Although the
jury found that Cimco failed to comply first, it also found that Bartush’s breach was not excused.
To make the latter finding, the jury must have concluded that Cimco’s prior breach was not
material. We therefore agree with the court of appeals that the jury made such an implied finding.
Notwithstanding the jury’s implied finding of nonmateriality, Bartush argues that Cimco’s
failure to provide a refrigeration system capable of maintaining a temperature of thirty-five degrees
was a material breach as a matter of law, excusing Bartush from further performance. We disagree.
Generally, materiality is an issue “to be determined by the trier of facts.” Hudson v. Wakefield,
645 S.W.2d 427, 430 (Tex. 1983). Like other issues of fact, materiality may be decided as a matter
4
Accord Gilbert v. Fitz, No. 05-16-00218-CV, 2016 WL 7384167, at *6 (Tex. App.—Dallas Dec. 21, 2016,
no pet.); Harris Cty. Util. Dist. No. 16 v. Harris Cty. Mun. Dist. No. 36, No. 01-10-00042-CV, 2011 WL 3359698, at
* 9 (Tex. App.—Houston [1st Dist.] Aug. 4, 2011, no pet.); DAVID R. DOW & CRAIG SMYSER, TEXAS PRACTICE:
CONTRACT LAW § 9.3 (2005).
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of law only if reasonable jurors could reach only one verdict. See City of Keller v. Wilson, 168
S.W.3d 802, 822 (Tex. 2005) (“If the evidence at trial would enable reasonable and fair-minded
people to differ in their conclusions, then jurors must be allowed to do so.”).
In Mustang Pipeline, we outlined several factors enumerated in the Restatement that are
“significant in determining whether a failure to perform is material.” 134 S.W.3d at 199 (citing
RESTATEMENT (SECOND) OF CONTRACTS § 241 (Am. Law Inst. 1981)). These factors include:
(a) the extent to which the injured party will be deprived of the benefit which
he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the
part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will
suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will
cure his failure, taking account of the circumstances including any
reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer
to perform comports with standards of good faith and fair dealing.
Id. The jury charge in this case listed these factors for the jury’s consideration in evaluating
whether Cimco’s failure to comply was material. The parties presented trial evidence that could
have led the jurors to reasonably disagree regarding the application of these factors, including
conflicting evidence on the parties’ communications regarding temperature requirements. By
contrast, in Mustang we held that a contractor’s failure to meet a deadline in contravention of an
express time-is-of-the-essence clause was a material breach as a matter of law. Id. at 199–200.
No such conclusive evidence of materiality exists in this case. Because reasonable jurors could
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have disagreed on whether Cimco breached a material obligation, we may not overrule the jury’s
implied finding on that issue.
Bartush next argues that, even accepting the jury’s finding that its failure to comply with
the agreement was not excused, the court of appeals erred in holding that “Bartush’s unexcused
and material breach” (failing to pay the balance due) renders irrelevant the jury’s finding that
Cimco breached first and “precludes Bartush’s recovery under the contract.” ___ S.W.3d at ___.
Bartush contends that the court should have given effect to the jury’s damages awards to both
parties. We agree.
While a party’s nonmaterial breach does not excuse further performance by the other party,
neither does the second breach excuse the first. To the contrary, a material breach does not
discharge a claim for damages that has already arisen. RESTATEMENT (SECOND) OF CONTRACTS §
237 cmt. e (Am. Law Inst. 1981); see also Allied Capital Partners, LP v. Proceed Tech. Res., Inc.,
313 S.W.3d 460, 465 (Tex. App.—Dallas 2010, no pet.) (citing the Restatement for the proposition
that “a material breach will not discharge an obligation of the non-breaching party that arose before
the alleged breach”). In other words, a material breach excuses future performance, not past
performance. The court of appeals turned the doctrine on its head, effectively holding that
Bartush’s nonpayment retroactively excused Cimco’s prior breach. This was error.
In sum, the jury’s findings that Cimco failed to comply with the agreement first and that
its failure to comply was not material mean that (1) Bartush remained liable for its subsequent
failure to comply, but (2) Bartush’s claim for damages caused by Cimco’s prior breach remained
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viable.5 Cimco had a preexisting duty to perform under the contract, and the jury found that Cimco
violated that duty before Bartush breached by withholding payment.
Accordingly, the court of appeals erred in holding that Bartush’s breach barred its recovery
of damages for Cimco’s failure to perform a preexisting obligation, and we therefore reverse the
court’s judgment. Because the court of appeals did not reach Cimco’s alternative argument that
the trial court’s judgment should be reversed on the ground that no evidence supported the jury’s
finding that Cimco failed to comply with the parties’ agreement, we remand the case to the court
of appeals to do so.
Finally, we address the attorney’s-fees issue raised in Cimco’s cross-petition. Cimco
contends that, as a prevailing party on its breach-of-contract claim, it is entitled to a remand for a
determination of its attorney’s fees. See TEX. CIV. PRAC. & REM. CODE § 38.001. Although the
court of appeals rendered judgment in Cimco’s favor, the court held that Cimco failed to preserve
error regarding the jury’s failure to award it attorney’s fees.
As noted, the jury awarded Cimco damages for Bartush’s failure to comply with the
agreement; however, the jury left blank Question 24—which asked the jury to assess Cimco’s
attorney’s fees—because it was conditioned on the following answers: “yes” to Question 1 (did
Bartush fail to comply); “Bartush” to Question 3 (who failed to comply first); and “no” to Question
4 (was Bartush’s breach excused). Because the jury answered “Cimco” to Question 3, it did not
answer Question 24 in accordance with the instruction. Cimco did not object to the conditional
5
A similar state of affairs often arises in the context of construction contracts, when a contractor sues for the
balance due and owing on the contract and the property owner counterclaims for damages for incomplete or defective
performance. See Vance v. My Apartment Steak House of San Antonio, Inc., 677 S.W.2d 480 (Tex. 1984). In such
cases, if the contractor has substantially completed performance, i.e., the contractor’s breach is not material, then the
contractor has a claim for the unpaid balance and the owner has a claim for damages. See id. at 481–82; RESTATEMENT
(SECOND) OF CONTRACTS § 237 cmt. d (Am. Law Inst. 1981).
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submission of Question 24, but did object to Question 3 on the ground that “there is no evidence
that Cimco failed to comply with the agreement.”
The court of appeals held that Cimco waived error regarding the jury’s failure to answer
Question 24 by not objecting to its conditional submission. ___ S.W.3d at ___ n.9. Cimco argues
that its objection to Question 3 was sufficient to preserve error on the jury’s failure to answer
Question 24 because an objection to an invalid basis for liability “preserves error for any impact
the wrongful inclusion has on other charge questions.” McFarland v. Boisseau, 365 S.W.3d 449,
454–55 (Tex. App.—Houston [1st Dist.] 2011, no pet.). Because we do not consider whether any
evidence supports Cimco’s breach, and thus do not address whether Question 3 was an invalid
basis for liability, we cannot say at this point whether Cimco’s objection to Question 3 was
sufficient to preserve error on Question 24. We leave it to the court of appeals to address this issue
on remand.
Ultimately, although both the trial court and the court of appeals purported to render
judgment in accordance with the jury’s verdict, neither court did so. The trial court improperly
ignored the jury’s finding that Bartush’s failure to comply was not excused, while the court of
appeals improperly ignored the jury’s finding that Cimco breached first. Accordingly, we grant
the parties’ petitions for review, and, without hearing oral argument, TEX. R. APP. P. 59.1, we
reverse the court of appeals’ judgment and remand the case to that court to consider the parties’
unaddressed issues.
OPINION DELIVERED: April 28, 2017
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