## IN THE SUPREME COURT O F TEX AS

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### E C O R E S O U R C E S 

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O N P E T I T I O N F O R R E V I E W F R O M T H E C O U R T O F A P P E A L S F O R T H E F I R S T D I S T R I C T O F T E X A S

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Argued F ebruary 8, 2012

J U S T I C E M E D I N A delivere d the opinion of the Court.

This appea l is from a judgme nt awa rding a tenant d am ages for a landlord’s brea ch of a
construction-r elated duty

under a build-to-suit lea se ag ree ment. The tenant sued asser ting that the
landlord’s failure to adher e to construction plans resulted in a substandard building, diminis hing the
value of its lease hold. At trial, the parties disag ree d about the appropr iate measure of damag es for
the landlord’s brea ch. The tenant maintained that damag es should be measure d by the diminis hed
value of the lease hold. T he landlord c ontended that the a ppropriate measure should be the cost to

repa ir the building. The court of appea ls sided with the tenant, concluding that diminis hed value was the appr opriate me asure of dama g es for the landlord’s br eac h of a c onstruction-re lated duty under
the lease

. ___ S.W .3d
___ (Tex. App.—Houston [1st Dist.] 2010) (mem. op.). We, howeve r, ag reewith the landlord that the c ost of repa ir is the appropr iate measure under the c ircumstance s of this

case

. Be cause under the appropr iate measure there is no evidenc e that the tenant has been damag ed,

we r ever se and r ender

. I

I n Marc h 2001, ECO Resource s, I nc., a provider of water and wastew ater trea tment service s, signe d a lea se ag ree ment with T A/Suga r L and-ECO, L td. ( TASL ) for the construction of a 32,000

square foot office building and labora tory

. Whil e the building was under construction, TASL ag ree d

to sell the proper

ty to Ashford Partners, L td. The Ashford/TASL ear nest money contra ct provided
that the ECO lease would be assig ned to Ashfor d within thirty day s after

it commenced.

ECO’s lease was to beg in when the building was substantially complete and a cer tificate of

occupa ncy issued. The lea se def

ined “substantially completed” to “mean tha t such improvements
have been substantially completed in acc ordanc e with the Plans, subject only to completion of minor punch list i t em s

. ” The tenant was responsible for inspecting the construction and providing the punch list. The lease further provided that: Subject to L essor’s completion of such punch list items, the taking of possession by L esse e s h al l be deeme d to conclusively establish that the buildings and other improvements had been completed in acc ordanc e with the Plans, that the Premises
are in g ood and satisfac tory condi t i o n as of when possession was taken, and that L essee has ac cepte d such buildings a nd other improveme nts. Finally , the lease direc ted the landlord to use rea sonable eff orts to complete the tasks on the tenant’s punch list within t hirty

day s of re ceipt.

On S eptember 28, 2001, ECO acc epted the building as substan t i al l y complete, submi tting an eig ht-pag e punch list of items in need of repa ir to TASL . About this same time, ECO rec eived

2formal notice of the proper ty ’s pending sale in a document entitled “Notice of Assignme nt of L ease
and Estoppel Certifica te.” ECO promptly executed the estoppel cer tificate, as its lease require d, and 1

returne d it a mere t welve day s afte r submitting its punch list to TASL

. Two weeks l ater , Ashford
beca me ECO’s landlord. Four day s afte r that, the deadline for completing ECO’s punch list expired.
At least one r epair

on the punch list, a r equire ment for c aulking betwee n the tilt wall panels under

g rade , had not bee n perf

ormed.

Two y ear s passed, and ECO beg an to have problems with the b u i l d i ng

. Ashford hired

eng ineer s to investiga te, and they deter mined t h at water had collecte d under the foundation. The

cause for this was trac ed to the failure to caulk betwee n the tilt wall panels below g rade , the omitted

repa ir on ECO’s punch list.
Ashford spent over $313,000 to make repa irs and corr ect the problem and then sued the
construction contra ctor that TASL had used on the projec t. Ashford also joined ECO as a defe ndant, seeking a d ec l ar at o ry judgme nt that the building was structura lly sound and that ECO was not
entitled a reduc tion in rent. ECO counter claimed for brea ch of the lease , asser ting that Ashford as

succe ssor landlord assumed the original l essor’s obligations under the lease , including the duty to construct the building acc ording to plans.
Ashford subsequently settled wi t h the construction contra ctor and also dismiss ed its suit

ag ainst ECO. ECO did not abandon its claim, howeve r, and the case proce eded to trial. At this trial, a jury was a sked the following three questions:

T h e l e a s e r e q u i r e d E C O t o e x e c u t e a n e s t o p p e l c e r t i f i c a t e , v e r i f

y i n g t h e l e a s e ’ s v a l i d i t y a n d o t h e r m a t t e r s , 1

w i t h i n t e n d a y s o f t h e l a n d l o r d ’ s r e q u e s t

. 31. Did Ashford fail to comply with the L ease by failing to cause the L ease d Space

to be construc ted pursuant to the Plans?

2. Did Ashford f

ail to comply

with the L ease by

failing to maintain the foundation of the L ease d Space in g ood repa ir?

3. What sum of money , if any , if paid no w i n ca s h wo uld fairly and rea sonably compensa te ECO Resource s for the damag es, if any , that resulted from As hford’ s failure to comply

with the L ease ?
The jury answe red “Ye s” to the first question and “No” to the second, finding Ashford had brea ched

a construction-r elated duty under the lease but not its duty to maintain the foundation in g ood repa ir. 2

I n the third question on damag es, the jury was instructed to b as e i t s aw ard, if any , on the
differ ence “betwe en the rent required under the L ease and the renta l value of the L ease d S p ac e in
its actua l condition.” The jury found t he dim inished value of the lease to be $1,027,704. Adding
interest and attorney ’s fees, the t rial court rende red a total judgme nt of $1,494,462.25 in favor of 3

ECO. Ashford a

ppeale d.
The court of appea ls conclude d that Ashford had assumed a duty to overse e the completion
of the punch list and bore responsibility for the omitted repa ir beca use it was ECO’s landlord when
the punch-list repa irs came due.
___ S.W .3d at ___. The court further found the diminis hed value
of the lease to be an appropr iate measure for Ashford’ s brea ch of this assumed construction-r elated duty

. Id. at ___. The c ourt of appe als ac cording ly aff irmed the trial c ourt’s judg ment.

T h e l e a s e o b l i g a t e d t h e l a n d l o r d t o k e e p t h e b u i l d i n g ’ s f o u n d a t i o n , w a l l s , a n d r o o f i n g o o d r e p a i r

. 2

T h e p a r t i e s s t i p u l a t e d t o $ 4 0 7 , 0 4 6

. 2 0 a s a r e a s o n a b l e a n d n e c e s s a r y a t t o r n e y ’ s f e e i n t h i s c a s e

. 3

4I I

Ashford complains that the j udg ment in ECO’s favor is err oneous bec ause there is neither

ev i d ence that Ashford breac hed any duty under the lease nor t hat EC O s uffe red any damag es as a

conseque nce. Ashford arg ues that it did not brea ch any construction-r el at ed d uty beca use the building’s construction was complete befor e it beca me ECO’s landlord. Even assuming that
construction-r elated duties rema ined to be perf ormed under the lease , Ashford next contends that the assig nment of the lease in conjuncti o n wi t h ECO’s estoppel cer tificate cut off any such duties. Finally , even if the estoppel cer tificate did n o t cut off all rema ining construction-r elated duties,
Ashford maintains there is no evidenc e that ECO suffe red any damag es when the appropr iate

measure of dama g es is applied to its case.

A
Ashford’ s first two arg uments rely primarily on ECO’s estoppel cer tificate, which Ashford
obtained befor e t aking the lease assig nment. Ashford submits that ECO repr esente d in this
document that the building’s construction had been completed to its satisfac tion. As pertinent here , the document recited that ECO was in possession of t he premises, that the 25-y ear lease term had beg un on October

1, 2001, and that:

Tena nt has acc epted the Premises without exception, except for undisclosed defe cts, and all require ments for the commence ment and validity of the L ease , including all construction work, if any , require d of the L andlord under the terms of the L ease have been sa tisfied.

5Be cause ECO “acc ep t ed the Premises without exception, except for undisclosed defe cts” and the

items on its punch list wer e not undisclosed d ef ec t s , As h ford conclude s that it did not assume responsibility

for c ompleting ECO’ s punch list.

ECO responds that Ashford’ s rea ding of the estoppel cer tificate is co ntradicte d by the
document’s ex press disclaimer of any intent t o “i mpair or diminis h any of L andlord’s obligations

to Tena nt under the L ea s e. ” Ashford’ s interpre tation clea rly diminis hes ECO’s rig hts under the
lease

. Moreove r, ECO submits that the estoppel cer tificate is not inconsistent with its rig hts under
the lease beca

use the punch l ist’s completion was not a prer equisite to the commence ment and validity of the lease nor was the landlord in brea ch of its punch-list obliga tions when ECO executed
the document. ECO c ontends that the certifica te’s purpose was merely to fac ilitate the s ale of the

proper ty by confirming the validity of its lease and that the document did not otherwise aff ect its rig hts under the lea se.
Ashford’ s i n t erpr etation of the estoppel cer tificate is indeed difficult to rec oncile with the
document’s disclaimer of any intent to “impair or dimin i s h ” t h e landlord’s obliga tions under the
lease

. But even wer e we to acc ept Ashford’ s interpre tation as a rea sonable alterna tive, it would g ain nothing. I t would merely mean that the document wa s ambig uous, making its ult imate meaning a
fac t question, which the fac t finder has alre ady implicitl y decide d in E C O’ s fa v o r. See J.M.

Da vi d son, Inc. v. W

ebster , 128 S.W .3d 223, 229 (Tex. 2003) (noting that an ag ree ment th at i s susceptible to more than one rea sonable interpre tation “is amb i gu o us, cre ating a fac t issue on the parties’ intent”). Ac cording ly , we r ejec t Ashford’s first two complaints reg arding its construction
duties under the le ase a

nd the ef fec t of the estoppel c ertificate on those duties.

6B

Ashford also complains that the jury instructi o n in Question 3 submitt ed an err oneous

measure of damag es. Ashford arg ues that ECO’s damag es should be m easur ed as in other case s involving construc tion deficienc ies, since it has be en held to have brea ched a construc tion-relate d duty

. A contra ctor who has substantially perf ormed its contra ct, but whose perf ormanc e is defic ient

in some respe ct, i s g ener ally responsible for th e co s t of repair. Simi larly , Ashford argues t hat t he

appro p riate damag es m easur e for a subst antially -complete d building under a buil d-to-suit lease is
the cost to cure a re medial def ect.
The c o u r t o f appea ls, howeve r, disag ree d. Foc using on the basic nature of the landlord-tena nt
rela tionship, it conclude d that the usual measure of dama ges fo r the brea ch of a rea l estate renta l

ag ree ment is “‘the differ ence betwee n the ag ree d renta l and the rea sonable cash marke t value of the
lease hold.’”
___ S.W .3d at ___ (quoting Rainwater v. McG rew , 181 S.W .2d 103, 105-06 (Tex. Civ. App.–Waco 1944, writ ref ’d w.o.m.)). The court rea soned that cost of repa ir would only benef it the

proper ty owner , Ashford, and that the differ ence -in-value measure was there fore nece ssary to

compensa te ECO for its loss. Id.
Under a build-to-suit lease , th e l es s o r we ars two hats, functioning as both the tenant’s
construction contr a c to r a

n d la n d lor d. Under this arr ang ement, the proper ty owner ag ree s to construct

a building to the tenant’s specific ations, and the tenant ag ree s to lease the b u ilding for a term
sufficie nt to permit the owner a prof it. Although Ashford appare ntly intended to assume only the
latter role , the assig nment and estoppe l cer tificate failed to e liminate some linge ring constructionrela ted issues.

7Recog nizi ng that discrepa ncies inevitably arise during construction, the doctrine of
substantial completion g ene ra l l y controls the measure of damag es for failure to make repa irs or complete construction. See W arren v. De nison , 563 S.W .2d 299, 303 (Tex. Civ. App.—Amar illo
1978, no writ) (citing Linch v. Paris Lumber & Grain Elevator Co. , 15 S

. W

. 2 08 (Tex. 1891)).
Substantial completion has been descr ibed as the “leg al equivalent of full compliance less a ny o f fsets
for reme diable defe cts.” Uhlir v. Golden Trian g l e Dev

. Corp. , 763 S.W .2d 512, 515 (Tex. App.—For

t Worth 1988, writ denied)

. Once a construction projec t has be e n s u b s ta n ti a lly completed,
the damag es for err ors or defe cts in construction “is the cost of completing the job or of reme dy ing
those defe cts that are reme diable” without impairing the buildi n g as a wh o l e. Vance v. My Apartment Steak House of San Antonio, Inc ., 677 S.W .2d 480, 482 (Tex. 1984). On the other hand,

a differ ence -in-value measure of damag es may apply when the contra ctor has failed to substantially comply with the contra ct or when repa irs will impair the structure or materia lly damag e it. Turner,
Colli e & Braden, Inc

. v. Brookhollow, Inc. , 642 S.W .2d 160, 164 (Tex. 1982); Hutson v. Chambless , 300 S.W .2d 943, 945 (Tex. 1957)

. Substantial completion, however, implies that the pa rties have
been g iven the object of their contra ct and that any omissions or deviations can be reme died. Turner,
Colli e & Braden , 642 S.W .2d at 164–65.

T h e question then is whether the construction of ECO’s build-to-suit lease was ev er substantially completed. When Ashford assumed owner ship, ECO was alre ady in possession of the premises and had ostensibly acc epted the building as substantially complete. I ts acc eptanc e was, of

course , subject to the exceptions contained in its punch list, but if those exceptions wer e capa ble of

8re p ai r, then that cost would be the appropr iate measure of ECO’s damag e for this constructio n rela ted bre ach.

ECO arg ues, howeve r, that Ashford’ s repa ir eff orts failed to fix the problem—that even afte r

repa irs, the foundation rema ined unstable and continued to heave and fall. I t submits that the jury ’s

awa rd of past and future damag es for the di m i n i s h ed v alue of the lease hold is rec og nition of the

ong oing nature of the se founda tion problems.
The jury , howeve r, did not find Ashford’ s repa irs ineffe ctive. I n fac t, w hen asked w hether
Ashford failed to maintain the foundation in g ood repa ir, the jury answe red, “No”

. Although we

ag ree that Ashford, as ECO’s landlord, had a continuing contra ctual duty to maintain the foundation,
the damag es awa

rded by the jury here are the product o f an err oneous instruction reg arding the

appropr iate mea sure r ather than the re cog nition of the problem’s continuing nature

. ECO also alluded to business disruptions cause d by the foundation problems during oral

arg ument. Such conseque ntial damag es might be rec overa ble in an appropr iate case if cause d by the
brea ch of a construction-r elated duty under a build-to-suit lease

. ECO, howeve r, did not attempt to prove such damag es at trial. I ts theory was inst ead that it did not g et t he buil ding it barg ained for
and that its damag es shoul d there for e b e m ea s u re d by the bui lding it g ot, that is, the di ffe renc e in
value. But this theory presumes that the defe ct could not be reme died. The doctrine of substantial completion, on the other ha nd, presumes tha t deficie ncies c an be r epair ed.
Under the lease , it was substantial completion that trig g ere d ECO’s obliga tion to submit its

pu n c h li s t of reme diable defe cts. Substantial completion likewise entitled ECO to obtain a cer tificate
of occupa

ncy and commence the lease ’s 25-y ear term. The court of ap p ea l s co n cluded that

9Ashford’ s liability rested “exclusively ” on i ts failure to complete a single punch list item on a

substantially completed building and that the diminis hed value of the lease hold was the appropr iate

measure of ECO’s damag es. ___ S.W .3d at ___. We c onclude, howe ver, tha t cost of repa ir is the

appropr iate measure of damag es to reme dy an omitted item on a substantially -complete d building.

Be cause Ashford made these repa irs at no cost to ECO, we further conclude that ECO has suffe red no damag es under

the appr opriate me asure

. I I I

ECO also obtained an awa rd of attorney ’s fee s under Chapter 38 of the Civil Prac t i ce and
Remedies Code. The chapte r perta ins to the rec overy of attorney ’s fee s in brea ch-of -contra ct case s.
I t provides that: “A pe rson may rec over r easona

ble attorne y ’s fe es . .

. in addition to the amount of

a valid claim and costs, if the claim is f or

. . . an oral or written contra ct.” T E X

. C I V

. P R A C

. & R E M

. C O D E § 38.001(8).
Ashford submits that ECO cannot rec over attorney ’s fee s under this statute in the absenc e of

a valid claim or in the absenc e of rec overa ble damag es. I ndeed, we have said that to qualify for fee s
under the statute, a litiga

nt must prevail on a bre ach of contra ct claim and r ecove r dama g es. MBM

Fin. Corp. v. W

oodlands Operating Co. , 292 S.W .3d 660, 666 (Tex. 2009) (citing Mustang Pipeline Co. v. Driver Pipe line Co., 134 S.W .3d 195, 201 (Tex. 2004) (per curia m)). As ECO has not done this, we ag ree that it is not entitled to attorney ’s fe es.
Ashford further arg ues that it should be awa rded the attorney ’s fee s that ECO g ot in the trial

court. The parties stipulated below that $407,046.20 was a rea sonable and nece ssary attorney ’s fee

i n t he case

. I n rende ring judgme nt on the jury ’s verdic t, the trial court incorporated the s t i p u l at ed

1 0amount into ECO’s judgme nt. Be cause we must reve rse ECO’s underly ing judgme nt, Ashford contends that the stipulated a ttorney ’s fe es should now be a war ded to it.
The stipulation, howe v e r , is me r e ly an ag ree ment as to the amount of rea sonable and nece ssary attorney ’s fee s in the case

. I t was not the basis for the awa rd of attorney ’s fe es, nor has Ashford 4

otherwise briefe d its entitlement to such fee s in this case other than to state that it too p ra y ed fo r attorney ’s fees i n the t rial court. As a gene ral rule, litigants i n Tex as ar e responsible for their own
attorney ’s fee s and expenses in litigation. See MBM Fin. Corp. , 292 S.W .3d at 669 (noting the prohibition on fee awa

rds unless specific ally provided by contra ct or statute). Be cause Ashford’ s briefing provides no basis for an exception to the g ener al rule, its reque st for attorney ’s fee s is denied.

* * *
The court of appea ls’ judgme nt is reve rsed and judgme nt is rende red that ECO Resource s, I nc. take nothing

.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ David M. Medina J ustice Opinion delivere d: April 20, 2012

T h e s t i p u l a t i o n c l e a r l y a p p l i e d t o E C O ’ s a t t o r n e y ’ s f e e s

. W h e t h e r i t w a s a l s o i n t e n d e d t o a p p l y t o A s h f o r d ’ s 4

a t t o r n e y ’ s f

e e s i s n o t e n t i r e l y c l e a r s i n c e t h e r e w a s n o b a s i s f o r s u c h a n a w a r d a t t h e t i m e o f t h e s t i p u l a t i o n a n d n o c o n t i n g e n c y e x p r e s s e d f o r a n y f u t u r e e n t i t l e m e n t

.

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