Court Opinion

ID: 3094675
Source: CourtListenerOpinion
Date Created: 2015-10-16 04:23:25.775791+00
Date Added: 2024-06-11T09:44:33.874078
License: Public Domain

COURT OF APPEALS
                                      EIGHTH DISTRICT OF TEXAS
                                           EL PASO, TEXAS

                                                          §
    STR CONSTRUCTORS, LTD. and ARCH                                          No. 08-10-00210-CV
    INSURANCE COMPANY,                                    §
                                                                                Appeal from the
                                   Appellants,            §
                                                                              225th District Court
    v.                                                    §
                                                                           of Bexar County, Texas
    NEWMAN TILE, INC.,                                    §
                                                                            (TC# 2005-CI-04950)
                                   Appellee.              §

                                                  OPINION

         In this breach-of-contract action between STR Constructors, Ltd. (STR), a general

contractor, and Newman Tile, Inc. (NTI), a subcontractor, the trial court rendered judgment for

NTI and against STR and its insurer, Arch Insurance Co (Arch). In six issues, STR and Arch

appeal from the trial court’s judgment, contending that the evidence is legally insufficient to

support the jury’s findings that STR breached the contract and breached it first and to support the

jury’s award of damages, quantum meruit, and attorney’s fees.1 Because we conclude that the

evidence is legally sufficient, we affirm.

                         FACTUAL AND PROCEDURAL BACKGROUND

         STR was hired by the Northeast Independent School District (the district) to renovate one

of its middle schools. One of the spaces to be renovated was the school’s kitchen.2 As the

general contractor, STR solicited bids for the installation of tile in the kitchen. After reviewing

1
 For the sake of convenience and simplicity, we will refer to both Appellants as STR throughout this opinion.
2
 The exact size of the kitchen was never ascertained. However, it was a large space and both parties testified that it
was at least 3,000 square feet. According to Newman, the kitchen was “around 4,000 square feet.” Jim Brown,
STR’s construction manager to the project, estimated that kitchen was 3,500 square feet.
                                                          1
the architectural plans and the specifications book, NTI tendered its bid. As the low bidder, NTI

was awarded the contract.

       Problems arose between STR and NTI during the renovation of the school. According to

Harold B. Newman, owner and president of NTI, “[t]he project was . . . far behind” at the time NTI

was scheduled to begin installing tile in the kitchen. In Newman’s mind, the project was behind

because STR failed not only to adhere to the schedule it had created, but also to design the

schedule properly in the first place. On the other hand, STR blamed the delays on NTI’s failure to

supply a workforce adequate and skilled enough to install the tile properly and in a timely manner.

       Tensions escalated when an issue surfaced concerning epoxy grout. STR maintained that

epoxy grout was required to install the quarry tile in the kitchen and that the specification book

made this clear. Newman disputed STR’s contention and insisted that NTI’s bid excluded epoxy

grout. STR ordered NTI to use epoxy grout. Under protest, NTI ordered the epoxy grout and

used it to install the quarry tile in the kitchen. Claiming that the epoxy grout and the labor

necessary to install it were not within the scope of the contract, NTI submitted a change order to

STR seeking reimbursement. STR never paid the change orders related to the epoxy grout nor did

it pay change orders for work performed by NTI alleged to have been outside the scope of the

contract.

       As a courtesy, the district scheduled a walk-through of the kitchen. At the inspection,

district officials informed Newman and representatives from STR that the kitchen, including its

tile work, would not be accepted. In response, STR ordered NTI to make the necessary repairs,

and to do so quickly. Becoming increasingly dissatisfied with one another’s expectations, the

parties wrote each other several letters outlining their respective positions. The correspondence

                                                 2
between the parties reveal that STR was growing increasingly dissatisfied with the work, or lack

thereof, performed by NTI, so much so that one week after the inspection, STR informed NTI that

STR was terminating the contract. NTI then sued for breach of contract and quantum meruit,

alleging that STR’s mismanagement made it impossible for NTI to perform on the contract.

                             BREACH AND FIRST TO BREACH

       In its first and second issues, STR argues that the evidence is legally insufficient to support

the jury’s findings that STR breached the contract and that STR breached the contract first. We

disagree.

                                        Standard of Review

       To determine whether the evidence is legally sufficient to support the jury’s findings, we

review the entire record, crediting favorable evidence if reasonable jurors could and disregarding

contrary evidence unless reasonable jurors could not. City of Keller v. Wilson, 168 S.W.3d 802,

827 (Tex. 2005). If more than a “scintilla of evidence” exists to support the jury’s findings, it is

legally sufficient. Id. at 822. More than a “scintilla of evidence” exists when the evidence

supporting the finding, as a whole, would enable reasonable and fair-minded people to differ in

their conclusions. Id. As the sole judge of the weight and credibility of the evidence, the jury is

entitled to resolve any conflicts in the evidence and to choose which testimony to believe. Id. at

819. We therefore assume that jurors decided questions of credibility or conflicting evidence in

favor of the verdict if they reasonably could do so. Id. at 819, 820. Accordingly, we do not

substitute our judgment for that of the jurors if the evidence falls within this zone of reasonable

disagreement. City of Keller, 168 S.W.3d at 822.

                                          Applicable Law

                                                  3
           A party breaches a contract when he fails to perform an act that he has expressly or

impliedly promised to perform. Examination Mgmt. Svcs., Inc. v. Kersh Risk Mgmt., Inc., 367
S.W.3d 835, 844 (Tex.App.--Dallas 2012, no pet.). If the breach is material, the other party is

discharged or excused from further performance. Mustang Pipeline Co., Inc. v. Driver Pipeline

Co., Inc., 134 S.W.3d 195, 198 (Tex. 2004). Whether a party’s breach is so material as to render

the contract unenforceable is ordinarily a question of fact to be determined based on several

factors. Id. at 199. Some of these factors significant in determining whether a failure to perform

is material 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; [and]
           (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.

Mustang Pipeline Co., Inc., 134 S.W.3d at 199, citing RESTATEMENT (SECOND) OF

CONTRACTS § 241 (1981).

                                                        Discussion

                                             1. Wrongful Termination

           NTI alleged in its pleadings that STR breached the contract by wrongfully terminating the

contract. The contract permitted STR, at its option, to terminate the contract “[s]hould [NTI] at

any time . . . fail in any respect to prosecute the work covered by this contract with promptness and

diligence, or fail in the performance of any of the agreements herein contained . . . .”3 [Emphasis

3
    In its entirety, the paragraph in question reads:
                                                            4
added]. One of the agreements contained in the contract required NTI to “furnish and pay for all

labor, services and materials and perform all of the work necessary or incidentally required for the

completion of that part of the work covered by the Contract Documents . . . .”

       On appeal, STR argues that it properly exercised its right to terminate the contract because

“NTI alone breached the contract and [NTI] breached first by performing” work so defective that it

was rejected completely by the owner and architect following their inspection of the kitchen.

Accordingly, STR maintains that terminating the contract was not wrongful, but in accord with the

contract “and [that] [its actions] therefore could not constitute a breach, much less a first breach.”

STR thus asserts that the terms of the contract and the rejection of NTI’s tile work by the owner

and architect “conclusively establish that [its] termination of NTI was not a breach of the

[contract].” In essence, STR contends that it was excused in terminating the contract because the

rejection of NTI’s tile work proved that NTI alone breached the contract by failing to prosecute the

work with promptness and diligence and to perform all of the work necessary to complete the

kitchen.

       The evidence adduced at trial was legally sufficient for the jury to conclude that STR

materially breached the contract and did so first by terminating it without cause. Newman

testified that when NTI was scheduled to begin installing tile in the kitchen, “[t]he project was very

far behind.” Steven Latimer, the architect serving as the district’s representative to the project,

acknowledged that the project fell behind schedule and remained so before the tile work began in

       Should Subcontractor at any time refuse or neglect to supply a sufficient number of properly
       qualified workmen or a sufficient quantity of materials of proper quality, or abandon the work or fail
       in any respect to prosecute the work covered by this contract with promptness and diligence, or fail
       in the performance of any of the agreements herein contained, Contractor may, at its option, after
       forty-eight (48) hours notice to Subcontractor, provide any such labor and materials and deduct the
       cost thereof from any money then due or thereafter to become due to Subcontractor under this
       contract or otherwise; or Contractor may, at its option, terminate this contract . . . .”
                                                         5
the kitchen. According to Bill Frost, the construction manager for the district, the project was

behind schedule and he attributed the delay to STR. Newman also testified that STR failed to

adhere to the schedule that it had created to get the project back on track and to schedule the work

in the kitchen properly to ensure its timely completion, causing further delays in the installation of

the tile. According to Newman, the kitchen floor was not prepared for the tile installation at the

scheduled time because STR improperly scheduled different trades to work in the kitchen while

NTI was attempting to set the tile. As a result, NTI had to redo its work constantly because STR

permitted its employees and employees of other subcontractors to walk over and damage the

newly-installed tile. Ray Banks, one of the tile setters employed by NTI, testified as to his and his

coworker’s frustrations in having to constantly redo tile and grout work because other tradesmen

were walking on the floor before it had cured. Indeed, Banks testified that when he returned to get

his tools immediately after NTI had been terminated, he noticed that the work NTI had done the

previous day had been trampled.

       This testimony constitutes more than a scintilla of evidence that STR’s behavior not only

failed to comport with standards of good faith and fair dealing, but also played a significant role in

creating the situation that STR now argues justified its termination of the contract – a kitchen that

did not meet the standards required by the architect and the district.

       Newman furthermore testified that, within one month of starting work in the kitchen, NTI

had completed a lot of it by “working and working and working” and “fighting [its] way through

the kitchen, getting it done, getting it down, working.” According to Banks, “pretty much” all of

“the tile work and grout work in [the] kitchen had been laid” when STR terminated the contract in

mid-January 2005. Frost likewise testified that the kitchen floor was substantially complete when

                                                  6
he inspected on behalf of the district. Newman testified that although he submitted four pay

applications to STR seeking approximately $40,000 as payment for the work NTI had done on the

project pursuant to the contract, STR only paid two of the applications, both for work NTI had

completed before beginning in the kitchen. He stated that STR owed NTI approximately $20,000

under the contract. This testimony constitutes more than a scintilla of evidence that NTI was

deprived of at least half of the money it was owed under the contract; a sum NTI had a reasonable

expectation of receiving since it had submitted the applications seeking payment and performed

the work supporting the applications. Likewise, this testimony also constitutes more than a

scintilla of evidence that STR would not suffer forfeiture, i.e., an unreasonable loss, because NTI

completed the work for which STR had bargained and that, given the circumstances, it was

unlikely that STR would pay NTI and thereby cure STR’s termination of NTI.

                                       2. Failure to Pay

       NTI also alleged that STR breached the contract by failing to pay NTI for the work it

performed. The provision in the contract governing payment reads:

       On the twenty fifth day of each month Subcontractor shall present to Contractor a
       statement of the work done during the preceding month, which statement, when
       checked and approved by contractor, will be paid within five (5) days after receipt
       of payment from Owner, providing progress of the work and payments for labor
       used and material purchased by Subcontractor have been satisfactory; provided that
       Contractor may, at it’s option on each payment, retain 10%, or the percentage
       specified in the Contract Documents, of each estimate until final payment, which
       shall be made after completion of the work covered by this contract and written
       acceptance thereof by the Architect, and full payment thereof by Owner, provided
       Subcontractor has furnished evidence, if requested, that all claims for labor and
       materials have been paid, and provided further that Subcontractor has complied
       with all the provisions of this contract. It is understood that receipt of payment by
       Contractor from owner is a condition precedent to contractor’s obligation to pay
       subcontractor for work performed.

On appeal, STR argues that pursuant to the contract, “the evidence conclusively establishes that

                                                 7
[its] obligation to pay never arose” because the district’s refusal to pay STR for the rejected tile

work relieved it from having to pay NTI. STR also contends that it had no obligation to pay NTI

for the rejected work because NTI failed to comply with several contractual provisions, some of

which were conditions precedent and others express covenants, governing the documentation NTI

was required to submit in support of requests for payment. In particular, STR complains that NTI

did not submit, as required, certified payment and payroll affidavits, itemized schedules of the

work NTI had completed, and change orders signed by STR.

       The evidence presented was legally sufficient for the jury to conclude that STR materially

breached the contract and did so first by failing to pay what it owed NTI before terminating the

contract. As noted above, STR argues that it did not have an obligation to pay NTI because “[it]

did not receive payment for NTI’s work on the kitchen tile, which is what pay applications #3 and

#4 covered.” It is clear that, pursuant to the contract, payment from STR to NTI was conditioned

on payment from the district to STR. It is also clear that the district did not pay STR for the tile

work NTI completed. However, the evidence establishes that STR paid two of the payment

applications submitted by NTI during the course of the project. More importantly, there was no

evidence adduced at trial that the district had paid STR for any of the work STR’s subcontractors

had performed up to the point that the district refused to pay STR for NTI’s tile work in the

kitchen. The only evidence regarding any type of payment STR received from the district was

Kennedy’s and Frost’s testimony that the district eventually paid STR for the kitchen and for entire

project, including an additional amount for extra work STR did at the district’s behest. There is

simply no evidence that, when STR paid NTI, it did so because it had been paid by the district for

that work. Because STR had not been paid by the district, STR’s partial payments to NTI were

                                                  8
not conditioned on payment to STR by the district. Accordingly, the jury could have reasonably

concluded that STR abandoned this contractual provision and that STR’s abandonment constituted

a waiver of the provision’s application under the contract. See Landmark Organization, L.P. v.

Delphini Const. Co., No. 13-04-371-CV, 2005 WL 2560022, *4 (Tex.App.--Corpus Christi Oct.

13, 2005, pet. denied)(mem. op.)(rejecting contractor’s argument that, until it received payment in

full from the owner, the “pay when paid” clause in the contract with its subcontractor prevented it

from paying interest to the subcontractor because contractor abandoned, and therefore waived the

clause by sending several payments to subcontractor throughout the course of the construction

project despite not having been paid by the owner when it did so).

       As noted above, STR also argues that because NTI did not comply with the contractual

obligations to submit certified payment and payroll affidavits, itemized schedules of completed

work, and change orders signed by STR, it had no obligation to pay NTI for the work rejected by

the district. However, as with the “paid-if-paid” clause discussed above, STR waived these

contractual conditions by failing to insist on their adherence. Ordinarily a fact question, waiver is

the intentional relinquishment of a known right or intentional conduct inconsistent with claiming

the right and may be satisfied by showing such conduct. Tenneco, Inc. v. Enter. Prod. Co., 925
S.W.2d 640, 643 (Tex. 1996); Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex.

1987). Here, as noted above, STR paid two of the payment applications submitted by NTI. STR

did so despite the fact that neither payment application had supporting documentation attached to

it, including certified payment and payroll affidavits and itemized schedules of completed work.

As for the five change orders, it is accurate that none was signed by STR. However, this was

immaterial given that STR did not intend to pay any of them, as testified by Kennedy and Brown.

                                                 9
In light of the foregoing, more than a scintilla of evidence existed permitting the jury to conclude

that STR waived performance of the contractual provisions on which it now relies.

       STR’s first and second issues are overruled.

                                            DAMAGES

       In its third issue, STR argues that the jury’s award of contract damages must be reversed

because NTI’s failure to plead and obtain a jury finding on whether it substantially performed

under the contract precludes it from collecting damages. We disagree.

                                           Applicable Law

       Ordinarily, a party cannot recover damages if it breaches a contract. Dobbins v. Redden,

785 S.W.2d 377, 378 (Tex. 1990). However, under the doctrine of substantial performance, a

breaching party may recover damages if it has substantially complied with its contractual

obligations. Tips v. Hartland Developers, Inc., 961 S.W.2d 618, 623 (Tex.App.--San Antonio

1998, no pet.). To recover damages under this doctrine, a breaching party must ordinarily obtain

a finding that it substantially performed. Vance v. My Apartment Steak House of San Antonio,

Inc., 677 S.W.2d 480, 481 (Tex. 1984). A breaching party, however, need not obtain a finding

that it substantially performed in a case in which both parties breach and the jury, after being

instructed to decide which party breached first, finds that the other party did and that its breach was

unexcused. Tips, 961 S.W.2d at 623; see also Fuentes v. San Anastacio Dev. Ltd., No.

13-08-00743-CV, 2010 WL 2967158, at *2-3 (Tex.App.--Corpus Christi July 29, 2010, no

pet.)(mem. op.)(holding that because jury found that defendant committed first material breach,

plaintiff did not have to obtain jury finding on its substantial performance); Irving Flood Control

Dist. v. Calgary Inc., No. 05-01-01462-CV, 2002 WL 1495017, at *1-2 (Tex.App.--Dallas July 15,

                                                  10
2002, no pet.)(not designated for publication)(“The trial court’s determination that the [defendant]

breached the contract first renders whether [the plaintiff] substantially performed immaterial.”).

                                            Discussion

       The same situation identified above exists in this case, thus excusing NTI from having to

obtain a jury finding on substantial performance. The jury found that: (1) both STR and NTI

materially breached the contract; (2) STR was the first party to breach; and (3) STR’s breach was

unexcused. The jury’s finding that STR was the first party to breach and that its breach was

unexcused relieved NTI from further performance. See Mustang Pipeline Co. Inc., 134 S.W.3d at

196 (stating that when one party commits a material breach of that contract, the other party is

discharged or excused from further performance). Thus, whether NTI substantially performed is

irrelevant. Accordingly, NTI is not precluded from recovering damages by failing to obtain a jury

finding on substantial performance, and the trial court did not err by awarding the damages found

by the jury. See Tips, 961 S.W.2d at 623; Fuentes, 2010 WL 2967158, at *2-3; Irvin Flood

Control Dist., 2002 WL 1495017, at *1-2. STR’s third issue is overruled.

                                     QUANTUM MERUIT

       In its fourth issue, STR argues that the evidence is legally insufficient to support recovery

under quantum meruit. STR asserts that, as a matter of law, recovery in quantum meruit is

unavailable “where there is an express contract provision covering the services rendered -- such

rule applying equally to construction cases.” According to STR, the express contract between it

and NTI covered the additional services performed by NTI, and therefore, NTI cannot recover in

quantum meruit. We disagree.

                                         Applicable Law

                                                11
       As a general rule, a plaintiff seeking “to recover the reasonable value of services rendered

or materials supplied will be permitted to recover in quantum meruit only when there is no express

contract covering those services or materials.” Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988)

[Emphasis added]. “There are instances when recovery in quantum meruit is permitted despite

the existence of an express contract that covers the subject matter of the claim.” Id. [Emphasis

added]. In a dispute involving a contract case, such as the one here, a breaching plaintiff may

recover in quantum meruit for the reasonable value of services less any damages suffered by the

defendant. Id. at 937. “Central to the contractor’s right to recover in quantum meruit is the

owner’s acceptance and retention of the benefits arising as a direct result of the contractor’s partial

performance.” Id. [Emphasis added].

                                              Discussion

       The evidence was legally sufficient to permit NTI to recover in quantum meruit. In the

section of its brief discussing this issue, STR focuses exclusively on its argument that NTI cannot

recover in quantum meruit because the basis for recovery on that ground – work reflected in the

five change orders submitted by NTI – was within the scope of work encompassed by the contract.

However, even if STR is correct in its assertion, NTI was nonetheless permitted to recover in

quantum meruit if it showed that its efforts were undertaken for STR and that STR retained a

tangible product of value. See Truly, 744 S.W.2d at 937. More than a scintilla of evidence

existed permitting the jury to so conclude.

               First, as reflected in the five change orders submitted by NTI, it is indisputable that

NTI provided labor and materials for STR’s direct benefit. In Change Order Number One, NTI

requested $544 for materials and labor used to install an additional mortar bed on the kitchen floor,

                                                  12
additional work for which STR on its own created a change order. NTI asked for approximately

$301in Change Order Number Two for purchasing and installing, at STR’s behest, blue bullnose

tile as finishing trim on a tile wall. In Change Order Number Three, NTI sought $14,615 for

materials and labor used in installing epoxy grout and additional tile.4 As with Change Order

Number Two, Change Order Number Three encompasses work performed at STR’s bidding.

NTI solicited $2,500 in Change Order Number Four for a restocking fee levied for returning

smooth tile that, according to Newman, was chosen initially by Latimer but was rendered useless

when Latimer changed his mind and opted instead for abrasive tile. As reflected in Change Order

Number Five, NTI sought $6,500 for working on weekends and overtime. Newman testified that

NTI was entitled to this money because NTI’s crews worked these additional hours based on

STR’s policy of requiring subcontractor to perform first and bill later. Brown corroborated that

this was STR’s policy.

        Second, it is also indisputable that STR retained a tangible product of value. As noted

above, NTI installed blue bullnose tile on a wall and additional tile on the kitchen floor at STR’s

request and STR was prepared to pay for the material and labor NTI used in installing an additional

mortar bed in the kitchen. As for the mistakenly-ordered smooth tile, the jury could have

reasonably concluded that STR received a tangible benefit when NTI returned it for otherwise the

tile would have gone to waste. The same could be said of the labor costs associated with working

overtime and on weekends. The jury could have reasonably concluded that STR received a

tangible benefit in light of STR’s policy requiring subcontractors to do whatever was necessary to

4
  The jury awarded NTI $8,451.11 in quantum meruit. In its brief, NTI concedes that, “[c]learly, the jury did not
consider the total price for the labor and materials in installing epoxy grout to be part of [NTI’s] quantum meruit
damages.” Of the sought $14,615 by NTI in Change Order Number Three, $13,695 was attributable to NTI’s
purchase and installation of epoxy grout. The remaining $920 was attributable to NTI’s purchase and installation of
the additional tile.
                                                        13
get the work done and STR’s delays in completing the project.

       Equity also supports recovery in quantum meruit in this case. “To justify a recovery in

quantum meruit, the plaintiff must . . . show that the defendant has been unjustly enriched and the

plaintiff would be unjustly penalized if the defendant were permitted to retain the benefits of the

partial performance without paying anything in return.” Truly, 744 S.W.2d at 938 [Emphasis

added]. As calculated by the jury, NTI rendered uncompensated services worth approximately

$33,000 to benefit STR, a general contractor who received more than $5,200,000 from the district.

Although NTI breached the contract, so too did STR and STR did so first by terminating the

contract and failing to pay NTI for its work, almost all of which was completed and which

remained in place after NTI was terminated. STR now seeks to escape liability on a contract it

drafted by claiming that its behavior should be ignored because a strict construction of the contract

imposes no liability on it. STR, “by [its] course of conduct, has violated the reasonable

expectations and values that permeate business transactions.” Id. Accordingly, we conclude

that recover in quantum meruit was permissible.

       STR’s fourth issue is overruled.

                                      ATTORNEY’S FEES

       In its fifth and sixth issues, STR challenges the award of attorney’s fees. STR first

contends that, as a matter of law, NTI was not entitled to attorney’s fees pursuant to Chapter 38 of

the Civil Practice and Remedies Code because there was no evidence to support an award of

damages on NTI’s breach-of-contract and quantum merit claims.         We disagree. Chapter 38

permits recovery of attorney’s fees in a breach-of-contract case if the litigant prevails and recovers

damages. See TEX.CIV.PRAC.&REM.CODE ANN. § 38.001 (West 2008); MBM Financial

                                                 14
Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 666 (Tex. 2009). As established

above, the evidence is legally sufficient to support the jury’s finding that NTI prevailed on its

breach-of-contract claim because STR breached the contract and did so first and to support its

award of damages based on that finding.

       In the alternative, STR argues, and NTI concedes, that if we reduce NTI’s damages award,

we must remand NTI’s attorney’s fees for recalculation. Because we have not reduced NTI’s

damages award, there is no need for us to address the issue.

       STR’s fifth and sixth issues are overruled.

                                         CONCLUSION

       Having overruled each of STR’s six issues, we affirm the trial court’s judgment.

February 20, 2013
                                              GUADALUPE RIVERA, Justice

Before McClure, C.J., Rivera, and Antcliff, JJ.
Antcliff, J. (Not Participating)

                                                  15