Court Opinion

ID: 6103948
Source: CourtListenerOpinion
Date Created: 2022-01-17 08:11:55.200443+00
Date Added: 2024-06-11T08:53:41.728304
License: Public Domain

Supreme Court of Texas
                           ══════════
                            No. 20-0396
                           ══════════

     Signature Industrial Services, LLC and Jeffry Ogden,
                             Petitioners,

                                  v.

                  International Paper Company,
                             Respondent

   ═══════════════════════════════════════
               On Petition for Review from the
     Court of Appeals for the Thirteenth District of Texas
   ═══════════════════════════════════════

                    Argued September 16, 2021

      JUSTICE BLACKLOCK delivered the opinion of the Court.

       Justice Huddle and Justice Young did not participate in the
decision.

      The principal question in this breach-of-contract case is how to
measure consequential damages.         A jury found that the defendant
breached by failing to pay $2.4 million as promised. The jury awarded
the $2.4 million as direct damages, but it also added more than twenty
times that amount in consequential damages. The plaintiff’s primary
theory of consequential damages was that the defendant’s failure to pay
the $2.4 million caused the abandonment of a deal in which the plaintiff
company would have been sold for $42 million.             According to the
plaintiff, its “company value” on the open market declined to zero after
the breach. The court of appeals rejected this basis for consequential
damages. 628 S.W.3d 541, 578 (Tex. App.—Corpus Christi–Edinburg
2020).      It nevertheless accepted another theory under which a
precipitous decline in the plaintiff company’s “book value” following the
breach authorized consequential damages of $12.4 million. Id. at 579.
         In this Court, the plaintiff seeks reinstatement of the jury’s award
of $56.3 million in consequential damages, while the defendant argues
that none of the proffered theories of consequential damages is valid.
The parties also dispute the direct damages. Texas law requires that
consequential damages be both (1) foreseeable at the time of contracting,
and (2) calculable with reasonable certainty. Phillips v. Carlton Energy
Grp., LLC, 475 S.W.3d 265, 279 (Tex. 2015); Stuart v. Bayless, 964
S.W.2d 920, 921 (Tex. 1998).        Applying these bedrock principles of
contract law, we conclude that neither the jury’s award of $56.3 million
nor the court of appeals’ reduced allowance of $12.4 million can stand.
A catastrophic decline in the plaintiff company’s overall market value
was not, at the time of contracting, a consequence of breach foreseeable
to the defendant. Nor was a decline in the accounting measure of the
plaintiff company’s “book value” a reasonably certain way to measure its
damages.
         Because legally insufficient evidence supported the award of
consequential damages and the plaintiff advances no valid theory of
consequential damages in this Court, we render judgment against the
plaintiff on that point. As for the direct damages, we affirm a portion of

                                      2
the award.    We also affirm the court of appeals’ rejection of the
defendant’s indemnification claim and its rendition of judgment against
co-plaintiff Jeffry Ogden.     The judgment of the court of appeals is
reversed in part and affirmed in part. Judgment is rendered consistent
with this opinion, and the case is remanded to the district court for any
further proceedings that may be necessary.
                          I.      Background
      Founded in 2010, Signature Industrial Services, LLC (SIS)
performed maintenance, construction, and other tasks for International
Paper Company (IP) and other industrial clients. SIS and IP contracted
in March 2014 for SIS to upgrade a slaker—a large vessel that recycles
chemicals used to make paper—at IP’s mill in Orange, Texas. The
initial agreement obligated IP to pay just over $775,000. Other costs
could be billed to IP as they arose.
      Following a series of delays and disputes, including a chemical
spill that prevented work on the slaker, the cost of the project exceeded
initial expectations. IP instructed SIS that it could complete the work
and bill IP at the end. After SIS finished the work, the parties disputed
the amount IP owed. IP thought its previous payment of $1.1 million
would suffice, but SIS wanted another $2.4 million. The parties failed
to reach an agreement.
      SIS sued IP, alleging fraud and breach of contract.          After
litigation began, SIS submitted two invoices intended to cover the
remaining $2.4 million it believed it was owed. Jeffry Ogden, SIS’s
President, intervened as a plaintiff in his personal capacity, raising
essentially the same fraud and breach-of-contract claims as SIS.

                                       3
      Meanwhile, SIS had planned to be acquired by a third party,
Primoris Services Corporation. Before litigation began, SIS received an
offer from Primoris of $42 million. The negotiations were confidential.
After IP refused to pay the amount SIS demanded, the negotiations
between SIS and Primoris foundered. Facing a cash-flow crunch, SIS
failed to fully pay its federal payroll tax, for which the IRS imposed
penalties. The penalties led to more debt, and SIS then began to lose
customers. Ogden, who had personally guaranteed much of SIS’s debt,
faced mounting financial difficulty. The company all but collapsed. The
contract for work on the slaker was worth, at most, $3.5 million. SIS
sued IP for $56.3 million.
      Primoris made another offer to buy SIS after the lawsuit began.
The offer price remained $42 million, though with less cash up front.
SIS declined the offer. It later turned down two more offers, both for
around $10 million.
      At trial, an SIS expert witness testified about the company’s lost
value. The expert’s testimony consisted of three components: the lost
Primoris offer, the company’s lost book value, and the tax penalties SIS
incurred after its IRS trouble began. First, the expert calculated $42
million in damage to the company because, in his view, the $42 million
Primoris offer was lost due to the breach. Second, he demonstrated that
SIS’s “book value” dropped by $12.4 million after the breach. He did this
by looking at balance sheets from before and after the breach and
subtracting SIS’s liabilities from its assets to arrive at a bottom-line
measure of its pre- and post-breach book value. He attributed the drop
in book value to IP’s non-payment, but he did not specifically analyze

                                   4
any particular devalued asset or increased liability. Other witnesses
testified that SIS lost contracting opportunities because of its precarious
financial situation, which rendered the company’s value “less than zero”
by the time of trial. Finally, the expert opined that IP was responsible
for $1.9 million in penalties incurred by SIS for non-payment of payroll
taxes. The expert added the three figures—$42 million, $12.4 million,
and $1.9 million—to arrive at a total damages figure of $56.3 million.
      On SIS’s breach-of-contract claim, the jury awarded the $56.3
million recommended by SIS’s expert for “[d]amages to [SIS]’s company
value.” It also awarded $2.4 million in direct damages.          The jury
awarded identical amounts to SIS on its fraud claim. As for Ogden, the
jury awarded a total of $4.2 million in breach-of-contract damages. It
also awarded $63 million for mental anguish to Ogden on his fraud
claim. All told, the jury awarded over $125 million due to IP’s failure to
pay $2.4 million.     The district court rendered judgment for both
plaintiffs on both the breach-of-contract and fraud claims.
      The court of appeals reversed the district court’s judgment as to
all the fraud claims. As for SIS’s breach-of-contract claim, the court of
appeals reduced the consequential damages award from $56.3 million to
$12.4 million, excising the damages for the lost $42 million sale and for
SIS’s tax penalties. The court of appeals upheld the $2.4 million in
direct damages to SIS and $12.4 million in consequential damages for
lost book value.      It rendered judgment against Ogden on his
breach-of-contract claim because it found he was not authorized to sue
in his individual capacity for breach of a contract between SIS and IP.
The court of appeals rejected IP’s claim that SIS was contractually

                                    5
bound to indemnify IP for its defense of Ogden’s claims. 628 S.W.3d at
580.
       All three parties petitioned for review in this Court. Neither SIS
nor Ogden attempts to revive its fraud claim. SIS seeks reinstatement
of $42 million in consequential damages, which it calculates based on
the amount of Primoris’s offer. IP argues that none of the consequential
damages can stand, including the $12.4 million allowed by the court of
appeals. IP also challenges the award of direct damages and contends
that SIS is contractually obligated to indemnify IP for expenses incurred
defending against Ogden’s suit.      Ogden seeks reinstatement of his
breach-of-contract recovery. We address each of these issues in turn.
                   II.    Consequential Damages
       At issue are two proffered methods of calculating SIS’s
consequential damages. First is the decline in the company’s market
value from the $42 million offered by Primoris to the “less than zero”
value proffered at trial. Second is the $12.4 million decline in book value
testified to by SIS’s expert and upheld by the court of appeals. SIS asks
this Court to reinstate the former, while IP contends that neither can
stand. As explained below, we agree with IP.
                         A.    Legal Standards
       Damages for breach of contract may include both direct and
consequential damages. Dallas/Fort Worth Int’l Airport Bd. v. Vizant
Techs., LLC, 576 S.W.3d 362, 373 (Tex. 2019). Direct damages often
include restoration of “the benefit of a plaintiff’s bargain.” Quigley v.
Bennett, 227 S.W.3d 51, 56 (Tex. 2007) (Brister, J., concurring).
Consequential damages, on the other hand, compensate the plaintiff for

                                    6
foreseeable losses that were caused by the breach but were not a
necessary consequence of it. Stuart v. Bayless, 964 S.W.2d 920, 921
(Tex. 1998). 1
       From at least the time of Hadley v. Baxendale, 9 Exch. 341, 156
Eng. Rep. 145 (1854), the widely recognized rule has been that
consequential damages “are not recoverable unless the parties
contemplated at the time they made the contract that such damages
would be a probable result of the breach.” Stuart, 964 S.W.2d at 921.
We call this requirement “foreseeability.” Basic Cap. Mgmt., Inc. v.
Dynex Com., Inc., 348 S.W.3d 894, 901 (Tex. 2011). A foreseeable loss
may either follow predictably from the breach “in the ordinary course of
events” or arise from “special circumstances” that the party in breach
“had reason to know.” Id. at 902. A loss that is not the “probable”
consequence of the breach, from the breaching party’s perspective at the
time of contracting, is not foreseeable. Mead v. Johnson Grp., Inc., 615
S.W.2d 685, 687 (Tex. 1981); see also 24 RICHARD A. LORD, WILLISTON ON
CONTRACTS § 64:17 (4th ed.) (“Consequential damages include those
damages that were reasonably foreseeable or contemplated by the
parties at the time the contract was entered into as the probable result
of a breach.”).

       1  See also W. Union Tel. Co. v. McKinney, 2 Willison 562, 566 (Tex. Ct.
App. 1885) (“Ordinarily, such damages would not result from the breach of
such a contract, and cannot, therefore, be said to be direct, natural and
proximate; but are special and consequential, and such as are recoverable only
where the party breaching the contract had notice, when he made the contract,
of the facts which would render such damages reasonably probable in the event
of a breach.”).

                                      7
         Apart from foreseeability, consequential damages must also be
“proved with reasonable certainty.” Phillips v. Carlton Energy Grp.,
LLC, 475 S.W.3d 265, 278 (Tex. 2015). “Proof need not be exact, but
neither can it be speculative.” Id. The losses must be “susceptible of
being established by proof to that degree of certainty which the law
demands.” Sw. Battery Corp. v. Owen, 115 S.W.2d 1097, 1099 (Tex.
1938).     If a loss was “too remote and depended upon too many
contingencies, and was too speculative in its character to have
authorized its reception as evidence of any specific and certain loss,”
Hope v. Alley, 9 Tex. 394, 395 (1853), then it cannot be recovered. The
reasonable-certainty rule acknowledges the limited competence of
courts to track the complex effects of a breach of contract in an
interdependent marketplace. Parties must prove damages such that
courts and juries can discern the extent of the losses actually caused by
the breach, rather than by other factors. Thus, we have called on parties
to provide “objective facts, figures, or data” to show their lost profits and
other consequential damages. Phillips, 475 S.W.3d at 279.
         “The proper measure of damages is a question of law,” which we
review de novo. Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141 (Tex.
App.—Houston [14th Dist.] 1999, pet. denied); Int’l-Great N.R. Co. v.
Casey, 46 S.W.2d 669, 671 (Tex. Comm’n App. 1932, holding approved).
If the legal theories underlying the damages awarded do not conform to
the law governing damages, we may reverse the award as a matter of
law. Whiteside v. Trentman, 170 S.W.2d 195, 196 (Tex. 1943).
         We may also reverse an award if the evidence of damages was
legally insufficient. “In evaluating legal sufficiency, we are required to

                                     8
determine whether the proffered evidence as a whole rises to a level that
would enable reasonable and fair-minded people to differ in their
conclusions.” Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 25 (Tex. 1994).
We “view the evidence in the light favorable to the verdict, 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, 807 (Tex. 2005).
      B.     Damages for the Company’s Lost Market Value
      Prior to the breach, SIS confidentially negotiated its sale to
Primoris for $42 million. It is undisputed that IP knew nothing about
the pending sale to Primoris when it agreed to the slaker contract. As a
result, the loss of the deal cannot have been a foreseeable consequence
of the breach. This is so even if SIS could show that the breach caused
the deal to collapse. Foreseeability is an independent element of any
claim for consequential damages. Basic Cap., 348 S.W.3d at 901. Even
if caused by the breach, damages are not recoverable if they were not
within the breaching party’s reasonable contemplation at the time of
contracting. Stuart, 964 S.W.2d at 921. Because of IP’s undisputed lack
of awareness of the Primoris deal at the time of contracting, the court of
appeals rejected the lost $42 million sale as a basis for consequential
damages. 628 S.W.3d at 578.
      In this Court, SIS acknowledges that the loss of the Primoris sale
was not itself foreseeable to IP. SIS instead defends the $42 million
award as a measurement of lost “company value” rather than as

                                    9
damages for loss of the Primoris deal. 2 SIS contends the jury measured
its lost “company value” as the difference between the price offered by
Primoris ($42 million) and the company’s market value at the time of
trial (“less than zero,” according to witnesses). After framing the award
in this way, SIS asks us to assess whether the decline in the company’s
market value—not loss of the sale itself—was a foreseeable consequence
of the breach. As explained below, we conclude that it was not.
       To begin with, the court of appeals was justified in rejecting SIS’s
argument that the $42 million lost Primoris sale is sufficient evidence
of a decline in company value of $42 million or more. This is so for
several reasons.     First, the jury awarded the entire amount of the
Primoris offer (and more), not the difference between the highest offer
and subsequent, post-breach offers. A company does not lose all its
value by forfeiting one sale opportunity, particularly when the record
reflects later offers. Second, treating the $42 million as reflecting a
decline in the company’s market value would render duplicative the
$12.4 million in lost book value, which the jury awarded on top of the
$42 million. Third, SIS cannot use the $42 million sale price to estimate
its pre-breach value and then use expert testimony on book value to
estimate its post-breach value. Market value and book value are not
interchangeable measures. 3

       2 The jury charge instructed the jury to measure “damages to
Signature’s company value that were the natural and probable consequence of
the failure to comply and that were foreseeable when the agreement was
made.”
       3City of Harlingen v. Est. of Sharboneau, 48 S.W.3d 177, 187 (Tex. 2001)
(Baker, J., concurring in the judgment) (“Market value is the price the property
would bring ‘when it is offered for sale by one who desires, but is not obligated

                                       10
       SIS nevertheless asks us to consider the entire consequential
damages award of $56.3 million as reflecting a decline in its market
value and to view the lost Primoris sale merely as some evidence of that
value. This way of understanding the jury’s award is consistent with
the jury charge, which instructed the jury to award “damages to
Signature’s company value that were the natural and probable
consequence of the failure to comply and that were foreseeable when the
agreement was made.”           Even assessing the award on those terms,
however, the damages awarded cannot stand because they were not
“foreseeable when the agreement was made.”
       Again, “[f]oreseeability is a fundamental prerequisite to the
recovery of consequential damages for breach of contract.” Basic Cap.,
348 S.W.3d at 901. To establish the foreseeability of the damages it
seeks, SIS must prove that IP “contemplated at the time” it agreed to
the slaker contract that a catastrophic collapse in SIS’s market value far
outpacing the $2.4 million IP refused to pay “would be a probable result
of the breach.”      Stuart, 964 S.W.2d at 921; see also RESTATEMENT
(SECOND) OF CONTRACTS § 351. It has not done so.

to sell, and is bought by one who is under no necessity of buying it.’”) (quoting
State v. Windham, 837 S.W.2d 73, 77 (Tex. 1992)); JEFFREY J. HAAS,
CORPORATE FINANCE 74 (2d ed. 2021) (“Book value (BV) is the simplest
valuation method because it is derived directly from the numbers on the
company’s balance sheet. The book value of a company on any given date is
simply the value of its total assets (TA) less the value of its total liabilities (TL),
both as reported on the balance sheet on that date. In other words, book value
is the amount of the company’s assets that would be left after the company’s
creditors are paid off in full. Thus, book value is also known as ‘shareholders’
equity.’”); see id. at 24 (noting that the balance sheet approach “is limited”
because it “requires the omission of the current fair values of most assets and
liabilities”).

                                          11
       SIS attempts to show its collapse was foreseeable to IP by
demonstrating that IP knew SIS needed payments on the slaker
contract to fund future business opportunities.         SIS relies on our
decision in Basic Capital, in which we held that damages for lost
business opportunities were foreseeable on the facts of that case. Basic
Cap., 348 S.W.3d at 903. In Basic Capital, the contract was for loans to
fund specific capital investments by the plaintiff. The nature of the
contract thus made it clear that withholding payment would impair the
plaintiff’s anticipated investments. Id. We concluded that the plaintiff
need not prove that the details of each lost real estate venture were
known to the defendant at the time of contracting.             Because the
defendant “clearly knew how the [money] would be used,” the plaintiff
did not need to establish that the particulars of each lost opportunity
were known to the defendant at the time of contracting in order for the
lost profits predictably flowing from the breach to be recovered as
consequential damages. Id.
       Unlike in Basic Capital, however, SIS does not seek compensation
for the loss of specific business opportunities. Recovery of the lost profits
flowing from lost business opportunities, as in Basic Capital, has long
been recognized as a valid theory of consequential damages. Phillips,
475 S.W.3d at 278–79 (detailing the standards governing awards of lost
profits).   Instead of travelling the well-worn path—calculating the
profits it would have made from the business it lost due to IP’s breach—
SIS pursued a novel damages model premised on a decline in the
company’s overall market value as an asset. But SIS cites no contract
case in which a court has upheld an award of consequential damages

                                     12
premised on a drop in a company’s market value as an asset. 4 The few
Texas courts that have addressed the question have not allowed such a
recovery. 5 This case will not be the first.

       4  The cases cited by SIS do not support an award of consequential
damages for reduced company value in a breach-of-contract case. In Sawyer v.
Fitts, 630 S.W.2d 872 (Tex. App.—Fort Worth 1982, no writ), the court allowed
loss-of-value damages in a tort suit, although—unlike here—the lost value had
been realized by a transaction that locked in the plaintiff’s actual losses. The
same was true for Wellogix, Inc. v. Accenture, LLP, 823 F. Supp. 2d 555 (S.D.
Tex. 2011), aff’d, 716 F.3d 867 (5th Cir. 2013), also a tort case. Whether a
decline in a company’s market value could ever be an appropriate measure of
damages in a tort suit is a question we do not address. SIS cites one contract
case involving lost-value damages, R.G. McClung Cotton Co. v. Cotton
Concentration Co., 479 S.W.2d 733 (Tex. App.—Dallas 1972, writ ref’d n.r.e.).
There, however, the devalued asset at issue was a commodity, not a company.
The defendant delayed delivery of cotton, and the price dropped during the
delay. The subject of the contract was the fluctuating commodity itself, and
the court allowed the breaching defendant to be charged with the decline in
market value during the delay in delivery. The case does not mention
foreseeability. In any event, charging cotton dealers with knowledge of the
cotton market is a far cry from charging IP with knowledge of the market for
buying and selling companies like SIS.
       5 Transitional Entity LP v. Elder Care LP, No. 05-14-01615-CV, 2016
WL 3197160, at *8 (Tex. App.—Dallas May 27, 2016, no pet.) (reversing an
award that “appear[ed] to compensate appellees for the loss in value of a
business” rather than basing damages on the benefit of the bargain); Abraxas
Petroleum Corp. v. Hornburg, 20 S.W.3d 741, 761 (Tex. App.—El Paso 2000, no
pet.) (agreeing that lost value was an inappropriate measure and
distinguishing lost profits from lost value); Nelson v. Data Terminal Sys., Inc.,
762 S.W.2d 744, 747–48 (Tex. App.—San Antonio 1988, writ denied) (“DTS
contends that diminution of value in support of Nelson’s breach of contract
cause of action is not a proper measure of damages. We agree with DTS . . . .”);
see also Robehr Films, Inc. v. Am. Airlines, Inc., 85 CIV. 1072 (RPP), 1989 WL
111079, at *5 (S.D.N.Y. Sept. 19, 1989) (“Under Texas law, damages for
diminution in value of a business are not recoverable in a breach of contract
action, but are only recoverable in tort.”), aff’d, 902 F.2d 1556 (2d Cir. 1990);
cf. Hollywood Fantasy Corp. v. Gabor, 151 F.3d 203, 214 (5th Cir. 1998)
(“Under Texas law, the loss of goodwill or business reputation is not

                                       13
        It stands to reason that losing business opportunities will often
contribute to a decline in a company’s market value, but whether this
will be the case—and to what extent—depends on many factors typically
beyond the reasonable contemplation of the breaching party.                 The
market for ownership of a business is distinct from the market the
business serves. See Henry G. Manne, Mergers and the Market for
Corporate Control, 73 J. POL. ECON. 110, 112 (1965). Dense volumes
detail the proper way to value companies. See, e.g., TIM KOLLER ET AL.,
VALUATION: MEASURING AND MANAGING THE VALUE OF COMPANIES (7th
ed. 2020). Students in business schools (and increasingly in law schools)
ponder asset pricing models and formulas for calculating the weighted
average cost of capital. Peter H. Huang & Michael S. Knoll, Corporate
Finance, Corporate Law and Finance Theory, 74 S. CALIF. L. REV. 175,
175–76 (2000).      Despite detailed knowledge of their own industry,
companies often do not understand the market for buying and selling
companies like themselves, much less companies in other lines of work.
As a result, specialized bankers and consultants are frequently hired
when companies have reason to explore either their own market value
or that of other companies.
       SIS proffered no evidence that IP ever had any reason to concern
itself with SIS’s market value in the eyes of those, like Primoris and its
advisors, who buy and sell companies. That alone renders SIS’s lost
market value unforeseeable to IP and therefore unrecoverable. Yet even
if IP knew SIS’s market value at the time of contracting, foreseeing the

recoverable in a breach of contract action.”); Sterling Projects, Inc. v. Fields,
530 S.W.2d 602, 605 (Tex. Civ. App.—Waco 1975, no writ) (same).

                                       14
impact of breaching a promise to pay on a company’s market value is at
least as difficult as valuing the company in the first place. When valuing
a business, “confounding events may be hard to disentangle.” FRANK H.
EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE                    OF

CORPORATE LAW 193 (1996).         Isolating the impact of the breach of
contract from other factors contributing to investors’ reduced interest in
a company will rarely be an easy task.
       The law does not charge contracting parties with a duty to
understand how their actions will affect the counterparty’s market
valuation. SIS points to no authority to the contrary, and we are aware
of none.   We do not expect contracting parties, regardless of their
sophistication, to study the market for acquiring their counterparties
before entering into a contract or breaching one. As a general rule,
neither the counterparty’s market value nor the impact of breach on that
value will be reasonably foreseeable at the time of contracting. SIS
offered no evidence distinguishing IP from this general rule.               It
attempted to show that IP was intimately familiar with SIS’s business
because of the companies’ close relationship. But again, knowledge of a
business is not the same as knowledge of the market for buying and
selling that business. 6
       As we said in Basic Capital, “a general knowledge of a prospective
borrower’s business does not give a lender reason to foresee the probable
results of its refusal to” perform. 348 S.W.3d at 902. In other words, a

       6  Even companies that know the market for buying and selling
businesses will generally have no duty to investigate or foresee the market
value of companies with which they contract, provided that the contract itself
is not concerned with the market value of the counterparty.

                                     15
party’s mere familiarity with another company does not alone make the
collapse of that company a foreseeable consequence of breach. Id. at
901–02. The same is true here. IP’s familiarity with SIS’s business did
not make SIS’s precipitous decline in attractiveness to buyers a
foreseeable consequence of breach.
       SIS contends that, beyond general familiarity, IP was specifically
aware that SIS needed speedy payment to fund future business and that
an unexpected cash-flow crunch could be devastating to SIS. The only
evidence SIS offered on this point was (1) the parties’ longstanding
familiarity with one another, (2) the fact that IP’s employees later
learned of SIS’s financial distress, and (3) the assertion that
construction is a “gossipy-type industry.”         Even assuming that SIS
established IP’s knowledge of SIS’s precarious financial position, that
does not make the effect of breach on SIS’s market value foreseeable. As
in Basic Capital, one traditional measure of consequential damages is
lost profits, which must be established with reasonable certainty. 348
S.W.3d at 898, 901. SIS could have sought such damages, but it chose
not to. Instead, it laid its overall decline in market value—not the
discrete injuries that caused its market value to decline—at IP’s feet.
But even if IP should reasonably have foreseen that its breach would
cost SIS a great deal of business, SIS’s decline in market value is a
fundamentally different matter.             Damages for that loss were
unforeseeable and therefore unavailable. 7

       7  In addition to arguing foreseeability, IP also argues that “company
value” damages are not available as a matter of law because they reflect “paper
losses” in SIS’s theoretical market value, not actual cash losses suffered by the
time of trial. See DAN B. DOBBS & CAPRICE L. ROBERTS, LAW OF REMEDIES

                                       16
       Parties need not scour the balance sheets of their counterparties
and weigh the likely consequences of breach on the counterparty’s
attractiveness to investors. 8       Far from helping new and unstable

§ 3.4 (3d ed. 2018) (explaining that “consequential losses must have been
realized or must be likely to be realized in the future” to be recoverable, so
“bookkeeping losses do not count when it comes to consequential damages”).
Because we reverse the award for lack of foreseeability, we do not consider
whether the damages suffer from this additional defect. We also do not
consider another potential bar to “company-value” damages. IP argued in the
court of appeals that SIS could never recover for its decline in market value
because those losses were suffered by the company’s owners, not by SIS itself.
Unlike withholding payment to SIS on the slaker contract, which harms SIS
itself, a deterioration in SIS’s value as an asset harms those who hold the
asset—so the argument goes. After all, it is SIS’s owners, not SIS itself, who
would be paid by a buyer like Primoris if SIS were sold. If this argument is
correct, then SIS itself was ineligible to seek recovery for a decline in its market
value, and the eligible entities—SIS’s owners—were not parties to the slaker
contract and therefore could not sue for its breach. But IP does not press this
argument here, so we do not consider it.
       8  Of course, parties can give notice of their dire financial straits at the
time of contracting. See, e.g., W. Union Tel. Co. v. Brooks, 279 S.W. 443, 444
(Tex. 1926). When one party has given notice of the consequences of breach at
the time of contracting, no further inquiry into the foreseeability of those
consequences is required. Elijah Ragira/VIP Lodging Grp., Inc. v. VIP
Lodging Grp., Inc., 301 S.W.3d 747, 756 (Tex. App.—El Paso 2009, pet. denied)
(“[I]f the special circumstances under which the contract was actually made
were communicated by the plaintiffs to the defendants, and thus known to both
parties, the damages resulting from the breach of such a contract, which they
would reasonably contemplate, would be the amount of injury which would
ordinarily follow from a breach of contract under these special circumstances
so known and communicated.”) (emphasis added) (quoting Hadley, 9 Exch. at
354–55); RESTATEMENT (SECOND) OF CONTRACTS § 351 cmt. b (“If loss results
other than in the ordinary course of events, there can be no recovery for it
unless it was foreseeable by the party in breach because of special
circumstances that he had reason to know when he made the contract.”).
Relying on this rule, a party in SIS’s position could give notice of its pending
sale and of its expectation that a breach would scuttle the sale and drive its
company’s value into the ground, thereby resulting in losses far exceeding the
size of the contract. Whether anyone would contract with such a company is

                                        17
businesses like SIS, such a rule would encourage parties to contract only
with large, established companies. Few rational parties would contract
with a fledgling company for whom a $2.4 million non-payment might
one day be worth $56 million in “company value” damages.
       In sum, the decline in SIS’s market value reflected in the jury’s
award was not foreseeable to IP and was therefore not available as
consequential damages. We affirm the court of appeals’ reversal of $42
million of the award on foreseeability grounds. The court of appeals left
in place $12.4 million of the award, to which we now turn.
           C.   Damages for the Company’s Lost Book Value
       The jury was instructed to measure the “[d]amages to Signature’s
company value.” 9 It awarded over $56 million. The court of appeals
concluded that $12.4 million of that amount was supported by legally
sufficient evidence. 628 S.W.3d at 579. The $12.4 million upheld by the
court of appeals was derived from the calculations of SIS’s expert, who
testified that SIS’s “book value” declined by $12.4 million as a result of
the breach.
       While book value serves a purpose in accounting, we conclude
that a drop in book value, without more, cannot support an award of
consequential damages for breach of contract. Again, consequential

another matter. And whether bars other than foreseeability would foreclose
such damages is a question we do not address.
       9 The jury charge did not define “company value.” To the extent
“company value” is understood to mean market value, we have already
explained why a decline in SIS’s market value was unforeseeable and therefore
unrecoverable. To the extent “company value” could refer also to “book value,”
we will separately address the court of appeals’ allowance of $12.4 million in
“book value” damages.

                                     18
damages must be “proved with reasonable certainty.” Phillips, 475
S.W.3d at 278. SIS’s use of book value as a damages measure fails to
satisfy this requirement. The jury was asked to rely on SIS’s bottom-line
book value without analysis of specific items on the balance sheet. SIS’s
expert testified that before the breach, in December of 2013, the
company had a book value of $3,322,442. After the breach, in March of
2016, that value was underwater by $9,109,059. The difference between
those two numbers is the $12.4 million upheld by the court of appeals.
We cannot agree that SIS proved losses of $12.4 million with the
requisite reasonable certainty.
      To begin with, SIS seems to have used book value as a proxy for
the value of the company as an asset, i.e., its market value. But “[b]ook
value and market value are not the same.” Pike v. Tex. EMC Mgmt.,
LLC, 610 S.W.3d 763, 785 (Tex. 2020). In Pike, the plaintiff tried to
demonstrate the value of an interest in a partnership by showing the
book value of its cement plant.       Id.   We rejected the evidence as
insufficient to show the actual loss in value suffered because the book
value of the asset is not its fair market value. Id. at 784. Instead, book
value is “simply the value of [a company’s] total assets . . . less the value
of its total liabilities”—that is, “the amount of the company’s assets that
would be left after the company’s creditors are paid off in full.” HAAS,
CORPORATE FINANCE 74. It is an accounting concept, the decline of which
does not necessarily reflect actual losses to the company.
      Merely demonstrating a decline in book value, as did SIS’s expert,
does not prove any actual losses—with reasonable certainty or
otherwise. For this reason, Texas courts have long rejected the use of

                                     19
book value as a measure of damages. “Book value is entitled to little, if
any, weight in determining the value of corporate stock, and many other
factors must be taken into consideration.” Bendalin v. Delgado, 406
S.W.2d 897, 900–01 (Tex. 1966). Several court of appeals decisions
similarly criticize attempts to use book value as a proxy for the value of
a company to its owners. 10 We see no reason to depart from these
precedents. As an accounting measure, book value has its uses. But the
aggregate number itself offers only a limited, big-picture view of the
company’s financial situation.      It tells the jury nothing about the
underlying losses actually suffered by the company that contributed to
the drop in book value, and it tells the jury nothing about the overall
decline in the market value of the company as an asset. The $12.4
million in book-value damages upheld by the court of appeals must be
reversed.
                                   ***
       SIS has not sought to recover lost profits as an alternative
measure of consequential damages, nor has it offered evidence to
support such a recovery. In some past cases where a “charge failed to
instruct the jury on the proper measure of . . . damages,” we have
“remand[ed] . . . for a new trial” so long as there was “some evidence”

       10Bhatia v. Woodlands N. Hous. Heart Ctr., PLLC, 396 S.W.3d 658, 667
(Tex. App.—Houston [14th Dist.] 2013, pet. denied) (“Book value is an
improper method for determining the value of [a business] because such values
are mere arbitrary entries in a ledger.”); Mandell v. Mandell, 310 S.W.3d 531,
537 (Tex. App.—Fort Worth 2010, pet. denied) (“Book value has limited
application, if any, in determining the value of . . . a small, closely held
corporation.”); Lee v. Hersey, 223 S.W.3d 439, 448 (Tex. App.—Amarillo 2006,
pet. denied) (“[F]inancial statements . . . provide no probative evidence of
market value . . . .”).

                                     20
that could support a specific amount of damages based on valid criteria.
Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex.
1997); ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 880
(Tex. 2010) (remanding because “competent evidence exists to establish
some reasonably certain amount of lost profits” other than the amount
awarded). If, however, no evidence supports lost profits under a proper
theory, we have rendered judgment. See Horizon Health Corp. v. Acadia
Healthcare Co., 520 S.W.3d 848, 866 (Tex. 2017) (rendering a
take-nothing judgment when the evidence was legally insufficient to
establish lost profits with the requisite certainty). Here, SIS did not
establish with reasonable certainty the size of any particular lost profits.
It sought only the recovery of its overall loss in company value, and such
damages were unavailable for the reasons explained above.              Any
evidence in the record regarding the amount of specific lost profits is
scantier than what we rejected in Horizon Health.           Id. at 860–64.
Accordingly, we affirm the court of appeals’ judgment rejecting the $42
million damages for lost market value and reverse its judgment
upholding damages based on a decline in book value.             We render
judgment that SIS take nothing on its claim for consequential damages.
                         III.   Direct Damages
      IP also appeals the award of direct damages, which the court of
appeals affirmed. The jury awarded $2.4 million in direct damages,
which reflect the difference between what IP paid and the amount SIS
claimed IP owed. The court of appeals reviewed all the evidence and
determined that it could not say there was legally insufficient evidence
for the full $2.4 million award. 628 S.W.3d at 576–77. IP attacks two

                                    21
discrete portions of the direct damages award, which are reflected in two
invoices totaling around $1.2 million.
      Invoice #1200-6087 shows $622,560.61 in charges to IP for
(1) overhead, (2) tax penalties, and (3) lost revenue due to non-payment.
IP contends these charges are prohibited by the contract and are
therefore unrecoverable as a matter of law. See Wade & Sons, Inc. v.
Am. Standard, Inc., 127 S.W.3d 814, 824 (Tex. App.—San Antonio 2003,
pet. denied). We agree.
      First, the contract prohibited SIS from billing IP for the “[w]ages
of any employee in [SIS’s] home office or any employee not directly
employed on th[is] Project,” “[i]nterest on capital employed either in
plant or in expenditures on the Project,” or “[o]verhead or general
expenses of any kind.” The invoice charged for back-office staffing costs
as well as time that management spent meeting with IP about the
project, not for labor on the slaker project itself. These are plainly
“overhead or general expenses of any kind,” so the contract forbids SIS
from charging IP for those costs.        Second, the contract made SIS
responsible for “pay[ing] . . . any tax or contribution required by any
applicable Federal, State or local laws.” As a result, the tax penalties
reflected on the invoice were not chargeable to IP. Third, the invoice’s
charge for “lost revenue . . . due to the loss of work from non-payment
and suit” would be a matter of consequential damages, not direct
payment under the contract.
      None of the charges reflected in Invoice #1200-6087 is allowed by
the contract. SIS has offered no substantive defense of these charges
beyond the assertion that the jury could consider all the invoices and

                                   22
arrive at this damages award. And the court of appeals never addressed
whether the contract expressly barred the items in Invoice #1200-6087,
despite IP’s arguments to that effect. We conclude that the parties’
agreement precludes these charges, and it is undisputed that the direct
damages award includes the full amount of this invoice. The direct
damages must be reduced by the amount of the invoice, $622,560.61.
      Invoice #1200-6088 sought $647,309.93 to compensate SIS for the
“cost of management and field labor,” “materials,” and “equipment . . .
not previously billed to [IP].”    The contract makes these expenses
chargeable to IP. Moreover, a separate contract between the parties
allows for the charges listed, and the court of appeals correctly
determined that the jury was allowed to consider that contract as well.
628 S.W.3d at 576.
      IP argues that because the parties had agreed to negotiate
regarding what portion of the costs IP would pay, IP cannot be liable for
the full amount of the invoice. But the conclusion does not follow from
the premise. The parties did agree to negotiate if disputes arose, but
that does not render ephemeral IP’s promise to pay amounts it owed.
The agreement to negotiate did not preclude the jury from finding that
IP owed the full amount of the invoice. We conclude that sufficient
evidence supported the jury’s conclusion that IP owed SIS the amounts
reflected in this invoice. City of Keller, 168 S.W.3d at 810.
      When a lump-sum damages award contains both compensable
and non-compensable damages, we have remanded the entire award for
retrial based only on the compensable portion.        County of Bexar v.
Santikos, 144 S.W.3d 455, 464 (Tex. 2004). Here, however, we have

                                    23
concluded as a matter of law that IP did not breach the parties’ contract
by failing to pay Invoice #1200-6087, and it is undisputed that the jury
awarded SIS damages for the full amount of that invoice—
$622,560.61—as part of its award of direct damages for contract
breaches. Because SIS cannot legally recover these damages, which are
cleanly excisable from the total award, we render judgment reducing the
award of direct damages by this amount. See TEX. R. APP. P. 60.2(c)
(permitting the Supreme Court to render the judgment that a lower
court should have rendered); Barker v. Eckman, 213 S.W.3d 306, 310
(Tex. 2006) (affirming reduction in damages award for contract breaches
where recovery for some breaches was legally barred by limitations and
amount of damages awarded for each breach was undisputed).
                            IV.    Indemnification
       IP claims that SIS must indemnify it for expenses incurred
defending the suit brought by Ogden. The court of appeals disagreed.
We affirm, but for a different reason than the court of appeals.
       The contract requires SIS to indemnify IP for its defense costs if
“any person makes a claim” for “damage or injury of any kind” that is
“caused by, resulting from, arising out of, or occurring in connection with
the performance by [SIS]” of the contract. 11 The indemnity provision

       11   The relevant provision reads:
6. Indemnity. [SIS] assumes the defense and the entire responsibility and
liability for any and all damage or injury of any kind or nature (including
resulting death) to all persons, whether employed by [SIS] or otherwise,
including but not limited to (a) employees and agents of subcontractors of [SIS]
or [IP], or (b) any other third party, and to all property (other than the work
itself as set out in paragraph 7 below) caused by, resulting from, arising out of,
or occurring in connection with the performance by [SIS], or any subcontractor
or agent of [SIS], of this AGREEMENT. In the event the liability of [SIS] shall

                                        24
has an exception, however, for when liability “arise[s] by reason of the
sole negligence of [IP].” In such cases, SIS “shall not be liable.”
       The court of appeals understood the “sole negligence” exception to
cover this case because the case involves only alleged wrongdoing by IP
and no wrongdoing on the part of SIS. That was error. Under the
language chosen by the parties, the exception is triggered when liability
arises by reason of IP’s negligence, not its breaches of contract. See Sw.
Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494–95 (Tex. 1991)
(distinguishing negligence and breach of contract). The alleged liability
in this case does not arise from any form of negligence at all. Ogden
sued IP for breach of contract and fraud, not negligence. The indemnity
clause’s “sole negligence” exception therefore has no application.
       The result should nevertheless be affirmed. The Insurance Code
forbids certain construction contracts from requiring an indemnitor to
indemnify an indemnitee for “a claim caused by the . . . fault . . . or the
breach of contract of the indemnitee.”             TEX. INS. CODE § 151.102
(emphasis added). 12 Because Ogden’s claims complain of IP’s fraud and

arise by reason of the sole negligence of [IP], then and only then, [SIS] shall
not be liable under the provisions of this paragraph. If any person makes a
claim for any such damage or injury (including death resulting therefrom) as
hereinabove described, [SIS] agrees to indemnify and save harmless [IP], its
agents, servants and employees from and against any and all loss, damage,
injury or expense including reasonable attorney’s fees that [IP] may sustain as
a result of any such claims . . . .
       12 This subchapter of the Insurance Code applies to construction
contracts for “project[s] for which . . . indemnitor[s]” are “provided or procure[]
insurance subject to” Chapter 151 or Title 10. TEX. INS. CODE § 151.101(a).
SIS has consistently argued that section 151.102 applies to the slaker contract,
and IP has never suggested that the statute does not cover the agreement.

                                        25
breach of contract, we conclude that the statute renders the indemnity
agreement ineffective to the extent it would require SIS to indemnify IP
against Ogden’s suit.
      IP argues that Ogden’s injuries were actually “caused by” SIS’s
wrongdoing —its failure to pay payroll taxes—rather than by IP’s fraud
or breach of contract. IP may be correct that the true cause of Ogden’s
personal liability and the follow-on harms to his credit and reputation
was SIS’s failure to pay taxes. But we do not understand section 151.102
to ask who is truly at fault for the injuries complained of. Instead, it
asks only whether the “claim” for which indemnity is sought was “caused
by” the fault or breach of contract of the indemnitee. See Union Pac.
R.R. v. Brown, No. 04-17-00788-CV, 2018 WL 6624507, at *5 (Tex.
App.—San Antonio Dec. 19, 2018, no pet.) (requiring the indemnitee to
identify pleadings alleging its liability for the fault of the indemnitor).
      Here, no one disputes that the “claim” is Ogden’s suit alleging
fraud and breach of contract due to IP’s refusal to pay under the slaker
contract.   For purposes of the anti-indemnity statute, IP’s alleged
breach—which IP no longer disputes—was the cause of Ogden’s claim,
regardless of whether SIS’s actions were also part of what truly brought
about the injuries alleged by Ogden.       The statute does not require
factual inquiry into the “true” cause of the plaintiff’s injuries. Absent
fraud or some other unusual circumstance not present here, examining
the pleadings will generally be a sufficient basis to determine whether

Because no party argues otherwise, we will assume section 151.101(a) applies
to the agreement.

                                    26
the “claim” was “caused by” the fault or breach of contract of the party
seeking indemnification. TEX. INS. CODE § 151.102.
                        V.    Ogden’s Claims
      Jeffry Ogden, SIS’s President, also sued IP in his individual
capacity for fraud and breach of contract. He received a $67 million
award. The court of appeals reversed the award in its entirety and
rendered judgment against Ogden, holding that the elements of fraud
were not met and that Ogden had no right to sue on the contract between
SIS and IP. 628 S.W.3d at 580–81. Ogden challenges the court of
appeals’ decision only with respect to his breach-of-contract claim. We
affirm.
      Ogden was neither a party to the contract nor in privity with one.
He sued under two theories—assignment and agency—that he claims
allow him to personally recover against IP for breach of a contract
between IP and SIS. Both theories fail.
      First, Ogden argues that SIS assigned the right to sue under the
contract to him. But the contract has a non-assignment clause. Such
clauses are enforceable. Island Recreational Dev. Corp. v. Republic of
Tex. Sav. Ass’n, 710 S.W.2d 551, 556 (Tex. 1986). Even if there were no
such clause, Ogden has not pointed to any words or actions by SIS that
demonstrate an intent to assign the contract to him. If anything, SIS
demonstrated its intent not to assign its rights by suing to enforce the
contract on its own.
      Second, Ogden argues that, as an agent of SIS with an interest in
the contract, he can sue for breach. The law does not support Ogden’s
agency theory. In Tinsley v. Dowell, 26 S.W. 946, 948 (Tex. 1894), we

                                  27
held that the “general rule is that one who contracts as agent cannot
maintain an action, in his own name and right, upon the contract.” We
recognized four narrow exceptions: (1) “where the agent contracts in his
own name”; (2) “where the agent does not disclose his principal”; (3)
“where the agent is authorized to act as owner of the property” by “the
usages of trade”; and (4) “where the agent has an interest in the subject-
matter of the contract.” Id. In that case, Dowell had attempted to sue
on his principal’s land-sale contract. We held that his only interest in
the contract was a percentage of the proceeds, but the subject-matter of
the contract was the land itself. When Tinsley breached by failing to
purchase the land, Dowell had no right to sue on the contract. Id. at
949. 13
          Ogden has not shown that any of the exceptions articulated in
Tinsley apply here. The jury found that Ogden had an “interest” in the
subject-matter of the contract, but this is unsupportable as a matter of
law. 14 The subject of the contract was work by SIS and payment by IP,
which was owed to SIS alone. Ogden’s hope that SIS would be paid and
would in turn pay off tax debt he had guaranteed is not a legally

          See also Cavaness v. Gen. Corp., 283 S.W.2d 33, 37 (Tex. 1955) (noting
          13

that an agent’s personal ownership of the patent rights in a licensing contract
“would be the kind of personal interest contemplated by the rule”); Harper v.
Welchem, Inc., No. C14-91-00627-CV, 1992 WL 198620, at *2 (Tex. App.—
Houston [14th Dist.] Aug. 20, 1992, writ denied) (rejecting a plaintiff’s claims
for lack of an “in rem interest” or other interest in the contract “adequate for
the purposes of the fourth Tinsley exception”).
         Unless underlying material facts are in dispute and therefore require
          14

resolution by a jury, the question of whether a party has an interest in the
subject-matter of another party’s contract sufficient to allow him to sue on the
contract will be a question of law for the court.

                                      28
cognizable “interest in the subject-matter of the contract” sufficient to
authorize Ogden to sue in his personal capacity for injuries to his
company. The jury may have mistakenly found otherwise based on a
colloquial understanding of the word “interest.” But Ogden had no more
legal interest in the slaker contract than any other officer of a closely
held company has in his company’s contracts. To hold that he can sue
for breach of SIS’s contracts in his personal capacity would collapse the
distinction between corporate entities and their individual owners or
officers. Ogden cites no authority supporting such an outcome.
      In any event, Ogden cites no case in which an individual with an
interest in a contract has been permitted to sue as an agent or assignee
when the principal is already suing on the same contract for the same
breach. The resulting duplicative litigation and double recovery are
self-evidently inappropriate. We affirm the court of appeals’ rendition
of judgment against Ogden.
                          VI.    Conclusion
      The judgment of the court of appeals is affirmed in part and
reversed in part. Judgment is rendered that SIS take nothing on its
claim for consequential damages. Judgment is rendered reducing SIS’s
recovery of direct damages by $622,560.61.        As for IP’s claim for
indemnity, the judgment of the court of appeals is affirmed. The court
of appeals’ rendition of judgment that Ogden take nothing is likewise
affirmed. The case is remanded to the district court for any further
proceedings that may be necessary.

                                   29
                                James D. Blacklock
                                Justice

OPINION DELIVERED: January 14, 2022

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