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Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc.

Supreme Court of Texas

April 28, 2017

Bartush-Schnitzius Foods Co., Petitioner,
v.
Cimco Refrigeration, Inc., Respondent

         On Petition for Review from the Court of Appeals for the Second District of Texas

          PER CURIAM

         This contract dispute involves competing breach claims by a food-product manufacturer, Bartush-Schnitzius Foods Co. (Bartush), and a refrigeration contractor, Cimco Refrigeration, Inc. (Cimco). The jury found that both parties failed to comply with their agreement and assessed damages accordingly, but the trial court rendered judgment solely for Bartush. The court of appeals reversed and remanded for entry of judgment solely in Cimco's favor. We hold that neither the trial court nor the court of appeals properly effectuated the jury's verdict. We reverse the court of appeals' judgment and remand the case to that court to consider unaddressed issues.

         In 2010, Bartush planned to expand its line of food products to include seafood dips. Manufacturing the dips required Bartush's production facilities to maintain a constant temperature no higher than thirty-eight degrees-lower than Bartush's existing refrigeration system could sustain. Bartush therefore contracted with Cimco to install a new system. Cimco sent Bartush an offer letter with three quoted options. The offer letter did not reference a particular temperature range. Bartush orally selected the most expensive of the three options, confirming the selection via email. Bartush then began paying Cimco in agreed-upon installments.

         After installation, Bartush started to operate the new system at a temperature setting of thirty-five degrees. However, this resulted in ice forming on the fan motors because the system's defrost unit was not designed to support operation at such a low temperature. The ice caused the motors to overheat and fail, leading to higher temperatures that at times climbed into the 50s and 60s. When Bartush discovered the problem, it had already paid Cimco $306, 758 on the contract but still owed $113, 400. Bartush communicated with Cimco about a repair, but after several weeks without receiving what it considered a workable plan, Bartush withheld further payment and contacted an independent refrigeration engineer. The engineer recommended a warm-glycol defrost unit, and Bartush contracted with Jax Refrigeration, Inc. to install the unit at a cost of $168, 079. After the warm-glycol defrost unit was installed, the system was able to maintain the target temperature of thirty-five degrees.

         In response to Bartush's nonpayment, Cimco sued Bartush to recover the balance owed on the contract.[1] Bartush counterclaimed for breach of contract, seeking damages for, among other things, the costs associated with the warm-glycol defrost unit.[2] Bartush also alleged that its failure to pay was justified by Cimco's prior material breach. Cimco asserted that the equipment it installed was exactly as described in the accepted purchase order and denied that it had made any guarantee regarding the equipment's capacity to maintain a specific temperature.

         The parties' claims were tried to a jury. The jury answered the relevant liability portions of the charge as follows: "YES" to Question 1, which asked whether Bartush failed to comply with the agreement; "YES" to Question 2, which asked whether Cimco failed to comply with the agreement; "CIMCO" to Question 3, which asked who failed to comply with the agreement first; and "NO" to Question 4, which asked whether Bartush's failure to comply was excused. The jury awarded Bartush $168, 079 in damages (the cost of installing the warm-glycol defrost unit), plus $215, 000 in trial and conditional appellate attorney's fees. The jury also awarded Cimco $113, 400 (the balance due on the contract). The jury did not answer the question regarding Cimco's attorney's fees because the question was conditioned in part on a finding that Bartush breached first.

         Despite the jury's findings that both parties failed to comply and Bartush's failure to comply was not excused, the trial court stated in its final judgment that "it appears to the Court that the verdict of the jury was for [Bartush] and against [Cimco], " and rendered judgment in Bartush's favor for $168, 079 in damages, plus pre- and post-judgment interest, costs, and attorney's fees. The judgment awarded nothing to Cimco, and Cimco appealed.

         The court of appeals reversed and remanded to the trial court for entry of judgment that Bartush take nothing and that Cimco recover $113, 400 in damages, plus interest and costs. ___ S.W.3d ___ (Tex. App.-Fort Worth 2015). The court of appeals held that the jury's express finding that Bartush's failure to comply was not excused necessarily included an implied finding that Cimco's prior breach was nonmaterial. Id. at ___. The court further held that Bartush's failure to pay the balance due was a material breach of the contract as a matter of law, which rendered irrelevant the jury's finding that Cimco breached first and precluded Bartush's recovery. Id. Finally, the court of appeals held that Cimco waived its challenge to the jury's failure to award attorney's fees. Id. at ___ n.9.

         Both parties filed petitions for review. Bartush argues the trial court's judgment should be reinstated because Cimco's "first" breach was material as a matter of law and thus excused Bartush's subsequent failure to comply with the agreement. Alternatively, Bartush argues that both damages awards should be given effect, resulting in Bartush's net recovery of $54, 679 in compensatory damages. Cimco responds that the court of appeals correctly concluded that Bartush's material breach excused Cimco's nonmaterial breach.[3] In a cross-petition, Cimco challenges the court of appeals' holding that Cimco waived error regarding the jury's failure to award attorney's fees.

         We first address Bartush's argument that the trial court properly rendered judgment entirely in its favor because Bartush's failure to comply (i.e., nonpayment) was excused as a matter of law by Cimco's prior material breach. "It is a fundamental principle of contract law that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from further performance." Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) (citing Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994)). By contrast, when a party commits a nonmaterial breach, the other party "is not excused from future performance but may sue for the damages caused by the breach." Levine v. Steve Scharn Custom Homes, Inc., 448 S.W.3d 637, 654 (Tex. App.-Houston [1st Dist.] 2014, pet. denied).[4]The latter principle is consistent with settled Texas law regarding the elements of a contract claim. The claim requires a finding of breach, not a finding of material breach. See, e.g., Mays v. Pierce, 203 S.W.3d 564, 575 (Tex. App.-Houston [14th Dist.] 2006, pet. denied) ("A breach of contract occurs when a party fails or refuses to do something he has promised to do."). Accordingly, a material breach by Cimco would have excused Bartush from making further contractual payments, while a nonmaterial breach would have simply given rise to a claim for damages.

         In this case, as noted, the jury found that both parties failed to comply with the agreement. The jury was instructed that Bartush's failure to comply was excused if Cimco previously "failed to comply with a material obligation of the same agreement, " and listed five nonexclusive "circumstances to consider in determining whether a failure to comply is material." Although the jury found that Cimco failed to comply first, it also found that Bartush's breach was not excused. To make the latter finding, the jury must have concluded that Cimco's prior breach was not material. We therefore agree with the court of appeals that the jury made such an implied finding.

         Notwithstanding the jury's implied finding of nonmateriality, Bartush argues that Cimco's failure to provide a refrigeration system capable of maintaining a temperature of thirty-five degrees was a material breach as a matter of law, excusing Bartush from further performance. We disagree. Generally, materiality is an issue "to be determined by the trier of facts." Hudson v. Wakefield, 645 S.W.2d 427, 430 (Tex. 1983). Like other issues of fact, materiality may be decided as a matter of law only if reasonable jurors could reach only one verdict. See City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005) ("If the evidence at trial would enable reasonable and fair-minded people to differ in their conclusions, then jurors must be allowed to do so.").

         In Mustang Pipeline, we outlined several factors enumerated in the Restatement that are "significant in determining whether a failure to perform is material." 134 S.W.3d at 199 (citing Restatement (Second) of ...


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