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Gulshan Enterprises, Inc. v. Zafar, Inc.

Court of Appeals of Texas, Fourteenth District

September 12, 2017

ZAFAR, INC., Appellee

         On Appeal from the 80th District Court Harris County, Texas Trial Court Cause No. 2013-75119

          Panel consists of Justices Boyce, Donovan, and Jewell.


          Kevin Jewell, Justice.

         In this appeal from a declaratory judgment in favor of a service station owner, a fuel distributor asserts that the trial court (1) erroneously excused the service station owner's future performance under a contract based on the fuel distributor's breach, and (2) improperly awarded the station owner attorney's fees and costs. We conclude that the trial court did not err in declaring the station owner excused from future performance because of the fuel distributor's material breach of contract. We also determine that attorney's fees and costs are available under the circumstances presented. Accordingly, we affirm the judgment.


         Zafar, Inc., the owner of a service station located on West Little York Road in Houston, sought to end its business relationship with Gulshan Enterprises, Inc., a fuel supplier, because of Gulshan's allegedly poor performance in timely delivering and properly invoicing Zafar for fuel. Zafar's president, Zafar Hashmi, agreed that, in mid-2005, he signed a ten-year marketing contract with Gulshan, but claimed he had never been provided a copy of the agreement. Although neither Zafar nor Gulshan introduced into evidence a copy of the marketing contract, they agreed that the terms of the contract required Zafar to purchase fuel exclusively from Gulshan for the West Little York service station for ten years. But because the contract was lost, Hashmi did not know whether Zafar continued to be legally obligated to purchase fuel from Gulshan under this contract in light of Gulshan's alleged deficient performance, which Hashmi considered to be a material breach of the contract.

         In December 2013, Zafar filed suit, seeking a declaratory judgment to clarify its rights and status under the marketing contract. Initially, Zafar sought a declaration that "a valid contract does not exist" between Zafar and Gulshan, and it also sought an award of court costs and attorney's fees. After Zafar filed suit, Gulshan produced a copy of an ancillary agreement-a technology incentive program agreement. Signed on March 26, 2010, this agreement provided that "the term of the current Marketing Contract between [Gulshan] and [Zafar] is extended by 24 months and will now expire on 07/31/2017 unless terminated earlier as specified in the Marketing Contract and this Agreement."

         Zafar moved for summary judgment on its claim that no valid contract existed between the parties, but the trial court denied the motion. Subsequently, Zafar amended its petition to seek a declaration that Zafar "is under no obligation to purchase gasoline from" Gulshan. It again pleaded for court costs and attorney's fees. Specifically, Zafar asserted that (1) the marketing contract did not exist; (2) the marketing contract had expired; (3) the material terms of the marketing contract were missing or were not agreed upon; or (4) Gulshan had materially breached the marketing contract. Gulshan generally denied Zafar's allegations and asserted that a valid contract existed between the parties. Gulshan did not allege that Zafar had breached the marketing contract or the ancillary agreement. Zafar and Gulshan proceeded to a jury trial on these pleadings in March 2016.

         At trial, Hashmi and Gulshan's president, Shoukat Dhanani, testified regarding the marketing contract and the parties' relationship. It was undisputed that Zafar purchased fuel from Gulshan exclusively and continuously for the previous ten years for the West Little York service station, including purchases made the week before trial. Hashmi acknowledged that the essential price terms of the ten-year marking contract consisted of paying Gulshan's cost for the fuel plus one cent per gallon and paying Gulshan all applicable state and federal taxes and freight charges. Hashmi also acknowledged that Zafar had not provided Gulshan written notification that Zafar sought to terminate the marketing contract.

         Hashmi recounted the difficulties Zafar had encountered with Gulshan's delivery of fuel to the service station. According to Hashmi, Gulshan regularly delivered fuel late, which resulted in the service station running out of gas "from 20 to 25 times a year." Hashmi testified that he had spoken with Dhanani on numerous occasions about delivery problems, and Dhanani assured Hashmi that he would "take care of it." But Hashmi explained that Dhanani failed to deliver on his promises:

Anytime I called [Dhanani], only thing he says, don't worry, I take care of it, tomorrow it will be done. So tomorrow is almost 11 years. The tomorrow, I'm still wait[ing] for that tomorrow. That's why I'm here in court, otherwise I won't come here. I'm not looking for money, I just don't want to do business with this guy, this Gulshan Enterprises.

         Hashmi also testified that running out of gas negatively impacted the service station: "If you have a gas station [where] you don't have gas, you lost that customer that day, and plus people don't come back because you get like, that gas station is always out of gas." Finally, Hashmi explained that he could not purchase fuel from any other distributors without a release from Gulshan, which Gulshan refused to provide. It is undisputed that Zafar continued to perform its part of the bargain by purchasing gas from Gulshan up to the time of trial.

         Dhanani confirmed that Zafar's service station, as well as others to whom Gulshan delivered fuel, had run out of gas. And Dhanani acknowledged that Gulshan had an obligation to timely provide fuel. Dhanani stated that both parties could terminate the marketing contract, but he could not recall the specific terms of the contract.

         After hearing the evidence, including testimony from the attorneys representing Gulshan and Zafar concerning their reasonable and necessary fees, the trial court charged the jury as follows:[1]

Did Gulshan Enterprises, Inc. fail to comply with its agreement with Zafar, Inc.?
In answering Jury Question No. 1, you are instructed that a failure to comply must be material. The circumstances to consider in determining whether a failure to comply is material include:
1. the extent to which the injured party will be deprived of the benefit which he reasonably expected;
2. the extent to which the injured party can be adequately compensated for the part of that benefit of which ...

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