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

                IN THE SUPREME COURT OF TEXAS
                                         ══════════
                                           No. 16-0054
                                         ══════════

                      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.



        1
          Cimco brought an alternative claim for quantum meruit and also asserted claims for violation of the Prompt
Pay Act and foreclosure of a mechanic’s and materialmen’s lien. Only the contract claim was submitted to the jury.
        2
          Bartush also brought several tort claims against Cimco. The jury found in Cimco’s favor on those claims,
and Bartush did not challenge the findings on appeal.

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         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.


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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




          3
            As an alternative basis to affirm the court of appeals’ judgment, Cimco argues that no evidence supports
the jury’s finding that it failed to comply with the parties’ agreement because the parol evidence rule bars enforcement
of the disputed term regarding temperature. Cimco also made this argument in the court of appeals, but because that
court reversed the trial court’s judgment on other grounds, it did not reach the issue. We will leave it to the court of
appeals to address the issue in the first instance on remand.

                                                           4
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




        4
           Accord Gilbert v. Fitz, No. 05-16-00218-CV, 2016 WL 7384167, at *6 (Tex. App.—Dallas Dec. 21, 2016,
no pet.); Harris Cty. Util. Dist. No. 16 v. Harris Cty. Mun. Dist. No. 36, No. 01-10-00042-CV, 2011 WL 3359698, at
* 9 (Tex. App.—Houston [1st Dist.] Aug. 4, 2011, no pet.); DAVID R. DOW & CRAIG SMYSER, TEXAS PRACTICE:
CONTRACT LAW § 9.3 (2005).

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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 CONTRACTS § 241 (Am. Law Inst. 1981)). These factors 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;

       (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.

Id. The jury charge in this case listed these factors for the jury’s consideration in evaluating

whether Cimco’s failure to comply was material. The parties presented trial evidence that could

have led the jurors to reasonably disagree regarding the application of these factors, including

conflicting evidence on the parties’ communications regarding temperature requirements. By

contrast, in Mustang we held that a contractor’s failure to meet a deadline in contravention of an

express time-is-of-the-essence clause was a material breach as a matter of law. Id. at 199–200.

No such conclusive evidence of materiality exists in this case. Because reasonable jurors could




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have disagreed on whether Cimco breached a material obligation, we may not overrule the jury’s

implied finding on that issue.

       Bartush next argues that, even accepting the jury’s finding that its failure to comply with

the agreement was not excused, the court of appeals erred in holding that “Bartush’s unexcused

and material breach” (failing to pay the balance due) renders irrelevant the jury’s finding that

Cimco breached first and “precludes Bartush’s recovery under the contract.” ___ S.W.3d at ___.

Bartush contends that the court should have given effect to the jury’s damages awards to both

parties. We agree.

       While a party’s nonmaterial breach does not excuse further performance by the other party,

neither does the second breach excuse the first. To the contrary, a material breach does not

discharge a claim for damages that has already arisen. RESTATEMENT (SECOND) OF CONTRACTS §

237 cmt. e (Am. Law Inst. 1981); see also Allied Capital Partners, LP v. Proceed Tech. Res., Inc.,

313 S.W.3d 460, 465 (Tex. App.—Dallas 2010, no pet.) (citing the Restatement for the proposition

that “a material breach will not discharge an obligation of the non-breaching party that arose before

the alleged breach”). In other words, a material breach excuses future performance, not past

performance. The court of appeals turned the doctrine on its head, effectively holding that

Bartush’s nonpayment retroactively excused Cimco’s prior breach. This was error.

       In sum, the jury’s findings that Cimco failed to comply with the agreement first and that

its failure to comply was not material mean that (1) Bartush remained liable for its subsequent

failure to comply, but (2) Bartush’s claim for damages caused by Cimco’s prior breach remained




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viable.5 Cimco had a preexisting duty to perform under the contract, and the jury found that Cimco

violated that duty before Bartush breached by withholding payment.

         Accordingly, the court of appeals erred in holding that Bartush’s breach barred its recovery

of damages for Cimco’s failure to perform a preexisting obligation, and we therefore reverse the

court’s judgment. Because the court of appeals did not reach Cimco’s alternative argument that

the trial court’s judgment should be reversed on the ground that no evidence supported the jury’s

finding that Cimco failed to comply with the parties’ agreement, we remand the case to the court

of appeals to do so.

         Finally, we address the attorney’s-fees issue raised in Cimco’s cross-petition. Cimco

contends that, as a prevailing party on its breach-of-contract claim, it is entitled to a remand for a

determination of its attorney’s fees. See TEX. CIV. PRAC. & REM. CODE § 38.001. Although the

court of appeals rendered judgment in Cimco’s favor, the court held that Cimco failed to preserve

error regarding the jury’s failure to award it attorney’s fees.

         As noted, the jury awarded Cimco damages for Bartush’s failure to comply with the

agreement; however, the jury left blank Question 24—which asked the jury to assess Cimco’s

attorney’s fees—because it was conditioned on the following answers: “yes” to Question 1 (did

Bartush fail to comply); “Bartush” to Question 3 (who failed to comply first); and “no” to Question

4 (was Bartush’s breach excused). Because the jury answered “Cimco” to Question 3, it did not

answer Question 24 in accordance with the instruction. Cimco did not object to the conditional


          5
            A similar state of affairs often arises in the context of construction contracts, when a contractor sues for the
balance due and owing on the contract and the property owner counterclaims for damages for incomplete or defective
performance. See Vance v. My Apartment Steak House of San Antonio, Inc., 677 S.W.2d 480 (Tex. 1984). In such
cases, if the contractor has substantially completed performance, i.e., the contractor’s breach is not material, then the
contractor has a claim for the unpaid balance and the owner has a claim for damages. See id. at 481–82; RESTATEMENT
(SECOND) OF CONTRACTS § 237 cmt. d (Am. Law Inst. 1981).

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submission of Question 24, but did object to Question 3 on the ground that “there is no evidence

that Cimco failed to comply with the agreement.”

       The court of appeals held that Cimco waived error regarding the jury’s failure to answer

Question 24 by not objecting to its conditional submission. ___ S.W.3d at ___ n.9. Cimco argues

that its objection to Question 3 was sufficient to preserve error on the jury’s failure to answer

Question 24 because an objection to an invalid basis for liability “preserves error for any impact

the wrongful inclusion has on other charge questions.” McFarland v. Boisseau, 365 S.W.3d 449,

454–55 (Tex. App.—Houston [1st Dist.] 2011, no pet.). Because we do not consider whether any

evidence supports Cimco’s breach, and thus do not address whether Question 3 was an invalid

basis for liability, we cannot say at this point whether Cimco’s objection to Question 3 was

sufficient to preserve error on Question 24. We leave it to the court of appeals to address this issue

on remand.

       Ultimately, although both the trial court and the court of appeals purported to render

judgment in accordance with the jury’s verdict, neither court did so. The trial court improperly

ignored the jury’s finding that Bartush’s failure to comply was not excused, while the court of

appeals improperly ignored the jury’s finding that Cimco breached first. Accordingly, we grant

the parties’ petitions for review, and, without hearing oral argument, TEX. R. APP. P. 59.1, we

reverse the court of appeals’ judgment and remand the case to that court to consider the parties’

unaddressed issues.



OPINION DELIVERED: April 28, 2017




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