Cal-Tex Lumber Co., Inc. v. Owens Handle Co., Inc., CAL-TEX

Citation989 S.W.2d 802
Decision Date25 February 1999
Docket NumberNo. 12-97-00129-CV,CAL-TEX,12-97-00129-CV
PartiesLUMBER COMPANY, INC., Appellant, v. OWENS HANDLE COMPANY, INC., Appellee.
CourtCourt of Appeals of Texas

Mike Hatchell, Tyler, Clayton E. Dark, Jr., Lufkin, for appellant.

Tom D. Rorie, Nacogdoches, for appellee.

Panel consisted of RAMEY, Jr., C.J., HADDEN, J., and WORTHEN, J.

RAMEY, Justice.

Owens Handle Company, Inc. ("Owens Co.") sued Cal-Tex Lumber Company, Inc. ("Cal-Tex") for breach of contract and violation of the Texas Deceptive Trade Practices Act ("DTPA"). The jury awarded Owens Co. $1,299,445 in damages on the breach of contract action, and $1,299,445 in actual damages plus $50,000 in exemplary damages on the DTPA cause of action. Owens Company subsequently elected to recover under breach of contract. Cal-Tex appeals raising six points of error. We will reverse and remand for a new trial.

I. FACTUAL BACKGROUND

The factual background underlying this suit spans nearly seven years. In 1987, George Schmidbauer, a California businessman, delegated to Barry Ogletree the job of constructing and managing Cal-Tex Lumber Company, Inc. ("Cal-Tex") a state of the art, high volume, sawmill in Nacogdoches, Texas. The mill was to use lumber milling procedures that Schmidbauer had perfected in California. Thereafter, in the summer of 1987, during Cal-Tex's construction, Ogletree contacted Bill Owens, President of Owens Handle Company, Inc. ("Owens Co."), an established handle manufacturing company located in Conroe, Texas. Ogletree inquired as to whether Owens's business would be interested in installing a broom handle operation in one end of Cal-Tex's newly designed mill. 1 Since Ogletree and Owens had both grown up in families active in the East Texas lumber industry, the two had been acquainted since the 1950's. Owens expressed enthusiastic interest in the proposal, and plans for the project quickly developed.

In contemplation of this union, Ogletree, with Schmidbauer's approval, built an additional bay at Cal-Tex to house Owens Co.'s broom handle recovery operation. The two companies thereafter worked together, and with the aid of Kelsie Roach, the engineer who had designed the Cal-Tex facility, they created what they asserted was an efficient, innovative layout for installing Owens Co.'s operation on the mill or mezzanine floor of Cal-Tex's facility. Thereafter, in September of 1988, with Schmidbauer's knowledge and approval, Owens Co. and Cal-Tex memorialized their basic obligations to one another in a succinct Production Contract. 2 The parties also executed a separate Pricing Agreement at that time. Following execution of the contracts, Owens located an expensive, specially manufactured gang saw (the "Producto saw") to be installed and used by Owens in its operations at Cal-Tex. Prior to purchasing the saw, however, Owens provided Ogletree with a sample of the Producto saw's wood chips. Ogletree thereafter approved the chips and gave Owens Co. his approval to make the purchase. Owens testified that prior approval was sought since Ogletree had emphasized Schmidbauer's interest in achieving the maximum utility of all wood by-products including wood chips, which if properly sized, could be sold to paper companies.

A few months later, in February of 1989, Cal-Tex terminated Ogletree's employment with the company. Owens Co. thereafter dealt with Schmidbauer and his son-in-law, Art Patterson, who was Cal-Tex's comptroller, and at some point, its part owner. Despite the fact that Ogletree had previously approved the Producto saw's wood chips and had advocated installation of Owens Co.'s operation on the mill floor with Schmidbauer's knowledge, Schmidbauer was critical of both the Producto saw's wood chips and Owens Co.'s plans for installing its equipment on the mill floor.

In March of 1989, Owens arranged another meeting with Schmidbauer to coincide with his trip to Texas. Although Owens and Roach traveled to Cal-Tex on the appointed day, Schmidbauer refused to see them. Ten days later, on March 27, 1989, Owens wrote to Schmidbauer in California and detailed the history of his dealings with Cal-Tex. He explained the numerous trips he had made to Cal-Tex for discussions with Ogletree, the sketches, blueprints and layouts of the Cal-Tex bay area which had been designated for his square recovery equipment, and his conversations with Ogletree during which Ogletree had explained to Owens his plans for placing Owens Co.'s equipment on the mill floor. Owens then explained that based upon these representations from Ogletree, he had incurred significant expenses for engineering services and specially designed equipment and that he was committed to further financial outlay to perform under the contract. Owens then asked Schmidbauer to carefully consider the situation and examine Cal-Tex's position regarding preparation of the work area at Cal-Tex.

On March 31, 1989, without addressing the concerns in Owens' letter, Schmidbauer wrote to Owens setting forth a different scheme for removal of usable wood from the edging conveyor which placed the operation on the ground floor. At the close of Schmidbauer's letter, he stated that Cal-Tex could design the proposal for Owens Co., so Roach would not need to be consulted. Enclosed with his letter was a sketch of his proposed edging strip removal scheme. Two weeks later, Owens responded to Schmidbauer's letter expressing his concerns about safety aspects of the new ground floor. Owens additionally stated that he would have to employ three additional people to operate it in the way Schmidbauer suggested. He, nevertheless, made an alternate proposal for a ground floor retrieval method, but requested that Schmidbauer reconsider placing the operation on the mill, rather than ground, floor. Owens closed by stating that he was eager to get a plan "hammered out" so production could begin "ASAP."

On April 27, 1989, Art Patterson wrote Owens stating that they had thought the 1988 Production Contract contained the parties' entire agreement, but apparently that was not Owens' understanding. He then requested that Owens send them a letter that detailed "the entire agreement at this point between Cal-Tex Lumber Company, Inc. and Owens Handle Company, Inc. as you understand it." Patterson further requested that Owens include "any oral agreements Barry Ogletree may have made with you," any dollar value limits on expenditures that were discussed, and specific equipment, manpower, and raw materials that were to be provided by Cal-Tex. Patterson then stated: "Please understand that it is very difficult for us to keep commitments to you if we have no knowledge of them." He then closed by stating that Cal-Tex looked forward to a "clearer understanding of our business relationship."

On May 2, 1989, in an attempt to reconstruct the parties' agreement, Owens wrote Patterson and provided what he described as a brief synopsis of events that transpired over an eighteen-month period. Owens stated that he was instructed to come up with a layout and equipment selection that would: (1) be placed on the mill floor to facilitate close supervision; (2) would use thin kerf saws to maximize chips; and (3) require the minimum amount of labor. He then explained that he was specifically instructed to plan for equipment on the mill floor because of the way Ogletree told him the equipment would set up. Owens also described in some detail why he had been instructed to place the equipment on the mill floor. As for money matters, Owens stated that no discussions had taken place about the amount of money budgeted for the square production operations, but he did state that he was told that "an extra bay of the Cal-Tex sawmill building was being constructed to house this operation." Owens further stated that at one time he was shown a transformer and motor control center and told that it was for his operation. He further stated:

During the entire period, I worked under the understanding that I would design the layout, and purchase and provide the equipment necessary to cut, rip, and convey the material. Cal-Tex would provide the building bay, upper floor, electrical and labor. The responsibility for labor was changed in the fall of 1988.

Following this letter, Schmidbauer expressed concerns regarding the lack of indemnity and insurance provisions in the Production Contract, and the parties discussed modifying the contract. Owens stated that he had the original contract on his computer and would be glad to add provisions for insurance, indemnity and a purchase option. In connection therewith, Cal-Tex forwarded their requested provisions. Owens incorporated those provisions, made a few minor changes of his own, and in July of 1989, Owens forwarded to Leon Ray a proposed new production contract. In his cover letter, he stated that he had not had Roach develop another blueprint pending a basic acceptance of the enclosed agreement. He, however, stated that he was ready to proceed with that once they had their questions and concerns resolved.

In August of 1989, Cal-Tex executed two signed copies of the newly proposed agreement. Owens Co., however, did not execute the agreement until February of 1990. The newly executed contract contained thirteen provisions instead of the original ten, and it adopted the 1988 Pricing Agreement previously agreed to by the parties.

Following execution of the 1990 Contract, on April 24, 1990, Owens wrote to Ray and Patterson and provided them with a list of equipment and the respective horsepower for each item that he had purchased "based upon three cut lines and the ripsaw located at mill floor elevation." He further stated that if the decision was made to put it on the ground floor, he would probably require additional conveyors, both descending and elevating. Owens testified that this list had been requested so that Cal-Tex could acquire the proper size motor controls for the electric motors that would be...

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