Lafarge Corp. v. Wolff, Inc.

• Decision Date: 24 September 1998
• Docket Number: No. 03-97-00741-CV,03-97-00741-CV
• Citation: 977 S.W.2d 181
• Parties: LAFARGE CORPORATION, Appellant, v. WOLFF, Incorporated, Appellee.
• Court: Texas Court of Appeals

Page 181

977 S.W.2d 181

LAFARGE CORPORATION, Appellant, v. WOLFF, Incorporated, Appellee.

No. 03-97-00741-CV.

Court of Appeals of Texas,

Austin.

Sept. 24, 1998.

Jess M. Irwin, III, Herring & Irwin, L.L.P., Austin, for Appellant.

Christa Brown, Austin, for Appellee.

Before POWERS, KIDD and B.A. SMITH, JJ.

POWERS, Justice.

Wolff, Incorporated sued Lafarge Corporation for breach of contract. A jury returned a verdict in favor of Wolff awarding Wolff $1,380,000 in actual damages and $207,000 in attorney's fees. The trial court rendered judgment in favor of Wolff for $1,323,911 in actual damages, $63,000 in prejudgment interest, and $207,000 in attorney's fees for a total of $1,593,911. We will reverse the judgment and remand the cause for a new trial.

THE CONTROVERSY

In 1980, Wolff entered into a "Clay Mining and Delivery Contract" with General Portland, Inc., Lafarge's corporate predecessor. ¹ The contract required Wolff to quarry clay from property owned by Lafarge and to deliver the clay to Lafarge's cement manufacturing plant near New Braunfels. Wolff was required to provide its own equipment, materials, labor, machinery, and supplies. In addition to mining and hauling the clay, Wolff had to maintain the necessary haul roads and pump water out of the clay pits.

The contract was a requirements contract under which Lafarge was required to pay Wolff a monthly service charge equal to the greater of one of two calculations: either the "contract" price, or the "minimum" price. The contract price amounted to $3.59 per ton of clay mined and delivered. The minimum price amounted to $2.25 per ton plus an additional "base amount," which was reached by adding a figure from a table. This figure was based on the amount of clay delivered in the preceding month. ² The contract also provided:

Once the Base Amount has increased pursuant to the [included] schedule, it shall not be reduced even though the number of tons delivered to the Plant declines to a lower level.

Thus, if several months passed in which Lafarge required little clay, Wolff could count on receiving at a minimum the "base amount." At the time events giving rise to the controversy took place, the base amount In 1985, the five years expired. The parties renewed the contract with changes. Nelson Wolff, president of Wolff, and J.T. Hill, the plant manager at Lafarge's New Braunfels plant, negotiated the new terms. Under the new terms, Wolff was required to haul away the "by-pass dust" that was generated during the clay mining process at no extra charge and to make additional capital investments of about $375,000 for equipment and facilities at the site of the clay pit. In exchange for these added obligations, Wolff obtained from Lafarge a right to renew the contract for two additional five-year periods. ³

had reached $20,000 per month. The contract had a term of five years.

Hill sent the proposed contract to Lafarge's headquarters for approval. Hill's superiors returned the document, having added the language emphasized in the following passage:

The contractor shall have the option to further renew the contract for two (2) additional five-year periods on the same terms and conditions by giving written notice.... Notice to be given 90 days prior to the 28th day of May, 1995 to extend the contract to May 27, 2000, provided however that nothing contained herein shall obligate owner to continue operation of owner's plant or the manufacture of cement.

After discussion, the parties signed the contract.

In September 1994 Lafarge sold the concrete plant to Sunbelt Cement. With no advance notice to Wolff, Lafarge sent a letter to Wolff stating that Wolff's services would no longer be needed. Lafarge stated simply that it had sold the plant and was therefore "terminating" the contract pursuant to the italicized proviso above. Sunbelt hired another hauler.

Wolff thereupon found itself with no contract and idle clay-hauling equipment it had purchased to perform the Lafarge contract. Wolff gave Lafarge notice it was exercising its second option to extend the contract to the year 2000, and demanded continued payment of the monthly $20,000 "base amount." Lafarge refused to pay. This lawsuit ensued.

DISCUSSION AND HOLDINGS

Lafarge focuses on four issues on appeal. First, Lafarge contends it did not breach the contract. Second, Lafarge contends that even if it breached the contract, Wolff suffered no damages or the damages were improperly calculated. Third, Lafarge contends the evidence was insufficient to support the award of attorney's fees. Finally, Lafarge contends the trial court erred in rendering partial summary judgment in favor of Wolff on Lafarge's counterclaim.

Breach

Lafarge argues in points of error six through eight that the evidence does not support a finding that it breached the contract. ⁴ Lafarge argues it had a right to terminate the contract unilaterally upon the sale of the plant. Lafarge relies on the contract proviso "that nothing contained herein shall obligate owner to continue operation of owner's plant or the manufacture of cement."

The trial judge found this clause to be ambiguous, and allowed the parties to testify as to their intent regarding the proviso. Whether a contract is ambiguous is a question of law that must be decided by examining the contract as a whole in light of the circumstances existing when the contract was made. National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995); Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983). A contract is not ambiguous if it can be given a definite or certain meaning as a matter of law. CBI, 907 S.W.2d at 520; Coker, 650 S.W.2d at 393; Universal C.I.T. Credit Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 157 (Tex.1951). On the other hand, if the contract is subject to two or more reasonable interpretations after applying the pertinent rules of construction, the contract is ambiguous, which creates a fact issue regarding the parties' intent. Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.1996); Daniel, 243 S.W.2d at 157; see also generally CBI, 907 S.W.2d at 520. If the instrument is ambiguous, the court may admit extraneous evidence to determine its true meaning. Enochs v. Brown, 872 S.W.2d 312, 319 (Tex.App.--Austin 1994, no writ); Connelly v. Paul, 731 S.W.2d 657, 660 (Tex.App.--Houston [1st Dist.] 1987, writ ref'd n.r.e.).

The proviso clearly states that Lafarge is not obligated to continue operation of the plant; it fails, however, to state the consequences of a shut-down. ⁵ The obvious question is whether the parties intended that if Lafarge sold its plant Wolff's right to compensation would terminate.

Wolff argues it is absurd to believe Lafarge could unilaterally end all obligations to Wolff simply by selling the plant. Wolff points out that the 1985 contract renewal obligated Wolff to make significant capital expenditures in order to perform services for Lafarge and to take on additional tasks without extra compensation. In exchange for these new obligations, Wolff was given an option to renew the contract in order to recapture its capital expenditures over time. And, Wolff argues, if the proviso allowed Lafarge to terminate at will its obligations, Wolff's options to renew the contract would be illusory and worthless. Instead, Wolff contends, the clause was intended to cover the situation in which an economic downturn caused temporary cessation of production at the plant. In that event, Wolff could not complain of Lafarge's lack of clay requirements. ⁶

We agree the parties' intent regarding the meaning of the clause is not clear. Each party advances a reasonable explanation; at least, each party advances an explanation as reasonable as could be expected given the wording of the proviso. We believe the trial judge correctly permitted the parties to introduce evidence regarding their intent.

Nelson Wolff testified that when he read the proviso, he did not understand it. He asked Hill, Lafarge's negotiator, what the proviso meant. Hill, equally unsure, telephoned Lafarge's headquarters and was told the proviso would allow Lafarge to cease production in the event of an economic downturn. Hill so explained the proviso to Wolff and told Wolff it would not apply unless the plant shut down for economic reasons. Wolff then signed the contract. ⁷ Both Wolff and Hill agreed that, as they understood the contract at the time of signing, a sale of the plant would not free Lafarge from its obligation to pay Wolff the "minimum price" for the duration of the contract.

The jury was asked to resolve the question of whether the parties intended that a sale of the plant would end Lafarge's obligations to Wolff under the contract. The jury question was as follows:

QUESTION NO. 1

Did Wolff, Incorporated and Lafarge Corporation agree that their contract would not terminate upon sale of the plant?

It is your duty to interpret the following language of the 1985 Reformation and Addendum to the Clay Mining and Delivery Contract: "PROVIDED HOWEVER THAT NOTHING CONTAINED HEREIN SHALL OBLIGATE OWNER TO CONTINUE OPERATION OF OWNER'S PLANT OR THE MANUFACTURE OF CEMENT."

You must decide its meaning by determining the intent of the parties at the time of the 1985 Reformation and Addendum. Consider all the facts and circumstances surrounding the making of the agreement, the interpretation placed on the agreement by the parties, and the conduct of the parties.

Answer "Yes" or "No".

The jury answered, "Yes." We conclude the answer was supported by the evidence.

In its ninth and tenth points of error Lafarge contends the trial judge erred in refusing to submit an issue on whether Lafarge breached the contract. ⁸ The requested issue inquired as follows: "Did Lafarge Corporation fail to comply with the contract?" The trial judge denied the request.

Whether a party has breached a contract is a question of law for the judge, not a question of fact...