Mustang Pipeline Co., v. Driver Pipeline Co.

Decision Date23 April 2004
Docket NumberNo. 02-0290.,02-0290.
PartiesMUSTANG PIPELINE COMPANY, INC., Petitioner, v. DRIVER PIPELINE COMPANY, INC., and Seaboard Surety Co., Respondents.
CourtTexas Supreme Court

Thomas H. Buchanan, Buchanan & Kent, David James Bush, Christie Lynn Ryan, Buchanan Kent P.C., Ken W. Good, Kent Good & Anderson, P.C., Tyler, for petitioner.

Joe F. Canterbury Jr., David Surratt, Canterbury Stuber Elder Gooch & Surratt, Dallas, Kent Hance, Hance Scarborough Wright, LLP, Austin, John R. Mercy, Mercy Carter Tidwell & Elliott, L.L.P., Texarkana, E. Lee Parsley, E. Lee Parsley, P.C., Austin, Thomas John Ward, Perry Womack & Ward, Clifton L. Holmes, Holmes Law Office, Longview, Deborah J. Race, Ireland Carroll & Kelley, P.C., Tyler, for respondents.

PER CURIAM.

In this breach of contract case, both parties, Mustang Pipeline Co. (Mustang), and Driver Pipeline Co. (Driver), obtained favorable jury findings as to the other's breach of a pipeline construction contract. Mustang initially brought suit against Driver for Driver's failure to complete work in a timely manner. Driver counterclaimed for Mustang's wrongful termination of the contract. 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. Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex.1994). Furthermore, if it is clear the parties intend that time is of the essence to a contract, timely performance is essential to a party's right to require performance by the other party. D.E.W., Inc. v. Depco Forms, Inc., 827 S.W.2d 379, 382 (Tex.App.-San Antonio 1992, no writ).

The court of appeals, in affirming the trial court, held that Mustang could not recover damages because Mustang failed to get a jury finding that Driver's breach was material. We hold that an express jury finding on the issue of materiality is not required when "time is of the essence." Because time was of the essence under the contract and Driver failed to timely perform, Mustang was thereafter excused from performance. We reverse in part and render judgment that Driver take nothing.

In January 1997, Mustang entered into a contract under which Driver was to construct the northern 100 miles of a 200 mile pipeline from Mont Belvieu to Longview, Texas. During the bidding process, Mustang stressed that time was of the essence and that the pipeline construction had to be completed no later than April 30, 1997. In response to this time demand, Driver increased its original bid by approximately ten percent, but was still awarded the contract. The parties agreed on a fourteen-week schedule, working eleven hours per day, seven days a week.

Driver contends that extensive rains delayed the project soon after work began. On March 3, 1997, Driver proposed shutting down pipeline construction until the weather improved. On March 5, Driver officially requested a thirty-day extension to the agreed completion date, citing adverse weather and safety concerns as the reason for the delay. At a meeting on March 6, Driver reiterated its intent to shut-down operations and wait for drier weather, and it proposed a new 161-day construction schedule.

Fifty-eight days into the ninety-eight day construction schedule, Driver had completed only fifteen miles of pipeline and suspended operations. The parties dispute whether Driver could have accomplished more during this time by using different equipment or reassigning crews to work on drier areas. The contract includes provisions explaining how the crews and pipeline welds could be protected while working in the rain, suggesting that the parties anticipated working despite at least some inclement weather. By March 17, Driver stated that it was still not ready to resume work on the pipeline, so Mustang's project engineer certified Driver to be in default under the contract. Mustang then contracted with Sunland Corporation to finish Driver's portion of the pipeline, which it completed in September 1997.

Mustang sued Driver for breach of contract to recover the cost of completion, lost profits, and attorney's fees. Driver countersued for breach of contract, alleging that Mustang wrongfully terminated the contract, and sought damages, lost profits and attorney's fees. In their respective answers, both parties raised the other's material breach as an affirmative defense.

The case was tried to a jury. At the close of trial, the following questions were included in the charge:

1) Did Driver Pipeline Company fail to comply with the contract it had with Mustang Pipeline Company?

2) Was Mustang Pipeline Company justified or not justified in terminating Driver Pipeline Company?

3) What sum of money, if any, if now paid in cash would fairly and reasonably compensate Mustang Pipeline Company for its damages, if any, that resulted from such failure to comply?

4) What sum of money would fairly and reasonably compensate Driver for its damages, if any, that resulted from Mustang's failure to comply with the Contract?

The jury found that Driver failed to comply with the terms of the contract but also found that Mustang was not justified in terminating the contract. It awarded Mustang $2,104,601 in damages for Driver's breach of contract and awarded Driver $2,515,958 in damages for Mustang's wrongful termination.

Both parties moved for judgment notwithstanding the verdict. Mustang asked the trial court to disregard the jury's finding that Mustang wrongfully terminated the contract and the damages awarded to Driver. Mustang contended that once the jury found that Driver breached the contract, it could not also find that Mustang wrongfully terminated the contract because a breaching party cannot subsequently enforce the contract. The trial court denied Mustang's motion. Driver's motion for judgment notwithstanding the verdict asked the trial court to disregard the jury's finding that Driver breached the contract and the damages awarded to Mustang. Driver argued there was no evidence of probative force to sustain the jury's answers on either the breach of contract or damages questions. The trial court refused to disregard the jury's finding that Driver breached the contract but granted Driver's motion to disregard Mustang's damage award. Thus, the trial court rendered judgment for Driver and awarded Driver actual damages, plus attorney's fees and interest.

Both parties appealed. Driver argued that the trial court erred by denying its request to impose a statutory mineral lien to protect its judgment. The court of appeals concluded that Driver did not adequately preserve the issue for review. 69 S.W.3d at 784. The need to protect Driver's right to recover was also rendered moot when Mustang filed a supersedeas bond sufficient to cover the entire judgment. Id. Mustang raised several issues on appeal, arguing that: (1) the trial court erred by refusing to disregard the jury's answer to the wrongful termination question as immaterial; (2) there was legally and factually insufficient evidence to support the jury's wrongful termination finding and the claim was precluded by the contract's termination for convenience provision; (3) the trial court erred by disregarding the jury's answer about Mustang's damages; (4) the trial court improperly assessed attorney's fees; and (5) the trial court erred by not rendering judgment against Seaboard Surety, Driver's surety company.

The court of appeals affirmed the trial court's judgment. The court of appeals reasoned that the jury's finding of Driver's breach was relevant to Mustang's liability only if the breach was material. 69 S.W.3d at 789. The court of appeals concluded that whether a party's breach is material is a fact question, and, absent an express jury finding, the trial court was not required to treat the breach as material as a matter of law. Id. at 790. The court of appeals also concluded there was factually and legally sufficient evidence to support the jury's wrongful termination finding, and the contract's "termination for convenience" clause did not preclude Driver's claim because Mustang did not raise this issue in the trial court. Id.

In response to the trial court's decision to disregard the jury's damage award to Mustang, the court of appeals concluded that Mustang did not meet its burden to show its damages were reasonable and necessary. 69 S.W.3d at 787. The court of appeals noted that although Mustang provided substantial evidence of its expenses, the "weight of authority indicates that the mere evidence of amounts paid—without more—is no evidence that those amounts were reasonable." Id. Accordingly, the court of appeals affirmed the trial court's judgment. Id. at 791. Mustang petitioned this court for review, asking us to reverse the court of appeals' judgment and render judgment for Mustang, or in the alternative, grant a new trial.

First we must consider whether the trial court erred in denying Mustang's motion for judgment notwithstanding the verdict. Mustang argues that the jury's answer regarding Driver's breach rendered the jury's answer regarding Mustang's wrongful termination immaterial, because once a party has breached it cannot later sue on the contract. See Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex.1990). Accordingly, Mustang contends that the trial court should have disregarded the jury's answer to the second question and granted its motion for judgment notwithstanding the verdict.

The court of appeals rejected Mustang's argument. It reasoned that because the jury question did not ask whether the breach was material, the trial court was not required to hold the breach material as a matter of law. 69 S.W.3d at 790. Thus, according to the court of appeals, the trial court did not err in overruling Mustang's motion for judgment notwithstanding the verdict.

The court of appeals was correct in holding that a party is released from further obligation under the...

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