Textile Rubber v. Thermo-Flex Techs.

• Decision Date: 09 December 2009
• Docket Number: No. A09A2178.,A09A2178.
• Court: Georgia Court of Appeals
• Parties: TEXTILE RUBBER & CHEMICAL COMPANY, INC. v. THERMO-FLEX TECHNOLOGIES, INC.

687 S.E.2d 919

301 Ga. App. 491

TEXTILE RUBBER & CHEMICAL COMPANY, INC. v. THERMO-FLEX TECHNOLOGIES, INC.

No. A09A2178.

Court of Appeals of Georgia.

December 9, 2009.

Coppedge & Leman, Warren N. Coppedge, Jr., Dalton, for appellant.

Edward Hine Jr., Rome, Daniel R. Hoyt, for appellee.

BLACKBURN, Presiding Judge.

In this breach-of-contract action, Textile Rubber & Chemical Company appeals the summary judgment granted to Thermo-Flex Technologies arising out of Textile's anticipatory breach of its contract with Thermo-Flex. We hold that the evidence is undisputed that Textile breached the contract by its anticipatory actions and that judgment in the amount of $500,000 (plus interest) was properly entered. However, because the other $1.5 million due under the contract was to be paid out of a percentage of Textile's divisional net profits (after net income had reached a certain point), we vacate and modify the damage formula to be followed in determining the present-value amount of these remaining damages.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56(c). A de novo standard of review applies to an appeal from a grant of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant. Matjoulis v. Integon Gen. Ins. Corp.¹.

So viewed, the evidence shows that on August 11, 2006, Textile and Thermo-Flex entered into an agreement whereby Thermo-Flex sold certain carpet-making technology to Textile for $3 million, with $500,000 to be paid at closing, $500,000 to be paid on January 1, 2007, $500,000 to be paid on December 31, 2007, and the remaining $1.5 million to be paid in quarterly installments from 25 percent of Textile's "Thermo-Tex" divisional net profits (after the net income of this division had totaled $6 million) until paid in full. Regarding the quality of the technology purchased, Textile agreed that it was buying such technology "in an "as is" condition, that no warranties of any type (whether for merchantability or fitness for a particular purpose or use, express or implied, or otherwise) are being made by [Thermo-Flex], and that any and all such warranties are hereby expressly disclaimed to the fullest extent allowed by Georgia law." The parties reiterated this disclaimer in the bill of sale as follows:

NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND WHATSOEVER INCLUDING BUT NOT LIMITED TO, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE, ARE BEING MADE WITH RESPECT TO ANY OF THE FOREGOING AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED TO THE FULLEST EXTENT ALLOWED BY GEORGIA LAW.

Textile paid the $500,000 due at closing and the January 1, 2007 $500,000 payment. As the time approached for the December 31, 2007 $500,000 payment, Textile determined that the technology purchased from Thermo-Flex was defective in that the technology resulted in far too many "volatile organic compounds" ("VOCs") being produced, which raised environmental concerns. Textile maintained that Thermo-Flex's president had specifically represented, promised, and warranted to Textile during contract negotiations that the amount of VOCs produced from the technology would be insignificant. Textile conceded that prior to buying the technology, Textile's representatives had run many tests on the technology but had not run a test on the technology's production of VOCs.

Concerned that resolving this VOC problem would be costly, Textile's representative met with Thermo-Flex's president on December 21, 2007, and informed Thermo-Flex in no uncertain terms that:

(a) Textile would not pay $500,000 to Thermo-Flex on December 31, 2007;

(b) Any funds expended by Textile in response to the VOC issues would be deducted from any future payment by Textile to Thermo-Flex; and

(c) Any future profit sharing paid to Thermo-Flex:

(1) would be paid after Textile recovered its investment in the technology;

(2) would be based only on those profits, if any, resulting directly from the technology; and

(3) would not be based on any profits resulting from any modification or improvement of those assets to correct the VOC issues with which the misrepresentations of Thermo-Flex were concerned.

Thermo-Flex refused to accept these stipulations and filed suit that same day for anticipatory breach of contract. Textile indeed did not pay the December 31, 2007 $500,000 payment to Thermo-Flex, instead paying such an amount to an escrow agent unassociated with Thermo-Flex. Textile eventually resolved the VOC problem by altering the process and changing suppliers of a chemical. In its answer, Textile asserted a counterclaim for breach of contract arising out of the VOC problems.

Thermo-Flex twice moved for partial summary judgment. Following the second motion, the trial court granted Thermo-Flex summary judgment in its favor as to the issue of anticipatory breach, as to Textile's liability for the unpaid December 31, 2007 $500,000 payment (plus interest), and as to Textile's counterclaim for breach of contract. As to Thermo-Flex's claim for the $1.5 million remaining due under the contract to be paid from net profits, the court ruled that Thermo-Flex was entitled to "some or all of the $1.5 million if it can show with reasonable certainty the extent to which Defendant could have used the technology profitably." This issue was to be resolved by a jury. Textile appeals, claiming that the court erred in ruling that an anticipatory breach had been shown, that the $1.5 million could be recovered at this time, and that the counterclaim's breach-of-contract claim was unsupported.

1. Textile first claims that the trial court erred in ruling that the undisputed evidence showed an anticipatory breach of contract. We disagree.

The anticipatory repudiation of a contract occurs when one party thereto repudiates his contractual obligation to perform prior to the time such performance is required under the terms of the contract. Thus when one party to a bilateral contract of mutual dependent promises absolutely refuses to perform and repudiates the contract prior to the time of his performance, the innocent party is at liberty to consider himself absolved from any future performance on his part. The breach which will form the basis for an anticipatory breach of contract action is an unqualified repudiation of the entire contract prior to the time for performance.

(Punctuation omitted; emphasis in original.) Coffee Butler Svc. v. Sacha.² See Clark v. Cox³ ("[w]hen appellant repudiated his contractual obligation to perform prior to the time performance was required, an anticipatory repudiation of the contract occurred, forming the basis of [a] breach of contract action"); J.M. Clayton Co. v. Martin.⁴

Here, Textile freely admits that it told Thermo-Flex on December 21, 2007 in no uncertain terms that Textile would not be making the December 31, 2007 $500,000 payment, even though the contract specified no conditions on that payment. Textile further informed Thermo-Flex on that date that it was going to deduct its VOC expenses from any future payments, even though nothing in the contract allowed such, and that it was unilaterally altering the arrangement for payments out of future profits. These unilateral ultimatums, which Textile has followed with precision, constituted an absolute refusal to perform the contract as per its express material terms and thus was an unqualified repudiation of the entire contract prior to the time of performance. See ...