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declining to extend the Texas Supreme Court's decision in Formosa Plastics Corp. USA v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998), which discussed whether tort damages are recoverable for fraudulent inducement claims, "to include fraud that allegedly occurs after the formation of a contract and that results only in loss to the subject of the contract"
Summary of this case from Aspan v. Carrington Mortg. Servs.Opinion
No. 14-04-00238-CV
Memorandum Opinion of August 18, 2005.
Memorandum Opinion on Rehearing filed October 20, 2005.
On Appeal from the County Court at Law Number One, Harris County, Texas, Trial Court Cause No. 764,887.
Appellant's Motion for Rehearing Granted; Appellee's Motion for Rehearing Overruled.
Withdrawn; Reversed and Rendered.
Panel consists of Chief Justice HEDGES and Justices FOWLER and FROST.
MEMORANDUM OPINION ON REHEARING
Robert Hooker appeals from a judgment entered against him in favor of appellee Peter Nguyen, ordering Hooker to pay Nguyen approximately $250,000 in damages and attorney's fees. Hooker raises thirty-four issues in which he claims, inter alia, that the evidence was legally and factually insufficient to support portions of the verdict; that Nguyen improperly conflates breach of contract and fraud claims; and that the trial court erred in submitting questions on fraud to the jury. We withdraw our memorandum opinion issued August 18, 2005, issue this memorandum opinion on rehearing, and reverse and render.
Background
The facts giving rise to this difficult and convoluted case began in the fall of 2000, when Hooker and his partner, Brian Treusdell, contracted with Nguyen's company, CPN Construction, for Nguyen to perform the construction build-out work on a salon. The salon, Alex Burton Studios, was to be owned by Hooker Treusdell, Inc. and would consist of multiple suites or rooms to be rented to various stylists. According to Hooker, the written contract between the parties consists of four documents: a bid proposal from Nguyen dated September 28, 2000; a contract agreement also dated September 28, 2000; a written agreement dated January 18, 2001; and the plans for the salon. Nguyen claims that the contract consists of a Bid Specifications Update dated August 28, 2000, the September 28 agreement, and the salon plans. Both parties agree that the contract stipulated that Nguyen would be paid $305,159.20 for his work.
Nguyen previously had completed construction projects for Hooker on two of his other properties; Hooker described his past experiences with Nguyen as "positive." In mid-October, however, problems began to develop. Hooker first notified Nguyen in writing of problems with the construction, specifically, its lack of progress, on October 15, 2000. According to Hooker, Nguyen had failed to begin work promptly on the salon. No completion date appears in any of the documents claimed by the parties to represent a contract. At trial, Nguyen claimed that the original deadline had been February 4, 2001. By contrast, Hooker testified that he had wanted the construction completed by the time he began paying rent. To support his claim, he points to a letter to Nguyen dated November 30, 2000, in which Hooker states that "the original deadline was December 1st."
Exactly when Hooker and Treusdell began paying rent is one of the central disputes of this case. Hooker and Treusdell took possession of the property in July of 2000 but were not obligated to begin making monthly rent payments of $14,056.17 until December 1, 2000. Pursuant to the agreement reached between Hooker Treusdell, Inc. and the landlord, Hooker Treusdell received $100,000 ($10/square foot) cash up-front and approximately $10,000 per month for five months in rent abatement. This type of agreement, known in the retail leasing arena as a tenant improvement allowance, helps tenants offset the costs of permanent improvements to landlords' property. As a result, Hooker Treusdell, Inc. paid only approximately $3700 per month in rent for five months from December 2000 until April 2001. Hooker testified that the majority of the $3700 was common-area maintenance fees, also known as "CAM," for the shopping center in which Alex Burton Studios is located. In both the October and November letters, however, Hooker told Nguyen that he and Treusdell would have to begin paying $14,159.20 in rent beginning December 1, 2000.
As previously mentioned, Hooker sent the October 15 and November 30 letters to memorialize in writing the ongoing problems with the construction. Aside from the delay in the job's overall progress, the brief October letter also specifically discussed the progress of the underground plumbing work. In the November letter, however, Hooker outlined more specifically his concerns regarding the job, listing twelve items as "left to be completed." Included in this list were the sprinkler system, "a lot of Electrical [SIC] work," HVAC installation, plumbing, installation of doors and molding, painting, and the work on the drop ceiling.
On January 18, 2001, Hooker, Treusdell, and Nguyen met at a local Starbuck's to discuss the problems with the job. At that meeting, the parties signed a document entitled "Alex Burton Studios Construction Issues." The document listed various tasks to be completed; next to each task was a blank that was filled in with, presumably, the date the task was to be completed. At the bottom was the following statement (italicized portions were written in by hand):
I, Peter Nguyen will have the entire project completed by 02/04/01. If the project is not completed and Alex Burton Studios cannot open for business on this date, a fine of $ $5000 [SIC] shall be imposed by Hooker Treusdell Inc. on CPN Construction.
According to Hooker, Nguyen failed to comply with the January agreement and did not have the salon completed by February 4, 2001. On February 11, Hooker sent Nguyen a letter terminating their contract. On February 12, however, Hooker's lawyer sent Nguyen a letter informing Nguyen that he was "in substantial breach" of the agreement; the letter also listed "significant deficiencies" in Nguyen's work. Nguyen and Hooker later went over this "punch-out list," crossing out items and making other modifications to clarify what needed to be done to complete the salon.
On March 12, 2001, Nguyen sent Hooker a letter stating that he had finished the punch-out list eighteen days prior and that he was owed the remainder of the money on the contract. Nguyen stated that the amount he was owed was greater than ten percent of the original contract price. Hooker's attorney responded the following day, stating that lien waivers from all subcontractors were needed before the final contract amount would be paid. Nguyen obtained lien waivers from all subcontractors, but the final amount was never paid.
Aside from the job's slow progress, appellant claims that over the course of the job, Nguyen, among other things: improperly installed the sheetrock on the inside walls of the salon and that Nguyen's attempt to fix the problem resulted in crown molding having to be installed on all of the inside walls; painted the ceiling grid for the drop ceiling, resulting in a "sticky" grid that breaks the ceiling tiles; installed 200,000 btu electric water heaters instead of the 400,000 btu heaters as required by the contract; installed 10-ton instead of 12-ton rooftop air conditioning units, resulting in reduced cooling capacity; and performed poor plumbing work, resulting in a poorly-ventilated hot water heater room and a smell of gas in the building. Hooker sold the salon in July of 2002. The new owners assigned to Hooker their right to recovery against Nguyen for construction defects that included the plumbing and heating/ventilation/air-conditioning problems.
Nguyen filed suit in county court against Hooker and Treusdell in 2002 to recover the outstanding $44,159.20 that he claimed was still owed him under the contract. Nguyen alleged several causes of action, including breach of contract, fraud, and failure to make prompt payment under the Texas Property Code. Hooker and Treusdell counter-claimed against Nguyen, alleging breach of contract and Texas Deceptive Trade Practices Act ("DTPA") violations. Their DTPA cause of action, however, was dismissed based on the statute of limitations. Nguyen never answered the counterclaim based on breach of contract.
The case was tried to a jury in the fall of 2003. Nguyen non-suited Treusdell in the middle of trial. After four days of testimony and arguments, the jury found that Hooker failed to comply with his agreement with Nguyen; that Hooker's failure to comply with the agreement was not excused; that Hooker committed fraud against Nguyen; that the harm to Nguyen resulted from Hooker's fraud; that Hooker made a negligent misrepresentation on which Nguyen relied; that Hooker failed to make prompt payment to Nguyen; and that his failure to make prompt payment was not excused. The jury awarded Nguyen $44,159.20 to compensate him for Hooker's failure to comply with the agreement; $101,666.67 for Nguyen's damages resulting from Hooker's fraud; $44,159.20 for loss of value and $101,666.67 for monetary loss on Nguyen's negligent misrepresentation claim; $72,672.56 for Nguyen's attorney's fees; and $100,000 for exemplary damages for Hooker's fraud.
Hooker and Treusdell ended their business relationship in March of 2002. At that time, Hooker became the sole shareholder of the corporation that owned the salon.
Contradictorily, the jury found that Nguyen failed to comply with the agreement; that Nguyen's failure to comply with the warranty was a producing cause of damages to Hooker; that Nguyen did not substantially perform his obligations under the contract; and that $58,949.00 would fairly and reasonably compensate Hooker for his damages. The jury also awarded Hooker's attorney's fees in the amount of $34,599.43 for preparation and trial, as well as $10,000.00 contingent upon an appeal to the Court of Appeals and $10,000.00 contingent upon an appeal to the Supreme Court of Texas.
The $58,949.00 awarded broke down as follows: $3,949.00 for costs of remedying or repairing defects due to Nguyen's errors or omissions in performing; $5,000.00 for liquidated damages for Nguyen's late performance; $50,000.00 in diminution of value of the salon; and $0.00 for reasonable and necessary costs, including additional rents, resulting from Nguyen's errors and omissions.
Nguyen does not challenge this point on cross-appeal.
The judgment, which incorporated by reference the charge of the court and the jury's verdict, awarded Nguyen actual damages in the amount of $111,055.75 for fraud. The judgment also awarded Nguyen $100,000.00 for exemplary damages on his fraud claim; found that Hooker failed to make prompt payment; found that the failure to make prompt payment was unexcused; and awarded Nguyen $42,672.56 in attorney's fees and $10,000.00 each for an appeal to the court of appeals and to the supreme court. The judgment purported to incorporate by reference the jury's findings and provided that "All relief not granted herein is hereby denied."
This figure represents the sum of the fraud damages of $101,666.67 awarded by the jury and interest. The fraud award also included post-judgment interest and $3,974.00 in court costs.
Subsequent to trial, Hooker filed a motion with the court entitled "Robert Hooker's Partial Motion for Judgment on the Verdict, Partial Motion to Disregard Jury's Findings, Partial Motion for Judgment Notwithstanding the Verdict, Motion to Modify, Correct or Reform the Judgment, and, Alternative to the Granting of All of the Foregoing, Motion for New Trial." The trial court denied the motion in its entirety.
Hooker brings this appeal, raising thirty-four issues, which break down as follows:
• In issues one through thirteen and twenty-three through thirty-two, Hooker claims that the evidence is legally and factually insufficient to support the jury's findings regarding fraud, negligent misrepresentation, and prompt payment (and damages therefor);
• in issue fourteen, Hooker argues that his excuse for failure to make prompt payment was established as a matter of law;
• in issues fifteen through twenty and thirty-three, Hooker argues that the jury's findings on Hooker's breach of the agreement (and damages therefor), attorney's fees, and exemplary damages should have been disregarded by the trial court since Nguyen was in material breach first;
• in issue twenty-one, Hooker claims that the trial court erred in failing to enter a judgment that Nguyen take nothing on his claims;
• in issue twenty-two, Hooker urges that because Nguyen's only remedy is based on Hooker's alleged breach of their contract, the jury's answers regarding fraud and negligent misrepresentation should have been disregarded;
• and, in issue thirty-four, Hooker alleges that the trial court erred in submitting Nguyen's fraud questions due to the fact that the questions were not supported by Nguyen's pleadings.
Nguyen neither filed a cross-appeal, nor asserted an alternative theory of recovery in his reply brief. We take Hooker's issues out of order to facilitate a more orderly discussion.
Fraud and Negligent Misrepresentation: Tort vs. Breach of Contract
Although the judgment did not award Nguyen damages based on negligent misrepresentation (and despite the fact that Nguyen did not assert negligent misrepresentation as an alternative basis of recovery in the event of reversal), we address it in order to address Hooker's issue in its entirety.
In his twenty-second issue, Hooker argues that the jury's responses to questions three through seven, finding that Hooker committed fraud against and made negligent misrepresentations to Nguyen, and the jury's award of exemplary damages to Nguyen based on Hooker's fraud should be disregarded. Hooker argues that the questions improperly raise tort causes of action when the only remedy available to Nguyen was on his breach of contract claim. We agree, examining Hooker's issue under the standards as set forth by the supreme court in both Southwestern Bell Telephone v. DeLanney and Formosa Plastics Corp. USA v. Presidio Engineers and Contractors, Inc.
The DeLanney Standard
In determining whether an action sounds in contract or tort (or both), we look first to the source of the duty to act. Southwestern Bell Tel. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991); see also Willis v. Donnelly, 118 S.W.3d 10, 30-31 (Tex.App.-Houston [14th Dist.] 2003, pet. filed). In performing this task, we must look to the substance of the cause of action and not necessarily to the manner in which the action was pleaded. Willis, 118 S.W.3d at 30-31 (citing Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 617 (Tex. 1986)). A claim ordinarily sounds in contract if the conduct in question gives rise to liability only as a breach of an agreement between the parties. DeLanney, 809 S.W.2d at 494. We next consider the nature of the remedy or damages sought by the claimant. Id. As the supreme court pointed out in Reed, the nature of the injury most often determines the duty (or duties) breached; when the injury is only the economic loss of the subject of a contract itself, the action sounds in contract alone. Reed, 711 S.W.2d at 618.
Despite the fact that the jury in this case awarded a seemingly arbitrary sum of $101,666.67 to Nguyen for damages resulting to him for fraud and $101,666.67 in monetary loss and $44,159.20 in loss of value for damages from Hooker's negligent misrepresentation(s), Nguyen presented very little evidence at trial that his damages were anything except the $44,159.20 remaining on the contract and his attorney's fees. In fact, the entirety of Nguyen's direct testimony regarding his damages was as follows:
It is interesting to note that $101,666.67, the seemingly arbitrary amount awarded to Nguyen once for his damages from fraud and again for his monetary loss from the alleged negligent representation made by Hooker to Nguyen, is one-third of $305,000.00. The original contract price was $305,159.20.
MR. TANG: How much money are you asking the jury to award you?
David Tang represented Nguyen at trial.
NGUYEN: Besides the money that [Hooker] has owed me, it costs me a lot of money on this job. I have a big loss.
MR. TANG: How much does [Hooker] owe you?
NGUYEN: $44,159.
MR. TANG: Are you also asking for your attorney's fees in this case?
NGUYEN: Correct.
Nguyen's counsel asked Nguyen further questions regarding his attorney's fees and then rested. On cross examination, Hooker's counsel asked Nguyen about his damages:
MR. ARNOLD: All you want from my client is $44,000; right?
Robert Arnold represented Hooker at trial.
NGUYEN: No, I want more than that.
MR. ARNOLD: Plus you want your attorney's fees?
NGUYEN: Yes, plus the legal fees, plus the money that I spent on the job, too.
Aside from this testimonial evidence, Nguyen presented no documentary evidence of monetary damages he suffered as a result of Hooker's alleged fraud. Nguyen did claim that Hooker forced him to install several items which constituted "free upgrades" of items or equipment listed in the original plans, including light bulbs, an exit ramp, a 24-hour sign timer, and crown molding. However, Nguyen produced neither detailed statements of his costs on the project nor an accounting of losses resulting from the extra work performed or extra materials provided for the job.
Nguyen also claims that Hooker's statements to Nguyen concerning rent were indicative of fraud. In the October letter to Nguyen, Hooker stated that "Effective immediately, I want someone working on our job full time." Hooker went on to write that "[w]e have 120 days, from August 4th, to complete construction before we begin paying rent of $14,056.17 a month." Hooker made the same statement in his November letter. In Hooker's initial accounting of offsets for Nguyen's payment, Hooker includes in his list $5,000.00 in liquidated damages for late completion of the work. We find the amounts listed on the spreadsheet represent offsets against Nguyen for his alleged substandard performance rather than Nguyen's out-of-pocket expenses or losses he incurred as a result of Hooker's breach.
There is no date on the original document, but the total amount of offsets comes to $43,939.00, a difference of $220.20 from the amount Nguyen claimed that Hooker owed him when Nguyen filed suit. Two later versions of the same document, introduced at trial and (we assume) prepared after the commencement of litigation, do include a charge against Nguyen of $14,056.00 for February 2001 rent. However, because the later spreadsheets that include the full rent charge were prepared after the commencement of litigation, Nguyen does not show that he was ever charged more than liquidated damages for his late work.
Another of Nguyen's contentions is that Hooker induced him to secure lien waivers from the job's subcontractors as a way of preventing Nguyen from being able to file his own lien should Hooker not pay him. Construction contracts in Texas often require the securing of all lien waivers from subcontractors before a final amount can or will be paid to the contractor. TEX. PROP. CODE ANN. § 53.152 (Vernon 1995); see also TA Operating Corp. v. Solar Applications Eng'g, Inc., No. 04-04-00180-CV, 2005 WL 712010 at *3 (Tex.App.-San Antonio March 30, 2005); http://www.contractors.com/homeowners/resources/lien_waiver_info.html. Although Nguyen secured these lien waivers, he failed to produce evidence showing his damages independent of those arising from Hooker's alleged breach of the contract.
In conclusion, we find that Nguyen's statement "I have a big loss" and his request for "the money that I spent on the job" are inadequate to show he suffered damages arising from Hooker's alleged fraud or negligent misrepresentations. Hooker's duty to pay Nguyen the $44,159.20 arose solely from the contract. Likewise, Nguyen's damages, the $44,159.20 and his attorney's fees, were only for the economic loss caused by Hooker's failure to perform; although Nguyen pleaded fraud and negligent misrepresentation in addition to breach of contract, he clearly sought to recover the benefit of his bargain with Hooker. See DeLanney, 809 S.W.2d at 495.
The Formosa Plastics Standard
One area in which the supreme court has held DeLanney's two-pronged analysis to be inapplicable, however, is in the fraudulent inducement of a contract. In Formosa Plastics Corp. USA v. Presidio Eng'rs and Contractors, Inc., the supreme court held that "tort damages are recoverable for a fraudulent inducement claim irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff only suffers an economic loss related to the subject matter of the contract." 960 S.W.2d 41, 47 (Tex. 1998). For Formosa Plastics to preclude application of the DeLanney test, however, a claim must be one of fraudulent inducement and not of mere common-law fraud; that is, a successful claim of fraudulent inducement requires a party to present legally sufficient evidence that another party made certain representations with the intent to deceive and with no intention of performing as represented. Formosa Plastics, 960 S.W.2d at 47 ("[A]n independent legal duty, separate from the existence of the contract itself, precludes the use of fraud to induce a binding agreement."). Furthermore, as the court in Formosa Plastics noted, the evidence presented must be relevant to Hooker's intent at the time the representations were made. See id.
In this case, Nguyen argues that Formosa Plastics should apply and that his contract and fraud causes of action are therefore distinct. In his original petition, which was his live pleading at trial, Nguyen's fraud cause of action reads as follows:
5. After [Nguyen] completed the work, [Hooker] hired attorney Terrence P. Baggot of Baggot Swaim, P.C. to evade paying [Nguyen] the final payment. [Hooker] and [his] attorney made several misrepresentations to [Nguyen] regarding the substance and obligations of the parties' agreement in a concerted effort to avoid paying [Nguyen] the remainder of the contract price. [Nguyen] relied on these misrepresentations to his detriment.
Nguyen produced no evidence at trial that Hooker hired Baggot in order to avoid paying Nguyen. Furthermore, Hooker's hiring of Baggot in February of 2001 came after the execution of the January agreement. Thus, the fraudulent intent Nguyen asserts in his pleading (i.e., Hooker's hiring Baggot to avoid paying Nguyen) and the allegedly fraudulent misrepresentations made by Hooker and Baggot chronologically post-date the agreement into which Nguyen was allegedly fraudulently induced.
Even though Nguyen did show at trial that Hooker made certain misrepresentations to him in the October and November letters regarding the rent payment amounts, the record does not support findings that these misrepresentations either 1) were part of a concerted effort to avoid performing the contract or 2) as discussed above, damaged Nguyen beyond what he was owed under the contract.
Nguyen also claims that Hooker made misrepresentations to him regarding Nguyen's responsibility in installing the sprinkler system. We find that this argument has no merit. Hooker testified at trial that the reason "sprinkler system" appeared on the November 2000 list of items to finish was because Nguyen was responsible for installing the walls and the drop ceiling so that the sprinkler system could be installed by a third party. Nguyen was never forced to install the sprinkler system, and he did not show that he incurred losses resulting from Hooker's alleged misrepresentation.
In his brief, Nguyen depends heavily on Treusdell's testimony that Hooker "is the most ruthless person I've ever met in my whole life" to support his position that Hooker's conduct constituted acts of fraud. This statement is no more than an opinion without factual foundation in the record. It is of no value in establishing acts of fraud allegedly perpetrated by Hooker. Moreover, Treusdell replied "no" when asked whether he believed that Hooker had "ripped [Nguyen] off." Hooker testified at trial that his former dealings with Nguyen had been positive; furthermore, by the time Nguyen filed suit, Hooker had paid Nguyen all but $44,159.20 of the $305,000.00 contract price.
Despite Nguyen's extensive and verbatim quoting of portions of Formosa Plastics in his brief, he is unable to show us why the case should apply. We therefore find that Nguyen did not present sufficient evidence that Hooker induced Nguyen into entering into the contract by making representations with the intent to deceive and with no intention of performing as represented. See Formosa Plastics, 960 S.W.2d at 48. As a result of Nguyen's failure to show that he was fraudulently induced by Hooker into either the fall 2000 or the January 2001 "Construction Issues" contracts, we find that the Formosa Plastics standard does not apply. Id. As our sister court did in Classical Vacations, Inc. v. Air France, we decline to extend Formosa Plastics to include fraud that allegedly occurs after the formation of a contract and that results only in loss to the subject of the contract. See Classical Vacations, Inc. v. Air France, No. 01-01-01137-CV, 2003 WL 1848247 at *3 (Tex.App.-Houston [1st Dist.] 2003, no pet.) (mem. op.).
Exemplary Damages
As the supreme court noted in Reed, "to support an award of exemplary damages, . . . the plaintiff must prove a distinct tortious injury with actual damages." 711 S.W.2d at 618. Because Nguyen has failed to prove a distinct tortious injury with actual damages, we find that no support exists for the jury's award of exemplary damages. See id. The trial court therefore erred in its refusal to disregard the jury's answers regarding fraud, negligent misrepresentation, and exemplary damages. We sustain Hooker's twenty-second issue as to the jury's answers regarding fraud and the exemplary damages award.
Breach of Contract
In his fifteenth, sixteenth, and seventeenth issues, Hooker argues that the jury's findings that Hooker failed to comply with the agreement, that $44,159.20 would compensate Nguyen for Hooker's failure to comply, and that Hooker's failure to comply was not excused should have been disregarded as immaterial because "Hooker proved conclusively that Nguyen failed to comply with the contract before Hooker refused to make the final payment that would have been due under the contract," therefore excusing Hooker's non-performance. We agree.
It is a well-settled principle in Texas law that when a party to a bilateral contract commits a material breach of that contract, the other party is discharged or excused from further performance. See Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d 195, 196 (Tex. 2004) (citing Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex. 1994)); see also D.E.W., Inc. v. DEPCO Forms, Inc., 827 S.W.2d 379, 382 (Tex.App.-San Antonio 1992, no writ). A party to a contract who is himself in default cannot maintain a suit for its breach. Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex. 1990). However, the doctrine of substantial performance allows a contract action by a builder who has breached, but nevertheless substantially completed, the contract on a building project. Id. In order to recover damages for substantial performance, a builder bears the burden of proving that he actually substantially performed. Id.
First, because we are dealing with dual and conflicting findings that both parties breached the agreement, we turn to the question of whether Nguyen's breach was a material one. Pursuant to Mustang Pipeline, we consider the circumstances listed in the Restatement and cited by the supreme court that are significant in determining whether a failure to perform is material:
(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.
Restatement (Second) of Contracts § 241 (1981). In addition to these factors, the Restatement also sets forth significant circumstances that aid in a determination of whether a party's duties are discharged under a contract due to the other party's material breach:
(1) the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements.
(2) the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important.
Restatement (Second) of Contracts § 242 (1981).
The record establishes that Nguyen's breach was material. Hooker was deprived of a benefit that he reasonably expected, that is, an on-time project finished by a certain day that produced a working and workable salon with no construction defects. Within three weeks of the contract being signed, Hooker notified Nguyen that his progress on the job was inadequate and referred to an original agreed-upon date of completion. This date of completion was again mentioned in the November 2000 letter. Furthermore, in the January 2001 agreement, which was signed, unlike any of the other contract documents, by all three parties (Hooker, Nguyen, and Treusdell), each "construction issue" to be remedied by Nguyen listed a specified date of completion (e.g., under the heading "Walls Ceilings": "A. Wall capped and finished. Date: 1/28/01") (italicized date was written in by hand).
Nguyen also neglected to cure his failure to perform and his behavior did not comport with standards of good faith and fair dealing. He promised in the January contract to complete the "entire project" by February 4, 2001, and acknowledged that his failure to do so would result in liquidated damages of $5000.00. Hooker and Treusdell were to begin paying their full rent payment on March 1, 2001. Having the project completed prior to that date so that they could open the salon, and thereby begin turning a profit on their investment, was highly important to Hooker and Treusdell. In his March 12 demand letter to Hooker, Nguyen stated that he had finished the project eighteen days before. Counting back, this puts Nguyen's completion of the project, by his own admission, eighteen days late.
Eighteen days before March 12 was February 22, eighteen days after the agreed date of February 4.
In his brief, Nguyen argues that the job was completed in January of 2001, using as evidence a May 18, 2001 letter to Hooker from attorney Rob Atherton. Hooker had asked Atherton for an opinion letter on whether Nguyen and CPN (Nguyen's construction company) could file a valid mechanic's lien on the property; in the letter, Atherton states that "the contractor's own letter of March 12, 2001, acknowledges that the job was completed to the point of occupancy and operation in January of 2000." Although the salon might have been able to have been occupied, Nguyen himself admitted that he did not finish the job until February of 2001. Indeed, Atherton's letter goes on to state:
You mentioned that some of the contractor's sub continued to work on the job (apparently on what CPN refers to as the `punch out list') into February, but you are uncertain that they have been paid in full for the work that they did after the general contractor claimed the job was complete and abandoned further work.
The fact that Atherton's letter states that subcontractors worked on the job through February indicates that Nguyen had not fully completed his obligations under the contract as of January 2001. Furthermore, regardless of whether the job was completed to the point that the salon could be occupied, Hooker, Treusdell, Virginia Hahn, and Robert Boltwood all testified at trial as to numerous and ongoing problems with the construction work performed by Nguyen. This evidence points to the fact that, despite being given multiple opportunities to cure the construction defects, Nguyen never did.
Virginia Hahn served as the property manager of the salon from March of 2001 to March of 2003.
Boltwood worked at the property as the maintenance man.
Nguyen's delay also prevented Hooker from making reasonable substitute arrangements. Although Hooker fired Nguyen on February 11, 2001, he testified that he re-thought this decision based on the difficulty of having to find new subcontractors to come in and finish the job.
In addition to finding that Nguyen failed to substantially perform the contract, the jury also found that Nguyen's failure to comply with his warranty was a producing cause of damages to Hooker. The jury was instructed that "failure to comply with a warranty" meant:
Furnishing or selecting goods that were not suitable for a particular purpose if Nguyen had reason to know the purpose and also had reason to know that Hooker was relying on Nguyen's skill or judgment to furnish or select suitable goods.
Failing to perform services in a good and workmanlike manner. A good and workmanlike manner is that quality of work performed by one who has the knowledge, training, or experience necessary for the successful practice of a trade or occupation and performed in a manner generally considered proficient by those capable of judging such work.
Hooker also presented evidence at trial that he had to bring in outside contractors to repair Nguyen's work and to remedy ongoing problems that resulted from Nguyen's deficient performance.
Moreover, as mentioned, the jury answered "no" to the question of whether Nguyen substantially performed his obligations under the contract. We find that the jury, by finding that Nguyen failed to substantially perform, implicitly found that his breach was material. Other courts in Texas have held that if there is a material breach of a contract, that contract has not been substantially performed. See Cont'l Dredging v. De-Kaizered, 120 S.W.3d 380, 394 (Tex.App.-Texarkana 2003, pet. denied); Patel v. Ambassador Drycleaning Laundry Co., 86 S.W.3d 304, 309 (Tex.App.-Eastland 2002, no pet.); see also Measday v. Kwik-Kopy Corp., 713 F.2d 118, 124 (5th Cir. 1983). We see no reason why the converse should not apply; that is, that if a party fails to substantially perform, his breach of the contract is material.
Nguyen neither asked the trial court to disregard this finding nor filed a cross-appeal challenging the finding.
Based on this evidence, we hold that Nguyen committed a material breach as a matter of law; as a result, Hooker was thereafter discharged from his duties under the contract. See Mustang Pipeline, 134 S.W.3d at 200. Therefore, the trial court should have disregarded the jury's answers to the questions regarding Hooker's breach, the inexcusability of his breach, and the damages resulting to Nguyen from Hooker's breach. We sustain Hooker's fifteenth, sixteenth, and seventeenth issues.
Applying the Dobbins rule of substantial performance, we also feel it necessary to point out that, because of the jury's negative finding on substantial performance, Nguyen is unable to meet his burden of establishing substantial performance. See Dobbins, 785 S.W.2d at 378. This failure therefore bars his recovery under the contract. Id. We also note that, because the contract specified neither a completion date nor a date on which or a manner by which Nguyen would be paid, it can be assumed that Hooker's duty to pay Nguyen would not arise until Nguyen completed his obligations under the contract. See D.E.W., Inc., 827 S.W.2d at 382.
Conclusion
In his twenty-first issue, Hooker argues that the trial court erred in refusing to enter a take-nothing judgment on Nguyen's claims against Hooker. We agree. As a result of our finding that Hooker's breach was excused by Nguyen's own prior breach, which was material, the jury findings that Hooker failed to make prompt payment, that his failure to make prompt payment was not excused, and that $72,672.56 were reasonable attorney's fees, are rendered immaterial. The trial court therefore erred in refusing to disregard them. We further note that the court's award of attorney's fees to Nguyen based on Hooker's failure to make prompt payment under the Property Code was improper as a matter of law. TEX. PROP. CODE ANN. § 28.001-003 (Vernon 2000). In order to recover attorney's fees, a party must 1) prevail on his cause of action for which such fees are recoverable and 2) recover damages. Bohatch v. Butler Binion, 905 S.W.2d 597, 608 (Tex.App.-Houston [14th Dist.] 1995), aff'd, 977 S.W.2d 543 (Tex. 1998). Although Nguyen prevailed on his prompt payment cause of action, the jury did not find and the judgment did not award damages for Hooker's failure to promptly pay Nguyen. Nguyen therefore cannot recover attorney's fees from Hooker on that basis.
Because of our disposition of issues fifteen, sixteen, seventeen, twenty-one, and twenty-two, we need not address issues one through fourteen, eighteen through twenty, and twenty-three through thirty-four. We reverse the judgment of the trial court and render judgment that Nguyen take nothing on his claims and that Hooker be awarded damages in the amount of $58,949.00 and attorney's fees in the amount of $44,599.43 as well as $10,000.00 contingent upon an appeal to the Supreme Court of Texas.