Opinion
No. 04-01-00284-CV
Delivered and Filed: June 26, 2002
Appeal From the 45th Judicial District Court, Bexar County, Texas, Trial Court No. 2001-CI-04677, Honorable David Berchelmann, Judge Presiding.
Reversed Remanded
Thomas H. Crofts, Jr., Michael J. Murray, Stanley W. Curry, Jr., Richard C. McSwain, and Nissa M. Sanders, for appellant.
Alex Huddleston, Jonathan S. Miles, and Andrew L. Kerr, for appellee.
Sitting: Phil HARDBERGER, Chief Justice, Alma L. LOPEZ, Justice, Paul W. GREEN, Justice.
Lyda Constructors, Inc. challenges the trial court's entry of summary judgment on their claims of breach of contract, breach of express warranty, fraud, and negligent misrepresentation against Butler Manufacturing Company. Holding the evidence raised issues of fact as to each claim, we reverse the summary judgment and remand the cause for further proceedings.
Background
In 1996, Lyda Constructors, Inc. contracted with the Northside Independent School District to build Sandra Day O'Connor High School in Helotes, Texas. In December 1996, Lyda entered a subcontract with SAC Building Corporation to construct metal buildings for the project. This subcontract held SAC "liable for any damage in connection with its work." SAC eventually contracted with Butler Manufacturing Company to supply the necessary materials.
On January 22, 1997, representatives from Lyda, SAC, and Butler met to establish a time line and estimate supply delivery dates. From this meeting, a chart ("the matrix") was drafted reflecting the dates discussed. Butler and SAC entered a supply contract, providing Butler's liability was limited to repair and replacement of products. The contract also absolved Butler of liability for any consequential delay damages. In March 1997, SAC was dissolved due to financial difficulties, and SAC's owners formed a new entity, ASC Metal Building Systems. ASC requested that Butler transfer the supply contract to it and that Lyda permit ASC to assume SAC's subcontract on the project.
In the meantime, Lyda prepared a project schedule in April 1997. Lyda claims the project schedule was based on the dates in the matrix; however, at the time the project schedule was created, Butler had already failed to comply with some of the delivery dates reflected in the matrix. In mid-April 1997, ASC adopted the supply contract with Butler, and in late April 1997, Lyda signed a new subcontract with ASC, which related back to the original subcontract with SAC. Neither the matrix nor the project schedule was incorporated into the subcontract or supply contract.
During the renegotiations, Butler expressed concern over ASC's ability to pay for the supplies delivered. Butler requested Lyda issue joint checks to ASC and Butler, naming both ASC and Butler as payees. Lyda claims Butler refused to deliver any more supplies until a joint check agreement was entered. Butler drafted an agreement, which Lyda rejected because it did not bind Butler to the terms of the ASC/Lyda subcontract. On June 3, 1997, Butler requested a copy of the ASC/Lyda subcontract because, according to a representative from ASC, Butler wanted to know what terms it was agreeing to abide by. A day later, Lyda sent Butler a letter, signed by Lyda's vice-president. The letter stated Lyda would issue checks jointly to ASC and Butler and that:
Butler Manufacturing is a material supplier and will abide by contract between ASC Metal Building Company and LYDA Constructors, Inc., to the extent of being a material supplier, but will not accept the conditions of the balance of the contract involving other suppliers, labor, etc.
Shortly after receiving the letter, Butler delivered a shipment of supplies. Butler included invoices, containing the same terms and conditions it had used in its contract with ASC to limit Butler's liability to repair and replacement.
When ASC failed to pay Butler for the delivered supplies, Butler filed suit against Lyda's surety, seeking the $209,288.74 owed by ASC. Lyda intervened, alleging Butler caused Lyda delay damages by failing to deliver the supplies timely and failing to deliver supplies complying with the project's design specifications. The trial court granted summary judgment to Butler on all of Lyda's claims. On appeal, Lyda challenges the summary judgment on its claims of breach of contract, breach of express warranty, fraud, and negligent misrepresentation against Butler.
Standard of Review
We review a trial court's grant of summary judgment de novo. Sasser v. Dantex Oil Gas, Inc., 906 S.W.2d 599, 602 (Tex.App.-San Antonio 1995, writ denied). We uphold a summary judgment only if the record establishes there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). In determining whether there is a disputed issue of material fact precluding summary judgment, evidence favorable to the nonmovant is taken as true and every reasonable inference is indulged in favor of the nonmovant. Nixon, 690 S.W.2d at 548-49. When, as here, the order granting summary judgment fails to specify the grounds, we affirm on any meritorious ground advanced in the motion. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex. 1989).
Discussion
On appeal, Lyda argues the joint check letter it sent to Butler, in addition to the parties' course of dealings, establishes a contract between Lyda and Butler. Lyda also argues the representations made by Butler regarding delivery dates, as reflected in the matrix, constitute express warranties, which are not governed by the limiting language of the Butler/ASC supply contract. Butler reasserts its summary judgment grounds, arguing: (1) there is no evidence of an enforceable contract between itself and Lyda; (2) there can be no express warranty absent privity; and (3) the terms of the supply contract immunize Butler from liability for delay damages.
• Lyda's Breach of Contract Claim
Initially, we must determine whether there is an issue of fact as to whether there is some evidence of an enforceable contract between Lyda and Butler. Because both parties dispute each others' intentions, the question of whether there was a joint check agreement between the parties is one of fact. Regardless of whether the offer and acceptance are recorded on paper, dealings between the parties can result in an "implied contract" where the facts demonstrate a "meeting of the minds" on the contractual terms. Ishin Speed Sport, Inc. v. Rutherford, 933 S.W.2d 343, 348 (Tex.App.-Fort Worth 1996, no writ). Further, the existence of an oral contract may be proved by direct as well as circumstantial evidence. PGP Gas Prods. v. Reserve Equip., Inc., 667 S.W.2d 604, 607 (Tex.App.-Austin 1984, writ ref'd n.r.e.). We look to the parties' communications and the acts and circumstances surrounding those communications. Harris v. Balderas, 27 S.W.3d 71, 77 (Tex.App.-San Antonio 2000, pet. denied); Copeland v. Alsobrook, 3 S.W.3d 598, 605 (Tex.App.-San Antonio 1999, pet. denied).
Whether a contract's existence is a question of law or fact turns on whether there is a dispute over the parties' intent. If there is a dispute over the parties' intent, the issue is factual. Foreca, S.A. v. GRD Development Co., Inc ., 758 S.W.2d 744, 746 (Tex. 1988). However, the court decides the issue as a question of law when evidence of intent is undisputed. Id.; Preston Farm Ranch Supply, Inc. v. Bio-Zyme Enter . , 625 S.W.2d 295, 298 (Tex. 1981).
• Evidence of a Contract Between Lyda Butler
Lyda argues the joint check letter constituted an offer, which was accepted by Butler by virtue of its performance, i.e., delivering supplies after the letter was received. Viewing the evidence in the light most favorable to Lyda, the evidence shows Butler refused to deliver supplies until Lyda agreed to issue joint checks. Butler attempted to draft a joint check agreement, which was rejected by Lyda. Lyda then delivered a letter, which included language indicating Butler would "abide by" the terms of the ASC/Lyda subcontract. Five days after the letter was sent, Butler delivered the first shipment of supplies to the new entity, ASC. We hold this evidence is sufficient to raise an issue of fact as to whether a contract existed between Lyda and Butler.
The Fifth Circuit has held that a joint-check arrangement does not create a direct contractual relationship between a general contractor and a supplier. United States Light Power Util. Corp. v. Liles Constr.Co . , 440 F.2d 474 (5th Cir. 1971). However, it is important to note that the cases cited by Butler regarding joint check agreements are distinguishable from the facts of our case. Lyda's joint check letter contained the additional language binding Butler to the terms of the ASC/Lyda subcontract. Further, we have indicated that evidence of a joint check agreement can serve as some evidence demonstrating the existence of a contract. Peco Constr. Co. v. Guajardo , 919 S.W.2d 736, 739-41 (Tex.App.-San Antonio 1996, no writ).
Butler refers us to the testimony of Lyda's representative that signed the letter, which provides that he issued the joint check letter to "supplement the Purchase Order between ASC and Butler." Considering the record evidence, the testimony emphasized by Butler does not demonstrate, as a matter of law, there was no contract. Butler also argues that its delivery constitutes, at most, a counter-offer to Lyda's offer in the joint check letter. Butler claims the invoice attached to the delivery, containing the same limiting language as in the supply contract, became the counter-offer and then Lyda's issuance of joint checks constitutes acceptance of Butler's counteroffer. Again, this evidence, at most, raises a fact issue as to whether a contract exists and as to the particular terms of the contract. Either way, Butler was not entitled to judgment as a matter of law.
Butler also argues that any liability resulting from a contractual breach is limited to the repair and replacement of non-conforming goods. In the ASC/Butler supply contract, Butler included express language limiting its liability. Butler argues that because the alleged Butler/Lyda contract defines Butler's promise as "in its capacity as a supplier," its liability is limited to repair and replacement. However, the question of whether this limiting language in the Butler/ASC supply contract became a part of the Butler/Lyda contract is, at most, a question of fact. Therefore, we decline to hold that Butler is entitled to judgment as a matter of law based on this argument.
• Statute of Frauds
In the alternative, Butler argues that the Statute of Frauds renders any contract between it and Lyda unenforceable. Whether the agreement at issue falls within the list of contracts governed by the Statute of Frauds is a question of law. Bratcher v. Dozier, 162 Tex. 319, 346 S.W.2d 795, 796 (1961). Butler claims the agreement at issue is governed by Statute of Frauds because it is "a promise by one person to answer for the debt, default, or miscarriage of another person." Tex. Bus. Com. Code Ann. § 26.01(b)(2) (Vernon 1987). This provision is commonly referred to as the "suretyship provision." E. Allan Farnsworth, Contracts § 6.2, (2d ed. 1987).
The Statute of Frauds is found in Section 26 of the Texas Business and Commerce Code and states: (a) a promise or agreement described in subsection (b) is unenforceable unless the promise or agreement, or a memorandum of it, is: (1) in writing; and (2) signed by the person to be charged with the agreement or by someone lawfully authorized to sign for him. If the Statute of Frauds applies, "there must be a written memorandum which is complete within itself in every material detail and which contains all of the essential elements of the agreement so that the contract can be ascertained from the writing without resorting to oral testimony." Dobson v. Metro Label Corp ., 786 S.W.2d 63, 65 (Tex.App.-Dallas 1990, no writ).
The suretyship provision applies only when the promisor agrees to become liable upon the default of another and does not apply when the promisor agrees to become primarily liable for the debt. Carter v. Allstate Ins. Co., 962 S.W.2d 268, 270 (Tex.App.-Houston [1st Dist.] 1998, pet. denied). However, even when the suretyship provision applies, there is an exception, called the "main purpose rule," that takes the "default contract" outside of the Statute of Frauds. The main purpose rule provides that even when the promisor accepts secondary responsibility for the default of another, if his "main purpose" in making the promise is to serve some interest of his own, the promise does not fall within the Statute of Frauds. Haas Drilling Co. v. First Nat'l Bank in Dallas, 456 S.W.2d 886, 891 (Tex. 1970); Gulf Liquid Fertilizer Co. v. Titus, 354 S.W.2d 378, 382 (Tex. 1962).
Therefore, to analyze the Butler/Lyda agreement with reference to the suretyship provision and the main purpose rule, we make three inquiries: (1) did Butler enter the joint check agreement to become primarily liable or did it enter the agreement to act as ASC's surety, becoming liable only upon ASC's default; (2) if it entered to become ASC's surety, did Butler receive any consideration for its promise; and (3) if so, was the receipt of the consideration Butler's main purpose in making the promise, i.e., was the consideration given primarily for Butler's own benefit. See Haas Drilling Co., 456 S.W.2d at 890. "With regard to the first inquiry, if the words used by the promisor are not clear and are susceptible of more than one meaning, the question of intent to be primarily responsible for another's debt is one for the finder of fact, taking into account all the facts and circumstances of the case." Smith, Seckman, Reid, Inc. v. Metro Nat'l Corp., 836 S.W.2d 817, 821 (Tex.App.-Houston [1st Dist.] 1992, no writ) (citing Haas Drilling Co., 456 S.W.2d at 889).
In this case, the joint check letter provided:
Butler Manufacturing is a material supplier and will abide by contract between ASC Metal Building Company and LYDA Constructors, Inc., to the extent of being a material supplier, but will not accept the conditions of the balance of the contract involving other suppliers, labor, etc.
Although Butler argues this language demonstrates, as a matter of law, that it assumed a "surety role" for ASC, we disagree. Examining the language, it appears as though Butler independently agreed to be bound by the terms of the ASC/Lyda subcontract in its capacity as a material supplier. Taking into consideration the circumstances of the case, i.e., that Butler and Lyda had met regarding the timeliness of deliveries, the provision reflects Butler, rather than agreeing to cover ASC's default, took on an obligation to abide by the subcontract "in its capacity as a material supplier." We hold there is an issue of fact regarding Butler's intent. Id.; see Ludlow v. DeBerry, 959 S.W.2d 265, 274 (Tex.App.-Houston [14th Dist.] 1997, no writ) (reversing summary judgment because a fact issue existed regarding whether the main purpose rule applied).
Even assuming the evidence demonstrates as a matter of law that Butler assumed a "surety role," we move to the second and third inquiries, asking whether Butler had something to gain by making the promise. Here, there is evidence that Butler suspected ASC's financial instability and desired the joint check agreement to ensure it received payment for delivered goods. Indeed, the evidence shows Butler refused to deliver supplies until the parties entered a joint check agreement and that Butler attempted to draft such an agreement. Therefore, we hold there was insufficient evidence to demonstrate, as a matter of law, that the Statute of Frauds applied to the contract.
• Lyda's Breach of Express Warranty Claim
The trial court also granted summary judgment on Lyda's breach of express warranty claim. Lyda claims Butler "represented that it would provide metal buildings and components that complied with the project plans and specifications." Kim Williams's affidavit states:
On January 22, 1997, representatives of Lyda, ASC, and Butler met at the Butler plant in San Marcos, Texas to finalize the details of the structural steel and to set firm dates by which ASC and Butler would complete shop drawings, detail drawings, building delivery and erection. . . . Based on this [matrix] and other representations made by Butler, there was no doubt in my mind that Butler agreed to supply the pre-engineered metal buildings and components in accordance with the Project plans and specifications and the Project schedule. Accordingly, I prepared the Project schedule incorporating the dates identified in the matrix. . . . The dates of the April 8, 1997 Project schedule are derived from the January 22, 1997 matrix.
Lyda argues these representations, which concern the quality of goods and the timeliness of delivery, are express warranties, which it relied upon in contracting with ASC."
Butler argues that Lyda's complaints about Butler's untimely deliveries are actually breach of contract claims, relying on Chilton Ins. Co. v. Pate Pate Ent., Inc., 930 S.W.2d 877 (Tex.App.-San Antonio 1996, writ denied). In Chilton, we considered a general contractor's claim that the subcontractor's failure to timely complete the work constituted a breach of warranty:
[T]he promise of timely performance is contractual and is not a warranty. The contract specifies that "[s]ubcontractor shall fully complete the Work by 500 working days, or as directed by Contractor from time to time." Failure to complete the job within the allotted time amounts to a breach of contract, if anything, but could not trigger breach of warranty liability.
Id. at 891. We also discussed the difference between a breach of contract and a breach of warranty claim:
When a party fails to deliver as promised, a breach of contract occurs. Conversely, when a seller delivers non-conforming goods, it is a breach of warranty. Under the Uniform Commercial Code ("UCC"), breach of contract damages are available for failure to perform, but not for delivery of non-conforming goods.
Id. at 892. Further, we noted:
A contract term identifies what is being sold; warranties describe the attributes, suitability for a particular purpose, and ownership of what is sold. Accordingly, for purposes of determining the existence of a warranty, the focus of the examination must be on that which is sold. In the sale of goods, the question is whether the goods delivered pursuant to the contract are in conformance with the statement or representation of the character, quality or title of the goods promised at the time of sale. Similarly, in the sale of services, the question is whether the services received conform to the character and quality of the services as promised. In short, it is the character and quality of the end product of the contract for goods or services that determines whether there has been a breach of warranty.
Id. at 891.
We hold Lyda presented evidence sufficient to raise a fact question as to whether Butler made representations regarding the delivery times of the supplies. This evidence, however, goes to Lyda's breach of contract claim, not its breach of warranty claim. Id. As previously discussed, it is unclear what the terms of the Lyda/Butler contract are. Assuming a contract between Lyda and Butler, the terms provide that Butler agrees to "abide by" the ASC-Lyda subcontract in its "capacity as a material supplier." Any representations regarding the timeliness of delivery are relevant to what Butler agreed to "abide by."
We also hold Lyda has presented sufficient evidence to raise an issue of fact as to whether Butler made representations regarding the quality of goods to be delivered. This evidence, unlike the evidence regarding timeliness of delivery, is relevant to whether Butler is bound by an express warranty. See Tex. Bus. Comm. Code § 2.313(a)(1) (Vernon 1994); Church Dwight Co., Inc. v. Huey, 961 S.W.2d 560, 568 (Tex.App.-San Antonio 1997, pet. denied). We hold the trial court erred in granting summary judgment on Lyda's breach of warranty claim.
Alternatively, Butler argues summary judgment is proper because any express warranty created is limited by the "limitation" terms included on its supply invoices. Whether the invoice disclaimer used in the ASC/Butler supply contract and on the supply invoices limited the express warranty or became a part of the Butler/Lyda contract is a question of fact.
• Lyda's Fraud Negligent Misrepresentation Claims
The trial court also granted summary judgment on Lyda's fraud and negligent misrepresentation claims. To prevail on a fraud claim, a plaintiff must demonstrate four elements: (1) a material misrepresentation; (2) made with knowledge of its falsity or made recklessly without knowledge of the truth; (3) made with the intent that the other party should act; and (4) that the other party acts in reliance on the misrepresentation and suffers injury. Eagle Prop. Ltd. v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990). To prevail on a negligent misrepresentation claim, a plaintiff must demonstrate four elements: (1) a representation made in the course of business; (2) that the defendant supplied false information for the guidance of others in their business; (3) the defendant did not exercise reasonable care in communicating the information; and (4) the plaintiff suffers pecuniary loss by justifiably relying on the representation. Fed. Land Bank Ass'n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). Applying the law to the facts of this case, to affirm the summary judgment, we must hold there is no evidence showing Butler made a misrepresentation or no evidence demonstrating Lyda relied on Butler's misrepresentations. Taking the summary judgment evidence presented in the light most favorable to Lyda, the record shows the following: Lyda set up the January 22, 1997 meeting because it "was on a tight schedule to make sure they could complete it within their allotted time." Butler represented it had the facilities to deliver the specified "supplies" in a timely manner and that Butler "had the capability and manpower to deliver those buildings in a timely fashion in accordance with those commitments." Lyda relied on the dates in the matrix to craft the project schedule. It is undisputed that Butler failed to deliver the supplies in a timely manner and that Lyda suffered substantial delay damages. We hold the trial court erred in granting summary judgment on Lyda's fraud and negligent misrepresentation claims.
Conclusion
Holding the record contains fact issues as to each of Lyda's claims, we reverse the summary judgment and remand the cause for further proceedings.