Westlake Petrochemicals, L.L.C. v. United Polychem, Inc. ( 2012 )

Case: 10-20634 Document: 00511931930 Page: 1 Date Filed: 07/24/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 24, 2012
No. 10-20634 Lyle W. Cayce
Clerk
WESTLAKE PETROCHEMICALS, L.L.C.,
Plaintiff-Appellee-Cross-Appellant
v.
UNITED POLYCHEM, INC.,
Defendant-Appellant-Cross
Appellee
LYNN VAN DER WALL,
Defendant-Cross Appellee-
Appellant
Appeals from the United States District Court
for the Southern District of Texas
Before JONES, Chief Judge, and WIENER and GRAVES, Circuit Judges.
WIENER, Circuit Judge:
Defendant-Appellants-Cross-Appellees United Polychem, Inc. (“UPC”) and
Lynne Van Der Wall (“Van Der Wall”) (collectively, “Appellants”) and Plaintiff-
Appellee-Cross-Appellant Westlake Petrochemicals, L.L.C. (“Westlake”) appeal
different results of a jury trial. At the core of that trial was an agreement
between UPC as buyer and Westlake as seller of ethylene, a petroleum product.
The jury found that (1) the parties had formed a binding contract, (2) UPC
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breached that contract, and, as a result, (3) UPC was liable to Westlake for $6.3
million in actual damages and $633,199.67 in attorneys fees. The district court
entered a final judgment in which it awarded Westlake damages and attorney’s
fees against UPC under the jury’s verdict and also held Van Der Wall jointly and
severally liable under the terms of a guaranty agreement (the “Guaranty”). UPC
and Van Der Wall appeal those aspects of the jury verdict and the district court’s
ruling, contending that (1) a binding contract was not established, (2) the district
court did not apply the correct measure of damages, and (3) Van Der Wall is not
jointly and severally liable for the jury verdict under the terms of the Guaranty.
We affirm in part and reverse and remand in part.
I. Facts & Proceedings
A. Facts
UPC is a distributor of petrochemicals and plastics. In 2008, it sought to
enter the market for ethylene, a petroleum product used in making plastics, with
the intention of buying and reselling the compound. To facilitate UPC’s
acquisition of ethylene, Van Der Wall, as UPC’s President, gave permission to
a bilateral broker, Lawson Brice,1 to bid for five million pounds of ethylene per
month during calendar year 2009 at a fixed price of $0.54 per pound. On July
2, 2008, Brice matched UPC’s bid with an offer from Westlake, and Westlake
agreed to the transaction, subject to credit approval.
Under industry custom, after a bilateral broker matches a bid with an
offer, the broker “lifts the veil,” revealing the buyer’s and seller’s respective
identities to one another. It is at this point that a deal is considered to be “done,”
i.e., the parties have reached an agreement. The broker typically sends a
1
A bilateral broker acts as an intermediary in the market, representing a bid to buy
and an offer to sell. According to Brice’s testimony, bilateral brokers are “neutral
intermediar[ies]” and do not “take title to any materials . . .[and] do not have an incentive to
see the price go up or down.”
2
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written confirmation to each party notifying them that the deal is done, meaning
that there is a contract. Following the lifting of the veil, the parties have a brief
window of time during which either may cancel the transaction, with or without
any grounds.2
After matching UPC’s bid with Westlake’s offer on July 2, 2008, Brice sent
an instant message to Westlake’s Chief Financial Officer, Bryan Chappelle,
informing him that the deal was done. Brice also sent Chappelle an email that
same day stating “Please find your attached confirmation (pending credit with
UPC).” That attachment identified the product and stated the price, the volume,
and the method, time, and place of delivery. Brice also sent Van Der Wall an
email setting out the same transactional terms and stating “ . . . please accept
this email as a ‘pre-confirmation,’ detailing today’s transaction.”
At trial, Brice testified that his email to Van Der Wall was in fact a
confirmation of the deal that he had brokered that afternoon. He further
testified that he had used the term “pre-confirmation” because his company had
decided to delay billing UPC for the transaction because UPC was to pay
additional fees for access to an exchange market of buyers and sellers of
ethylene. Westlake presented additional testimony at trial indicating that
parties to such transactions typically negotiate specific credit arrangements
after a contract has been reached, usually about one or two months before
shipment.
Neither party cancelled the transaction either immediately or within five
days after the veil was lifted on July 2, 2008. Instead, they began negotiating
credit terms and planning for performing the transaction. UPC’s Chief Financial
Officer, Mark Selawski, sent credit references and banking and financial
2
Westlake and the Appellants presented different interpretations of how long this
period lasts: Westlake insists that this period typically lasts no more than a day; Appellants
contend that it may last up to five days.
3
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information to one of Westlake’s credit analysts, Leticia Aleman. Concurrently,
Westlake began purchasing ethane, the feedstock for ethylene, for the dual
purposes of fulfilling its obligation to UPC and supplying one of its subsidiaries
with ethylene.
After reviewing UPC’s financial information, Westlake rejected “open
credit” for UPC whereby it would simply deliver the ethylene and await
payment. In response, UPC proposed that Van Der Wall would execute a
personal guaranty as security for UPC’s credit. It was at this point that
Westlake provided a printed guaranty form to Van Der Wall which Westlake had
drafted. It stated that Van Der Wall is responsible for:
all liabilities or obligations of [UPC] whether from invoices,
promissory notes, drafts, checks, and all other charges, which may
now be outstanding or owing from, or which may be incurred
hereafter by [UPC] to [Westlake]. . .
Westlake’s form also states that Van Der Wall has the right to terminate the
Guaranty on 30 days’ written notice, and that, on such termination, Van Der
Wall:
shall not be responsible for any indebtedness created or incurred by
[UPC] hereafter, but shall remain liable hereunder for any
indebtedness created or incurred by [UPC] prior to such
termination.
Van Der Wall signed the guaranty form and returned it to Westlake on July 23,
2008.
In August, Westlake rejected extending credit to UPC based on the
Guaranty alone. On September 22, 2008, Selawski sent an email to Aleman
proposing to secure UPC’s credit with a $2 million letter of credit in addition to
Van Der Wall’s Guaranty. On October 3, 2008, Aleman updated Westlake’s
system with the proposal. She testified that she left Selawski a voicemail
message requesting that UPC open the letter of credit before the first shipment
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and inquiring about the bank that would issue the letter of credit. Selawski
testified that he never received that message.
Westlake presented evidence indicating that the market price for ethylene
dropped sometime in the fall of 2008, thus turning against UPC’s ethylene
position. On October 30, 2008, Chappelle sent an email to Van Der Wall,
informing him that Westlake was setting up billing in its system for the sale.
Van Der Wall replied, “[w]e never closed the deal. We were not approved for
credit.” On November 4, Westlake contacted UPC to inform it that Westlake had
approved UPC’s credit on the terms of Selawski’s September 22 offer of security
and sought assurance of performance on the contract. Later that day, Van Der
Wall informed Westlake that UPC would not perform under the contract because
Westlake had not confirmed credit. After UPC repudiated, Westlake decided not
to proceed with acquiring ethylene from a supplier in anticipation of delivering
ethylene to UPC, although it had procured ethane, the feedstock of ethylene, for
the purpose of supplying one of its subsidiaries in addition to meeting its
obligation to UPC.
Westlake filed this suit in state court on November 10. On December 10,
2008, Van Der Wall formally notified Westlake, through his attorney, that he
was terminating his Guaranty. The Guaranty’s termination took effect thirty
days later, on January 9, 2009.
B. Proceedings
As noted, Westlake filed suit in state court against UPC and Van Der Wall
on November 10, 2008, claiming that UPC breached its contract by refusing to
perform and that Van Der Wall breached the Guaranty by refusing to satisfy
UPC’s obligations. UPC removed the case to federal court under diversity
jurisdiction pursuant to 28 U.S.C. § 1332 and counterclaimed that Westlake had
breached the agreement.
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At the conclusion of a two-week trial in April 2010, the jury found that
UPC and Westlake had formed a binding contract in July of 2008 and that UPC
had breached that contract. The jury awarded Westlake $6.3 million in damages
and $633,199.67 in attorneys fees. The jury did not decide whether Van Der
Wall had breached the Guaranty because the parties had agreed to have the
presiding judge decide this issue.3
The district court entered a Final Judgment in which Westlake was
awarded damages and attorneys fees pursuant to the jury verdict. The district
court later entered an Amended Final Judgment in which it awarded interest to
Westlake and held that Van Der Wall was jointly and severally liable under the
Guaranty for the full amount of the award.
Appellants now appeal the jury verdict and the district court’s judgment,
asserting that (1) they and Westlake never formed a binding contract, (2) the
district court did not apply the correct measure of damages, and (3) Van Der
Wall is not jointly and severally liable with UPC under the Guaranty. Westlake
conditionally cross-appeals, asserting that the district court had jurisdiction to
enter its Amended Final Judgment, and Appellants agrees with Westlake’s
position.4
3
Both parties agreed that there were no factual disputes with respect to the Guaranty
and that the district court could decide the issue as a matter of law.
4
After the jury rendered its verdict, the district court initially entered a Final
Judgment, awarding Westlake damages pursuant to the jury verdict and attorneys fees. The
district court did not reach the issue of Van Der Wall’s liability at that time. The district court
subsequently issued an Amended and Final Judgment in which it held that Van Der Wall is
jointly and severally liable with UPC under the Guaranty. Westlake conditionally appealed
in the event that we decide that the district court did not have jurisdiction to enter its
Amended and Final Judgment, and therefore did not have jurisdiction over the issue of
whether Van Der Wall was indeed liable under the Guaranty. UPC and Van Der Wall agree
with Westlake’s position. We conclude, as all parties now agree, that the district court did
have jurisdiction to enter its Amended Final Judgment, as its Final Judgment was
interlocutory. “[A]ny order or other decision [by the district court judge]...that adjudicates
fewer than all the claims or the rights and liabilities of fewer than all the parties does not end
the action...and may be revised at any time before the entry of a judgment adjudicating all the
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II. UPC and Westlake’s Contract
A. Standard of Review
“Whether a particular agreement is an enforceable contract is a question
of law reviewed de novo.”5 Even though the question whether an agreement is
legally binding is a question of law, whether an agreement was reached at all is
a question of fact.6
In this case, the jury made a factual determination that the parties
intended to bind themselves to a contract. This court is “wary of upsetting jury
verdicts,” and, accordingly, “[a] jury verdict must be upheld unless there is no
legally sufficient evidentiary basis for a reasonable jury to find as the jury did.”7
Furthermore, “we are bound to consider the evidence and all reasonable
inferences therefrom in the light most favorable to the jury verdict.”8 Finally,
claims...” FED. R. CIV. P. 54(b).
5
Martin v. Martin, 326 S.W.3d 741, 747 (Tex. App.–Texarkana 2010). Because UPC
removed this case to federal court pursuant to diversity jurisdiction, Texas substantive law
applies. Erie R.R. v. Tompkins, 304 U.S. 64 (1938). To determine issues of state law, we look
to final decisions of the state’s highest court, and when there is no ruling by that court, then
we have the duty to determine as best we can what the state’s highest court would decide.
Transcon. Gas Pipeline Corp. v. Transp. Ins. Co., 953 F.2d 985, 988 (5th Cir. 1992) (citations
omitted).
6
Quanta Servs. Inc. v. Am. Admin. Grp. Inc., 384 F. App’x 291, 296, No. 08-20252,
2008 WL 5068804 (5th Cir. Dec. 2, 2008) (unpublished) (citing Komet v. Graves, 40 S.W.3d 596,
601-02 (Tex. App.– San Antonio 2001, no pet.)).
7
Travelers Cas. and Sur. Co. of America v. Ernst & Young LLP, 542 F.3d 475, 481-82
(5th Cir. 2008) (citation and internal quotation marks omitted).
8
Haley v. Pan Am. World Airways, Inc., 746 F.2d 311, 317 (5th Cir. 1984) (citing
Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969)).
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“[w]e must not substitute for the jury’s reasonable factual inferences other
inferences that we may regard as more reasonable.”9
Appellants have presented a number of arguments why a binding contract
was not formed between UPC and Westlake. We address each of these below.
B. Analysis
1. Mutuality of Obligation
Appellants contend that UPC’s agreement with Westlake lacked
consideration and cannot be enforced. Specifically, Appellants assert that there
was no mutual obligation between the parties because Westlake retained the
unilateral discretion to subject delivery to its approval of UPC’s credit, which it
never did. According to Appellants, therefore, Westlake’s promise under the
agreement was illusory; and, because Westlake was not truly bound to perform,
its agreement is not an enforceable contract under Texas law.
“Consideration is a present exchange bargained for in return for a
promise.”10 “It consists of either a benefit to the promisor or a detriment to the
promisee.”11 “A promise is illusory if it does not bind the promisor, such as when
the promisor retains the option to discontinue performance.”12 Such illusory
promises, therefore, lack mutuality of obligation and do not constitute a
contract.13
9
Rideau v. Parkem Indus. Servs., Inc., 917 F.2d 892, 897 (5th Cir. 1990) (citing Glass
v. Petro-Tex Chem. Corp., 757 F.2d 1554, 1559 (5th Cir.1985)).
10
Roark v. Stallworth Oil and Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991) (citing
Connell v. Provident Life & Accident Ins. Co., 224 S.W.2d 194, 196 (1949)).
11
Id. (citation omitted).
12
In re 24R, Inc. 324 S.W.3d 564, 567 (Tex. 2010).
13
Id.8
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In this case, the jury found that Westlake and UPC intended to form a
binding contract. Although we note that Appellants refer — out of context — to
various statements made by witnesses during the trial that some such deals are
“subject to credit approval,” we can find no testimony or other record evidence
indicating that Westlake had the unilateral right to rescind the contract without
being subject to a breach of contract claim. By contrast, Westlake adduced
evidence at trial that a deal such as this becomes binding once the “veil is lifted”
and no party rejects the counterparty during a short period of time that follows.
Westlake also presented testimony that industry custom permits specific
additional terms, such as payment and credit, to be worked out after formation
of the buy and sell contract.
Van Der Wall gave Brice permission to enter a bid for ethylene on behalf
of UPC. Brice matched UPC’s bid with Westlake’s offer. It is undisputed that
neither party timely objected after the veil was lifted. Thus, a binding contract
was formed. Furthermore, any contention that the deal was subject to a
condition precedent of UPC providing credit acceptable to Westlake lacks merit
because, as further discussed below, the record makes clear that the condition
of obtaining acceptable credit was at most a condition precedent to performance,
not to the formation of the contract.14
Having determined that there is a “legally sufficient evidentiary basis” for
the jury to have concluded that the parties formed a binding contract, we will not
disturb the jury’s verdict on the basis of Appellants’ assertion that the contract
lacked consideration.
2. Statute of Frauds
14
See Crest Ridge Constr. Grp., Inc. v. Newcourt Inc., 78 F.3d 146, 150 (5th Cir. 1996)
(upholding jury verdict and noting that, based on dealings between the parties, the jury could
have concluded that “subject to credit department approval” language in price quotation was
a condition precedent to performance, not to contract formation).
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Appellants assert that the agreement fails to satisfy both the Texas and
the Uniform Commercial Code’s (“UCC”) statutes of frauds because (1) the
written confirmations of the deal failed to contain any agreement on UPC’s
credit, an essential element of the agreement, and (2) Brice was not authorized
to bind UPC in a contract. We now address each of these points.15
a. Credit as an essential element
Appellants insist that credit was essential to UPC’s agreement with
Westlake, so that the putative contract does not satisfy either the UCC or the
Texas statutes of frauds. Under the UCC, the only essential term that must be
contained in a written agreement for the sale of goods over $500 is the quantity.
Specifically, the UCC statute of frauds’s writing requirement states:
Except as otherwise provided in this section a contract for the sale
of goods for the price of $500 or more is not enforceable by way of
action or defense unless there is some writing sufficient to indicate
that a contract for sale has been made between the parties and
signed by the party against whom enforcement is sought or by his
authorized agent or broker. A writing is not insufficient because it
omits or incorrectly states a term agreed upon but the contract is
not enforceable under this paragraph beyond the quantity of goods
shown in such writing.16
In addition, a comment to this provision states:
The required writing need not contain all the material terms of the
contract and such material terms as are stated need not be precisely
stated. All that is required is that the writing afford a basis for
believing that the offered oral evidence rests on a real transaction.
It may be written in lead pencil on a scratch pad. It need not indicate
which party is the buyer and which the seller. The only term which
must appear is the quantity term which need not be accurately stated
15
Westlake asserts that, to the extent that the Texas statute of frauds conflicts with
the UCC, the UCC preempts the state statute. Because we find that the agreement meets the
requirements of both provisions, we do not address this issue.
16
TEX. BUS. & COM. CODE ANN. § 2.201(a) (Vernon 2003).
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but recovery is limited to the amount stated. The price, time and
place of payment or delivery, the general quality of the goods, or any
particular warranties may all be omitted.17
In this case, the written confirmations sent by Brice to both parties by
instant message and email immediately after the deal was “done” meet the
requirements of the UCC’s statute of frauds.18 These confirmations included the
essential quantity provision (5 million pounds per month), as well as the price
($0.54 per pound), the product (ethylene), and the delivery terms (monthly
during the 2009 calendar year, delivered via pipeline to Mont Belvieu-Williams).
Regardless of the credit term, the UCC’s statute of frauds writing requirement
was met in this case.
The agreement between UPC and Westlake also satisfies the Texas statute
of frauds. The Texas general statute of frauds requires “[a] promise or
agreement... or memorandum...[to be] in writing; and signed by the person to be
charged with the promise or...by someone lawfully authorized to sign for him.”19
The writing also must contain “all of the essential elements of the agreement so
that the contract can be ascertained from the writing . . .”20 As previously
discussed, we are satisfied that UPC did not present any evidence at trial (or
pointed to any on appeal) which firmly establishes that credit terms were
17
TEX. BUS. & COM. CODE ANN. § 2.201(a) cmt.1 (Vernon 2003) (emphasis added); see
also § 2.204(a) (“A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such a
contract.”)
18
Den Norske Stats Oljeselskap, A.S, v. Hydrocarbon Processing Inc., 992 F. Supp. 913,
914-15 (S.D. Tex. 1998) (holding that the broker’s confirming memoranda “reliably evinces
agreement.”), aff’d, 161 F.3d 8, No. 98-20190, 1998 WL 723858 (5th Cir. Oct. 6, 1998)
(unpublished).
19
TEX. BUS. & COM. CODE ANN. § 26.01 (Vernon 2005).
20
Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978) (citation omitted).
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“essential” to the contract. In fact, trial evidence indicates that the industry
norm is to negotiate payment and credit terms after formation of the contract.
Therefore, the writing requirement of the Texas statute of frauds was met in this
case.
b. Brice’s Authority
Appellants also contend that the contract violated the statutes of frauds
because Westlake did not obtain a specific jury finding that Brice had authority
to bind UPC to a contract. Appellants concede, however, that there is evidence
showing that Van Der Wall authorized Brice to agree to price, quantity, delivery,
and location terms.
We agree with Westlake that the jury properly found that Brice was
authorized to bind UPC to a contract. The jury heard Van Der Wall’s testimony
that he authorized Brice to bid $0.54 per pound for 5 million pounds of ethylene
per month. The jurors also heard Brice testify that he was authorized to do so
by Van Der Wall. At the least, this evidence shows that Brice was authorized
to enter into a binding contract under both the UCC and Texas state statutes of
frauds. Brice was authorized to agree to quantity, the only essential term under
the UCC. And, as we have already concluded, credit was not an essential term.
Therefore, the agreement meets the requirements of both statutes of frauds.
3. Condition Precedent
Lastly, Appellants claim that the only reasonable view of the trial evidence
is that Westlake’s approval of credit for UPC was a condition precedent to the
formation of a final, binding contract. We disagree.
As discussed above, the evidence in the record does not firmly establish
that the parties intended the credit issue to be a condition precedent to the
contract. Appellants repeatedly point to phrases such as “subject to” approval
of credit and “pending credit” contained in Brice’s confirmations in an effort to
support their contention that credit was a condition precedent to a binding
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contract. At trial, however, Brice testified that such notations were merely
reminders that credit would need to be worked out between the parties. He
stated that it is industry custom to work out credit details closer to performance,
well after a deal is reached. Brice also explained that his reference to credit
meant that both parties had the right to reject the counterparty at the moment
the “veil was lifted.” Yet, neither party objected after the veil was lifted. After
the time for objecting lapsed, a binding contract was established. The credit
term simply was not a condition precedent to the formation of a binding contract.
More sensibly, the credit issue was related to a pre-condition to Westlake’s
performance. “A condition precedent to an obligation to perform [ ] does not
prevent contract formation, but does prevent a duty to perform from arising
except upon realization of the condition. As such, a condition precedent to an
obligation to perform may be one of several terms of an already formed
contract.”21 We conclude that Westlake and UPC did indeed form a binding
contract when neither objected following the lifting of the veil.
III. Damages
A. Standard of Review
We review a district court’s ruling regarding a proper measure of damages
de novo. 22
B. Analysis
21
Crest Ridge Constr. Grp., Inc., 78 F.3d at 150 (citation omitted).
22
Lubke v. City of Arlington, 455 F. 3d 489, 498 (5th Cir. 2006) (citation omitted). We
note that Westlake contends that the Appellants have waived their argument as to the correct
measure of damages by not raising it in a Rule 50(a) motion. UPC and Van Der Wall raised
this issue to the district court in open court before Westlake rested its case. The Appellants
also renewed the issue in their Rule 50(b) motion. We conclude, therefore, that UPC and Van
Der Wall have not waived this issue.
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The determinative issue relating to the proper quantum of damages is
whether to apply subsection (a) or subsection (b) of Tex. Bus. & Com. Code. §
2.708. Subsection (a) states:
Subject to Subsection (b) and to the provisions of this chapter
with respect to proof of market price (Section 2.723), the measure
of damages for non-acceptance or repudiation by the buyer is the
difference between the market price at the time and place for
tender and the unpaid contract price together with any incidental
damages provided in this chapter (Section 2.710), but less
expenses saved in consequence of the buyer's breach.
Subsection (b) states:
If the measure of damages provided in Subsection (a) is inadequate
to put the seller in as good a position as performance would have
done then the measure of damages is the profit (including
reasonable overhead) which the seller would have made from full
performance by the buyer, together with any incidental damages
provided in this chapter (Section 2.710), due allowance for costs
reasonably incurred and due credit for payments or proceeds of
resale.
In this dichotomy, § 2.708(a) provides damages in the amount of the
difference between the contract and the market price at the time and place of
tender, and § 2.708(b) provides damages in the amount that the non-breaching
party would have realized under the contract had the breaching party fully
performed. At trial, Chappelle testified for Westlake that its lost profits under
the contract with UPC amounted to $2 million. In contrast, Westlake’s damages
expert testified that the average price for ethylene in 2009 was 26.81 cents per
pound, so that, applying this price, Westlake should be awarded $16.3 million
in damages, i.e., the difference between the contract price and the market price.
After discussion at trial, the district court agreed with Westlake to instruct
the jury to award damages under § 2.708(a), the difference between contract and
market prices. Without elaboration or explanation, the jury awarded Westlake
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$6.3 million in damages, and the district granted Westlake the jury amount $6.3
million in damages in its Final Judgment.
Appellants insist that the proper measure of damages in this case should
be calculated pursuant to § 2.708(b). They emphasize that Westlake never
actually purchased ethylene in anticipation of fulfilling the contract. According
to Appellants, then, awarding more than Westlake’s lost profit would constitute
a windfall. Westlake counters that, before UPC breached the contract, Westlake
purchased enough ethane, the feedstock for ethylene, to cover its obligation to
UPC. To this, Appellants respond that Westlake purchased the ethane for a
dual purpose: to make ethylene for UPC and to supply its own subsidiary.
We have previously ruled on this issue in a case involving similar
circumstances. In Nobs Chem., U.S.A., Inc., v. Koppers Co., Inc.,23 the plaintiffs
contracted to sell cumene, a substance used in high octane motor fuel, to the
defendant. The plaintiffs arranged to acquire cumene from a supplier. After the
defendant repudiated the contract, however, the plaintiffs cancelled plans to
acquire the cumene.24 The district court determined that the plaintiffs were
entitled to recover lost profits under § 2.708(b) as opposed to damages under §
2.708(a) because they had never actually acquired the cumene.25
In affirming, we noted that the UCC intends for § 2.708(b) to apply to
particular types of sellers, one being a “jobber.” A jobber is a seller who (1) never
acquired the contracted goods, and (2) the seller’s decision not to acquire those
goods “after learning of the breach was not commercially unreasonable.”26 In
applying subsection (b) in Nobs, we made special note of the fact that the
23
616 F.2d 212 (5th Cir. 1980).
24
Id. at 214.
25
Id.26
Id. (citation omitted).
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plaintiffs in that case never acquired the goods from the supplier after they
learned of the defendant’s repudiation; thus, there could be no action for either
the purchase price or resale.27 Such a conclusion is commensurate with the basic
UCC policy embodied in § 1.305(a), which provides that “the aggrieved party
may be put in as good a position as if the other party had fully performed but not
in a better position.”28 Observing this underlying policy in our application of
subsection (b), we stated:
No one insists, and we do not think they could, that the difference
between the fallen market price and the contract price is necessary
to compensate the plaintiffs for the breach. Had the transaction
been completed, their “benefit of the bargain” would not have been
affected by the fall in market price, and they would not have
experienced the windfall they otherwise would receive if the market
price-contract price rule contained in s 2.708(a) is followed.29
The circumstances in Nobs are sufficiently similar to those of the instant
case to warrant application of § 2.708(b), rather than § 2.708(a). Westlake
originally intended to procure ethylene from a supplier to meet its contractual
obligation to deliver ethylene to UPC. After UPC repudiated, Westlake
reasonably chose not to acquire the ethylene. Westlake’s actions make it
tantamount to a “jobber”. Although Westlake contends that it also purchased
enough ethane to meet its obligation to UPC, this fact is inapposite because (1)
27
Id.
28
Id. at 215 (citing to former § 106(a)). Texas case law follows the same philosophy.
See Little Darling Corp. v. Ald, Inc., 566 S.W.2d 347, 349 (Tex. Civ. App. 1978). (“The measure
of damages for breach of contract is the amount necessary to place plaintiffs in a financial
position equivalent to that in which it would have had if the contract had been fully performed
by both parties.”)
29
Id.; see also Diversified Energy, Inc., v. Tenn. Valley Auth., 339 F.3d 437, 445-46 (6th
Cir. 2003) (discussing the contract and market price differential and holding that “[a]
non-breaching party is entitled to be placed in the same position it would have enjoyed had the
defendant abided by the contract, but is not entitled to more than the benefit of his bargain.”)
16
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No. 10-20634
the parties contracted for the delivery of ethylene, not ethane, and (2) Westlake’s
acquisition of the ethane was also for the purpose of supplying one of its
subsidiaries. We agree with Appellants that, under these circumstances,
awarding Westlake more than the profit it would have made under the contract
would constitute a windfall by placing it in a better position than if both parties
had fully performed. As with the plaintiff in Nobs, had the instant transaction
been completed, Westlake’s “benefit of the bargain” would not have been affected
by the fall in market price, and thus it would not have experienced the windfall
it otherwise would receive if subsection (a)’s market price/contract price rule
were followed.
We conclude that the proper measure of damages in this case is Westlake’s
lost profits under § 2.708(b). We therefore vacate the damages award as
determined by the jury and accepted by the district court, and we remand this
issue for the district court to calculate the damages under subsection (b).30
IV. The Guaranty
A. Standard of Review
A guaranty is, of course, a form of contract, and we review a district court’s
construction of any contract de novo.31 At trial, the parties agreed that there
were no fact issues regarding Van Der Wall’s liability under the Guaranty.
30
We decline to designate a specific amount of damages under § 2.708(b), as we note
that, because the district judge instructed the jury to award damages under subsection (a), the
jury was never able to consider evidence of “due allowance for costs reasonably incurred and
due credit for payments or proceeds of resale” under subsection (b). We therefore remand this
factual issue for a jury to determine in a new trial — or bench trial, in the event that all
parties waive their right to a jury— limited to the quantum of damages to be awarded. See
Lubke v. City of Arlington, 455 F.3d 489, 498-500 (5th Cir. 2006) (ordering damages award to
be “revised or retried” after the district court instructed the jury to apply incorrect legal
measure of damages); see also Freedonia Broad. Corp., Inc. v. RCA Corp., 418 F.3d 781, 806
(5th Cir. 1973) (reversing and ordering new trial when, among other errors, the district court
gave erroneous instructions for the legal measure of damages).
31
See Am. Nat’l Gen. Ins. Co. v. Ryan, 274 F.3d 319, 323 (5th Cir. 2001) (“The district
court’s interpretation of an insurance contract is a question of law that we [ ]review de novo.”)
17
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Thus, the district court decided the issue whether Van Der Wall is bound under
the Guaranty as a matter of law.
B. Analysis
Van Der Wall advances a number of reasons why the Guaranty should not
be interpreted to hold him jointly and severally liable with UPC for its breach
of the ethylene purchase agreement. Specifically, Van Der Wall insists that (1)
the Guaranty is a “continuing guaranty,” meaning that it is not limited to a
single transaction but contemplates a future course of dealing, spanning a
number of transactions, until it is revoked or the underlying transaction is
completed, (2) no debt had been incurred under the Guaranty at the time that
Van Der Wall terminated it because Westlake had not shipped any ethylene to
UPC as of January 9, 2009, (3) Westlake rejected the Guaranty when it failed to
accept UPC’s offered credit terms, (4) the Guaranty’s language does not cover
legal liability, and (5) the Guaranty was limited to one million dollars. Westlake
counters that the Guaranty’s language clearly renders Van Der Wall liable for
the damages assessed to UPC under the terms of the jury’s verdict. Although
we note that, given the language of the Guaranty, several of Van Der Wall’s
arguments are without merit, we nonetheless conclude that the Guaranty’s
language is ambiguous as a matter of law, and it must therefore be strictly
construed in Van Der Wall’s favor.
In Texas, a guarantor is a “favorite” of the law, and a creditor’s claim
against a guarantor is strictly construed.32 More specifically, a guarantor’s
obligation should not be extended by implication beyond the written terms of the
32
Joseph Thomas, Inc. v. Graham, 842 S.W.2d 343, 346 (Tex. App. - Tyler 1992)
(citation omitted).
18
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guaranty, and any ambiguity must be construed in favor of the guarantor.33 In
addition, any ambiguity is construed most strongly against the party who
selected the language — here, Westlake.34
Westlake provided a printed guaranty form to Van Der Wall, which he
signed and returned. The Guaranty states that Van Der Wall is responsible for
“all liabilities or obligations of [UPC] whether from invoices, promissory notes,
drafts, checks, and all other charges, [1] which may now be outstanding or owing
from, or [2] which may be incurred hereafter by [UPC] to [Westlake]. . .” We
note in passing that this language is similar to that contained in continuing
guaranties.35 The Westlake document also provides that, on 30 days’ written
notice, the Guaranty is terminated and that, following termination, Van Der
Wall “shall not be responsible for any indebtedness created or incurred by [UPC]
hereafter, but shall remain liable hereunder for any indebtedness created or
incurred by [UPC] prior to such termination.”36 None dispute that Van Der Wall
furnished written notice of termination to Westlake on December 10, 2008 and
that the Guaranty terminated on January 9, 2009, before any delivery of
ethylene from Westlake to UPC.
As noted above, most of Van Der Wall’s arguments with respect to the
Guaranty are without merit. The language quoted above with respect to Van
Der Wall’s obligation as guarantor indicates that the Guaranty applies to the
33
Thompson v. Preston State Bank, 575 S.W.2d 312, 315 (Tex. Civ. App. - Dallas 1978,
writ ref’d n.r.e.) (citations omitted).
34
Id. (citations omitted).
35
See Energico Prod. Inc. v. Frost Nat’l Bank, 2012 WL 254093, *2 (Tex. App. - Fort
Worth Jan. 26, 2012) (noting continuing guaranty stated it applied to amounts “now existing
or hereafter arising or acquired, on an open and continuing basis.”); Grieg v. First Nat’l Bank
of San Angelo, 511 S.W.2d 86, 87 (Tex. Civ. App. 1974) (continuing guaranty covered amounts
“concurrently herewith or hereafter made by Bank to Borrower”).
36
(emphasis added).
19
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entire transaction between UPC and Westlake, and, despite the above noted
similarities, likely is not a “continuing” guaranty; it is certainly not so
designated either in the title or in the text of the document.37 Furthermore,
Texas law deems the entire debt to be created at the moment that the contract
is signed, meaning that UPC likely incurred the entire debt under its contract
with Westlake on or about July 2, 2008, when the agreement was formed.38 And,
it was after that when Van Der Wall signed the Guaranty. Moreover, the record
indicates that Westlake did not “reject” the Guaranty by not agreeing to other
credit terms offered by UPC. Neither does the language of the Guaranty itself
condition its execution or its efficacy on Westlake’s agreement to credit terms.
Finally, the language of the Guaranty does not expressly limit the monetary
amount of the personal guarantee.39
Nevertheless, even assuming that the Guaranty is not a continuing
guaranty and that the entire debt was incurred at the inception of the
underlying contract between Westlake and UPC, there is an irreconcilable
internal conflict between the language establishing Van Der Wall’s obligations
and the termination provision of the document. Specifically, assuming the
Guaranty relates only to a single contract and a single transaction, such that the
entire debt was incurred at the inception of the underlying contract, then the
Guaranty’s termination provision, with its express statement that Van Der Wall
is not liable for any indebtedness incurred after he terminates the Guaranty by
furnishing 30 days’ written notice, is essentially meaningless surplusage. Or,
37
See Id.38
Serna v. State, 877 S.W.2d 516, 519 (Tex. App. - Austin, 1994); see also Curry Auto
Leasing, Inc. v. Byrd, 683 S.W.2d 109, 112 (Tex. App. - Dallas 1984, no writ).
39
R&P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980)
(citing Citizens Nat’l Bank in Abilene v. Texas & P. Ry. Co., 150 S.W.2d 1003 (1941)) (“In the
interpretation of contracts the primary concern of courts is to ascertain and to give effect to
the intentions of the parties as expressed in the instrument.”)
20
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as insisted by Westlake, because the entire debt had already been incurred by
UPC before Van Der Wall signed the Guaranty,40 it would be impossible for any
further debt to be created or incurred after termination; and such an
impossibility renders this provision superfluous.41 Indeed, the Guaranty’s
termination provision is meaningless unless some debt could have been incurred
by UPC after the inception of the contract and after termination of the
Guaranty, which is in direct tension with other language in the document
indicating that it is not a continuing guaranty. We perceive no way to reconcile
Westlake’s position that Van Der Wall as guarantor became liable for the full
amount of the contract from inception with the provision in the Guaranty
furnished by Westlake that it may be terminated by the guarantor’s furnishing
of 30 days’ notice.
Because of this irreconcilable conflict within the body of the form furnished
by Westlake, we are convinced beyond cavil that the Guaranty is ambiguous as
a matter of law. If it is susceptible of any reasonable reading, it is susceptible
of more than one: (1) Van der Wall’s entire obligation under the Guaranty was
incurred at the inception of the underlying contract and (2) because Van der
Wall could terminate the Guaranty, his obligation was incrementally incurred,
40
Van Der Wall signed and returned the Guaranty on or around July 23, 2008, several
days after the confirmation date of July 2, 2008.
41
After hearing this panel’s questions at oral argument regarding the apparent
contradiction in the Guaranty form, Westlake submitted a letter brief pursuant to Federal
Rule of Appellate Procedure 28 (j) in which, for the first time, it contends that the Guaranty’s
“coverage of obligations ‘which may be incurred hereafter by [UPC]’ unambiguously extends
the guaranty to also cover subsequent contracts UPC might enter into with Westlake.”
(emphasis added) We note that this contradicts Westlake’s position in its brief that “nothing
in the guaranty suggests it is a continuing guaranty.” At the least, we view this as further
indication that the Guaranty is ambiguous, i.e., that its language can be read to mean that it
either does or does not cover multiple transactions between UPC and Westlake.
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as, for example, with each shipment of ethylene.42 As such, the Guaranty must
be construed in Van Der Wall’s favor,43 with the result that his liability under
the Guaranty must be limited to amounts, if any, due on shipments made prior
to January 9, 2009 — and there were none. Accordingly, we hold that, as
guarantor, Van Der Wall is not jointly and severally liable with UPC.
V. Conclusion
The jury’s verdict that UPC and Westlake formed a binding contract on or
about July 2, 2008 is AFFIRMED. The district court’s award of damages under
subsection (a) of TEX. BUS. & COM. CODE § 2.708 is REVERSED and VACATED,
and the case is REMANDED for a new jury trial, limited to a determination of
the appropriate quantum of damages and costs, calculated pursuant to
subsection (b) of said § 2.708. The district court’s holding that Van Der Wall is
jointly and severally liable with UPC for damages and costs is REVERSED with
instructions that the final judgment on remand specify, inter alia, that Westlake
take nothing from Van Der Wall. This panel retains cognizance of the case for
further appeals from the district court, if any, following this remand.
42
Amigo Broad., LP v. Spanish Broad. Sys., Inc., 521 F.3d 472, 480 (5th Cir. 2008)
(citation omitted) (under Texas law, contract is “ambiguous” only if, after application of
established rules of construction, agreement is susceptible of more than one reasonable
meaning).
43
Thompson, 575 S.W.2d at 315.
22