WPS, Inc. v. Surface Productions Systems, Inc. ( 2012 )

Opinion issued January 31, 2012.

In The

Court of Appeals

For The

First District of Texas

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NO. 01-10-00041-CV

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wps, inc., Appellant

V.

expro americas, llc, Appellee

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surface production systems, inc., Cross-Appellant

V.

wps, inc., Cross-Appellee

On Appeal from the 189th District Court

Harris County, Texas

Trial Court Case No. 2006-80212

DISSENTING OPINION

I join in the Court’s opinion except for the portion that affirms the damages awarded to WPS, Inc. (WPS). I would sustain the fourth issue brought by Expros Americas, LLC (Expro) and Surface Production Systems, Inc. (SPS), and hold that the trial court erred in its instruction on the measure of damages for “agreed payments.” Further, I would reach and sustain Expro and SPS’s sixth and seventh issues and hold that WPS was not entitled to recover on its quantum meruit or promissory estoppel claims. Therefore, I dissent.

Damages

          The trial court’s damages instruction directed the jury to consider two elements of damages “and none other:” (1) “the amount of any agreed payments to WPS” and (2) “valid cancellation charges that WPS incurred in connection with the cancellation of the agreement” by SPS. While there were two damages elements in the instruction, the jury was only asked one question combining both elements. The jury found that WPS was entitled to $855,342.55 in damages. This amount generally comports with the amounts invoiced by WPS, which included the cancellation charges payable to the component providers ($441,276.25) and the first “agreed payment” due under the contract upon WPS’s acceptance of the order ($414,307).

          As an initial matter, I agree with the Court that the trial court did not err in instructing the jury that, as part of the damages, WPS could recover the “cancellation charges.” The “agreed payments” were not, however, an appropriate measure of damages. Therefore, I would sustain Expro and SPS’s contention that the “progress payment”—or as used in the jury charge the “agreed payments”—is not “a legally recoverable measure of damages for breach of contract.”

          “The ultimate goal in measuring damages for a breach-of-contract claim is to provide just compensation for any loss or damage actually sustained as a result of the breach.” Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 328 (Tex. App.—Houston [14th Dist.] 2003, pet. denied). There are three damage measures for breach of contract claims: expectancy, reliance, and restitution. Quigley v. Bennett, 227 S.W.3d 51, 56 (Tex. 2007) (citing Restatement (Second) of Contracts § 344 (1981)); see also Intercontinental Grp. P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 666 (Tex. 2009) (Brister, J., dissenting, joined by O’Neill, Wainwright and Medina, JJ.) (“Breach of contract damages include lost profits (expectancy), out-of-pocket expenses (reliance), and restitution”); Chung v. Lee, 193 S.W.3d 729, 733 (Tex. App.—Dallas 2006, pet. denied) (“damages for breach of contract protect three interests: a restitution interest, a reliance interest, and an expectation interest”). “Expectancy damages award the benefit of a plaintiff’s bargain; reliance damages compensate for the plaintiff’s out-of-pocket expenditures; restitution damages restore what the plaintiff has conferred on the defendant.” Quigley, 227 S.W.3d at 56. The “agreed payments” are not an accurate reflection of any of these three measures of damages.

          1.       Restitution

          WPS did not allege that it conferred any benefit on Expro and SPS, nor did it seek restitution damages.[1]

          2.       Expectancy

“The most common interest protected in breach of contract cases is the expectation, or benefit of the bargain, interest. Protecting this interest seeks to restore the non-breaching party to the same economic position in which it would have been had the contract not been breached—thus giving the party the benefit of its bargain.” Qaddura v. Indo-European Foods, Inc., 141 S.W.3d 882, 888–89 (Tex. App.—Dallas 2004, pet. denied); see also Bowen v. Robinson, 227 S.W.3d 86, 96 (Tex. App.—Houston [1st Dist.] 2006, pet. denied) (noting that in breach of contract claims, “the normal measure of damages is just compensation for the loss or damage actually sustained, commonly referred to as the benefit of the bargain.”). WPS’s expectation interest is measured by its expected receipts under the contract plus consequential losses caused by SPS’s breach, less any cost or other loss that WPS avoided by not having to perform.[2] See Restatement (Second) of Contracts § 347 (1981); Qaddura, 141 S.W.3d at 889; Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741, 760 (Tex. App.—El Paso 2000, no pet.); Lafarge Corp. v. Wolff, Inc., 977 S.W.2d 181, 187 (Tex. App.—Austin 1998, pet. denied).

Under this measure of damages, WPS could have recovered the total of all “agreed payments” owed under the contract (expected receipts) plus the cancellation charges (consequential losses), less the costs WPS would have had to incur to complete performance (avoided costs).[3] But WPS did not offer any evidence of its costs savings from not having to fully perform. An expectancy measure of damages does not authorize recovery of expected revenues, or even some portion of expected revenues, without also accounting for costs saved. See, e.g., Kormanik v. Seghers, No. 14-09-00815-CV, 2011 WL 2322369, at *10–11 (Tex. App.—Houston [14th Dist.] June 14, 2011, no pet.) (rejecting argument that expectation damages were proven as matter of law when claimant produced evidence of expected revenues but failed to produce evidence of costs that he would have incurred to fully perform agreement), supplemented on overruling of rehearing, 2012 WL 90275 (Tex. App.—Houston [14th Dist.] Jan. 12, 2012, no pet. h.) (addressing new jurisdictional arguments); Lafarge, 977 S.W.2d at 187–88 (holding that trial court erred in submitting damages question that instructed jury to consider payments owed under contract but did not instruct jury to consider costs claimant saved by not having to fully perform); Data Foundry, Inc. v. Silicon Integration Initiative, Inc., No. 03-09-00063-CV, 2010 WL 2336464, at *3 (Tex. App.—Austin June 11, 2010, no pet.) (mem. op.) (holding that trial court did not err in declining to award claimant expectation damages when claimant offered no evidence of costs or losses it avoided by not having to fully perform).[4] Allowing recovery of payments due under the contract without accounting for costs saved as a result of the breach puts the non-breaching party “in a better position as a result of the [breach] than it would have been in had it completed [performance of the contract].” Sage Street Assocs. v. Northdale Constr. Co., 937 S.W.2d 425, 426 (Tex. 1996). Thus, WPS could not submit an expectation measure of damages instructing the jury to consider the payments promised under the contract without also instructing the jury to consider costs WPS saved as a result of not having to complete its performance under the contract.

3.       Reliance

          WPS’s evidence, and the trial court’s charge, most closely corresponded to a reliance measure of damages. Reliance damages are designed to restore the status quo at the time before the contract was made. Geis v. Colina Del Rio, 2011 WL 1665164, at *9 (Tex. App.—San Antonio May 4, 2011, pet. filed). Reliance damages are measured as the out-of-pocket expenditures made by one party in reliance on the actions of another party, not by the amount of lost profits and sales. Sterling Chems., Inc. v. Texaco Inc., 259 S.W.3d 793, 798 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). A party that has made a substantial investment in performing an agreement that is breached is entitled to have that investment returned through recovery of reliance damages. Chung, 193 S.W.3d at 733.

The Court renders damages in favor of WPS by assuming that the jury’s damages finding reflects an award of the $414,307 initial agreed payment due under the contract and treating that amount as a proxy for the costs incurred by WPS in commencing its performance of the contract. While I agree with the Court that there is evidence that WPS began performance of the contract in an effort to deliver the compressor packages by the September deadline and incurred some costs in doing so, and that such costs are recoverable as reliance damages, the jury was not instructed to consider those costs. Nor was the jury instructed to consider the initial agreed payment less any cost savings.[5] It was instructed to consider “any agreed payments” under the contract. The “agreed payments” are not “out-of-pocket expense” recoverable as reliance damages. See Sterling Chems., 259 S.W.3d at 798.        

          4.       Conclusion

          Under an expectancy measure of damages, the trial court properly could have instructed the jury to consider the “agreed payments” plus the “cancellation charges,” but only if it also instructed the jury to consider any costs saved by WPS as a result of not having to complete its performance under the contract. Under a restitution measure of damages, the trial court could have instructed the jury to consider both the “cancellation charges” but the second element of damages would have been the costs incurred by WPS in performing before SPS cancelled the parties’ contract. The trial court’s damages question did neither. SPS objected to the trial court’s instruction and tendered to the trial court an instruction that reflected a proper measure of reliance damages. Therefore, the trial court erred in instructing the jury to automatically award the amount of the agreed payments without regard to whether WPS performed services and made expenditures in these amounts in reliance on the contract.[6]

          We should sustain SPS’s fourth issue.

Quantum Meruit and Promissory Estoppel

          Because I would sustain SPS’s fourth issue, I now address Expro and SPS’s sixth and seventh issues, in which they argue that WPS was not entitled to recover on its claim for quantum meruit or promissory estoppel. Generally, recovery under quantum meruit or promissory estoppel is not available when a party has an express contract that covers those matters for which it seeks recovery. See Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988) (stating that, as general rule, recovery under theory of quantum meruit is prohibited if express contract covers services or materials for which claimant seeks recovery).  In its briefing, WPS agrees that, because it had an enforceable contract with SPS, it is not entitled to a judgment on its claims for quantum meruit or promissory estoppel. Because WPS concedes it is not entitled to seek recovery through its quantum meruit and promissory estoppel claims in light of the fact that an express contract controls, we should sustain SPS’s sixth and seventh issues.

Conclusion

          In conclusion, I believe we should reverse and remand the case.

                                                                   Harvey Brown

                                                                   Justice

Panel consists of Justices Jennings, Higley, and Brown.

Brown, J., dissenting.

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[1]           Restitution damages are measured by the value to the defendant of the services and materials provided by the claimant. See City of Harker Heights, Tex. v. Sun Meadows Land, Ltd., 830 S.W.2d 313, 317 (Tex. App.—Austin 1992, no writ) (stating that restitution “focuses on forcing the defendant to disgorge benefits that it would be unjust to keep, rather than on compensating the plaintiff. The principle that underlies the remedy of restitution is the avoidance of unjust enrichment.”); Restatement (Second) of Contracts § 373 (1981) (stating that in case of partial performance caused by other party’s breach, injured party, as alternative measure of damages, may recover “restitution for any benefit that he has conferred on the other party by way of part performance or reliance.”).

[2]           When a party has fully performed at the time of breach, there will ordinarily be no cost savings; but it is undisputed that WPS had not fully performed under the contract at the time of breach.

[3]           For example, if WPS was to receive three payments of $100 under the contract, totaling $300 in revenue, and would have expended $200 to produce the compressor packages promised under the contract, its profit would have been $100. If SPS cancelled the contract before making any payments, but after WPS had expended $40 to commence production and after WPS ordered component parts that subjected it to $30 in cancellation charges, WPS’s damages would have been $170—the $300 owed under the contract plus $30 in cancellation charges, less $160 in expenditures not incurred due to breach. The first $70 of the recovery restores WPS to its pre-contract position by covering the $40 expenditure on performance and the $30 cancellation charges, and the remaining $100 puts WPS in its anticipated post-contract position: $100 in profits.

[4]           Cf. Dix v. Brooks, No. 03-04-00408-CV, 2006 WL 903738, at *10 (Tex. App.—Austin April 7, 2006, no pet.) (mem. op.) (rejecting argument that jury’s damages award failed because evidence showed only expected revenues but not costs saved when evidence included costs estimates for labor and material, evidence of work completed at time of termination, and testimony as to damages calculated by subtracting costs saved on completion of construction and payments already made from total expected contract revenues).

[5]           Even if the jury had been instructed to consider only the initial agreed payment and even if there was evidence that the initial agreed payment reflected an estimate of the costs WPS would incur in the initial stages of contract performance, the jury still should have been allowed to determine the amount of the costs WPS actually incurred in partially performing the contract unless WPS proved as a matter of law that the initial agreed payment established its actual performance costs. Under the charge submitted, if the jury was expected to calculate the costs WPS incurred in pre-breach work under the contract, the jury was never told this.

[6]           Moreover, because WPS contended that the “damage analysis” was “really very simple” and because the contract itself provided for the amount of the initial agreed payment that SPS was required to pay upon WPS’s acceptance, WPS did not present evidence concerning the general amount that could be assigned to the services or work it performed. WPS’s argument is essentially that, from the evidence presented at trial, the jury could have concluded that WPS was entitled to receive the contractually guaranteed initial payment to protect itself from a financial loss and cover any expended costs in fabricating the compressor packages, making staffing decisions, participating in technical discussions, and working with vendors. But, as instructed, the jury was compelled to award WPS the amount of the “agreed payments” instead of compensating WPS for a reliance measure of damages, which is what WPS was legally entitled to recover. I do not suggest that, upon retrial, WPS would not be entitled to seek an amount that comports with any agreed payments. But, the trial court, over SPS’s objection, did not submit a proper measure of contract damages to the jury.