Landmark Organization, L.P. v. Delphini Construction Co.

                                    NUMBER 13-04-371-CV

                                 COURT OF APPEALS

                     THIRTEENTH DISTRICT OF TEXAS

                         CORPUS CHRISTI B EDINBURG

LANDMARK ORGANIZATION, L.P.,                                                Appellant,

                                                             v.

DELPHINI CONSTRUCTION CO.,                                                     Appellee.

                On appeal from the County Court at Law No.1

                                        of Nueces County, Texas.

                                M E M O R A N D U M   O P I N I O N

     Before Chief Justice Valdez and Justices Hinojosa and Rodriguez

      Opinion by Chief Justice Valdez  

Appellant, Landmark Organization, L.P., appeals from the judgment of the trial court in favor of appellee, Delphini Construction Company, in three issues:  (1) the trial court committed reversible error by allowing the case to continue when a juror failed to appear on time on the second day of the trial; (2) the trial court erred in its calculation of prejudgment interest; and (3) the trial court erred in its calculation of postjudgment interest. We affirm.

Background

This appeal originated as a claim for breach of contract and quantum meruit.  Landmark, a design builder, was the general contractor in the construction of two military housing projects.  Delphini, a roofing contractor, entered into a subcontract with Landmark to furnish the labor, materials, and equipment necessary for the roofing, gutters and downspouts for the projects. 

Landmark was allegedly dissatisfied with the work performed by Delphini and eventually informed Delphini it was terminating the contract.  Delphini then sued for breach of contract and quantum meruit, alleging that Landmark=s mismanagement made it impossible for Delphini to perform. 

The trial began on April 5, 2004, with a six-member jury.  On the morning of the second day of trial, one of the jurors failed to appear. A bailiff was eventually sent to the juror=s home, but the juror could not be found. Delphini moved to go forward with the five remaining jurors; Landmark objected and moved for a mistrial.  The trial judge denied the motion, and trial proceeded with the five-member jury.   After several minutes of testimony regarding attorneys= fees, the absent juror appeared and informed the court he had overslept.  The court then instructed the jury to disregard the testimony heard during the missing juror=s absence and re-started the trial with all six jurors.  The witness still on the stand repeated the testimony he had given in the missing juror=s absence.  Following the conclusion of the evidence, the jury unanimously found in favor of Delphini on all issues.  The court awarded Delphini damages, attorneys= fees, prejudgment interest and postjudgment interest. 

Absent Juror

By its first issue, Landmark claims that the trial court committed incurable reversible error when it denied Landmark=s motion for mistrial and allowed the trial to continue with only five jurors in the absence of any evidence that the sixth juror was disabled.

A trial court=s denial of a motion for mistrial is reviewed under an abuse of discretion standard.  Till v. Thomas, 10 S.W.3d 730, 734 (Tex. App.BHouston [1st Dist.] 1999, no pet.).   Texas law requires that county court juries be composed of six members.  See Tex. Const. art. V ' 17; Tex. Gov=t Code Ann. ' 25.0007 (Vernon 2004).  A trial can be heard with less than a full complement of jurors if a member of the jury is disabled from sitting.  See McDaniel v. Yarbrough, 898 S.W.2d 251, 252-53 (Tex. 1995).  Juror disability may arise through a physical or mental incapacity that is more significant than simple mental distress.  See id. at 253.  The trial court has broad discretion in determining whether a juror is disabled. Id. 

Landmark argues that the trial court clearly erred and abused its discretion in allowing the trial to continue because there was no evidence that the missing juror was disabled.  In support of its argument, Landmark cites the McDaniel opinion, in which the supreme court reversed the trial court=s dismissal of a juror as disabled when the juror claimed that inclement weather would keep her from returning to the courthouse.  Id. at 251-52.  The supreme court held that a delay of this nature did not qualify as a disability. Id. at 252. 

Delphini responds that once the missing juror returned to the court, the trial judge properly instructed the jury to disregard the morning=s testimony and insured that the testimony was repeated before the full jury.  Delphini also notes that the testimony in question only lasted for a few minutes, consisted of Delphini=s own expert witness testifying as to attorneys= fees, and did not substantially affect Landmark=s ability to present its case to the jury.

We agree with Delphini.  An appellate court must assume that a jury properly follows the trial court=s instructions to disregard evidence, absent any proof to the contrary.  See Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160, 167 (Tex. 1982).  The general rule is that an instruction to disregard will cure error, except in the extreme cases where it appears that the evidence is clearly calculated to influence the minds of the jurors and is of such a character as to suggest the impossibility of withdrawing the impression produced in their minds.  See Southern Pac. Transp. Co. v. Peralez, 546 S.W.2d 88, 96 (Tex. Civ. App.BCorpus Christi 1976, writ ref=d n.r.e.). Given the circumstances in which the instructions were given and the lack of any evidence to suggest that the jurors did not heed the trial court=s instructions to disregard, we conclude that the instruction to disregard cured any error created when the trial court allowed testimony to continue without the sixth juror. The trial court therefore did not abuse its discretion in denying Landmark=s motion for a mistrial.  Landmark=s first issue is overruled. 

Prejudgment Interest

By its second issue, Landmark argues that the trial court erred in awarding Delphini prejudgment interest in the amount of twelve percent, calculated from the earlier of the date this lawsuit was filed or the forty-fifth day from the date that Delphini submitted invoices to Landmark.                 

We apply an abuse of discretion standard of review when evaluating a trial court=s award of prejudgment interest.  See Morales v. Morales, 98 S.W.3d 343, 348 (Tex. App.BCorpus Christi 2003, pet. denied) (citing Marsh v. Marsh, 949 S.W.2d 734, 744 (Tex. App.BHouston [14th Dist.] 1997, no writ)). 

Damages awarded for breach of contract bear prejudgment interest.  Adams v. H & H Meat Products, Inc., 41 S.W.3d 762, 780 (Tex App.BCorpus Christi 2001, no pet.).   "Prejudgment interest is compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between accrual of the claim and the date of judgment."  Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998).  Plaintiffs in contract disputes have been permitted to recover prejudgment interest on both liquidated and unliquidated claims.  See Preston Farm & Ranch Supply, Inc. v. Bio‑zyme Enters., 625 S.W.2d 295, 298-99 (Tex. 1981) (applying rate set by contract as rate for prejudgment interest); Adams, 41 S.W.3d at 780.   In Phillips Petroleum Co. v. Stahl Petroleum Co., 569 S.W.2d 480, 485 (Tex. 1978), the supreme court recognized two separate bases for the award of prejudgment interest: (1) an enabling statute; and (2) general principles of equity.   Statutory prejudgment interest applies only to judgments in wrongful death, personal injury, property damage, and condemnation cases.  Tex. Fin. Code Ann. '' 304.102, 304.201 (Vernon Supp. 2004-05); Kenneco Energy, 962 S.W.2d at 530. 

Delphini is entitled to recover prejudgment interest based on its breach of contract claim against Landmark.  See Adams, 41 S.W.3d at 780. Therefore, any award of prejudgment interest is governed by the common law rather than by any statute.  Kenneco Energy, 962 S.W.2d at 530; Adams, 41 S.W.3d at 780. In their respective appellate briefs, Delphini and Landmark both rely heavily on statutes from the state finance and property codes to support or argue against the trial court=s ruling. See Tex. Fin. Code Ann. ' 304.002; Tex. Prop. Code Ann. '' 28.002 - .004, 28.006 (Vernon 2000).  We are, however, not required to rely only on the interest rates mandated by these statutes, as this is not a claim involving wrongful death, personal injury, property damage, or condemnation. See Phillips Petroleum, 569 S.W.2d at 485. Instead, we may rely primarily on the terms of the contract established between the parties as well as on general principles of equity.  See Adams, 41 S.W.3d at 780 (calculating interest using the rate set forth on invoices exchanged between the parties); see also Montanaro v. Montanaro, 946 S.W.2d 428, 431 (Tex. App.BCorpus Christi 1997, no writ) (finding an appropriate interest rate as implied by other terms of the agreement).   

The subcontract entered into between the parties is a standard Landmark subcontract and includes several provisions dictating the amount of interest that the subcontractor (Delphini) would be required to pay in case of any breach:

If the Subcontractor fails or refuses to proceed with his work as directed by the Contractor or fails to perform said work in accordance herewith, . . . the Contractor may, at Contractor=s option, . . . prosecute the work to completion.  In case the Contractor deems the foregoing procedure necessary . . . the Subcontractor agrees to pay to the Contractor on demand the full amount of [any damages], together with interest thereon at the rate of twelve per cent per annum until paid.

The Subcontractor shall promptly amend and make good any defective materials and/or workmanship to the entire approval and acceptance of the Contractor . . . . [T]he Contractor shall have the right and power to have the defects remedied or changes made at the expense of the Subcontractor, and the Subcontractor agrees to pay to the Contractor on demand any and all loss and/or expense paid or incurred by the Contractor in remedying such defects . . . together with interest thereon at the rate of twelve per cent per annum, until paid, in addition to all other loss, damage and extra expense which Subcontractor may become liable for under this subcontract.

The twelve percent interest rate is thus mentioned repeatedly, but only as intended to apply to subcontractors such as Delphini.  Although there are multiple provisions dictating the subcontractor=s obligations in case of a breach by the subcontractor, we see there is no instruction in the contract regarding the contractor=s obligations to the subcontractor in case of a breach by the contractor.  There is, however, the following provision:

Although drawn by Contractor, this agreement shall in the event of any dispute over its meaning or application, be interpreted fairly and reasonably and neither more strongly for or against either party. 

While this clause is likely intended to allow Landmark to escape the general rule of contract interpretation that would strictly construe the contract against the drafting party, see Republic Nat'l Bank v. Northwest Nat'l Bank, 578 S.W.2d 109, 115 (Tex. 1978), we may nonetheless read this clause as allowing a trial court to import principles of fairness and equity into the contract when interpreting its provisions.  See Bituminous Cas. Corp. v. Maxey, 110 S.W.3d 203, 208 (Tex. App.BAustin 2003, pet. denied) (interpreting contract terms according to plain, ordinary and generally accepted meaning).  Landmark could have included a provision setting the interest rate in case of its own breach at the statutory minimum or any other term, but it chose not to do so.

The trial court, when determining the interest rate, had already reached the conclusion that Landmark had breached its contract with Delphini.  The court also had available for its consideration the absence of a specific provision establishing Landmark=s liability for interest in case of a breach on its part, the contract provisions that would have forced Delphini to pay a twelve percent rate if it breached in any way, the Afair and reasonable@ interpretation clause, and general principles of equity. The court ultimately applied the interest rate against Landmark that Delphini would have been obliged to pay had it breached against Landmark.  We conclude this is a reasonable application of relevant guiding rules and principles, see Morales, 98 S.W.3d at 348, and thus further conclude the trial court did not err in awarding prejudgment interest at a rate of twelve percent. 

In addition to contesting the rate of interest applied to the judgment against it, Landmark also complains that the court erred in calculating the amount of interest from the earlier of the date this lawsuit was filed or the forty-fifth day from the date that Delphini submitted invoices to Landmark.   According to the Texas Prompt Payment Act, an unpaid amount owed to a contractor or subcontractor begins to accrue interest on the day after the date on which the payment becomes due.  See Tex. Prop. Code Ann. ' 28.004 (Vernon 2000).^[1]  Landmark=s payment to Delphini could be considered Adue@ on either of the two dates specified by the trial court in its order, i.e., the date the lawsuit for breach of contract was filed or the date when Delphini submitted its invoices to Landmark.  Therefore, it was not incorrect to use these two dates in order to calculate interest.

Landmark argues that its Apay when paid@ agreement with Delphini prevents the imposition of interest until payment in full from the owner of the property is received: APayment to the subcontractor shall be conditioned on payment to the contractor by the owner.@  However, several Landmark employees testified that they had already sent several payments to Delphini throughout the course of the construction project; as Landmark had not been paid by the owner, these partial payments to Delphini were not conditioned on payment to Landmark by the owner.  We conclude that Landmark=s abandonment of the Apay when paid@ clause could reasonably be found by the trial court to constitute a waiver of this clause as it applies to the application of interest.  See Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003) (per curiam) (discussing waiver); Motor Vehicle Bd. v. El Paso Indep. Auto. Dealers Ass'n, Inc., 1 S.W.3d 108, 111 (Tex. 1999) (same). 

Landmark also argues at the time of the suit that there was a Agood faith dispute@ between the parties regarding whether Delphini had properly performed its duties under the contract, and a good faith dispute will toll the obligation of any party to pay the amounts owed.  See Tex. Prop. Code Ann. ' 28.003 (Vernon 2000).  We do not disagree that the parties disputed whether Delphini had adequately performed in full under its subcontract, and that therefore Landmark could choose to rely on section 28.003 in withholding the amount disputed.  However, while section 28.003 allows a party to withhold prompt payment in the event of a good faith dispute, it does not exempt this withheld amount from accruing interest if the withholding party is ultimately found to be at fault for the breach.  See id.; see also TA Oper. Corp. v. Solar Applications Eng=g, Inc., No. 04-04-180-CV, 2005 Tex. App. LEXIS 2350, at *25 (Tex. App.BSan Antonio Mar. 30, 2005, no pet.) (designated for publication) (holding trial court did not err in awarding prejudgment interest to contractor despite owner=s claim of a good faith dispute).  Therefore, this statute does not render the trial court=s judgment erroneous, and we conclude that the trial court=s determination of the dates from which the interest was to be calculated does not constitute an abuse of discretion.   

Landmark=s second issue is overruled.

Postjudgment Interest

By its third issue, Landmark alleges that the trial court erred in awarding postjudgment interest in the amount of twelve percent per annum.  Texas common law allows prejudgment interest to accrue at the same rate as postjudgment interest on damages awarded for breach of contract.  Kenneco Energy, 962 S.W.2d at 532. Having determined that the twelve percent rate applied to the prejudgment interest was correct, we accordingly conclude that this rate could also be properly applied to the postjudgment accrual of interest.  Landmark=s third issue is therefore overruled.

Conclusion

The judgment of the trial court is affirmed. 

Rogelio Valdez,

Chief Justice

Memorandum Opinion delivered and filed

this 13^th day of October, 2005.

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^[1]This is in contrast to the common law rule of prejudgment interest, in which prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written notice of a claim or (2) the date suit is filed.  See Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 531 (Tex. 1998).