Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-06-00655-CV

Austin Traffic Signal Construction Co., L.P., d/b/a ATS Electrical Contractors;

Cajun Constructors, Inc.; Liberty Mutual Insurance Company;

and Fidelity and Guaranty Insurance Underwriters, Inc., Appellants

v.

Transdyn Controls, Inc., Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT

NO. D-1-GN-02-002371, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING

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

This case involves a contract between an equipment supplier and an electrical

subcontractor on a City of Austin construction project. Transdyn Controls, the equipment supplier,

sued subcontractor Austin Traffic Signal Construction Co., L.P. ("ATS") for failing to pay for the

equipment Transdyn had supplied for the construction project. Transdyn also sued Cajun

Constructors, Inc., Liberty Mutual Insurance Company, and Fidelity and Guaranty Insurance

Underwriters, Inc., alleging that they were responsible for Transdyn's damages because they had

provided payment bonds on the project. ATS filed a counterclaim against Transdyn, asserting that

Transdyn had breached the parties' equipment-supply contract by providing defective equipment and

by failing to complete other obligations under the parties' contract. After a bench trial, the trial court

rendered judgment in favor of Transdyn. In six issues, ATS asserts that the trial court erred by

(1) admitting certain witness testimony into evidence, (2) failing to award ATS an offset for training

fees it had incurred as a result of Transdyn's breach, and (3) awarding "incidental delay damages"

to Transdyn. We affirm the trial court's judgment.

BACKGROUND

In September 2000, the City of Austin entered into a construction contract with Cajun

Contractors, as general contractor, to build the Walnut Creek Wastewater Treatment Plant in Austin

("Walnut Creek project"). (1) Cajun, in turn, entered into a $3.7 million subcontract with ATS to

provide the electrical and instrumentation work on the Walnut Creek project. ATS's scope of work

under its subcontract included providing "all labor, materials, and equipment to design, furnish,

install, calibrate, test, adjust, and place in operation the facility monitoring and control

system"--also known as the process instrumentation and control system ("PICS"). PICS includes

the sensors and instruments used to monitor and control the facility and permit remote access and

control of those sensors and instruments.

Although ATS was responsible for PICS under its subcontract with Cajun, the

specifications for the Walnut Creek project required that the City of Austin approve the PICS

supplier and installer. ATS asked Transdyn, one of four city-qualified PICS suppliers, to submit a

proposal to supply the PICS for the Walnut Creek project. ATS told Transdyn, and the project

specifications provided, that the Walnut Creek project was scheduled to be completed 360 days after

construction began. Transdyn's representative also testified that ATS's representative told Transdyn

that ATS's PICS budget was $1,000,000. ATS also sent Transdyn the project specifications

covering PICS.

Based on all the information it had received from ATS, Transdyn submitted a

$1,000,000 proposal "for furnishing, but not installing, portions of the [PICS] for the subject project

as defined in [the sections of the project plans and specifications ATS] provided." The proposal also

specified that Transdyn would provide certain training. The PICS section of the project plans, which

were incorporated by reference into the proposal, included the following payment terms for the PICS

part of the project:

Partial Payment Limits :

A. Partial payments for Work required under PICS Subsystems is shown as a

percent of Lump Sum Item amount:

1. Submittals, not including PICS O&M manuals, 15 percent

maximum,

2. Performance Acceptance Tests PAT , 20 percent, minimum.

3. Reliability Acceptance Tests RAT , 20 percent, minimum.

4. PICS O&M manuals, 5 percent, minimum.

(Emphasis in original). Transdyn's proposal stated that payment would be according to "mutually

agreeable payment terms resulting in neutral cash flow for the project." (2) ATS accepted Transdyn's

proposal and authorized Transdyn to begin work on the project on September 14, 2000.

Approximately two months after construction began on the Walnut Creek project,

Transdyn, ATS, and Cajun agreed on the following payment schedule for Transdyn's work:

As agreed upon at our partnering meeting, the following table is Transdyn's revised

Milestone/Payment Schedule. Note that the payment dates are the estimated dates

for payment of the invoice and are approximately one month after the issuing of the

invoice.

Cont.

Milestone Payments Amt: $1,000,000 % Retained 5%

Milestone %

Payment

Less

Retainage

Expected

Pay Date

Acceptance of

Schedule/Schedule of

Values/Hardware List

5%

$50,000.00

$47,500.00

Oct-00

Hardware Submittal

Approval

10%

$100,000.00

$95,000.00

May-01

Hardware Shipped to

Staging

40%

$400,000.00

$380,000.00

Jan-01

Performance

Acceptance Tests

Complete

20%

$200,000.00

$190,000.00

Aug-01

Reliability

Acceptance Tests

Complete

20%

$200,000.00

$190,000.00

Sep-01

O&M Manual

Approved

5%

$50,000.00

$47,500.00

Sep.-01

Final Payment

$50,000.00

$50,000.00

Sep.-01

100%

$1,000,000.00

(hereinafter,"milestone payment schedule"). Transdyn's representative testified that the purpose of

this agreement was to achieve the "mutually agreeable payment terms resulting in neutral cash flow"

described in Transdyn's original proposal by requiring ATS to pay Transdyn approximately one

month after receiving Transdyn's invoice for each milestone. ATS's representative testified that this

agreement meant that Transdyn would be paid a certain amount after each milestone was reached

and final payment after the last milestone was reached, rather than by a date certain or invoice date.

In addition to modifying the contract's payment terms, ATS and Transdyn also later

agreed to modify the training provisions of their contract. This modification resulted from requests

by the project engineers that Transdyn make certain design changes to the PICS. Transdyn notified

ATS that making the requested changes would require a change-order and an increase of $11,375.61

to the parties' contract. After negotiations, the parties agreed to incorporate the changes into the

existing contract at no extra charge to ATS and, in exchange, release Transdyn from some of its

obligation to provide post-installation training.

Transdyn made the requested changes to the PICS system, but when PICS was

installed and ATS requested a week of training from Transdyn, the parties realized there was a

misunderstanding about the modification. Transdyn contends that it had agreed to perform the

change-order work--valued at $11,375--in exchange for a release from its entire three-week training

commitment--valued by Transdyn at $12,000. ATS contends that it only agreed to release Transdyn

from two of the three weeks of training and that Transdyn was still required to provide one week of

training. Because the parties could not resolve this matter during construction and because ATS was

under construction deadlines, ATS provided all three weeks of the training.

There were other problems between Transdyn and ATS on the Walnut Creek project,

the most significant of which was a delay in completion of the project. The project was originally

scheduled to finish by September 2001, but it was not ready until June 2002. This was due, in part,

to the fact that Austin experienced unusually heavy rainfall in the autumn of 2000 and, in part, to

problems caused by the project engineer, the general contractor, other subcontractors, and either

Transdyn or ATS, depending on the party testifying. The end result for Transdyn was that it had to

wait on the delays to complete its portion of the contract and it did not receive its final, and largest,

payment in September 2001 when the project was expected to be complete. Transdyn also

complained that ATS did not pay Transdyn's initial invoices in a timely manner.

ATS, however, argued it was not responsible for the delay and, in fact, that Transdyn

itself was responsible for delays. Specifically, ATS contends that the engineers and other contractors

had to delay testing the PICS because Transdyn had ordered its engineer, without whom testing could

not occur, to leave Austin right before PICS testing. ATS also contends that Transdyn was

responsible for the numerous PICS problems and defects discovered during testing and that these

defects had to be repaired before the project could continue. Transdyn contends that, despite all the

delays on the project, it had shipped the PICS equipment according to the terms of the parties'

agreement and had PICS ready to be installed, started, and tested in September 2001, which was the

original completion date for the construction project and the final payment date on the parties'

payment schedule.

Because of the delays and problems with payment throughout the project, Transdyn

sent ATS demands for payments and asked for assurances about the delays. On January 7, 2002,

while the project was still ongoing and the PICS was still not complete, but after Transdyn states it

had completed 95% of its work, Transdyn submitted its final invoice for the project and demanded

the remainder due under the entire contract--$477,500. When ATS did not pay, Transdyn filed this

suit, alleging breach of contract by ATS and seeking damages and attorney's fees. ATS

counterclaimed for breach of contract as well, alleging that Transdyn had failed to complete its work

and had failed to provide the agreed-upon one week of training per the parties' oral modification.

After a bench trial, the trial court found that ATS had materially breached the contract

by not paying Transdyn according to the terms of the contract and awarded Transdyn its damages,

including incidental damages, and attorney's fees. The trial court also found that Transdyn had

breached the contract by failing to perform terminations and repairs on the PICS, and awarded ATS

its damages and attorney's fees for that breach. After the offsets for Transdyn's breach were

credited, the trial court awarded Transdyn $82,403 in damages, plus pre-judgment interest of

$28,451.36, $50,000 in attorney's fees, and $9,619 in court costs. ATS appeals.

DISCUSSION

In six issues on appeal, ATS contends that the trial court erred by (1) admitting certain

testimony by Transdyn's corporate representative, Brian Luiz, (2) failing to credit ATS with an offset

for training costs incurred because of Transdyn's breach of contract, and (3) awarding Transdyn

"incidental delay damages."

Testimony of Brian Luiz

In its first issue, ATS contends that the trial court erred in admitting, over objection,

Brian Luiz's testimony about the change-order request and agreed modification to the training

requirement in the parties' contract. ATS objected to Luiz's testimony on the grounds that it was

inadmissible hearsay and that Luiz had no personal knowledge of the change-order or the parties'

modification negotiations. ATS objected to the following testimony by Brian Luiz:

Q: [Transdyn's Counsel] Are you familiar with this Change Order dispute I

described to the Judge in my opening statement?

A: I am.

Q: Will you please convey, in your own words to Judge Livingston, what

Transdyn[]'s position is with regards to the Change Order components of this

litigation?

ATS's counsel: Excuse me, Your Honor, I'm going to object to any testimony

from this witness until it's proven that he has first-hand

knowledge of this, because I think the discovery shows he

was not involved in the first hand--on a first-hand basis with

respect to the negotiation of this alleged Change Order.

The Court: Establish what personal knowledge, if any, he has or what

other knowledge he might have.

Transdyn's counsel: Sure, Your Honor. And he's our corporate representative.

We're just asking him to say what this--what we've pled,

what this company's position is with regards to it. Not

anything that he hasn't--doesn't have direct knowledge of.

The Court: Okay.

ATS's Counsel: Okay.

Q: [By Transdyn's Counsel] Okay. Mr. [Luiz], were you involved with your

employees and personnel in discussing the Change Order disputes while the

project was on-going?

A: I was.

Q: Okay. Did you ever have any discussions with anyone at ATS about the

Change Order dispute?

A: I believe I did.

Q: Okay. Who?

A: Mr. House.

Q: Okay. And who at Transdyn[] did you discuss the Change Order dispute

with?

A: With Mr. Smith and Mr. Maxwell.

Q: Okay. And both of whom work underneath you, correct?

A: That's correct.

Q: Okay. And you testified earlier at some point, you started getting copied on

a lot of the correspondence that we've seen and will be seeing; is that correct?

A: That's correct.

Q: Did any of that correspondence involve this Change Order dispute?

A: The letter I previously reviewed that illustrated the cost of those Change

Orders--of that Change Order was presented to me in a normal course of our

reading file.

Q: Okay. And you--you reviewed it then and familiarized yourself with

Transdyn[]'s position concerning the Change Order dispute?

A: I did.

Q: Okay. What is Plaintiff's Exhibit No. 15?

A: That is the bid summary as prepared on June 22nd 2000 for this project.

Q: Okay. And it itemized and details out what Transdyn[] was going to perform

and how--and what internally it cost or how it tracked the cost of this job,

correct?

A: That's correct.

Transdyn's Counsel: Your Honor, we move to admit Exhibit 15.

ATS's Counsel: No objection, Your Honor.

The Court: It's admitted.

Q: [By Transdyn's Counsel] Can you please convey to the Judge what

Transdyn[]'s position is with regards to the Change Order Dispute?

A: It was my understanding that when we prepared the Change Order, the cost

for that Change Order was $11,000 and some added amount of

money--$11,000 plus.

ATS's Counsel: Excuse me, Your Honor. Objection to this witness testifying

to any--what anybody else told him about the presentation of

the Change Order.

The Court: He hasn't done that yet. So far he just said it's his

understanding that the cost was going to be $11,000.

ATS's Counsel: And I'm entitled to know--he's testified to what his

understanding was. And he said his understanding came from

Maxwell or Smith. The background of this, Your Honor, is

Mr. Smith and Mr. Harutanian had a conversation

heard--overheard by Mr. House. Those are the three parties

that have first-hand knowledge of what this alleged agreement

is. Anything this witness is going to testify about is going to

be hearsay that he got from talking to Smith or somebody

else. He has no first-hand knowledge of this alleged

agreement on this Change Order.

The Court: Well, so far he hasn't related what anybody told him. All he's

saying is he thinks it was $11,000. So far that's okay. He

thinks it was $11,000. You can cross-examine him on that

point. But, please, don't tell us what anybody else told you,

except obviously Mr. House, you can certainly tell us what he

said.

The Witness: Okay.

The Court: Go ahead Mr. Spencer.

Q: [By Transdyn's Counsel] Okay. Again, what is Transdyn[]'s position with

regard--in this litigation with regards to this Change Order?

A: That the $11,000 that was shown on the earlier document of the cost, was the

cost to perform the Change Order. No Change Order was issued on the

project at its conclusion. It was my understanding that that was in exchange

for the PLC, Programmable Logic Controller training on the project, which

we had estimated at $12,000.

ATS's Counsel: Well, may I take him on voir dire?

The Court: No.

ATS's Counsel: Okay. I'm not entitled to know from whom he gained that

understanding?

The Court: When you cross-examine him you can ask him whatever you

want. So far there's no point in you taking him on voir dire.

It's not different from your cross-examination. Just be

patient, you're going to get to have him and ask him whatever

you want when it's your turn to cross-examine him. You can

voir dire him for the admissibility of the document or

something like that. So far he hasn't said anything that would

justify you interrupting the direct examination about

something--

ATS's Counsel: All right.

Q: [By Transdyn's Counsel] Mr. [Luiz]--

The Court: I'm sorry. I missed the last part. In exchange for what?

The Witness: In exchange for the cost that we had for the PLC training that

is shown on Exhibit 15, down towards the middle of the page

there's a 12,000-dollar cost item there.

The Court: Okay.

Q: [By Transdyn's Counsel] Okay. And how much is--do you recall even

approximately how much ATS is attempting to assert as an offset to our

claim for this--this training--for a part of the training obligation?

A: I thought it was 17,000, but I could be incorrect. But it was more than

the 12,000.

Q: It was more. Okay, does it appear that the amount of the Change Order is

almost the exact--it's 11,000 and some change. Does it appear to be almost

the exact same amount as we had budgeted for this actual training, for all of

the training here, according to Exhibit 15?

A: It does.

Q: Okay. Would--did you ever authorize anybody from Transdyn[] to--to just

partially trade out that--that obligation?

A: I did not.

Q: Would you have?

A: Not at those costs, no.

Q: Okay. Because it doesn't make sense that you would have traded out $8,000

for $11,000. Is that what you're getting at?

ATS's Counsel: Well, Your Honor, that's leading.

The Court: Sustained.

Transdyn's Counsel: Okay.

The Witness: No what--

The Court: Hang on, hang on. He's going to ask you another question.

The Witness: Okay. I'm sorry.

Q: [By Transdyn's Counsel] We estimated the PLC training here, according to

our bid, which predates this whole dispute, we estimated it at $12,000 for all

three weeks; is that correct?

A: That's correct.

Q: Okay. And so if you divide that $12,000 by three, what does that come out

to a week?

A: $4,000 a week.

Q: Okay. And what's your understanding with regards to the dispute as far as

the two versus three weeks? What is--what is their position?

A: I understand their position to be that in exchange for the 11,000-dollar

Change Order, we were only going to provide one week of training and they

were going to delete two weeks of the training.

Q: Okay. And what is Transdyn[]'s position with regards to that?

A: Our position is . . . that we traded all of the training for that.

We review a trial court's decision to admit or exclude evidence for an abuse of

discretion. In re J.P.B , 180 S.W.3d 570, 575 (Tex. 2005). A trial court abuses its discretion when

it acts without regard to any guiding rules or principles. Downer v. Aquamarine Operators, Inc. ,

701 S.W.2d 238, 241-42 (Tex. 1985).

The rules of evidence define hearsay as a "statement, other than one made by the

declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter

asserted." Tex. R. Evid. 801(d). As the trial court observed, the objected-to portion of Luiz's

testimony contains no out-of-court statements--Luiz did not testify about what other people told him

about the modification negotiations. Accordingly, his testimony was not hearsay and the trial court

properly overruled ATS's objection.

ATS also argues that the objected-to portion of Luiz's testimony was not based on

his personal knowledge as required by Rule 602 of the Texas Rules of Evidence. Under Rule 602,

a witness may not testify to a matter unless evidence is introduced sufficient to support a finding that

the witness has personal knowledge of the matter. Tex. R. Evid. 602. Personal knowledge is

"[k]nowledge gained through firsthand observation or experience, as distinguished from a belief

based on what someone else has said." Black's Law Dictionary 951 (9th ed. 2009). Thus, a witness

can only testify about those matters, facts, or events that he perceived firsthand. See Strickland

Transp. Co. v. Ingram , 403 S.W.2d 192, 195 (Tex. Civ. App.--Texarkana 1966, writ dism'd)

("Perception of fact by the senses of the witness, that is, firsthand knowledge, is a fundamental

qualification of testimonial competency.").

Luiz testified only about matters that he perceived firsthand as Transdyn's

vice president:

•Transdyn's litigation position regarding the modification;

•His understanding of ATS's position on damages regarding the modification;

•The identity of people with whom he discussed the change order or related

modification;

•The identification, existence, and contents of corporate documents;

•That Transdyn had valued the cost of three weeks of training at $12,000 in its

pre-contract bid summary;

•That $12,000 divided by three weeks equals $4,000 per week;

•That the change order request was for approximately $11,000 worth of work

and that amount was almost equal to the amount Transdyn budgeted for

training in its bid summary; and

•That he had not, and would not have, authorized anyone from Transdyn to

trade $12,000 worth of work for only two weeks of training.

Luiz did not testify about the negotiations leading up to the modification or what was said or agreed

to in those negotiations. Based on our review of this testimony, we conclude that Luiz testified about

matters about which he had personal knowledge. Accordingly, the trial court did not abuse its

discretion in overruling ATS's objection. (3) ATS's first issue is overruled.

Training Modification

ATS's second issue on appeal also involves the parties' modification to the contract's

training provisions. At trial, ATS argued that the parties agreed to eliminate only two of the three

weeks of training in exchange for the change-order work. Transdyn argued at trial that ATS agreed

to eliminate all three weeks of training. The trial court made no finding regarding the agreed training

modification, nor does the judgment award ATS damages for the training costs. Thus, we may infer

that the trial court found that the parties agreed to eliminate all three weeks of training. See Tex. R.

Civ. P. 299 (omitted elements will be supplied by presumption in support of judgment if supported

by evidence). ATS contends the trial court's finding is in error because there was legally or factually

insufficient evidence that the parties agreed to eliminate all three weeks of Transdyn's PLC training

obligation in exchange for the change-order work.

We review the evidence supporting the trial court's findings of fact for legal

and factual sufficiency by the same standards applied to a jury verdict. See Ortiz v. Jones ,

917 S.W.2d 770, 772 (Tex. 1996). For a legal sufficiency challenge, we review the evidence in the

light most favorable to the judgment, crediting favorable evidence if a reasonable factfinder could,

and disregarding contrary evidence unless a reasonable factfinder could not. City of Keller v. Wilson ,

168 S.W.3d 802, 807 (Tex. 2005). We will sustain a legal sufficiency complaint if the record reveals

(1) a complete absence of evidence of a vital fact, (2) the court is barred by rules of law or of

evidence from giving weight to the only evidence offered to prove a vital fact, (3) the evidence

offered to prove a vital fact is no more than a mere scintilla, or (4) the evidence establishes

conclusively the opposite of a vital fact. Id. at 810 . More than a scintilla of evidence exists if the

evidence rises to a level that would enable reasonable and fair-minded people to differ in their

conclusions. Ford Motor Co. v. Ridgway , 135 S.W.3d 598, 601 (Tex. 2004).

In a factual sufficiency challenge, we consider and weigh all of the evidence in the

record, both supporting and against the finding, to decide whether the finding should be set aside.

See Dow Chem. Co. v. Francis , 46 S.W.3d 237, 242 (Tex. 2001). We will set aside the judgment

only if the finding is so contrary to the overwhelming weight of the evidence as to be clearly wrong

and unjust. Cain v. Bain , 709 S.W.2d 175, 176 (Tex. 1986). In a bench trial, the trial court is the

"sole judge of the credibility of the witnesses and the weight to be given their testimony."

McGalliard v. Kuhlmann , 722 S.W.2d 694, 696 (Tex. 1986). The trial court may believe one

witness, disbelieve others, and resolve inconsistencies in any witness's testimony. Id . at 697.

Our review of the record indicates the following evidence supporting the trial court's

implied finding that the parties agreed to eliminate all three weeks of training from the contract:

•Transdyn's pre-contract bid summary valuing three weeks of training at

$12,000;

•Luiz's testimony that Transdyn valued three weeks of training at $12,000;

•Transdyn's letter to ATS stating that requested changes to the scope of work

on the project would cost ATS $11,375.61;

•Luiz's testimony that no change-order was issued on the project;

•Transdyn's letter to ATS stating Transdyn's position that it had agreed to the

perform the change-order work in exchange for three weeks of PLC training,

not two; and

•Luiz's testimony that the change-order work was done as a "no cost change"

because Transdyn was trading its costs incurred on the work for the cost it

saved by not having to do the PLC training.

The only evidence contrary to the trial court's implied finding was an ATS employee's testimony

that Transdyn's project manager told him that Transdyn had agreed with the project engineer to trade

two weeks of training in exchange for the change-order work.

Considering this evidence in the light most favorable to the judgment and indulging

every reasonable inference that would support the trial court's finding, we conclude that a reasonable

and fair-minded person could conclude that the parties agreed to trade three weeks of training in

exchange for $11,375.66 worth of change-order work. Accordingly, the evidence is legally sufficient

to support trial court's implied finding.

Based on our review of all the evidence, we conclude that the trial court's finding was

not against the great weight and preponderance of the evidence. While there is some evidence to

indicate that Transdyn had agreed to trade two weeks, there is testimony and evidence suggesting

otherwise. It is for the trial court, however, to resolve such conflicts. Id. at 696-97 . The court could

have credited the testimony and evidence of the value of the work traded to conclude that the parties

intended to trade three weeks of training for approximately $12,000 of change-order work.

Accordingly, we conclude that the trial court's finding was supported by factually sufficient

evidence. ATS's second issue is overruled.

Incidental Damages

ATS's remaining issues on appeal challenge the trial court's award of incidental

damages to Transdyn. The trial court awarded the incidental damages under article 2 of the Texas

Uniform Commercial Code ("UCC"), which the court had previously determined governed the

parties' contract. Under the UCC, a seller of goods can recover its damages, including incidental

damages, "[w]hen the buyer fails to pay the price as it becomes due." Tex. Bus. & Com. Code Ann.

§ 2.709 (West 2009). Incidental damages under the UCC include "any commercially reasonable

charges, expenses or commissions incurred . . . in the transportation, care and custody of goods after

the buyer's breach . . . or otherwise resulting from the breach." Id. § 2.710 (West 2009).

With respect to its award of damages and incidental damages, the trial court made the

following findings of fact:

•ATS and Transdyn entered into a contract for Transdyn to furnish "labor and

materials related to the control equipment" for the Walnut Creek project;

•"ATS agreed to pay the agreed price and reasonable value for said electrical

control system pursuant to the terms of the . . . [parties' contract]";

•Transdyn furnished the labor and control equipment materials "in accordance

with the contractual requirements";

•Transdyn performed "all conditions, covenants, and promises to be performed

by Transdyn pursuant to the . . . [parties' contract] with ATS except that it

failed to perform the fiber optic terminations and Performance Acceptance

Test . . . related repairs";

•"ATS failed to pay Transdyn pursuant to the [parties' contract]";

•"Transdyn made timely and contractually correct demands for payment . . . .";

•Transdyn is entitled to the "$67,227.00 balance due under the [parties'

contract]"; and

•Transdyn is entitled to "incidental delay damages in the amount

of $65,397.00."

A. When Payment Became Due Under the UCC

In its third issue, ATS contends that the trial court erred in awarding incidental

damages because Transdyn offered no evidence or insufficient evidence that ATS failed to pay

Transdyn when payment became due under the terms of the parties' contract. Specifically, ATS

contends that Transdyn failed to produce evidence that payment was due from ATS when Transdyn

submitted its invoice requesting final payment. The parties disagree on when payment was due

under the contract. Before we can determine whether Transdyn produced sufficient evidence that

payment was due, then, we turn to the trial court's finding of when payment was due under the terms

of the parties' contract.

Both parties agreed that the milestone payment agreement sets forth the parties'

agreement about when Transdyn was to be paid. The parties disagree, however, on the meaning of

that agreement. ATS argued at trial that payments were due under this agreement only after each

milestone had been reached and, thus, final payment was not due until after the final

milestone--approval of the PICS manuals--was achieved. The testimony of both parties' witnesses

established that the last three of the milestones listed in the payment agreement had not been reached

when Transdyn sent its last invoice demanding final payment. Thus, ATS argues it did not owe

the money when Transdyn demanded payment. Transdyn argued at trial that payment was due

thirty days after it issued an invoice and, further, that final payment was due thirty days after the

project was initially scheduled to be finished, or approximately November 30, 2001; thus, when it

submitted its final invoice in January 2002, payment was past due.

Rather than make an express finding as to when the payment was due under the

milestone payment agreement, the trial court simply found that "ATS failed to pay Transdyn

pursuant to the [parties' contract]" and awarded Transdyn damages based on its contention that

the delay began in November 2001. Nonetheless, because it was established at trial that the last

three milestones had not been reached when Transdyn sent out its final invoice and because the trial

court found that ATS breached the contract, the trial court necessarily found, as was argued by

Transdyn, that final payment was due approximately November 2001. See Tex. R. Civ. P. 299

(omitted elements will be supplied by presumption in support of judgment if supported by evidence).

The trial court could not have found that, as ATS argued, payment was due upon completion of each

milestone and also have found that ATS was in breach of the contract. Accordingly, we determine

that the trial court impliedly found that final payment was due on approximately November 30, 2001.

Based on this implied finding and also because ATS does not challenge the trial

court's interpretation of this contract, we review the evidence to determine if it is factually and

legally sufficient to support the trial court's implied finding that ATS did not pay Transdyn in full

by approximately November 30, 2001. Our review of the record indicates the following evidence

supporting the trial court's implied finding:

•January 15, 2002 invoice demanding payment in full;

•January 8, 2002 Transdyn letter to ATS stating that the contract should have

been completed and fully paid by September 2001;

•January 15, 2002 letter from Transdyn's counsel to Cajun, Liberty Mutual

Insurance Co., and Fidelity and Guaranty Insurance Underwriters, notifying

them that ATS owes Transdyn $477,500 for work on Walnut Creek project;

•February 8, 2002 email from City of Austin project manager stating that no

further payments will be made to Transdyn;

•Luiz's testimony that Transdyn was never paid within thirty days from the

invoice date;

•Otis Maxwell's (Transdyn representative) testimony that Transdyn was never

paid within thirty days from the invoice date;

•Bill Driesslein's (ATS's chief financial officer) testimony that ATS paid

Transdyn's invoices up until the time "the difficulties all arose" when

Transdyn "left the job"; and

•Driesslien's testimony that Transdyn was not paid according to the parties'

payment agreement.

Considering this evidence in the light most favorable to the judgment and indulging every reasonable

inference that would support this finding, we conclude that a reasonable and fair-minded person

could conclude that ATS did not pay Transdyn in full by November 30, 2001.

We also note that ATS's brief on appeal cites to no evidence in the record indicating

that ATS paid Transdyn by the end of November 2001, nor did we find evidence contrary to the

finding. Therefore, we cannot conclude that the trial court's finding that ATS did not pay Transdyn

in full was so against the great weight and preponderance of the evidence that it was clearly wrong

and unjust. See Dow Chem. Co. , 46 S.W.3d at 242 .

We hold that the evidence was legally and factually sufficient to support the trial

court's finding that "ATS failed to pay Transdyn pursuant to the [parties'contract]." We overrule

ATS's third point of error.

B. Overhead Expenses

In its fourth issue, ATS contends that the trial court erred in awarding incidental

damages because the "incidental delay damages" requested by Transdyn are not recoverable by a

seller under the UCC. Specifically, ATS asserts that overhead costs, which were included in

Transdyn's incidental damages, are unrecoverable consequential damages. (4) Thus, the question we

must answer is whether overhead expenses are recoverable as incidental damages under the UCC.

ATS argues that overhead costs are not recoverable as incidental damages because

section 2.709 does not specifically provide for the recovery of "reasonable overhead." See Tex. Bus.

& Com. Code Ann. § 2.709 . As support, ATS points to section 2.708's inclusion of "reasonable

overhead" as an element of a seller's damages for non-acceptance or repudiation. See id. § 2.708

(West 2009). We are not persuaded by ATS's argument. The fact that overhead expenses are

specifically mentioned in section 2.708 as being a possible component of a seller's profit does not

mean that they cannot be incidental damages recoverable under section 2.709. Instead, we look to

section 2.710's definition of incidental damages to determine what incidental damages can include:

Incidental damages . . . include any commercially reasonable charges, expenses or

commissions incurred in stopping delivery, in the transportation, care and custody of

goods after the buyer's breach, in connection with return or resale of the goods or

otherwise resulting from the breach.

Id . § 2.710. The commentary to section 2.710 adds that the purpose of this section is

[t]o authorize reimbursement of the seller for expenses reasonably incurred by him

as a result of the buyer's breach. The section sets forth the principal normal and

necessary additional elements of damage flowing from the breach but intends to

allow all commercially reasonable expenditures made by the seller .

Id. (emphasis added). Although we have found no cases addressing whether Eichleay-type damages

are incidental damages under the UCC, we conclude that the types of expenses included in overhead

cost calculations--i.e., business expenses, such as rent, utilities, salaries, insurance premiums,

security costs--can fall within the UCC's definition of incidental damages if those costs

were commercially reasonable charges or expenses incurred as a result of the buyer's breach. See

Wagner & Brown, Ltd. v. Sheppard , 282 S.W.3d 419, 425 (Tex. 2008) ("overhead" expenses include

administration, supervision, office services, and warehousing expenses); Strauss v. Continental

Airlines, Inc. , 67 S.W.3d 428 , 440 n.7 (Tex. App.--Houston [14th Dist.] 2002, no pet.) (overhead

expenses include "office rent, salaries to employees, payroll taxes, and other fixed costs of

doing business"). We overrule ATS's fourth point of error.

C. Reasonable Certainty of Incidental Damages

In its fifth issue, ATS asserts that the trial court erred in awarding incidental delay

damages because there was no evidence or insufficient evidence "of the reasonable certainty of such

damages or that such damages were actually incurred." Specifically, ATS contends that, under

Malone v. Carl Kisabeth Co. , 726 S.W.2d 188, 192 (Tex. App.--Fort Worth 1987, writ ref'd n.r.e.),

Transdyn had to prove that it paid a third party to store the equipment or that it was foreclosed from

storing other equipment on its own premises.

We note that Transdyn's incidental damages include more than just its storage

expenses. Nonetheless, assuming without deciding that Malone applies to the facts of this case, the

Malone court declined to award the seller its storage costs as incidental damages because there was

no proof that the seller "suffered any loss by having to pay to have [the product] stored elsewhere

or was foreclosed from storing other [product] on [his] premises due to [the product] occupying

space." Id . Here, Transdyn's witness testified the equipment was "taking up valuable space in our

shop that we would loved to have had to stage other projects." Transdyn's witness also testified that

Transdyn had to maintain a security system for the warehouse, it had to pay insurance for the

warehouse if equipment was in it, and that Transdyn incurred staff expenses relating to the inventory

in the warehouse. Thus, Transdyn met the Malone requirements.

Regarding its incidental damages, Transdyn's witness also testified that Transdyn

incurred overhead and interest expenses because of the delays caused by ATS. Documents admitted

into evidence, mostly consisting of letters from Transdyn to ATS complaining about the delays,

specifically refer to damages being incurred as a result of the delays. Considering this evidence in

the light most favorable to the judgment and indulging every reasonable inference that would support

the trial court's finding, we conclude that a reasonable and fair-minded person could conclude that

Transdyn incurred expenses as a result of ATS's breach. Accordingly, we hold that the evidence is

legally sufficient to support the trial court's judgment.

In reviewing all the evidence, we find nothing that controverts the evidence that

Transdyn incurred expenses as a result of the delay. Accordingly, we hold that the evidence is

factually sufficient to support the trial court's conclusion that Transdyn incurred incidental damages.

ATS's fifth issue is overruled.

Causes for the Delay

In its final point of error, ATS asserts the trial court erred in awarding incidental delay

damages because there was no evidence or factually insufficient evidence that Transdyn's delay

damages resulted from ATS's breach or that ATS caused any delays. Our review of the record

indicates the following evidence supporting the trial court's finding that Transdyn incurred incidental

delay damages as a result of ATS's breach of the contract or that ATS caused delays:

•Testimony and handwritten notes of Luiz that ATS representative told him

that the contract would be complete in approximately 360 days;

•September 14, 2000 letter and purchase order from ATS accepting contract

with Transdyn and authorizing Transdyn to proceed with contract;

•October 26, 2000 email from Transdyn to ATS stating that Transdyn is being

affected by delays on the project;

•November 9, 2000 Revised Payment Schedule from ATS indicating that

expected pay date for final payment was September 2001;

•Luiz's testimony that Transdyn expected to be paid within thirty days of

invoice date, but was never paid within thirty days of invoice dates;

•April 16, 2001 letter from Transdyn to ATS requesting payment of past due

invoices and notifying ATS that Transdyn is ready to ship equipment;

•August 7, 2001 letter from Transdyn complaining about delays and damages

caused by the delays;

•Luiz's testimony that Transdyn submitted its work in a timely fashion and

was never cited for delays;

•Luiz's testimony that Transdyn incurred additional costs, including financing

costs, as a result of the delays in the construction project;

•Luiz's testimony that Transdyn was ready to perform on the contract but that

ATS was not ready; specifically that Transdyn had the equipment ready to go

in September 2001, but that it was not started until the early part of 2002;

•October 2, 2001 letter from Transdyn to ATS complaining about schedule

delays, indicating that Transdyn was able to perform according to agreed

schedule, and stating that Transdyn was incurring additional costs as result

of the schedule delays and of not being paid in a timely fashion;

•Luiz's testimony that approval of Transdyn's hardware submittals was

delayed by sixty days;

•November 7, 2001 letter from Transdyn to ATS setting forth the damages

Transdyn was incurring as a result of the delays on the construction project;

•January 8, 2002 letter from Transdyn stating that Transdyn should have been

paid in full by September 2001 and that it had incurred damages as a result

of the delay in payments;

•Luiz's testimony that as of November 7, 2001 Transdyn was waiting on ATS;

•Transdyn exhibit setting forth its Eichleay damages resulting from delays;

•Luiz's testimony that Transdyn's delay damages resulted from 205-day delay

between the contract completion date and the date Transdyn was finally paid;

•Luiz's testimony that, under the terms of the contract, ATS was responsible

for accepting Transdyn's schedule of values and hardware list;

•Luiz's testimony that the specifications for the project warranted that the

project will be completed in 365 days or the owner would assess liquidated

damages against the prime contractor;

•Luiz's testimony that Transdyn was "contracted to build the job in 365 days,

and we were damaged without any compensation for an extension of that";

•Luiz's testimony that Transdyn incurred damages because Transdyn was

required to complete the project in 365 days and had the equipment ready for

delivery in that time frame, but could not ship the equipment because of the

delays on the project;

•Otis Maxwell's testimony regarding ATS delays, including his testimony that

work outside Transdyn's scope of work, which affected Transdyn's ability to

complete its work, was not completed in a timely fashion;

•March 6, 2002 letter from Transdyn to ATS referencing delays and costs

incurred as a result of those delays;

•Cajun's letters to ATS regarding "Notification of Delay to Project Schedule";

•March 22, 2001 "48 Hour Notice of Failure to Perform" from Cajun to ATS;

•October 15, 2001 letter from Cajun to ATS regarding "Notification of Delay

to Project Schedule" and informing ATS that it was responsible for several

delays to the project;

•October 15, 2001 "48 Hour Notice of Failure to Perform" from Cajun to

ATS;

•Elliot House's testimony that Transdyn had all the equipment to the project

site by September 2001; and

•Elliot House's testimony that Cajun assessed damages against ATS for delays

in the construction project.

Considering this evidence in the light most favorable to the trial court's finding and indulging every

reasonable inference that would support the trial court's finding, we conclude that a reasonable and

fair-minded person would conclude that ATS caused delays and that Transdyn incurred incidental

damages as a result of the delays. Accordingly, we hold that the evidence was legally sufficient to

support the trial court's finding.

ATS provided the following controverting evidence:

•October 27, 2000 email from ATS to Cajun stating that delay in submittal

approvals were caused by Cajun;

•December 11, 2000 fax from ATS to Wesco complaining about delays in the

approval of submittal requests;

•March 12, 2001 City of Austin project notes for Walnut Creek project

indicating that engineers were responsible for delay in submittal approval;

•March 12, 2001 letter from ATS to Cajun regarding delays caused by rain and

failure to receive submittal approvals;

•October 19, 2001 letter from ATS to Cajun responding to allegations that

ATS delayed the project and complaining that Cajun was responsible for

delays on the project;

•Luiz's testimony that the engineers on the project were responsible for the

hardware submittal approvals;

•October 2, 2001 letter from Transdyn to ATS indicating that Transdyn was

aware that the activities of others were causing ATS to be delayed;

•Luiz's testimony that ATS's representative told him that ATS had difficulty

performing its work on the project due to problems that were out of

ATS's control;

•Luiz's testimony that he was aware that ATS was not the only entity that

could affect when the tests occurred; that the City of Austin, Cajun, the

engineer, other subcontracts, and weather could affect when tests occurred;

•Testimony from Elliot House of ATS that the delays in the project were

caused by excessive rain in the Fall of 2000, other contractors' failure to

complete work that had to be completed before ATS's work, including the

approval of project submittals, Transdyn's failure to assist with the final

testing of its equipment, and defective equipment Transdyn provided; and

•Testimony from Elliot House that he disagreed with Transdyn's contentions

that the engineers were late in approving submittals.

The trial court resolved the conflicts in the evidence in favor of Transdyn by concluding that ATS

caused delays and that Transdyn incurred damages as a result of those delays. Viewing all the

evidence, we conclude the trial court's finding is not "so contrary to the overwhelming weight of the

evidence as to be clearly wrong and unjust." See Cain , 709 S.W.2d at 176 .

ATS also contends that to recover incidental delay damages Transdyn had to "(1)

identify each action causing a delay; (2) identify the party responsible for this action; (3) locate this

action in the schedule; and (4) identify the impact of the delay." See Rowan Cos. v. Southwest

Tenant Constr., Inc ., No. 01-95-01514-CV, 1999 WL 97545 , at *4 (Tex. App.--Houston [1st Dist.]

Feb. 18, 1999, no pet.) (mem. op.). We disagree. Rowan is not a UCC case and, thus, does not

address the determination of incidental damages under the UCC. See id. The UCC allows recovery

of incidental damages "resulting from the breach." See Tex. Bus. & Com Code Ann. § 2.710 . We

can find no cases interpreting this UCC language to require the elements found in Rowan , and the

cases that interpreted this language have only determined that it requires that the damages have been

incurred prior to the breach; thus, they do not inform our decision here. See James J. White &

Robert S. Summers, Uniform Commercial Code § 7-16(a) (5th ed. 1996).

ATS also cites to City of Beaumont v. Excavators & Constructors, Inc. , 870 S.W.2d

123 (Tex. App.--Beaumont 1993, writ denied), for the proposition that Transdyn has to prove that

ATS was responsible for each act or omission which caused the delay. City of Beaumont is

distinguishable for at least four reasons: (1) it is not a UCC case; (2) it involved a claim for "lost

opportunity" damages incurred when a contractor allegedly was prevented from finishing a contract

before it was due to be completed; (3) the contractor was seeking damages from a defendant that was

not a party to its construction contract; and (4) the contract at issue contained a no-damage-for-delay

clause. Accordingly, we decline to apply City of Beaumont to this case. We overrule ATS's

sixth issue.

CONCLUSION

Because we conclude that the trial court acted within its discretion in admitting Luiz's

testimony and the evidence was legally and factually sufficient to support the trial court's findings,

we overrule ATS's issues on appeal and affirm the trial court's judgment. (5)

__________________________________________

Jan P. Patterson, Justice

Before Justices Patterson, Puryear, and Henson

Affirmed

Filed: August 24, 2010

1. The facts recited in this opinion are taken from the testimony and exhibits admitted at trial.

2. Transdyn's representative testified at trial that "neutral cash flow" is "a common term used

in the construction industry to indicate pay as you go . . . so as you incur the costs, you receive

payment for them."

3. Even if the trial court had erred in allowing Luiz's testimony, either because he lacked

personal knowledge or because his testimony included inadmissible hearsay, ATS fails to explain

how that error probably caused the rendition of an improper judgment. To reverse a judgment based

on an error in the admission or exclusion of evidence, the complaining party must show that the error

probably resulted in the rendition of an improper judgment by demonstrating that the judgment turns

on the particular evidence admitted or excluded. Tex. R. App. P. 44.1(a); Interstate Northborough

P'ship v. State , 66 S.W.3d 213, 220 (Tex. 2001).

4. Transdyn used the Eichleay formula to determine its incidental damages. The Eichleay

formula calculates a contractor's unabsorbed home overhead costs attributed to a government-caused

delay in connection with a government construction contract. See Eichleay Corp ., ASBCA

No. 5183 , 60-2 B.C.A. (CCH) ¶ 2688, aff'd , 61-1 B.C.A. (CCH) ¶ 2894 (1960). "Home office

overhead costs" are the costs incurred by the contractor for maintaining its whole business, thus, they

cannot be attributed to any single contract or job. See id . The Eichleay formula seeks to equitably

allocate the portion of the home office overhead costs allocable to a particular contract. Id. ; see also

Chilton Ins. Co. v. Pate & Pate Enters., Inc. , 930 S.W.2d 877 , 892 n.10 (Tex. App.--San Antonio

1996, pet. denied). Thus, Eichleay damages compensate the injured contractor for the "extra" costs

incurred as a result of the delay.

5. Because Chief Justice Law was originally assigned to author this opinion, authoring duties

were reassigned.