WPS, Inc. v. Surface Productions Systems, Inc.

Opinion issued January 31, 2012.

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-10-00041-CV

———————————

wps, inc. , Appellant

V.

expro

americas, llc ,

Appellee

———————————

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.

[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.