Opinion

Opinion issued February 17, 2011

In The

Court of Appeals

For The

First District of Texas

____________

NO. 01-08-00311-CV

____________

GULF LIQUIDS NEW RIVER PROJECT, LLC, Appellant

V.

GULSBY ENGINEERING, INC. & GULSBY-BAY PLANT PARTNERS, Appellees

*****

GULSBY-BAY PLANT PARTNERS, GULSBY ENGINEERING, INC., BAY, LTD.

& NATIONAL AMERICAN INSURANCE COMPANY, Appellants

V.

GULF LIQUIDS NEW RIVER PROJECT, LLC & WILLIAMS ENERGY

MARKETING AND TRADING COMPANY, Appellees

On Appeal from the 215th District Court

Harris County, Texas

Trial Court Cause No. 2001-48088

O P I N I O N

After the parties' industrial construction contract went awry, a jury awarded

over $300 million in contract, tort, and punitive damages to the construction project's

general contractor and its insurer and against the project owner and its primary

investor. Thereafter, the trial court partially granted the project owner's motion for

JNOV, thereby disregarding the jury's tort and punitive findings and entering

judgment for the contractor on the breach of contract and quantum meruit claims

only. The project owner appeals from the judgment entered against it on the breach

of contract claim/quantum meruit claims. The contractor and its insurer appeal from

the trial court's granting of JNOV on the tort and punitive damage findings.

BACKGROUND

The following is a brief recitation of the facts giving rise to these appeals.

Additional facts will be introduced as they become relevant to the discussion of the

issues presented.

A. Tyler & Douglas Plan to Process Refinery Off-Gasses

Business partners John Douglas and James Tyler planned to build plants to

process refinery "off-gasses" or waste products into more valuable chemicals that

could be sold to third parties for profit. In 1998, their company, Gulf Liquids

Corporation ["GLC"], contracted to purchase off-gasses from a refinery in Chalmette,

Louisiana. GLC then contracted with several parties to purchase the processed off-gasses.

In 1999, Douglas and Tyler formed Gulf Liquids Holdings, LLC ["Holdings"],

which, in turn, owned Gulf Liquids New River Project LLC ["Gulf Liquids"]. GLC

then assigned to Gulf Liquids the contracts to purchase the off-gas from the

Chalmette refinery and the contracts to sell the processed off-gasses.

Tyler and Douglas managed Holdings and Gulf Liquids LLC--an entity owned

only by Tyler and Douglas. Gulf Liquids LLC managed Gulf Liquids. In 1999,

Williams Corporation ["Williams"] invested $92.5 million in Holdings. Through its

equity interest in Holdings, Williams possessed an indirect interest in Gulf Liquids.

B. Gulf Liquids Hires Gulsby to Build the Base Project

The original plan called for two plants to be built. The first was to be a

cryogenic plant to cool and liquify the off-gas from the Chalmette refinery. The

second was to be a fractionator to then process the off-gas. Gulf Liquids hired

Gulsby Engineering, Inc. ["Gulsby"] as the general contractor to build the plants on

a turnkey basis. These two plants are referred to as the Base Project.

On October 29, 1999 Gulf Liquids and Gulsby executed two engineering,

procurement, and construction ["EPC"] contracts--one for each of the Base Project

plants. The contracts ["Contracts 1 and 2"] each covered a different plant, but in most

other respects, were identical. Contract 1's fixed price was $13.5 million, to be paid

when certain construction milestones were met. Contract 2's fixed price was $29

million, also payable when certain milestones were met.

C. NAICO Bonds the Base Project

National American Insurance Company ["NAICO"] issued payment and

performance bonds for Gulsby. Gulf Liquids, Gulf Liquids's lender, the Bank of

Montreal, and Gulf Liquids's insurer, Winterthur International America Insurance

Company, were the named beneficiaries of the bonds issued by NAICO.

D. The Base Project is Modified after Closing

After Contracts 1 and 2 were signed, Gulf Liquids contracted to purchase off-gas from Motiva Enterprises' refinery in Convent, Louisiana. After obtaining the

rights to this additional off-gas, Gulf Liquids needed more capacity to process it.

Specifically, the fractionation plant needed to be expanded. Gulsby signed a $12

million change order to the Base Project contracts for the needed expansion, which

provided that the work would be done without any change in the base contract price,

but was "extra work" approved by Parsons, the independent engineer. Construction

later began on the expansion.

E. The Motiva Project is Begun

In the fall of 2000, Gulf Liquids obtained funding to construct a second

cryogenic plant near the Motiva refinery in Convent, Louisiana. An additional

facility, called the RPG Splitter, was also planned at the site of the original Base

Project. These two undertakings together are referred to as the Motiva Project.

Gulsby partnered with Bay, Ltd., another construction company, to form Gulsby-Bay

Plant Partners ["GBPP"] to build the Motiva plants.

In February 2001, Gulf Liquids and GBPP entered two fixed-price contracts

["Contracts 3 and 4"] to build the second cryogenic plant and the RPG Splitter. The

contracts for the Motiva Project are essentially the same as those for the Base Project.

The contracts provided for milestone payments, as well as $12 million in fixed-fee

payments. The fixed fee payments were to compensate Gulsby for the expansion it

had undertaken on the Base Project due to the change order. Gulf Liquids paid $10

million of the fixed-fee payments at closing--the remaining $2 million was to be paid

at the date the final milestone installment was paid.

F. The Relationship between the Parties Deteriorates

By September 2000, Gulsby's cash flow had become unstable. Gulsby claimed

that it had performed millions of dollars worth of work on the projects, but that

Williams had instructed Gulf Liquids not to pay Gulsby for its work.

In February 2001, when the first Motiva Project milestone payments became

due, Gulf Liquids paid $4 million to Gulsby, even though the money was owed to

GBPP. Gulsby's partner, Bay, objected, and GBPP reinvoiced Gulf Liquids for the

$4 million.

Meanwhile, Gulf Liquids was unhappy with progress of the project. Although

the independent engineer had certified the base plants mechanically complete in

March and April of 2001, there had been no successful performance test. Gulf

Liquids was concerned that the plants were not functioning property.

In May 2001, Gulf Liquids discovered that Gulsby owed over $15 million to

the subcontractors on the Base Project and that there were millions of dollars in liens

being filed against the project. Gulsby claimed that it had not been able to pay the

subcontractors because it had not been paid by Gulf Liquids.

G. NAICO Begins Making Payments on the Bonds

Gulf Liquids made a demand for NAICO to fulfill its obligation on the payment

bonds. NAICO initially complied and began paying the subcontractors on behalf of

Gulsby. However, in July 2001, NAICO refused to pay under the performance bonds

to ensure the completion of the project.

H. Gulf Liquids Terminates Contracts 1 and 2

On September 5, 2001, Gulf Liquids notified Gulsby that it was in default of

the Base Project contracts and gave Gulsby time to cure the default. On September

18, 2001, Gulf Liquids formally terminated the Base Project contracts. After Gulf

Liquids terminated Contracts 1 and 2, GBPP abandoned the Motiva Project work

sites.

I. The Lawsuits Commence

The same day it abandoned the Motiva Project, GBPP sued Gulf Liquids, the

Bank of Montreal, and Winterthur. Gulf Liquids answered and asserted counter-claims and third-party claims against Gulsby and its joint venture partner, Bay.

Gulsby, Bay, GBPP, and NAICO all asserted claims against Gulf Liquids and its

investor, Williams. Gulsby and its related entities, including NAICO, also sued Tyler

and Douglas in their individual capacities. Gulf Liquids sued Gulsby and GBPP for

breach of the construction contracts, and GBPP for conversion. Shortly before trial

in this case, Tyler and Douglas settled with Gulsby, NAICO, GBPP, and Bay.

J. The Case Goes to Trial

After a lengthy jury trial, the case was submitted to the jury. In a 145-page jury

charge, the trial court submitted Gulsby's claims against Gulf Liquids of breach of

contract, fraud, fraudulent inducement, quantum meruit, and substantial performance.

Claims against Williams for fraud, fraudulent inducement, and tortious interference

with contract were also submitted.

The jury returned a verdict in favor of Gulsby, GBPP, NAICO, and Bay. The

jury found Gulf Liquids liable to Gulsby and Bay for breach of contract, fraud, and

fraudulent inducement. The jury found Williams liable to Gulsby, GBPP, Bay, and

NAICO for fraud and fraudulent inducement. The jury found Williams liable to

NAICO and Gulsby for tortious interference with contract. The jury also found that

Gulf Liquids was Williams's alter ego, that Williams benefitted from Gulf Liquids's

fraud, and that Williams participated in a civil conspiracy with Gulf Liquids.

After finding in Gulsby's favor, the jury awarded Gulsby approximately $17

million in actual damages and assessed punitive damages of $25 million against Gulf

Liquids and $60 million against Williams. Gulsby elected to recover on its tort and

quantum meruit theories.

After finding in NAICO's favor, the jury awarded NAICO $20,182,498 in

actual damages and assessed punitive damages of $20 million against Gulf Liquids

and $50 million against Williams.

K. Judgment Notwithstanding the Verdict

After substantial postverdict briefing and argument, the trial court granted

JNOV as to all of the tort, punitive damage, and vicarious-liability findings. The trial

court then entered judgment for $5,016,682 on Gulsby's breach of contract claim and

$5,746,077 on its quantum meruit claim against Gulf Liquids. The trial court entered

judgment for GBPP for $4,360,155 on its breach of contract claim. The trial court

further ordered that each party should bear its own attorney's fees.

L. Appellate Mediation

After the first round of appellate briefs were filed in the case, the parties went

to appellate mediation. GBPP, Bay, Gulf Liquids, and Williams settled all claims

among them. Bay and GBPP withdrew their appellate briefs, and this Court granted

an interlocutory dismissal of their appeals. Thus, the appellate issues regarding

Contracts 3 and 4 have been settled.

M. The Appeals

Gulf Liquids appeals, contending that the breach of contract and quantum

meruit awards against it must be reversed.

Gulsby appeals, contending that the trial court erred by granting JNOV as to

its tort claims against Gulf Liquids and Williams and by setting aside the exemplary

damages.

NAICO appeals, contending that the trial court erred by granting JNOV as to

its tort claims against Gulf Liquids and Williams.

GULF LIQUIDS'S APPEAL

A. Breach of Contract

In jury question 27, the jury was asked whether Gulf Liquids materially failed

to comply with Contracts 1 and 2 by (1) "failing to pay Gulsby Engineering for the

work performed under Contracts 1 and 2" or by (2) "failing to pay for additional work

under approved change requests." The jury answered both questions affirmatively.

In jury question 23, the jury was asked whether Gulf Liquids failed to comply with

contracts 1 and 2 by (1) "failing to exercise good faith and reasonable judgment in

determining whether proposed change requests were within the scope of the

contracts," (2) "failing to exercise reasonable judgment with regard to its right to

terminate Contracts 1 and 2," or (3) "[b]y wrongful means prevented Gulsby

Engineering's performance under Contracts 1 and 2 by providing a Basis of Design

that materially differed from the actual feedstream." Based on affirmative answers

to each of these questions, the jury, in question 38, awarded $9,016,682 in breach of

contract damages to Gulsby. (1)

In its first issue on appeal, Gulf Liquids contends that the trial court erred by

entering judgment based on the breach-of-contract findings by the jury. Specifically,

Gulf Liquids argues that the terms of the contract prevent the breach-of-contract

finding because (1) Gulsby failed to comply with a condition precedent to receiving

payment; (2) it did not breach the contract because it properly terminated the contract;

(3) it did not breach the contract by refusing to pay for "extra work"; and (4) it did not

breach the contract by preventing Gulsby from performing under the terms of the

contract. Gulf Liquids does not contend that it paid Gulsby as required by the

contracts. It contends, as a matter of law, that it was not required to do so because

Gulsby failed to perform a condition precedent to its right to receive payment and the

termination clauses of the contracts precluded a breach.

1. Condition Precedent

Gulf Liquids argues that the jury's finding that it breached Contracts 1 & 2 by

failing to pay Gulsby what is owed under the contract cannot stand because, as a

matter of law, the contract allowed it to withhold Gulsby's payment. Specifically,

Gulf Liquids argues that the contract created a condition precedent to payment, which

Gulsby failed to fulfill. Gulf Liquids's position is based on article 5.3 of the contract,

which provides in part as follows:

During the course of the Work, prior to completion of the Work, and as

a pre-requisite for any payment hereunder , [Gulsby] shall provide

evidence , and [Gulf Liquids] shall be satisfied, that all bills for

equipment, materials, and supplies have been paid in full and that

there are no outstanding liens, claims, or other obligations outstanding

against [Gulsby], [Gulsby's] work product, the Improvements, or the

Sites, related to the Work to be performed under this EPC Contract.

Gulf Liquids also relies on article 10.2 of the contract, which provides as

follows:

[Gulsby] shall furnish, monthly, evidence satisfactory to [Gulf Liquids]

and the Independent Engineer that [Gulsby] has made payment of all

bills for labor and materials and other liquidated or unliquidated

claims as a condition to the right of [Gulsby] to receive payment from

[Gulf Liquids] of any money due [Gulsby] hereunder.

Gulsby responds that these clauses are not conditions precedent to receiving

payment, but are merely a covenant of the contract, and that another contract

provision required Gulf Liquids to request evidence of subcontractor payments before

withholding its performance under the contract.

"A condition precedent may be either a condition to the formation of a contract

or to an obligation to perform an existing agreement." Hohenberg Bros.Co. v. George

E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976); see II Deerfield Ltd. P'ship v. Henry

Bldg., Inc., 41 S.W.3d 259, 264 (Tex. App.--San Antonio 2001, pet. denied). As

such, a condition precedent may "relate either to the formation of contracts or to

liability under them." Hohenberg Bros., 537 S.W.2d at 3 . "Conditions precedent to

an obligation to perform are those acts or events, which occur subsequently to the

making of a contract, that must occur before there is a right to immediate performance

and before there is a breach of contractual duty." Id. ; Deerfield, 41 S.W.3d at 264 .

Although no words in particular are necessary for the existence of a condition, "such

terms as 'if', 'provided that', 'on condition that', or some other phrase that conditions

performance, usually connote an intent for a condition rather than a promise."

Hohenberg Bros., 537 S.W.2d at 3 ; Deerfield, 41 S.W.3d at 264-65 . "In the absence

of such a limiting clause, whether a certain contractual provision is a condition, rather

than a promise, must be gathered from the contract as a whole and from the intent of

the parties." Hohenberg Bros., 537 S.W.2d at 3 ; Deerfield, 41 S.W.3d at 265 .

"However, where the intent of the parties is doubtful or where a condition would

impose an absurd or impossible result then the agreement will be interpreted as

creating a covenant rather than a condition." Hohenberg Bros., 537 S.W.2d at 3 .

Because of their harshness and operation, conditions precedent are disfavored.

Criswell v. European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 948 (Tex.

1990); Sirtex Oil Indus. Inc. v. Erigan, 403 S.W.2d 784, 787 (Tex. 1966).

Gulf Liquids argues that the plain language of articles 5.03 and 10.2 creates

conditions precedent because both articles require proof that Gulsby's subsontractors

have been paid "as a pre-requisite for any payment" and "as a condition to the right

of [Gulsby] to receive payment."

If we were to consider articles 5.3 and 10.2 in isolation, we might agree with

Gulf Liquids because the clauses use words such as "pre-requisite" and "condition,"

which usually indicate the creation of a condition precedent. See Hohenberg Bros.,

537 S.W.2d at 3 ; Deerfield, 41 S.W.3d at 264-65 . However, when we consider the

contract as a whole, as we must, see Hohenberg Bros., 537 S.W.2d at 3 , the intent of

the parties to create a condition precedent rather than an obligation to perform under

the contract, becomes ambiguous.

Specifically, article 10.3, which directly follows article 10.2, provides as

follows:

If [Gulf Liquids] has requested [Gulsby] to provide [Gulf Liquids] and

the Independent Engineer with evidence of payment and [Gulsby] has

failed to do so to the reasonable satisfaction of [Gulf Liquids] and the

Independent Engineer, [Gulf Liquids] may at its option withhold

payment of any money due [Gulsby] hereunder until expiration of any

lien periods, and if any claims thereafter remain unpaid by [Gulsby],

[Gulf Liquids] may, whether or not liens have been filed in connection

therewith, retain from the money due [Gulsby] a sufficient amount to

fully protect [Gulf Liquids] against possibility of loss by reason of any

unsatisfied liquidated or unliquidated claim or demand.

Unlike articles 5.3 and 10.2, article 10.3 does not contain any language making its

duty to provide evidence that the subcontractors have been paid a "pre-requisite" or

"condition" of its right to receive payment. In fact, article 10.3 provides that Gulf

Liquids cannot withhold any money due Gulsby unless (1) Gulf Liquids has requested

Gulsby to provide evidence that it has paid its subcontractors, and (2) Gulsby has

failed to do so.

The Supreme Court has recently held that "absent clear language that a lien

release is a condition precedent to a general contractor performing under the contract

and receiving the contract balance owed to it," such provisions should be construed

as covenants, not conditions precedent. Solar Applications Eng'g, Inc. v. T.A.

Operating Corp. , 327 S.W.3d 104, 112 (Tex. 2010).

Here, the conflict between articles 5.3 and 10.2 with article 10.3 makes it

ambiguous as to whether the parties intended to create a condition precedent, thus

we interpret the contract as creating a covenant, not a condition. See Restatement

(Second) of Contracts § 227(2) (1981). Similarly, there is no "clear language"

making Gulsby's duty to provide evidence that the subcontractor's had been paid a

condition precedent, and, under Solar Applications , we should not construe such a

duty to be a condition precedent. 327 S.W.3d at 112 .

Therefore, we conclude that Gulsby's obligation to provide Gulf Liquids with

evidence that the subcontractors had been paid was a covenant or obligation under

the contract, not a condition precedent to performance. Accordingly, we reject Gulf's

Liquids's argument that the breach-of-contract award cannot stand because Gulsby

failed to satisfy a condition precedent.

2. Exercised Termination Clause

Gulf Liquids also contends that it did not breach Contracts 1 & 2 because

terminating Gulsby was both proper and reasonable in light of the termination clauses

in the contracts.

Article 16 of the contracts provided that Gulf Liquids could terminate the

contracts with or without cause. To terminate for cause, Gulf Liquids was required

to give Gulsby notice of its default and 10 days to cure its default. If terminated for

cause, Gulsby was entitled to receive payment for any work it actually completed, less

amounts Gulf Liquids was entitled to set-off. Article 16.3 of the contract also

provided Gulf Liquids could terminate the contracts without cause. In the event of

a termination without cause under Article 16.3, "[Gulsby's] sole and exclusive

remedy shall be . . . to receive payment for the percentage of Work actually completed

by Gulsby, plus overhead and profit equal to 8% of actual costs to date."

Finally, the termination clause provided that if Gulf Liquids wrongfully

terminated Gulsby for cause, such termination "shall be deemed a termination without

cause [under article 16.30]."

Gulf Liquids argues that because the contract permitted it to terminate the

contract with or without cause, it cannot have breached the contract by terminating

it. A provision that provides an owner the right to terminate a contract with or

without cause is often referred to as "termination for convenience" clause. Roof

Systems, Inc. v. John Manville Corp. , 130 S.W.3d 430, 442 (Tex. App.--Houston

[14th Dist.] 2004, no pet.); see also 2 Philip Bruner & Patrick O'Connor,

Construction Law § 5:270 (2002). The purpose of such a provision is to permit the

"owner to unilaterally cancel its contractual obligations [by terminating the contract]

and still avoid committing a breach of contract which would expose it to damages."

Bruner & O'Connor , supra, § 5:270. We agree that the act of terminating the contract

is not itself a breach of contract by Gulf Liquids because it was merely exercising its

right to terminate the contract with or without cause. However, terminating the

contract does not excuse Gulf Liquids's breach of its obligation to pay that occurred

prior to the time that it exercised its right to terminate; the prior breach by Gulf

Liquids means that its termination of Gulsby was done without cause.

3. Extra Work

Gulf Liquids also appeals the breach-of-contract judgment to the extent that it

includes payments for "extra work." (2) In jury question 23a, the jury found that Gulf

Liquids breached the contract by "failing to exercise good faith and reasonable

judgment in determining whether proposed change requests were within the scope of

the contracts." In jury question 38 (c) and (d), the jury awarded damages for "amounts

owed by Gulf Liquids, but not paid for the approved change requests [on Contracts

1 and 2]". Gulf Liquids argues that it did not breach the contract by determining that

certain claims were not compensable as "extra work." Specifically, Gulf Liquids

argues that "since [Gulsby] undisputedly failed to comply with the contracts'

mandatory procedures governing extra work [requiring prior written authorization

and a description on a written change order], Gulf Liquids could not have acted

unreasonably or in bad faith in determining that [Gulsby] was not entitled to

compensation for that claimed extra work."

Gulsby responds that because Gulf Liquids breached the contract, it cannot rely

on the "procedural rights" set forth in the "extra work" provisions of the contract. We

agree. In City of Baytown v. Bayshore Constructors, Inc. , 615 S.W.2d 792 (Tex. Civ.

App.--Houston [1st Dist.] 1980, writ ref'd n.r.e.), a contractor sued its employer

alleging that the contractor incurred damages caused by "extra work" as a result of

the employer's failure to provide adequate plans and specifications for the project.

Id. at 793 . On appeal, the owner alleged that there was insufficient evidence to show

that the contractor had submitted its extra work claims to the owner in a manner that

complied with the terms of the contract. Id. This Court held that "when an owner

breaches a building contract it relinquishes its contractual procedural rights

concerning change orders and claims for additional costs." Id. at 793-94 ; see also

N. Harris Cnty. Junior Coll. Dist. v. Fleetwood Constr. Co. , 604 S.W.2d 247, 254

(Tex. Civ. App.--Houston [14th Dist.] 1980, writ ref'd, n.r.e.) (holding same).

Because Gulf Liquids failed to pay Gulsby under Contracts 1 & 2, it cannot now rely

on the procedural provisions of the extra work clauses in those contracts to avoid

payment for extra work.

4. Preventing Gulsby's performance

In jury question 23, the jury found that Gulf Liquids materially failed to comply

with the contracts because it "by wrongful means prevented [Gulsby's] performance

under Contracts 1 and 2" by providing a Basis of Design that materially differed from

the actual feedstream. We need not address this issue because we have already

upheld liability findings that Gulf Liquids breached the contracts by refusing to pay

Gulsby what it was owed under Contracts 1 and 2 and for its approved extra work.

Based on our resolution of these issues, we conclude that the trial court

properly refused to disregard the jury's liability finding that Gulf Liquids breached

Contracts 1 and 2 by refusing to pay Gulsby amounts due under those contracts and

for approved "extra work."

We overrule Gulf Liquids's first issue on appeal.

B. Reduction of Contract Damages

In its second issue on appeal, Gulf Liquids contends that Gulsby's contract

damages must be reduced because (1) the termination clause of the contracts limited

damages, (2) the damages are not supported by sufficient evidence, (3) the damages

should be reduced because of the "one-satisfaction rule." We agree that the

termination clause limits Gulsby's contract damages.

1. The Termination Clause

Gulf Liquids claims that "the district court was not at liberty to simply

disregard Gulf Liquids's termination rights" under the contract, and that the trial court

erred by submitting jury question number 38, which asked the jury to determine what

amount of money would compensate Gulsby for Gulf Liquids's breach of contract.

Gulf Liquids argues that the termination clause was a contractual limitation on the

amount of damages Gulsby could recover.

The jury determined that Gulsby did not breach the contracts, thus Gulf

Liquid's attempt to terminate for cause was wrongful, and, under the terms of the

contract Gulf Liquids's termination is deemed a termination without cause. We

address the effect of the termination-without-cause provision on Gulsby's right to

recover benefit-of-the-bargain contractual damages.

One purpose of a termination-for-convenience clause is to prevent "benefit-of-the-bargain" damages in the event that the owner unilaterally and without cause

terminates the contract. See 2 Bruner & O'Connor, supra, § 5:270. Parties may also

contractually agree to the measure of damages in the event of a breach. See Fidelity

& Deposit Co. v. Stool , 607 S.W.2d 17, 24 (Tex. Civ. App.--Tyler 1980, no writ)

("[I]t is well established that parties having agreed upon the measure of damages for

breach of their contract are accordingly bound."); Buhler v. McIntire , 365 S.W.2d

237, 239-40 (Tex. Civ. App.--Austin 1963, writ ref'd n.r.e.) ("The general rule

seems to be that parties having agreed upon the measure of damages for breach of

their contract are accordingly bound."). The termination-for-convenience clause in

this case specifically limits Gulsby's damages in the event of a wrongful termination

to "payment for the percentage of Work actually completed by Gulsby, plus overhead

and profit equal to 8% of actual costs to date."

Gulsby, however, argues that, because Gulf Liquids breached the contract it

cannot rely on the termination-for-convenience clause to limit its damages.

Specifically, Gulsby relies on City of Baytown , 615 S.W.2d at 793-94 , Baker Marine

Corp. v. Weatherby Eng'g Co. , 710 S.W.2d 690, 696 (Tex. App.--Corpus Christi

1986, no writ), and Sterling Projects, Inc. v. Fields , 530 S.W.2d 602, 606 (Tex. Civ.

App.--Waco 1975, no writ), all of which hold that when an owner breaches a

building contract, it relinquishes its procedural rights concerning change orders and

claims for additional costs. None of these cases, however, addresses the issue of

whether the breach of contract by an owner results in the forfeiture of contractual

provisions that would limit the contractor's remedies.

Gulf Liquids argues that failing to enforce the contracts' limitation-of-damages

provision would render the termination-for-convenience clause meaningless. We

agree. The clause expressly contemplates that if Gulf Liquids wrongfully terminates

Gulsby, the termination will be deemed a termination without cause, and limits

Gulsby's damages accordingly. Such a clause would never be enforceable if by

wrongfully terminating, the owner also loses the right to exercise the termination-for-convenience clause and the limitation-of-damages provision found therein.

Because the contract expressly contemplates that the owner may wrongfully

terminate the contractor, and then limits the contractor's damages to those specified

in the clause, we will not render that provision meaningless by holding that the

owner's rights are waived by committing the very breach that the clause

contemplates. Such circular reasoning would render the termination-for-convenience

clause meaningless, which we will not do. See Tenn. Gas Pipeline Co. v. Technip

USA Corp. , No. 01-08-00535-CV, 2008 WL 3876141 , at *23 n.11 (Tex.

App.--Houston [1st Dist.] August 21, 2008, pet. denied) (refusing to nullify party's

right to receive notice of breach based on party's breach). As such, we conclude that

Gulsby's right to recover damages for breach of contract was limited to the amounts

specified in the termination-for-convenience clause. See Am. Mfrs. Mut. Ins. Co. v.

Schaefer , 124 S.W.3d 154, 162 (Tex. 2003) (holding, even if insurer breached

agreement, insured only entitled to remedies set forth in contract). The trial court

therefore erred in submitting jury question 38(a) and (b), which permitted Gulsby to

recover benefit-of-the bargain damages for the breach of Contracts 1 and 2.

We also consider what effect, if any, the termination-for-convenience clause

had on Gulsby's right to recover damages for approved extra work, which was

submitted to the jury in question 38 (c) and (d). While a termination-for-convenience

clause prevents a contractor from recovering benefit-of-the-bargain damages because

of the termination of the contract, any pre-termination claims that the contractor was

owed more money for approved and completed extra work are preserved. See

Bruner & O'Connor, supra, § 5:270 (stating "if the [owner] owed the contractor

more money as a result of differing site conditions or defective plans and

specifications, then the [owner] cannot escape this liability merely by seeking to

terminate the contract for convenience"). Thus, we conclude that Gulsby's right to

recover for pre-termination extra work, which the jury found that Gulf Liquids had

approved, which the jury found to be owed, and which was not included in the

original contract price, is not limited by the termination-for-convenience clause. As

such, the trial court did not err in submitting jury question 38(c) and (d), which

permitted Gulsby to recover for pre-termination extra work done for contracts 1 and

2.

2. One-Satisfaction Rule and Sufficiency of Damages Evidence

Additionally, Gulf Liquids argues that Gulsby's contract damages should be

reduced by $2,500,000 because "shortly before trial [Gulsby] signed, benefitted from,

and was party to a settlement agreement between [Gulsby] and NAICO, on one hand,

and Tyler and Douglas on the other hand." Gulf Liquids also argues that there is

insufficient evidence to support the contract damages awarded. Because we agree

with Gulf Liquids that the contract damages should have been limited by the

termination-for-convenience clause, we need not address these alternative issues

regarding the contractual damages awarded, and decline to do so.

Because we agree that the contract provisions limited Gulsby's damages, we

sustain Gulf Liquid's second issue on appeal.

C. Conclusion Regarding Breach of Contract

Because we have held that Gulsby's obligation to show proof that its

subcontractors had been paid was not a condition precedent to its right to receive

payment from Gulf Liquids, the trial court did not err by submitting jury question

number 27, which established Gulf Liquids's contractual liability for breach of

contract for failure to pay for work performed under Contracts 1 and 2 and for

additional work under approved change requests.

However, we hold that the trial court erred in submitting jury question 38(a)

and (b), which allowed the jury to determine benefit-of-the-bargain damages for Gulf

Liquids's failure to pay Gulsby under Contracts 1 and 2. The contract between the

parties clearly limited the damages recoverable to preclude benefit-of-the-bargain

damages. The trial court, however, did not err by submitting jury question 38 (b) and

(c) because the termination-for-convenience clause does not limit the damages

recoverable by Gulsby for pre-termination, approved extra work.

Because we cannot determine how the trial court arrived at its $5,016,682

breach of contract award on Gulsby's breach or what portion of that award was

erroneously attributable to benefit-of-the-bargain damages, we reverse the damages

award for breach of contract and remand for further proceedings. See Tex. R. App.

P. 44.1(b).

D. Quantum Meruit

The trial court's judgment awarded Gulsby $5,016,682 from Gulf Liquids on

Gulsby's quantum meruit claims. In its third issue on appeal, Gulf Liquids argues

that quantum meruit is precluded because an express contract covers the subject

matter of the recovery. See In re Kellogg Brown & Root, Inc. , 166 S.W.3d 732, 740

(Tex. 2005). Gulsby responds that construction contracts provide an exception to this

general rule.

Quantum meruit is an equitable theory of recovery based on an implied

agreement to pay for benefits received. Heldenfels Bros., Inc. v. City of Corpus

Christi , 832 S.W.2d 39, 41 (Tex. 1992). Recovery under the theory of quantum

meruit is prohibited if an express contract covers the services or materials for which

the claimant seeks recovery. Truly v. Austin , 744 S.W.2d 934, 936 (Tex. 1988).

However, there is an exception with respect to construction contracts. See id. at 937 .

A contractor may recover the reasonable value of the services rendered and accepted

or the materials supplied under the theory of quantum meruit if: (1) the services

rendered and accepted are not covered by the contract; (2) the contractor partially

performed under the terms of an express contract, but was prohibited from completing

the contract because of the owner's breach; or (3) the contractor breached but the

owner accepted and retained the benefits of the contractor's partial performance. See

Truly , 744 S.W.2d at 936-37 ; DiMiceli v. Affordable Pool Maintenance, Inc. , 110

S.W.3d 164, 169-70 (Tex. App.--San Antonio 2003, no pet.); Garcia v. Kastner

Farms, Inc. , 789 S.W.2d 656, 661 (Tex. App.--Corpus Christi 1990, no writ).

Gulf Liquids argues that the contractor exception does not apply because (1)

the services rendered and accepted were covered by the contract, and (2) Gulsby is

not entitled to recover quantum meruit based on partial performance.

1. Services Rendered and Accepted Covered by Contract

In jury question 40, the jury was asked to determine whether Gulsby

"performed any compensable work for Gulf Liquids that was outside the scope of

Contracts 1 and 2." The question then submitted a laundry list of 18 items that

Gulsby claimed it performed that were outside the scope of the contracts. The jury

answered "YES" to 16 of the 18 items of Gulsby's work.

On appeal, Gulf Liquids complains that the 16 items for which Gulsby

recovered in quantum meruit were either included in the contracts' scope of work, or

included in the contract as "extra work." Gulf Liquids also argues that "the quantum

meruit liability question impermissibly asked the jury to decide a question of law:

whether certain items of work were 'outside the scope' of the contracts, a pure

question of contract interpretation properly for the trial court, not the jury."

The construction of a written instrument is a question of law for the trial court.

MCI Telecomm., Corp. v. Tex. Util. Elec. Co. , 995 S.W.2d 647, 650-51 (Tex. 1999).

When the evidence shows that no contract covers the service at issue, then the

question of whether a party may recover in quantum meruit is for the trier of fact. See

Producers Grain Corp. v. Lindsay , 603 S.W.2d 326, 328 (Tex. Civ. App.--Amarillo

1980, no writ).

The question this Court must decide is whether the 16 items submitted in the

quantum meruit damage question were, in fact, covered by the contract. Gulf Liquids

claims that the contract covers all 16 items because each item was either within the

"scope of work" or was "extra work" as those terms are defined by the contract.

Article 3.1 of the Contract defines the "scope of work" as all of the items listed

on Exhibit A of the Contract. Exhibit A contains five pages of "work" to be

peformed by Gulsby. "Work" is defined in Article 1.12 as "the activity specified

herein for accomplishment of the engineering, design, procurement, fabrication,

reconditioning, and installation of the Improvements as authorized by [Gulf Liquids].

When used as a noun, Work includes the engineering, design, fabrication, and

construction of improvements."

The contract also contains what the parties refer to as "extra work" provisions.

Article 1.4 defines "extra work" as "any item of Work not specified by or set out in

this EPC Contract and not within the reasonable intent of its provisions, which

[Gulsby] is required to perform. To the extent that the Extra Work is approved or

authorized by [Gulf Liquids] and the Independent Engineer as provided for herein,

such may be referred to as 'Work.'" Article 3.3 of the Contract provides that "[Gulf

Liquids], with the concurrence of the Independent Engineer, shall have the right to

alter, deter from, or add to the Work described in Exhibit A hereto, provided that such

alteration, deletion or addition is directly related to the Work described in Exhibit A

hereto and does not constitute or affect a substantially different undertaking."

Finally, Article 9.2 provides that "if the Project Manager and the Independent

Engineer determine that all or a portion of the Work is not within the scope of this

EPC contract, such Work shall be paid for as Extra Work."

Gulsby argues that these provisions do not bar its recovery for quantum meruit

because the jury found that Gulsby's performance of the 16 items listed was "outside

the scope" of the contracts. Thus, Gulsby argues that "the jury necessarily found that

the work constituted a 'substantially different undertaking' that the work the parties

agreed to under the contracts."

We disagree with Gulsby's interpretation. "Extra work" is by definition "Work

not specified by or set out in this EPC Contract and not within the reasonable intent

of its provisions." Even if the items listed in the quantum meruit question are outside

the "scope of the contract," they are "extra work" as long as they are "directly related

to the work" and "do not or constitute or affect a substantially different undertaking."

There is no jury finding that the items listed were not "directly related to the work"

or that they were a "substantially different undertaking."

Thus, we conclude that the 16 items listed in the quantum meruit question were

either within the "scope of work" or were "extra work." Because the items listed in

the quantum meruit question were covered by the express terms of the contract, no

quantum meruit claim will lie. See Truly , 744 S.W.2d at 936 .

2. Partial Performance

We next consider whether Gulsby is entitled to recover under quantum meruit

because it partially performed, but was prohibited from completing performance

because of Gulf Liquids's breach. Under Texas law, when a contractor has

substantially performed a building contract, he is entitled to bring a contract cause of

action to recover the full contract price less the cost of remedying those defects that

are remediable. Vance v. My Apartment Steak House of San Antonio, Inc. , 677

S.W.2d 480, 481 (Tex. 1984). If, however, the contractor has not substantially

performed, he may bring a quantum meruit claim as an alternative to a contract claim.

Dobbins v. Redden , 785 S.W.2d 377, 378 (Tex. 1990); see also Murray v. Crest

Constr., Inc. , 900 S.W.2d 342, 345 (Tex. 1995) (holding that because contractor had

not substantially performed, it could not recover under contract but could bring cause

of action in quantum meruit).

Here, in jury question 37, the jury found that Gulsby had substantially

performed the work to be completed under the Contracts. Thus, Gulsby may recover

its damages under the contract, but it may not maintain a cause of action for quantum

meruit. See DiMiceli , 110 S.W.3d at 170 (stating that because contractor completed

the contract, it "cannot recover on the theory of quantum meruit on the basis of partial

performance").

Accordingly, we sustain Gulf Liquids's third issue on appeal. We reverse the

quantum meruit award and render judgment that Gulsby take nothing on its quantum

meruit claim against Gulf Liquids.

E. Conditional Issues

In three conditional issues on appeal, Gulf Liquids contends that (1) there was

charge error on the breach of contract questions, (2) there was Casteel (3) error in the

charge, and (3) that the trial court erroneously admitted evidence of its insurance.

Because we have reversed and rendered judgment against Gulsby on its quantum

meruit claims and reversed and remanded its breach of contract claims, we need not

reach Gulf Liquids's conditional issues because they would afford it no further relief

than that it has already received.

GULSBY'S APPEAL

In addition to the breach of contract discussed above, the trial court also

submitted fraudulent inducement, fraud, and punitive damage issues to the jury. The

jury found in Gulsby's favor and awarded actual and punitive damages accordingly.

Gulsby elected to recover its tort damages rather than its breach-of-contract damages.

Gulf Liquids and Williams moved for judgment notwithstanding the verdict

["JNOV"], which the trial court granted. Gulsby appeals, contending that the trial

court erred in granting JNOV and (1) disregarding the jury's fraud findings; (2)

disregarding the jury's findings that Williams tortiously interfered with Gulsby's

contracts; (3) disregarding the jury's findings that Williams is responsible for Gulf

Liquids's conduct; (4) setting aside the punitive damages awards; (5) excluding Jerry

Gulsby's testimony about the value of his company; (6) reducing the damages on

Gulsby's breach-of-contract and quantum-meruit claims; and (7) failing to award

Gulsby its attorney's fees.

A. JNOV of Fraudulent Inducement Claims

In its first issue on appeal, Gulsby contends the trial court erred by granting

JNOV on its fraudulent inducement claims against Gulf Liquids. In jury question 57,

the jury was asked whether Gulf Liquids fraudulently induced Gulsby to enter into

Contracts 1 and 2. The jury was instructed to consider only Gulf Liquids's acts or

omissions prior to the execution of Contracts 1 and 2. The jury answered question

57 affirmatively and awarded the following damages: (a) $1,270,588 for the contract

price owed on Contract 1 less the amount paid by Gulf Liquids under the contract; (b)

$2,836,346 for the contract price owed on Contract 2 less the amount paid by Gulf

Liquids under the contract; (3) $2,000,000 for monies owed on the Geismar

expansion less the amount paid by Gulf Liquids; (4) $66,855.00 for amounts owed

by Gulf Liquids, but not paid under change requests on Contract 1; (5) $2,842,893 for

amounts owed by Gulf Liquids, but not paid under change requests on Contract 2.

On appeal, Guslby contends the trial court erred in granting JNOV and disregarding

the jury's findings on fraudulent inducement of contract.

1. Standard of Review and Law Applicable to Fraudulent Inducement

A trial court may disregard a jury finding and enter a JNOV if the finding is

immaterial or if there is no evidence to support one or more of the jury findings on

issues necessary to liability. Tiller v. McLure, 121 S.W.3d 709, 713 (Tex. 2003);

Spencer v. Eagle Star Ins. Co., 876 S.W.2d 154, 157 (Tex. 1994); Williams v.

Briscoe, 137 S.W.3d 120, 124 (Tex. App.--Houston [1st Dist.] 2004, no pet.). A trial

court may grant a motion for JNOV if a directed verdict would have been proper.

Tex. R. Civ. P. 301.

Fraudulent inducement is a type of fraud claim that requires a showing that (1)

a false material misrepresentation was made that was either known to be false when

made or was asserted without knowledge of its truth or falsity, (2) it was intended to

be acted on, (3) it was relied on, and (4) it caused injury. See Formosa Plastics Corp.

USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). "As a

rule, a party is not bound by a contract procured by fraud." Formosa Plastics, 960

S.W.2d at 46 . Indeed, "the law long ago abandoned the position that a contract must

be held sacred regardless of the fraud of one of the parties in procuring it." Id.

(quoting Bates v. Southgate, 31 N.E.2d 551, 558 (1941)). Fraudulent inducement is

a particular species of fraud that arises only in the context of a contract and requires

the existence of a contract as part of its proof. Haase v. Glazner, 62 S.W.3d 795, 798

(Tex. 2001); Clark v. Power Mktg. Direct, Inc., 192 S.W.3d 796, 799 (Tex.

App.--Houston [1st Dist.] 2006, no pet.). That is, with a fraudulent inducement

claim, the elements of fraud must be established as they relate to an agreement

between the parties. Haase, 62 S.W.3d at 798-99 .

2. False, Material Misrepresentations Claimed by Gulsby

Gulsby points to four misrepresentations by Gulf Liquids that induced it to

enter the contracts: (1) the size of the Chalmette site, (2) the components and

contaminents in the feedstream from the Chalmette plant; (3) a promise to reimburse

Gulsby for additional surety-bond coverage; and (4) a promise to pay Gulsby for

increased utility costs.

First, Gulsby points to evidence that Douglas, of Gulf Liquids, misrepresented

the size of the Chalmette site. Douglas told Jerry Gulsby that the Chalmette site was

1.5 to 2.0 acres in size. Actually, the site was only .8 acres. Gulsby testified that he

relied on Douglas's representation about the size of the site in designing and pricing

the Chalmette plant. After Gulsby executed the contracts, Jerry Gulsby discovered

the true size of the site. His plans then had to be modified to build the plant

vertically, rather than horizontally. The cost of having to adjust the plans cost Gulsby

an additional $2.38 million.

Second, Gulsby introduced evidence that Gulf Liquids misrepresented the

"feedstream" or off-gasses that would leave the Chalmette Refinery and be processed

at the Chalmette cryogenic plant. Douglas testified that he was aware that an accurate

knowledge of the feedstream was essential to Gulsby's design of the plant. One and

one-half months before the contracts were signed, Gulf Liquids provided a "basis of

design" to Jerry Gulsby. The basis of design was based on five years of historical

data from the Chalmette refinery, which Gulf Liquids reduced to a single document

containing specific numbers of each component and contaminant in the feedstream.

Gulsby used this basis of design to design the plant. However, the basis of design

was inaccurate. Specifically, the basis of design stated that 10% of ZSM-5, a catalyst,

would be in the feedstream. The use of ZSM-5 in the feedstream was critical to make

the project profitable. However, the amount of ZSM-5 in the feedstream was actually

much lower. Gulsby introduced a memo created before the contracts were signed in

which a Gulf Liquids employee states that "we are kidding ourselves if we think we'll

see 10+% ZSM-5 additions anytime soon (2 yrs)" at the Chalmette refinery.

Additionally, the basis of design was based on historical data and thus it did

not account for the fact that the Chalmette Refinery had recently begun processing

"Cerro Negro crude," a high-sulfur crude oil that increased the amount of sulfur in

the feedstream by 400%. As a result of the increased sulfur in the feedstream, Gulsby

had to modify plans for the plant, which increased its cost.

Third, Gulsby introduced evidence that before the contracts were signed,

Gulsby obtained two $10 million surety bonds from NAICO. However, before

closing, Douglas told Gulsby that the contracts had to be bonded for the full contract

price. The cost for the additional bonding was $1.875 million. When Gulsby

complained that he could not absorb such a "hit right off the top," Douglas promised

Gulsby that if it obtained the additional bonding, Gulf Liquids would reimburse

Gulsby for the increased cost. Jerry Gulsby testified that he would not have signed

the contracts had Gulf Liquids not promised to reimburse Gulsby for the increased

bonding costs. Gulf Liquids never reimbursed Gulsby for the additional bonding

expenses.

Finally, Gulsby presented evidence that shortly before closing he determined

that he would actually need to increase the horsepower of the plant. When Jerry

Gulsby expressed his reluctance to sign the contracts because need for increased

horsepower would be a "15 percent hit" on the contract, Gulf Liquids promised to

reimburse Gulsby for the additional utility costs if Gulsby would sign the contracts

as scheduled. Gulf Liquids never reimbursed Gulsby for the additional utility costs

necessary to increase the horsepower of the plant.

3. Justifiable Reliance

Gulf Liquids, however, claims that these misrepresentations are not actionable.

Specifically, Gulf Liquids argues that the statements are immaterial and should not

have been submitted to the jury because (1) "this is inherently a breach-of-contract

case, and punitive damages cannot be assessed for breach of contract"; and (2) the

merger clauses of the contracts preclude Gulsby's reliance on any purported oral

misrepresentation. We agree with the latter.

Gulf Liquids argues that, in light of several contract provisions, Gulsby could

not have justifiably relied on the claimed misrepresentations. Fraud requires that a

plaintiff show actual and justifiable reliance. Grant Thornton LLP. v. Prospect High

Income Fund , 314 S.W.3d 913, 923 (Tex. 2010). In evaluating justification, we

consider whether "given a fraud plaintiff's individual characteristics, abilities, and

appreciation of facts and circumstances at or before the time of the allged fraud[,] it

is extremely unlikely that there is actual reliance on the plaintiff's part." Id. ( quoting

Haralson v. E.F. Hutton Group, Inc. , 919 F.2d 1014, 1026 (5th Cir. 1990)). "[A]

person may not justifiably rely on a representation if there are 'red flags' indicating

such reliance is unwarranted." Id. (quoting Lewis v. Bank of Am., N.A. , 343 F.3d 540,

546 (5th Cir. 2003)).

a. Additional Agreements Made Pre-Contract

In its motion for JNOV, Gulf Liquids, relying on Schlumberger Tech. Corp. v.

Swanson , 959 S.W.2d 171, 179-80 (Tex. 1997), argued that the merger clauses in the

contracts preclude Gulsby's reliance on any pre-contract oral representations or

modifications, thus foreclosing its fraudulent-inducement cause of action as a matter

of law.

In Schlumberger , the Swansons and Schlumberger became joint venturers in

a project to mine diamonds from the ocean floor. 959 S.W.2d at 173 . After a dispute

between the parties arose, the Swansons sold their interest in the joint venture to

Schlumberger. Id. at 174 . As a part of the sale, the Swansons relinquished all rights,

claims, and interests in the offshore diamond project and released all causes of action

against Schlumberger, known or unknown. Id. In the release, the Swansons

specifically agreed that they were not relying on any statement or representation by

Schlumberger, that they were relying on their own judgment, and that they had been

represented by counsel who had explained the entire contents and legal consequences

of the release. Id. Later, the Swansons sued Schlumberger, claiming that

Schlumberger had fraudulently induced them to sell their interest in the joint venture

at an undervalued price. Id. After a jury found in favor of the Swansons,

Schlumberger claimed on appeal that the release precluded all of the Swansons' tort

claims as a matter of law. Id. at 175 . Recognizing that parties should be able to

effectively settle their disputes, the court agreed with Schlumberger, holding that

when the parties' intent is clear and specific, they can disclaim reliance on any oral

representations thus negating a fraudulent inducement claim. Id. at 179, 181 .

In Forest Oil Corp. v. McAllen , 268 S.W.3d 51, 61 (Tex. 2008), the supreme

court expressly declined "to adopt a per se rule that a disclaimer [of reliance]

automatically precludes a fraudulent-inducement claim ," recognizing that "facts may

exist where the disclaimer lacks 'the requisite clear and unequivocal expression of

intent necessary to disclaim reliance' on the specific representations at issue." Id. at

61 , 60 (quoting Schlumberger , 959 S.W.2d at 179 ). The court further advised that

when determining whether a waiver-of-reliance provision is binding, court must

examine the contract itself and the totality of the surrounding circumstances,

including whether (1) the terms of the contract were negotiated, rather than

boilerplate, and during negotiations the parties discussed the issue which has become

the topic of dispute; (2) the complaining party was represented by counsel; (3) the

parties dealt with each other in an arm's length transaction; (4) the parties were

knowledgeable in business matters; and (5) the release language was clear. Id. at 60.

Gulf Liquids claims that Article 25.10 of the contracts expressly disclaims any

reliance on oral representations by Gulf Liquids; thus Gulsby's reliance, a necessary

element of fraudulent inducement, fails.

Article 25.10 provides as follows:

. . . [T]his EPC Contract and the attached Exhibits hereto constitute the

entire agreement between [Gulf Liquids] and [Gulsby] pertaining to

engineering, design, procurement, fabrication, and installation of the

Work. None of these documents may be amended except by a writing

signed by both Parties. No promise, agreement, or representation not set

forth in this EPC Contract or an attached Exhibits [sic] shall be of any

force or effect.

We note that three of the four misrepresentations alleged by Gulsby--that it

was promised additional compensation for extra insurance and horsepower costs and

representations about the site size--involve alleged oral agreements made before the

contract was signed and were never incorporated in the EPC contracts by the parties.

Thus, the merger clause expressly covers these situations and prohibits evidence of

additional pre-contract terms from serving as the basis for a fraudulent inducement

claim. See IKON Office Solutions, Inc. v. Eifert , 125 S.W.3d 113, 125-28 (Tex.

App.--Houston [14th Dist.] 2003, pet. denied) (providing that provisions that

contract was "entire agreement" and requiring any modifications to be in writing

barred fraudulent-inducement claim under Schlumberger ).

b. Feedstream Components

The remaining misrepresentation--feedstream components--is not specifically

addressed in the merger clause. Thus, we consider whether Gulsby could reasonably

rely or was damaged by an erroneous basis of design, which was incorporated in the

contract as Exhibit B, and provided that 10% of the catalyst ZSM-5 would be in the

feedstream.

Gulf Liquids argues that Gulsby was required to create a design that would

function under the feedstream provided, and that, if the feedstream provided was

inaccurate, Gulf Liquids, not Gulsby, would be the party harmed. In other words,

Gulf Liquids argues that Gulsby would not be in breach of contract if it failed to

design a plant that would function because of an erroneously defined feedstream. We

agree.

Article 8.2 of the Contract provides as follows:

[Gulsby] hereby warrants the treating and process design and all

Improvements and equipment furnished, constructed or installed by

[Gulsby] to be free from defect in design and that, provided the

Improvements and equipment are utilized in accord with all reasonable

operating practices, and containing constituents and mol percentages of

constituents which do not materially differ from Exhibit B , the Work

Improvements, and equipment [Gulsby] shall produce the recovery rates

as stated on Exhibit C.

This section of the contract makes it clear that Gulsby was not responsible for failure

of its design to produce recovery rates indicated in the contract if the components of

the feedstream differed materially from those set forth in Exhibit B. Because Gulsby

could not provide a working system based on an erroneous basis of design, it was not

legally responsible and thus cannot have suffered any harm because of the erroneous

design.

Furthermore, article 3.3 of the contract provides that "[Gulf Liquids] . . . shall

have the right to alter, delete from, or add to the work described in Exhibit A,

provided that such alteration, deletion, or addition is directly related to the Work

described in Exhibit A hereto and does not constitute or affect a substantially

different undertaking." The contract further provides that, under certain conditions,

Gulf Liquids will pay for alterations or additions to the Work by way of written

change orders as Extra Work.

Article 3.3 gives Gulsby notice in the contract that Gulf Liquids had the right

to alter, delete, or change the Work of the Contract. Thus, Gulsby cannot claim that

it reasonably relied on the basis of design, including the feedstream set forth therein,

as being unchangeable.

In sum, Gulsby cannot show that it was harmed by the change in the feedstream

numbers because it was not contractually bound to design a system that would

function with the altered feedstream numbers. Also, Gulsby cannot show that it

reasonably relied on the feedstream calculations because the contract gave Gulf

Liquids the right to change the feedstream calculations and thereby change the scope

of Gulsby's wor k. We note that any change in the scope of the Work by Gulf Liquids

would have given Gulsby the right to request extra compensation for the extra work.

Thus, alterations in the feedstream could have led to a claim for extra work

compensation by Gulsby. Accordingly, the trial court did not err in granting JNOV

and disregarding the fraud findings against Gulf Liquids.

We overrule Gulsby's first issue on appeal.

B. JNOV of Tortious Interference Claims against Williams

In its second issue on appeal, Gulsby contends the trial court erred in

disregarding the jury's findings that Williams tortiously interfered with Gulby's

contracts. In jury question 61a, the jury was asked whether Williams intentionally

interfered with Contracts 1 and 2. The jury was instructed that "[i]nterference is

intentional if committed with the desire to interfere with the contract or with the

belief that interference is substantially certain to result. The jury answered question

61a affirmatively. In jury question 62, the jury was also asked whether Williams's

interference was justified. The jury was instructed that "[i]nterference with a contract

is justified if the interfering party had a good faith belief that it had a right to do so."

The jury answered question 62 negatively. In jury question 67, the jury awarded the

same amount of damages for Williams's tortious interference as it did for Gulf

Liquids's fraudulent inducement.

A trial court may disregard a jury finding and enter a JNOV if the finding is

immaterial or if there is no evidence to support one or more of the jury findings on

issues necessary to liability. Tiller , 121 S.W.3d at 713 .

Gulsby's position at trial was that Williams tortiously interfered with its

contracts with Gulf Liquids by, essentially, taking over the change order process and

preventing Gulf Liquids from paying Gulsby for change orders that Gulf Liquids and

the independent engineer had already approved. Williams, however, responds that

the trial court properly disregarded the jury's findings that it tortiously interfered with

Gulsby's contracts because it was, as a matter of law, justified in interfering. We

agree with Williams.

In jury question 62a, the jury was asked whether Williams's interference was

justified and was instructed that "[i]nterference with a contract is justified if the

interfering party had a good faith belief that it had a right to do so." The jury

answered question 62a negatively. Williams argues that, because it established its

legal right to interfere as a matter of law, the jury's negative finding on the issue is

immaterial.

Justification is an affirmative defense to tortious interference with contract and

tortious interference with prospective business relations. Prudential Ins. Co. of Am.

v. Fin. Review Servs., Inc. , 29 S.W.3d 74, 80 (Tex. 2000) (citing Calvillo v. Gonzalez ,

922 S.W.2d 928, 929 (Tex. 1996)). The justification defense can be based on the

exercise of either (1) one's own legal rights or (2) a good-faith claim to a colorable

legal right, even though that claim ultimately proves to be mistaken. Id.; Tex. Beef

Cattle Co. v. Green , 921 S.W.2d 203, 211 (Tex. 1996). If a trial court finds as a

matter of law that the defendant had a legal right to interfere with a contract, the

defendant has conclusively established the justification defense, and the motive is

irrelevant. Prudential , 29 S.W.3d at 80 ; Tex. Beef Cattle , 921 S.W.2d at 211 .

Alternatively, if the defendant cannot prove justification as a matter of law, it can still

establish the defense if the trial court determines that the defendant interfered while

exercising a colorable right, and the jury finds that, although mistaken, the defendant

exercised that colorable right in good faith. Prudential , 29 S.W.3d at 80 ; Tex. Beef

Cattle , 921 S.W.2d at 211 .

Williams argues that it was exercising its own legal rights in regard to the

change orders, thus its actions were justified. We agree. The record shows that,

under the Holdings Operating Agreement between Williams and Tyler and Douglas

of Gulf Liquids, Williams had the contractual right to require Tyler and Douglas to

obtain its express written consent before "incur[ring] any liability or mak[ing] any

single expenditure or series of related expenditures in an amount exceeding

$10,000.00." Enforcing or complying with one's own valid contract does not

constitute unjustifiable interference with another's contract. Magnard v. Caballero ,

752 S.W.2d 719, 721 (Tex. App.--El Paso 1988, writ denied).

Because Williams established, as a matter of law, that it was exercising its own

contractual right to require Gulf Liquids to obtain its approval before authorizing

expenditures, it has shown that its actions were justified. Whether Williams acted in

good faith is, thus, irrelevant, Tex. Beef Cattle , 921 S.W.2d at 211 . Thus, the jury's

finding in jury question 62a that Williams did not act in good faith is also irrelevant.

Because, as a matter of law, Williams's interference was justified, the trial court did

not err in disregarding the jury's finding that Williams tortiously interfered with

Gulsby's contracts. Accordingly, we overrule Gulsby's second issue on appeal.

C. Williams's Responsibility for Gulf Liquids's Conduct

In issue three, Gulsby contends that the trial court erred in disregarding the

jury's findings that Williams (1) benefitted from Gulf Liquids's fraud, (2) was

responsible for Gulf Liquids's conduct, and (3) conspired with Gulf Liquids to

fraudulently induce Gulsby to enter the contracts. However, we have already held

that Gulf Liquids did not commit fraud, thus Williams cannot be held vicariously

liable for Gulf Liquids's fraud. Accordingly, we overrule Gulsby's third issue.

D. Punitive-Damage Awards

In issue four, Gulsby contends the trial court erred disregarding the jury's

punitive-damage findings and setting aside the punitive-damage awards against Gulf

Liquids and Williams. Because we have held that these parties committed no

underlying tort, the trial court properly disregarded the punitive-damages awards. See

Schlueter v. Schlueter , 975 S.W.2d 584, 589 (Tex. 1998); Fed. Express Corp. v.

Dutschmann , 846 S.W.2d 282, 284 (Tex. 1993) (holding recovery of punitive

damages requires finding of independent tort with accompanying actual damages). Accordingly, we overrule issue four.

E. Testimony About the Value of Gulsby

In its fifth issue, which is a conditional issue on appeal, Gulsby argues that if

this Court does not hold in its favor on the tort issues, the case should be nonetheless

reversed and remanded because the trial court did not permit Jerry Gulsby to testify

about the value of his company. Gulsby contends that the evidence was relevant to

show its damages as a result of Gulf Liquids's and Williams's fraud and tortious

interference.

Erroneously excluded evidence constitutes reversible error if it is both

controlling on a material issue and not cumulative. Mentis v. Barnard , 870 S.W.2d

14, 16 (Tex. 1994). Here, the excluded evidence went to the issue of consequential

damages suffered by Gulsby as a result of Gulf Liquids's and Williams's alleged

torts. However, because we have held that the trial court properly disregarded the tort

liability findings against Gulf Liquids and Williams, Gulsby's damages are not a

material issue in the case. Thus, error, if any, in not allowing Jerry Gulsby to testify

about the value of his company, is harmless.

We overrule Gulsby's fifth issue.

F. Reducing Gulsby's Breach-of-Contract and Quantum Meruit Awards

In its sixth issue on appeal, which is a second conditional issue, Gulsby argues

that the trial court erroneously reduced the damages awarded for both breach of

contract and quantum meruit, when only one such reduction was warranted.

Specifically, Gulsby points out that in response to jury question 38, the jury awarded

Gulsby $9,016,682 for breach of contract, and in response to jury question 41, the

jury awarded Gulsby $7,746,077 for quantum meruit. However, both of these jury

questions included a $2 million award for Gulsby's work on the Geismar expansion.

Thus, Gulsby asked that its judgment be reduced by $2 million so that it would not

be compensated for the Geismar expansion twice. However, when the trial court

entered judgment, it reduced both the breach-of-contract and quantum meruit awards

by $2 million--for a total reduction of $4 million.

Gulsby contends the trial court erred in reducing its quantum meruit recovery

by $2 million. Neither Gulf Liquids nor Williams address this issue in their response

briefs. However, we have already held that Gulsby's breach-of-contract and quantum

meruit awards must be reversed, thus this issue is moot.

We overrule Gulsby's sixth issue.

G. Attorney's Fees

In its seventh issue on appeal, which is also its final conditional issue, Gulsby

contends the trial court erred in awarding $0 in attorney's fees on its breach-of-contract claim based on its failure to segregate its fees between its breach-of-contract

and fraud claims.

The remedy for unsegregated attorney's fees is a new trial on the issue, not

rendition of a take-nothing judgment on the claim for attorney's fees. See Tony Gullo

Motors v. Chapa , 212 S.W.3d 299, 310-11 (Tex. 2006); Stewart Title Guar. Co. v.

Sterling, 822 S.W.2d 1, 11 (Tex. 1991). " Unsegregated attorney's fees . . . are some

evidence of what the segregated amount should be." Tony Gullo Motors, 212 S.W.3d

at 314 . Because we have reversed and remanded Gulby's breach-of-contract claims

for further proceedings, and because the testimony of the unsegregated amount

constituted some evidence of the segregated attorney's fees, we reverse the trial

court's take-nothing judgment on Gulsby's attorney's fees claims and remand for

further proceedings.

We sustain Gulsby's seventh issue.

NAICO'S APPEAL

A. Background

NAICO issued payment and performance bonds for Gulsby on Contracts 1 and

2. Gulf Liquids, its lender, and its insurer were the beneficiaries of the bonds issued.

In May 2001, Gulf Liquids discovered that Gulsby owed over $15 million to the

subcontractors on the Base Project and made a demand for NAICO to fulfill its

obligation on the payment bonds. NAICO initially complied and began paying the

subcontractors on behalf of Gulsby. However, in July 2001, NAICO refused to pay

under the performance bonds to ensure the completion of the project. In September

2001, Gulf Liquids terminated the contracts. NAICO sued Gulf Liquids and Williams

to recover the amounts it paid on the bonds, plus punitive damages.

B. JNOV of Tort Claims against Gulf Liquids and Williams

In jury question number 58(2), the jury found that Gulf Liquids and Williams

fraudulently induced (4) NAICO to issue the bonds by failing to disclose a material fact.

The jury was instructed to consider only acts or omissions by Gulf Liquids and

Williams that occurred prior to the execution of the bonds. In jury questions 61 and

62, the jury found that Williams tortiously interfered with the bonds and that its

interference was not justified. In jury questions 63 and 64, the jury found that Gulf

Liquids and Williams committed fraud against NAICO. (5) In jury question 65, the jury

found that Williams partook of the benefits arising from the fraud against NAICO. In

jury questions number 70 and 71, the jury awarded $20,182,498 in actual damages

based on the jury's tort findings.

The jury was then found that there was clear and convincing evidence of (1)

harm to NAICO as a result of Gulf Liquids's and Williams's fraud, and (2) malice by

Williams. Based on these findings, the jury assessed $20 million in punitive damages

against Gulf Liquids and $50 million in punitive damages against Williams.

Nevertheless, after post-verdict motions, the trial court granted JNOV as to

these tort findings and entered judgment that NAICO take nothing on its tort claims

against Gulf Liquids and Williams. In issues one through four, NAICO appeals,

contending the trial court erred by granting JNOV on its fraud and tortious

interference claims.

1. Standard of Review

A trial court may disregard a jury finding and enter a JNOV if the finding is

immaterial or if there is no evidence to support one or more of the jury findings on

issues necessary to liability. Tiller , 121 S.W.3d at 713 . A trial court may grant a

motion for JNOV if a directed verdict would have been proper. Tex. R. Civ. P. 301.

2. Materiality

Gulf Liquids and Williams argue that the tort questions were immaterial and

should not have been submitted to the jury. Specifically, they alleged that "if NAICO

is entitled to recoup the sums it paid, its claim is against [Gulsby] because NAICO

performed [Gulsby's] obligations to pay its subcontractors under the construction

contracts and has an indemnity agreement from [Gulsby]." Essentially, Williams and

Gulf Liquids argue that once a surety has paid on a bond, its remedy lies with the

principal, and it has no right to an independent tort claim to recover those amounts.

Gulf Liquids and Williams also argue that fraud and misrepresentations are defenses

to a surety's liability, but do not give rise to an independent cause of action. We

agree.

Fraud in the inducement of the underlying construction contract will serve as

a defense to a surety's liability on the bonds. See Taylor & Jennings, Inc. v. Bellino

Bros. Const. Co. , 57 A.D.2d 42 , 42, 393 N.Y.S.2d 203, 205 (N.Y. App Div. 1977);

4A Bruner & O'Connor, supra, § 12:66 (2009). Similarly, fraud or

misrepresentation by the obligee that induces the surety to issue the bond can result

in the surety's obligation being voidable. Restatement (Third) Suretyship and

Guaranty § 12 (1996) ; 4A Bruner & O'Connor, supra § 12:76. However,

NAICO has cited no authority holding that such fraud will serve as an independent

ground for a tort recovery for fraudulent inducement.

Regarding post-contractual misrepresentations about the $12 million change

order, we note that if there is an alteration of a bonded contract that imposes materially

different risks, the surety may be entitled to a discharge of its obligations under the

bonds. See U.S. v. Freel , 186 U.S. 309, 317 , 22 S. Ct. 875, 878 (1902); Old Colony

Ins. Co. v. City of Quitman , 352 S.W.2d 452, 455 (Tex. 1961). Regarding

misrepresentations about substantial completion, we note that performance bonds are

conditional obligations that are triggered by, among other requirements, the principal's

material breach of the bonded contract sufficient to warrant termination. See Beard

Family P'ship v. Commercial Indem. Ins. Co. , 116 S.W.3d 839, 845 (Tex.

App.--Austin 2003, no pet.). If a contractor has substantially complied with a

construction contract, it cannot be said to have materially breached the construction

contract. See Vance v. My Apartment Steakhouse of San Antonio, Inc ., 677 S.W.2d

480, 481 (Tex. 1984); 4A Bruner & O'Connor, supra, §§ 12:45, 5 Bruner &

O'Connor 18:12 2002 & Supp. 2010). Thus, in such a circumstance, the surety is not

liable on the bonds. See Kidd-Scruggs Co. v. Tyler Hotel Co. , 270 S.W. 566, 570-71

(Tex. Civ. App.--Texarkana 1925, writ ref'd). NAICO contends that it relied to its

detriment on Gulf Liquids's and Williams's misrepresentations because, "had [it]

known that Gulf Liquids was not paying Gulsby monies it owed, NAICO could have

declared an owner default before [it paid on the bonds]." However, an "owner

default" is a defense to the surety's liability. 4A Bruner & O'Connor, supra §§

12:15, 12:69. Just as there is no authority that fraudulently inducing the issuance of

a bond will serve as an independent ground for a tort recovery, there is no authority

that fraudulently inducing one to forgo a contract defense will serve as an independent

ground for a tort recovery. Instead, NAICO cites several cases allowing a surety to

bring a professional negligence claim against an engineer hired by the owner to

oversee construction, an accountant hired by the contractor to prepare a financial

statement, and a bank hired by the contractor to disburse contract funds. (6) However,

in each of these cases, the duty breached arose out of a contract that the engineer,

accountant, or bank had with either the owner or contractor, and the courts held that,

even though not in privity, the sureties could maintain a negligence cause of action for

the breach of those contractual duties. We note that in the case against the accountant,

the duty was based on section 552 of the Restatement (Second) of Torts (1976),

which, in certain circumstances, allows third parties to sue professionals for

negligence despite a lack of privity if the professional has reason to know to know that

a nonparty to its contract will rely on its information. See Amwest Surety , 77 So. 2d

at 411-12. And, in the case against the bank, the duty was based on a particular

provision of California statutory law. See Commercial Standard Ins. , 129 Cal. Rptr.

at 95-96. We are not persuaded that these cases stand for the general proposition that

a surety may, under the circumstances present in this case, seek an independent tort

recovery for damages incurred by paying on the bonds.

We are not holding that a surety who pays under a contract has no recourse to

recoup its expenditures under the bonds. Indeed, the law of equity provides at least

three possible remedies. (7) First, the "[c]ourts have long recognized that a surety has

an equitable right to reimbursement from the principal for amounts paid on an

indemnity bond." Associated Indem. Corp. v. CAT Contracting, Inc. , 964 S.W.2d 276 ,

281 n.2 (Tex. 1998); 4A Bruner & O'Connor, supra, § 12.99 (2009). Second, to the

extent that reimbursement is not available because, as here, the principal is not in fact

liable, restitution may be available. Restatement (Third) Suretyship & Guaranty

§ 26 (1996); 4A Bruner & O'Connor, supra, § 12.99 (2009) ("Even where the

contractor has a valid defense to reimbursement of the surety for incurrence of

unreasonable costs [because the surety paid what was not owed], the surety is still

entitled to recover from the contractor, under the principle of restitution, for the

reasonable value of benefits conferred on the contractor by the surety's incurrence of

such costs."). Finally, under principles of equitable subrogation, a surety may be able

to assert its principal's contract, tort, or statutory claims against the obligee arising out

of the bonded contract. See Restatement (Third) Suretyship & Guaranty, §§

27-28; 4A Bruner & O'Connor, supra, § 12.100 (2009).

We also note that, in addition to these three possible equitable remedies, the

parties may contractually provide for indemnification. Because many jurisdictions

require sureties to prove that the principal was in fact liable before recovering

reimbursement, sureties were reluctant to settle claims with the obligee until the

principal's liability was determined. Associated. Indem. Corp. , 964 S.W.2d at 281 n.2.

To prevent the risk that reimbursement would not be available in the event that the

surety paid and its principal was later determined not to be in default, many sureties

obtained indemnity agreements with their principals, "under which the surety may

obtain reimbursement for settlement amounts paid in good faith, regardless of whether

the principal is ultimately determined to be liable to the obligee." Id. In fact, in this

case, there is such an indemnity agreement between NAICO and Gulsby, wherein

Gulsby states that its liability to NAICO "shall extend to and include all amounts paid

by surety in good faith under the belief that (1) surety was or might be liable therefore;

(2) such payments were necessary or advisable to protect any of surety's rights or to

avoid or lessen surety's liability or alleged liability." Thus, NAICO has a contractual

right to recover its expenditures from Gulsby to the extent that those amounts were

paid in good faith belief that they were owed. As noted by the supreme court in

Associated Indem. Corp. v. CAT Contracting , this practice promotes the practice of

settling claims against the bonds without the necessity for litigation to first determine

the principal's liability. See id.

In light of the contractual and equitable remedies available to NAICO, and the

lack of clear authority permitting the type of tort suits alleged in this case, we hold that

the trial court did not err by disregarding the jury findings on NAICO's tort claims.

We overrule issues one through four.

C. Breach of Contract

In jury question 44, the jury found that Gulf Liquids materially altered Contracts

1 and 2 and that NAICO did not consent to the alteration. In jury questions 46 and 47,

the jury found that Gulf Liquids committed an "owner default" of the contract that was

not excused. Based on these questions, the jury found that NAICO had been damaged

in the amount of $20,182,498.53. Nevertheless, the trial court granted JNOV,

disregarded these findings, and rendered judgment that NAICO take nothing on these

breach-of-contract claims. In issues five and six, NAICO contends the trial court erred

in disregarding these findings.

Gulf Liquids responds that it did not breach the bonds, and that "the bonds at

most provided NAICO with a defense to its obligations to Gulf Liquids." We agree.

It is true that an "owner default" by nonpayment is a defense to the surety's liability.

See Roel P'ship v. Amwest Sur. Ins. Co. , 258 A.D.2d, 780, 781-82 , (N.Y. App. Div.

1999) (holding owner's default for failing to pay contractor according to the contract

is defense to surety's liability); 4A Bruner & O'Connor, supra §§ 12:15, 12:59,

12:72. Likewise, "a material alteration" is a defense to the surety's liability. See

Vastine v. Bank of Dallas , 808 S.W.2d 463, 464-65 (Tex. 1991); 4A Bruner &

O'Connor, §12:70. However, again NAICO cites no cases holding that either an

"owner default" or a "material alteration" will support a direct claim for damages

against the owner by the surety.

In light of the contractual and equitable remedies available to NAICO, and the

lack of clear authority permitting a surety to assert a direct claim for damages against

the owner as a result of an "owner default" or "material alteration," we hold that the

trial court did not err by disregarding the jury damage awards in jury questions 48 and

49 on NAICO's breach of contract claims.

We overrule issues five and six.

D. Declaratory Judgment

In issue seven, NAICO argues that the trial court erred by disregarding jury

question 46, in which the jury found that Gulf Liquids committed an "owner default."

Specifically, NAICO argues that the existence of an "owner default" was established

by the jury's finding in question 27a that Gulf Liquids had breached Contracts 1 & 2.

We agree. The bonds defined an "owner default" as a "[f]ailure of the Owner, which

has neither been remedied nor waived, to pay the Contractor as required by the

Construction Contract . . . ." We have already held that Gulf Liquids breached the

contracts by failing to pay Gulsby, thus an "owner default" has been established.

Even though we have held that NAICO cannot affirmatively recover damages

based on a jury finding that Gulf Liquids committed an "owner default," it can assert

the "owner default" finding as a defense to its liability. NAICO also requested a

declaratory judgment that its obligations on the bond were discharged because of an

"owner's default." Jury findings 27a (regarding Gulf Liquids's breach of contract to

pay) and 44 (regarding "owner default") support NAICO's claim for a declaratory

judgment. Therefore, we sustain NAICO's seventh issue. We reverse the judgment

denying NAICO's request for a declaratory judgment, and render judgment declaring

that NAICO's liability on the bonds is discharged because of an "owner's default."

E. Punitive-Damage Awards

In issue eight, NAICO contends the trial court erred disregarding the jury's

punitive-damage findings and setting aside the punitive-damage awards against Gulf

Liquids and Williams. Because we have held that these parties committed no

underlying tort, the trial court properly disregarded the punitive-damages awards. See

Schlueter, 975 S.W.2d at 589 ; Fed. Express Corp. , 846 S.W.2d at 284 (holding

recovery of punitive damages requires finding of independent tort with accompanying

actual damages).

Accordingly, we overrule issue eight.

F. Attorney's Fees

In its ninth issue, NAICO, like Gulsby, contends the trial court erred in

awarding $0 in attorney's fees on its declaratory judgment claim based on NAICO's

failure to segregate its fees in its declaratory judgment and breach-of-contract claims

and from its fraud and tortious interference claims.

The remedy for unsegregated attorney's fees is a new trial on the issue, not

rendition of a take-nothing judgment on the claim for attorney's fees. See Tony Gullo

Motors , 212 S.W.3d at 310-11 ; Stewart Title , 822 S.W.2d at 11 . "Unsegregated

attorney's fees . . . are some evidence of what the segregated amount should be." Tony

Gullo Motors, 212 S.W.3d at 314 . Because the testimony of the unsegregated amount

constituted some evidence of the segregated attorneys' fees, we reverse the trial

court's take-nothing judgment on NAICO's attorneys' fees claims and remand for

further proceedings.

We sustain NAICO's ninth issue on appeal.

DISPOSITIONS

A. Conclusion Regarding Gulf Liquids's Appeal

Having determined that the trial court erred in submitting benefit-of-the-bargain

damages to the jury, we reverse the breach-of-contract award in Gulsby's favor and

remand for further proceedings. See Tex. R. App. P. 44.1(b). Having determined that

the trial court erred by submitting quantum meruit claims to the jury because they were

covered by the contracts, we reverse the quantum meruit award and render judgment

that Gulsby take nothing on its quantum meruit claims.

B. Conclusion Regarding Gulsby's Appeal

We affirm the trial court's granting of JNOV, disregarding of the jury's tort

findings, and rendering judgment that Gulsby take nothing on its tort claims against

Gulf Liquids and Williams. We also hold that, error, if any, in refusing to permit Jerry

Gulsby to testify about Gulsby's value before the contracts were signed, was harmless.

Finally, we hold that the trial court erred in awarding Gulsby $0 in attorney's fees on

its breach-of-contract claim. In light of these holdings, we affirm the take-nothing

judgment for Gulsby on its tort claims and reverse and remand its attorney's fees

claims for further proceedings.

C. Conclusion Regarding NAICO's Appeal

We affirm the trial court's granting of JNOV, disregarding of the jury's tort

findings, and rendering judgment that NAICO take nothing on its tort claims against

Gulf Liquids and Williams. We reverse the judgment denying NAICO's request for

declaratory relief, and render judgment declaring that NAICO is discharged from its

obligations on the bonds. We reverse the trial court's judgment awarding NAICO $0

in attorney's fees and remand its attorney's fees claim for further proceedings.

Sherry Radack

Chief Justice

Panel consists of Chief Justice Radack and Justices Bland and Massengale.

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