Gulf Liquids New River Project, LLC v. Gulsby Engineering, Inc.
356 S.W.3d 54
| Tex. App. | 2011Background
- Gulf Liquids hired Gulsby as the general contractor to build two EPC Base Project plants; contracts 1 and 2 set fixed prices of $13.5M and $29M respectively.
- NAICO issued payment and performance bonds for Gulsby; Bank of Montreal and Winterthur insured and benefited from the bonds.
- A later $12M change order expanded the Base Project; Motiva Project and GBPP (Gulsby-Bay Plant Partners) were formed to build Motiva facilities, leading to contracts 3 and 4 with fixed fees for GBPP.
- By 2000–2001, Gulf Liquids faced cash-flow issues; Gulf Liquids paid $4M on Milestone payments to Gulsby despite GBPP’s entitlement, creating liens and subcontractor disputes; Gulf Liquids terminated the Base Project contracts for cause in Sept. 2001 and then formally; GBPP abandoned Motiva work.
- A lengthy jury trial awarded tort, contract, and punitive damages to Gulsby, GBPP, NAICO, and Bay; Gulf Liquids and Williams challenged those findings and the damages, leading to post-trial JNOV on tort/punitive issues.
- On appeal, the court reversed/modified several portions: held that Gulsby’s proof of paying subcontractors was a covenant, not a condition precedent; concluded termination-for-convenience limited contractual damages; and reversed/ remanded breach-of-contract and quantum-meruit damages, while upholding dismissal of tort claims and related punitive damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract via nonpayment | Gulsby argues Gulf Liquids breached by withholding payment per Contracts 1–2. | Gulf Liquids contends payment terms contained conditions precedent and termination rights negate breach. | Breach found; covenant, not condition; but damages limited by termination clause. |
| Effect of termination-for-convenience on damages | Gulsby seeks full contract damages for breach despite termination. | Gulf Liquids argues damages are capped by the termination-for-convenience clause. | Damages limited to clause limits; benefit-of-the-bargain damages not recoverable; pre-termination extra work preserved. |
| Quantum meruit recovery when contract exists | Gulsby asserts quantum meruit can recover for extra-work or partial performance. | Contract governs; no quantum meruit if work is covered or properly classified as extra work. | Quantum meruit awarded to Gulsby reversed; no recovery on quantum meruit for Gulf Liquids. |
| Construction contract nuances for extra work | Gulsby contends extra-work damages should cover pre-termination approved work. | With termination, only certain pre-termination extra-work damages survive per contract terms. | Extra-work damages preserved; pre-termination amounts may be recovered; and related questions remanded for proper calculation. |
| Fraud/tort claims tied to bonds and inter-party interference | Gulsby asserts fraud and tortious interference by Gulf Liquids/Williams; seeks punitive damages. | JNOV should dismiss tort findings where underlying torts are not proven or justified. | Judgment for tort claims and punitive damages largely disallowed; court upheld JNOV on tort claims; punitive damages not supported. |
Key Cases Cited
- Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1 (Tex. 1976) (conditions precedent to performance distinguished by contract as a whole)
- Deerfield Ltd. P'ship v. Henry Bldg., Inc., 41 S.W.3d 259 (Tex.App.-San Antonio 2001) (ambiguous contract provisions; interpret as covenant where appropriate)
- Solar Applications Eng'g, Inc. v. T.A. Operating Corp., 327 S.W.3d 104 (Tex. 2010) (clear language is needed to treat lien releases as conditions precedent)
- City of Baytown v. Bayshore Constructors, Inc., 615 S.W.2d 792 (Tex. Civ. App.-Houston [1st Dist.] 1980) (contractual breach can void procedural change-order rights)
- Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) (merger/disclaimer of reliance requires careful contract-based analysis)
- Forest Oil Corp. v. McAllen, 268 S.W.3d 51 (Tex. 2008) (waivers of reliance must be clearly expressed; contract totality matters)
- Truly v. Austin, 744 S.W.2d 934 (Tex. 1988) (quantum meruit exception for construction contracts when not fully covered by contract)