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Bartush-Schnitzius Foods Co. v. Cimco Refrigeration, Inc. - 518 S.W.3d 432 (Tex. 2017)

Rule:

While a party's nonmaterial breach does not excuse further performance by the other party, neither does the second breach excuse the first. To the contrary, a material breach does not discharge a claim for damages that has already arisen. A material breach will not discharge an obligation of the non-breaching party that arose before the alleged breach. In other words, a material breach excuses future performance, not past performance.

Facts:

In 2010, Bartush-Schnitzius Foods Co. (Bartush) contracted with Cimco Refrigeration, Inc. to install a new refrigeration system for its production facilities, which required a constant temperature no higher than thirty-eight degrees. Cimco sent Bartush an offer letter with three quoted options. The offer letter did not reference a particular temperature range. Bartush orally selected the most expensive of the three options, confirming the selection via email. Bartush then began paying Cimco in agreed-upon installments. After installation, Bartush started to operate the new system at a temperature setting of thirty-five degrees. However, this resulted in ice forming on the fan motors because the system's defrost unit was not designed to support operation at such a low temperature. When Bartush discovered the problem, it had already paid Cimco $306,758 on the contract but still owed $113,400. Bartush communicated with Cimco about a repair, but after several weeks without receiving what it considered a workable plan, Bartush withheld further payment and contacted an independent refrigeration engineer. The engineer recommended a warm-glycol defrost unit, and Bartush contracted with Jax Refrigeration, Inc. to install the unit at a cost of $168,079. In response to Bartush's nonpayment, Cimco sued Bartush to recover the balance owed on the contract. Bartush counterclaimed for breach of contract, seeking damages for, among other things, the costs associated with the warm-glycol defrost unit. Bartush also alleged that its failure to pay was justified by Cimco’s prior material breach. Cimco asserted that the equipment it installed was exactly as described in the accepted purchase order and denied that it had made any guarantee regarding the equipment's capacity to maintain a specific temperature. The jury found that both parties failed to comply with their obligations. It also found that Bartush’s failure to comply was not excused. Based on this finding, the trial court ruled in favor of Bartush, and rendered judgment in Bartush’s favor for $168,079 in damages. The court of appeals reversed and remanded to the trial court. The court of appeals held that the jury's express finding that Bartush's failure to comply was not excused necessarily included an implied finding that Cimco's prior breach was nonmaterial. The court further held that Bartush's failure to pay the balance due was a material breach of the contract as a matter of law, which rendered irrelevant the jury's finding that Cimco breached first and precluded Bartush's recovery. Both parties filed petitions for review.

Issue:

  1. Was Cimco’s “first” breach material as a matter of law, and thus excused Bartush’s subsequent failure to comply with the agreement?
  2. Did Bartush’s subsequent failure to comply with the agreement preclude it from holding Cimco liable for the latter’s breach of obligations?

Answer:

1) No. 2) No.

Conclusion:

The Court held that as found by the jury, Cimco failed to comply with its obligations under the contract first, but its non-compliance was immaterial. As such, it did not excuse Bartush’s breach of its obligations. Based on these findings of the jury, the Court concluded that Bartush remained liable for its subsequent failure to comply, but Bartush’s claim for damages caused by Cimco’s prior breach remained viable. According to the Court, Cimco had a preexisting duty to perform under the contract, and the jury found that Cimco violated that duty before Bartush breached by withholding payment. Accordingly, the court of appeals erred in holding that Bartush's breach barred its recovery of damages for Cimco's failure to perform a preexisting obligation, and the Court therefore reverse the court of appeal's judgment.

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