Commercial Union Ins. Co. v. La Villa Independent School District

In Commercial Union Ins. Co. v. La Villa Independent School District, 779 S.W.2d 102 (Tex. App.--Corpus Christi 1989, no writ), the plaintiff, a school district, entered into a construction contract with the defendant, a contractor, for the construction of a gymnasium. Id. at 104. After the construction was completed, the school district notified the contractor of certain deficiencies in the construction. Id. The contractor failed to remedy the problem, and the school district hired a different contractor to correct the deficiencies for $12,950. Id. The school district also separately withheld $9,100 from the contractor's payment pursuant to a liquidated damages provision in the contract because the contractor did not complete the construction by the date set forth in the contract. Id. at 106. Before suit was filed, the contractor, in an attempt to resolve the dispute, made an offer to pay the school district what it claimed to be the full amount due, including attorney's fees. Id. at 107. The school district, however, rejected the offer when the contractor refused to surrender its right to claim that the liquidated damages provision was invalid and its right to recover the $9,100 withheld by the school district under that provision. Id. Thereafter, the school district filed suit against the contractor, and the contractor filed a counterclaim seeking the $9,100 withheld by the school district. Id. at 104, 107. After a trial, the court entered a judgment in favor of the school district for $12,950, plus attorney's fees, and denied the contractor's counterclaim. Id. at 104. On appeal, the contractor argued that it had tendered the full amount due prior to the filing of suit and that the school district was therefore barred from recovering attorney's fees. Id. at 107. The court of appeals, however, held that the tender was ineffective because it did not constitute an unconditional offer to pay. Id. The court explained that the contractor "placed a condition upon its settlement offer; i.e. that the contractor would retain the right to claim that the liquidated damage provision was invalid." Id. The court also explained that the contractor's offer constituted an offer of settlement, which is not the equivalent of a tender, and even if it had been a tender, it would have been less than the amount necessary to avoid awarding attorney's fees because the amount did not include a relinquishment of the contractor's affirmative claim to recover the liquidated damages. Id.