Mustang Pipeline Co. Inc. v. Driver Pipeline Co. Inc

In Mustang Pipeline Co. Inc. v. Driver Pipeline Co. Inc, 134 S.W.3d 195 (Tex. 2004), Mustang hired Driver to build a stretch of pipeline. During the contracting process, Mustang emphasized the importance of meeting the construction schedule. Id. at 196. Driver failed to meet the schedule causing Mustang to terminate the contract and hire another contractor to finish the job. Id. at 197. The jury found both parties breached the contract, but Driver convinced the trial court to enter judgment in its favor. Id. The court of appeals affirmed, reasoning that because the jury was never asked if Driver's breach was material, the finding against it would not justify Mustang's termination of the contract. Id. at 198. The Texas Supreme Court reversed, holding that time was of the essence to the parties' contract and Driver's failure to meet schedule was a material breach as matter of law. Id. at 200. The jury found that Driver had breached the contract, but also found that Mustang had breached because it was not justified in terminating the contract, and awarded damages to both parties; the trial court disregarded Mustang's damage award and entered judgment awarding Driver its actual damages, plus attorney's fees and interest. Id. The court of appeals affirmed the trial court, holding that Mustang could not recover any damages because it had failed to get an express jury finding that Driver's breach was material. Id. at 198. The Supreme Court, however, disagreed, holding that an express jury finding on materiality is not required when "time is of the essence," and because the contract clearly indicated time was of the essence and Driver failed to timely perform, Mustang was excused from any obligation to perform. Id. at 196. In Mustang, the parties were operating under a very detailed fourteen-week schedule involving eleven-hour work days, seven days per week, to rapidly construct 100 miles of pipeline. Id. Both Mustang and Driver were well aware that time was of the essence under the circumstances and the express language of the contract; in fact, Driver had significantly increased its original bid upon being advised of the accelerated work schedule. Id. at 199. More than eight weeks into the schedule, Driver had completed only fifteen of the 100 miles of pipeline, had suspended operations, had stated that it was not prepared to resume work, and had been certified as in default by the project engineer. Id. at 197. Finally, the evidence indicated that, despite requests from Mustang for assurances, Driver failed to provide a revised plan as to how it would attempt to meet the construction deadline, and at the time of termination there was "virtually no chance that Driver would be able to cure its breach and complete the construction on time." Id. at 199-200. When Driver breached the contract, Mustang terminated Driver and had to hire another company to complete Driver's portion of the pipeline. Id. at 197. Mustang sued Driver for breach of contract and alleged as damages the cost of completion and lost profits, and Mustang sought its attorney's fees. The jury found Driver breached the contract, and it awarded Mustang over $ 2 million in damages for Driver's breach of contract. Id. On Driver's motion for judgment notwithstanding the verdict, the trial court set aside the award of damages, and it did not award Mustang attorney's fees. Id. The trial court denied Driver's motion to set aside the jury finding that Driver breached the contract. Id. The supreme court determined the trial court was correct to set aside the damages award because Mustang failed to provide evidence that its out-of-pocket costs were reasonable. Id. at 201. On the question of Mustang's right to recover attorney's fees under section 38.001 of the Texas Civil Practice and Remedies Code, the court stated, "While Mustang did have a valid claim against Driver, it was not entitled to recover attorney's fees because it was not awarded damages on its breach of contract claim." Id. The jury found that the builder failed to comply with the terms of the agreement but also found that the pipeline owner was not justified in terminating the contract. Id. at 197. The jury awarded both parties damages for the other's breach. Id. The Texas Supreme Court held that the builder's failure to complete construction of the pipeline in accordance with the contract deadline was a material breach of the contract, which discharged the pipeline owner from its duties under the agreement. Id. at 200. Therefore, the court held that the trial court "should have disregarded the jury's answer to the wrongful termination question and granted the pipeline owner's judgment notwithstanding the verdict." Id. The Court then stated: "These problems could have been avoided had the trial court submitted the breach of contract question disjunctively ("Did Driver Pipeline Company or Mustang Pipeline Company fail to comply with the parties' contract?") accompanied by an appropriate instruction directing the jury to decide who committed the first material breach. In the standard contract dispute, one party cancels the contract or refuses to pay due to alleged breaches by the other; in such circumstances, jurors will often find both parties failed to comply with the contract (as the jury did here) unless instructed that they must decide who committed the first material breach." Id.