Sage Street Associates v. Northdale Construction Co.

937 S.W.2d 425
CourtTexas Supreme Court
DecidedFebruary 21, 1997
Docket94-1037
StatusPublished
Cited by6 cases

This text of 937 S.W.2d 425 (Sage Street Associates v. Northdale Construction Co.) is published on Counsel Stack Legal Research, covering Texas Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sage Street Associates v. Northdale Construction Co., 937 S.W.2d 425 (Tex. 1997).

Opinion

PER CURIAM.

The only issue we address in this case is whether the court of appeals misunderstood our instructions on remand. We conclude that it did.

Northdale Construction Company contracted to build a high-rise apartment building for Sage Street Associates. Sage Street agreed to pay Northdale the lesser of its costs or $13,535,000 (plus extras). Sage Street also agreed to pay Northdale a fee of $760,000. The parties dispute whether this fee was included in the contract price or was in addition to it. Sage Street terminated Northdale before construction was completed and hired another contractor to finish the project. Sage Street contends that it paid over $15 million for the completed project.

Northdale sued for what it claimed Sage Street still owed. The jury found that Sage Street breached the contract and that the amount “due to Northdale from Sage Street pursuant to the contract for the work it performed, its overhead, and its profits, if any” was $2,491,110. The district court rendered judgment on the verdict for Northdale for that amount plus prejudgment interest. The court of appeals increased the rate of prejudgment interest and affirmed the dis-triet court’s judgment as modified. 809 S.W.2d 775.

On appeal, we agreed with the court of appeals about the rate of prejudgment interest. 863 S.W.2d 438, 439-440. We also agreed that there was evidence to support the finding of breach of contract, id. at 442, so that that fact is now established. We then focused on the calculation of damages.

We recognized that, according to the measure of damages submitted to the jury (which might not be applicable in another case), Northdale is entitled to recover its unpaid costs, overhead and profits for work performed, less whatever more than the contract price it would have cost to complete the project. If the latter amount were not deducted, Northdale would be in a better position as a result of the termination than it would have been in had it completed the project.

For example, using round numbers, if Northdale was due $2 million in costs, overhead and profits for work performed, and it could have finished the project for the contract price of $13.5 million, it would be entitled to the full $2 million; but if it would have spent $15 million to complete the project, $1.5 million over the contract price, then it would be entitled to only $500,000, $2 million less the $1.5 million it would have had to spend (and presumably Sage Street must spend) to complete the project. In each ease, the damages due Northdale are shown by the following calculations:

1. Contract price 13,500,000 13,500,000
2. Amount paid Northdale -11,000,000 -11,000,000
3. Cost to complete construction — 500,000 — 2,000,000
4. Balance remaining under contract 2,000,000 500,000
5. Northdale’s unpaid costs, etc. 2,000,000 2,000,000
6. Northdale’s damages: lesser of lines 4 and 5 2,000,000 500,000

Sage Street’s cost in both' cases is the amount it contracted to pay.

The Members of the Court all agreed that this was the proper formula. We divided on the issue of who had the burden of proving the amount on line 3. The dissent argued that this was an element of the damage calculation and that Northdale had the burden. Id. *427 at 447-448. The majority reached the opposite conclusion:

We hold that, where the owner is responsible for the contractor’s incomplete performance under a cost-plus contract, proof that the cost ceiling would have been met in not part of the contractor’s prima facie case. Since this is in the nature of a claimed credit to which the owner must prove his entitlement, Northdale’s failure to offer evidence of completion cost does not bar recovery.

Id. at 448. It is important to note that the Court did not hold that element (3) was not part of the damage formula; rather, the Court acknowledged that it was part of the formula and assigned the burden of proof to Sage Street.

Thus, computing Northdale’s damages requires two pieces of information: Northdale’s unpaid costs, overhead and profits (line 5), and the amount necessary for Northdale to have completed construction (line 3). The evidence, correctly summarized by the court of appeals, is that Northdale’s unpaid costs, overhead and profits were between $2,099,-388 and $1,909,979. 889 S.W.2d 400, 402. The damages found by the jury, $2,491,110, are above this range. To complete the damage calculation — and reach the $2,491,110 figure found by the jury — it must be determined, first, whether the parties intended to add the $760,000 fee onto the contract price, and second, what amount would have been necessary to complete construction (line 3). These are the two issues we instructed the court of appeals to determine on remand.

We held that the contract documents were ambiguous regarding treatment of the $760,-000, and that there was some evidence to support Northdale’s position. We concluded that Sage Street was entitled to a review of the sufficiency of this evidence. Specifically, we said:

Northdale’s construction is necessary to sustain the verdict; without the $760,000 as a separate item, Northdale’s evidence advanced at trial appears to support a maximum award of $1,999,018. [Actually, the evidence goes a little higher, as the calculations above illustrate.] However, the factual sufficiency of the evidence of the parties’ intent necessary to support Northdale’s construction cannot be decided by this court, and the court of appeals must review that evidence on remand.

863 S.W.2d at 446-447.

Regarding the second issue, the excess cost of completion, we said:

The jury was instructed to calculate damages for the construction contracts at issue based on the costs of the work performed plus overhead and profit. In answering the question, the jury was required to determine whether or not, under the contracts, profit varied with costs. In reviewing the sufficiency of the evidence to support the jury award, the court of appeals began with a total contract price, subtracted amounts already received by the contractor, then added amounts owed for utilities and spent on change orders. It omitted from its computation the expenses avoided by the contractor by not completing the job. Whether the evidence was sufficient under the court of appeals’ calculation does not establish whether the evidence was sufficient to support the damage award under the theory submitted to the jury. The court of appeals erred in failing to apply the appropriate review standard.

863 S.W.2d at 447 (emphasis added).

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Cite This Page — Counsel Stack

Bluebook (online)
937 S.W.2d 425, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sage-street-associates-v-northdale-construction-co-tex-1997.