In an industry that relies heavily on contract compliance, construction contractors and suppliers operate with little room for error – particularly when it comes to job-critical equipment. A recent memorandum opinion from the Texas Court of Appeals out of Dallas, as see in Fabricating Machinery, Inc. v. RLB Construction, Ltd. d/b/a RoofTec, underscores three key principles:

– contract conformity requires complete, not partial performance;
– a buyer does not waive available remedies by accepting non-conforming goods; and,
– a contractor seeking recovery must prove that its damages are not just necessary, but also reasonable.

What Happened?

Fabricating Machinery, Inc. sold a shear and hand brake to Rooftec, a construction contractor, and sued when Rooftec failed to pay for the equipment. Rooftec countersued, claiming Fabricating committed a prior material breach by delivering a non-conforming shear that could not perform its intended use. The trial court in Dallas County’s 95^th District Court sided with RoofTec, finding that Fabricating Machinery committed a material breach, precluding Fabricating Machinery’s breach of contract claim against RoofTec for non-payment. RoofTec was awarded $32,705.54 in damages, and Fabricating Machinery appealed.

On appeal, Fabricating challenged the judgment on several fronts. It argued that the evidence was insufficient to establish a prior material breach, that RoofTec failed to prove the reasonableness of its claimed damages, that the award of attorney’s fees was improper, and that Fabricating was entitled to partial judgment for RoofTec’s nonpayment of the hand brake. While the Court of Appeals affirmed that Fabricating committed a material prior breach and failed to support its argument for payment of the hand brake, the Court did agree with Fabricating that RoofTec’s proof of damages – and, by extension, its entitlement to attorney’s fees – was insufficient.

What Is the Effect of Acceptance and The Meaning of Conformity Under the UCC?

Regarding RoofTec’s breach of contract claim, the Court took a closer look at how the UCC treats acceptance of nonconforming goods and found Fabricating’s analysis “incomplete.” Although the shear was delivered without the required shim, RoofTec undisputedly accepted it. Fabricating argued that this acceptance triggered the Texas Business and Commerce Code § 2.607, obligating RoofTec to pay the full contract price.

The Court disagreed, explaining that Fabricating’s argument overlooked key UCC provisions governing buyer’s remedies. While §2.711 and §2.713 address remedies available to a buyer who rejects or revokes acceptance (cancellation of the contract, recovery of the contract price as well as damages, or obtain specific performance), §2.714 specifically allows a buyer who has accepted nonconforming goods to recover damages – so long as the seller is notified of the defect. The Court emphasized the official comment to §2.601: a buyer who accepts a nonconforming tender does not forfeit other available remedies. In other words, acceptance does not bar recovery. When a buyer accepts defective goods and gives proper notice, it may still pursue damages for the nonconformity.

Importantly, conformity requires complete – not substantial performance. The record left little room for dispute – the shear was delivered without the required shims, and the invoice expressly stated, “no shims.” Further, no expert testimony was required to show that the shims were needed for the shear installation – emails from Fabricating’s own salesperson were sufficient evidence connecting the lack of shims to the installation failure of the shear.

What Is Needed To Prove Damages and Attorney’s Fees?

However, when it came to RoofTec’s damages, the Court agreed with Fabricating that the evidence presented was insufficient. RoofTec presented testimony and records showing it hired an employee to fill orders while the shear was inoperable, including details about the need for the position, the employee’s pay, and the duration of employment. While that evidence showed the expenses may have been necessary, it fell short of proving that the amount paid was reasonable.

The Court told a cautionary tale of conflating these independent requirements of “reasonable” and “necessary” in proving damages. Necessary is not proof of reasonableness – a party cannot simply show the nature of services, the need for services, and the amounts charged; a party must also present evidence of the fair and reasonable value of those services.

Further, because a threshold requirement for awarding attorney fees hinges on compensation for actual damages sustained, Rooftec’s claim for attorney’s fees also had to fail. Put simply: no damages, no attorney’s fees.

Does Partial Judgment Mean Partial Effort?

The Court quicky overruled Fabricating’s argument for partial judgment for payment of the other equipment provided, the handbrake, as Fabricating did not provide any legal authority to support their recovery of damages.

What Does This Mean for Your Business?

This case serves as a reminder that in business transactions, payment depends on complete, not partial or even substantial performance. Documentation, as in every business transaction, is crucial – invoices and email communications can decisively shape the outcome of a case, providing you (or the other side) with evidentiary ammunition. However, that ammunition can only take you so far. Although the damages element of a breach of contract claim is often seen as the easiest to prove, one should not overlook the distinct requirements of necessary and reasonable – it might just cost you your case.

If you would like to consult with an attorney on issues presented in this article and/or how it may relate to your business needs and goals, the attorneys in our Austin and Dallas offices are available to answer any questions you may have. Please contact us at info@gstexlaw.com.

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