Tapered Insulation Systems, Inc.; Jan Zornow, Individually; and Sharon Lynch, Individually v. Schuller International, Inc.; Schuller International, Inc., D/B/A Manville Roofing Systems; Schuller International, Inc., D/B/A Manville Sales Corporation; Schuller International, Inc., D/B/A Mountain Technical Center, Inc.; Et Al.--Appeal from 57th Judicial District Court of Bexar County

No. 04-97-00260-CV
TAPERED INSULATION SYSTEMS, INC.,
Jan Zornow, Individually, and Sharon Lynch, Individually,
Appellants
v.

SCHULLER INTERNATIONAL, INC.;

Schuller International, Inc. d/b/a Manville Roofing Systems; Schuller International, Inc. d/b/a Manville Sales Corporation; Schuller International, Inc. d/b/a Mountain Technical Center, Inc.; and Manville Products Corporation,

Appellees
From the 57th Judicial District Court, Bexar County, Texas
Trial Court No. 94-CI-02323
Honorable David A. Berchelmann, Jr., Judge Presiding(1)

Opinion by: Sarah B. Duncan, Justice

Sitting: Phil Hardberger, Chief Justice

Tom Rickhoff, Justice

Sarah B. Duncan, Justice

Delivered and Filed: December 23, 1998

AFFIRMED

Tapered Insulation Systems, Inc., Jan Zornow, individually, and Sharon Lynch, individually (collectively, Tapered Insulation), appeal the summary judgment entered against them in their suit against Schuller International, Inc. for breach of contract, promissory and equitable estoppel, tortious interference with existing contracts and prospective business relations, violations of the Deceptive Trade Practices Act (DTPA), fraud, fraudulent inducement, and negligent misrepresentation. We affirm.

Factual and Procedural Background

In the spring of 1991, Zornow and Lynch worked in Mississippi for Cant Strip Corporation of America. Schuller International, Inc., formerly known as Manville Sales Corporation, manufactured flat perlite roofing insulation boards and contracted with fabricators, like Cant Strip, to design and taper the boards for use on Schuller roofing jobs. As part of the agreement with fabricators like Cant Strip, Schuller agreed to provide "no dollar limit" guarantees to the end purchasers of the product under which they would pay the end purchaser any amount up to and including the replacement cost to fix a roof covered by a warranty.

By the end of spring 1991, Schuller, as well as Zornow and Lynch, knew that Cant Strip's Mississippi plant would be shutting down. Starting in May 1991, Schuller employee Doug Glenn engaged in talks with Zornow and Lynch concerning the possibility of opening a fabrication plant in Texas. According to Zornow, Glenn promised that Schuller would allow Zornow to supply tapered perlite on Schuller-guaranteed roofing jobs if he opened a plant in Texas. Zornow also claims Glenn promised to help him obtain credit and special pricing on flat perlite. The parties never discussed the duration of the agreement and never executed a written fabrication agreement.

Based on their negotiations with Glenn, Zornow and Lynch moved to San Antonio in August 1991 and established Tapered Insulation Systems, Inc. in preparation of fabricating tapered perlite. In turn, Schuller helped Tapered Insulation obtain credit to purchase Schuller flat perlite at special rates and allowed it to provide tapered perlite boards on Schuller-guaranteed roofing jobs. In March 1992, Schuller formally announced its intention to vertically integrate the tapered perlite fabrication program and begin fabricating tapered perlite itself. In August 1992, Schuller notified its sales representatives that Tapered Insulation's products were no longer approved on Schuller-guaranteed jobs. Tapered Insulation began losing buyers of its product the next month.

Apparently, Schuller had been considering vertical integration for some time before it notified its authorized fabricators. In the fall of 1990, Schuller received a proposal for a study, based on its own inquiries, on the current market for tapered roof insulations, including perlite. One of the areas the research group proposed to study was whether Schuller should "expand its fabricator network, or exit this segment of the business and manufacture its own tapered insulation board." By April 1991, Maureen O'Meara-Sanzo, the Schuller employee in charge of the fabricator program, believed Schuller needed to begin fabricating tapered perlite but was having difficulty selling Schuller management on the idea. O'Meara-Sanzo sent out a memorandum on July 17, 1991, with a proposed strategy for revamping the fabricator program. O'Meara-Sanzo proposed as part of the strategy that Schuller "determine feasibility of [Schuller] fabricating all tapered perlite products and be prepared to implement by January, 1994." Subsequently, on September 19, 1991, Schuller contacted one of the fabricators in its program to set up a meeting in which they could discuss the possibility of the fabricator's assisting Schuller in setting up its own fabrication process. The fabricator believed that at that time Schuller had already decided to enter the business of manufacturing tapered perlite. Schuller contacted at least one other person in October 1991 concerning the same proposition as posed to the first fabricator. A few months later, in early 1992, Schuller announced to the fabricators in its program it would be fabricating tapered perlite.

In February 1994, Tapered Insulation filed suit against Schuller alleging breach of contract, promissory and equitable estoppel, tortious interference with existing contracts and prospective business relations, violations of the DTPA, fraud, fraudulent inducement, and negligent misrepresentation. The trial court granted two motions for partial summary judgment, disposing of all the claims.

Standard of Review

We review a summary judgment de novo. "[W]e will uphold a summary judgment only if the summary judgment record establishes that there is no genuine issue of material fact, and the movant is entitled to judgment as a matter of law on a ground set forth in the motion." Valores Corporativos, S.A. de C.V. v. McLane Co., 945 S.W.2d 160, 162 (Tex. App.--San Antonio 1997, writ denied); see Tex. R. Civ. P. 166a(c). If an affirmative defense is the basis for a summary judgment, there must be no genuine issue of material fact with respect to each element of that defense for the court to uphold the judgment. Montgomery v. Kennedy, 669 S.W.2d 309, 310-11 (Tex. 1984). In determining whether a genuine issue of material fact exists, "we view as true all evidence favorable to the non-movant and indulge every reasonable inference, and resolve all doubts, in its favor." Valores, 945 S.W.2d at 162.

Breach of Contract

Tapered Insulation claims Schuller entered a contract pursuant to their negotiations with Glenn. According to Zornow and Lynch, they agreed to move to Texas and establish a fabricating plant while Schuller agreed to help them obtain credit and purchase materials and to allow them to supply tapered perlite on Schuller-guaranteed roofing jobs. Tapered Insulation claims it fulfilled its part of the agreement, but Schuller breached by fabricating its own tapered perlite and disallowing Tapered Insulation's tapered perlite on guaranteed jobs.

To establish a breach of contract claim, a plaintiff must show: "(1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages to the plaintiff resulting from that breach." Prudential Sec. Inc. v. Haugland, 973 S.W.2d 394, 396 (Tex. App.--El Paso 1998, pet. filed); Wright v. Christian & Smith, 950 S.W.2d 411, 412 (Tex. App.--Houston [1st Dist.] 1997, no writ).

In its motion for summary judgment, Schuller claimed its contract with Tapered Insulation was nonexclusive and terminable at will. Under Clear Lake City Water Auth. v. Clear Lake Util. Co., 549 S.W.2d 385, 390 (Tex. 1977), "contracts which contemplate continuing performance (or successive performances) and which are indefinite in duration can be terminated at the will of either party." The evidence demonstrates if there was a contract between Tapered Insulation and Schuller, it was for continuing performance of an indefinite duration.

Tapered Insulation concedes the parties never agreed to a duration, but it argues on appeal the contract was still not terminable at will. The Clear Lake Court noted that where a court is "dealing with exclusive franchise or distributorship agreements, which are indefinite in duration and which contemplate the expenditure of substantial sums of money or other investments by one of the parties preparatory to or in accordance with his performance under the contract," it may imply a "reasonable duration during time which the agreement is not terminable at will." Id. at 391. Tapered Insulation argues it entered into such an agreement with Schuller and, therefore, is entitled to a reasonable opportunity in which to perform under the contract, recoup [its] investment, and realize a reasonable profit."

However, simply because a contract requires expenditure or investment by one of the parties, does not necessarily mean the contract must last for a reasonable period of time before it becomes terminable at will. See, e.g., Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 677-78 (Tex. App.--Houston [1st Dist.] 1996, no writ) (holding loan agreement terminable at will, despite appellant's argument that contract contemplated expenditure or investment of funds by one of the parties, because the contract required continuing performance for an indefinite duration). The exception to the rule of terminable-at-will contracts is made for "exclusive franchise or distributorship agreements." Clear Lake, 549 S.W.2d at 391. Assuming an agreement was reached during the negotiations between Zornow and Glenn, it certainly was not for a franchise as described in Clear Lake. See Clear Lake, 549 S.W.2d at 391 (citing Hall v. Hall, 158 Tex. 95, 308 S.W.2d 12 (1957); D.E. Buckner, Annotation, Termination By Principal of Distributorship Contract Containing No Express Provision For Termination, 19 A.L.R.3d 196 at 319-24 (1968)). The law implies a reasonable duration in a terminable-at-will exclusive franchise contract to protect a vulnerable franchisee from loss. See 19 A.L.R.3d 196 at 326. Here, Tapered Insulation does not demand the protection of a franchisee because it was not promised an exclusive right to fabricate for Schuller jobs in the area and it did not rely solely on Schuller for its fabricating business. Cf. Hall, 308 S.W.2d at 13-15. Under these circumstances, Tapered Insulation is not entitled to an implication of reasonable duration on its terminable-at-will contract. Thus, summary judgment on Tapered Insulation's contract claim was proper because the undisputed evidence shows Schuller did not breach the contract by terminating it at its own will.

Equitable and Promissory Estoppel

Tapered Insulation asserts that if the oral contract failed because of the statute of frauds, Schuller should be estopped from denying the existence of the contract. However, neither equitable nor promissory estoppel can save Tapered Insulation's breach-of-contract claim because, even if the existence of a contract were undisputed, the contract was still terminable at will. Thus, Schuller is still entitled to summary judgment on the ground that it did not breach the contract by terminating it at its own will.

Tortious Interference

Tapered Insulation also brought causes of action against Schuller for tortious interference with existing contractual relations and prospective business relations. It claims Schuller interfered by informing tapered perlite suppliers Schuller would no longer guarantee jobs on which Tapered Insulation's materials were used. In its motion for summary judgment, Schuller asserted the affirmative defense of justification to these claims, arguing it was justified in interfering with Tapered Insulation's contractual relations because it was exercising its own right to decide who could fabricate products that would go onto Schuller-guaranteed roofs. Tapered Insulation argues on appeal the summary judgment on its tortious interference claims was improper because Schuller failed to establish its affirmative defense as a matter of law and Schuller neglected to identify which contracts it had a right to interfere with.

"A party is justified in interfering with another's contract if it exercises (1) its own legal rights or (2) a good faith claim to a colorable legal right, even though that claim ultimately proves to be mistaken." Friendswood Dev. Co. v. McDade + Co., 926 S.W.2d 280, 282 (Tex. 1996). Schuller, as guarantor, has a right to choose what it will and will not guaranty. This decision falls within its discretionary business judgment. See W. Page Keeton et al., Prosser and Keeton on the Law of Torts 129, 986-88 (5th ed. 1984). Furthermore, no limits were placed on this right by the contract between Tapered Insulation and Schuller because the contract, if it existed at all, was terminable at will. Under the very terms of the contract, Schuller could withdraw its promise to allow Tapered Insulation to supply tapered perlite on guaranteed jobs at any time. Therefore, Schuller was justified in interfering with Tapered Insulation's existing and prospective contractual relations with suppliers. Cf. Schoellkopf v. Pledger, 778 S.W.2d 897, 904 (Tex. App.--Dallas 1989, writ denied) (holding guarantor of loan privileged to withdraw guaranties and thus interfere with existing contractual relations where guaranty contract provided guarantor with the option to withdraw).

Moreover, we find no case law to support Tapered Insulation's argument that a defendant who asserts a justification defense bears the burden of identifying the contract with which it believes it is privileged to interfere. To the contrary, it is Tapered Insulation's burden to identify the "contract subject to interference" for existing contracts, Friendswood, 926 S.W.2d at 282, and prove "the reasonable probability that a contract would be created" for prospective business relations. Santa Fe Energy Operating Partners v. Carrillo, 948 S.W.2d 780, 784 (Tex. App.--San Antonio 1997, writ denied). Only if this burden is met does the defendant need to assert its affirmative defense of justification. Thus, Schuller fully met its burden in establishing the affirmative defense of justification and was entitled to summary judgment on Tapered Insulation's tortious interference claims.

Deceptive Trade Practices Act

Tapered Insulation further asserted DTPA claims against Schuller for "false, misleading acts or practices in the conduct of trade or commerce." Under section 17.50 of the DTPA, "[a] consumer may maintain an action" against another person if that person used false, misleading, or deceptive acts or practices as defined by subsection (b) of section 17.46 or if that person breached an express or implied warranty. Tex. Bus. & Com. Code Ann. 17.50 (Vernon Supp. 1998) (emphasis added). Schuller moved for summary judgment on the basis that Tapered Insulation was not a consumer.

A "consumer" is defined in the DTPA as "an individual, partnership, corporation, this state, or a subdivision or agency of this state who seeks or acquires by purchase or lease, any goods or services." Id. 17.45(4) (Vernon 1987). A plaintiff must meet a two-pronged test in order to establish consumer status: (1) the plaintiff "must have sought or acquired goods or services by purchase or lease," and (2) "the goods or services purchased or leased must form the basis of the complaint." Melody Home Mfg. Co. v. Barnes, 741 S.W.2d 349, 351-52 (Tex. 1987).

Tapered Insulation argues it was a consumer because Schuller's promise to allow it to supply tapered perlite on Schuller-guaranteed jobs was a service. Tapered Insulation also argues it obtained consumer status because its agreement with Schuller was basically a franchise agreement coupled with other services. See Texas Cookie Co. v. Hendricks & Peralta, Inc., 747 S.W.2d 873, 876-77 (Tex. App.--Corpus Christi 1988, writ denied) (holding franchise agreement that conferred a host of collateral services, such as a training program, a confidential operating manual, and unique system of operation, involved a transfer of goods and services for purposes of the DTPA). However, Tapered Insulation's argument is based on a misperception of the agreement involved in this case. While Tapered Insulation is correct that insurance of another's performance is a service under the DTPA, the consumer of such a service is the actual recipient of the insurance or guaranty. See HOW Ins. Co. v. Patriot Fin. Serv. of Texas, Inc., 786 S.W.2d 533, 539 (Tex. App.--Austin 1990, writ denied), overruled on other grounds by Hines v. Hash, 843 S.W.2d 464, 469-70 (Tex. 1992). Thus, in this situation, the consumer of Schuller's guaranty would be the end purchaser of the roofing materials, not the fabricator. Tapered Insulation simply received an intangible right to supply tapered perlite under that guaranty. It was, in effect, a secondary beneficiary of the service provided to the end-of-the-line purchaser.

Tapered Insulation's reliance on Texas Cookie is equally misplaced. In Texas Cookie the collateral services supplied to the franchisee were "clearly an objective of the transaction and not merely incidental to it." Texas Cookie, 747 S.W.2d at 877. Here, even if we assume the agreement is akin to a franchise agreement, the collateral services, such as assistance in obtaining credit and special pricing for purchase of flat perlite, were merely incidental to the main transaction, which was concerned with supplying tapered products on Schuller-guaranteed jobs. See Fisher Controls Int'l, Inc. v. Gibbons, 911 S.W.2d 135, 139 (Tex. App.--Houston [1st Dist.] 1995, writ denied) (holding sales representative agreement did not confer consumer status on representative because collateral services, including the right to a commission and the right to buy products at a discount before reselling them, were incidental to the transaction). Tapered Insulation's complaint is not based on denial of the collateral services but on Schuller's refusal to allow it to supply tapered perlite on guaranteed jobs. The trial court correctly rendered summary judgment against Tapered Insulation on its DTPA claims.

Fraud and Fraudulent Inducement

Tapered Insulation brought fraud and fraudulent inducement claims based on: (1) Schuller's representations that Tapered Insulation would be allowed to supply tapered perlite on Schuller-guaranteed jobs, Schuller would assist Tapered Perlite obtain credit and obtain flat perlite, and Schuller would make Tapered Insulation part of its fabricator program; and (2) Schuller's failure to disclose it intended to fabricate tapered perlite and eliminate the fabricator program.

To establish claims for fraud and fraudulent inducement, a plaintiff must prove: (1) the defendant made a material misrepresentation; (2) the misrepresentation was false; (3) when the defendant made the misrepresentation, he knew it was false or he made it recklessly without any knowledge of the truth; (4) the defendant intended that the party act upon the misrepresentation; (5) the plaintiff acted in reliance upon the misrepresentation; and (6) the plaintiff suffered an injury therefrom. Formosa Plastics Corp. USA v. Presidio Eng'rs and Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998); Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281, 282 (Tex. 1994). If the plaintiff's claims are based on alleged misrepresentations of future actions, the plaintiff must show the defendant did not intend to perform at the time the promise was made. Formosa, 960 S.W.2d at 48; Wolf v. Fernandez, 733 S.W.2d 695, 697 (Tex. App.--San Antonio 1987, writ ref'd n.r.e.). And a plaintiff can base a fraud claim on a failure to disclose only if there was a duty to disclose. Bernstein v. Portland Sav. and Loan Ass'n, 850 S.W.2d 694, 701 (Tex. App.--Corpus Christi 1993, writ denied). There is no duty to disclose that which one does not know. Prudential Ins. Co. of America v. Jefferson Assoc., 896 S.W.2d 156, 162 (Tex. 1995).

Schuller moved for summary judgment on Tapered Insulation's fraud and fraudulent inducement claims on the ground it intended to perform its promises at the time it made them. The summary judgment evidence conclusively establishes Schuller's contention. Tapered Insulation admits Schuller helped it obtain credit and buy flat perlite at a discount and allowed it to supply tapered perlite on guaranteed jobs. Actual performance of a promise after a promise is made is a fairly strong indication that a person intended to perform that promise when he made it. See Bank One, Texas, N.A. v. Stewart, 967 S.W.2d 419, 444-46 (Tex. App.--Houston [14th Dist.] 1998, Rule 53.7 motion filed). The fact Schuller stopped performing its promises a year after the agreement was made is no evidence that Schuller had no intent to perform those promises, see id. at 444; Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 435 (Tex. 1986), especially considering the contract, if it existed at all, was terminable at will.

The summary judgment evidence also conclusively establishes Schuller did not in fact intend to enter the fabrication market or end its fabrication program during its negotiations with Zornow and Lynch in May 1991 or even when performance began in mid-August 1991 when Zornow and Lynch moved to San Antonio. The summary judgment evidence shows that at that time Schuller was, at most, considering the possibility of vertical integration. The only evidence concerning vertical integration before August 1991 is the 1990 proposal to study the tapered roof insulation market and O'Meara-Sanzo's recommendations to Schuller management. The summary judgment evidence is that Schuller management had not decided to vertically integrate at the time it entered the agreement with Tapered Insulation. Schuller therefore had no duty to disclose that such a decision had been made. See Prudential, 896 S.W.2d at 162; Storms v. Tuck, 579 S.W.2d 447, 452 (Tex. 1979). The trial court correctly rendered summary judgment on Tapered Insulation's fraud and fraudulent inducement claims.

Negligence and Negligent Misrepresentation

Finally, Tapered Insulation claims Schuller negligently misrepresented it would help Tapered Insulation establish a fabricator business that could supply tapered perlite on Schuller-guaranteed jobs and negligently failed to disclose that Schuller intended to fabricate its own tapered perlite to the exclusion of Tapered Insulation.

To establish a negligent misrepresentation cause of action, a plaintiff must prove, among other elements, the defendant supplied "'false information' for the guidance of others in their business." Federal Land Bank Ass'n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991). "The 'false information' supplied must have been a misstatement of existing fact." Clary Corp. v. Smith, 949 S.W.2d 452, 463 (Tex. App.--Fort Worth 1997, pet. denied); see Airborne Freight Corp. v. C.R. Lee Enter., 847 S.W.2d 289, 294 (Tex. App.--El Paso 1992, writ denied).

Schuller's representation that it would help Tapered Insulation establish a fabricator business for tapered perlite on guaranteed jobs was not a statement of existing fact. Therefore, this representation cannot provide a basis for a negligent misrepresentation claim. Moreover, as discussed above, Schuller's intent to vertically integrate the fabricator program was not an "existing fact" at the time Zornow and Lynch moved to San Antonio. Accordingly, the trial court correctly rendered summary judgment on appellants' negligence and negligent misrepresentation causes of action.

Conclusion

The summary judgment evidence conclusively establishes Schuller at most entered a terminable-at-will contract with Tapered Insulation to help it establish a fabrication business and supply tapered perlite on Schuller-guaranteed roofing jobs. At the time this contract was made, Schuller may have been considering vertical integration of the fabricator program, but it had not yet made the decision to do so. Schuller was thus entitled to summary judgment on each of Tapered Insulation's causes of action. We therefore overrule Tapered Insulations points of error and affirm the trial court's judgment.

Sarah B. Duncan, Justice

DO NOT PUBLISH

1. The Honorable David Peeples granted the first of two partial summary judgments of which the appellants complain on appeal. The Honorable David A. Berchelmann, Jr. granted the second partial summary judgment and signed the final judgment.

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