## Facts

- Tubular Steel, Inc. (Tubular) distributed steel pipe and received a time-sensitive order from its customer, Peabody, for pipe meeting specified requirements, including “long thread and couple” and certificates (mill papers) showing the pipe’s composition.
- Tubular contacted Aztec Corp. (Aztec) to obtain the pipe. Tubular negotiated through Ken Chalaire, who worked from Aztec’s office as its operations manager and communicated with Tubular using Aztec’s business phone and facilities.
- Tubular issued a written purchase order to Aztec stating the required specifications and the deadline needed to meet Peabody’s shipment schedule.
- Tubular wired $64,739 as payment for the pipe. At Aztec/Chalaire’s direction, Tubular sent the funds to a third party (LaBouve Drilling) to meet the delivery deadline.
- Pipe delivered to the Port of Houston did not match the purchase order and Peabody’s specifications: it was not properly threaded and was not accompanied by the required mill papers.
- Peabody rejected the shipment, and Tubular also rejected the goods. Tubular was unable to resell the nonconforming pipe and did not receive a refund.
- Tubular obtained conforming substitute pipe (“cover”) at a higher cost, claiming an additional $2,586 in cover cost and about $3,400 in incidental expenses relating to the rejected goods.
- Tubular sued Aztec for the price paid and additional UCC damages. A jury found a contract existed, Aztec delivered nonconforming goods, and Tubular was damaged, but the jury awarded only $35,000 in damages despite uncontroverted evidence that $64,739 had been paid.
- Aztec appealed, arguing (among other points) that Tubular should have reduced its loss by rethreading the pipe. Tubular sought a judgment reflecting the full amount it had paid.

## Issues

1. Whether legally and factually sufficient evidence supported the jury’s findings that Aztec, acting through Chalaire’s apparent authority, formed a contract with Tubular and was responsible for nonconforming delivery and related misrepresentations.
2. Whether Tubular was required to reduce damages by rethreading or reworking the nonconforming pipe rather than rejecting and obtaining cover.
3. Whether the judgment could be modified to award at least the uncontroverted amount Tubular had paid ($64,739) when the jury awarded $35,000.

## Decision

- The court held the evidence supported the jury’s findings that Chalaire acted with apparent authority for Aztec and that a contract existed between Aztec and Tubular.
- The court rejected Aztec’s argument that Tubular had to rethread or rework the pipe to reduce damages; rightful rejection and cover were permitted buyer responses to nonconforming goods.
- Because the contract price paid ($64,739) was conclusively established and undisputed, the court modified the judgment to award $64,739 instead of $35,000 and, as modified, affirmed.
- The court did not increase the award beyond the conclusively established price paid based solely on Tubular’s claimed additional cover and incidental items.

## Legal Principles

- Apparent authority depends on the principal’s conduct that reasonably causes a third party to believe the agent is authorized; a company that places an employee in a managerial role with business trappings of authority can be bound by that employee’s dealings with outsiders.
- Under Texas UCC remedies, a buyer who rightfully rejects nonconforming goods may recover the amount of the price already paid and may also seek cover and incidental damages when proved.
- The UCC does not require a buyer to rework or refabricate nonconforming goods (such as rethreading pipe) as a damage-reduction requirement when the buyer instead elects rightful rejection and cover.
- When the evidence establishes a damage amount as a matter of law (such as an undisputed price paid), an appellate court may modify the judgment to conform to that conclusive proof even if the jury awarded a lesser sum.

## Conclusion

The court held that Aztec was bound by its operations manager’s apparent authority in contracting with Tubular, that Tubular could reject the nonconforming pipe without rethreading it to reduce loss, and that Tubular was entitled at minimum to recover the full $64,739 it had paid for the rejected goods, so the judgment was modified to that amount and affirmed as modified.


Aztec Corp. v. Tubular Steel, Inc., 758 S.W.2d 793 (1988)