## Facts

- Bayer produced chlorine and a caustic soda by-product at its Baytown, Texas facility.
- Bayer and DX entered a five-year installment contract under which DX agreed to buy and remove specified monthly/annual minimum quantities of caustic soda from Bayer.
- DX intended to resell most of the caustic soda to Davison Petroleum, its principal downstream customer.
- After performance began, Bayer sold caustic soda directly to Davison, reducing DX’s resale opportunities.
- From May through August 2001, DX removed substantially less product than the contract’s minimum targets; Bayer claimed the resulting inventory buildup threatened shutdown of its operations.
- In September 2001, Bayer terminated the contract, asserting DX’s shortfall was a material breach that substantially impaired the value of the entire contract.
- DX sued for breach of contract (wrongful termination/failure to supply) and intentional interference with DX’s contract with Davison; Bayer counterclaimed for unpaid/undelivered product (about $40,000).
- A jury found both parties failed to comply with the contract, awarded DX $7.5 million in lost profits and Bayer $40,000, and found no tortious interference by Bayer.

## Issues

1. Whether DX’s multi-month shortfall conclusively and as a matter of law substantially impaired the value of the entire installment contract, entitling Bayer to cancel.
2. Whether legally and factually sufficient evidence supported the finding that Bayer failed to comply with the contract and was not excused by DX’s performance.
3. Whether the trial court committed reversible error by declining to give supplemental jury instructions on cancellation rights during deliberations.
4. Whether DX’s lost-profits proof (including expert testimony) was admissible and sufficient, and whether the award was barred or excessive.
5. Whether the trial court correctly calculated prejudgment interest and allocated costs.

## Decision

- The court of appeals affirmed the judgment in full.
- The trial court properly denied Bayer’s directed verdict because substantial impairment of the whole contract was not conclusively established and remained for the jury.
- The evidence was legally and factually sufficient to support the jury’s finding that Bayer failed to comply with the contract and that DX’s shortfall did not excuse Bayer’s termination.
- The jury charge, read as a whole, adequately stated the governing law; refusal to provide additional instructions in response to the jury’s request was not reversible error.
- The trial court acted within its discretion in admitting DX’s damages expert; DX proved lost profits with reasonable certainty, and the $7.5 million award was not contractually barred or subject to remittitur.
- The prejudgment-interest calculation and the order that each side bear its own costs were upheld.

## Legal Principles

- In an installment contract, cancellation for nonconformity requires a showing that the nonconformity substantially impairs the value of the whole contract; whether substantial impairment exists is typically a fact question.
- Course of performance and the parties’ practical expectations may inform whether deviations from stated installment quantities constitute substantial impairment.
- A party’s breach does not automatically excuse the other party’s performance; excuse depends on the nature and effect of the breach as found by the fact-finder under the governing standards.
- Lost profits are recoverable for breach of a supply contract when proved with reasonable certainty through reliable evidence; large awards may be sustained where the proof supports volume, pricing, and causation.
- A trial court has discretion over whether to submit supplemental jury instructions; reversal requires a showing of harmful charge error.

## Conclusion

The court upheld a jury determination that the buyer’s temporary shortfalls did not, as a matter of law, substantially impair a long-term installment contract, and it affirmed liability against the seller for wrongful termination along with a substantial lost-profits award supported by admissible expert testimony and reasonably certain proof.


Bayer Corp. v. DX Terminals, Ltd., 214 S.W.3d 586 (Tex. App.—Houston [14th Dist.] 2006)