Notice of Default Was Not in Writing. Immaterial Breach or Strict Condition Precedent to Recovery?
Strict condition precedent. If a writing is required, then a writing is necessary.
Virtually every written, negotiated subcontract includes a notice provision outlining how the parties will inform each other of matters related to the contract. Most often, notice provisions include the condition that any notification required to be made under the agreement must be in writing. But what if a party provides the requisite notice but does not do so in writing? Is it an immaterial breach if the counter-party has actual notice of the matter, even though it was not presented in writing? Or is it failure to meet a condition precedent? The Texas Supreme Court recently made it clear that if a notice is required to be in writing, a writing is necessary for entitlement to a right to enforce an obligation under contract.
The Case: James Constr. Group, LLC v. Westlake Chem. Corp., 20-0079, 2022 WL 1594955 (Tex. May 20, 2022)
Parties: Westlake Chemical, the property owner, contracted with James Construction Group, the general contractor, to provided civil and mechanical construction work on a chlor-alkali plant.
Background: When James began to have performance issues related to safety, Westlake terminated for default and exercised its right to complete the work and charge James for any costs. The agreement’s notice provision required Westlake to give James written notice of a termination for default.
Outcome-Determining Action: In an in-person meeting, Westlake orally informed James that it was in default and that it was taking over completion of the work. It never provided the notice in writing.
Procedural History & Holding: Westlake sued James for the costs it incurred as a result of James’s default and obtained a jury verdict of just over one million dollars. The court of appeals affirmed the judgment. The Texas Supreme Court did not. It held that Westlake was not entitled to the damages because it failed to comply with a condition precedent to recovery, which was to provide written notice to James of the default and take-over.
Substantial Compliance & Notice
Texas courts have recognized the doctrine of substantial compliance in contracts cases. Specifically, this principle holds that strict conformance with a contractual duty may not be required if the result of the conduct is one that does not seriously impair the purpose of the provision.
In James Construction, the court concluded that substantial compliance is the appropriate standard when determining whether a party complied with a notice provision. It extended substantial compliance, though, when the contract requires written notice by holding that substantial compliance with a written notice provision means there must be a writing. Without it, the party seeking to enforce a contract provision has not met its condition precedent to recovery.
If the contract requires written notice, ensure one is provided, even if the parties have had conversations and the party against whom a claim will be made has actual notice.
Regardless of jurisdiction, assume a court will construe compliance with a written notice provision to mean that a writing must have been presented.
When making the writing, follow the requirements for delivery outlined in the agreement regarding to whom it should be addressed and when and how it should be made. While James Construction did not address the nature of the writing, the prudent course of action is to assume that a court will strictly construe the requirements of the notice provision.
Ensure that records of any written notices and their conveyance are maintained.