When things go wrong on a construction project, parties often engage in a “you-breached-no-you-breached” scenario. In a recent Texas case, an owner and contractor both alleged the other party breached the contract first, thus excusing their own further performance.

The owner, who was also the general contractor, hired a contractor to provide site preparation, utilities installation and concrete work for a warehouse construction project. The contractor sought damages for breach of contract because the owner had not paid outstanding invoices. The owner alleged the contractor abruptly stopped working on the project and left the job wholly unacceptable, claiming the contractor failed to complete a detention pond, which was required to obtain a county permit.

At trial, the contractor argued the parties had agreed the owner would provide the necessary dirt needed to fill in the detention pond and when the owner failed to provide the dirt, the contractor could not complete the pond. The owner contended that the contractor breached by leaving the project and sought damages flowing from the contractor’s breach and the owner’s efforts to salvage the project. The jury found in favor of the contractor.

On appeal, the owner argued the contractor was precluded from recovery because the contractor breached first by failing to complete the detention pond, which was essential to the project. The court of appeals stated that to recover on a breach of contract claim, a contractor must have in good faith intended to comply with the contract and any defects in the work could not have been pervasive or a deviation from the general plan. But, the appellate court found that the owner committed the first breach by failing to provide the dirt for the detention pond, and any failure by the contractor to perform was a result of the owner’s prior breach. Affirming the trial court, the court of appeals held that the contractor’s lack of substantial performance does not preclude recovery for a breach of contract claim when the other party commits the first material breach.

It is important to note, the court stated 1) the contractor must have in good faith intended to comply with the contract and 2) that a first material breach by the owner was necessary for the contractor to recover (the court considered numerous factors to determine if a breach is material). As a result, if an owner appears to breach the contract, it is imperative that a contractor continue to attempt to perform its contractual obligations, and if it ultimately chooses to abandon a project, be confident that it can demonstrate the owner’s breach was material. The best example of a material breach is, like here, where the owner’s breach directly prevented the contractor from performing.

1.9 Little York, Ltd. v. Allice Trading Inc., 2012 Tex. App. LEXIS 2112 (Tex. App. Houston 1st Dist. Mar. 15, 2012). SOUTH