PRIOR MATERIAL BREACH—IT’S AN ELECTION; CHOOSE WISELY

Richardson Communications & Consulting, Inc. v. McNeese
Dallas Court of Appeals, No. 05-17-00969-CV (December 12, 2018)
Justices Francis, Stoddart, and Schenck (Opinion, linked here)

Ken Carroll

When McNeese sued RCC for breach of a settlement agreement, RCC defended by arguing that McNeese’s prior material breaches of the agreement excused RCC’s continued performance under that contract. But the trial court granted summary judgment to McNeese, and the Dallas Court of Appeals affirmed, rejecting RCC’s prior-material-breach defense. The appeals court acknowledged that, generally, when one party to a contract commits a material breach, the other party is excused from further performance. But, the Court cautioned, “[t]he non-breaching party must elect between two courses of action, either continuing performance or ceasing performance…. If the non-breaching party elects to treat the contract as continuing and insists the party in default continue performance, the previous breach constitutes no excuse for nonperformance on the part of the party not in default and the contract continues in force for the benefit of both parties.” Here, after one set of alleged breaches by McNeese, RCC both continued making payments under the contract and filed a motion for contempt against McNeese, arguing he had violated an agreed injunction entered as part of the settlement agreement. This was fatal to RCC’s prior-material-breach defense to McNeese’s claim against RCC for breach of the agreement. “By seeking a contempt order after discovering these alleged violations of the injunction, which was put in place pursuant to the Agreement, RCC treated McNeese’s obligations under the Agreement as continuing, and therefore, it could not cease its own performance thereunder,” the Court explained. Judgment for McNeese on his claim that RCC had violated the Agreement, therefore, was affirmed. Moral of the story: If someone breaches a contract to which you or your client is a party, think carefully about your “election” under the prior-material-breach rule and your own obligation to continue performance under that contract, depending on which course you elect.