In finding that a party failed to place the “materiality” of a contractual breach before the jury, a state appellate court underscored the importance of comprehensive jury charges and instructions. ABA Litigation Section leaders agree that this case serves as a stark reminder to consider all angles of a case—and all instructions—before submitting a breach of contract issue to a jury.
The conflict in Earth Power A/C & Heat, Inc. v. John Page began when John Page, a homeowner, contracted with a geothermal HVAC company for the installation of heating and air equipment within his home. The homeowner refused to make the final payment, alleging that Earth Power was dilatory in its installation of the system and failed to complete the installation in a workmanship-like manner.
Earth Power then sued the homeowner for breach of contract to recover the amount owed on its unpaid invoices. The homeowner filed an answer, asserting general affirmative defenses, including repudiation, as well as several counterclaims for violations of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) and fraud. The homeowner did not assert a counterclaim for breach of contract.
At trial, a jury found that while both parties failed to comply with the contract terms, the homeowner’s payment of invoices was not excused, and, therefore, Earth Power was entitled to almost $11,000 in damages. Additionally, the court also found that because Earth Power materially breached first, the homeowner was entitled to recover approximately $3,000 in damages based on Earth Power’s violation of the DTPA. However, the jury instructions did not include any specific questions asking if either parties’ breach was “material.” As such, Earth Power appealed.
On appeal, Earth Power contended that the homeowner did not plead “prior material breach”, Earth Power did not try the issue of “materiality” by consent, and, most importantly, that the homeowner neither requested nor secured a jury finding that Earth Power’s breach was material. Texas’ Fourteenth Court of Appeals agreed.
In reversing the trial court’s ruling, the appellate court analyzed the issue of materiality under Texas law. In Texas, as with many states, a material breach by one party to a contract can excuse the other party from any obligation to perform in the future. The question of whether a breach is material is multi-faceted, and must be conclusively established, the court reasoned. The court went on to state that a contracting party’s assertion that it is excused from further performance because of another party’s “prior material breach” is an affirmative defense that must be requested as a jury question or instruction, or else it is waived. The court explained that the materiality of a contract breach is a factual question for the jury and if it is not properly pled, or not raised to the jury, there can be no finding of fact on such an issue.
The appellate court agreed with Earth Power that the defense was not presented to the jury, resulting in an erroneous judgment on the breach of contract damages. In applying a similar analysis to the DTPA award, the Court reversed this portion of the lower court’s judgment as well, finding that the homeowner failed to present evidence supporting a damages finding in the homeowner’s favor.
The court of appeals, therefore, reversed the trial court’s judgment and ordered the homeowner to pay Earth Power the damages awarded by the jury, plus attorneys’ fees.
Litigation Section leaders agree that this ruling is an important reminder to both carefully draft and negotiate one’s contracts, as well as to carefully review one’s jury charges and instructions to include any and all possible issues for adjudication. “The issue of materiality is at the heart of a breach of contract dispute,” notes LaFonda Willis, Washington, DC, liaison for the Section’s Minority Trial Lawyer and Woman Advocate Committees. “Excuse of performance hinges on a finding of material breach; therefore, it was incumbent upon the appellate court to analyze the element of materiality in this contract law dispute,” Willis adds.
Section leaders advise that litigators should use the elements of a claim or defense to help inform their litigation strategy. “To prepare jury instructions and questions, a litigator must determine each element of a claim or defense being asserted and ensure that the instructions and questions cover such elements, and should consider and determine these elements during the early stages of a matter and continue to develop them as the factual discovery progresses,” suggests Kenneth M. Klemm, New Orleans, LA, cochair of the Section’s Trial Evidence Committee.
The Earth Power decision serves as lesson to attorneys nationwide. “Trial attorneys taking breach of contract disputes to trial can shield themselves from appellate reversals by taking this cautionary tale to heart,” concludes Willis.
