Under contract law, if one party to the contract materially breaches the contract, the other party is discharged or excused from further performance. That’s clear enough. The problem comes in when the parties argue whether the term that was breached was material. The Fifth Court of Appeals in Dallas issued an opinion this week that offers some help. If you want to make sure that a contractual term is material, then a good start is to say the term is material in the contract.
The case is GDL Masonry Supply, Inc. v. Jose Lopez and Rapid Masonry Supply, Inc., No. 05-15-01200-CV. Rapid alleged that GDL breached a confidentiality provision in a settlement agreement, and that the breach discharged and excused Rapid from any further performance under the settlement agreement. GDL did not dispute the breach, but argued instead that the confidentiality provision was not a material term in the settlement agreement. The court of appeals rejected GDL’s argument because the parties expressly stated in the settlement agreement that the confidentiality provision was a material term in the parties’ contract. According to the court of appeals, “GDL provide[d] no legal support for its position that we should overlook the intent of the parties as expressed in the plain language of the agreement itself…[.]”
The court of appeals recognized that there could be situations where additional evidence could establish that provisions in a contract are material, even without “magic words.” But the court of appeals clearly gave substantial, if not total, deference to the parties’ contract because the contract itself designated that the confidentiality provision was material.
When you are drafting a contract you will want to consider the potential impact of a breach of one of the provisions will have on the remainder of the contract. If you conclude that a particular provision is important enough that a breach of that provision should excuse any future performance by the non-breaching party, then label the provision “material” and avoid having to justify the importance of the provision through extrinsic evidence. In the world of contracts, nobody likes extrinsic evidence.