Contractual Written Notice Requirements, Substantial Performance, and Practical Advice in the Wake of a Recent Texas Supreme Court Decision

Contractual Written Notice Requirements, Substantial Performance, and Practical Advice in the Wake of a Recent Texas Supreme Court Decision

April 10, 2024

Houston Principal Laura Napoli-Janitens recently wrote the following article for the April edition of Construction News magazine. Laura reviews a few items that can affect contractors in the wake of a recent Texas Supreme Court Decision.

Texas justly prides itself on being a freedom-of-contract state. Yet despite respected and long-standing jurisprudence on that point, James Construction Group, LLC had to spend nearly 8 years defending what should have been, a remarkably simple concept—that written notice requirements in a construction contract do, in fact, require that notices be sent in writing. As the James Construction Group, LLC v. Westlake Chemicals Corporation, 650 S.W. 3d 392, 396 (Tex. 2022), reh’g denied (Sept. 2, 2022) case has recently come to a final conclusion, a brief note on its background and practical application of its holdings seems timely.

In James the Texas Supreme Court overturned the lower court’s key holdings and resolved an important and unanswered question regarding written notice: how Texas’s substantial compliance doctrine intersects freedom of contract principles generally, and written notice requirements specifically. After 8 years of litigation regarding the written notice provision in the Westlake-James contract, the Texas Supreme Court finally held that “When a contract mandates written notice, a writing is a necessary part of complying with that condition, substantially or otherwise. A contrary holding would allow parties to elude the bargain they freely made and would open the door to a host of factual disputes about whether proper contractual notice was given – the very kinds of disputes that the writing requirement is intended to foreclose.”

For a bit a background on how we finally arrived at this definitive stance from the Texas Supreme Court, you must understand that in simplest terms, James v. Westlake is a breach of contract case. It arose out of a construction Contract between an owner, Westlake Chemical Corporation (“Westlake Chemical”), and one of the owner’s general contractors, James Construction Group, LLC (“James”).

In simplified terms, Westlake Chemical claimed that James breached certain contract provisions requiring James to safely perform its work, that James was terminated for cause, and therefore Westlake Chemical was entitled to damages for costs associated with a replacement contractor to complete James’s scope of work. Westlake Chemical’s position avoided the Contract’s notice provisions, which required 3 written notices in order to terminate a contractor for cause, and thus made written notice an express condition precedent to Westlake Chemical’s recovery of the damages it sought. Notably, Westlake Chemical did not provide the required written notice(s) and thus, at least according to James, failed to comply, substantially or otherwise, with the contract’s written notice provisions. In fact, prior to being sued, James believed that it had been terminated for convenience, not cause. After a jury verdict, which both parties appealed, and intermediate appellate court largely agreed with Westlake’s position that oral notice at a meeting could substantially comply with the written notice requirements of the contract.

Upon its review of the case, the Texas Supreme Court announced a substantial compliance standard, but with an extremely important and outcome-determinative qualification: “Substantial compliance is the appropriate standard when evaluating whether a party complied with a contractual notice condition. However, we also hold that substantial compliance with a condition precedent requiring written notice may not be achieved without a writing in some form. Here, Westlake provided no writing at all with respect to at least two of Section 21.3’s required written notices and thus failed to substantially comply with the provision’s conditions as a matter of law.”

In arriving at its ultimate holding, the James Court acknowledged that the prior jurisprudence may cause confusion to contracting parties attempting to provide contractually compliant notice. Thus the Court placed an unequivocal caveat upon the application of the substantial compliance doctrine to written notice provisions: a party’s provision of oral notice does not comply, substantially or otherwise, with a requirement of written notice.

Of particular note, the Texas Supreme Court largely adopted the view that providing a contractor actual notice is insufficient in the face of a contractual requirement that notice be provided in writing.

The two primary takeaways from James v. Westlake are (1) the doctrine of substantial compliance still applies to conditions precedent such that minor deviations from a contractual notice provision that do not severely impair the underlying purpose and cause no prejudice will not deprive a party of the benefit of its bargain; but (2) mere oral or actual notice cannot satisfy a contractual provision requiring written notice.

In practical terms, this goes deeper than the simple notion that we started with—that a contractual written notice requirement means a writing is required. The Texas Supreme Court’s exploration of facts is instructive. Its analysis included a deep dive into the specific facts surrounding Westlake’s purported notices and focused on the specific language used in the alleged written notices and what that language could have or should have conveyed to James.

Thus the Court made clear that effective written notices should be very specific, contain detail of incidents or events preceding the written notices, and rely heavily on contractual language. In conclusion, I offer some quick practice points for both owners and contractors in light of the James decision:

• Check your contracts for written notice requirements, and understand them, these include: Notice to Proceed; Notice of Force Majeure; Notice of Increases to Project Time or Project Cost; Notice of Claims; Notice of Disputes; Notice of Termination
• When drafting any notices, use triggering words from specific contract provisions
• Be specific in your notices: Specify the contract provision to which notice relates; Specify cure periods and timelines where applicable; Detail event(s) giving rise to notice where applicable; Document failure to adequately respond to first notice (i.e., failure to cure or dissatisfaction with party’s remediation effort); Document termination in writing, specifying the justification or reason for termination (convenience, cause, etc.)
• Even if written notice is not required under the contract, best practice (especially regarding termination) is to provide notice in writing
• If notice is given in a meeting, in the field, or on a job site, document it afterwards (at the very least in an email your counterparty)
• Be aware that where the contract is silent, the courts will not read in a written notice requirement.

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