How to determine if a breach of contract is material.

A material breach of contract occurs when a party fail to perform a contract’s terms making the primary purpose of the contract not met, the breach is considered material. A material breach occurred when the non-performing party did not substantially perform any important part of the contract.

Author: Brad Nakase, Attorney

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A material breach is a severe violation of the main purpose of a contract. In contract law, a material breach occurs when one party provides significantly fewer or different benefits as required by the contract’s main purpose resulting in an irreparably broken contract. As a result of the breaching party’s failure to perform the main purpose of the contract, the other party receives something substantially less or different from what the contract specified.

In this article, our business contract lawyer discusses how to determine if a contract breach is material as follows:

Step 1. Was a party to a contract deprived of a benefit that was bargained for?

Before determining if a breach was material, the first step requires an analysis of whether the contract was breached? A breach of contract is a failure, without legal excuse, to perform any of the terms and conditions of a valid contract. A breach of contract occurs whenever a party who entered a contract fails to perform their promised obligations.

Here, examine the terms and condition of the contract and determine if there was a failure to perform any of the contract terms and conditions. For example, if the legal agreement required an electrician to fix a client’s lights, and the electrician finished the job without fixing the lights, these actions would signify a breach of contract.

Step 2. Has the breaching party substantially performed the contract?

In contract law, substantial performance is a doctrine where a party substantially performed his duties under the contract even though he breached the contract in some way. Substantial performance of a contract means less than complete performance; but, the level of performance is sufficient to avoid a claim of breach of contract. A party’s substantial performance of a contract is considered not a material breach. A party can assert substantial performance when there is only a slight deficiency under the contract terms, a good faith effort was made to reach full performance, and there was no material breach. Any performance that is not complete or substantial performance is a material breach.

Here, suppose the breaching party substantially performed his duties required by the terms and conditions of the contract while incomplete. In that case, fulfilling a party’s obligations under the agreement is still sufficient.

Example:

  • Contract required the delivery of 100 tennis balls, but 95 balls were delivered. The seller substantially performed the contract.
  • Contract required the delivery of 100 red tennis balls, and 100 blue balls were delivered. The seller did not substantially perform the contract.

If a party substantially performed the important part of the contract, there is no material breach. Stop analysis.

If the party did not substantially perform the important part of the contract, there is a material breach.

Step 3. Determine if the non-breach party able and willing to perform his obligation under the contract.

When a prospective buyer (often the plaintiff) is fully prepared to render the consideration required to consummate the contract, he must demonstrate that he is ready, willing, and able. For example, if he is willing but needs more money for payment on the due date, he is not ready or able to perform the contract.

Stop analysis. The analysis for material breach stops because the non-breaching party is not ready or able to perform his part of the contract.

If the non-breaching party is willing, able, and ready to perform his part of the contract, continue to the next step to determine material breach.

Step 4. What is the non-breaching party’s damages?

In most breach of contract lawsuits, the non-breaching party may recovers damages. Therefore, the non-breaching party must also prove damages. To have a valid breach of contract claim, the non-breaching party must be damaged from from the material breach.

Several remedies exist for material breach of contract, including:

  • Monetary Damages. Monetary damages rely on the plaintiff’s ability to show the court the amount of money damages he or she suffered because of the material breach.
  • Liquidated Damages. In the event of a material breach, liquidated damages may be required by the terms and conditions of the contract. Liquid damages are an agreed-upon sum of damages. Liquid damages are sometimes included in a contract because it is difficult to calculate the actual damages. Not all liquidated damages rules can be enforced.
  • Nominal Damages. Usually, nominal damages acknowledge the breach yet illustrate that the plaintiff suffered no harm. Therefore, nominal damages also acknowledge that no compensation was due. For example, when a material breach of contract occurred, but the plaintiff remains unharmed, the court awards nominal damages.
  • Special Performance. Specific performance of a contract is a type of remedy that a plaintiff would ask for when the other materially breached a contract. The special performance is an additional solution that is sometimes available to a plaintiff when there is a material breach. The special performance asks the defendant to satisfy the original contract’s terms to solve the problem.

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