What is a Material Breach of a Contract?
You have a business contract, and that contract has terms and conditions. And if someone breaches any of those conditions, it is a breach of contract, and you can not only sue, but you may also be excused from performing under your end of the contract.
Except not so fast. Not every breach of contract is actually breach, nor does every breach necessarily excuse you from performing under the contract.
You Need a Material Breach
In order to have the full right to sue, collect damages, or stop your own performance under an agreement, the breach must not be just any breach—it must be a material breach. That means that it must go to the heart and purpose or essence of the contract.
Unfortunately there is no one hard and fast or clearly defined rule, for what the essence of a contract actually is. It really depends on what the purpose of the contract is overall. Is the provision of the contract that was breached, a major purpose or motivation for entering into the contract in the first place? If so, then the breach will be considered to be material.
Examples of Material Breaches
So, for example, imagine someone orders parts for a business machine. The contract says that the parts will be delivered together, in one shipment, but the parts come in two shipments. This is likely a non material breach—all the shipments were ultimately delivered, presumably timely, and the shipments to the delivery are not material to the objective: getting the correctly ordered parts in a timely manner.
Sometimes what is or what is not material will vary.
In our example above, the color of the parts ordered is probably immaterial—the parts are going inside of a machine anyway. But if the order were for the outside of the machine, where appearance may matter to coordinate with a business’ color scheme, the color of the parts may be more material.
Litigation and Prior Breach
If you do not perform your part of a contract because of a material breach by the other side, and you are sued, you have the right to assert prior breach—that is that your breach was excused by the nonperformance of a material part of the contract by the other party.
Of course, one area that leads to a lot of lawsuits and litigation, is the failure to pay. As a general rule, if there is a time is of the essence clause in the contract, the failure to pay timely, will be a material breach, whereas, in the absence of such a clause, a failure to pay timely, will not be a material breach.
Time is of the essence clauses can turn many otherwise immaterial clauses that relate to time frames, into more material clauses.
Call our West Palm Beach business law attorneys at Pike & Lustig today if you have a business or contract dispute.