Material Breach of Contract

What is a Material Contract Breach?

A material breach of contract is a is a failure to perform the obligations laid out within a contract. A breach of contract that is a major failure to perform is considered a material breach. The main distinction between minor breaches and material breaches is their severity. Minor breaches are insignificant enough that the remainder of the contract can still be completed in a satisfactory manner. If there is a material breach, the other party can simply end the agreement and go to court to try to collect damages caused by the breach.

A material breach of contract is one that substantially defeats the purpose of the contract, or relates to an essential element of the contract, and deprives the injured party of a benefit that he or she reasonably expected. A “material breach” is a breach that is serious enough to justify the other party in abandoning the contract.

What factors determine a material breach of contract?

To determine if a breach of contract was material or not, the court will consider the following factors:

• The likelihood that the breaching party will perform the remainder of the contract.
• Negligent or willful behavior of the breaching party; and
• Hardship to the breaching party;
• The extent of performance by the breaching party;
• Whether the non-breaching party can be adequately compensated for the damages;
• The amount of benefit received by the non-breaching party;

For example:

1. If the buyer ordered 30 tennis balls, and the seller delivered 28, that is not a material breach of contract.
2. If the buyer ordered a great adult white shark for his home aquarium, and the seller delivered a baby shark, that is a material breach of contract.
3. If the buyer required delivery of goods on November 22nd for black Friday sales, and the delivery was on November 25, that is a material breach because black Friday is over.
4. If a buyer requires to deliver goods on March 15th and the delivery was on March 20, that is not a material breach.

A material contract violation happens when one party does not benefit from the contract as specified and receives a lesser or different benefit than the contract stated.

Material contract violations sometimes occur when one party cannot or will not fulfill the obligations specified in the contract on time or the party completely fails to satisfy the contract’s terms.

When a material contract violation transpires, the victim can attempt to collect damages linked to the violation and its consequences, both direct and indirect.

What is an Anticipatory Breach of Contract?

An anticipatory breach of contract occurs when a party repudiates prior to the date that the performance is due.  An anticipatory breach differs from a material or minor breach in that the breach has not yet occurred. However, a violation does not have to happen for the breaching party to be responsible.

For an anticipatory breach to occur, the actual violation may not have happened yet, but one of the involved parties stated or showed that they do not plan to satisfy their contractual duties.

For example, the violation party could tell the other individual that they cannot satisfy the contract’s terms or act in such a way that indicates that they do not plan to deliver their end of the contract.

What is an Actual Contract Breach?

An actual contract violation has already happened, meaning that the party in violation of the contract decided not to satisfy the terms of the contract on time or they performed their obligations poorly or incompletely. An anticipatory breach means a breach committed before the due date of the performance of the contract, actual breach is a breach committed on the due date of the contract.

What is a Minor Contract Violation?

A minor breach of contract is also referred to as a partial or immaterial breach. When minor breaches of contract occur, the contract’s deliverable was collected, but the party in violation of the contract did not fulfill their duties.

In minor breaches of contract, the victim must be able to prove that the violation created financial losses.

For example, if the deliverable is delivered late but has no financial consequences for the breached party, a solution may not be possible.

How Can Professionals Reduce Their Risk of Contract Violations?

Some breaches of contracts cannot be avoided, and individuals have several options to explore when a violation occurs.

• Compensatory Damages: damages that remedy economic losses directly
• Consequential Losses: damages that remedy indirect losses extending beyond the contract’s value but still result from the violation

When two or more parties enter a contract, a breach may be inevitable since no one party can control another party or individual’s actions. However, just because contract violations occur regularly, this does not mean people should not try to lower their risk.

One clear way to lower the risk of a breach is to draft a clear, well-written contract that explicitly states the duties of each party. Reviewing and analyzing old agreements is an excellent way to determine how to create the best possible contract because archived contracts can illustrate useful tips and mistakes to avoid. For example, one could compare a series of contracts that resulted in violations and decide what language and wording to avoid when putting their contract together.