If the other party to a contract fails to honor their whole commitment, does that mean you have no further obligation? The answer may depend upon whether the other party’s breach of contract is considered material or minor.
The distinction can dictate whether you, as the nonbreaching party, must continue to meet your own performance obligations, whether the contract can be terminated and what damages may be recovered. Treating a minor problem like a material breach could even create new legal issues for you, even if you were initially the aggrieved party in the situation.
What makes a breach of contract “material” or “minor?”
A material breach is some failure that ultimately defeats the purpose of the agreement. For example, suppose a business hires a contractor to renovate its new business before a specific grand opening date.
If the contractor fails to complete the project by the scheduled time or abandons it with most of the work unfinished, that would likely be considered a material breach – particularly if the business was unable to launch on the expected date. The business may be entitled to terminate the agreement, hire someone else to finish the work and seek compensation for its losses due to the delay.
By comparison, a minor, or “immaterial,” breach occurs when a party fails to meet some part of its obligation but still fulfills the essentials required by the contract. For example, suppose that the aforementioned contractor completes most of the renovations as agreed, but they installed the wrong light fixtures. The business might be able to demand repairs or compensation, but it would not likely have grounds to refuse payment.
How do you tell the difference?
No single factor determines whether a breach is material or minor. Some factors to consider include:
- How much of the promised performance was completed
- Whether the injured party received the contract’s main benefit
- Whether money could adequately compensate for the failure
- Whether the breaching party can quickly correct the problem
- Whether the breach was intentional, negligent or unavoidable
Before terminating a contract, withholding payment or stopping performance, you should review your agreement carefully. Some contracts require written notice and an opportunity to cure the problem. Others specify which failures will be treated as material.
Misjudging the seriousness of a breach can unnecessarily escalate a dispute. Legal guidance can help you determine your options and make the appropriate response.