Material Breach of Contract: When It Matters Most
What Is a Material Breach?
A material breach is a failure to perform a contractual obligation that is so significant it goes to the heart of the agreement, defeating the purpose of the contract. Unlike a minor breach, a material breach gives the non-breaching party the right to stop performing their own obligations and potentially terminate the agreement.
Material Breach vs. Minor Breach
Not every breach justifies termination. Courts distinguish between:
- Material breach. A failure so significant that the non-breaching party did not receive substantially what they bargained for. Example: a contractor abandons a construction project halfway through.
- Minor (immaterial) breach. A failure that does not undermine the overall purpose of the contract. Example: a contractor completes the project but uses a slightly different paint color. The non-breaching party can claim damages but cannot terminate.
How Courts Determine Materiality
The Restatement (Second) of Contracts, Section 241, identifies five factors courts consider:
- The extent to which the injured party will be deprived of the expected benefit
- The extent to which the injured party can be adequately compensated with damages
- The extent to which the breaching party will suffer forfeiture
- The likelihood that the breaching party will cure the failure
- The extent to which the breaching party's behavior comports with good faith and fair dealing
What to Watch For
- Contracts that define material breach. Some well-drafted contracts list specific actions that constitute material breach, removing ambiguity. This is helpful for both parties.
- Automatic termination on any breach. A clause allowing termination for any breach — not just material ones — gives the other party an easy exit. Consider requiring materiality as a threshold.
- Continued performance after breach. If you continue performing after a material breach by the other party, you may be deemed to have waived your right to terminate based on that breach.
When to Consult a Lawyer
Consider consulting an attorney before declaring a material breach and terminating a contract. If a court later disagrees that the breach was material, your termination could itself be treated as a breach.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.