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What is a “material” breach of contract?

On Behalf of | Jul 19, 2022 | Business Law |

Contracts formalize a business arrangement between two parties. Purchase-and-sale agreements, service agreements and other business contracts require each party to agree to abide by the terms of the contract. For example, a manufacturer may agree to provide a certain number of goods each month to a New York company in exchange for payment.

If a party fails to perform in accordance with the agreement, that party is in breach of contract. This may excuse the non-breaching party from performing their obligations under the contract and entitle the non-breaching party to damages.

Minor and material breaches of contract

Not all breaches of contract are serious enough to excuse performance and warrant damages. Generally, a material breach is a breach that is serious or substantial enough to impact the heart of the contract. Minor breaches of contract generally only impact a tangential aspect of the contract, while the main purpose of the agreement is still fulfilled.

Determining whether a breach is material

When presented with a breach of contract, the court will consider a few issues to determine whether the breach was material. Some of these issues may include:

  • Whether the non-breaching party received what it bargained for/was deprived of a benefit
  • Whether the non-breaching party can be compensated for its loss
  • Whether the breaching party has partially performed its obligations
  • Whether the breaching party acted in bad faith
  • Whether the contract addresses material breaches

If the court determines that a breach is material, the consequences can vary depending on the circumstances. An attorney specializing in contracts can help protect your rights and finances after a material breach of contract occurs.