Material v. Minor Breach
An actual breach of a contract always gives rise to damages. However, not all the time does a breach by one party excuse the innocent party from performing.
Whether a breach will excuse the innocent party’s performance depends on whether or not the initial breach is material or minor.
Usually, whether a breach is material or minor is determined on a case by case basis, with the court using six different guidelines to make its determination. The six guidelines are
- the extent to which the breaching party has already performed,
- whether the breach was intentional, negligent or the result of an innocent mistake,
- how certain it is that the breaching party will perform the rest of the contract,
- how much of the benefit of the contract the non-breaching party has gotten despite the breach,
- the extent to which the innocent party can be compensated and,
- how difficult it would be on the breaching party if the court were to decide that the breach was material and that the innocent party was under no obligation to perform his side of the bargain.
Paul and Bill, two business partners, hire SevenSeas, Inc. to build them a boat. The contract says that SevenSeas will build the boat according to Paul and Bill’s specifications and that Paul and Bill will pay SevenSeas $2 million. One of the specifications that Paul and Bill lay out is that the boat must contain bullet-proof windows. SevenSeas builds the boat exactly according to specifications except for the windows, for which SevenSeas accidentally uses ordinary glass. Using the guidelines laid out above, the court would most likely rule that SevenSeas’ breach was minor: SevenSeas has basically finished performance, the breach was accidental, Bill and Paul have basically received the benefits they contracted for, they can be compensated for the imperfect performance and it would probably be very hard on SevenSeas if the court ruled that the breach is material so that Bill and Paul do not have to pay the contract price.
However, even where a breach might ordinarily be considered minor, if the particular element of the contract that was breached had a bargained for importance, the ordinarily minor breach might be considered to be material. For example:
- Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. to be delivered to him on April 1st. Textiles, Inc. delivers the cloth on April 2nd. This will most likely be considered a minor breach.
- Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. telling them that the cloth must be delivered to him on April 1st because he has a fashion show on April 4th and his seamstresses need three full days to turn the cloth into the clothes that will be features at the show. Textiles, Inc. delivers the cloth on April 2nd. In this case, the delay will be considered a material breach because the time of delivery was bargained for importance.
Essentially, a material breach does two things. First, it gives rise to an immediate cause of action against the breaching party and, second, it excuses the innocent party from performing. For example:
Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. telling them that the cloth must be delivered to him on April 1st because he has a fashion show on April 4th and his seamstresses need three full days to turn the cloth into the clothes that will be featured at the show. Textiles, Inc. delivers the cloth on April 2nd. In this case, Textile’s material breach means that, first, Ralph Loren can sue them for the breach and, second, Ralph Loren does not have to accept or pay for the cloth.
A minor breach also gives rise to an immediate cause of action. However, it does not excuse the innocent party’s duty to perform. Therefore, the innocent party can sue for whatever damage it sustains from the minor breach, but it must nevertheless live up to its side of the contract. For example:
Ralph Loren orders one hundred pounds of silk cloth from Textiles, Inc. to be delivered to him on April 1st. Textiles, Inc. delivers the cloth on April 2nd. This will most likely be considered a minor breach. In this case, Ralph Loren can still sue Textiles for the breach, but he will have to accept and pay for the cloth when it arrives.
If two parties have an ongoing contract (like an installment contract) and one party breaches, the innocent party’s options as to how to react will be determined by what kind of breach was committed.
If the breach was material, the innocent party can either sue for damages caused by the breach and let the contract continue, or he can terminate the contract entirely and sue for the whole contract. For example:
Sunshine and Squeeze Me enter into a contract under which Sunshine agrees to ship one thousand bushels of oranges per month to Squeeze Me for a year and Squeeze Me agrees to accept the oranges and pay $5 per bushel. At the beginning of the third month, Sunshine decides not to send that month’s shipment of oranges to Squeeze Me. If this is a material breach, Squeeze Me can either sue for whatever damages the breach caused but continue to accept and pay for future shipments of oranges, or they can terminate the contract and sue Sunshine for the whole contract.
However, if the breach is only minor, the innocent party can sue for damages resulting from the breach, but they cannot terminate the contract. For example: