What is a material breach of a contract, and how is it determined?

material breach of a contract

A “material” breach of contract in contract law renders the memorandum of understanding “irreparably shattered” and destroys the purpose of creating the agreement altogether. The violation must go right to the heart of the parties’ deed. If there is a significant breach (sometimes known as a “complete” breach), the plaintiff can terminate the agreement and proceed to court to seek damages for the violation. 

In determining whether a violation is substantial, courts and business dispute lawyer Virginia Beach frequently use the Restatement (Second) of Agreements and other court decisions arising from contract conflicts.

Here are some questions that help lawyers determine if there is a material breach of contract. 

Is the other party stripped of “The Heart” of what they bargained for?

For instance, if the BMW seller guaranteed you a radio and elegant hubcaps, but the car provided is missing both, it would most likely not deprive you of the main goal of the transaction—the automobile—and may be less likely to be a significant breach. You would be unable to terminate the contract. On the other hand, it would be a substantial breach if a used-car vendor guaranteed you the exact Ford Mustang owned by Bill Clinton and then delivered a different Mustang. In this case, your transaction was not about the manufacturer and model of the car but about a specific vehicle.

Is it possible to compensate the other party for their loss?

Will money fix the issue, and how much would it cost? It’s less likely to be substantial if it’s anything that can be repaired with considerable diligence or expenditure while maintaining the contract. Suppose a party can simply resolve the issue by compensating for the damage. In that case, this is unlikely to be a severe violation of the agreement, and you would be unable to terminate the deal. Since it can be tricky to put price on business lose, one should consult partnership dispute lawyer Virginia Beach to determine the monetary loss. 

What Will the Breaching Party Lose (or Forfeit)?

How much has the party in breach already delivered to satisfy its share of the bargain? This aspect is frequently determined by timing: how further along the entities are executing their obligations when the breach happens. If you have accomplished the majority of the contractual responsibilities, you are less likely to be able to claim that a breach of contract is substantial, and so cancel the deal.

What are the possibilities that the violating party will make things right?

The less likely the violation of the agreement is, the more likely the violating party can and will repair the situation. If the other party demonstrates that issues are likely to be resolved, such as by providing security for its pledged payment or other rational confirmation that it will uphold the agreement, or if the economic system or changes in economic conditions in favor of efficiency, then the violation is less probable to be material. On the other hand, signs of financial instability or payment failures indicate that the issues are less likely to be resolved.

Was the violating party acting in bad faith?

If the violation of the agreement was intentional or resulted due to bad faith or unfair trading, the tribunal is more likely to assume a significant breach of contract. For example, one court ruled that a disobedient executive who refused to obey orders had fundamentally infringed his employment agreement. On the other hand, a breach caused by mere carelessness (“negligence”) or events outside the party’s disposal is less likely to be regarded as a significant breach of contract.