What is a material breach?

Adam Keilen Construction Law

A breach of contract occurs when one party fails to perform, resulting in legal consequences for the breaching party. Oftentimes, we hear the words, “material breach.” A material breach is nonperformance that reaches to the heart of the agreement, the underlying purpose of the contract. Generally, the legal test to determine whether there was a material breach is whether the non-breaching party received the “substantial benefit” of the bargain. In comparison, a non-material breach is a failure to perform that involves minor details; thus, a minor breach does not affect the underlying purpose of the agreement in a substantial way. Notably, a non-material breach is still a breach that will result in liability, but one that will likely result in limited legal consequences for the breaching party.

Hypothetical…Al and Bob…

Al owns a small business, and would like to install a safer parking lot for his employees. Al hired Bob, via contract, to install a high-grade grip-cover over his parking lot for the safety of Al’s employees. Instead, Bob installed a low grade grip-cover that shines and looks sharp; however, the low grade grip-cover is slippery and dangerous for Al’s employees. By installing the low grade grip-cover, Bob has committed a material breach of his contract with Al. Al intended to create a safer parking lot for his employees, the underlying reason he hired Bob. When Bob ignored the grade requirements, Bob ignored the underlying intent of the agreement, thereby installing a parking lot cover that looks nice, but ignores the safety benefit, or the “substantial benefit” that Al had bargained for. In other words, Bob is in big trouble…and will potentially face serious legal consequences from Al.

Michigan courts, according to Walker & Co v. Harrison, 347 Mich 630, 635, 81 NW2d 352 (1957), are likely to apply the following test to determine whether a breach is material:

  1. The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;
  2. The extent to which the injured party may be adequately compensated in damages for lack of complete performance;
  3. The extent to which the party failing to perform has already partly performed or made preparations for performance;
  4. The greater or less hardship on the party failing to perform in terminating the contract;
  5. The willful, negligent or innocent behavior of the party failing to perform; and
  6. The greater or less uncertainty that the party failing to perform will perform the remainder of the contract.

Restatement (First) of Contracts §275 (which is substantially similar to Restatement (Second) of Contracts §241)

The Take Away. A material breach is a serious failure to perform that goes to the overall purpose of the agreement; a material breach will result in serious legal consequences. A non-material breach is a minor failure to perform that will not necessarily affect the overall purpose of the agreement; a non-material breach will result in limited legal consequences.

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