What Is a Material Breach of Contract – Business Law Guide
Working with various contractors can support your business assuming they hold up their end of the deal. However, some business owners have to face the intricacies of contract law when a material breach occurs. What is a material breach of contract?
Anthony Law Group is a premier Phoenix breach of contract attorney and navigates material violations and other breaches. In this guide, we share everything you need to know about different contract breach types, the consequences of material breaches of contract, and the legal remedies available.
Understanding Breaches of Business Contracts
Say you are looking to expand your business and build an addition to your commercial property. You vet different construction companies to receive bids and ultimately sign a construction contract with one of them. They could break this agreement by acting in bad faith or failing to meet your specifications.
Legal professionals categorize a breach of contractual obligations in the following ways:
- Material breach: This substantial failure to meet performance obligations is important and often leads both parties to court. When one party undeniably fails to meet their expectations, it leads to a materially breached business contract.
- Non-material breach: The breaching party may act in good faith but not deliver their goods or services as expected. This does not mean the agreement is a complete failure but calls for both parties to reach a resolution.
- Anticipatory breach: Some business professionals forecast the other party failing to hold up their end of the bargain. They can bring this case to court for a judge to rule on the alleged contractual breaches.
What is a material breach of contract in a business setting? Let us use the example above about building an addition to commercial property.
If the construction company never meets its contractual duty and never builds the addition, lawyers view their non-performance as a material and willful breach of contract. On the other hand, if they could complete the addition but use a paint color that you did not agree to, then this would be an immaterial breach that requires you to pay for the services but coordinate with the contractor to meet your specifications.
The Importance of Defining a Material Breach vs. an Immaterial Breach
Determining if you have a material contract violation is key to taking legal action. Materiality depends on the agreement’s provisions and contract terms, as well as how the breach of contract affects the injured party.
How do lawyers determine what constitutes a material breach? Several factors are at play, including:
- Deprivation of expected goods or services
- Financial loss
- Adequate assurance of fair dealing
Materiality matters if you are looking to bring your case to court. A total failure from the breaching party to meet their duty under the contract should allow the non-breaching to recover financial compensation, especially if the other party breaches the contract after receiving payment.
Significant financial loss usually occurs in material breach cases with little to no benefit for the non-breaching party. However, a minor breach that does not substantially detract from the purchase price may not present as strong of a case.
The Legal Implications of Failing to Meet Contractual Obligations
Aside from “What is a material breach of contract?” one question business lawyers frequently receive is, “What are the legal implications of a contract breach?” Contract enforcement issues affect countless people entering professional agreements, so it is crucial that you understand the potential outcomes of a material versus non-material contract violation.
Breach of agreement consequences range depending on the case and the severity of the violation. Many who sue for material breach of contracts aim to recoup their losses if the provisions require early payment from the non-breaching party. A judge may rule that the breaching party committed the violation willfully and require them to pay the other party punitive damages.
Non-material breaches may also lead to compensation for one party. Say a buyer receives the majority of the goods or services they pay for, albeit with a minor hiccup, such as a wrong paint color or building material during construction. For this breach of contract, the buyer can request that the contractor complete the job to their liking without incurring extra costs.
When one party seeks financial compensation or brings their case to court for violating contract provisions, it ultimately hurts the breaching party. This type of liability not only comes with financial and legal consequences; it can also impact their professional reputation.
What Rights Do You Have as a Non-Breaching Party?
You expect a contractor or vendor you hire to deliver the products and services you sign up for. If they fail to do so, you have the right to hold them accountable. You can approach this in a few different ways.
First, you can work with the contractor directly to see if you can reach a solution. They may be willing to compensate you for your loss and provide adequate work. Mention the details of your agreement and how they did not hold up on their end of the bargain.
As the non-breaching party, you may have a strong enough case to sue the violator. Taking legal action may earn you compensatory damages depending on the severity of the breach. A qualified contract attorney can review the provisions and build a case in your favor.
Your lawyer may bring the lawsuit to a resolution during negotiations and mediation with the other party. Some cases involving a material breach of contract end up in arbitration. The right course of action for you depends on your unique circumstances.
Consult Our Experienced Attorneys for Business and Contract Law Guidance
After reading this guide, you no longer have to wonder, “What is a material breach of contract?” If you are looking to collect damages following a contract breach, Anthony Law Group can explore your contract case and determine if you are eligible for compensatory damages. We know how to decipher all breach of contract types and aid our clients during these difficult circumstances.
With more than 25 years of experience in business litigation, Anthony Law Group is the firm you can trust. Call 602-362-2396 for a legal consultation.