Any breach of contract can feel like a big deal. But when the emotions settle, not every breach is equally as potentially damaging to your business. It’s important to know when a breach is material or minor.
A material breach is one that causes the nonbreaching party to receive goods or services substantially different than what is specified in the contract. For example, say you contracted with a clothing wholesaler to deliver 100 boxes of white T-shirts by April 30. But instead, the wholesaler delivers sweatshirts on May 2. This would be a marital breach, while delivering the 100 boxes of white T-shirts on May 1 could arguably be a minor breach unless the contract specifies that “time is of the essence” and, therefore, late delivery is a material breach.
The difference matters because if one of the parties to a contract commits a marital breach, the affected nonbreaching party or parties no longer have to perform their obligations under the contract. Otherwise, if the nonbreaching party still received the goods or services they expected, the breach could be minor and they would still be obligated to perform (such as by paying for the shirts).
Is it a material breach or not?
The line between a minor and material breach of contract is not always clear. Questions to ask include:
- How much benefit did the nonbreaching party receive?
- Can the nonbreaching party be compensated adequately?
- How close did the breaching party come to performing as required?
- Did the breaching party act negligently or willfully breach?
- How likely is it that the breaching party will fulfill its remaining obligations?
Whether your company is accused of breaching a business contract or you have been affected by another party’s breach, you would need sound legal advice about how to proceed, such as if you need to file a lawsuit or pursue a resolution through other methods.