A core skill set of any business person is deciding how to invest the time and resources of a business. Balancing risk assessment and return on investment follows closely behind.
To memorialize these activities, businesses rely on contracts. Contracts are the backbone of commercial activity. When a contract is breached, a new set of considerations arise—the first being whether the breach is material v. immaterial. In this guide we will discuss why this classification matters and how it affects your business’s legal obligations.
“Deciding whether one party to a contract or another has violated a contractual term is often the easy part. It is often much harder to determine whether or not the violation results in damages.”Michael Long, Contract Disputes Attorney
What Makes a Contract And What Is A Breach of Contract?
Briefly, a contract is an agreement between two or more parties where each party agrees to do something they would not otherwise be required to do (or not do something they have the right to do) to receive certain benefits. Therefore, a contract can be distilled down to the following:
- One party makes an offer,
- The other party accepts the offer,
- There is a meeting of the minds on the transaction, and
- Something of value is exchanged.
A breach occurs when a party does not perform their obligations under a contract. But there are different types of breaches, and they have different legal implications. Naturally you may now ask, Why does it matter to your business how a breach of contract is classified? It matters because a material breach relieves the non-breaching party of their obligation to perform under the contract. Conversely, with an immaterial breach the non-breaching party must still perform under the contract.
Immaterial Breach vs. Material Breach
Let’s be clear, any breach of contract is grounds for a lawsuit. You do not get to pick and choose what terms of a contract you wish to honor. That said, whether a breach is immaterial v. material has significant bearing on your business’s rights and obligations, and you need to be able to tell the difference.
Unfortunately, there is no magic formula to determine whether a breach is immaterial or material, and classification is often itself a matter of dispute. However, Florida courts state that deciding materiality is a matter of degree, and all relevant circumstances should be considered including:
- Conduct, and
- The extent of the injury.
With that in mind, courts examine breaches of contract for severity (i.e., materiality). When a breach frustrates the root purpose (i.e., the “essence”) of a contract, it is material. Conversely, a breach that does not frustrate the root purpose (i.e., the “essence”) of a contract is an immaterial breach.
As you can see, classifying a breach as an immaterial breach or material breach has significant implications for your business and your business’s decisions. If you conclude that there is only an immaterial breach, you must continue to perform under the contract and keep business resources committed and allocated for that purpose. If you determine that the breach was material, you can cease to commit and allocate resources to performance and can retask those resources. Making the wrong determination can either open your business to a lawsuit for non-performance or you can waste resources on a dead contract.
Examples of Immaterial and Material Breach
An immaterial breach of contract has little to do with the essence of the contract and causes no true harm. Immaterial breaches include breaches relating to ministerial, minor, technical, or administrative matters. Examples of immaterial breaches include:
- Delivering goods a day late;
- Being slightly off on a payment amount; or
- Continuing to do minor repairs when a property is habitable.
While those mistakes may be disruptive, they also do not frustrate the purpose of the contract (i.e., you will still get the results you expected when you entered into the deal in the first place).
On the other hand, a material breach cuts straight to the essence of the contract (i.e., you will no longer get the benefit of your bargain or the purpose of the contract is frustrated). Examples of material breaches include:
- Non-payment of rent;
- Non-payment for goods; or
- Delivery of goods delayed by weeks.
These types of breaches usually destroy the benefit (i.e., the “essence) of the bargain. In other words, the non-breaching party does not get what they bargained for in the first place.
BrewerLong Knows Contracts
Your business needs to make critical decisions every day to properly allocate time and resources. At BrewerLong, we get that and we are there to help you make the right legal choices. With decades of experience in advising businesses, count on BrewerLong to help you chart the right course to resolve any breach of contract. Contact us today.
This blog post is provided on an “as is” and “as available” basis as of the date of publication. We disclaim any duty to update or correct any information contained in this blog post, including errors, even if we are notified about them. To the fullest extent permitted by law, we disclaim all representations or warranties of any kind, express or implied with respect to the information contained in this blog post, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title, non-infringement, accuracy, completeness, and timeliness. We will not be liable for damages of any kind arising from or in connection with your use of or reliance on this blog post, including, but not limited to, direct, indirect, incidental, consequential, and punitive damages. You agree to use this blog post at your own risk. Regarding your particular circumstances, we recommend that you consult your own legal counsel–hopefully BrewerLong.