General

Material versus immaterial breaches of contract

Contracts can be the backbone of any successful business relationship. They dictate what actions or efforts will be expected, prohibited or permitted and they set strict limits and rules on when certain aspects of the contract will be fulfilled.

If either party fails to perform their duties as dictated in the contact, there may be grounds to pursue legal action based on a breach of contract. However, not all categories of breaches will result in legal remedies.

There are two types of breaches when it comes to contracts: material and immaterial. Essentially, material breaches are those that are considered to be major and are not beneficial to the non-breaching party. Immaterial (or non-material) breaches are those that may not be in accordance with a contract but do not affect the fulfillment of the contract.

Both sides of a contract may end up being in breach and wanting to take action against each other, but not every breach will be punishable.

For instance, let’s consider a situation in which a landlord and tenant are locked in a dispute over nonpayment. The landlord may claim that she did not receive rent for three months from the tenant. The tenant may argue that he won’t pay because he was supposed to be moving in upon completion of some construction but there were still small projects going on after the move-in date.

If the construction projects had no impact on the tenant’s space or ability to move in, that breach may be considered immaterial. However, the tenant’s decision to not pay his landlord for three months could be considered a material breach of the contract since it results in financial harm to the landlord.

Depending on the type of breach and the result of that breach, legal action may be necessary to enforce the terms of the contract or have the remainder of the contract cancelled. Financial damages may also be awarded to the non-breaching party.

Contracts and potential breaches should be taken very seriously by all those who are involved. Should an issue arise where one or more parties has breached the contract, it can be crucial to discuss the situation with an attorney to get an idea of what steps may be necessary to resolve the issue.

Mon Aug 27, 3:04pm