A contract is an exchange of promises. Each party promises to do (or not do) something. A legally valid and binding contract requires a consideration. In legal terms, this means that each party is giving something to the other that is not illusory.
Once the parties agree to the terms and sign the contract, each party has a legal obligation to perform according to the terms of the contract. At first, your contract performance does not depend on what the other party does. You must do what the contract says and meet your obligations. Each party should continue to perform until they complete the purpose of the contract.
At some point, a dispute may arise about whether a party met its obligations under the contract. In other cases, one party may fail to do what the contract says, whether intentionally or inadvertently.
If a party fails to perform precisely per the contract terms, they breach the contract. Some parties might correct the breach and uphold your rights under the agreement without further discussion. Others might never intend to rectify the situation, leaving you with significant losses.
The good news is that you can file a breach of contract claim to seek legal relief for the party’s failure to perform. However, you must prove the party’s material breach. Contact a experienced breach of contract lawyer for legal advise.
How the Law Defines Breach of Contract
The question is what happens after someone has breached the contract. Everything depends on whether the breach is material.
In legal terms, “material breach of contract” means:
“Significant enough substantial failure in the performance of a contract, as to give the affected party the right to sue for damages as well as release the aggrieved party from its obligations.”
Additional legal analysis and evaluation are necessary to determine if a particular breach qualifies as material.
What Is “Significant” and “Substantial?”
Here, two keywords in that definition make the question of what material is a matter of the specific facts in your case.
Significant and substantial imply that the breach of contract is not small or minor. However, what constitutes small depends on the purpose and circumstances of your agreement.
What seems clear is that a minor breach may not constitute material. Under Illinois legal precedent, the main question in determining materiality is whether the breach is so substantial and fundamental as to defeat the parties’ objectives in making the agreement.
In other words, the part of the breached contract “is of such importance that the contract will not have existed without it.” In other words, the matter must "go to the heart of the contract.”
The Contract Itself Can Give Guidance About What Is Material
The contract can specify what provisions are material if a party breaches that specific clause. This can help guide both parties to the agreement during the performance phase. It will make it easier for you to determine your cause of action. Then, you will not need to use your judgment and discretion to identify a material breach. Nor will you depend on a judge's decision.
Examples of Material Breach of Contract
Here are some examples of things that may constitute material breaches of a contract:
- Failure to complete the job by a due date when there was a specific reason why you needed the goods or services by that due date
- Delivering the wrong products (for example, a company ordered anchor bolts, and the supplier sent arbor bolts)
- Failure to comply with the specifications outlined in the contract
- Failure to pay for goods or services within a specified time
Examples of Non-Material Breaches of Contract
However, not every delay in performance or payment will constitute a material breach. For example, if one party was a couple of days late, it is starkly different than if they performed months late. A minor delay may not frustrate the purpose of the contract.
Here are some other examples of things that may not constitute material breaches of a contract:
- Using the wrong shutters as part of an overall larger construction project
- Being a day or two late in performing parts of the contract or delivering the bulk of it on time, with a small amount of performance being late
- Installing something with the wrong color, even though it is the same quality
For example, a contractor must deliver a building by July 31. They are substantially complete by July 31, but they must perform the final inspections before turning the building over to the customer.
The contractor itself can specify that even being a day late is a breach of contract that entitles the buyer to damages as defined in the contract. If the contract does not address this situation, a minor delay in turning over the project may not be material.
Materiality Depends on Your Specific Contact and its Purpose
Everything depends on the purposes and expectations of your particular contract. Something may constitute a material breach under one set of circumstances but a minor breach under another.
For example, if you are a party to a construction contract, late delivery on certain performance by a few days may not constitute a big deal within the scope of the project. However, if your contract pertains to delivering a product in time for a specific event, even a slightly late delivery can frustrate the entire purpose of the agreement.
Your attorney can review the substance of your agreement and advise whether your specific situation constitutes a material breach.
How Courts Determine Materiality in a Contract
A court will look at several factors in identifying a material breach:
- Whether one party willfully failed to perform their obligations under the contract (a willful breach is presumed to be material)
- Whether the other party was ready, willing, and able to perform their end of the contract (if the non-breaching party could not perform, the breach itself will not be material)
- How much of the contract the breaching party had already performed, and the benefits that the non-breaching party already received
- What was the purpose of the original contract?
- The hardship for the breaching party if the non-breaching party did not have to perform their obligations under the contract (the court will weigh the severity of the breach against the hardship that the non-breaching party will suffer)
To be clear, if the other party fails to follow all the contract terms, you have the right to seek damages, regardless of whether the breach was material. The law entitles you to 100 percent performance in strict compliance with your signed contract.
Your attorney will help you determine whether to sue for the breach or work out a solution with the breaching party, depending on the degree of your losses. Materiality matters in deciding what you may or may not do after the other party breaches the contract.
You Might Have the Right to Stop Performing Your End of the Bargain
If the other party materially breached the contract, you may have justification to stop your future contract performance. For example, if you must make payments under the terms of the agreement, and the other party does not perform what they were supposed to, you will no longer have an obligation to pay them.
Discuss possible non-performance on your part with your attorney to ensure you have the right to stop upholding your part of the agreement.
You Are Facing a Very Tough Choice with Possible Consequences
You must respond carefully to what you perceive as a breach of contract. If you unjustifiably stop performing your obligations, you may breach the contract. On the other hand, you do not want to keep performing if you may incur losses.
When you stop performing your end of the agreement, it can damage the breaching party. You may need to pay significant damages if you do not have adequate justification to stop your performance.
This is not to say that you have to continue performing no matter what. You can incur significant losses if you keep up with your end of the contract. For example, if you are a contractor, and the buyer missed several payments, you can end up down a large sum of money if you have to keep building the project, mainly when the buyer’s failure to pay stemmed from cash flow problems.
There May Seem Like You Have No Good Options
You face a very delicate situation when deciding whether to continue performing. In some respects, you feel stuck between a rock and a hard place.
Never decide what to do on your own. You can make a mistake that may cost you money and even end up owing money. On the other hand, if you handle the situation correctly, you can collect damages for the other party’s breach of contract.
Your Choice About Whether to Keep Performing Is Critical
What you do is even more critical in light of a recent Illinois Supreme Court case that upheld the doctrine of a partial breach of contract. If you do not elect to terminate the agreement after the other party committed a breach of contract, it is only a partial breach. Then, you can no longer end the contract.
Once you choose to continue the contract, you must keep performing. Otherwise, you can breach the contract as well.
Essentially, you hit a significant decision point after the other side commits a material breach (assuming they materially breached the contract). You need to thread a very difficult needle - if you prematurely terminate performance on your end because of an immaterial breach, you can face legal action. If you keep performing the contract, you will miss your exit ramp, which can mitigate your damages.
Damages in a Breach of Contract Case
If you can prove that the other party committed any breach of contract, you can recover:
- Compensatory damages that will put you in the same position that you would otherwise occupy had the party entirely performed the contract per its terms.
- Liquidated damages that the actual contract specified (so long as they are not unreasonable)
- Nominal damages are usually minor but represent accountability for someone who failed to perform according to the contract.
- Punitive damages, which are extremely rare in a breach of contract case, and punish the breaching party for egregious conduct
- Consequential damages compensate for particular circumstances that arise after a breach unforeseeable when you signed the agreement
You Need Counsel From an Experienced Business Litigation Attorney
Your attorney can also communicate with the breaching party to resolve your case. If you modify the contract or waive some of your rights, you might resolve the problem. While nothing says you need to change anything, you may prefer to work with the other party through the difficult situation.
You should contact an experienced business litigation attorney before you take any action. A lawyer can guide you through the process to protect your interests. Your attorney can also avoid mistakes that compromise your legal rights. Then, they can identify the best course of action to enforce your rights under the contract while protecting yourself from legal risk and financial harm.
As you can see, tactics play a crucial role in a breach of contract case. You may understandably become emotional because your business is at stake. An experienced business litigation attorney can give you objective and practical advice. They can settle with the breaching party, take your case to court, and let a judge decide.
Either way, get legal guidance to protect yourself from a situation you did not ask for but can threaten your business.