A material breach occurs when a party fails to perform a core contractual duty. The error must be severe enough to undermine the agreement’s very purpose. Minor mistakes, like short delivery delays or tiny quality issues, usually don’t count.
However, breaches like consistent major delays or delivering unusable products can significantly deprive your business of the expected benefits from the contract. In these cases, you may have the right to end the contract or seek damages to compensate for your losses.
What factors do courts consider?
While every case is unique, courts generally look at five key factors to decide if a breach is material:
- Impact on the buyer: They check how much the breach hurts the buyer’s expected benefits. For example, did a late delivery cost the buyer a major client?
- Possibility of fair compensation: They ask if financial compensation can fully make up for the buyer’s loss. If the buyer loses unique opportunities or suffers irreparable damage to their reputation, it may not fix all the damage.
- Effect of ending the contract: They consider how terminating the contract might unfairly harm the supplier. This ensures that the response to the breach (contract termination) isn’t more severe than the breach itself.
- Chances of fixing the problem: They look at whether the supplier can and will correct the issue.
- Supplier’s behavior: They examine if the supplier acted in good faith and tried to solve the problem.
Courts focus mainly on how seriously the breach harms the buyer’s business. If they find a material breach, the buyer can usually end the contract. The buyer may also ask for money to cover direct losses, like finding a new supplier, and indirect losses, like missed opportunities. In some cases, courts may order the supplier to fulfill the contract. However, the exact solutions depend on the specific situation and contract terms.
Supply chain disruptions can seriously impact your business
Consider reaching out to an attorney. They can help you assess your situation and explore your options.
