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Material breach example6/29/2023 ![]() I suggest that if drafters want to avoid confusion, they should use material to convey only the meaning that courts give it otherwise, they should use significant or use some other means of expressing significance. Courts construe material to mean, in effect, “of such a nature that knowledge of the item would affect a person’s decision-making process.” But practitioners also use the word to mean simply “significant.” Jeff: Have you read the article I linked to? In it I point out that the word material is ambiguous. When it comes to remedies, if you want to incorporate a significance qualifier, you’d probably want it to express a lesser level of significance, so you wouldn’t want to use the word material. I have in mind that this definition would apply only in the context of termination. For purposes of this agreement, “ Material Breach” means, with respect to a given breach, that a reasonable person in the position of the nonbreaching party would wish to terminate this agreement because of that breach. If either party commits a Material Breach of its obligations under this agreement, the other party may terminate this agreement by giving the breaching party at least ten days’ prior notice, except that any such notice will not result in termination if the breaching party cures that breach before the ten-day period elapses. ![]() I suspect that if you were to ask that question to a random sample of lawyers and business people, you’d mostly get a lot of hemming and hawing.īy extrapolating from my analyses of material and material adverse change (the most recent being the third article in this issue of Deal Lawyers), I came up with the definition of material breach contained in the following provision:Ģ.3 Termination for Breach. As a result, it’s important for business owners to consult with legal counsel whenever they encounter contractual issues.In my tireless quest to master all things related to materiality, I recently asked myself what the heck material breach means. There are rarely black or white answers, and missteps can cost you valuable rights. Whether that party has acted in good faithĪpplying these factors requires a careful factual analysis. ![]() Whether that party can remedy the breach.Whether the party who failed to perform will suffer forfeiture.Whether adequate compensation is available for your losses.Whether the breach deprives you of the benefit of the bargain (that is, whether it destroys the value you reasonably expected to receive out of the contract).In determining whether a material breach occurred, Oregon case law outlines five factors for consideration: Many breach of contract cases involve gray areas. In this case, the breach would be material, as it would defeat the entire purpose of the contract. However, suppose your store sells Christmas trees, and the trees don’t arrive until after New Year’s. The delay would likely not amount to a material breach of contract because you could still sell the toys. One month, the wholesaler runs into a problem with the shipment, and the toys arrive a few days late. You have a contract with a wholesaler to ship you toys on the first of every month. A breach is generally material if it defeats the fundamental purpose of the contract (when interpreted in a reasonable light).įor example, suppose you own a toy store. So, when is a contractual breach considered material? It depends on the unique circumstances of each situation. You may still be entitled to compensation for minor breaches, but the damages are usually far more substantial when the breach is material. This difference matters because you can only get out of the contract if the other party’s breach was material. The law makes a key distinction between material (or total) and nonmaterial (or minor) breaches. ![]() Your rights and options for dealing with a contractual violation will depend on the extent of the breach. You aren’t necessarily justified in terminating the contract simply because the other party failed to fully uphold their end of the bargain. When the other party fails to live up to their contractual obligations, you may end up shouldering significant financial losses. Find out what makes a breach material and how that determination can affect your rights.Ĭontracts are central to the success of many business transactions. ![]()
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