Material breach
A material breach is a failure to perform that defeats the main purpose of the contract, often letting the other side end it or stop performing.
What it means
Not every broken promise counts the same. A material breach is one serious enough to deprive the other party of much of what it bargained for. A minor breach, by contrast, usually entitles the other side to damages but not to walk away from the deal.
Take a caterer hired for a 200-person event. Arriving with the wrong color napkins is a minor breach. Not showing up at all, or bringing food for 50, is material, because it defeats the point of the contract.
Many contracts do not define “material,” so courts decide case by case, looking at how much of the benefit was lost, whether money can make up for it, and whether the breaching party acted in good faith. The tests differ somewhat by state. Some contracts reduce the uncertainty by listing breaches that count as material, like non-payment past a set date.
The label has big consequences. A material breach may excuse the other party’s own performance and justify termination, but a party that terminates over what turns out to be a minor breach can end up being the one in breach.
What to watch for
- Check whether the contract defines material breach or lists examples. If it does not, expect room for dispute.
- See whether termination requires a material breach or allows termination for “any breach,” which is a much lower bar.
- Look for a cure period that must run before a material breach can be used to terminate.
- Check whether repeated minor breaches can add up to a material one under the contract.
- Keep a written record of the breach and of any notices, since you may need to prove how serious it was.
Example clause
A party is in material breach of this Agreement if it (a) fails to pay any undisputed amount within thirty (30) days after its due date, (b) breaches Section 6 (Confidentiality), or (c) fails to meet the service levels in Exhibit B three or more times in any ninety (90) day period.
The contract spells out which failures are serious enough to count as material, which leaves less to argue about later.