A material breach of contract is otherwise known as a fundamental breach of a contract. It is the most severe form of a breach and usually involves a key element of the contract not being performed or carried out as agreed between the parties. This article sets out examples of a material breach in contracts, what happens if a material breach is found, and remedies available for a material breach of contract.
How Do I Prove Material Breach?
To demonstrate that a material breach of a contract exists, you must be able to prove:
- the existence of a contract; and
- the failure of the other party to perform an essential term of the contract.
An Example
Suppose you engage a supplier to provide 100 bikes for your rental bike business by a specific date. However, the supplier failed to deliver the bikes by the expected deadline. This is likely to constitute a material breach.
Some contracts will expressly define a ‘material breach’, whereas others will not. Suppose a contract does not define what constitutes a material breach. In that case, a material breach will be a breach of an ‘essential’ term of the contract. What counts as an ‘essential’ term generally depends on each case’s specific contract and the surrounding facts and circumstances.
It is important to note that there are other forms of breaches of a contract that could exist.
Before buying a business, it is important to undertake due diligence, to verify the information supplied by the seller. This guide will walk you through the due diligence process.
What Happens if There is a Material Breach of a Contract?
If you have identified a material breach of your contract by the other party, you may wish to end the contract immediately. Otherwise, you can:
- contact the breaching party and see if you can resolve the issues;
- write a formal letter seeking recovery for the material breach; or
- speak to a lawyer and commence legal proceedings.
Generally, contacting the breaching party to try to resolve the matter amicably should always be the first course of action. However, if the other party is unwilling to engage with you, writing a formal letter seeking recovery for the material breach may be the next step. The purpose of such letters is to notify the other party of the following steps you will take, especially if they refuse to cover your losses. Additionally, you will still need to give notice and a time period to rectify the breach to the other party, even if you still choose to pursue legal action.
Engaging in legal proceedings is ultimately a costly and time-consuming process that is likely detrimental to both parties. However, engaging a specialist to guide you through the process is prudent if the circumstances call for it.
Remedies
If you have suffered losses from the material breach, you may be in the position to claim relief in the form of various remedies. Common remedies include:
- damages;
- specific performance; and
- seeking an injunction.
Generally, the court will not order specific performance or grant an injunction if the award of damages is sufficient. Given remedies law can be complex, having a specialist guide you is important.
Key Takeaways
A material breach of a contract can generally lead to the end of a contract. If you believe this has occurred, you should consider the next steps forward in claiming remedies to recover any losses incurred. The laws around the different remedies available can be complex, and obtaining legal advice to guide you through them is prudent.
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Frequently Asked Questions
A material breach of contract usually involves a key element of the contract not being performed or carried out as agreed between the parties.
First, check whether the contract specifically sets out action to be taken in case of a material breach. Although taking legal action seems the next logical step, you can also attempt to contact the breaching party to discuss the situation or send a formal letter.
The remedies available are damages, an order of specific performance or an injunction. However, with the last two remedies, these are generally awarded if an award of damages is insufficient.
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