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San Diego Business Contracts: “Materiality” Needed for Breach of Contract Claim

Not every breach of contract will result in liability for the breaching party; the breach must be “material” for the breach to be compensable in a San Diego court. “Materiality” goes to the question of importance. Is the breach central to the deal/bargain or is it a trivial element of a party’s obligations? One California court phrased it this way: Materiality “depends on the importance or seriousness thereof and the probability of the injured party getting substantial performance.” See Brown v. Grimes, 192 Cal.App.4th 265 (Cal. App. 2nd Dist. 2011).

A simple example might involve timing. Suppose the contract requires delivery by October 31st, but the goods are not delivered until November 1st. The delivering party is in breach, but the breach is not “material” unless there is something “key” or “important” about October 31st. In a contrasting example, being one day late would be material if the goods are pumpkins and Halloween falls on October 31st; pumpkins delivered in November are generally not as useful. This was the result of an unpublished case called East Los Angeles Health Task Force, Inc. v. Sante Fe Employees Hospital Assoc.-Coast Lines, Case No. B250881 (Cal. App. 2nd Dist. 2015) where the court held that failure to make timely installment payments on a debt promissory note was not “material” as a matter of law where the payments were made, but were made late. The jury should have resolved the question of materiality.

In general, materiality is a question of fact that is decided by jury on the basis of the unique facts of the contract and case. Moreover, the question of materiality is embedded in the larger question of whether a party has performed substantially. In commercial transactions, generally speaking, “substantial performance” will be deemed by California courts to be non-breaching performance. There are several factors that are typically considered:

What were the total obligations due under contract?
Was this particular issue — date of delivery, for example — specifically addressed in the contract?
What other obligations were performed?
How does the alleged breach compare to the quantity of obligations performed?
Was the claimed breach willful or mistaken?
What are the actual consequences/damages flowing from the claimed breach?
What does the contract allow for damages if there is a breach?
Does the non-breaching party obtain some unjust windfall if a breach of contract is declared?

See Sackett v. Spindler, 248 Cal. App. 2d 220 (Cal. App. 1st Dist. 1967). Let’s take a service-related example of a seamstress preparing a wedding dress. As with the above example, assume the seamstress delivers as promised, but one day late, and assume the wedding is another month away. In this example, the factors listed above heavily favor finding that the breach is non-material. The delayed delivery is probably a mistake (not willful), there are probably no actual consequences since the wedding is many days away and allowing the bride to not pay for the services for a trivial delay would harshly punish the seamstress and give the bride a windfall.

A good San Diego corporate attorney can help draft your business contracts to take care of materiality-related problems. If an issue is important to the deal, it needs to be addressed in the contract.

Contact San Diego Corporate Law Today

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for four years running by SuperLawyers.com. Every business needs a good business attorney like Mr. Leonard. He can be reached at (858) 483-9200 or via email.