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What is a Breach of Contract?

In every aspect of running your business, you are constantly dealing with contracts. So, what is a “breach of contract?” In theory, the legal concept is common-sense: You have breached the contract if you fail to do what you agreed to do. In practice, the legal concept of “breach” is more complicated. Every contract is unique; correspondingly, every breach is unique.

Categories of Breach: Nonperformance

In general, breaches can be made into two large categories: non-performance and improper performance (sometimes called “partial performance”). The former is simple: A party to the contract failed to do what they agreed to do, that is, failed entirely to deliver apples, for example. These kinds of cases are the easiest for courts to resolve in the event of litigation. For basic nonperformance, the judge has only a few questions to answer:

Contract formation — did the parties agree to deliver apples?
What were the obligations of the parties? — in our example, delivering apples for payment
Were the apples delivered? — no
Was delivering apples “material” to the contract — in this example, yes (see discussion below)
Was there a legal defense or excuse? — not in this example
Was the other party damaged or injured by the breach? — yes

In our example, the judge entered a verdict in favor of the plaintiff and assessed a judgment against the defendant for breach of contract for failure to deliver apples as promised.

Improper/Partial Performance: Subcategories

Unlike nonperformance where no performance occurs, improper performance involves some performance. However, the other party to the contract is unhappy with one or more aspects of the performance. Improper performance creates a much thornier legal problem.

In general, improper performance can be broken down into five subcategories:

Subject matter — wrong product, wrong service
Location — wrong place of delivery, correct repairs but on the wrong truck
Quantity — not enough, too much
Quality — product/service was defective, wrong size, not saleable, non-functioning, not fit for the purpose, not suitable, not merchantable, etc.
Timing — not performed at the time agreed, too slow, too fast

As said above, every contract is unique. As such, for every contract, there are unique ways to breach the contract. When trying to honor your contractual obligations, you must be cognizant of what is important to the other party. This brings us to the concept of “materiality.”

What is a Material Breach of Contract?

Under the law, not every breach will be considered a big enough breach to allow a judge to award damages. For a breach to be actionable, the breach must be material. “Material” is the legal concept that evaluates whether the breach is important or whether it is minor and insignificant. Continuing our example, if the contract is for a supply of 10,000 apples at a certain place at a certain time and the vendor brings 9,999 apples to the correct place at the correct time, there is technically a breach of contract. However, without more, no judge will consider that to be a material breach of contract.

The law has formalized the definition of “material” in several different ways. Something is “material” if, without that term or provision, the other party would not have agreed to the contract. Using our example, delivering apples is material because “if I had known you were going to bring oranges, I would not have entered into the contract. Alternatively, something is “material” if the other party is receiving something substantially different from what they expected.

Contact San Diego Corporate Law Today

If you would like more about information about contracts, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has extensive experience in drafting contracts necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email.