Exploring the Elements of Breach of Business Contracts

Understanding Breach of Contract for Businesses

In previous articles, we have explored the formation of contracts and the options available when a party fails to fulfill its contractual obligations. This article delves into what constitutes a breach of contract and whether such a breach suspends your performance obligations.

Defining Breach of Contract

A breach of contract occurs when any term or condition of the agreement is violated. This can include:

• Failure to perform an obligation, such as delivering goods or making a payment.
• Performing an act prohibited by the contract, such as disclosing confidential information.
• Performance of contractual obligations was not up to standards in the industry.

While parties are expected to fully perform the terms of their agreements, not all breaches have the same consequences.

Material vs. Non-Material Breaches

In common law contracts, the remedies available to the non-breaching party largely depend on whether the breach was material.

• Material Breach: A substantial failure to perform that disrupts the primary purpose of the agreement. This suspends the non-breaching party’s obligation to perform and may entitle them to damages.
• Non-Material Breach: A less serious violation of a term that is part of, but not central to, the agreement. This may entitle the non-breaching party to damages but does not suspend their obligation to perform.

The determination of whether a breach is material is fact-specific and may vary from court to court.

Breaches of Installment Contracts – Contracts for the sale of Goods Under the UCC

For installment contracts governed by the Uniform Commercial Code (UCC), the key question is whether the breach substantially impairs the value of the whole contract. The UCC provides specific rules for dealing with non-conforming installments:

1. A buyer has the right to reject a non-conforming installment if the non-conformity substantially impairs the value of that installment and cannot be cured.
2. If the non-conformity substantially impairs the value of the installment but not the whole contract, and the seller provides adequate assurance of its cure, the buyer must accept the installment.
3. If a non-conformity or default associated with one or more installments substantially impairs the value of the whole contract, the entire contract is breached.

Practical Examples

Consider a contract between a painter and a homeowner. If the painter fails to complete the job within the agreed timeframe, the breach may be considered material or non-material depending on the circumstances. Similarly, in an installment contract, if a delivery of goods is defective, the buyer’s rights depend on whether the defect substantially impairs the value of the installment or the entire contract.

The experienced business litigation attorneys at Halling & Cayo, S.C. have decades of experience with helping businesses like yours determine if they have breached a contract or if they are entitled to damages due to another party’s failure to live up to the contract. Contact an experienced attorney today to discuss your case.