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All about contract disputes, including how to avoid them – part 2
Material vs. Non-Material Breach of Contract (continued)
But how do courts determine what constitutes a material breach of contract? They refer to a legal treatise called the Restatement (Second) of the Law of Contracts. Completed in 1979, this treatise is one of the most frequently cited in the entire United States justice system – every first year law student in the country learns about it. In combination with the Uniform Commercial Code, the Restatement governs all contracts and sets out the following criteria for a material breach of contract:
Has the breach compromised the “heart” of the agreement?
To determine this, the court will decide what was the core purpose of the contract. As an example, imagine you made a contract with a builder for them to build your house with a red, standing seam roof. Due to supply constraints, the builder installs a green standing seam roof. Even though it wasn’t what you wanted, the color of the roof doesn’t strike at the heart of the contract – it’ll still keep the rain off your head. On the other hand, if the builder failed to install any roof, that would certainly compromise the purpose of the house.
Can the non-breaching party be compensated for the loss?
The next question the court will ask is twofold: can the non-breaching party be compensated monetarily for the breach, and if so, how much money will it take? For an example, let’s go back to the agreement between a future homeowner and the contractor building their house. Imagine that delays in construction mean that the house isn’t going to be finished for a month after the agreed deadline. In this case, the non-breaching party (the future homeowner) will likely face additional costs in housing their family for a month, and they may have to pay more for storage and other costs. However, these expenses can be easily calculated and compensated for, and after the extra month, the original agreement will be fulfilled. In this case, the delay would most likely not constitute a material breach.
Check back soon for All about contract disputes – including how to avoid them, part 3. In the meantime, check out our page on contract disputes.