This article considers what constitutes the ‘Material Breach’.
Under Common Law what are the right available to aggrieved party
to terminate the contract. Whether ‘any breach’ also constitutes
‘Material Breach’? What constitutes the serious factors which may
amount Material Breach. Look out for various factors and
circumstance which constitutes Material Breach under a Contract.
In Commercial Contracts, a provision is normally provided allowing
either party to terminate upon the other party’s breach of
contract. It is common for contracting parties to include a right
for one or both parties to terminate for a
of the agreement by the other party. Lets understand
constitutes a material breach?
What Is Material + Breach
# The meaning of
depends more on the parties and their
characterization of the terms rather than automatically amounting
to a fundamental/repudiatory breach 1.
is committed where a party without lawful excuse fails or refuses
to perform what is due from him under the contract, performs
defectively or incapacitates himself from performing.
is possible where the term, breached is a
condition or an in nominate term, the consequences of which are so
serious that the breach justifies the termination.
Position under Common Law
# Common Law rules govern the right to terminate by the innocent
Party for breach of contract, provided a repudiatory breach is
# The fact that not all contract terms are of equal significance,
some are more important than others and the distinction has been
traditionally drawn between a condition and a warranty.
goes to the
of the contract, the breach of which gives rise to an automatic
right to terminate the contract whether or not any prejudice or
loss is suffered. i.e. a
"repudiatory breach". Such repudiatory breach amounts to material
# Whereas a warranty is a lesser, subsidiary term in a contract,
which only allows the aggrieved party to claim damages, and does
not entitle him to terminate the contract.
are such intermediary terms that neither fall
"warranties". In case of breach of innominate terms, the innocent party gets is entitled to claim
compensation but may or may not be entitled to set aside the
contract, depending on the gravity of the breach.
# An innominate term can be distinguished from a condition on the
basis that breach does not give rise to an automatic right to
terminate performance of the contract and it can be distinguished
from a warranty on the ground that the innocent party is not
confined to a remedy in damages 2.
# A greater degree of flexibility is available and the Court of
Law can focus on the consequences of the breach by allowing a
party to terminate performance of the contract only where the
breach of the innominate term has had serious consequences.
Factors Responsible For Serious Breach
# Any detriment caused, or likely to be caused, by the breach;
# Any delay caused, or likely to be caused, by the breach;
# The value of any performance received or tendered by the
# The cost of rectifying the breach;
# Any offer by the defaulting party to rectify the breach;
# Whether the defaulting party has previously breached the
contract or is likely to do so in the future; and
# Whether the innocent party would be adequately compensated
by an award of damages in respect of the breach.
Any Breach Vs. Material Breach?
# Where a clause in the contract states that
either Party can exercise the right to terminate the Agreement if
any party commits a breach of any of its obligations under the
Agreement. Will it
amount to material breach?
# In order for any single breach to give rise to a right to
terminate it had to constitute a repudiatory breach under common
law. The contract should not be interpreted in such a way as to
defeat its commercial purpose.
# In the context of a commercial contract involving substantial
investment or at least substantial undertaking of financial
obligations by one party or involving a myriad of obligations of
differing importance and varying frequency, the common sense
interpretation can be imposed upon the strict words of the
contract. That is to say, a repudiatory breach or an accumulation
of breaches that as a whole can properly be described as
repudiatory are a precondition to termination of the Agreement
pursuant to such clause3.
# "Material breach", in essence is where "all the circumstances is
wholly or partly remediable and is, or, if not remedied, is likely
to become serious, in the wide sense of having a serious effect on
the benefit which the aggrieved party would otherwise derive from
performance of the contract in accordance with its terms".
# The word
is directly linked with
‘the magnitude of
the breach’. In a commercial contract, magnitude can be presumed
to refer to the commercial consequences of the breach were it not
to be remedied.
# Technically specking, remediable breaches should be regarded as Innominate Terms. That is to say, if the breach is "irremediable"
then the parties can rely on their Common Law Right to terminate
for Repudiatory Breach, provided the consequences are sufficiently
This is a tricky and complicated area of the law, in which the
magnitude of breach ultimately decides whether a breach is
sufficiently serious to justify termination based on all the facts
and circumstances relevant to the particular case. Looking from
the other side, if a contracting party gets it wrong and purports
to terminate, when he was not in fact entitled to do so (because
the breach was not repudiatory), he will be held to have
repudiated his obligations under the contract and may be liable to
pay substantial damages in consequence.
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