Has Your Contract Been Materially Breached

A material breach of contract is defined as a breach that is so fundamental to a contract that the failure to perform thwarts the purpose of the contract. A failure to successfully complete a more minor contractual obligation may be referred to as a non-material breach. , whereas a material breach refers to a failure to perform the essence of what is bargained for in the contract. In a typical breach of a contract, the non-breaching party can sue to recover damages. When a contract has been materially breached, the non-breaching party is absolved from performing his obligations under the contract. The court must determine whether the violation constitutes a material breach by assessing the facts of the case and applying guidance from various sources.

The courts consider a number of factors to determine whether a breach is material in nature. These include: (i) the degree to which the injured party will be denied the benefit of what he intended to receive under the contract; (ii) the extent to which the injured party can be compensated for the breach; (iii) the loss to be suffered by the breaching party; (iv) the chances that the breaching party will cure its breach; and (v) whether the breaching party conforms to standards for good faith and fair dealing. The facts of each particular case must be evaluated when considering these factors and concluding whether the breach was material.

In some cases, the court need not analyze the circumstances of the case to determine a material breach. Some contracts expressly stipulate that the failure to perform certain obligations constitutes a material breach. In Mining Inv. Group, LLC v. Roberts, 217 Ariz. 635, 177 P.3d 1207 (App. 2008), a contract for the purchase of real property specified that the buyer was required to deposit a sum of money into escrow by the scheduled closing of the transaction. The agreement was dependent upon the deposit of the funds by the close of escrow. The Court held that because the contract explicitly stated that the failure to deposit the funds by close of escrow amounts to a material breach, it is not necessary to analyze the list of factors to determine materiality. Essentially, the Court is required to adhere to the terms of a written contract where the terms are clear, as they are in this case. The Court distinguished these facts from the previous holding in Foundation Development Corp. v. Loehmann’s, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990), wherein a tenant, who was two days late in paying common area charges, was served with a forcible detainer action. The Court analyzed the list of factors and concluded that a landlord cannot terminate the lease for every trivial breach and that in this case, the tenant’s breach was not deemed material. In addition, the inclusion of a “time is of the essence” clause does not render an immaterial breach material.

If you have questions regarding whether a breach of contract is material or non-material, you should consult an attorney to determine your rights and remedies.

Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your legal matter.

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