Key Takeaways

  • A breach of contract clause defines what happens if one party fails to meet obligations, including remedies and termination rights.
  • Courts assess material breaches by examining damages, fairness, and whether the breach can be cured.
  • Early breaches can justify termination since little investment exists in the relationship.
  • Common material breaches include fraud, exclusivity violations, and payment failures.
  • Many contracts require notice and cure provisions, giving the breaching party a chance to fix the issue before termination.
  • Sample clauses vary by industry but often address notice, damages, force majeure, and dispute resolution.
  • Having clear, detailed breach clauses protects both parties and reduces costly litigation.

A material breach clause sample refers to an example of a contract breach where a party doesn't respect the contract terms, damaging the other party. The injured party has the right to sue in return and ask for compensation, even if the damage is minimal. Such an instance would be, for example, a sales professional who has not received a due $120 commission. This person would have the right to pursue legal action and receive the money he or she is owed.

Defining a Material Contract Breach

If the claim is valid, no matter the size of the damages, allowing the damaged party to actually cancel the contract requires a significant amount of damages. A material breach is a situation when a party's actions go against a major clause in the contract, causing considerable damage and allowing the other party to seek termination of the agreement.

Typically, the court of law considers the following factors:

  • The difference between the injured party's reasonable expectations and the actual outcome.
  • How close the compensation offered to the injured party for his or her losses is valued, compared to the actual damages made.
  • The probability that the party that caused the damage will take measures to resolve its issues with respecting contracts.
  • How the behavior of the damaging party goes against morality and good practice standards.

Notice and Cure Provisions

Many breach of contract clauses include a notice and cure period. This provision requires the non-breaching party to notify the other side of the violation in writing and provide a specific time frame (e.g., 10–30 days) to correct the issue. If the breach is resolved during this cure period, the contract continues as normal. If not, the non-breaching party may pursue remedies such as termination or damages. Including such clauses promotes fairness and may prevent unnecessary litigation.

Early Contract Breaches

In the initial stages of the relationship between two parties, even minor breaches of the contract's clauses may constitute a valid enough reason for the termination of the contract. The main reasoning for that is the likelihood that, if the relationship started on such bad terms, it is very unlikely that the situation will significantly improve in the future. Also, the two parties haven't yet invested time and resources in the agreement.

For example, if a sales professional associates with a sales organization and breaks an agreement clause in the first month of partnership, the organization is entitled to immediately cancel the entire contract. In this situation, such a breach would be a clear sign that the professional will not have a productive relationship with the sales organization in the long-term future. They also haven't collaborated enough to have future earnings depending on their collaboration.

If the two parties have collaborated well over a significant period of time, a single breach of the less crucial clauses in the contract would likely not be grounds for termination. If a sales professional wrongfully reports sales numbers to a sales organization one time, three years into their collaboration, the time and resources invested by both parties in all that time is enough for this isolated incident to be forgotten.

Much stricter rules are applied when it comes to exclusivity clauses. In collaborations between sales professionals and sales organizations, typically a break of the exclusivity clause results in immediate cancellation of the agreement. Even if the two parties have collaborated for a long time, if the agent breaks the exclusivity clause and works with a different organization, the law fully backs the immediate termination of the contract.

Remedies for Breach of Contract

A breach of contract clause often specifies the remedies available to the non-breaching party. These may include:

  • Damages: Monetary compensation for financial loss.
  • Specific performance: A court order requiring the breaching party to perform their obligations.
  • Termination: Ending the contract if the breach is material or repeated.
  • Withholding payments: Common in sales and service contracts to secure compliance.

By spelling out remedies, contracts reduce ambiguity and help both sides understand the risks of noncompliance.

Actions That Constitute Material Breaches

Many contracts for sales agents clearly specify what can be considered a material breach. Some of the specified breaches are the breaking of credit card regulations, any attempts to fraud, and the violation of an exclusivity clause. Any sales agent should carefully revise his or her sales agreement to make sure that they are not breaking any clauses that may constitute material breaches. The main risk from a sales professional's perspective is that the sales organization will have the right to withhold any owed commissions even if it hasn't sustained any financial damages.

To protect against giving the sales organizations too much leeway in deciding what constitutes a material breach, sales agents should insist on having clear definitions of material breaches written in the sales agreement. Even if the breach causes a financial loss for the sales organization, the agent should have a clause in his or her contract that allows the payment of the damages, either directly or through sales commissions. Once the damage has been fully covered, the collaboration between the two parties can go on.

Examples of Breach of Contract Clauses

Sample breach of contract clauses can vary depending on industry and agreement type. For instance:

  • Loan Agreement Clause: The borrower agrees to repay principal and interest on time. If payment is more than 30 days late, a penalty applies. The lender may terminate the agreement if default continues.
  • Commercial Contract Clause: “Failure of the Subrecipient to comply with any provisions of this contract shall be considered a material breach. The non-breaching party may terminate the contract immediately and seek damages.”
  • Service Agreement Clause: The contract may require the service provider to cure a breach within 15 days of notice. If not cured, the client can terminate without further liability.
  • Force Majeure Clause Connection: Some breach clauses excuse performance when unforeseen circumstances (e.g., natural disasters, government action) make compliance impossible.

These examples show how flexible breach of contract clauses can be, but also how important it is to tailor them to the relationship.

Frequently Asked Questions

  1. What is the purpose of a breach of contract clause? It defines what constitutes a breach, outlines remedies, and provides procedures (like notice and cure) to handle violations efficiently.
  2. What happens if a breach is not cured within the allowed period? If the cure period expires without resolution, the non-breaching party may terminate the contract and pursue damages or other remedies.
  3. Can minor breaches justify termination? Usually not. Minor breaches may result in damages, but termination typically requires a material breach—a serious violation that undermines the contract’s purpose.
  4. Are all breach of contract clauses enforceable in court? Yes, as long as they are clear, not unconscionable, and consistent with public policy. Courts may strike overly punitive terms.
  5. Why include sample breach clauses in agreements? They set clear expectations, reduce ambiguity, and protect against disputes by spelling out obligations, penalties, and procedures.

If you need help with material breach clause sample, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.