Material Breach Clause Sample: Everything You Need to Know
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.3 min read
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.
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.
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.
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