Material default legal definition refers to a party's failure to honor the clauses in a contract. A contract is, by definition, a set of clauses that the signing parties agree to fully fulfill. When that does not happen, it is considered a breach of contract and may result in legal action. As a result, the party not fulfilling the promises in the contract may have to compensate the other party for any losses incurred by the breach.

Material and Non-Material Breaches

Not all breaches of contract lead to the agreement being canceled or monetary compensation being owed. The clauses and specifications in a contract have various degrees of importance. This leads to material and non-material breaches.

Material breaches are significant failures to honor the terms of the signed agreement. These failures affect the contract's purpose, making it significantly less meaningful. A material breach can be:

  • Vital information regarding the context or purpose of the contract.
  • A crucial clause which, if not fulfilled, is a clear and obvious reason for the other party to denounce the breach in contract and seek compensating damages.
  • A false statement or representation made by one of the parties, which was decisive in convincing the other party to agree to the contract.

Non-material breaches are less serious and often refer to minor details of the agreement that do not alter the main purpose of the contract.

Deciding if a breach can be considered material or non-material requires a detailed analysis of the specific issue. For example, if a customer orders a paint job on his or her car and wants it painted in a light-blue color but the car is painted in regular blue instead, it can be considered a non-material breach of contract. If the car is painted red, on the other hand, it qualifies as being a material breach of contract, as it obviously denies the customer's wish of having the car painted blue.

Both material and non-material breaches entitle the damaged party to take legal action in order to be compensated by the losses suffered as a result of the breach. However, in the case of non-material breaches, the damaged party must honor his or her end of the agreement, as opposed to material breaches, that may relieve this obligation. Before suing for breach of contract, it is advised to discuss the matter with an attorney. This can help determine the nature of the breach.

Understanding Material Breaches

Accurately determining the factors that make a material breach of contract is vital, as it allows the accusing party to end the contract without worrying they might have to pay any penalties. Therefore, a clear classification of material breaches helps the court determine the nature of a breach. It also acts as future guidance when determining whether unlisted breaches classify as material or non-material.

Before terminating the contract because of a material breach, the breaching party should be notified and given a reasonable amount of time to resolve the breach. Solving the issue in due time and without the involvement of a court saves both parties time and expenses. Also, determining the nature of a potential breach and defining the standards of performance both parties must live up to need to be clearly and unambiguously outlined in the contract.

The agreement needs to specify exactly what the responsibilities are for each party, as well as the penalties for those responsibilities not being met. The potential penalties should be outlined so that under no circumstance can it become more profitable for one of the parties to pay the damages instead of honoring the contract.

When deciding whether a breach is material, the following factors are considered:

  • How different the final outcome is when compared to the injured party's reasonable expectations.
  • If the injured party can be properly compensated for the losses suffered as a result of the breach.
  • How likely it is that the breaching party will manage to realistically resolve the issue in a reasonable amount of time.
  • How far below the standards of honest trade and good faith the actions and failures of the accused party are considered to be.

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