Contracts are the basis of many professional relationships, including those between employees and employers as well as between dedicated business partners. Contracts can represent business opportunities, but they can also represent the potential fallout that may occur when one party breaches the agreement.
Breaches of contract come in various levels of severity, with those considered “material” breaches to be the most disastrous. It is important for business owners to fully understand the implications of a material breach of contract and the nature of a dispute that may arise as a result.
What is a material breach of contract?
A material breach of contract is one so severe that it irreparably breaks the bond formed by the contract and defeats the core purpose of that contract entirely. For example, a contract between business partners might outline the responsibilities each party must fulfill. If one party fails to complete their responsibilities, that potentially defeats the entire purpose of the partnership and is a material breach of contract.
What are other forms of breach of contract?
Whereas a material breach of contract is inherently severe, a minor breach or even an “actual” breach of contract are less so if the contract remains mendable. In the event of a relatively minor breach, it may be in the best interest of both parties to seek mediation or arbitration as a dispute resolution method so as to facilitate the mending of professional relationships.
While some contracts specifically state what constitutes a material breach, other breaches might only be recognizable as material by the amount of damage the breach causes. It may be necessary to pursue compensation through courtroom litigation following a material breach of contract, especially for breaches made in bad faith.