beliefs. However, a review of the facts reveals the absence of data
to support her beliefs. [The contracting officer] terminated [the
contractor] without ever examining a time-schedule or manpower
assessment. She terminated [the contractor] without any clear
understanding of what needed to be done and how long it would
reasonably take. Her decision was based on incomplete information
at best and mistaken information at worst. As such, it cannot be
sustained. . . .
Finally, contrary to established precedent, [the contracting officer]
never examined the impact of her decisions on [the contractor]. She
never considered whether [the contractor] would be entitled to more
time due to the stop-work orders, or what impact her order had on
getting the job completed. She simply assumed that her stop-work
orders were reasonable and that [the contractor] was not entitled to
anymore time. The court finds that [the contractor] would have
been able to substantially complete the contract had [the govern-
ment] granted [the contractor] the 47 days [the contractor] was
entitled to receive. Accordingly, the court finds that [the govern-
ment] has failed to sustain its burden on its decision to terminate
[the contractor] for default based on a failure to make progress.
21
The court also ruled that the welding standards imposed by the
government were more stringent than those actually required by
the contract, and the government thus had not proven that the
contractor breached the contract welding requirements. With re-
spect to the reprocurement price, the court concluded that the
‘‘price was not reasonable’’ and that the contractor should not be
required to reimburse the government.
Based upon its carefully documented findings, the court
conluded that the government had wrongfully terminated the
contract for default. As a result of the government’s wrongful
termination, the government (1) was required to pay the contrac-
tor $585,000 under the termination for convenience clause for its
cost of performance prior to termination, and (2) was denied
recovery of the completion contract price of $701,000 paid to the
completing contractor. The government’s wrongful termination
decision thus caused it to pay for the work more than twice the
original contract amount of $632,000. Such is the high leverage
of a wrongful termination decision.
§ 18:4 Amorphous legal standard of material breach
Although the materiality of breach is the paramount issue in
every contract termination dispute, there surprisingly is no ade-
quate common law legal standard by which ‘‘material breach’’
21
CJP Contractors, Inc. v. U.S., 45 Fed. Cl. 343, 378-79 (1999) (citations
omitted).
§ 18:4C
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may be judged. Traditional common law
1
backed into the deter-
mination of material breach simply by labeling any breach as
‘‘material’’ that was found under fact-specific analysis to go to the
‘‘essence of the bargain,’’
2
‘‘go to the root of the matter,’’
3
or ‘‘defeat
[Section 18:4]
1
For a straightforward appraisal of the unsuitability of these labels, see
Andersen, A New Look at Material Breach In the Law of Contracts, 21 U.C.
Davis L. Rev. 1073, 1090 (1988):
An ‘‘essence of the contract’’ approach to materiality, of course, is even less useful
than Professor Williston’s resort to fairness as the guiding principle. The ‘‘essence’’
approach acknowledges, at least implicitly, that materiality as conventionally
understood is inexorably obscure and can be applied only through a gut-level judg-
ment about how a particular case should be decided. Professor Corbin insisted that
material breach should be approached only in this way. Thus, for Corbin, whether a
breach is material ‘‘is a question of degree; and it must be answered by weighing the
consequences in the light of actual custom of men in the performance of contracts
similar to the one that is involved in the specific case.’’
The raw honesty of that perspective on material breach—the admission that attempts
to generalize have failed—has a certain appeal. What it cannot do, of course, is
provide practical guidance. Perhaps a Professor Corbin or a common-law judge of long
tenure has sufficient experience to intuit the essence of materiality without the aid of
theory, but the persons who most need to know what a material breach is—those who
must decide or advise on a course of action when a commercial transaction goes
awry—do not. It is they who must judge whether canceling a contract is justified as a
response to a breach, or whether the cancellation will bring down liability on their
own heads. To so important a question the law owes a better answer than the incoher-
ence of the Restatement factors, the vagueness of an ‘‘essence of the contract’’ test, or
the intuitive, rough justice Professor Corbin would administer. No materiality stan-
dard can eliminate all doubt or uncertainty, but the development of a simple, coher-
ent approach to the subject would be an important step forward. (Footnotes omitted.).
See also Certified Power Systems, Inc. v. Dominion Energy Brayton Point,
LLC, 2012 WL 384600, *63–65 (Mass. Super. Ct. 2012) (Citing treatise and
opining, while finding no material breach of contract, that: “A material breach
occurs when there is a breach of an essential and inducing feature of the
contract, i.e., an act that goes to the root of the agreement. A breach is material
where it is so serious and so intimately connected with the substance of the
contract as to justify the other party in refusing to perform further.”).
2
See Siegfried Constr., Inc. v. Gulf Ins. Co., 203 F.3d 822 (4th Cir. 2000)
(holding that a subcontractor’s ‘‘failure to perform was defective, material and
‘defeat[ed] an essential purpose of the contract’ ‘‘). See also Enron Federal
Solutions, Inc. v. United States, No. 04-254, February 7, 2008 (‘‘A material
breach relates to a matter of vital importance, or goes to the essence of the
contract. Materiality depends on the nature and effect of the violation in light of
how the particular contract is viewed, bargained for, entered into, and performed
by the parties. In determining materiality, courts often look to whether the
breached obligation is an important part of the contract.’’).
See also Milton Regional Sewer Authority v. Travelers Cas. & Sur. Co. of
America, 2014 WL 5529169 (M.D. Pa. 2014) (opining that a “material breach” is
a “breach of contract going directly to the essence of the contract, which is so
exceedingly grave as to irreparably damage the trust between the contracting
parties”).
§ 18:4 B
RUNER & O’CONNOR ON CONSTRUCTION LAW
1150
the object of the agreement,’’
4
thereby resulting in a failure of
performance of the agreed exchange.
5
Early 20th century legal
analysis focused on whether the breach was of a covenant or
condition
6
that went to the ‘‘whole consideration of a contract,’’
7
and if so, termination for cause was justifiable.
8
Throughout much
of the 20th century, judicial practice, for want of clear guidelines,
simply addressed the issue of material breach as a fact issue to
be decided by court or jury from the admitted evidence.
9
The
3
See Franklin Pavkov Const. Co. v. Ultra Roof, Inc., 51 F. Supp. 2d 204,
215, 5 Wage & Hour Cas. 2d (BNA) 846, 139 Lab. Cas. (CCH) ¶ 33939 (N.D.
N.Y. 1999) (‘‘For a breach to be considered material, it must go to the root of the
agreement between the parties.’’); RW Power Partners, L.P. v. Virginia Elec. and
Power Co., 899 F. Supp. 1490, 1496 (E.D. Va. 1995) (‘‘[A] material breach
deprives the party of an expected benefit and goes to the root of the contract’’);
Harris v. Desisto, 932 S.W.2d 435, 445 (Mo. Ct. App. W.D. 1996) (‘‘[T]his
abandonment constituted a breach which went to the ‘root’ of the agreement
sufficient to support rescission’’); Silliman Co. v. S. Ippolito & Sons, Inc., 1
Conn. App. 72, 467 A.2d 1249, 1251 (1983) (‘‘rescission is the remedy for an
unjustified failure to make progress payments’’).
4
See Wells Benz, Inc. v. U.S. for Use of Mercury Elec. Co., 333 F.2d 89 (9th
Cir. 1964) (‘‘[A] party may treat his own obligation at an end only if the other’s
breach is so gross that the very object of the contact is defeated’’).
See also U.S. ex rel. Thyssenkrupp Safway, Inc. v. Tessa Structures, LLC,
2011 WL 1627311 (E.D. Va. 2011) (defining a material breach as one that was so
fundamental as to defeat an essential purpose of the contract, and ruling that
no such material breach occurred that would sanction termination of the
contract for cause).
5
See 8 Corbin on Contracts § 32.1 to 32.4.
Another frequently used term is “essential term of the contract.” See
Mississippi Power Co. v. Water and Power Technologies, Inc., 2006 WL 3457026
(S.D. Miss. 2006) (applying the “essential term of the contract” test to define the
materiality of a breach).
6
See Corbin, Conditions in the Law of Contract, 28 Yale L.J. 739 (1918-
1919) (presenting Professor Corbin’s seminal discussion on express, implied,
and constructive conditions arising out of ‘‘some operative fact subsequent to ac-
ceptance and prior to discharge.’’).
7
See Teeven, A History of Anglo-American Common Law of Contract
223-285 (1990) (discussing shift of the focus of the common law from
consideration to reliance); Restatement Second, Contracts § 90.
8
See Kauffman v. Raeder, 108 F. 171 (C.C.A. 8th Cir. 1901) (‘‘A breach of a
covenant which does not go to the whole consideration of a contract but which is
subordinate and incidental to its main purpose, does not constitute a breach of
the entire contract, or warrant its rescission by the injured party. The latter is
still bound to perform his part of the contract, and his only remedy for the
breach is compensation for damages.’’); Wells Benz, Inc. v. U.S. for Use of
Mercury Elec. Co., 333 F.2d 89 (9th Cir. 1964).
9
See Miller v. Mills Const., Inc., 352 F.3d 1166 (8th Cir. 2003), in which
the United States Court of Appeals for the Eighth Circuit concluded that a
§ 18:4C
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1151
focus was on the consequences of the breach rather than on its
identification. Few contracts aided in such identification because,
although ‘‘contracting parties can define what will constitute a
material breach of their contract,’’
10
in the enthusiasm of entering
into contracts few parties contemplated breach in sufficient detail
to provide clear guidance in all situations.
11
contractor had materially breached its subcontract with a steel erection
subcontractor by failing to have provided suitable prefabricated steel for erec-
tion and thereby making the structure vulnerable to collapse in high winds.
Because of problems erecting the steel, the erection subcontractor walked off
the site. Although the trial court had failed to make a finding as to either party
being in ‘‘material breach’’ of the subcontract, the court resolved the issue on the
following fact-specific analysis:
A material breach of contract allows the aggrieved party to cancel a contract and re-
cover damages for the breach. However, if the breach is not material, the aggrieved
party may not cancel a contract but may recover damages for the nonmaterial breach.
Under South Dakota law, a material breach is one that ‘‘would defeat the object of the
contract.’’ Whether a party’s conduct amounts to a material breach is a question of
fact.
The district court found that [the contractor] breached the contract by failing to
provide appropriate materials, but it did not use the term ‘‘material’’ to describe [the
contractor’s] breach. The object of the contract in this case was the construction of the
arena by a specified date. [The contractor’s] failure to provide suitable building
materials prevented proper construction of the building and made the structure
vulnerable to collapse. As the district court noted, the record is replete with evidence
of problems with the materials supplied by [the contractor] prior to the collapse.
These problems eventually required the [erection subcontractor] to stop working on
the building because nothing more could be done until the problems were corrected.
The sheer number of problems with the materials led the district court to find that it
was impossible for [the erection subcontractor] to perform under the contract. The
record also contains evidence that [the erection subcontractor] notified [the contractor
and the contractor’s steel fabricator] of the problems on several occasions, thereby
providing [the contractor] with an opportunity to cure the deficiencies. On these facts,
we conclude that a finding of material breach is implicit in the district court’s finding
that [the contractor] breached the contract by failing to provide appropriate materials.
10
See McGee Const. Co. v. Neshobe Development, Inc., 156 Vt. 550, 594
A.2d 415, 417 (1991) (opining that ‘‘contracting parties can define what will con-
stitute a material breach of their contract’’). See also Dalton Properties, Inc. v.
Jones, 100 Nev. 422, 683 P.2d 30, 31 (1984) (‘‘the courts have long recognized
the validity of contracts that provide either party the option of terminating the
contract at will’’).
11
See III Farnsworth on Contracts (2d ed. 1998); Calamiri & Perillo,
Contracts § 14-5 (3d ed. 1987) (‘‘When parties enter into a contract their minds
are usually fixed on performance rather than on breach.’’). The construction
industry’s most widely used standard form contracts provide no more than
limited guidance. See AIA Document A201-1997, General Conditions of the
Contract for Construction, ¶ 14; and EJCDC Document No. 1910-8, Standard
General Conditions ¶ 15 (1990), both of which allow the owner to terminate
any substantial breach by the contractor, but purport to limit the contractor’s
right of termination to lengthy stoppage of the work due to four causes: court
order, act of government, lack of assurance of owner financial arrangements,
§ 18:4 B
RUNER & O’CONNOR ON CONSTRUCTION LAW
1152
The proper focus of legal analysis is whether the breach materi-
ally impairs the nonbreaching party’s interest in future contrac-
tual performance and mitigation of damages.
12
The latest signifi-
cant effort to establish a legal framework for analysis of material
breach and its justification of termination for cause, namely §§
241
13
and 242
14
of Restatement Second, Contracts, fails in its es-
and lack of required design professional certificate of payment or explanation
for withholding.
12
See Andersen, A New Look at Material Breach in the Law of Contracts,
21 U.C. Davis L. Rev. 1073, 1104 (Summer 1988) (arguing that breach should be
deemed material only when remedy of termination ‘‘would protect the victim’s
interest in future performance without imposing unnecessary costs on the other
side,’’ and that termination and compensatory damages perform distinct
functions: ‘‘The latter do nothing more than make up for the loss in value to the
victim of a breach caused by the missing or imperfect performance of duties
that already have come due. By contrast, the [termination] remedy does not ad-
dress the interest in present performance at all. Rather, it focuses on the perfor-
mance yet to come.’’).
13
See Restatement Second, Contracts § 241, which reads:
§ 241. Circumstances significant in determining whether a failure is material.
In determining whether a failure to render or to offer performance is material, the
following circumstances are significant:
(a) The extent to which the injured party be deprived of the benefit which he rea-
sonably expected;
(b) The extent to which the injured party can be adequately compensated for the
part of that benefit of which he will be deprived;
(c) The extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
(d)The likelihood that the party failing to perform or to offer to perform will cure
his failure, taking account of all the circumstances, including any reasonable assur-
ances; and
(e)The extent to which the behavior of the party failing to perform or to offer to
perform comports with standards of good faith and fair dealing.
See also Certified Power Systems, Inc. v. Dominion Energy Brayton Point,
LLC, 2012 WL 384600, *63–65 (Mass. Super. Ct. 2012) (citing treatise and recit-
ing Restatement, Second Contracts § 241).
14
See Restatement Second, Contracts § 242, which reads:
§ 242. Circumstances Significant in Determining When Remaining Duties are Dis-
charged
In determining the time after which a party’s uncured material failure to render or to
offer performance discharges the other party’s remaining duties to render perfor-
mance under the rules stated in §§ 237 and 238, the following circumstances are
significant:
(a) those stated in § 241;
(b) the extent to which it reasonably appears to the injured party that delay may
prevent or hinder him in making reasonable substitute arrangements;
(c) the extent to which the agreement provides for performance without delay, but a
material failure to perform or to offer to perform on a stated day does not of itself
discharge the other party’s remaining duties unless the circumstances, including
the language of the agreement, indicate that performance or an offer to perform by
§ 18:4C
ONTRACT BREACH & TERMINATION
1153
sential purpose.
15
The balancing approach of § 241 offers little
that day is important.
15
More often than not, trial courts merely pay ‘‘lip service’’ to the restate-
ment and then slide the factual issue of ‘‘material breach’’ to the jury with little
analysis. See Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d
195, 199, 158 O.G.R. 810 (Tex. 2004) (upholding a jury verdict that a subcontrac-
tor had materially breached its contract under the Texas Pattern Jury Charge,
‘‘Did [the subcontractor] fail to comply with the contract it had with [the
contractor]?). The Supreme Court of Texas, while mentioning §§ 241 and 242 of
the Restatement Second, Contracts did not analyze the issue of material breach
in the context of the Restatement’s five factors. Other courts have simply ignored
the Restatement’s five factors and relied upon standard jury instructions. See
also Ry-Tan Const., Inc. v. Washington Elementary School Dist. No. 6, 208 Ariz.
379, 93 P.3d 1095, 1115-1116, 190 Ed. Law Rep. 564 (Ct. App. Div. 1 2004),
opinion vacated on other grounds, 210 Ariz. 419, 111 P.3d 1019, 198 Ed. Law
Rep. 327 (2005) (affirming the use of a jury instruction that ‘‘material breach oc-
curs when a party fails to do something required by the contract which is so
important to the contract that the breach defeats the very purpose of the
contract.
One of the best recent decisions applying the Restatement’s elements of
proof of material breach to a construction case is L.L. Lewis Construction, LLC
v. Adrian, 142 S.W.3d 255, 261-263 (Mo. Ct. App. 2004), in which the Missouri
Court of Appeals concluded that a contractor had materially breached its build-
ing contract and that the owner was justified in refusing to make payment and
refusing to allow the contractor to return to the work site. In doing so, the court
expressly recognized that ‘‘if a breach is not material, the non-breaching party
may not cancel the contract, and must pursue other remedies. In deciding
whether a material breach had been committed, the court analyzed the dispute
in the context of the five factors set forth in § 241 of the Restatement Second,
Contracts as follows:
The first factor, the amount of benefit lost by the [owners], weighs in favor of a find-
ing of material breach. In terms of remodeling their home, the [owners] wanted to
create their ‘‘dream home,’’ a home that they could live in and be proud of for the rest
of their lives. . . . Rather than obtaining their ‘‘dream home,’’ however, the [owners]
were left with a home that was structurally unsound and significantly damaged by
the weight of the addition. . . .
The second factor, the adequacy of compensation, also weighs in favor of a finding of
material breach because money damages in this case were inadequate to sufficiently
compensate the [owners] for their entire loss. While many of the problems created by
[the contractor’s] defective performance were cosmetic and, therefore, compensable by
monetary damages, the evidence also demonstrated that the deflection in the wood
flooring could not be adequately repaired short of tearing the floors out and starting
over. . . .
The third factor, the amount of forfeiture by [the contractor], as the breaching party,
also weighs in favor of a finding of material breach [because the owners had made
progress payments to the contractor].
The fourth factor, the likelihood that the breaching party will cure, also weighs in
favor of a finding of material breach. While [the contractor] argues that the [owners]
did not allow it an opportunity to cure and refused to allow it to complete the project,
the evidence refutes [the contractor’s] argument. In particular, [the owners] testified
that before [the contractor] completely quit working, they left numerous messages
with [the contractor] trying to get [the contractor] to come out and complete parts of
the renovation. The results of evidence that [the owners] informed [the contractor] of
§ 18:4 B
RUNER & O’CONNOR ON CONSTRUCTION LAW
1154
practical help.
16
Corbin observes:
The Restatement (Second) builds on the distinction between mate-
rial and immaterial breach and adds its weight in favor of keeping
the contract in effect through the concept of cure when performance
is less than substantial. Even so, it is always a question of fact, a
matter of degree, a question that must be determined relatively to
all the other complex factors that exist in every instance. The varia-
tion in these factors is such that generalization is difficult and the
numerous problems that [the contractor] failed to rectify.
The final factor, the extent to which [the contractor’s] behavior comports with stan-
dards of good faith and fair dealing, also weighs in favor of a finding of material
breach. In discussing good faith performance, the Restatement defines it has ‘‘evasion
of the spirit of the bargain, lack of diligence and slacking off, willful rendering of
imperfect performance, abuse of a power to specify terms. . . .’’ The evidence, here,
demonstrated that [the contractor] lacked good faith and fair dealing in its contract
with [the owners].
See also 1.9 Little York, Ltd. v. Allice Trading Inc., 2012 WL 897776 (Tex. App.
Houston 1st Dist. 2012) (applying the circumstances enunciated in Restate-
ment, Second Contracts § 241, and concluding that the owner committed the
first material breach which excused the contractor from completing its contract).
16
The balancing approach of § 241 of Restatement Second, Contracts is dif-
ficult for courts to apply, and generally results in conclusory findings of little an-
alytical value. See Restatement Second, Contracts § 241, cmt. c (‘‘Courts
frequently use ‘material breach’ in conclusory fashion without indicating how or
why they reached the conclusion.’’) See also U.S. ex rel. Virginia Beach Mechani-
cal Services, Inc. v. SAMCO Const. Co., 39 F. Supp. 2d 661 (E.D. Va. 1999) (cites
§§ 241 and 242, but simply finds that a subcontractor ‘‘materially breached’’ its
subcontracts); McClain v. Kimbrough Const. Co., Inc., 806 S.W.2d 194, 199
(Tenn. Ct. App. 1990) (‘‘Applying the [Second] Restatement’s standards to this
case, we find that the deficiencies in [the subcontractor’s] performance were not
material and, therefore, that [the contractor] was not entitled to terminate the
contract in the manner it did.’’); U.S. for Use and Benefit of Cortolano & Barone,
Inc. v. Morano Const. Corp., 724 F. Supp. 88, 99 (S.D. N.Y. 1989) (‘‘In the absence
of a justified termination, [the subcontractor] is entitled to recover for its perfor-
mance under the subcontract and for any lost profits.’’); Oak Ridge Const. Co. v.
Tolley, 351 Pa. Super. 32, 504 A.2d 1343 (1985) (§ 241 quoted and an effort made
to apply it in finding a material breach); R. G. Pope Const. Co., Inc. v. Guard
Rail of Roanoke, Inc., 219 Va. 111, 244 S.E.2d 774 (1978) (same).
See also U.S. ex rel. Greenmoor, Inc. v. Travelers Cas. and Sur. Co. of
America, 2009 WL 4730233, *49 (W.D. Pa. 2009) (citing treatise and opining
that Pennsylvania courts follow Restatement Second, Contracts § 241 in
determining the materiality of a breach of contract and noting further that the
U.S. Court of Appeals for the Third Circuit provided additional guidance on the
restatement factors in Norfolk Southern Ry. Co. v. Basell USA Inc., 512 F.3d 86,
94-96 (3d Cir. 2008), namely, (1) what the nonbreaching party subjectively
expected to get out of the contract and whether those expectations were reason-
able, (2) whether any resulting forfeiture has been of the breaching party’s own
making, (3) whether it is likely that the breaching party will perform its
contractual duties going forward, not merely whether such a performance is
theoretically possible, and (4) the breaching party’s motivation, specifically
whether the party committed the breach in good faith or in bad faith).
§ 18:4C
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1155
use of cases as precedents is dangerous. . . .
It is not necessary to go astray into a feckless logomachy. Without
knowing how to define a ‘‘fact’’ or a ‘‘rule of law,’’ it is possible to
work out a practical system of justice by which practical people can
live, keeping our stumbling feet in the plowed fields and not blind-
ing our eyes by metaphysical clouds.
17
This fact-specific focus offers no more objective guidance than
Justice Potter Stewart’s gut-level test for hardcore pornography:
‘‘I know it when I see it.’’
18
Although fact-specific judgments have been made for centuries
by judges and jurors in adjudicating the propriety of contract
termination decisions, the risk is obvious that those termination
decisions will be challenged subjectively in ‘‘ 20/20 hindsight’’,
even though the finders of fact were instructed to view the deci-
sion to terminate as of the time and in the factual context in
which it was made. The ambiguity inherent in the Restatement
Second’s balancing approach has not gone unnoticed even by the
least sophisticated but most inquiring of legal minds—first year
law students. Professor Eric Andersen reports:
Every year beginning law students embark on a tour of the basic
principles of contract law. The journey may be hurried through a
single semester or extended across the entire first year, but inevita-
bly the course encounters the topic of material breach. Inquiring
minds want to know the difference between a material breach and
any other breach of contract.
The instructor has a ready answer: Any breach entitles the victim
to a remedy, usually damages. But a material breach has additional
consequences. It constitutes the nonoccurrence of a constructive
condition of exchange, which gives the victim the power to treat the
breach as total. The exercise of that power brings the contract to an
end, discharges all executory duties of both parties, and gives the
victim a right to damages in lieu of the future performance of the
other. Using the terminology of the Uniform Commercial Code, the
victim is entitled to ‘‘cancel’’ the contract.
Some students are not satisfied. They understand that they have
been given an explanation of the consequences of a material breach,
not of its substance. They insist on knowing what makes a material
breach or not.
The instructor, beginning to feel uncomfortable, responds that
17
See 8 Corbin on Contracts § 36.5 (footnotes omitted).
18
See Jacobellis v. State of Ohio, 378 U.S. 184, 197, 84 S. Ct. 1676, 12 L.
Ed. 2d 793 (1964), concurring opinion of Justice Stewart:
I shall not today attempt further to define the kinds of material I understand to be
embraced within that shorthand description [of hardcore pornography]; and perhaps I
could never succeed in intelligibly doing so. But I know it when I see it. . . .
§ 18:4 B
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1156
‘‘[t]here is no simple test to ascertain whether a breach is material.’’
It depends on ‘‘whether on the whole it is fairer’’ to permit the
victim to cancel than not to permit cancellation. . . . The students
persist: Surely the law can do better than that. Even if no
mathematically precise test for materiality exists, there must be a
standard, an approach of some kind that governs so important a
question.
The instructor is relieved to direct them to the First and Second
Restatements of Contracts, in which careful attention is devoted to
the meaning of materiality. The Restatements set out a number of
‘circumstances’ to be considered to determine whether a breach is
material. Some students may accept this approach to materiality,
especially when assured that scores of courts have dutifully noted
or quoted the Restatement factors and have applied them to resolve
disputes. Others are more skeptical; to them the relevant Restate-
ment provisions seem enigmatic at best.
The student’s journey from law school to the courtroom finds no
greater elucidation for assessing the materiality of any breach.
Professor Andersen further reports:
Then the students become lawyers and encounter the material
breach case law in practice. Any confidence they may have had that
these cases reflect a basic coherence and rationality is likely to be
shaken. They soon discover that many courts that purport to follow
the Restatements actually ignore them when the time comes to
decide the materiality question. Others seem to pick and choose
among the stated factors without justifying their choices. Still oth-
ers do not even attempt to apply the ‘‘circumstances’’ of the Restate-
ments, but follow tests under which materiality is simply a ques-
tion to be decided on ‘‘the inherent justice of the matter.’’
A close look at the relevant Restatement provisions makes it dif-
ficult to blame the courts for falling into confusion or completely
bypassing them. The provisions resemble a list of ingredients rather
than a recipe; no real guidance is provided on the order or propor-
tion in which to combine the provisions. Indeed, a careful analysis
suggests that some of the Restatement factors are substantively ir-
relevant or misleading as elements of the materiality analysis. In a
cynical moment, the lawyer—whether practitioner, jurist, or aca-
demic—may wonder whether a paraphrase of Professor Gilmore’s
quip about the inclusion of Section 90 in the First Restatement
might also apply to the materiality factors in the Restatements: An
attentive study leads to the despairing conclusion that no one has
any idea what the damn thing means.
19
Notwithstanding the amorphous nature of the legal standard
of materiality, some guideposts are evident: (1) an unexcused
breach is material only if it reasonably compels a clear inference
19
See Andersen, A New Look at Material Breach In The Law of Contracts
21 U.C. Davis L. Rev. 1073, 1074-1076 (1988) (footnotes omitted).
§ 18:4C
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1157
of unwillingness or inability of one party to meet substantially
the contractual future performance expectations of the other
party, and of the need for the other party to mitigate its dam-
ages;
20
(2) a breach cannot be deemed material if the contract has
been fully or even substantially performed;
21
and (3) a breach
cannot be deemed material if redressable by compensatory dam-
ages,
22
and if it raises no justifiable insecurity as to future perfor-
mance;
23
(4) a breach cannot be deemed material if waived;
24
(5) a
breach cannot be deemed material if its remediation would result
in economic waste;
25
(6) a breach cannot be deemed material dur-
ing contract performance until the contractor is given reasonable
opportunity to ‘‘cure’’ the breach;
26
and (7) even if found to be ma-
terial, a breach may be excused for legally recognized reasons,
20
See EJCDC Document C-700, Standard General Conditions of the
Construction Contract, ¶ 15.02B & D (2002) (requiring the owner to issue the
contractor a seven days written notice of its intent to terminate and prohibiting
the owner from terminating the contract ‘‘if Contractor begins within seven
days of receipt of notice of intent to terminate to correct its failure to perform
and proceeds diligently to cure such failure within no more than 30 days of
receipt of said notice’’).
21
See § 18:12. See also Restatement Second, Contracts § 235, cmt. a (‘‘[a]
duty is discharged when it is fully performed’’) and § 237 cmt. d. (‘‘If there has
been substantial although not full performance, the building contractor has a
claim for the unpaid balance and the owner has a claim only for damages.’’).
22
See Restatement Second, Contracts § 236 cmt. a (‘‘Every breach gives
rise to a claim for damages and may give rise to other remedies. Even if the
injured party sustains no pecuniary loss or is unable to show such loss with suf-
ficient certainty, he has at least a claim for nominal damages’’). A breach surely
should not be deemed material if the contract expressly provides a remedy and
quantum of recovery for a particular type of breach. See Metro Wastewater
Reclamation Dist. v. Alfa Laval, Inc., 2008 WL 1924896 (D. Colo. 2008) (‘‘Plaintiff
could not terminate the contract [for cause], as the parties clearly intended for
the contract to be completed notwithstanding [certain performance failures]” for
which liquidated damages were the agreed remedy.).
23
See Restatement Second, Contract § 251:
§ 251. When a failure to give assurance may be treated as repudiation.
(1) Where reasonable grounds arise to believe that the obligor will commit a breach
by non-performance that would of itself give the obligee a claim for damages for total
breach under § 243, the obligee may demand adequate assurance of such perfor-
mance and may, if reasonable, suspend any performance for which he has not already
received the needed exchange until he receives such assurance.
(2) The obligee may treat as a repudiation the obligor’s failure to provide within a
reasonable time such assurance of due performance as is adequate in the circum-
stances of the particular case.
24
See §§ 18:17 to 18:20.
25
See § 18:13.
26
See § 18:15.
§ 18:4 B
RUNER & O’CONNOR ON CONSTRUCTION LAW
1158
such as impracticability,
27
inducement,
28
fraud, mistake and the
like.
It is the prospect of material impact of unexcused breaches
upon future contractual performance expectations and upon the
need for mitigation that justifies the nonbreaching party in
terminating a contract. Termination mitigates the costs and con-
sequences of continuing inadequate performance. An unexcused
material breach that justifies termination relates to the nonb-
reaching party’s interest in and justified insecurity about future
contract performance. Whether breaches are unexcused and likely
to have a material impact upon future performance must be
filtered through the prisms of the legal concepts of justifiable
repudiation, cure, waiver, substantial performance, economic
waste, impracticability, excusable delay, mitigation, and ade-
quacy of compensatory damages.
Justification for termination is viewed on an objective rather
than subjective basis. Because a valid termination results in
drastic forfeiture of contract rights, basic fairness and good faith
dictate that the breaching party be given (1) adequate notice of
any curable breaches deemed material enough by the nonbreach-
ing party to warrant termination, and (2) a reasonable op-
portunity to cure unexcused breaches prior to termination. A jus-
tifiable lack of confidence in the adequacy of future performance
and in the adequacy of existing protection against the monetary
consequences of future inadequate performance, viewed objec-
tively and reasonably, is the appropriate basis upon which a
contract should be terminated for material breach.
29
27
See § 18:21.
28
See § 18:16.
29
See McDonnell Douglas Corp. v. U.S., 323 F.3d 1006, 1016-1017, 60 Fed.
R. Evid. Serv. 1423 (Fed. Cir. 2003), which affirms an objective standard of
review of the validity of the termination action premised on failure to make ad-
equate progress, and which requires the contracting officer’s determination deci-
sion to be based on tangible direct evidence reflecting the impairment of timely
completion known at the time of the decision. The court observed:
A consideration of post-termination facts and events would transform [the] reason-
able belief requirement into a demand that the contracting officer have perfect
foresight. Limiting the inquiry to the time of the termination action reduces the
potential for hindsight bias. Thus, the trial court should focus on the events, actions,
and communications leading to the default decision in ascertaining whether the
contracting officer had a reasonable believe that there was no reasonable likelihood of
timely completion.
§ 18:4C
ONTRACT BREACH & TERMINATION
1159
