What Constitutes Material Breach of Contract in Texas?

Material breach

Materiality is a crucial legal standard in contract breaches. While every breach of contract could entitle you to recover financial compensation, if the breach causes you damages, a material breach could relieve you of your own obligation to perform under the terms of the contract. This article will cover:

What is Considered a Material Breach in Texas

There are generally two ways that a party can materially breach a contract in Texas:

  1. A party substantially fails to perform a term that is an essential element of their agreement
  2. The circumstances, including the language of the agreement, the reasonable expectations of the parties, the standards and practices of the business, trade, or industry, and the character of the breach, indicate that (A) the breach caused or is likely to cause substantial harm to the aggrieved party; or (B) the breach substantially deprived or is likely to substantially deprive the aggrieved party of a significant benefit it reasonably expected under the contract

What Is Material Depends on the Circumstances of Each Case

We mentioned above that there are generally two ways that a party can materially breach a contract in Texas. But there is no one definitive resource in Texas law that describes in concrete terms when a breach will be material or gives all of the examples of a material breach.

Instead, materiality is determined by Texas precedent and common law. In other words, a judge will review prior Texas cases to reach their own conclusion about the facts of your case.

The Restatement of Contracts is a resource a judge may consult when deciding a lawsuit. According to the Restatement, the following factors could influence whether a breach of contract is material:

  • The extent to which you will be deprived of the benefit that you had reasonably expected
  • The extent to which you can be compensated for the part of the benefit that you were denied
  • The extent to which the breaching party would suffer forfeiture for their failure to perform (courts are sensitive to imposing severe penalties that would far outweigh the transgression of the breaching party)
  • The likelihood that the breaching party can cure their failure to perform (in other words, fix the problem)
  • 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

Standard of Materiality

The theory behind materiality in the context of a breach of contract is that it is still possible to get the benefit of the bargain from a contract even if the other party does not perform perfectly according to its terms. You may still receive what you were expecting, even if it is not a 100% match to what you expected based on the contract’s language. Thus, principles of fairness would keep the contract in place while allowing you to potentially recover damages for the other side’s non-compliance if you have suffered damages.

The standard of materiality is crucial for many reasons. Obviously, if the other party breached the contract, you may be able to successfully file a lawsuit for damages (assuming that you have suffered them). A material breach of contract could also allow you to get out of your own contractual obligations. You do not need to continue performing under a contract when the other party is in breach. However, you are taking a chance when you repudiate (that is, disregard) your own contractual obligations.

What is considered material will depend on the circumstances. While you have the right to insist on strict compliance with the contract, courts may draw a line that allows the contract to continue after some types of breach of contract. In other words, there are degrees of severity when it comes to a breach.

Materiality Issues

Repudiating A Contract Could Open You Up To Legal Risk

Materiality issues often arise in a lawsuit when one party engages another to perform work through a contract. One party has an obligation to perform the work, while the other party must pay them for the work that they do. The common fact pattern is that the vendor or contractor performs the work, but there is a minor flaw with it. The party with the obligation to pay may refuse to do so because they claim that the other party did not fully perform according to the terms of the contract. Then, a court would have to decide whether the breach was material in a way that would excuse the complaining party from having to pay for the services performed under the contract.

Legal Solutions for Material Breach of Contract

Your contract could already give some guidance about what could be considered a material breach. If an experienced attorney helped draft or review your contract, they may have even recommended that you specifically list in the contract the breaches that could be considered a material breach.

Breach of contract cases can be difficult, regardless of which party did not live up to their contractual obligations. Even the party that is damaged by the other’s breach may face their own legal risks regarding the contract. They will need to decide whether to keep performing their side of the contract under its terms in light of the other party’s failure to meet the contractual obligations they agreed to. If they make the wrong decision, they could be liable themselves for breaching the contract.

A Non-material Breach Would Still Entitle You to Damages

The general principle is that you are entitled to the bargain to which you have agreed. You have the right to insist on the performance of a contract’s essential terms. Otherwise, you are entitled to damages to make you whole. Your damages would reflect the losses you have suffered in your particular situation.

If you are experiencing any issues regarding failure to perform under the terms of a contract, you should consult with an experienced commercial litigation attorney who can advise you of your legal rights and remedies. You must act carefully before you make any decisions on your own because you could be the one who ends up paying damages. The Houston breach of contract attorneys at Berg Plummer assist parties to a contract who believe they have suffered damages from someone else’s breach. To speak with a lawyer, contact the experienced Houston business litigation lawyers at Berg Plummer Johnson & Raval, LLP today to schedule an appointment.