When Can a Nonbreaching Party Get Out of Performing Under a Contract?

Imagine this scenario: You have a contract, say, with a contractor that is supposed to do work with your company. But the contractor doesn’t do the work that it was supposed to do. As a result, you don’t pay. And then you get sued for nonpayment.

Your obvious defense: the contractor didn’t perform so you didn’t pay. Are you in the right to not pay?

The Nonbreaching Party

The real question here is when a party’s breach of contract excuses the performance of that contract by the nonbreaching party. Put another way, do you still have to do your part under an agreement, after the other party breaches their part of the contract?

Is There a Material Breach?

The answer to this question is more complex than you may think.

The first question to ask is whether the party that first breached the contract, committed a material breach of the contract. This is often called a prior material breach.

Not every breach of a contract is considered material; to be material, the breach must go to the heart or the essence of the contract. The question is whether the breach undermines the purpose of the contract itself. Minor or technical breaches, may not—and thus, may not excuse the other party’s performance under a contract.

Nonpayment may be a material breach, but a late payment may not be.

You can, in your contracts, specify what terms or conditions are considered material. This is often done with “time is of the essence” clauses, when it comes to contracts that have deadlines in them. In the absence of such a clause, what is and what is not material, is evaluated by the court on an individual case by case basis.

Waiving Material Breaches

If there is a material breach, the nonbreaching party can refuse to perform further obligations under the contract. But that is often waived; if the nonbreaching party continues to perform, that continued performance can be construed as a waiver of the proper breach, even if that prior breach would otherwise have been considered a material breach.

In one case, college students sued a college for raising the cost of tuition. The problem is that the students continued to go to school and take classes, and even graduate, actions that the court held waived the prior breach by the college.

This is why nonbreaching parties to a contract should consult with legal counsel, before just conducting “business as usual.” Doing so could waive the nonbreaching party’s future ability to stop its own performance under the contract.

You do have the option of continuing to perform, without it being considered a waiver–but you would need to put that in writing before your performance under the contract continues.

Questions about your rights under a contract, or whether you need to continue to abide by a contractual agreement? Call the West Palm Beach business litigation lawyers at Pike & Lustig today for help.

Sources:

courtlistener.com/opinion/1779208/acosta-v-district-bd-of-trustees/

casetext.com/case/marshall-const-v-coastal-sheet-metal