Most lawyers can recite the elements for a cause of action for breach of contract. However, not as many lawyers can explain the effect of a prior material breach on a contract. This article analyzes prior material breaches and the effect on future performance of the contract. Many of the concepts discussed below should also be considered while negotiating and drafting future contracts.
What is a Prior Material Breach?
A prior material breach of a contract is a breach by one party that goes to the essence of the contract and discharges the non-breaching party from further contractual duty to perform. See, e.g., Beefy Trail, Inc. v. Beefy King Int’l, Inc., 267 So. 2d 853, 857 (Fla. 4th DCA 1972); Atlanta Jet v. Liberty Aircraft Servs., LLC, 866 So. 2d 148, 150 (Fla. 4th DCA 2004); Sublime, Inc. v. Boardman’s Inc., 849 So. 2d 470, 471 (Fla. 4th DCA 2003). The key for a prior material breach is that the breach goes to the essence of the contract. A failure to perform a minor part of a contract does not constitute a material breach. Beefy Trail, Inc., 267 So. 2d at 857; Covelli Family, L.P. v. ABG5, LLC, 977 So. 2d 749, 752 (Fla. 4th DCA 2008) (finding a delay in procuring a repair estimate to constitute only a technical breach but not a material breach). Whether there is a material breach of a contract is generally a question of fact. Covelli Family, L.P., 977 So. 2d at 752; Hamilton v. Suntrust Mortg., Inc., 6 F. Supp. 3d 1300, 1308 (S.D. Fla. 2014). As such, in evaluating whether there has been a prior material breach of a contract, one must determine whether the provision of the contract that was breached was essential to the contract.
Examples of Breaches that go to the Essence of a Contract
Whether a breach goes to the essence of a contract must be evaluated on a case-by-case basis and largely depends on the purpose of the contract and whether a breach undermines that purpose. A common example of a material breach is the failure of a party to perform a contractual obligation within a certain period of time when timely performance is essential to the contract.
Time is considered to be of the essence when: 1) there is an express “time is of the essence” (“TOE”) clause in the contract; 2) there is not an express TOE clause but the subject matter of the contract indicates that time is of the essence; or 3) express notice has been given requiring a contract to be performed within a stated period of time. Edward Waters College, Inc. v. Johnson, 707 S0. 2d 801, 802 (Fla. 1st DCA 1998).
Express TOE clauses are generally easy to identify and apply because the contract will expressly state whether a certain obligation must be completed within a specific time. See Legacy Place Apt. Homes, LLC v. PGA Gateway, Ltd., 65 So. 3d 644, 644 (Fla. 4th DCA 2011). However, failure to timely perform an obligation may not constitute a material breach where the TOE clause is not applicable to the alleged breach. See Royal Dev. and Mgmt. Corp. v. Guardian 50/50 Fund V, Ltd., 583 So. 2d 403, 405 (Fla. 3d DCA 1991) (holding that a TOE clause concerning the closing date did not apply to an alleged delay in the seller’s obligation to clear construction debris); Jackson v. Holmes, 307 So. 2d 470, 472 (Fla. 2d DCA 1975) (holding that a TOE clause concerning the closing date did not apply to an alleged delay in furnishing bank loan certificates).
Additionally, where a contract does not include an express TOE clause, the contract will need to be analyzed in greater detail to determine whether time was essentially made of the essence based upon the contractual language. See Sublime, Inc., 849 So. 2d at 471-472 (holding that time was of the essence where a contract included a built-in 5-day grace period and provided that after default the amount owed would be immediately due and payable); Treasure Coast, Inc. v. Ludlum Constr. Co., 760 So. 2d 232, 234-35 (Fla. 4th DCA 2000) (holding that time was of the essence when the contract provided that the plaintiff would be entitled to a judgment if payment was more than 10 days late).
While the failure to timely pay can constitute a material breach when time is of the essence, the failure to pay at all will also constitute a material breach. See Focus Mgmt. Group USA, Inc. v. King, 171 F. Supp. 3d 1291, 1296-98 (M.D. Fla. 2016) (failing to pay performance bonuses); Nacoochee Corp. v. Pickett, 948 So. 2d 26, 30 (Fla. 1st DCA 2007) (failing to tender the full purchase price in cash).
Further, the failure to perform other obligations that go to the heart of the contract will also constitute a material breach. See Marshall Constr., Ltd. v. Coastal Sheet Metal & Roofing, Inc., 569 So. 2d 845, 848 (Fla. 1st DCA 1990) (holding a subcontractor’s failure to install the roofing system without further payment constituted a material breach).
Waiving a Material Breach
While a material breach discharges the non-breaching party from further performance, a material breach can be waived by the non-breaching party. See Legacy Place Apt. Homes, LLC, 65 So. 3d at 644. For example, the non-breaching party may waive a prior material breach by subsequent performance. See Suntrust Mortg., Inc., 6 F. Supp 3d at 1309 (holding that although mortgagors’ prior defaults on their mortgages constituted material breaches, SunTrust waived those breaches by continuing with the mortgage contracts); Cf., Acosta v. District Bd. of Trs. of Miami-Dade Comm. Coll., 905 So. 2d 226, 227-28 (Fla. 3rd DCA 2005) (holding that students who sued their college for breach of contract for raising tuition likely waived the breach by their subsequent conduct in fully completing all course studies and graduating from college).
In addition to waiving a prior material breach by subsequent performance, a non-breaching party may also contractually agree to waive a prior material breach. See Branch Banking & Trust Co. v. S&S Dev., Inc., No. 8:13-cv-2776, 2015 WL 12683834 (M.D. Fla., June 30, 2015) (finding that the defendant contractually waived all prior material breaches by executing a written note extension agreement that included a release of all actions occurring prior to the date of the extension agreement).
A material breach of a contract that is not waived will discharge the non-breaching party from further performance. As such, it is important to identify the material terms of a contract and objectively analyze whether there has been a prior material breach or a waiver thereof. Prior to terminating a contract or refusing further performance based upon a breach by the other party, it is highly suggested that executives, general counsels and other business leaders consult with outside counsel to obtain an objective opinion on whether there has been a material breach of a contract justifying discharge of further performance and if so, whether any material breaches may have been waived.