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Understanding Material Vs. Minor Violations

Contracts may be breached for a variety of reasons, not all of which can be reduced to a simple unwillingness to fulfill one's obligations. Businesses may fail to uphold their end of a contract because they are impacted by natural disasters or supply chain issues, because they encounter unexpected staffing difficulties, or because they themselves are constrained by damages incurred as the result of a material violation of their contract with another party. When the breach of contract is a minor violation only, often the parties can resolve the matter amicably, outside of court. A material violation of a contract’s terms, on the other hand, is a serious matter that readily leads to litigation. To learn more about the differences between material vs. minor violations of business contracts, and to discuss your own contract situation with a seasoned New York business law attorney, call Schwab & Gasparini today to set up a consultation at any of our offices conveniently located across New York State. You can reach our Syracuse office at (315) 422-1333, our Albany office at (518) 591-4664, or our locations in Hudson Valley or White Plains by calling (914) 304-4353.

What Does Violation Mean in a Contract? 

Business contracts are legally binding documents signed by both parties to an agreement, or by their authorized representatives. For either party, signing the contract means accepting legal responsibility for doing whatever the contract says they will do. A "violation," also known as a breach of contract, occurs when either party fails to fulfill its obligations as outlined in the contract.

What Constitutes a Violation of a Contract? 

Contracts may be drafted so as to account for complex interdependent activities in an ongoing working relationship, or they may cover a relatively simple one-time transaction. Any failure by either party to perform actions they have agreed to in the contract may be considered a contract violation, regardless of the complexity of the contract's terms or the party's reason for failure.

What Is an Example of a Contract Violation? 

Contract violations may look slightly different for contracts designed to cover ongoing business relationships that cover an extended time period vs. those that involve a one-time transaction. The former type of contract is very common in agreements based on exclusivity, such as licensing agreements, venue concession sales, and some supply contracts. The latter occurs across a wide variety of contexts, and may apply even when the contract requires more than one delivery (of goods or services) or more than one payment (such as via an installment plan). 

One-Time Transaction Breach of Contract

If a contract says that Party A will deliver eight cubic yards of concrete each to three of Party B's worksites on sequential dates for a total consideration of $3,600, to be paid in two installments of $1,800 each - one due three days before the first delivery, and one due the day of the final delivery - but after accepting the initial payment and making the first delivery, Party A fails to send a contract truck on either of the subsequent delivery dates, Party A is in violation of the terms of the contract. In this instance, the seller has breached the contract by failing to deliver the promised goods.

On the other hand, if in the same situation Party B makes the first payment as scheduled, but after accepting the final delivery refuses to make the second payment, then Party B's failure to pay as promised also constitutes a contract violation. Because Party B received the goods specified in the contract, but only made half of the promised payment, this scenario is an example of breach of contract by the purchaser. 

Violation During Term of Contract 

If Party A owns an entertainment venue and wishes to offer concessions for sale without the trouble of sourcing or handling the food and beverage options, they may contract with a vendor, Party B, who in exchange for the exclusive rights to sell concessions on the venue premises agrees to provide Party A with food and beverage choices optimized to the location and to pay Party A a percentage of the revenue from on-premises concession sales. Contracts of this type are commonly limited to a specified date range, at the end of which the parties may agree to renew their contract, renegotiate its terms, or simply allow the contract to expire. 

Within the contract period, if Party A then recruits, or even allows, another party to sell food or beverages at the same venue for which Party B holds the exclusive right to sell concessions, then Party A violates the contract. Similarly, if during the same period Party B fails to maintain food and drink offerings to the agreed-upon standard, or refuses to remit to Party A the agreed-upon percentage of revenue from concession sales, then Party B commits a contract violation. 

Is Violating a Contract Illegal? 

Violating a contract is not a criminal offense. Criminal offenses – violations of state or federal laws – are prosecuted by the state (with "the state" in this context meaning "government," regardless of whether the jurisdiction is state or federal) and tried through the criminal justice system. 

Breach of contract is also not usually considered a civil tort. However, contract disputes – like torts, but unlike criminal offenses – arise out of disagreements between private parties (with "private" here opposed to "public," i.e., "the state"), and proceed through the civil courts, and in the state of New York contracts and torts are subject to the same Rules of Civil Practice. These similarities can sometimes lead to confusion, so the layperson may find it helpful to remember that contract law applies when one party considers the other to have violated the terms of their shared agreement, typically, by doing or failing to do something for which there would have been no reasonable expectation in the absence of the contract – whereas legal action for a tort typically involves an allegation that one party has wronged another in a manner that was not governed by, and did not need, an explicit agreement (as when someone files a premises liability claim alleging the property owner breached their duty of care through negligence). 

What Are the Four Types of Breach of Contract? 

Any breach of contract may be classified in terms of its impact on the viability of the overall contract, as well as in terms of whether the breach has already occurred. As a result, there are four main types of contract violations: 

• Minor violation 
• Material violation 
• Actual breach 
• Anticipatory breach 

Minor Violation vs. Material Violation in Breach of Contract

Generally speaking, a minor violation is one that does not necessarily prevent the non-breaching party from fulfilling their own side of the contract, and which may not invalidate the entire contractual arrangement. A material violation, on the other hand, is a breach of contract so substantial that it may make completion of the contract, for either party, impossible or impractical. 

Whether the breach in question is a minor violation or a material violation, it can be either actual or anticipatory. An actual breach of contract occurs when one party refuses, or fails, to perform any of the terms of the contract. However, either party may commit what is known as an anticipatory breach of contract. In these instances, one party indicates, whether by action or statement, that they will not be fulfilling one or more of the obligations to which they agreed in the contract. 

Anticipatory Breach 

Anticipatory breach is also sometimes called anticipatory repudiation. This legal doctrine brings with it two important implications:

1. The non-repudiating party becomes responsible for mitigating its own damages, for example by ceasing attempts to fulfill their own portion of the contract.
2. The non-repudiating party gains the right to take legal action immediately, rather than waiting until an actual breach (such as the repudiating party failing to deliver on schedule) has already occurred. 

Anticipatory breach can raise a number of complex legal issues, which in some cases may be avoided through an alternate strategy, such as seeking a contract variance. The appropriate strategy for addressing anticipatory breach will depend on the circumstances that lead one party to fail in its fulfillment of contractual obligations, the relative significance of the term or terms breached, and whether a business is the repudiating or non-repudiating party. An experienced New York business law attorney with Schwab & Gasparini may be able to help you evaluate the options available in your unique situation in order to determine the best path forward.  

Actual Breach

An actual breach only occurs when one party has actually failed to perform one or more of the obligations imposed on them by the contract. For purposes of determining whether a breach has occurred, it does not necessarily matter whether the failure is volitional (a deliberate choice by the party breaching the contract) or involuntary (a lapse that occurred despite the breaching party's best efforts). 

The non-breaching party is still expected to take steps to mitigate their own damages resulting from the contract violation in the case of an actual breach. Unlike an anticipatory breach, however, an actual breach does not allow for any form of "advance warning" whereby the non-breaching party could attempt mitigation by preemptively suspending their own performance of contracted duties, for instance by halting payments. 

Implications of Minor vs. Material Breaches for Legal Remedy 

The anticipatory vs. actual distinction remains broadly applicable regardless of whether the breach in question is a minor violation vs. a material violation; however, the determination of a minor vs. material breach of contract will have ramifications on the type of mitigation needed and the legal remedies the non-breaching party may seek. According to Cornell Law School's Legal Information Institute, in contracts law traditional jurisprudence has held that legal remedy for a breach of contract consists in restoring the party that has suffered economic damages as a result of the breach as nearly as possible to what their financial situation would have been had no breach occurred. This understanding of what constitutes appropriate and sufficient legal remedy can help to inform both attempts at mitigation and the calculation of damages. 

Because a minor violation is generally held to be a limited breach which does not affect either party's fulfillment of the other contract terms, the non-breaching party can sue the breaching party for damages caused by a minor violation, but they will not typically be able to cancel the contract and may not be absolved of their own obligation to fulfill its terms. A material violation, on the other hand, may violate multiple terms, or may violate a term so central to the contract's purpose that the breach of that term undermines the purpose of the contract as a whole. 

Speak With an Experienced New York Business Law Attorney 

If your company has suffered damages as a result of another party's breach of contract, or if you are facing allegations of material violation that you believe should be considered instead a minor violation, you may have a number of legal questions in mind. Consider speaking with a business law attorney familiar with New York state's contract requirements to review your situation and evaluate your legal options. Reach out to Schwab & Gasparini by calling any of our offices located throughout the state: Syracuse, (315) 422-1333; Albany, (518) 591-4664; Hudson Valley and White Plains, (914) 304-4353. 

 

Sun Jul 21 2024, 12:00am