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BHGR Newsletter: Breach of Contract

August 2009

One of the most common problems presented to a business lawyer is a client's question concerning a breach of contract: what are my rights when the other party is not doing what the contract requires? The answer requires an analysis of the particular contract and the facts. Some breaches are minor, whereas others are "material." The difference is significant. The non-breaching party may always seek damages for a breach. What sets apart a "material breach" is that it may permit the non-breaching party to cease performance. Therefore, it is of critical importance to make an accurate determination of whether a breach is material and whether the non-breaching party is legally entitled to treat the contract as ended. A "material breach" may be defined in the contract, or if the contract does not address it, it will be decided by the court. Many courts have said that for a breach of contract to be material, it must "go to the root" or "essence" of the agreement between the parties.

A recent Colorado case illustrates how this situation can play out, and what happens if a party erroneously claims a party is in material breach. In the case of Ranta Construction, Inc. v. Anderson, the homeowners discovered defects in their custom windows after installation. A field repair was proposed by the manufacturer, the vendor, and the contractor as permitted by the contract. Instead of allowing the proposed field repair, the homeowners barred the contractor from the property and withheld all progress payments due to the contractor. Even though the windows were found to be defective (in breach), the court ruled that the homeowners' refusal to permit the repair and make any further payments due to the defective windows was a material breach which excused the contractor and window supplier from further performance.

If you have a question about this article or another construction contract issue, please contact our Construction Law Practice Group.

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