contract-law
How do they decide if a contract is violated bad enough then it&#39;s all invalid?
<p>My understanding is that a material noncompliance means that a party has breached the agreement so severely, the agreement no longer holds, and the other party can sue for damages.</p>

<p>Who decides if a breach is material or non-material? Should a contract state in itself which provisions not being followed count as a material breach, and which don't? If this were the case why wouldn't the contract writer just include everything as a material breach, just because no one would sign that?</p>

<p>This is a follow up to this question, <a href="https://law.stackexchange.com/questions/6272/is-it-necessary-to-state-in-a-contract-that-if-one-part-is-found-unenforceable">when is it necessary to include in a contract that the provisions will be enforced to the extent permissible by law</a>. For example where I live a landlord can't charge more than $50 for late payments or bounced checks. But if an addendum says a fee of $75 for bounced cheques will be charged, and it doesn't contain "this will be enforced to the fullest extent permitted by law" then this would be an invalid clause but I don't think it would invalidate the entire agreement? </p>

<blockquote>
  <p>How do they decide if a contract is violated bad enough then it's all invalid?</p>
</blockquote>

<p>This is a very open question, and it depends on the particulars of each contract. I'll just clarify that a party's violations of a contract do not necessarily invalidate it: The counterpart may still pursue remedies for the breach of contract, or be released from his obligations under that contract.</p>

<blockquote>
  <p>Who decides if a breach is material or non-material?</p>
</blockquote>

<p>Material breaches generally refer to those which cause harm to one of the parties, or those which prevent that party from proceeding with other clauses, and/or prevent that party from achieving his reasonable expectations under the contract.</p>

<p>That being said, this is typically decided in court unless (1) a clause in the contract indicates that arbitration or some mechanism of alternative dispute resolution (ADR) is applicable, or (2) a statute requires for that type of contracts an "exhaustion of administrative remedies" prior to filing suit. Only if arbitration or ADR is stipulated/required and it leaves one or both parties unsatisfied, they may appeal in court (note: arbitration is <em>very</em> hard to reverse in court, which is why I suggest people to avoid arbitration clauses whenever possible).</p>

<p>The job of a judge is to distinguish between material breaches from non-material ones. A jury would be in charge of deciding whether or not the acts that prompted the filing of the lawsuit meet the criteria of breach outlined by the judge.</p>

<blockquote>
  <p>Should a contract state in itself which provisions not being followed
  count as a material breach, and which don't?</p>
</blockquote>

<p>It may, but in many cases it would be redundant. If anything, characterizing a term of the contract as non-material might:</p>

<p>(1) help preempting one party's allegations that some unimportant act constitutes material breach; or </p>

<p>(2) indicate that such condition is not to be construed as a valid cause of action, but that it is stated only as premise or context for other portions that truly are material.</p>

<blockquote>
  <p>Who decides if a breach is material or non-material?</p>
</blockquote>

<p>Ultimately, this is decided by a judge or a jury or an arbitrator if the parties to the contract cannot resolve the question.</p>

<blockquote>
  <p>Should a contract state in itself which provisions not being followed
  count as a material breach, and which don't?</p>
</blockquote>

<p>This is often done. Typically case law also supplies guidance.</p>

<blockquote>
  <p>If this were the case why wouldn't the contract writer just include
  everything as a material breach, just because no one would sign that?</p>
</blockquote>

<p>It isn't uncommon for a contract to state that every violation is a breach.</p>

<p>One of the most common cases where not every breach is considered to be a material breach is for a contract to provide that if X, Y or Z provisions of the contract (even the duty to make a payment of rent or something like that by a given deadline) is breached, that there is either a grace period before the breach becomes material, or there is a requirement that the other party given notice of the alleged breach in writing and provide a certain amount of time to cure the breach.</p>

<p>The notion is that you would prefer people to have an opportunity to cure inadvertent or minor breaches, rather than ending a generally mutually beneficial contractual relationship, and as long as breaches are ultimately cured, it is better to keep the contractual relationship in force.</p>

<p>Another common case where you draft a contract with provisions that aren't a material breach involves deadlines associated with a project, such as a software commission or a construction contract or a contract to film a movie. These presumed to be immaterial unless there is a "time is of the essence" provision in the contract.</p>

<p>This is done because the practical reality is that nobody in the marketplace that you could hire in most cases will meet every deadline in a complex project. Shit happens and deadlines need to be adjusted all the time. This is par for the course. The goal is to finish the project, and if your contract works from the assumption that a missed deadline means that the contract is breached and you sue each other, nobody is ever going to finish the project and getting replacement contractors to hire on after repeated firings of past contractors becomes increasingly difficult.</p>

<p>Instead, one can create other incentives for getting the project done within a reasonable time, such as bonuses for meeting certain deadlines, or withholding payment until work is done.</p>

<p>I also frequently draft contracts that provide that a breach of a notice provision is not a material breach if the party entitled to notice obtains actual notice and is not prejudiced by the lack of notice.</p>

<blockquote>
  <p>This is a follow up to this question, when is it necessary to include
  in a contract that the provisions will be enforced to the extent
  permissible by law. For example where I live a landlord can't charge
  more than $50 for late payments or bounced checks. But if an addendum
  says a fee of $75 for bounced cheques will be charged, and it doesn't
  contain "this will be enforced to the fullest extent permitted by law"
  then this would be an invalid clause but I don't think it would
  invalidate the entire agreement?</p>
</blockquote>

<p>The point is a "will be enforced to the fullest extent of the law" clause is to try to avoid a fight at trial over whether the law violating provision is so central to the contract that the essence of the agreement is compromised without it, in which case invalidating the entire agreement would make more sense, or whether it is a detail that the agreement can function without. In other words, is the illegal provision a central part of the bargain?</p>

<p>This provision expresses a desire to save the contract in an area where the illegal provisions are unlikely to be central to the deal between the parties, but the result would usually be the same without it. (The focus there is really on discouraging class action suits seeking windfall results.)</p>

<p>But, suppose that the State of Mississippi adopted a law prohibiting the imposition of non-default interest on money loaned which was upheld as constitutional somehow. In that situation, where the invalidity goes to the core of the loan agreement between the parties, invalidating the entire loan transaction via rescission, rather than invaliding the interest charge while keeping the rest of the contract in force, would probably make more sense.</p>
