Also known as: material breaches
Written by attorneys — see sources below.
A failure of performance that substantially deprives the injured party of the benefit reasonably expected under the contract. The injured party may treat the contract as discharged and pursue remedies for total breach.
Musa Mensah, an officer at Morgan Financial, learns that an employee diverted corporate funds for personal use in violation of the employment contract. Mensah believes the diversion constitutes a material breach. He must inform his superior officer or the board of directors under the governing statute.
Dairy Queen franchisees fell behind on required minimum annual payments tied to sales. The franchisor sent notice claiming a material breach and terminated the trademark license. The franchisees continued operations, prompting litigation over whether the payment default justified immediate termination.
In December 1949, petitioner Dairy Queen, Inc. entered into a written licensing contract with the respondent owners of the DAIRY QUEEN trademark under which petitioner agreed to pay $150,000 for the exclusive right to use the trademark in portions of Pennsylvania. The payments consisted of a small initial sum followed by 50 percent of amounts received on sales and franchises together with minimum annual payments regardless of receipts. In August 1960, the respondents sent petitioner a letter claiming a material breach of the contract due to default in excess of $60,000 on the payment provisions and notifying petitioner of the termination of the contract and cancellation of its rights to use the trademark unless the default was remedied immediately. When petitioner continued to deal with the trademark despite the notice of termination, the respondents brought an action based upon their view that a material breach of contract had occurred. The complaint alleged that petitioner had ceased paying as required, that the default constituted a material breach, that petitioner was contesting the cancellation and continuing business as an authorized dealer, that this constituted trademark infringement, that petitioner's financial condition was unstable, and that respondents faced irreparable injury with no adequate remedy at law. It sought temporary and permanent injunctions against future use of the franchise and trademark, an accounting to determine the exact amount owing with a judgment for that amount, and an injunction pending the accounting to prevent collection of money from Dairy Queen stores. Petitioner answered by denying any breach of contract and alleging that the parties had entered an oral agreement in January 1955 modifying the written contract to remove the minimum annual payment requirement. Petitioner also raised defenses of laches and estoppel arising from respondents' delay in asserting the claim after petitioner had expended large sums developing the trademark rights, and alleged antitrust violations by respondents. Petitioner endorsed a demand for trial by jury on the answer. The district court granted respondents' motion to strike the jury demand on the alternative grounds that the action was purely equitable or that any legal issues were incidental to equitable issues. Petitioner sought mandamus in the Court of Appeals for the Third Circuit to compel the district judge to vacate the order striking the jury demand. After that court denied the request without opinion, the Supreme Court granted certiorari.
View caseDrew entered an online contract containing explicit behavioral restrictions. She repeatedly violated those terms by creating fake profiles to harass a classmate. The platform treated the violations as a material breach and terminated her account, leading to criminal charges that turned on the contractual breach finding.
In 2006 Lori Drew, a resident of O’Fallon, Missouri, joined others in registering a MySpace profile for a fictitious sixteen-year-old boy named “Josh Evans” and posted a photograph of an actual boy without his knowledge or consent. The conspirators used the profile to contact thirteen-year-old Megan Meier, a classmate of Drew’s daughter, and exchanged flirtatious messages for several days. On October 16, 2006, they sent a final message stating that “the world would be a better place without her in it.” Later that day, after learning of Megan’s suicide, Drew caused the Josh Evans account to be deleted. MySpace required prospective members to check a box affirming agreement to its Terms of Service and Privacy Policy during registration. The full text of the terms appeared only after clicking a separate “Terms” hyperlink and was not mandatory reading. The 2006 Terms of Service prohibited providing false registration information, creating fake profiles, posting photographs without consent, and using the service for harassment or tortious activity. They also reserved to MySpace the unilateral right to restrict or terminate access for any reason. All member data and communications were stored on servers located in Los Angeles County, and every message sent between members was routed through those servers. A three-count indictment charged Drew with one count of conspiracy and three counts of violating the felony provisions of the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030(a)(2)(C) and 1030(c)(2)(B)(ii), on the theory that creating and using the fake profile constituted accessing MySpace computers without authorization or in excess of authorization. At trial the jury received instructions on the lesser-included misdemeanor offense under 18 U.S.C. §§ 1030(a)(2)(C) and 1030(c)(2)(A). The jury deadlocked on the conspiracy count, acquitted Drew of the three felony CFAA counts, and convicted her of the three misdemeanor CFAA counts. Drew thereafter moved under Federal Rule of Criminal Procedure 29(c) for judgment of acquittal, contending that the only evidence of unauthorized access was the deliberate violation of MySpace’s Terms of Service. The court heard testimony from MySpace’s Vice President of Customer Care describing the registration process, the content and enforcement of the terms, and the volume of accounts created daily, then took the motion under submission.
View caseCourts examine the extent to which the injured party is deprived of the benefit reasonably expected under the contract. They also consider the likelihood of cure, the good faith of the breaching party, and whether the breach goes to the essence of the exchange.
The non-breaching party may treat its remaining duties as discharged and sue for total breach. It may also recover expectation damages, cover, or other remedies that would not be available for a minor breach.
Yes, once the breach is material and uncured, the injured party's remaining duties are discharged. A minor breach merely gives rise to damages and does not excuse counter-performance.
Cure is possible if the injured party's duties have not yet been discharged. Once discharge occurs, the breaching party remains liable for damages even if it later tenders performance.
…receipts. In August 1960, the respondents wrote petitioner a letter in which they claimed that petitioner had committed "a material breach of that contract" by defaulting on the contract's payment provisions and notified petitioner of the termination of the contract and the cancellation of petitioner's right to use the…