What is a Contract Provision “Material Term?”
In any business litigation involving a breach of contract claim, it is crucial that the attorneys on the case perform an analysis as to whether the breached contract provision is a “material term.” If the provision is not a material term, it is possible that the claimant might not be entitled to any damages at all. Indeed, notwithstanding a potential clear breach of the contract by the opposing party, the non-breaching party might still be bound by its obligations under the contract if the Court finds that the breached provision was not “material” to the contract.
In order for a provision to be a “material” term, Courts will often look to the dictionary definition of “material” as the foundation for their analysis. Black’s Law Dictionary defines material to mean: “Of such a nature that knowledge of the item would affect a person’s decision-making; significant; essential.” In applying this definition, Florida Courts will evaluate whether a reasonable party to the agreement would find the provision to be so significant that a change to that provision would alter the buyer’s decision to enter into the contract all together. In making this determination, Courts will look at the provision itself and to the overall nature of the agreement.
Some examples of material terms include purchase prices for real property, the scope of work of a contractor, and/or the amount nature of materials being sold.
Florida Courts have specifically found the following contract provisions (or changes to contract provisions) to be “material” terms:
- The requirement for a party to obtain a mortgage as a pre-condition to entering into a purchase and sale agreement;
- A developer’s 65% increase in extras costs in a purchase agreement for a condominium unit;
- The requirement of a contractor to remove a broken tree that was in danger of falling pursuant to a construction contract; and,
- An increase in a purchase price for a condominium unit in the amount of $17,000.00.
On the other hand, Courts have found that minor increases or revisions to a contract are likely to be “immaterial.” One example of such a finding was a $90 budget increase for a multimedia system unilaterally applied by the seller of a condominium unit. Surely, the Court reasoned, the $90 increase in price would not have affected the purchaser’s decision to enter into the overall agreement for the purchase of the condominium unit. Other examples of potentially “immaterial” terms can be deadlines for various pre-closing obligations and/or payments of minor costs. Although this analysis appears straightforward, you can never guarantee or definitively predict how a Court might rule.
There are certain instances where the parties might even be in fundamental disagreement as to the meaning of a material term. When there is no “meeting of the minds” with respect to the applicable material provision, Courts have held that the parties failed to enter into a binding contract altogether. In that situation, a Court could order that the contract be rescinded – – voiding the applicable contract, eliminating any need for the parties to perform their obligations under the contract, and ordering that the parties be placed in the same position they were prior to the contract’s execution.
In considering whether you have a cause of action for “breach of contract,” it is important to consider whether the applicable provision is “material” to the agreement. In performing this analysis, it is crucial that you consult with qualified business litigation attorneys who can compare the facts of your case to those of other cases decided by the Courts.