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Understanding material breaches of contract

On Behalf of | Jan 16, 2024 | Business Law And Litigation |

As a maritime business owner, you will likely enter into several agreements, including vessel supply contracts, employment agreements, and charter agreements. All parties who sign the contract have a legal obligation to uphold the terms of the agreement. Failing to comply with these terms is considered a breach of contract.

Some breaches of contract are considered minor, whereas others are seen as more significant material breaches. Minor breaches of contract may be resolved by referring to the contract itself and save the non-breaching party the trouble of having to file a lawsuit against the breaching party.

Generally to establish a material breach of contract, you will first need to establish:

  • One party’s nonperformance or failure to perform in accordance with the agreement.
  • A legally valid contract.
  • Damages caused to the nonbreaching party due to the breach.

A material breach affects the heart of the contract and prevents the nonbreaching party from receiving the benefits they were entitled to receive as per the parties’ agreement.

The court will determine the severity of the breach by considering several factors. For example, the court may consider:

  • How the breach impacted the purpose of the contract.
  • The extent of harm suffered by the nonbreaching party.
  • Whether the breach could be cured.
  • Whether the breaching party was acting in good faith.
  • Industry standards and whether the breach deviates from these standards.
  • The parties’ prior course of dealings and whether similar breaches have occurred in the past.

If the court determines that one party has materially breached the agreement, the nonbreaching party may be entitled to several remedies. Possible remedies include:

  • The right to terminate the agreement and release both parties from future obligations.
  • Monetary damages to put nonbreaching party in the position they would have been in had the other party not breached the agreement.
  • Specific performance requiring the breaching party to perform as specified in the contract.

Many business transactions in the maritime industry are impacted by a material breach of contract. Resolving these issues as quickly as possible is essential to limit the damage caused to the nonbreaching parties.