Every year beginning law students embark on a tour of the basic principles of contract law. The journey may be hurried through a single semester or extended across the entire first year, but inevitably the course encounters the topic of material breach. Inquiring minds want to know the difference between a material breach and any other breach of contract. The instructor has a ready answer: any breach entitles the victim to a remedy, usually damages. But a material breach has additional con- sequences. It constitutes the nonoccurrence of a constructive condition of exchange, which gives the victim the power to treat the breach as total. The exercise of that power brings the contract to an end, discharges all executory duties of both parties and gives the victim a right to damages in lieu of the future performance of the other. Using the terminology of the Uniform Commercial Code, the victim is entitled to "cancel" the contract.' Some students are not satisfied. They understand that they have been given an explanation of the consequences of a material breach, but not of its substance. They insist on knowing what makes a breach material or not. The instructor, beginning to feel uncomfortable, responds that "[Ithere is no simple test to ascertain whether a breach is material."' It depends on "whether on the whole it is fairer'" to permit the victim to cancel than not to permit cancellation. "It is always a question of fact, a matter of degree, a question that must be determined relative to all the other complex factors that exist in every instance. The variation in these factors is such that generalization is difficult and the use of cases as precedents is dangerous."' The students persist: surely the law can do better than that. Even if no mathematically precise test for materiality exists, there must be a standard, an approach of some kind that governs so important a question. The instructor is relieved to direct them to the First and Second Restatements of Contracts,6 in which careful attention is devoted to the meaning of materiality. The Restatements set out a number of "circumstances" to be considered to determine whether a breach is material. Some students may accept this approach to materiality, especially when assured that scores of courts have dutifully noted or quoted the Restatement factors and applied them to resolve disputes. Others are more skeptical; to them the relevant Restatement provisions seem enigmatic at best. Then the students become lawyers and encounter the material- breach case law in practice. Any confidence they may have had that those cases reflect a basic coherence and rationality is likely to be shaken. They soon discover that many courts that purport to follow the Restatements actually ignore them when the time comes to decide the materiality question.' Others seem to pick and choose among the stated factors without justifying their choices. Still others do not even attempt to apply the "circumstances" of the Restatements, but follow tests under which materiality is simply "a question to be decided on 'the inherent justice of the matter'." A close look at the relevant Restatement provisions makes it difficult to blame the courts for falling into confusion or completely bypassing them. The provisions resemble a list of ingredients rather than a recipe; no real guidance is provided on the order or proportions in which to combine the provisions. Indeed, a careful analysis suggests that some of the Restatement factors are substantively irrelevant or misleading as elements of the materiality analysis." In a cynical moment, the lawyer - whether practitioner, jurist, or academic - may wonder whether a paraphrase of Professor Gilmore's quip about the inclusion of section 90 in the First Restatement might also apply to the materiality factors in the Restatements: An attentive study leads to the despairing conclusion that no one has any idea what the damn things mean.
Wednesday, April 28, 2010
Eric G. Andersen on Materiality in Contract Law
Just in case you think your professor is making something much more complicated and confusing than he would if he really knew what he was talking about, you might want to know what another law professor has written about materiality. From Eric G. Andersen, A New Look at Material Breach in the Law of Contracts, 21 U.C. Davis L. Rev. 1073, 1074-1076 (1987-1988)(footnotes omitted):