Dissecting Contract Breach Terminology, Warranties, and Remedies: Part One

• Author: By Jeffrey P. Aiken and Dylan C. Ochoa
• Pages: 6-13

THE CONSTRUCTION LAWYER

6 Volume 42 Issue 3

Published in

The Construction Lawyer

, Volume 42, Number 3. © 2023 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not

be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

BREACHES OF CONTRACT

Dissecting Contract Breach

Terminology, Warranties, and

Remedies: Part One

By Jerey P. Aiken and Dylan C. Ochoa

Editor’s note: This is part one in

a series of articles. Part two will

be published in the next issue of

The Construction Lawyer.

Introduction

Construction contracts have

long posed a unique problem

in overall contract jurispru-

dence.1 While this observation is

undoubtedly accurate, it comes

without an explanation as to

what the problem is or why it

has arisen. This article will not

only attempt to articulate an

answer to both issues, but also

to recommend a solution. To

start with, it is not just due to

the fact that, unlike a majority

of other judicially reviewed transactions, construction, by

its nature, is process-oriented. Nor is it primarily due to

the interdependent nature of construction contract per-

formances, where a party may simply be precluded from

performing without prefatory performance by the other,

such as by providing information essential to the latter’s

performance. Rather, construction contracts should be

viewed as a prism for correcting the skewed vision of

contractual breach as a binary choice due to less than

accurately descriptive terminology. Nearly all judicial

pronouncements on the subject of contractual breach are,

as will be shown, inappropriately narrow in focus, lead-

ing to oversimplication and misleading conclusions. A

more critical and holistic approach is necessary to pro-

vide a sound jurisprudential basis for decision-making.

The heart of the problem is the concept of “material”

breach, which has been shoehorned into the construction

law eld.2 Court decisions and articles dealing with con-

struction-related contracts are replete with inconsistent

treatment of basic contract terminology when applied to

potential damage and termination claims in situations

that simply do not t an either/or approach—namely,

it either is, or is not, material. The same can be said for

claims of breach of contract in the eld of information

technology migration contracts, which have a similar

process-oriented focus with essential interdependencies

among the involved parties. The absence of published

analysis regarding the nature of differences between var-

ious types of breach and their impact on the scope of

available claims seems overdue.3

The very concept of “breach” has at times been applied

to excuse a nonbreaching party’s future performance on

a blanket basis without describing the signicance of the

breach.

4

While the need to draw clear-cut lines between

categories of contractual breach may seem unnecessary,

it actually is essential. The void has persisted in no small

part because of the siloed treatment of construction con-

tract jurisprudence from relatively simple performance

and sale transactions, which themselves do not easily t

into the unique nature of construction and other process-

oriented contracts requiring interdependent performances.

Possible inconsistencies and difculties can also be

seen when considering the application of claim limita-

tion periods. If the law regarding contractual breach had

not been developed in a virtual vacuum, with apparent

disregard of the complexities of process-focused agree-

ments, there likely would not be the glaring inconsistency

in approach that has ultimately developed.

The Material-Immaterial Breach Def‌iciencies

The “First to Breach” Rule

The existing nomenclature evidenced in most judicial deci-

sions, and employed by many commentators, focuses on

whether a breach provides the nonbreaching party an

option to (1) pursue a damage remedy and/or (2) declare

the contract terminated, thereby releasing it from all fur-

ther obligations.

5

The predominant term used to describe

this type of qualifying breach is a “material” one.6

Another characterization is that the breach goes to the

essence of the contract.

7

While both are vague, some guid-

ance is offered via the Restatements in terms of general

criteria for establishing a breach sufcient to justify the

nonbreaching party’s future nonperfor mance as follows:

(a) the extent to which the injured party will be

deprived of the benet to which he reasonably expected;

(b) the extent to which the injured party can be ade-

quately compensated for the part of that benet to which

he will be deprived;

(c) the extent to which the party failing to perform or

to offer to perform will suffer forfeiture;

Jerey P. Aiken

Dylan C. Oc hoa

6 6 7/18/2023 1:52:06 PM7/18/2023 1:52:06 PM