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Posted: January 7, 2017

No Breach of Contract Claim or Right to Rescind Where Alleged Breach Not Material

On December 8, 2016, Justice Walker of the Erie County Commercial division issued a decision in Matter of Buffalo Schools Renovation Program, 2016 NY Slip Op. 51846(U), dismissing a claim for breach of contract and rescission because the breach of contract alleged was not material, explaining:

Only a material breach of contract gives rise to a cause of action or a right to rescind. A material breach is generally regarded as a breach which substantially defeats the purpose of an agreement in such a fundamental way as to defeat the object of the parties in making the contract, and otherwise occurs where a party fails to perform a substantial part of the agreement performance of which was the initial inducement for entering the agreement. For a breach to be material, it must go to the root of the agreement between the parties.

A party to a contract will not be excused from paying for the other party’s services absent such material breach. In determining whether a breach is material, courts generally consider the extent to which the non-breaching party will be prejudiced or damaged by lack of full performance. Whether a breach is material is a question of law to be decided by the Court.

Lafarge is instructive. There, the plant operator contracted with a supplier to receive fly ash for recycling, and a term of the agreement required the operator to provide the supplier with regular fly ash consumption forecasts. Delivery commenced, and the operator never provided the reports. The court held that the operator’s alleged breach was not material, because the supplier was well aware of the increasing amounts of fly ash needed by the operator. The supplier’s personnel were in constant communication with the operator’s personnel, and the operator never raised any objection or demanded the reports, during the term of the agreement while the work was performed.

Here, any alleged breach by LPC’s purported failure to provide certain information was not material. The purpose of the Program and its contracts was to renovate forty-eight (48) District schools for a stipulated sum. That purpose was fully accomplished. The District does not dispute this. It accepted the work, occupied the buildings, and received the certifications of the Architects of Record, who signed off on the outstanding payment applications. For twelve (12) years, the District never claimed that LPC failed to provide it with regular reports or required information. The District’s claim, raised at Program completion, does not go to the “root” of the contracts; it was not so substantial that it defeated the object of the parties in making the contracts; and, equally important, the provision of information was never an inducement for the District to enter into the contracts at issue. The District wanted schools renovated, at a fixed priced, and that is what it received. Under a fixed-price contract, the actual cost to the design-builder is irrelevant and immaterial. The provision that the District relies most heavily on – PPDSA ยง 11.05 – predates the entry of the Phase Agreements, meaning it had even less materiality once the fixed-price model was agreed on.

(Internal quotations and citations omitted). This decision also has discussions of waiver and notice and cure provisions as a contractual condition precedent that are interesting reading.

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