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When Coming In First May Not Be Such A Good Thing?

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When parties enter into a contract, they generally intend to follow the terms of a contract. However, sometimes, whether unintentionally or by mistake, inevitably, a party to a contract may breach a term of their contract by failing to follow through on a contractual obligation. Some breaches may be inconsequential and easily remedied, while some may rise to the level of a material breach and never get resolved. Generally, a material breach is one where the action is so fundamental to the agreement that the failure to perform that obligation defeats an essential purpose of that agreement. Some examples of a material breach of a construction agreement include such things as a builder who does not follow the construction documents or an owner’s refusal to remedy defective construction documents. Material contractual breaches can have severe consequences.

Among those is what is commonly referred to as “the first to breach” doctrine, under which the non-breaching party may be excused from further performance of their respective contractual obligations while the breaching party is typically barred from seeking the performance of the contract against the non-breaching party. Unfortunately, while in the midst of executing a project, it’s not always readily apparent whether an impending problem or possible breach constitutes a speed bump or will ultimately serve as a brick wall to the successful completion of the project. As in the examples above, it may not be readily apparent whether either party intends to ultimately remedy the situation. Under such conditions, it’s common for parties to exhibit a “can do” or cooperative spirit to work through a problem in part to keep the project on schedule and in part to retain good relations between the parties. Despite being well-intentioned, parties that continue work despite no present resolution to a problem risk finding themselves unknowingly waiving their excused right of further performance subject to a material breach.

However, parties continuing to plod on with a project absent resolution to material issues do so at their own peril. When faced with material issues, parties should resist the temptation to “kick the can down the street,” as continuing to work may be subsequently viewed to undercut a later need for an action to terminate a contract because of a material breach. Acting promptly to address any perceived breach of a contract is important, but for material, breaches are even more so as not acting promptly, on either side, could result in a contractual waiver or other loss of rights or remedies.

First place is not an enviable position to be in when it comes to either being first at committing a material breach or first in waiving rights excusing further performance by the non-breaching party. Should serious problems arise on a project that may constitute a material breach, parties should deal with them proactively. Examples include memorializing the related correspondences, seeking to promptly resolve these issues, and seeking out the assistance of counsel to ensure that proper notification in accordance with contractual obligations is timely issued in an attempt to get the project back on track or shield the non-breaching party against unexpected and additional costs, delays, or liability where the non-breaching party is left with no other choice than to terminate the contract.

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