Material vs. Immaterial Breach

[jcyjr36]

Hello,

New York state is the presiding jurisdiction for my agreement.

A potential partner is asking that I strike "breach" in favor of "material breach." He claims he doesn't want to get dinged for a minor breach, like failure to notify or missing a deadline by a day. I've never received this request and I've drafted over 50 agreements for my company.

Is there a danger in striking "breach" in favor of "material breach?" I fear that by doing so, in the event of any breach (material or immaterial), it will be subject to the whim of the presiding court.

 

[adjusterjack]

A potential partner is asking that I strike "breach" in favor of "material breach."

Taking the word "breach" out of context isn't helpful.

What is the entire sentence or paragraph that contains the word "breach"?

I've drafted over 50 agreements for my company.

Are you a lawyer?

If not, maybe you shouldn't be "drafting agreements" for your company. At least not without a lawyer's review.

I fear that by doing so, in the event of any breach (material or immaterial), it will be subject to the whim of the presiding court.

Not if you clearly define "material breach" in the contract.

Here are plenty of resources with explanations of "material breach."

material breach at DuckDuckGo

 

[jcyjr36]

Hi @adjusterjack,

Greatly appreciate the quick reply and insights.

"Breach"appears 22 times throughout the agreement. A breach in the context of the agreement can mean a number of things... The other party committed fraud by enrolling a customer without the customer's permission, they stole customer data, they sold another company's product alongside my product...

I'm not a lawyer. You make a good point. I'm a single member LLC that's bootstrapping and so I'm trying to do as much as I can on my own. You've given me something to consider. Thank you.

Difficult to define material breach given the number of potential material breaches.

Thanks for the link!

 

[quincy]

Hello,

New York state is the presiding jurisdiction for my agreement.

A potential partner is asking that I strike "breach" in favor of "material breach." He claims he doesn't want to get dinged for a minor breach, like failure to notify or missing a deadline by a day. I've never received this request and I've drafted over 50 agreements for my company.

Is there a danger in striking "breach" in favor of "material breach?" I fear that by doing so, in the event of any breach (material or immaterial), it will be subject to the whim of the presiding court.

I would be wary of partnering with anyone who wants any breach of a contract excused.

 

[Taxing Matters]

Hello,

New York state is the presiding jurisdiction for my agreement.

A potential partner is asking that I strike "breach" in favor of "material breach." He claims he doesn't want to get dinged for a minor breach, like failure to notify or missing a deadline by a day. I've never received this request and I've drafted over 50 agreements for my company.

Is there a danger in striking "breach" in favor of "material breach?" I fear that by doing so, in the event of any breach (material or immaterial), it will be subject to the whim of the presiding court.

The law on material vs. immaterial breaches is pretty well developed over centuries of contract law. Very generally when one sues for breach of contract, the breach must be a material breach; immaterial breaches get the plaintiff nothing. So in most contracts whether you use the term "breach" or "material breach" it comes down the same thing. If the contract expressly provided damages for certain breaches that otherwise would be an immaterial breach, that provision might be enforceable. I've not looked at New York case to see where the courts draw the line on enforcing what are essentially trivial matters that do not impact the main purposes of the contract. It would be a good idea for you to consult a contract attorney in NY to review the entire agreement to find out if there any provisions in it that could cause you trouble, like having ambiguous or undefined terms in the contract, etc. And as part of that you can ask about the material breach request of the other party. It's far less costly to pay an attorney for a review of the proposed contract so that those problems can be eliminated than it would to just press on with what you have and later end up in litigation costing many thousands of dollars to resolve. It's like getting periodic check ups with your doctor to find problems when they are small and easier to fix rather than waiting and finding out in the ER that you have a really serious problem.

 

[quincy]

For educational purposes, here is a 65-page overview of New York breach of contract damages:

https://www.law.nyu.edu/sites/default/files/ECM_PRO_063763.pdf

I agree with TaxingMatters that having a business law attorney review your contract or, preferably, draft the contract for you, will help you avoid what could be costly litigation in the future. Any ambiguity or doubt that arises from the wording of a contract will work against you and be favorable to the party with whom you are contracting.

 

[zddoodah]

I've drafted over 50 agreements for my company.

I'm not a lawyer.

Then you may have just admitted in a public forum to committing crimes.

As "Taxing Matters" explained, the concept of material and immaterial breach is well developed and understood by lawyers. I suggest you tell your boss that the company should seek a lawyer.

 

[quincy]

Rule 5.5 of the New York State Bar, Unauthorized Practice of Law, and New York Judiciary Article 15, Section 484.

https://casetext.com/statute/consolidated-laws-of-new-york/chapter-judiciary/article-15-attorneys-and-counsellors/section-484-none-but-attorneys-to-practice-in-the-state

 

[Taxing Matters]

Then you may have just admitted in a public forum to committing crimes.

I think that's unlikely. The OP is apparently the owner and sole member of a LLC. The OP is preparing a contract for his/her own use, not for any third party and the OP is not getting paid expressly for doing it. In short, this is not much different than a sole proprietor drafing a contract for his/her own use. If you look at the link quincy provided to the NY state rule on the practice of law, I think you'll agree that this particular circumstance does not run afoul of the state's rules on the practice of law. But just because it might be legal for the OP to do it doesn't make it a good idea. Several reasons for that have already been given in this thread.

 

[Litigator22]

I think that's unlikely. The OP is apparently the owner and sole member of a LLC. The OP is preparing a contract for his/her own use, not for any third party and the OP is not getting paid expressly for doing it. In short, this is not much different than a sole proprietor drafing a contract for his/her own use. If you look at the link quincy provided to the NY state rule on the practice of law, I think you'll agree that this particular circumstance does not run afoul of the state's rules on the practice of law. But just because it might be legal for the OP to do it doesn't make it a good idea. Several reasons for that have already been given in this thread.

Debating the connotations of words absent clarifying context seems pointless. There are serious legal implications to be considered here! None of which have been mentioned.

Whether it involves individuals, legal entities or a combination of the two it is never a good idea to enter into a general partnership relationship.

Since you already have the OP's ear perhaps as an attorney you might explain to him the inherent financial hazards that inevitably flow from such a legal relationship, including:

(1) The automatic creation of reciprocal/mutual agency (each partner having the ability to independently incur assorted obligations/debts on behalf of the business entity, and

(2) The inability to preserve individual assets immune from the claims of business creditors and tort claimants.

 

[quincy]

I think that's unlikely. The OP is apparently the owner and sole member of a LLC. The OP is preparing a contract for his/her own use, not for any third party and the OP is not getting paid expressly for doing it. In short, this is not much different than a sole proprietor drafing a contract for his/her own use. If you look at the link quincy provided to the NY state rule on the practice of law, I think you'll agree that this particular circumstance does not run afoul of the state's rules on the practice of law. But just because it might be legal for the OP to do it doesn't make it a good idea. Several reasons for that have already been given in this thread.

There is an interesting case in the US District Court, Southern District of New York - Upsolve, Inc v. Letitia James, 604 F.Supp. 3d 97 (SDNY 2022) - on the Unauthorized Practice of Law and the extent to which it should be enforced in all situations.

https://casetext.com/case/upsolve-inc-v-james

A New York court ruling has permitted a nonprofit group of non-lawyers to provide basic legal advice to the indigent, on First Amendment grounds. The decision is currently being appealed by James.

https://www.cato.org/blog/upsolve-wins-right-give-basic-legal-advice

This court ruling does not affect jcyjr36 or what has been said about his contract ... but I find it interesting.

And, in response to Litigator’s apparent concern, I will reiterate what I said earlier: I would be wary of partnering with anyone who is already looking to rework and reword the terms and conditions of a contract whereby the legal consequences of the partner’s failures are reduced.

 

[adjusterjack]

A New York court ruling has permitted a nonprofit group of non-lawyers to provide basic legal advice to the indigent, on First Amendment grounds.

A step in the right direction.

The decision is currently being appealed by James.

I hope the appeal fails.

 

[quincy]

A step in the right direction.



I hope the appeal fails.

Unless or until there are enough licensed attorneys available on a wide spread scale throughout the state who are willing to handle legal issues for indigent clients on a regular basis (and not merely to fulfill a law firm’s possible pro bono “minimum hours” requirement), I think organizations like Upsolve are necessary and fill a vital need.

I, too, hope the Appeal fails.

 

[Taxing Matters]

Debating the connotations of words absent clarifying context seems pointless. There are serious legal implications to be considered here!

I agree that there are significant matters of policy underlying the state's scheme for regulating the business associations in the state. Policy decisions that the state legislature and the state courts decide, not me or you. What we think the law should be doesn't necessarily reflect on what it is. I've stated my opinion on the matter and now you've stated yours. So let's see what happens from here. If the matter is ever tested in the courts we will have the answer to that. Until then, I agree with you that engaging in any lengthy debate on the issue on these boards would serve no purpose.