Under Section 241 of the Restatement (Second) of Contracts, a material breach is a failure to perform serious enough that the other side can stop performing, walk away from the contract, and sue for total breach, and courts decide whether a failure crosses that line by weighing five circumstances: how much of the expected benefit the injured party loses, whether money damages can make up for it, how much the breaching party would forfeit, how likely a cure is, and whether the breaching party acted in good faith.1Open Casebook. Restatement (Second) of Contracts § 241 No factor controls on its own. The official commentary describes the standard as “imprecise and flexible,” and courts are told to look at the full picture rather than apply any mathematical ratio of the breach to the contract price.
The Five Factors
- Deprivation of expected benefit. How much of what the injured party reasonably expected from the deal is lost.
- Adequacy of damages. Whether money can make up for that loss.
- Forfeiture by the breaching party. How much work or investment the breaching party stands to lose if the contract is canceled.
- Likelihood of cure. How probable it is that the breaching party will fix the problem, in light of its assurances and circumstances.
- Good faith and fair dealing. Whether the breaching party’s conduct meets honest-dealing standards.
How Each Factor Gets Weighed
Deprivation of Expected Benefit
The first factor asks what the injured party actually lost. A seller who shipped only 240 of a promised 300 crates of onions deprived the buyer of a substantial share of the bargain, and that shortfall was material. A contractor who left a street only partially paved, blocking the owner’s access to his lot, likewise failed in a material way.1Open Casebook. Restatement (Second) of Contracts § 241 By contrast, a contractor who installed pipe from a different manufacturer than the one specified, but identical in quality, did not commit a material breach, because the owner still got the plumbing it needed.
Adequacy of Damages
The second factor is a companion to the first. When a court can price the shortfall and make the injured party whole with money, the breach is less likely to be material. When the performance was unique or the harm is hard to quantify, materiality looks more serious. The commentary calls this factor “particularly important” when the breaching party is seeking specific performance.
Forfeiture
The third factor flips the lens to the breaching party. A failure that occurs after substantial work has been done, with materials already embedded in a structure, is less likely to be called material than one that happens at the start, because declaring total breach late in a project wipes out far more value. If the breaching party can salvage its work and reuse the materials elsewhere, forfeiture is less of a concern, and a material-breach finding becomes easier to justify.
Likelihood of Cure
The fourth factor asks whether the breaching party is likely to make things right. Reasonable assurances of performance, or changed market conditions that make performance easier, cut against materiality. A pattern of default on other contracts, or financial instability, cuts the other way: the injured party’s expectation of getting what it bargained for is less secure, so the breach reads as more serious.
Good Faith and Fair Dealing
The fifth factor considers whether the breaching party acted honestly. The commentary notes that courts sometimes use the less precise term “wilful” for the same idea. Good faith is not conclusive. The Restatement’s illustrations include a builder who unknowingly installed the wrong brand of pipe (identical quality); the inadvertence, combined with the demolition cure would require, meant no material breach. Another illustration involves a builder who deliberately refused, out of personal spite, to construct a $300 compressor cover. The bad faith was clear, but the $300 amount was trivial next to the $40,000 balance still owed, so the breach was still not material.
What Happens Once a Breach Is Material
A finding of material breach sets several things in motion for the injured party.
- Suspension of performance. The injured party may immediately withhold its own performance as self-help to protect the expected exchange.
- Right to terminate. If the breach stays uncured, the injured party may treat the contract as over and is discharged from further obligation.
- Total breach damages. The injured party can sue for damages that put it in the position full performance would have.
The risk cuts both ways. A party that cancels on the theory of material breach, only to have a court later rule the breach was not material, can itself be liable for wrongful termination.2Alston & Bird. Crossing the Rubicon That exposure is why the §241 factors matter so much in practice. Before you walk away, you need to think through how each one cuts.
Materiality, Cure Time, and Discharge Are Three Different Questions
Section 241 answers only the first of three linked questions. Section 237 sets the background principle: each party’s duty to keep performing is conditioned on there being “no uncured material failure” by the other side.3Open Casebook. Restatement (Second) of Contracts § 237 Section 241 then supplies the factors for deciding whether a failure is material.
Section 242 picks up next: once a breach is material, how long does the breaching party get to cure before the injured party’s duties are permanently discharged? The §242 inquiry uses all five of the §241 factors and adds two more: whether further delay would prevent the injured party from arranging a substitute, and whether the contract itself treats timely performance as important.4Open Casebook. Restatement (Second) of Contracts § 242 A “time is of the essence” clause shortens or eliminates the cure window, though even that phrase is not automatically read to eliminate it.
Section 243 defines the end state. If a material breach stays uncured past the time §242 allows, the injured party’s remaining duties are discharged and it has a claim for damages for total breach. Even where the breach is eventually cured, the injured party keeps a claim for damages for partial breach — the harm caused by the delay or deviation itself.5Open Casebook. Restatement (Second) of Contracts § 243 So a material breach does not automatically end the contract. It starts a clock that may end it.
Substantial Performance Is the Same Line From the Other Side
The §241 inquiry is the mirror image of the substantial performance doctrine. If performance is substantial, there is no material breach; the party who fell short can recover the contract price minus damages for the shortfall. If performance falls short of substantial, there is a material breach, and the other side may refuse to pay and walk away.
The classic illustration is Jacob & Youngs, Inc. v. Kent, decided by the New York Court of Appeals in 1921.6New York Courts. Jacob and Youngs v. Kent A contractor built a $77,000 residence under a contract calling for Reading brand pipe. Some installed pipe was a different brand of identical quality, appearance, and cost, and it was already encased in walls. Judge Cardozo, writing for the majority, held that the contractor had substantially performed: an innocent and trivial omission, where replacement cost is grossly out of proportion to the harm, does not forfeit the balance. The builder was entitled to the contract price minus the difference in value, which was essentially zero. The §241 factors — deprivation of benefit, forfeiture, good faith — track Cardozo’s reasoning, and Illustration 6 under §241 is a thinly disguised version of the same facts.
Wisconsin’s Plante v. Jacobs made the same point. A contractor misplaced a wall between the living room and kitchen, narrowing the living room by over a foot. The cost to fix the wall was estimated at $4,000, but experts testified the error had no effect on market value. The court held performance substantial and rejected any mathematical formula, writing that “something less than perfection is the test.”7vLex. Plante v. Jacobs
The Factors Applied
A Missed Installment Can Still Be Material
In Bailie Communications, Ltd. v. Trend Business Systems, a Washington appellate court applied §241 to a dispute over an installment payment for a condominium interest. The buyer, Suburban, had paid nothing toward the purchase price but was using the property. The trial court focused on how small the overdue installment was compared to the total price and found the breach immaterial. The appellate court reversed, citing the §241 commentary that no simple ratio controls. Because Suburban had paid nothing at all, the sellers were significantly deprived of their expected benefit and were entitled to withhold their signature on a mortgage to protect the exchange.8vLex. Bailie Communications, Ltd. v. Trend Business Systems
You Still Have to Give Notice and a Cure Opportunity
In DC Farms, LLC v. Conagra Foods Lamb Weston, Inc., a potato grower contracted to supply potatoes to a processor. Lamb Weston terminated, claiming glass contamination in DC Farms’ cellars was an incurable breach, and argued it did not need to give the notice-and-cure period the contract required. The Washington Court of Appeals rejected that argument, pointing to the forfeiture and likelihood-of-cure factors in §241. The contractual notice requirement existed precisely to guard against forfeiture, and Washington law does not excuse a party from giving mandated notice just because it believes the breach cannot be fixed.9FindLaw. DC Farms, LLC v. Conagra Foods Lamb Weston, Inc.
Promises of Future Performance Only Go So Far
In Sackett v. Spindler, a buyer agreed to purchase 6,316 shares of stock for $85,000 in three installments, paid the first two, and failed to pay the final $59,000 despite deadline extensions. The California Court of Appeal held the nonpayment was a total breach. Even though the buyer kept saying he was willing to perform, his actual conduct created too much uncertainty. The court applied factors closely tracking those later codified in §241, concluding that the injured party was not required to “endure that uncertainty or to await the defendants’ convenience.”10FindLaw. Sackett v. Spindler
Section 241 Does Not Govern Sale-of-Goods Contracts
Section 241 applies to common-law contracts: services, construction, real estate, and other agreements that do not involve the sale of goods. For sale-of-goods contracts, the Uniform Commercial Code uses a stricter standard. Under UCC §2-601, a buyer may reject goods that “fail in any respect to conform to the contract” — the perfect tender rule.
The UCC softens that rule in practice. Under §2-508, a seller may cure a nonconforming tender if the time for performance has not yet expired. Under §2-612, which governs installment contracts, a buyer cannot reject a nonconforming installment unless the defect “substantially impairs” the value of the installment or the whole contract, language that echoes the common-law materiality inquiry. The Restatement commentary on §241 acknowledges the stricter UCC standard but notes it is “mitigated” by these cure and substantial-impairment provisions.