56 Contract Breach
Rachael Samberg
Understanding breach
For purposes of understanding breach, let’s engage in the following hypothetical:
Who’s involved?
- The Licensor (vendor) is Party A. Party A has licensed content to you, Party B.
- The Licensee (library, or you) is Party B. Party B has licensed content from the vendor, Party A.
What’s the issue?
Suppose that the e-resource agreement you (Party B) has signed prohibits your Authorized Users from distributing more than insubstantial portions of the licensed content, and one of your Authorized Users shared an entire downloaded corpus of materials with a research collaborator at another institution. Has Party B breached the license agreement? What does that mean for you, and for the Party A? Is Party A entitled to damages? Can Party A stop performing the agreement by cutting off your entire campus’ access to the product?
What is “breach”?
As with many things within contract law, the parties can draft language that defines what constitutes a “breach” of the agreement, including a “material breach” which would result in termination of the agreement and allow the other party to stop performing its own obligations.[1] If the parties specify what level of non-performance constitutes a breach or material breach, then that language controls.[2] But it’s also important to understand the concept and implications of breach under default contract law rules when there aren’t express contractual provisions providing otherwise.
To understand breach you first have to understand performance. Remember that a contract is a promise for performance for which the law can provide a remedy if that promise is breached..[3]. If you fail to perform when there is a duty to perform, this is a breach. [4]. Now, when your contract is for the sale of goods, some additional special rules apply around performance and breach, and we won’t get too much in the weeds on that here. But for general commercial contracts, here’s what you should know about performance in order to understand breach:
- One party accuses the other of breach, but it’s “minor”: Let’s say a publisher suggests you failed to perform some provision (e.g. you engage in interlibrary loan when it is prohibited), but you otherwise “substantially” performed the agreement (as did the publisher). In this case, you may have breached but your breach is not “material.” This means the publisher has to finish or keep performing (if they haven’t already), and all they would be entitled to under default rules are any provable damages that they suffered as a result of your immaterial breach.
- One party accuses the other of breach, and it’s “major”: If a publisher accuses you of “material” non-performance (e.g. you fail to pay for the licensed product), the publisher has a claim for breach against you but also can cancel or repudiate the contract—meaning the publisher can themselves stop performing. [5] Depending on the circumstances, before the publisher repudiates the contract they need to show first that they stand ready to, endeavored to, or did substantially perform themselves prior to your breach. [6].
- Both parties accuse each other of breach: If Party A and Party B accuse each other of material breach, the party who breached first may not be entitled to damages…but it’s also possible that neither party is entitled to damages! That’s because a party is barred from enforcing (i.e. compelling performance or recovering damages under) a contract that it, itself, has materially breached.[7] What may matter in terms of recovery is which party breached first, and also whether the second-to-breach learned of the first-to-breach’s acts before it decided to stop performing or commit its own breach. Alternatively, if the breaches that each party allegedly committed are minor, the parties may be entitled to offsetting damages but not permitted to repudiate the contract and stop performing altogether. [8].
Who decides if there has been a breach?
In our hypothetical, Party A (the vendor) has alleged that your Authorized User shared a corpus of works with an unauthorized user (a collaborator at another institution). How do you know if the publisher is right and entitled to recovery? Where the facts are undisputed—i.e. You don’t disagree that you took the actions you’re accused of; you just disagree about whether that constitutes a breach—then the parties can ask the judge to decide whether those undisputed facts constitute a breach. This is referred to as being a “question of law”—do these facts violate the law of the agreement—for the court, as opposed to a “question of fact” that has to go to a jury rather than get decided just by the judge. If the facts are disputed, or different reasonable inferences can be drawn from them, then the matter must be decided by a jury. A jury (rather than the judge) will likely also be presented with the question of deciding whether one party was justified in discontinuing performance after the other party’s breach; that is to say, whether the alleged breach relates to a term so material or essential to the contract that the other party was warranted in stopping its own performance [9]
What can a party recover for a breach?
If you breach, what damages does the publisher get? Let’s assume the contract doesn’t expressly specify this, and “default” contract rules apply.
Again, in our hypothetical one of your authorized users allegedly exchanged large quantities of licensed content with a third party researcher with whom they were collaborating, believing this to be allowed under the agreement. The harm the publisher suffered is principally what it lost out on for those lost sales or licenses to those other parties. But assuming this is not a “material” breach under default contract rules, these minor breaches can be compensated with monetary damages and the publisher must for its own part continue to perform its end of the bargain. [10]
Sometimes the non-breaching party is entitled to nothing if the breach was immaterial and there were no actual damages suffered. Imagine now another provision in the contract that you (Party B) signed with the publisher (Party A). A different provision of your agreement that requires the library to submit certification of the security environment in which AI training was conducted. And the library fails to submit that certification. It’s a breach! But…even if the library didn’t strictly perform all of its obligations, what damages did the publisher suffer? Arguably none, thereby precluding recovery. [11] Unless, of course, the parties agreed otherwise: Remember that express terms of the agreement will override these “default” rules and principles under contract law. [12] In any event, the publisher may also cut off access at a campus level for perceived “excessive downloading” breaches e.g., when they detect bots scraping their content; their right to do so is usually expressly provided for in the agreement.
We discuss availability of damages in greater detail in the next chapter, Contract Remedies.
- 1 Corbin on Contract Drafting § 26.01 (2024)(“As Judge Richard Posner once noted, most contract law doctrines are of the “off-the-rack” variety—they ‘govern[ ] only if the parties have not drafted a specific assignment of the risk otherwise assigned by the’ default rule. Another commentator observed: ‘Contract law is largely comprised of default rules, which govern an agreement when the parties fail to state their own terms. But contracting parties are usually free to change a disliked rule by substituting one of their own choosing. This default rule approach to contract law is widely celebrated for allowing private, made-to-order lawmaking.’”) ↵
- 17A Am. Jur. 2d Contracts § 670 (“Where a contract itself provides the standard for what constitutes a material breach, this is the standard that governs, and the common-law standard for determining materiality only applies in the absence of a contractual provision regarding what constitutes a material breach.”) ↵
- Restatement (Second) of Contracts § 1 (1981) ↵
- 17A Am. Jur. 2d Contracts § 669 ↵
- 17A Am. Jur. 2d Contracts § 670 (“For one party's obligation to perform to be discharged, the other party's breach must be material. 3 A breach of a contract is a "material breach" when it involves an essential and inducing feature of the contract, or makes it impossible for the other party to substantially perform under the contract. A material breach is more than incidental and touches the fundamental purpose of the contract, defeating the object of the parties entering into the agreement.”) ↵
- 17A Am. Jur. 2d Contracts §§ 583, 584 ↵
- A party that has materially breached “can neither insist on performance by the other party nor maintain an action against the other party for a subsequent failure to perform.” 17A Am. Jur. 2d Contracts § 589 ↵
- 17A Am. Jur. 2d Contracts § 589 (“[A]n exception to the rule that a party who commits the first breach is not entitled to enforce the contract arises when the breach did not go to the essence of the contract, but only to a minor part of the consideration.”); see also 17A Am. Jur. 2d Contracts § 603 (“Where a contract is made for an agreed exchange of two performances, one which is to be rendered first, substantial performance of the first obligation, rather than exact or strict performance of the contract's terms, is sufficient to entitle the contractor to recover. If a contract has been partly performed by one party and the other has derived a substantial benefit, the latter may not refuse to comply with the contract's terms simply because the first party failed to complete performance.This is because strict compliance with every specification is not of the essence of a contract, unless made so by the contract's terms or necessary implication.”) ↵
- 17A Am. Jur. 2d Contracts § 590 ↵
- See, e.g. 17A Am. Jur. 2d Contracts § 604 (“Although the courts never say that one who makes a contract fills it by less than full performance, they do say that a trivial and innocent omission may be remedied by an allowance for the resulting damage, and will not be considered the breach of a condition to be followed by a forfeiture. Therefore, if [Party A’s] failure to perform fully was not so substantial as to destroy the essence of the contract and consequently excuse [Party B] from subsequently performing, because the breach did not significantly deprive [Party B] of the benefit he or she reasonably expected, the contract is deemed substantially performed, and [Party B] may be adequately compensated through the recoupment of money damages.”) ↵
- 17A Am. Jur. 2d Contracts § 604 (“The doctrine recognizes that substantial performance is not full performance, and the party relying on the doctrine admits breaching the contract, but it would be unreasonable to condition recovery upon strict performance, if minor defects or omissions can be remedied,or the other party may be compensated for the slight damage caused by the failure to perform the contract fully. The doctrine protects the rights of those who have performed in all material and substantive particulars and excuses contractual deviations or deficiencies that do not severely impair the purpose of the contract requirements.”) ↵
- 17A Am. Jur. 2d Contracts § 603 (“However, the substantial performance rule does not apply where the parties, by the terms of their agreement, make it clear that only strict or complete performance will be satisfactory.”) ↵
