(Utah’s Law on First Breach)
If you have a contract with someone, and that other party refuses to perform under the contract, do you still have to honor that contract? Under Utah law (and the law of many other states), the answer is that you do not have to honor that contract if the breach by the other party is “material.”
In a recent case, the Utah Supreme court reviewed the body of law regarding “first breach.” According to the Supreme Court: “[U]nder the first breach rule a party first guilty of a substantial or material breach of contract cannot complain if the other party thereafter refuses to perform. He can neither insist on performance by the other party nor maintain an action against the other party for a subsequent failure to perform.” It elaborated on those principals by further saying “[n]ot every minor failure justifies nonperformance.” Instead, “[i]t must be something so substantial that it could be reasonably deemed to vindicate the other’s refusal to perform” and “[t]he relevant question is not whether the breach goes to the heart of the provision breached, but whether it goes to the heart of the contract itself.”
Unfortunately, as the Supreme Court also noted, “[w]hat constitutes so serious a breach …is not so easily reduced to precise statement” and that determining whether a breach is so serious turns on a number of factors:
“(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of the benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (c) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.”
The Supreme Court’s analysis shows that the law of first breach does have an important place in the law that protects an innocent party from the breach of contract of the other party. The complexity of this analysis, however, suggests that anyone considering refusing to perform under a contract because of the other party’s earlier breach should be very cautious about refusing. While in some situations the substantial and material nature of the other party’s breach may be abundantly clear, in many others you risk being second-guessed by a judge and found wrong in your position.