Those Who Live in Gl ...

Those Who Live in Glass Houses Shouldn’t Throw Stones: The First Material Breach Doctrine in Tennessee

August 3, 2022 | by Matt Hinson

The doctrine of “first material breach” is well established under Tennessee case law. Under the doctrine, “[a] party who has materially breached a contract is not entitled to damages stemming from the other party’s later material breach of the same contract.”[1] In cases where both parties to a contract have not fully performed, a court must determine which party is chargeable with the “first uncured material breach.”[2] In determining such, a court’s analysis can be broken down into three distinct steps.

First, a court must determine what the contract required of the parties, which is a “question of law.”[3] Second, a court must determine “[w]hether a party has fulfilled its obligations under [the] contract or is in breach of the contract,” which is a question of fact.[4] Third, a court must determine whether a party’s breach is “material,” which is also a question of fact.[5]

To determine what the contract required of the parties, a court looks to the plain language of the contract.[6] If the language of the contract is unambiguous, then the court must interpret the contract as written.[7] Once a court determines what the contract required of the parties, the court must then determine whether a party to the contract has breached the contract—i.e., failed to perform any promise forming the whole or part of the agreement without legal cause. These first two steps are simple enough. However, the third step – determining whether a breach is “material” – is the real crux of a court’s analysis.

A “material breach” is defined as a “breach of contract that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial), thus excusing that party from further performance and affording it the right to sue for damages.”[8] To determine whether a breach is material, Tennessee courts have considered the following factors:

  • The extent to which the injured party will be deprived of the benefit which he reasonably expected;
  • The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
  • The extent to which the party failing to perform or to offer to perform will suffer forfeiture;
  • 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 assurance;
  • The extent to which the behavior of the party failing to perform or to offer to perform comports with the standards of good faith and fair dealing.[9]

While the initial step under the doctrine of “first material breach” (i.e., contract interpretation) is a question of law, the remaining two steps (i.e., breach and material breach) are questions of fact. Thus, the application of the doctrine of “first material breach” is fact intensive.

Accordingly, prior to terminating a contract or refusing to perform under a contract based upon a breach by the other party, it is important to have a clear understanding of the material terms of the contract and to objectively analyze the actions of the other party under the five factors listed above. Otherwise, a party may be doing nothing more than throwing stones from a glass house.

[1] United Brake Sys., Inc. v. Am. Envtl. Prot., Inc., 963 S.W.2d 749, 756 (Tenn. Ct. App. 1997) (quoting McClain v. Kimbrough Const. Co., Inc., 806 S.W.2d 194, 199 (Tenn. Ct. App. 1990); see also Holt v. Whedbee, 2019 WL 1579740, at *7 (Tenn. Ct. App. April 12, 2019) (“[A] party who first materially breaches may not recover under the contract.”); 8 Tenn. Prac. Pattern Jury Instr. T.P.I. – Civil § 13.10 (2020) (“A party who commits the first uncured material breach of a contract cannot enforce the contract against the other party even if the other party later fails to abide by the terms of the contract.”).

[2] United Brake Sys., Inc., 963 S.W.2d at 756 (internal citation and quotations omitted).

[3] Forrest Const. Co., LLC v. Laughlin, 337 S.W.3d 211, 221 (Tenn. Ct. App. 2009).

[4] Id. at 225.

[5] Id.

[6] Bradson Mercantile, Inc. v. Crabtree, 1 S.W.3d 648, 652 (Tenn. Ct. App. 1999). 

[7] Id.

[8] Breach of Contract, Black’s Law Dictionary (11th ed. 2019).

[9] United Brake Sys., Inc., 963 S.W.2d at 756 (citing Restatement (Second) of Contracts § 241 (Am. Law Inst. 1981)); see also Madden Phillips Const., inc. v. GCAT Debelopment Corp., 315 S.W.3d 800, 822-23 (Tenn. Ct. App. 2009) (listing the above five factors and noting “[t]he clear trend in Tennessee is to apply the test found in section 241 of the Restatement (Second) of Contracts.”).