Virginia Federal Court: "First Material Breach" Rule Precluded Defendant's Enforcement of Contract
The Virginia Federal Court in Alexandria recently issued a decision on the “first breach rule” in a contract dispute case. In Tandberg Inc. v. Advanced Media Design Inc., the defendant was precluded from enforcing the contract against plaintiff because it committed the first material breach by failing to pay invoices. Not only was the defendant prevented from recovering for subsequent breaches by the plaintiff, the Court summarily awarded the plaintiff over $3 Million for its unpaid invoices.
The Court noted that the Virginia cases applying the first material breach rule are not entirely uniform. However, the decision recognized the weight of authority supporting application of recent Virginia Supreme Court cases which precluded enforcement of a contract by the contractual party committing the first material breach, even where the parties continued performing under the contract.
In order for the "first breach rule" to be applicable, the party must have committed a material breach. What is a material breach? A breach that is “so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract.”
This case stands for two propositions - (1) failure to pay invoices in a timely fashion will almost certainly constitute a material breach; and (2) the contractual party to commit the first material breach of an agreement releases the other party's subsequent contractual obligations.
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