First to Breach? Not So Fast Navigating Florida's Prior Breach Doctrine.
To bring clarity to the doctrine's practical application, this article addresses areas of confusion in terminology and definitions, highlights the differences in applying the doctrine offensively versus defensively, and discusses the unique scenarios presented by employment covenants and the enforcement thereof. Lastly, this article details the essential practical and strategic decisions that can make a critical difference when attempting to wield or to defend against the doctrine in business dealings and in resulting litigation.
The principles underlying the prior breach doctrine are applicable in various contexts. Accordingly, our analysis encompasses cases covering various legal contexts, including rescission, (2) claims for damages, set off, (3) anticipatory breach or repudiation, (4) and conditions precedent. (5)
Essential Elements of the First Breach Doctrine
In order for the first breach doctrine to apply in any context, all of the following elements must converge: 1) There must be a first breach of contract; 2) the breach must be material or substantial (6); 3) the contract provision breached must be a dependent (not an independent) covenant (7); and 4) the nonbreaching party must not have waived the right to enforce the prior breach against the opposing party. (8)
Although some cases treat the material/substantial breach requirement and the dependent covenant requirement as interchangeable, the greater weight of authority treats these concepts as distinct elements of the analysis. (9) Materiality bears on the nature and impact of the breach. In contrast, whether a covenant is dependent or independent is based on the nature of the contract provision itself and the parties' intent in forming their agreement.
The element of nonwaiver aligns with the notion that, as with most rights afforded by Florida law, a first breach defense or claim may be waived. The waiver of a prior breach claim or defense may be expressed by contract (10) or implied by conduct. (11)
Knowing the critical elements is the first step to protecting and advancing client interests in first breach scenarios.
Understanding the nuances of each such element is just as pivotal.
What is a Material Breach?
The materiality requirement mandates that the breached contractual duty must be of significant importance, such as, when the injury suffered as a result of the breach will be of a weighty magnitude. The language most consistently used in prior breach and related cases describes a material breach as one that goes to the essence of the contract between the parties. As stated in Burlington & Rockenbach, P.A. v. Law Offices of E. Clay Parker, 160 So. 3d 955 (Fla. 5th DCA 2015): "To establish a material breach, the party alleged to have breached the contract must have failed to perform a duty that goes to the essence of the contract and is of such significance that it relieves the injured party from further performance of its contractual duties." (12)
The breach of ministerial, minor, technical, or administrative provisions of a contract will typically not be found to be material. (13) Likewise, materiality will not be found where little to no harm or injury is suffered due to the alleged breach, (14) or where the requirement alleged to have been violated is not dispositive of any significant practical rights. (15) Breaches that are commonly found to be material include the failure to comply with price and payment obligations. (16)
The meeting of certain deadlines can also be deemed material, particularly where the contract provides that time is essential. (17) Even where the contract does not specify that "time is of the essence," failure to meet a deadline may qualify as a material breach where the facts surrounding the contract or its performance demonstrate that timing plays an important role in achieving the purposes of the contract or where significant prejudice results from untimely performance. In such a case, or if notice of a specific date of performance is provided to the party charged with such performance, delay can be deemed material despite the absence of a "time of the essence" provision. (18) There is no absolute, bright-line rule. Even where time is declared to be "of the essence," delay will not be deemed a material breach unless the clause is clearly applicable to the specific contract requirement at issue. (19) Similarly, a slight delay in meeting deadlines is typically not considered to be a material breach. (20)
Materiality is a question of fact (21) to be determined based on all relevant circumstances, including the intent and conduct of the parties, and the extent of the injury sustained as a result of the breach. (22) Although not dispositive, it is a good practice to state expressly what contract terms are essential/material and to act accordingly when a breach does occur.
Dependent v. Independent Covenants
While similar in concept to the definition of materiality, characterizations of a dependent covenant use specific and distinct language. A dependent covenant is a contract term that goes to the "whole consideration" or to an "indispensable purpose of the contract." The Florida Supreme Court's often-cited decision in Steak House, Inc. v. Barnett, 65 So. 2d 736 (Fla. 1953), discusses the difference in dependent and independent covenants: Conditions or covenants in a contract are classed as dependent or independent from a consideration of the intention and understanding of the parties as shown by the whole contract.
A covenant is independent where it does not go to the whole consideration of the contract but is only subordinate and incidental to its main purpose, and the breach of such a covenant will not ordinarily constitute a sufficient reason for rescission.
A covenant is dependent where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted. A breach of such a covenant amounts to a breach of the entire contract; it gives to the injured party the right to sue at law for damages, or courts of equity may grant rescission in such instances if the remedy at law will not be full and adequate. (23)
While this description of a dependent covenant certainly sounds very similar to the definition of materiality, the consistent use of distinct language in both definitions implicates a difference in application. A term that may be deemed to go to the essence of the contract, for example, may not at the same time be considered to encompass the "whole consideration" or be "otherwise indispensable to the contracting parties." (24)
The considerations applicable to whether a covenant is dependent are different from those applied to determine materiality. While materiality is a fact-based analysis focused on the substantiality of the breach, the injury suffered and closely related factors, whether a covenant is dependent is a question of law for the court to decide based on the intent of the parties gleaned from the face of the contract. (25)
Because the characterization of a covenant as dependent is based on the intent of the parties as determined from the four corners of the contract, contract preparation becomes critically important. Working carefully with clients to establish ultimate goals and expectations is paramount. Each covenant should be considered separately to establish the interaction between and priority of the parties' respective obligations and the performance thereof.
The defense of prior breach, or any one of the remedies available, can be waived. A waiver of first breach rights and remedies will be determined based on the terms of the contract and the conduct of the parties. For example, the parties to a contract may agree that conduct otherwise constituting a waiver of relief under a prior breach theory (and corresponding remedies) does not operate as a waiver. In City of Miami Beach v. Carner, 579 So. 2d 248 (Fla. 3d DCA 1991), a landlord-tenant case, the court found that the tenant, the party asserting the prior breach doctrine, had exhibited conduct establishing an implied waiver of the right to claim damages for "total breach," leaving the tenant with only a claim for partial breach damages. The lease, however, contained a nonwaiver provision. The appellate court remanded the case noting that "it remains to be determined whether a nonwaiver clause in the lease entitled [the tenant] to remain on the property after declaring a breach and still recover total breach damages." (26)
A party can also be deemed to have contractually waived the right to assert a claim or defense of prior breach. In Branch Banking & Trust Co. (BB&T) v. S&S Dev., Inc., 2015 WL 12683834, *8 (M.D. Fla. June 30, 2015), lenders and real estate developers squared-off in a dispute over competing breaches of loan agreements. The contracts at issue related to failed real estate development projects that the lenders had been obligated to fund. In defense of an action by the lenders to enforce the loan agreements, the developers claimed that the lenders committed a prior breach by failing to fund properly the projects as required by the contracts, and that the funding deficiency caused the projects to fail.
The BB&T court found the prior breach arguments unpersuasive, pointing to a loan extension agreement executed by the developers after the occurrence of the alleged prior breaches by the lenders. The extension agreements contained a general release by the developers in favor of the lenders as to "all ... counterclaims, defenses, rights of set-off, demands and liabilities whatsoever.known or unknown, suspected or unsuspected, both at law and in equity." (27) Based on that provision of the extension agreement, the court concluded that the developers had "contractually waived the prior breaches." (28)
Other than situations involving express waivers, however, the conduct of the parties following a first breach scenario will determine whether a prior breach claim or defense can be sustained and what remedies may be available. In Acosta v. Dist. Bd. of Trustees of Miami-Dade Comm. College, 905 So. 2d 226 (Fla. 3d DCA 2005), graduates from a medical assistant program sued the college for dramatically increasing the cost of tuition for the program contrary to initial tuition estimates. The claimants were advised of the increased costs after accepting and enrolling in the program, but before commencement of their participation and completion of the program. (29) Although the court found no breach of contract on other grounds, the court noted that, even if a valid contract had existed, the students waived the prior breach claim because they all continued to accept the benefits of the program despite knowledge of the tuition increase:
[T]he students, through their conduct, by commencing the program, satisfying all their course requirements, and eventually graduating, may be held to have acquiesced to the higher tuition. "Where a party fails to declare a breach of contract, and continues to perform under the contract after learning of the breach, it may be deemed to have acquiesced in an alteration of the terms of the contract, thereby barring its enforcement. (30)
A similar result was reached in Hamilton v. SunTrust Mortg., Inc., 6 F. Supp. 3d 1300 (S.D. Fla. 2014), a class action brought by borrowers against lenders that force-placed insurance on the subject properties at exorbitant prices. The lenders defended on the grounds that the borrowers had committed prior breaches of the loan agreements by failing to make installment payments and allowing their insurance to lapse. The court concluded that the lenders' conduct operated as an implied waiver of the prior breach defense and thereby side-stepped a discussion on whether the alleged prior breaches were material.
"There are few principles of contract law better established, or more uniformly acknowledged, than the rule that when a contract not fully performed on either side is continued in spite of a known excuse, the right to rely upon the known excuse is waived; in turn, the defense based on the excuse is lost and the party who would otherwise have been excused is liable if he or she subsequently fails to perform."
... [O]nce SunTrust chose to continue the mortgage contracts by exercising its discretion to force-place insurance after [p]laintiffs' admitted breaches, SunTrust was obliged to do so in good faith. For this reason, [p]laintiffs' prior breaches of their mortgage contracts--regardless of whether they were material breaches--do not preclude their claim for breach of the implied covenant of good faith and fair dealing against SunTrust. (31)
On the other side of this argument are cases in which an alleged implied waiver of prior breach is rebutted by evidence that the nonbreaching party did not just sit idly by and fail to object while at the same time accepting the benefits of the agreement at issue. One such case is Posik v. Layton, 695 So. 2d 759 (Fla. 5th DCA 1997). Posik involved a personal services contract between cohabitants as part of which one party would work and support the household financially (Dr. Layton) and the other party would tend to domestic administration of the home (Ms. Posik). The contract in Posik included provisions to secure the future financial well-being of Ms. Posik by requiring Dr. Layton to make changes to her will and by requiring Dr. Layton to pay Ms. Posik liquidated damages if Dr. Layton breached the agreement. The parties' relationship soured when Dr. Layton subsequently became involved with a third party. Litigation ensued to enforce the liquidated damages clause. Dr. Layton defended on the grounds that Ms. Posik had waived the claim of breach by continuing to accept the benefits of the agreement. The appellate court disagreed.
We disagree with the trial court that waiver was proved in this case. Ms. Posik consistently urged Dr. Layton to make the will as required by the agreement and her failure to do so was sufficient grounds to declare default.... When Dr. Layton introduced a third person into the relationship, although it was not an express breach of the written agreement, it explains why Ms. Posik took that opportunity to hold Dr. Layton to her express obligations and to consider the agreement in default. (32)
The court accepted Ms. Posik's persistent requests for Dr. Layton to comply with the will amendment requirements of the contract as a basis to conclude that Ms. Posik had not waived the right to demand that Dr. Layton comply with the agreement.
Waiver is a core concern when applying the prior breach doctrine. A key aspect of the analysis mandates an understanding of when "looking the other way" will foreclose enforcement options, or whether securing an express release of liability for a prior breach is necessary.
Defense v. Affirmative Relief
Asserting the first breach doctrine entails distinct requirements depending on whether the first breach is asserted as a defense to preclude enforcement of the contract or as a defense to preclude enforcement of the contract. In the posture of a claim for affirmative relief, the claimant must establish that he or she was actually capable of performing the obligation notwithstanding any discharge of the obligation. In Hosp. Mortg. Group v. First Prud. Dev. Corp., 411 So. 2d 181 (Fla. 1982), the Florida Supreme Court explained:
The holder of the duty based upon a condition precedent cannot profit from an anticipatory repudiation of a contract that he would have breached himself. It follows that [even] if performance of the conditions precedent is excusedf] the ability to perform them must still be shown....
The rule of law followed by the district court is correct in that the respondents are able to bring suit on the anticipatory repudiation, but is incorrect in allowing recovery when they are unable to prove that they could have performed.... (33)
Likewise, a prior breach can also bar an affirmative claim for breach of contract based on a "failed condition precedent" defense. (34)
The Second District's opinion in Ryan v. Landsource Holding Co., LLC, 127 So. 3d 764, 768 (Fla. 2d DCA 2013), addresses the distinction between asserting prior breach as an affirmative claim versus as a defense to enforcement. In Ryan, Landsource sought to enforce against Ryan a defaulted loan agreement. Ryan asserted Landsource's prior breach as an affirmative defense. In an effort to determine whether Ryan would have been capable of performing under the loan agreement, Landsource sought discovery of Ryan's personal financial information. Ryan objected to the discovery, claiming that whether he could actually perform under the loan agreement was irrelevant.
The Second District agreed with Ryan because Ryan's assertion of the prior breach doctrine was only defensive in nature.
Landsource Holding's argument overlooks the distinction between asserting anticipatory breach as a defense to a claim for breach of contract and asserting anticipatory breach as a basis for the recovery of damages. When anticipatory breach is asserted as a defense, the proponent is attempting to establish that his own performance under the contract was excused and thus he is not in default. But when anticipatory breach is asserted as the basis for affirmative relief, the proponent is seeking to recover damages from the party allegedly in breach of the contract. In the latter situation, the party seeking affirmative relief cannot establish that the repudiating party's breach caused him damages unless he proves that he would have been able to perform the contract if the repudiating party had not breached it. (35)
Asserting the doctrine defensively excuses any requirement that the non-breaching party establish an ability to perform. However, if a litigant seeks to recover damages for the prior breach, the litigant must plead and prove an ability to perform, and discovery regarding ability, including personal financial information, when relevant, will be permitted.
Remedies available under the prior breach doctrine will depend in large part on the circumstances, particularly the subsequent conduct of the non-breaching party. How a nonbreaching party acts following the first breach will determine whether that party will be able to secure rescission, be entitled to no longer continue performing, or recover damages. If a breach is not acknowledged and persistently pursued, the right of rescission may be lost and other rights may be diluted. (36) The same may apply to the full extent of damages. (37)
Before such limiting conduct occurs, the material breach of a dependent covenant "gives to the injured party the right to sue at law for damages, or courts of equity may grant rescission in such instances if the remedy at law will not be full and adequate." (38) If a first breach occurs, but the contract is anticipated to reap greater benefits in the future versus the benefits of rescission, (39) then continuing to perform while objecting to the breach (to preserve the claim of breach) will be preferable to pursuing rescission. If rescission is the best remedy, however, counseling clients successfully to avoid a waiver may make or break your case.
The prior breach doctrine is prominent in post-employment restrictive covenant cases. A former employee's defense of prior breach by the employer may bar an employer's right to preliminary injunctive relief, which is often strategically critical in such cases. Preliminary injunctive relief will likely be denied or dissolved if an employer has failed to pay compensation owed to the former employee or breached some other material term of employment.
No. Trust Invs., N.A. v. Domino, 896 So. 2d 880 (Fla. 4th DCA 2005), is instructive. After Domino sold his company to Northern Trust, he continued on as an employee under an employment contract containing restrictive covenants. The employment contract provided that Domino could earn bonuses from a $7 million bonus pool to be funded by Northern Trust. The decision to award bonuses and the amount of each bonus was in the discretion of Domino, but Northern Trust did not have discretion to under fund the bonus pool.
Northern Trust only funded the bonus pool up to $4 million, despite Domino's acknowledged objection. Northern Trust later terminated Domino's employment. Litigation ensued, and Northern Trust moved for a preliminary injunction to enforce the restrictive covenants against Domino. Domino defended on the basis that Northern Trust had committed a prior breach by failing to fully fund the bonus pool. The Fourth District agreed with Domino and affirmed a denial of the injunction motion:
The trial court may consider an employer's breach of the employment agreement when deciding whether to grant a temporary injunction to enforce a covenant not to compete....
"A party is not entitled to enjoin the breach of a contract by another, unless he himself has performed what the contract requires of him so far as possible; if he himself is in default or has given cause for nonperformance by defendant, he has no standing in equity..
"If the employer wrongfully refuses to pay the employee his compensation, the employee is relieved of any further obligation under the contract and the employer cannot obtain an injunction...." (40)
Faced with a prior breach defense when seeking to enforce traditional restrictive covenants, an employer must be prepared to rebut the claim by showing that the employer did not commit a prior breach, or that employer's prior breach was not material or was not dependent. In Reliance Wholesale, Inc. v. Godfrey, 51 So. 3d 561, 565 (Fla. 3d DCA 2010), an employer sought a preliminary injunction against a former employee who asserted the employer's prior breach as a defense to the action. In reversing the denial of the motion for temporary injunction, the Third District Court of Appeal explained:
Although a prior breach by Reliance could be a defense to the enforcement of the non-compete provision in the 2005 agreements, Reliance certainly did rebut this defense and the 2005 agreement unambiguously disputes the "viability" of this defense.
First, Reliance argued that when the overpayment and commission issues surfaced, the parties negotiated and settled their disagreements, and thus there could be no breach....Second, and more importantly, Florida law limits this defense to "dependent covenants." ... A plain reading of the non-compete clause of the 2005 agreement demonstrates that they are independent, not dependent, covenants:
"The covenants set forth herein shall be construed as agreements independent of any other provision in any other agreement by, between, among, or affecting Reliance Medical Wholesale, Inc. and Employee, and the existence of any claim or cause of action of Employee against Reliance Medical Wholesale, Inc., whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement of this agreement."
We therefore hold that, as a matter of law, Godfrey's asserted defense--that she is excused from performance of the non-compete provision of the 2005 agreement based on Reliance's prior breach--is not a valid or "viable" defense to the issuance of a temporary injunction in this case. Thus, we hold that the trial court erred by concluding that Reliance failed to establish that it has a substantial likelihood of success on the merits. (41)
Reliance Wholesale exemplifies how proper contract preparation and informed counsel can provide clients with a significant advantage when the time for enforcement of a restrictive covenant is at hand. In crafting agreements that include restrictive covenants, counsel for employers and employees alike must consider carefully whether to make obligations dependent or independent. Counsel must then put such strategic decisions into action by preparing the contract accordingly, and in unambiguous terms. (42)
A common question is whether attorneys' fees are recoverable by the prevailing party when prior breach is a defense and the remedy of rescission is afforded. A first-breaching, non-prevailing party would claim that a rescission of the contract comes with it the elimination of the contractual right to claim attorneys' fees. This argument prevails where a party defends against a contract on the basis that the contract never actually came into being, in which case, that party cannot also benefit from the contractual attorneys' fees clause.
In prior breach cases, however, a rescission or the nonenforcement of a contract will not preclude the right to an award of attorneys' fees afforded by the contract between the parties. In Katz v. Van Der Noord, 546 So. 2d 1047 (Fla. 1989), the Florida Supreme Court explained the issue as follows:
The distinction between no contract at all and one that is unenforceable makes all the difference.... We hold that when parties enter into a contract and litigation later ensues over that contract, attorney's fees may be recovered under a prevailing-party attorney's fee provision contained therein even though the contract is rescinded or held to be unenforceable. The legal fictions which accompany a judgment of rescission do not change the fact that a contract did exist. It would be unjust to preclude the prevailing party to the dispute over the contract which led to its rescission from recovering the very attorney's fees which were contemplated by that contract. (43)
Practitioners should work with clients early in the life of a proposed transaction to understand the dealings contemplated and the priorities applicable to performance. Learning the business to be done and where things can go wrong is essential, and input from clients is critical. With this data from the dealmakers, counsel should identify where opportunities for substantial injury may lie and what down-the-road implications performance or nonperformance by either party suggests.
Whether identifying or attempting to address the materiality or the dependent nature of a particular contractual component, stating clearly the specific intentions of the parties and the desired interplay between the various obligations and the applicable remedies should be a top priority. The negotiators and the drafters should specify whether a certain breach will be deemed "material" and whether certain terms are considered "of the essence" or "essential" to the viability of the entire contract. Contracts should also be specific (and explicit) about what contractual terms are to be treated as dependent or independent.
At a very early stage in the structuring and drafting process, counsel should consider whether the contract should openly reflect an all-or-nothing result. One way to tie all ends together might be inclusion of a provision along the following lines:
Dependent/Material Terms. Except where stated otherwise specifically as to any particular term set forth herein, all terms, conditions, duties and obligations of this [a]greement are and must be treated as both material and dependent for all purposes, including specifically for purposes of applying Florida's "prior breach" doctrine. A breach of any such provision shall be deemed to go to the essence of this [a]greement and would destroy the whole consideration and purpose of this [a]greement.
In tandem with such a provision, counsel should identify any contractual provisions that are to be deemed immaterial/insubstantial or independent. Each contract should be addressed on the basis of the facts and circumstances unique to the contractual arrangement and parties at issue.
The next most important time to counsel clients and to structure events comes at and following the moment of a first breach. The manner in which the nonbreaching party reacts and responds to a first breach may affect dramatically the scope of available remedies going forward. Noting each breach and objecting in writing should be considered a crucial part of the plan of action going forward to avoid a waiver. The prior breach doctrine can be a potent weapon as well as a protective shield, but its many layers must be explored, understood, and implemented with forethought to preserve its viability and to maximize its utility.
(1) See, e.g., Colucci v. Kar Kare Auto. Group, Inc., 918 So. 2d 431, 437 (Fla. 4th DCA 2006); Toyota Tsusho Am., Inc. v. Crittenden, 732 So. 2d 472, 477 (Fla. 5th DCA 1999) ("When a nonbreaching party to a contract is confronted with a breach by the other party, the nonbreaching party may stop performance, treating the breach as a discharge of its contractual liability."); City of Miami Beach v. Carner, 579 So. 2d 248, 251 (Fla. 3d DCA 1991) ("The rule is quite clear that a contracting party, faced with a material breach by the other party, may treat the contract as totally breached and stop performance."); Hamilton v. Suntrust Mortg. Inc., 6 F. Supp. 3d 1300, 1309 (S.D. Fla. 2014) ("It is a fundamental principle of Florida contract law that a material breach by one party excuses the performance by the other."); Focus Mgmt. Group USA, Inc. v. King, 171 F. Supp. 3d 1291, 1299 (11th Cir. 2016) ("[T]he general rule is that a material breach of the agreement allows the non-breaching party to treat the breach as a discharge of his contractual liability.").
(2) See, e.g., Gittlin Cos., Inc. v. David & Dash, Inc., 390 So. 2d 86 (Fla. 3d DCA 1980); Cheezem Dev. Corp. v. Intracoastal Sales & Serv., Inc., 336 So. 2d 1210, 1212 (Fla. 2d DCA 1976).
(3) See, e.g., Ryan v. Landsource Holding Co., LLC, 127 So. 3d 764, 768 (Fla. 2d DCA 2013).
(4) See, e.g., Fabel v. Masterson, 951 So. 2d 934, 936 (Fla. 4th DCA 2007); Dutra v. Kaplan, 137 So. 3d 1190 (Fla. 3d DCA 2014) (discussing remedies available for anticipatory repudiation in a "first to breach" analysis).
(5) See, e.g., Massey-Ferguson, Inc. v. Santa Rosa Tractor Co., 366 So. 2d 90 (Fla. 1st DCA 1979) ("Plaintiff's performance [of his contractual obligations] is a 'condition precedent' to his action for defendant's breach....").
(6) No. Trust Invs., N.A. v. Domino, 896 So. 2d 880, 882 (Fla. 4th DCA 2005) ("[A] material breach of the agreement allows the non-breaching party to treat the breach as a discharge of his contract liability.").
(7) Richland Towers, Inc., 139 So. 3d 318, 321 (Fla. 2d DCA 2014) (In determining the existence of a prior breach, "the circuit court necessarily had to determine that the parties' obligations under the contracts were dependent covenants.").
(8) See, e.g., Hamilton, 6 F. Supp. 3d at 1309 (quoting MDS (Canada), Inc., 720 F.3d at 859) ("There are few principles of contract law better established, or more uniformly acknowledged, than the rule that when a contract not fully performed on either side is continued in spite of a known excuse, the right to rely upon the known excuse is waived...."); Branch Banking & Trust Co. v. S&S Development, Inc., 2015 WL 12683834, * 8 (M.D. Fla. June 30, 2015) (finding a prior breach defense was contractually waived).
(9) Taylor v. Genesee & Wyoming, Inc., 2015 WL 12683821 * 5 (M.D. Fla. Sept. 25, 2015) (citing In re: Walter M. Thomas, Debtor, 51 B.R. 653, 654 (M.D. Fla. 1985); and Reliance Wholesale, Inc. v. Godfrey, 51 So. 3d 561, 565 (Fla. 3d DCA 2010)); see also Gilbert & Caddy, P.A. v. JP Morgan Chase Bank, NA., 193 F. Supp. 3d 1294, 1307 (S.D. Fla. 2016) ("A material breach to excuse performance only occurs when a party breaches 'mutually dependent covenant[s]'....") (quoting Mizner Land Corp. v. Abbott, 128 Fla. 489, 504 (Fla. 1937)).
(10) See, e.g., Branch Banking & Trust Co., at * 8 ("The record demonstrates that [d]efendants contractually waived the prior breaches.").
(11) See, e.g., AVVA-BC, LLC v. Amiel, 25 So. 3d 7 (Fla. 3d DCA 2009) (reversing rescission of lease premised upon an alleged prior breach of dependent covenant based on waiver by acceptance of benefits under the lease); Hamilton, 6 F. Supp. 3d at 1309 (finding waiver of a "prior breach" defense in case against lenders for bad faith in force-placing insurance); Posik v. Layton, 695 So. 2d 759, 762 (Fla. 5th DCA 1997) (reversing ruling that "prior/first breach" defense/claim was waived); City of Miami Beach, 579 So. 2d at 251 (determining that contractual nonwaiver provision may avoid waiver by conduct of prior breach claim for "total damages").
(12) Burlington, 160 So. 3d at 960. See also Beefy Trail, Inc. v. Beefy King Int'l, Inc., 267 So. 2d 853, 857 (Fla. 1972) ("To constitute a vital or material breach a defendant's nonperformance must be such as to go to the essence of the contract....A defendant's failure to perform some minor part of his contractual duty cannot be classified as a material or vital breach."); Covelli Family, LP. v. ABG5, LLC, 977 So. 2d 749, 752 (Fla. 4th DCA 2008); MDS (Canada), Inc. v. Rad Source Techns., Inc., 720 F.3d 833, 849 (11th Cir. 2013); Branch Banking & Trust Co., 2015 WL 12683834 at *3; Hamilton, 6 F. Supp. 3d at 1309. Cases that do not use this "essence of the contract" language do exist. For example, in Gittlin, 390 So. 2d at 86, the court found a breach "insubstantial" and not "material" where the small monetary value of an alleged prior breach was weighed against the much larger monetary value of the obligation sought to be discharged. "Purportedly because the appellee David & Dash's employees made $597.08 in direct sales of wallpaper, in violation of the exclusive distribution provision of the parties' agreement, the appellant, Gittlin, ...refused to honor its undertaking to purchase well over $100,000 of the material from the appellee. On cross-motions for summary judgment, the trial court held that David & Dash's breach was not a material or substantial one....We entirely agree with that determination." Gittlin may be an outlier, but it has no negative or limiting citations.
(13) See, e.g., Covelli Family, L.P., 977 So. 2d at 752 (commercial lessor's failure to obtain estimate by reputable contractor or architect prior to sending notice of its intent to terminate lease under "damage or destruction" section of lease was a technical, rather than a material, breach of lease).
(14) See, e.g., MDS (Canada) Inc., 720 F.3d at 850 (not a material breach of a requirement to maintain patents where the patent was for obsolete or noncompetitive product, the licensee deemed the loss of the patent so unimportant that it never requested the patent be retroactively maintained, and the licensee suffered no harm from the breach).
(15) See, e.g., Three Keys, Ltd. v. Kennedy Funding, Inc., 28 So. 3d 894, 901-02 (Fla. 5th DCA 2009) (affirming trial court's finding that majority lender's alleged failure to consult with minority lender before liquidating the property was not a material breach of the agreement because agreement further provided that, if the parties could not agree after consultation, the majority lender was authorized to proceed in its sole discretion).
(16) See, e.g., Focus Mgmt. Group USA, Inc., 171 F. Supp. 3d at 1297 ("Price or compensation is typically an essential term of a contract..").
(17) See, e.g., Legacy Place Apartment Homes, LLC v. PGA Gateway, L.T.D., 65 So. 3d 644 (Fla. 4th DCA 2011) ("Because time was 'of the essence' in the post-closing agreement, appellee's failure to complete construction of RCA Boulevard by the deadline in the contract constituted a material breach."); Centurion Air Cargo, Inc. v. United Parcel Serv. Co, 420 F.3d 1146, 1151 (11th Cir. 2005) ("Under Florida law, failure to make a payment on time does not constitute per se a material breach of contract. Rather, to constitute a material breach, the late payment must occur where time is of the essence.").
(18) Sublime, Inc. v. Boardman's Inc., 849 So. 2d 470, 471 (Fla. 4th DCA 2003) ("As a general rule, time is considered to be of the essence where an agreement specifies, or where such may be determined from the nature of the subject matter of the contract, or where treating time as nonessential would produce a hardship, or where notice has been given to the defaulting party requiring that the contract be performed within a stated time, which must be a reasonable time according to the circumstances.").
(19) See, e.g., Royal Dev. & Mgmt. Corp. v. Guardian 50/50 Fund V, Ltd., 583 So. 2d 403, 405 (Fla. 3d DCA 1991) ("The 'time is of the essence' provision in this contract is not shown to be clearly applicable to the clearing of construction debris. The trial court correctly considered that provision unimportant in this context.") (internal citations and quotations omitted); Jackson v. Holmes, 307 So. 2d 470, 472 (Fla. 2d DCA) ("A 'time is of the essence' provision will be given effect provided it is shown to be clearly applicable to the contract requirement against which it is sought to be applied.").
(20) See, e.g., Edwards Waters College, Inc. v. Johnson, 707 So. 2d 801, 802 (Fla. 1st DCA 1998) (tender of payment one day late was not a material breach of settlement agreement).
(21) Hamilton, 6 F. Supp. 3d at 1309 ("Whether a particular breach is material raises an issue of fact.").
(22) See, e.g., Indemnity Ins. Corp. of DC v. Caylao, 130 So. 3d 783, 787 (Fla. 1st DCA 2014) ("Whether a breach is material and important is a question of degree, which must be answered by weighing the consequences of the breach in light of the actual custom of persons in the performance of contracts similar to the one involved in the particular case."); Bland v. Freightliner, LLC, 206 F. Supp. 2d 1202, 1210 (M.D. Fla. 2002) ("A material breach occurs only when an injured party has sustained a substantial injury due to the breach. To determine whether the breach is material, there are certain criteria one may consult when undertaking such a task [including].: (1) the extent to which the injured party will be deprived of the benefit which can reasonably be expected; (2) the extent to which the injured party can be adequately compensated for the part of the benefit of which she will be deprived; (3) the extent to which the breaching party will suffer forfeiture; (4) the likelihood that the breaching party will cure; and (5) the extent to which the behavior of the breaching party comports with the standards of good faith and fair dealing.").
(23) Steak House, Inc. v. Barnett, 65 So. 2d 736, 737-38 (Fla. 1953) (emphasis added) (internal citations omitted). See also Sun City Holding Co., 97 Fla. at 780-81 ("In determining whether covenants are dependent or not, the intention of the parties is to be sought for and regarded in the light of all the circumstances evidenced by the contract. The court will consider whether the acts contemplated by the covenants in question are merely subordinate and incidental, or whether they go to the entire consideration of the contract; whether the matters relied upon by the complaining party amount to mere promises or expectations of future events, or whether they relate to material and dependent acts to be performed concurrently with the covenants of the other party; and all other facts and circumstances from which the intention of the parties, which is the ultimate controlling element, may be ascertained."); Richland Towers, Inc., 139 So. 3d at 321 ("When a dependent covenant has been breached, the entire contract is virtually destroyed."); AVVA-BC, LLC, 25 So. 3d at *11 ("A covenant is dependent where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted."); SEB S.A. v. Sunbeam Corp., 148 Fed. App'x 774, 788 (11th Cir. 2005).
(24) Some cases suggest that all provisions in an agreement are presumed to be dependent absent a contrary intent expressed by the parties, another potential difference from materiality. See, e.g., Richland Towers, Inc., 139 So. 3d at 321 ("The general rule that [all] covenants are considered dependent will be trumped by a contrary intention expressed in an agreement."); Taylor, 2015 WL 12683821 at *6. This proposition is hard to swallow given that a dependent covenant is defined as so significant that a breach "destroys the entire contract." Many contracts (and statutes) contain excruciatingly detailed provisions controlling the manner of delivery of contractual notices, yet Florida courts routinely identify such requirements as ministerial in nature and not deserving of strict compliance.
(25) See, e.g., Richland Towers, Inc., 139 So. 3d at 321 ("Whether the payment obligations under the employment agreements were dependent or independent covenants is an issue of law that turns on the proper interpretation of the contracts."); Sun City Holding Co., 97 Fla. at 777 ("In determining whether or not covenants are dependent, the intention of the parties, the ultimate controlling element, is to be sought for and regarded in the light of all the circumstances evidenced by the contract, and the court will consider whether the acts contemplated by the covenants are merely subordinate and incidental, or whether they go to the entire consideration of the contract..").
(26) Carner, 579 So. 2d at 251.
(27) BB&T, 2015 WL 12683834 at *8.
(29) Acosta, 905 So. 2d at 226.
(30) Id. at 228-29. A "waiver by conduct" analysis is particularly relevant in cases in which the remedy of rescission is sought. See, e.g., AVVA-BC, LLC, 25 So. 3d at 7 ("Amiel's actions in accepting the benefits of this contract for seven months after learning that landlord approval had not been (and was not being) obtained, constituted a waiver of the right to rescind."); Scocozzo v. Gen. Dev. Corp., 191 So. 2d 572 (Fla. 4th DCA 1966) ("Rescission and cancellation are harsh remedies and therefore not favored by the courts. Courts of equity will not grant the remedy unless it clearly appears that the claimant is entitled thereto and has not by his own conduct waived his right to the relief claimed. Because of this view, slight circumstances indicating a purpose or intent of the claimant to waive the right will bar relief.... It has been repeatedly held that a person by the acceptance of benefits may be estopped from questioning the validity and effect of a contract; and, where one has an election to ratify or disaffirm a conveyance, he can either claim under or against it, but he cannot do both, and having adopted one course with knowledge of the facts, he cannot afterwards pursue the other.") (citing Hendricks v. Stark, 126 So. 293-97 (Fla. 1930)).
(31) Hamilton, 6 F. Supp. 3d at 1309 (quoting MDS (Canada), Inc., 720 F.3d at 859).
(32) Posik, 695 So. 2d at 762.
(33) Hosp. Mortg. Group, 411 So. 2d at 182-83 (emphasis added); see also Ryan v. Landsource Holding Co., LLC, 127 So. 3d 764, 768 (Fla. 2d DCA 2013) ("[A] party's anticipatory repudiation of a contract alone does not entitle the non-breaching party to damages. To be entitled to damages based upon an anticipatory breach, the nonbreaching party must establish its ability to perform at the time of the breach.") (internal citations omitted) (emphasis added). The cases cited herein discuss the legal concepts at issue in the context of "anticipatory repudiation," which shows how the prior breach doctrine touches upon and is linked to various areas of and terminology used in contract law. Such crossover makes the prior breach doctrine difficult to cast a clear light on in the absence of thorough examination.
(34) See, e.g., Massey-Ferguson, Inc., 366 So. 2d at 92 ("[I]n order for the plaintiff to maintain its contract action, it must first establish performance on its part of the contractual obligations thereby imposed. Plaintiff's performance is a 'condition precedent' to his action for defendant's breach, which should be alleged and proved prima facie."); see also Babe, Inc. v. Baby's Formula Serv, Inc., 165 So. 2d 795, 798 (Fla. 3d DCA 1964).
(35) Ryan, 127 So. 3d at 768 (emphasis added).
(36) See, e.g., AVVA-BC, LLC, 25 So. 3d at * 11 ("[W]here a party seeking rescission has discovered grounds for rescinding an agreement and either remains silent when he should speak or in any manner recognizes the contract as binding upon him, ratifies or accepts the benefits thereof, he will be held to have waived his right to rescind."); Scocozzo, 191 So. 2d at 579 ("Rescission and cancellation are harsh remedies and therefore not favored by the courts. Courts of equity will not grant the remedy unless it clearly appears that the claimant is entitled thereto and has not by his own conduct waived his right to the relief claimed. Because of this view, slight circumstances indicating a purpose or intent of the claimant to waive the right will bar relief."); Burger King Corp. v. Hinton, Inc., 203 F. Supp. 2d 1357, 1365 (S.D. Fla. 2002) (emphasis added) ("Under basic contract principles, when one party to a contract feels that the other contracting party has breached its agreement, the non-breaching party may either stop performance and assume the contract is avoided, or continue its performance and sue for damages. Under no circumstances may the non-breaching party stop performance and continue to take advantage of the contract's benefits.").
(37) City of Miami Beach, 579 So. 2d at 251.
(38) Mabry Corp. v. Dobry, 141 So. 2d 335, 338 (Fla. 2d DCA 1962).
(39) In addition, rescission may only be an option when the parties can be restored to their pre-contract positions. See, e.g., Steak House, Inc., 65 So. 2d 738 ("[E]quity will not usually order rescission unless the condition of the parties as it existed prior to the execution of the contract can be restored.").
(40) Domino, 896 So. 2d at 881-82 (internal citations omitted). See, e.g., Benemerito & Flores, M.D.'s, P.A. v. Roche, 751 So. 2d 91, 93-94 (Fla. 4th DCA 1999) ("We find no abuse of discretion in the trial court's refusal to grant the association a temporary injunction where there was evidence that the association materially breached the employment agreement by refusing to credit Dr. Roche with all dialysis services performed in calculating her bonus."); Cordis Corp. v. Prooslin, 482 So. 2d 486, 490 (Fla. 3d DCA 1986) ("In the non-competition and trade-secret context, an employer's breach of the employment contract is a relevant factor in determining whether the employer is entitled to a temporary injunction, at least where the breach involves a dependent covenant.").
(41) Reliance Wholesale, 51 So. 3d at 565 (internal citations omitted) (emphasis added).
(42) Taylor, 2015 WL 12683821 at *7 (rejecting employer's argument that confidentiality covenant was independent when attempting to rebut prior breach defense, stating: "[T]he [a]greement, when read as a whole, [does not] indicate [that the confidentiality provision was to be deemed as an independent covenant]. The [a]greement does not contain language sufficient to indicate that the provisions within are intended to be viewed as separate or independent of each other.... GWI has not proven, and the undersigned cannot conclude based on a reading of the [a]greement, that the confidentiality provision fails to go to the whole consideration of the contract, that it is not 'such an essential part of the bargain,' and that it is not such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted.") (internal quotations and citations omitted).
(43) Katz, 546 So. 2d at 1049 (internal quotations and citations omitted).
STANFORD R. SOLOMON practices in virtually every area of commercial and complex family law. He has served as chair of the Judicial Administration and Civil Procedure Rules Committees and on the Appellate Court Rules Committee. He earned his B.A. from the University of Pennsylvania, magna cum laude, and received his J.D. from the University of Florida Levin College of Law, with honors. Based in Tampa, he practices in various state and federal courts nationwide.
GABRIEL D. PINILLA is a results-oriented commercial litigator and business law advisor in Tampa focused on helping clients resolve their legal and business issues action and strategic problem-solving. He earned his J.D.from St. Thomas University School of Law, with honors, where he served as editor-in-chief of the law review.
|Printer friendly Cite/link Email Feedback|
|Author:||Solomon, Stanford R.; Pinilla, Gabriel D.|
|Publication:||Florida Bar Journal|
|Date:||Jul 1, 2018|
|Previous Article:||Weaver v. Myers: The Future of Ex Parte Communication in Florida Medical Malpractice.|
|Next Article:||Reversed and Remanded for a New Trial: A Guide to Retrial in Civil Cases.|