Two Wrongs Do Not Make a Right: Illinois Adopts the ‘Partial Breach’ Doctrine
A party who materially breaches a contract cannot take advantage of the terms of the contract which benefit it, nor can it recover damages from the other party to the contract.1 From this, Illinois follows the “first-to-breach rule”, which holds a material breach of a contract provision by one party may be grounds for releasing the other party from its contractual obligations.2 This is because Illinois law “does not condone breach of contract, but it does not consider it tortious or wrongful. If a party desires to breach a contract, he may do so purposely as long as he is willing to put the other party in the position he would have been had the contract been fully performed. … Fault is irrelevant to breach of contract. Whether one intentionally, carelessly, or innocently breaches a contract, he or she is still considered to be in breach of that contract and the extent of the breaching party’s liability is generally the same.”3 Generally, the purpose of contract damages is to place the nonbreaching party in a position that it would have been in had the contract been performed, not to provide the nonbreaching party with a windfall recovery.4
In PML Development LLC v. Village of Hawthorn Woods,5 the Illinois Supreme explicitly adopted the misnamed “partial breach” doctrine as an exception to the first-to-breach rule.6 It held, for the first time, that if an injured party elects to continue with a contract after a material breach by the other party, the injured party cannot later cease performance and then claim it had no duty to perform based on the other party’s first material breach.7 When faced with a material breach, the injured party may proceed in one of two ways: (a) repudiate the agreement, cease performing, and sue for damages; or (b) continue to perform, retaining its benefit of the bargain, and sue for damages.8 If the injured party elects to continue to perform, it must continue to perform or incur liability for breach.9 The PML Development Court summarized the doctrine as “when a party to a contract elects to continue performing despite the other party’s material breach, the nonbreaching party remains bound to its obligation to perform.”10
The court then went on to address a further question: if an injured party elects to continue performing a contract – despite the other party’s material breach – what is the consequence of the injured party’s subsequent material breach?11 First, in such a case, the courts treat each material breach as a “partial”, or better understood as a nonmaterial, breach.12 Thus, if both parties breach, both parties are entitled to damages, but neither is entitled to total damages for breach.13 The court should calculate each party’s respective damages and then offset the ultimate judgment entered.14
In her special concurrence, Justice Rochford, quoting a seventh circuit case, wrote to clarify that the “partial breach” doctrine is a misnomer and “is better understood as an election of remedies.”15 There are either material or nonmaterial (minor) breaches of a contract. The remedy depends upon whether the breach is minor or material. A nonmaterial breach does not allow the injured party to terminate the contract.16 A material breach remains material regardless of the remedy sought and cannot be “converted” into a “partial” breach by continued performance. Instead, under the doctrine, a material breach is treated as if it were a nonmaterial breach.17 It is this author’s opinion that Justice Rochford’s preferred terminology should be adopted in future cases as it more accurately describes the law’s treatment of mutual material breaches of contract when there is continued performance.
Ronald D. Menna, Jr. is a principal at Fischel | Kahn, Chicago, where he concentrates in commercial litigation, civil appeals, guardianships, association representation, and corporate law. He is a past chair of the ISBA Civil Practice and Procedure Section Council and chair of the Allerton 2019 and 2023 Conferences.
2. PML Development LLC v. Village of Hawthorn Woods, 2023 IL 128770, ¶ 50 (“In other words, the first-to-breach rule excuses the injured party from future performance and allows the injured party to pursue its breach of contract claims. Conversely, the first breaching party cannot seek to enforce the contract against the injured party.”); Mohanty v. St. John Heart Clinic, S.C., 225 Ill.2d 52, 70 (2006); William Blair & Co., LLC v. FI Liquidation Corp., 358 Ill.App.3d 324, 346 (1st Dist.), appeal denied, 216 Ill.2d 737 (2005)(“Under general contract principles, only a material breach of a contract provision by one party will justify nonperformance by the other.”); Restatement (Second) of Contracts § 229 (1981). The Appellate Court in LB Steel, LLC v. Carlo Steel Corp., 2018 IL App (1st) 153501, ¶ 31, held: “A material breach of contract constitutes the ‘failure to do an important or substantial undertaking set forth in a contract.’ Mayfair Construction Co. v. Waveland Associates Phase I Ltd. Partnership, 249 Ill.App.3d 188, 202-03, 188 Ill.Dec. 780, 619 N.E.2d 144 (1993).”
3. Album Graphics, Inc. v. Beatrice Foods Co., 87 Ill. App. 3d 338, 350 (1st Dist. 1980).
4. Jaime v. Nomanbhoy as Tr. of Nomanbhoy 2007 Children's Tr., 2023 IL App (3d) 190185-U, ¶ 92, citing, Federal Insurance Co. v. Binney & Smith, Inc., 393 Ill.App.3d 277, 296 1st Dist.), appeal denied, 234 Ill.2d 519 (2009).
5. PML Development, supra note 2.
6. Id., 2023 IL 128770, ¶¶ 48, 52.
7. Id. at 52.
8. Id., 2023 IL 128770, ¶ 52 (“All of this is to say that, following a material breach, the injured party reaches a fork in the road: it may either continue the contract (retain its benefits of the bargain and sue for damages) or repudiate the agreement (cease performing and sue for damages).”).
9. Dustman v. Advocate Aurora Health, Inc., 2021 IL App (4th) 210157, ¶ 38.
10. PML Development, supra note 2 at ¶ 57.
11. Id., 2023 IL 128770, ¶ 57. “The facts relevant to the parties’ remedies are straightforward: the Village and PML each materially breached the agreement, and each party, despite the mutual breaches, persisted in performing under the agreement.” Id., 2023 IL 128770, ¶ 76 (Rochford, J., specially concurring).
12. Id. at ¶ 66.
13. Id.
14. Id. at ¶ 67.
15. Id. at ¶¶ 76-77 (Rochford, J., specially concurring), citing Emerald Investments v. Allmerica Financial Life Insurance & Annuity Co., 516 F.3d 612, 618 (7th Cir. 2008).
16. Id. at ¶¶ 78-79 (Rochford, J., specially concurring).
17. Id. at ¶ 79 (Rochford, J., specially concurring).