Many years after the formation of a partnership, it was discovered that despite its explicit declaration in the agreement between the partners, one of the partners did not act in order to obtain the regulatory approvals required for its entry into the partnership.
The Court rejected the claim that it was a material breach and the remedy of removing the breaching party from the partnership that was sought for this reason. A material breach is one that was agreed upon in the contract to be construed as a material breach or a breach for which it can be assumed that a reasonable person would not have entered into that contract had such person foreseen the breach and its consequences. Here, it is a case where not only did the parties refrain from defining a failure to attain the approvals as a material breach, but that the receipt of the approvals was not required at all under the terms of the agreement. In fact, at the time of the drafting of the agreement the parties themselves were content with the partner's statement regarding the mere renewal of its efforts to obtain the necessary approvals. Moreover, the lack of importance that the parties attached to receiving the approvals becomes more acute when the absence of the requirement in the agreement comes after a period of six years from the establishment of the partnership in which the approvals were not received. Therefore, it cannot be argued that the parties would not have entered into the agreement in the first place had they known that the statement was not true and that the approvals would not be obtained.