In PML Development LLC v. Village of Hawthorn Woods, 2023 IL 128770, the Illinois Supreme Court adopted the partial breach rule for when two parties to a contract each breach but elect to continue performing. In PML, PML agreed to develop and convey land to the Village of Hawthorn Woods for the sum of one dollar, free and clear of any liens or other encumbrances. PML was to turn a profit by charging a fee to other parties for dumping dirt that PML would then use to grade the land. PML, 2023 IL 128770 at ¶¶ 4-6. PML alleged that the Village first breached the contract by failing to issue a grading permit and changing plans outside the scope of the contract. Id. at ¶ 12. The Village countered, and argued that PML breached the contract, including failing to pay taxes and fund a drawdown account. Id. at ¶ 31.
The Illinois Supreme Court addressed both parties breaching the agreement by formally adopting the partial breach doctrine. The partial breach doctrine is triggered when two contractual parties each breach, but otherwise continue to perform under the terms of the agreement. Under the doctrine, the parties are entitled to damages from the other party’s breach but are otherwise subject to the contract’s terms because they elected to continue performing. Put simply, parties who continue to perform after the other party breaches are still bound by the contract’s terms. In this case, the court held that PML had a viable claim against the Village because the Village breached the terms of the agreement. But, because PML and the Village elected to continue performance and were otherwise bound by the contract, the court also found that the Village had a claim against PML for PML’s later breach. Id. at ¶ 66. The court then remanded the issue of calculating damages to the trial court. If you have a question about a contract dispute, contact Michael Haeberle at firstname.lastname@example.org.