Illinois Supreme Court – Partial Breach of Contract Doctrine

In the Illinois Supreme Court Case PML Development, LLC v. Village of Hawthorn Woods, 2023 IL 128770 (Ill. 2023), the Court adopted the “partial breach doctrine”. Under the partial breach doctrine, if a party continues with a contract after a material breach by the other party, the breach becomes partial, and the injured party is still required to fulfill its obligations under the contract. The result is that both parties can maintain viable claims for breach of contract, even if they choose to keep the contract in force.

Illinois Circuit Court Ruling

In PML Development, the Court addressed a dispute between a developer (PML) and the Village of Hawthorn Woods over a development contract the parties executed in 2012. Pursuant to their contract, PML agreed to grade a 62-acre parcel and donate it to the Village on or before December 31, 2015. However, the business contract was contingent upon the Village issuing appropriate permits. The Village delayed permitting, imposed unapproved revisions, and issued stop-work orders. PML continued performance but failed to fund a drawdown account, pay taxes, reconstruct the road, and deliver the land by the deadline. The circuit court ruled that both parties materially breached the agreement but determined the Village’s breach occurred first, thus excusing PML’s performance and awarding damages and attorney’s fees to PML.

Illinois Appellate Court Ruling

One appeal, the Illinois appellate court reversed, applying the “election of remedies” or “partial breach” doctrine, concluding that since PML continued to perform even after the Village’s breach, it remained bound by the contract and could not recover for its later default.

Illinois Supreme Court Ruling

Then, in June 15, 2023 the Illinois Supreme Court opinion, written by Justice O’Brien, reversed in part and affirmed in part. It held that the circuit court correctly awarded PML damages based on the Village’s initial breach. The Supreme Court rejected the appellate court’s “rigid” application of the election doctrine in a way that barred PML’s recovery altogether. The court clarified that PML’s continued performance did not strip its ability to recover; rather, it converted the Village’s earlier breach into a partial breach, preserving PML’s claims. It also held that the circuit court erred in denying the Village’s counterclaims, and since the Village likewise continued performance after PML’s breaches, it was entitled to recover its own damages, subject to offset. Accordingly, the Supreme Court affirmed the trial court’s judgment for PML on its breach claim, reversed the judgment on the Village’s counterclaim, and remanded for a recalculation of mutual damages and offsets.

This opinion reaffirmed that Illinois law allows mutual material breaches and continued performance to coexist, enabling both parties to seek damages—so long as the trial court adjusts awards equitably. Justice Rochford, in a special concurrence, emphasized that this “partial breach doctrine” is better conceptualized as the election of remedies, reinforcing that neither party can claim both the benefits and discharge under a breached contract without consequence.

Broader Legal Impact of PML Development Case

This ruling is significant for contract law in Illinois, because it clarifies that material breach followed by continued performance does not extinguish breach claims. Continuation after of performance after a material breach can be treated as a partial breach—not a total termination. The ruling triggers a dual-recovery framework where each party may seek damages with equitable offsets, reinforcing fairness and flexibility in contract enforcement.

By embracing this election-of-remedies framework, Illinois courts can now allow more flexible, fairness-driven outcomes, moving away from rigid “first-to-breach” or “all-or-nothing” doctrines.

Practical Takeaways from PML Development Case

There are a number of takeways from the PML Development case that could be helpful for drafting and negotiating contracts, as well as in business litigation. Parties should be clear when drafting contracts about what constitutes a breach, how to terminate, and how damages will be deducted or offset. They should also be clear when arguing these matters in court. Contracts may include explicit “elect-down” clauses letting continuance convert material breach into partial breach to permit mutual recovery. Legal strategies must consider that continuing performance does not automatically end breach claims—it may just recalibrate them.

Is PML Development good or bad for Illinois Law?

Whether the Illinois Supreme Court’s decision in PML Development, LLC v. Village of Hawthorn Woods, 2023 IL 128770, is “good” or “bad” depends on the legal perspective and policy goals in mind—particularly concerning contract enforcement, equity, and predictability.

Why PML Development Could Be Considered a Good Decision

First, PML Development seems to promote fairness and equity. The Court rejected a rigid “winner-takes-all” approach to the contract claims. Instead, it acknowledged that in complex, long-term agreements, both parties may breach at different times. In such a case, each party deserves an opportunity to recover for the other’s default. This avoids unjust enrichment and promotes balanced remedies.

Second, the decision clarifies the “election of remedies” doctrine. It clarified that when a party continues to perform after the other breaches, it does not waive all rights—it simply chooses to treat the breach as partial, not total. This provides both a practical and realistic framework for commercial relationships where immediate termination is not desirable or feasible.

Third, it encourages continued performance. And by allowing continued performance without forfeiting legal rights, the ruling encourages parties to work through their disputes, while at the same time not losing access to the courts. It promotes business continuity and discourages premature litigation or complete abandonment.

Why PML Development Could Be Considered a Bad Decision

First, it reduces predictability and certainty. Some might argue the decision blurs the line between material and partial breach, making it harder to determine when a party is excused from performance. This could potentially introduce some legal ambiguity and could potentially complicate contract drafting and enforcement.

Second, it could undermine the incentive to fully perform under a contract. Allowing both parties to recover damages—even if both materially breach—may reduce the incentive for strict compliance. A party might now be tempted to “hedge” performance, knowing that courts may still grant relief and offset damages later.

Third, the case seems to give trial courts broad discretion in deciding whether to award damages and also how to offset them. This could lead to inconsistent outcomes across similar disputes, more appeals, and could potentially undermine or chip away at the uniform application of contract law.

Fourth, historically, the first material breach will often discharge the other party’s obligations. This decision somewhat softens that rule. This ruling could potentially destabilize contract enforcement, particularly where one party relies on clear discharge rights.

Bottom Line – PML Development is a Nuanced Decision with Lasting Impact

PML Development is a thoughtful, modern ruling that not only seeks to promote fairness, but also seems to reflect real-world contracting behavior. It could significantly benefit parties that wish to preserve their relationships while also retaining legal recourse.

PML Development may also seem problematic, because it can diminish the clarity and consequences of breach, while potentially making contract disputes more complex and uncertain.

For commercial contract lawyers and judges seeking a fair, flexible, and realistic framework to resolve multi-breach disputes, PML Development seems like a positive step in the right direction for Illinois contract law, but signals that parties and their counsel must now draft contracts with more detail around breach, remedies, and continuation of performance.

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