Breach of contract

Lore & Background

Breach of contract occurs when a party fails to fulfill its obligations as specified in the contract, or communicates an intent to fail. There are two elementary forms: actual failure to perform as and when specified, and conduct indicating unwillingness or inability to perform. These forms overlap; an actual failure may manifest unwillingness or inability, but a party may fail even when willing or able. The classifications describe how a contract can be breached, not the seriousness of the breach.

Reader's Guide

The general law categorizes breaches by seriousness into breach of warranty, breach of condition, or breach of an innominate term. Any breach gives the innocent party a right to recover damages. Damages are compensatory (to place the innocent party in the position 'but for' the breach) or punitive (for willful, malicious, or fraudulent conduct, awarded only in extreme cases). A right to terminate arises for breach of a condition, repudiatory breach (actual breach of an innominate term with sufficiently serious consequences), or renunciatory breach (anticipatory breach showing intent not to perform). The innocent party must elect to terminate by notifying the defaulting party; otherwise the contract continues. Conduct is repudiatory if it deprives the innocent party of substantially the whole benefit intended. Renunciatory conduct shows an intention to commit a repudiatory breach, judged by a reasonable person standard.

Did You Know?

• Breach of contract can be actual failure to perform or conduct indicating unwillingness or inability to perform.
• Renunciatory breach is also known as anticipatory breach.
• Damages for distress or disappointment are not generally allowed, but have been considered in cases such as Jarvis v Swans Tours Ltd and Farley v Skinner.
• An innocent party may lose the right to terminate if it waits for performance and the defaulting party performs.