Breach of contract
is a legal
concept in which a binding agreement
or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance.
A minor breach, a partial breach or an immaterial breach, occurs when the non-breaching party is unentitled to an order for performance of its obligations
, but only to collect the actual amount of their damages
. For example, suppose a homeowner hires a contractor to install new plumbing and insists that the pipes, which will ultimately be sealed behind the walls, be red. The contractor instead uses blue pipes that function just as well. Although the contractor breached the literal terms of the contract, the homeowner can only recover the amount of his damages. Since no damages were inflicted, the homeowner receives nothing. (See Jacob & Youngs v. Kent
, on which this example is based.)
A material breach
is any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach. If the contractor in the above example had been instructed to use copper pipes, and instead used iron pipes which would not last as long as the copper pipes would have, the homeowner can recover the cost of actually correcting the breach - taking out the iron pipes and replacing them with copper pipes.
The Restatement (Second) of Contracts lists the following criteria to determine whether a specific failure constitutes a breach:
In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
American Law Institute, Restatement (Second) of Contracts § 241 (1981)
A fundamental breach
(or repudiatory breach
) is a breach so fundamental that it permits the aggrieved party to terminate performance of the contract, in addition to entitling that party to sue
A breach by anticipatory repudiation
(or simply anticipatory breach
) is an unequivocal indication that the party will not perform when performance is due, or a situation in which future non-performance is inevitable. An anticipatory breach gives the non-breaching party the option to treat such a breach as immediate, and, if repudiatory, to terminate the contract and sue for damages (without waiting for the breach to actually take place).
Limits on Remedies and Damages
Typically, the judicial remedy for breach of contract is monetary damages. See damages
. Where the failure to perform cannot be adequately redressed by money damage, the court may enter an equity
decree awarding an injunction
or specific performance
The aggrieved person has a duty to mitigate or reduce damages by reasonable means.
Liquidated Damages may be limited to a specific amount. In the United States, punitive damages are generally not awarded for breach of contract but may be awarded for other causes of action in a lawsuit.
Limitation of Liability (Exculpatory) clauses.
[Private agreement is permissible.]
[Invalid when public interest is involved and there is willful conduct or gross negligence.]