Breach of contract

From Wikipedia, the free encyclopedia

Breach of contract is a legal cause of action 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. If the party does not
fulfill his contractual promise, or has given information to the other party that he will not
perform his duty as mentioned in the contract or if by his action and conduct he seems to
be unable to perform the contract, he is said to breach the contract.

Contents
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• 1 Minor breaches
• 2 Material breach
• 3 Fundamental breach
• 4 Anticipatory breach
• 5 Limits on Remedies and Damages

• 6 See also

[edit] Minor breaches

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. Generally, this means the difference in value between the red
pipe and the blue pipe. Since the pipes are identical value, the difference is zero;
therefore, there are no damages and the homeowner receives nothing. (See Jacob &
Youngs v. Kent, on which this example is based.) It is important to note however, that
should the specification of the pipe colour be in the agreement as a condition, the breach
of that condition will be considered a major breach.
[edit] Material breach
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.

As with nearly everything in the law, there are exceptions to this. Legal scholars and
courts often state that the owner of a house whose pipes are not the specified grade or
quality (a typical hypothetical example) will not be able to recover the cost of replacing
the pipes for the following reasons:

1. Economic waste. The law does not favor tearing down or destroying something that is
valuable (almost anything with value is "valuable"). In this case, significant destruction
of the house would be required to completely replace the pipes, and so the law is hesitant
to enforce damages of that nature.[citation needed]

2. Pricing in. In most cases of breach, a party to the contract simply fails to perform one
or more terms. In those cases, the breaching party should have already considered the
cost to perform those terms and thus "keeps" that cost when they do not perform. That
party should not be entitled to keep that savings. However, in the pipe example the
contractor never considered the cost of tearing down a house to fix the pipes, and so it is
not reasonable to expect them to pay damages of that nature.[citation needed]

The result is that most homeowners will not collect damages that will compensate them
for replacing the pipe, but rather collect damages that compensate them for the loss of
value in the house. For example, say the house is worth $125,000 with copper and
$120,000 with iron pipes. The homeowner would be able to collect the $5,000 difference,
and nothing more.

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.