Breach of contract

A breach of contract occurs when one or more parties to a binding agreement fails to honor the bargained-for exchange. This is a type of civil wrong and a legal cause of action. The breach can take the form of non-performance, interference with the other party’s performance, or a communicated intent not to perform. It may also be inferred if a party appears unable to meet its obligations. When a breach happens, the party that broke the contract must pay damages to the injured party. If a contract is rescinded, the parties are legally allowed to undo their work, provided doing so does not directly charge the other party at that exact moment.

There are two basic forms of breach. The first is an actual failure to perform the contract as and when specified. A contract sets out what must be done, what cannot be done, and the timing. If the prescribed actions are not completed within the stipulated or reasonable period, a breach has occurred. The second form is conduct showing an unwillingness or inability to perform a contractual obligation. These two types can overlap: an actual failure to perform may also show unwillingness or inability, though this is not always the case—someone may fail to perform even while willing and able. These classifications describe *how* a breach happens, not its seriousness. A judge decides whether a breach occurred based on the claims of both parties. The first type is an actual breach. The other two are breaches related to future performance, technically called renunciatory breaches (commonly known as anticipatory breaches), where the defaulting party renounces the contract before performance is due.

The general law categorizes breaches by seriousness into three types: breach of warranty, breach of condition, and breach of an innominate term (also called an intermediate term). In the absence of a contractual or statutory provision, any breach falls into one of these categories. There is no internal rating within each category (for example, no "serious breach of warranty"). A term is considered innominate unless it is clearly intended to be a condition or a warranty.

Any breach—whether of a warranty, condition, or innominate term—gives the innocent party the right to recover damages caused by the breach. In the UK, damages are the only remedy for a breach of warranty. Damages can take forms such as monetary awards, liquidated damages, specific performance, rescission, or restitution. They are classified as compensatory or punitive. Compensatory damages aim to put the innocent party in the position they would have been in "but for" the breach, and are most often paid as money. Punitive damages are meant to punish or make an example of a wrongdoer who acted willfully, maliciously, or fraudulently; they are awarded only in extreme cases and usually alongside compensatory damages. Damages for distress or disappointment are generally not allowed, though courts have considered and granted them in cases such as *Jarvis v Swans Tours Ltd* (1972) and *Farley v Skinner* (2001).

A right to terminate a contract arises for: breach of a condition (no matter how trivial); repudiatory breach (an actual breach of an innominate term serious enough to justify termination); or renunciatory (anticipatory) breach, where the other party makes clear it will not perform at all, will breach a condition, or will breach an innominate term with serious consequences. An innocent party can elect to terminate only for these types of breach. To terminate for repudiatory breach, the innocent party must inform the defaulting party. Many commercial contracts include clauses specifying a notice process and form, so written contracts should be checked carefully. The contract is terminated only when the defaulting party is told the repudiatory breach has been accepted. If not told, the contract continues.