Breach of contract

Breach of contract is a legal cause of action and a type of civil wrong, 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. Breach occurs when a party to a contract fails to fulfill its obligation, whether partially or wholly, as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract. Where there is breach of contract, the resulting damages have to be paid to the aggrieved party by the party breaching the contract.
If a contract is rescinded, parties are legally allowed to undo the work unless doing so would directly charge the other party at that exact time.

What constitutes a breach of contract

There exists two elementary forms of breach of contract.
The first is actual failure to perform the contract as and when specified constitutes the first and most obvious type of breach. A contract lays down what must be done, what cannot be done, and when it must be done. If what was prescribed has not been done within the stipulated or reasonable period, there has been a breach of contract.
A further form of breach of contract is conduct indicating an unwillingness or inability to perform an obligation arising from that contract.
As noted by Seddon et al, these forms of breach of contract overlap, and an actual failure to perform may manifest an unwillingness or inability to perform. This is not always the case: an individual may fail to perform a contractual obligation even when willing or able.
These classifications describe only how a contract can be breached, not how serious the breach is. A judge will make a decision on whether a contract was breached based on the claims of both parties.
The first type above is an actual breach of contract.
The two other types are breaches as to the future performance of the contract and are technically known as renunciatory breaches. The defaulting party renunciates the contract in advance of when it is required to performs its obligations. Renunciatory breach is more commonly known as "anticipatory breach."

Classifications of breaches of contract

The general law has three categories of breaches of contract, which measure of the seriousness of the breach.
In the absence of a contractual or statutory provision, any breach of contract is categorized:

breach of warranty;
breach of condition; or
breach of an innominate term, otherwise known as an intermediate term.

There is no "internal rating system" within each of these categories. Any breach of contract is of a breach of warranty, condition or innominate term.
In terms of priority of classification of these terms, a term of a contract is an innominate term unless it is clear that it is intended to be a condition or a warranty.

Case law

English

New Zealand

Clasper v Lawrence 3 NZLR 231
J & B Caldwell Ltd v Logan House Retirement Home Ltd 2 NZLR 99
Jack v Guy
Schmidt v Holland 2 NZLR 406
Soccer Nelson Inc v Soccer NZ Inc
Walsh v Kerr 1 NZLR 490
Woods v N J Ellingham & Co Ltd 1 NZLR 218
Rights to damages for breach

Any breach of contract gives rise to a right in the hands of the innocent party to recover their damage suffered which caused by the breach of contract by the defaulting party. Damages in the UK are the only remedy available for breach of a warranty. Those damages can come in different forms such as an award of monetary damages, liquidation damages, specific performances, rescission, and restitution.
Damages are classified as being compensatory or punitive. Compensatory damages are rewarded in an attempt to make place the innocent party in the position that would have been occupied "but for" the breach. Those damages are most often awarded as payments. Punitive damages are given to "punish or make an example of a wrongdoer who has acted willfully, maliciously or fraudulently". Punitive damages are awarded only in extreme cases and usually along with compensatory damages.

Damages for disappointment

Damages for distress or disappointment are not generally allowed by the courts, but cases where the award of such damages has been considered and agreed include Jarvis v Swans Tours Ltd and Farley v Skinner.

Right to terminate for breach

A right to terminate a contract arises for:

breach of a condition of the contract, no matter how trivial the breach of the condition may be;
repudiatory breach, that is an actual breach of an innominate term, where the consequence of the breach is sufficiently serious to give rise to a right to terminate; or
renunciatory breach, where the other party makes clear to the innocent party that it:
# is not going to perform the contract at all, or
# is going to commit a breach of a condition, or
# is going to commit a breach of an innominate term,

An innocent party is therefore entitled to elect to terminate a contract only for breach of a condition of the contract, repudiatory breach or renunciatory breach.
To terminate a contract for repudiatory breach, the innocent party must tell the defaulting party. Many commercial contracts include clauses that set out a process whereby notice must be given and in what form. Consequently, if there is a written contract, care should be taken to check the contract terms and to ensure compliance notwithstanding that the other party may, on the face of it, have committed a clear and repudiatory breach. It is only when the defaulting party is told that a repudiatory breach has been "accepted" that the contract is terminated. If the defaulting party is not told the repudiatory breach has been accepted, the contract continues in force. An innocent party is not compelled to exercise its right to terminate, and accept a repudiatory breach. Otherwise, the contract continues in force.

Repudiatory breaches

Conduct is repudiatory if it deprives the innocent party of substantially the whole of the benefit intended to be received as consideration for performance of its future obligations under the contract. Different forms of words are used by courts to express this central concept. The most prominent is whether the breach goes to the root of the contract. Those forms of words are simply different ways of expressing the "substantially the whole benefit" test.
Sometimes the innocent party may be deprived of its entitlement to damages for repudiatory breach of contract:

if the innocent party is irremediably disabled from performance, provided that that inability to perform on the part of the innocent party is not itself attributable to the repudiatory breach;
if the innocent party has a settled intention not to perform.
Renunciatory breaches

Conduct is renunciatory if it shows an intention to commit a repudiatory breach. The conduct would lead a reasonable person to conclude that the party does not intend to perform its future obligations when they fall due.
Showing an intention to perform a contract in a manner which is inconsistent with the terms of the contract also shows an intention not to perform the contract. Whether such conduct is so severe so as to amount to a renunciatory breached depends upon whether the threatened difference in performance is repudiatory. An intention to perform connotes a willingness to perform, but willingness in this context does not mean a desire to perform despite an inability to do so. To say "I would like to but I cannot" negatives intent just as much as "I will not". Contracting parties must perform contracts in strict accordance with their terms: what was agreed in the first instance when the contract was formed. To do otherwise is therefore a breach of contract.
In the event of a renunciatory breach, the innocent party may:

choose to accept the breach at once and to terminate the contract, without waiting for the due date of performance, or
wait for the time for performance of the contract.

If the defaulting party does not perform when the time for performance arrives, the contract may be terminated. However, if the defaulting party performs, the right to terminate is lost forever.
Conduct comprising a breach for performance of contractual obligations that have fallen due may be insufficient to be a repudiation. However:

Nevertheless, conduct may be a renunciation because it would lead the reasonable observer to conclude that there was an intention not to perform in the future, and
the past and threatened future breaches taken together would be repudiatory.

The reason for a defaulting party committing an actual breach is generally irrelevant to whether it constitutes a breach, or whether the breach is a repudiation. However, the reason may be highly relevant to what such breach would lead the reasonable observer to conclude about the defaulting party's intentions in relation to future performance and therefore to the issue of renunciation. Often, the question whether conduct is a renunciation falls to be judged by reference to the defaulting party's intention, which is objectively evinced by past breaches and other words and conduct.

Breach of warranty

A breach of a warranty of a contract creates a right to damages for the loss suffered, which was caused by the breach. These "minor" breaches do not entitle the innocent party to terminate the contract. The innocent party cannot sue the party in default for specific performance: only damages. Injunctions to restrain further breach of a warranty are likely to be refused on the basis that injunctions are a discretionary remedy, and damages are an adequate remedy in the circumstances of the case.
Suppose a homeowner hires a contractor to install new plumbing and insists that the pipes, which will ultimately be hidden behind the walls, must 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 cannot ask a court to order the contractor to replace the blue pipes with red pipes. The homeowner can only recover the amount of his or her actual damages. In this instance, this is the difference in value between red pipe and blue pipe. Since the color of a pipe does not affect its function, the difference in value is zero. Therefore, no damages have been incurred and the homeowner would receive nothing
However, had the pipe color been specified in the agreement as a condition, a breach of that condition may well constitute a "major"—i.e. a repudiatory breach. Simply because a term in a contract is stated by the parties to be a condition does not necessarily make it so. Such statements though are one of the factors taken into account to decide whether it is a condition or warranty of the contract. Other than where the colour of the pipes went to the root of the contract, it would more than likely be a warranty, not a condition.
The general rule is that stipulations as to time in a contract are not conditions of the contract. As such, missing a date for performance stipulated in a contract is usually a breach of warranty. However, when a contract specifies time is of the essence or otherwise contains an express or implied term that times for performance are critical, stipulations as to time will be conditions of the contract. Accordingly, if a party fails to meet a meet the time stipulations, it will be a breach of a condition of the contract, entitling the innocent party to terminate.