Breach of Contract: The Notice of Breach
If your contract has fallen through, take the first step toward resolving the problem.
If you're in a contract dispute because you think the other party isn't living up to their side of the bargain, providing a notice of breach is the first formal step in resolving the problem. The notice, generally in the form of a letter (sometimes referred to as a "demand letter"), explains why you believe there has been a breach (a failure to perform under the contract) of the contract (that is, what the other party did or didn't do), and lays out the actions that must be taken next, either to fix ("cure") the problems or to end the contract and compensate for the damage. Some notices are quite specific, laying out a detailed course of action and timetable for making things right. Other notices are less specific, serving primarily as an invitation to talk things over.
Notice of Breach: What to Include
Here's a list of what you should include when sending a notice of breach in a contract dispute.
Make the date clear. One important function of the notice is to create a record of the date when the breaching party is officially told of the breach. That date may be important if the dispute ends up in court. Before sending the notice, the non-breaching party should confirm that the notice is going to the right person, via the proper method.
Check the notice clause. Contracts often have a clause--commonly referred to as a notice provision--setting forth contact information for each party and how notices should be communicated. For example, notices may have to be communicated by email, fax, or overnight mail. Failing to follow these procedures may affect each party's rights. For example, a notice sent to the wrong address or by the wrong method may not "count" as notice of the breach, which gives the breaching party more time to cure the problem.
Describe the breach. The notice must indicate what part of the contract was breached. A breach -- a failure to perform under the contract -- usually comes in one of three flavors: (1) the other party failed to perform (for example, you haven't been paid or haven't received the goods you were promised); (2) the other party said that it will not perform its obligations in the future, or (3) the other party has made it impossible for you to perform your obligations under the agreement (for example, you were hired to modify a software program, but the company that hired you won't give you the code you need to do the work).
No matter why the breach occurred, you will need to identify which clauses of the contract are affected and list them in your letter. If more than one section has been breached, list all of them, leading with your strongest claims
Make sure it's a "material" breach. You may provide notice for any type of breach, but keep in mind that courts are most concerned with "material" breaches--actions by the other party that destroy the value of the contract. Although you can give notice of a "non-material" breach (also known as a "partial breach," or "immaterial breach"), a non-material breach usually will not end the agreement. (Learn more about "material" breach of contract in Nolo's article Breach of Contract: Material Breach)
Offer a "cure." In some cases, it may be too late to fix the problem. If so, the notice serves to terminate (cancel) the agreement and to seek damages. Much of the time, though, a breach of contract notice seeks to resolve contractual problems while keeping the agreement in effect. For that reason, the letter often provides a period of time during which the breaching party can fix ("cure") the breach. Most contracts include a clause establishing the cure period--often 30 days. Even if it seems like there's no point in offering a cure period, it may be in your best interest. The other party may be unaware of the problem or may have run into temporary setbacks that make compliance with the contract terms difficult.
Avoid an emotional tone. The breach of contract notice should have a dispassionate, business-like tone. Remember, this letter--like all correspondence preceding a lawsuit--could well become an exhibit to papers filed with the court. A judge or jury won't look kindly on a letter that is bullying, exaggerated, or melodramatic. Just stick to the facts.
Try to work it out. Before you send the notice--or perhaps at the same time--you should try to fix the problems informally. This can help you save time, money, and perhaps even your business relationship. Don't use the notice solely to intimidate the other party as some sort of business strategy--for example, to threaten a lawsuit in order to get out of a deal that's not as lucrative as you expected. That approach often backfires, especially if you're bluffing (and are then drawn into a long legal battle).
Finally, if you and the other party both want to formally end ("discharge") the agreement, it is best to do that by entering into a separate agreement terminating the contract. This is often done using a mutual rescission agreement. But if one or both parties have already performed some of the contractual obligations--for example, a home has been partially constructed--you will need a more detailed settlement and release.
The Response to a Notice of Breach
After you send your notice of breach, be prepared for one of these responses from the other side of the contract:
- No response. If you don't hear anything within two weeks, send a second letter referring to your earlier letter. If you don't receive a response to the second letter, it's time to consult with an attorney. Perhaps a letter on a lawyer's stationery will have better results. If not, determine (with your attorney's advice) what your next steps should be. (Use Nolo's Lawyer Directory to find a contracts attorney in your area.)
- Get lost. You may receive a response telling you basically to "take a hike" or something equivalent. For example, "we have reviewed your letter and have determined that our company is not in breach of the agreement." You should consult with an attorney before you fire off an angry response; it's always possible that the responding party is correct.
- Let's talk. If the responding letter invites you to discuss the matter, then you may be on your way to resolving the problem. You may wish to consult an attorney for advice on how to proceed, particularly if you expect to reach a written settlement with the other party.
- You're right; we give up. Congratulations. You won. What happens next depends on how you want to end things. Depending on the scale or type of breach, you may want to use a formal settlement agreement. Again, an attorney can help you to wrap things up properly.