How to Draft a Notice of Breach of Contract

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. This notice is sometimes referred to as a "demand letter."

When you send a notice of breach, you're effectively telling the other person (or business) that you believe they broke your contract and what they can do to fix the broken contract.

When to Send a Notice of Breach

Ideally, you should send notice of the breach as soon as you discover the breach. But you might need to take some reasonable time to assess the extent of the breach and what your options are. Before you send the notice, you should consult the terms of your contract and identify what kind of breach has occurred.

By taking these steps, you'll be better able to lay out the issues in your notice and request the appropriate actions from the other party.

Consult the Terms of Your Contract

When you discover a breach, your first step should be to take a closer look at your contract's terms and conditions. You should look at your contract to confirm whether there has been a breach and whether the contract spells out how such a breach should be handled.

When reviewing your contract, pay attention to the following clauses and details:

• Notice provision. You should check the notice provision or clause of your contract. This provision sets forth contact information for each party and describes how notices should be communicated. For example, notices might have to be communicated by email, fax, or overnight mail. Failing to follow these procedures can affect each party's rights. For example, a notice sent to the wrong address or by the wrong method might not "count" as notice of the breach, which gives the breaching party more time to fix the problem.
• Dispute resolution. Many contracts include a section that lays out the procedure for how to resolve disputes related to the contract. The contract could limit the parties to a particular type of resolution method, like mediation or arbitration. For example, your agreement might require the parties to try to resolve a contract dispute through mediation. But if the conflict isn't resolved after 30 days, then the parties must go to arbitration.
• Liquidated damages. Some contracts included a liquidated damages provision. A liquidated damages provision provides a predetermined amount of money that one party must pay if they breach the contract. Typically, the presence of a liquidated damages clause will limit your access to any other remedies. These provisions usually include language that says that the parties agree that the amount is sufficient and that it is the sole remedy. If your contract has a liquidated damages provision, then you'll need to reference it in your notice of breach.

If your contract specifically references the type of breach, then it should be fairly simple to draft your notice. You'll mainly need to refer to the section of the contract that discusses the breach.

Determine the Type of Breach: Material or Minor

Before you send your notice, you should figure out whether the breach was material or immaterial (minor).

Material breach. A "material breach" is a substantial failure to perform that renders the contract irreparably broken. In other words, a material breach defeats the purpose of the contract. For example, suppose you signed a contract for the delivery of 30 red uniforms. On the day of delivery, the company sends you 30 blue uniforms for a different company. This failure to perform would likely be considered material because the blue shirts are of no use to you or your company.

Minor or immaterial breach. An "immaterial breach" is a minor breach that's still technically a violation of the contract. But the violation doesn't substantially affect the contract or cause the non-breaching party serious damage. For example, suppose you have a contract for the delivery of furniture. The contract says that the furniture will be delivered on Thursday, May 12. But there was a delay in transportation, and the furniture wasn't actually delivered until a day later, Friday. While the furniture wasn't delivered on time (and technically a violation of the contract), the delay was likely just a minor breach with no meaningful consequences.

You can send a notice for either type of breach. But if it's only a minor breach, your options for recovery are limited. You'll need to know what remedies are available to you before you draft your notice.

Notice of Breach: What to Include

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. The type of notice you send can depend on the nature of the breach and your business relationship.

Here's a general list of what you should include when sending a notice of breach in a contract dispute.

Make the Date of the Breach and the Notice 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 can 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.

Description of 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 (an anticipatory breach), 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'll need to identify which clauses of the contract are affected by the breach in your letter. If more than one section has been breached, list all of them, leading with your strongest claims.

Offer a Cure (Fix) to the Breach

When there's been a material breach of contract, you have several remedies available to you, including:

• ending the contract
• demanding specific performance (the other party to hold up their end of the deal), and
• seeking money damages (including actual and consequential damages, and sometimes, liquidated damages).

If there's been an immaterial breach of contract, then you'll likely be limited to just the losses your business actually suffered, if any. You usually can't terminate a contract or seek specific performance for a minor breach.

In some cases, it might be too late to fix the problem. If that's the case, the notice will serve to terminate (cancel) the agreement and to seek damages.

Most of the time, though, a breach of contract notice seeks to resolve contractual problems while keeping the agreement in effect. If you don't want to end the contract but want to fix the breach, you should provide a period of time during which the other party can resolve (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 could be in your best interest to provide one. The other party could be unaware of the problem, or they could've run into temporary setbacks that make compliance with the contract terms difficult.

Set Out Consequences for a Failure to Respond or Fix the Breach

Be prepared for a slow response or no response at all. You should include a brief statement that lets the other side know that you intend to take certain next steps, such as filing a lawsuit, if they fail to fix the breach within the given time frame. This part of the letter can be relatively nonconfrontational, or it can be firm and direct.

For example, you can say something like "If the breach isn't cured within 30 days, we reserve our right to pursue legal action in court." This statement is fairly passive, but it still informs the other side that you're within your rights to file suit in court.

Alternatively, you could say, "If the breach isn't cured within 30 days, we hereby provide notice of termination of the contract and will proceed with the filing of a complaint in small claims court to recover the damages that result from the uncured breach." This statement is more active and direct. Make sure you're prepared to follow through on these actions. You should also double-check your contract to make sure that pursuing a legal path for damages is allowed under the circumstances. While the statement provided preemptive notice of your termination of the contract (in the event that they don't cure the breach), you should still send an official notice of termination.

Tips for Resolving a Notice of Breach

Before you send out an official letter, you should keep a few tips in mind.

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 extra effort 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, you wouldn't want to use the demand letter to threaten a lawsuit 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).

Put any final decisions in writing. Finally, if you and the other party both want to formally end ("discharge") the agreement, it's best to do so by entering into a separate agreement terminating the contract. This type of termination is often done using a mutual rescission agreement. But if one or both parties have already performed some of the contractual obligations—for example, some equipment has already been delivered—you'll 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.
• Get lost. You might receive a response telling you basically to "take a hike" or something equivalent. For example, you could get a response that reads: "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 could be on your way to resolving the problem. You might want 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 could want to use a formal settlement agreement. Again, an attorney can help you to wrap things up properly.

You can likely send the initial communication—that is, the initial notice of the breach—yourself. But if the situation isn't resolved after the first letter or after informal talks, it could be wise to consult with a local business attorney. They can help you understand your rights, communicate your demands to the other side, and navigate any legal remedies.