In this article, Samyukta Ramaswamy pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on breach of contract notice.

Breach of Contract

In legal parlance, a breach of contract is a type of civil wrong that entails a legal cause of action. A breach usually occurs either by non-performance of the contract or interference with the other party’s performance. Therefore, if a party to a contract fails to fulfil his or her obligation as described in the contract, or communicates an intent to not perform his or her obligation under the contract or otherwise appears unable to perform his or her obligation under the contract, such a party is said to commit a breach of contract.[1]

A minor breach of contract is a partial breach or an immaterial breach or where there has been substantial performance, in which case the non-breaching party cannot sue for specific performance, but can sue for damages. On the other hand, a material breach of contract is a failure to perform that allows the other party to the contract to compel performance of the contract, or sue for damages because of the breach. Generally, a breach of contract constitutes a material breach if the term of the contract that has been breached is a condition essential to the contract. The test of essentiality is applied in determining whether the breached term is a condition or not which requires that the term be of such importance to the promisee that he or she would not have entered into the contract unless they had been assured of strict or substantial compliance with the term of the contract which ought to have been apparent to the promisor. This serves as an objective test in determining the intention of the parties at the time of making the contract.

What is a Breach of Contract Notice?

A notice of a breach of contract notifies the counterparty to a contract that they have breached the contract by not upholding their end of the bargain. In such cases, it becomes necessary for one of the parties to the contract to give notice to the other explaining in detail how they have failed to fulfil the terms of the agreement. This is the first formal step in resolving contractual disputes. Also referred to as a type of demand letter, a notice of breach of contract letter should strictly adhere to any terms in the contract that discuss the requirements for notice of breach of contract. The breach of contract notice also lays out the actions that are to be taken in either fixing the problem or terminating the contract and paying compensation for damages incurred. While some notices are specific in their language, clearly laying out a detailed course of action that is to be followed and a timetable within which the problems are required to be fixed, other notices are more general in nature, primarily acting as an invitation to talk things over and mutually fix the breaches.

What to include in a Breach of Contract Notice?

In any Breach of Contract notice, it is important to include the following:

1. The date the notice was communicated to the breaching party.

One important function of the breach of contract notice is to create an official record of the date on which the breaching party was officially made aware/ told of the breach. This date becomes important if the dispute ends up in court. However, before sending the notice, the non-breaching party should confirm that the notice is being sent to the right person, through the proper method.

2. The notice clause in the contract. [2]

Most contracts have a notice clause that stipulates how the notice of breach of contract is to be communicated to the breaching party. It lays down the contact information of each party and how the notices are to be communicated- whether by email, fax, or post. If the procedures contained in the notice clause is not adhered to by either parties, it may affect each of their rights. For example, if a notice is sent to the wrong address or by a method not stipulated in the contract, it may not count as a notice of breach, which would give the breaching party more time to fix the problem.

3. Describing the breach in detail.

The notice of breach of contract must clearly point out what section of the contract was breached. A breach or a failure to perform under the contract is usually of three types namely:

• Where the other party failed to perform the duties specified in the contract. For instance, if the other party hasn’t paid or delivered goods that were promised under the contract.
• Where the other party refuses to perform their obligations under the contract in the future.
• Where one party makes it impossible for the other party to perform its obligations under the contract.[3]

Therefore, irrespective of what type of breach has occurred or why the breach has occurred, when writing the notice, it is important to identify which clauses of the contract have been breached. If there are more than one section that has been breached, it is good to list all of them by starting with the strongest claim.

4. Giving importance to material breach

Parties to the contract may provide notice for any type of breach, however, as a general practise, courts give more importance to ‘material’ breaches. A material breach of contract as explained previously is any action done by the other party that destroys the very value of the contract. A breach of contract constitutes a material breach if the term of the contract that has been breached is a condition essential to the contract which allows the injured party to compel performance of the contract (specific performance), or sue for damages because of the breach. While it is still possible to give notice of a non-material breach (also known as ‘partial breach’ or ‘immaterial breach’) of contract, this usually does not terminate the contract.

5. Putting forth a course of action to be adopted as a remedy for the breach.

Most of the time, a breach of contract notice is an attempt to resolve the contractual problems as between the parties while keeping the agreement intact. With that intent in mind, such notices generally provide for a period of time within which the breaching party is required to cure the breach. This is because, majority of the time, the breaching party is either unaware of the breach, or find it tasking to comply with the terms of the contract due to temporary setbacks.

Sometimes however, there occur situations where there might not be a remedy to the breach of a contract. In such cases, the notice of the breach of contract serves as notice to terminate the agreement and to seek damages.

6. Tone of the breach of contract notice

The breach of contract notice should be drafted in a professional manner and should have a dispassionate tone. The language contained therein should be very polite considering the fact that the notice could become the basis of a court action or part of an exhibit of papers filed before the court. The notice should just stick to the facts and avoid expressing emotional injuries. Lastly, it should not threaten the breaching party with a lawsuit as it may backfire and result in a very expensive lawsuit that the injured party did not want.

On a side note, it is advisable that as far as possible, an attempt be made to settle the contractual dispute informally before sending the notice of breach of contract, or at the time of sending the notice as this can help save both the parties a lot of time and money.

However, if both the parties think it fit to formally end or discharge the agreement, the best way to go about terminating the agreement would be by entering into a separate agreement to terminate the contract. This is often done using a mutual rescission agreement.[4]

Responses to a notice of breach of contract

There are four basic responses that an injured party may receive after sending a breach of contract notice to the breaching party.

• The breaching party may not respond to the letter. When this happens, it is advisable to wait for a few weeks, after which the injured party may draft a second notice that refers to the earlier one with the proper dates and send it forthwith to the other party. If there is no response to the second letter also, the injured party may take the opportunity to consult a lawyer and send a third notice on the lawyer’s letterhead.
• The breaching party may respond by stating that they are not in breach of the contract. In such a case, it is important for the injured party to consult their attorney first before drafting out a response as there is a chance that the other party is right.
• The breaching party may request to have a meeting to discuss the situation and resolve the dispute. Although this is a good way to resolve the dispute, it is important at the same time for the parties to require the assistance of a lawyer in arranging a solution especially in case a written settlement needs to be reached.
• Lastly, the breaching party may concede to the breach of contract by them. In such a case, the injured party needs to decide upon the best way to resolve the issue. Usually, a formal settlement agreement is drafted with the help of a lawyer which is signed by the parties to the contract.

In order to better understand how to draft a Breach of Contract Notice, the following template has been provided in the link mentioned below.[5]

References

[1] “Breach of Contract” at <http://thelawdictionary.org/breach-of-contract/ > last accessed on 29/08/2017.

[2] Refer <https://www.requestletters.com/home/how-to-write-a-breach-of-contract-notice-letter> last accessed on 31/08/2017.

[3] Id.

[4] Refer <http://www.nolo.com/legal-encyclopedia/breach-of-contract-notice-of-32649.html> last accessed on 31/08/2017.

[5] Refer <https://www.priorilegal.com/legal-forms-and-documents/notification-of-breach-of-contract > last accessed on 31/08/2017.