All About Breach of Contract
A breach of contract is a failure of one party to abide by the terms of a legally binding agreement. Put more simply, it is a violation of a contract, which means that at least one party is not fulfilling their obligations per the contract terms. In some instances, the breach may be intentional, but in most cases, a breach of contract is unintentional and is the result of miscommunication, misunderstanding or unforeseen circumstances.
The legal implications that arise as a result of a breach of contract will depend on the nature of the contract and whether the breach was anticipatory or actual. A material breach of an anticipatory contract would trigger liability, for instance. If the breach is less significant and does not drastically diminish the value of the goods and/or services provided, it may be labeled a nonmaterial breach.
The four basic types of breaches of contract are:
- Minor Breach: A minor breach of contract, also called a partial breach or immaterial breach , occurs when a party has para-lyti-cally breached a contract, but not by a large enough magnitude to render the contract void.
- Material Breach: The breaching of a contract involving a significant step away from the terms of the agreement is called a material breach. The other party to the contract may seek damages to make them whole as part of the breach of contract legal proceedings.
- Total Breach: A total breach of contract is one where the offending party essentially fails to live up to any of the contractual obligations they agreed to. Such a breach of contract is so significant that it allows the non-offending party to discontinue performing their obligations.
- Anticipatory Breach: An anticipatory breach of contract occurs when one party in a contractual agreement knows they will not be able to fulfill their obligations per the contract. This lets the receiving party take action to mitigate any potential damages by contacting the offending party in writing with a breach of contract demand letter.
What is a Demand Letter?
A demand letter is a necessary step in every potential contract breach lawsuit and very often resolves the matter with the brevity of a short, pointed letter. A demand letter is a formal request for damages due to a contract terms violation. However, sending a demand letter does not always increase the likelihood of receiving payment and should not be used in every situation. Knowing when to send a demand letter can be an effective way to avoid costly litigation.
Whether or not you expect to receive a favorable response to your demand letter is irrelevant to your need to send one. The state court rules of procedure in every state require a demand letter be sent to the party causing the breach before most civil lawsuit claims may be filed. In general, if there is a breach of a written or oral contract, the injured party must first make a written demand for damages before they can file a lawsuit. Demand letters are a common tactic for resolving disputes efficiently without entering litigation.
Strong, persuasive language is critical to successful demand letters and contracts in general. Often, negotiation and litigation will happen after the demand letter is sent, which is why it is so important to be thoughtful about your word choice. An aggressive demand letter may prove your willingness to litigate and could even lead to an early settlement. However, a poorly written demand letter could indicate that you are unprepared to follow through with a lawsuit, so your demand for damages may be ignored.
Most demand letters have a few things in common. You should thoughtfully craft a demand letter to fit your specific situation and needs, but you should always ensure that your demand letter at least contains the following:
In most circumstances, the person who owes the debt will not be willing to pay until there is a meaningful threat of litigation. Often, a party in a breach of contract case will wait to see if a lawsuit is actually filed before they decide if they’re going to try to settle the case or not. Unless you are certain the agency will immediately try to collect on their debt without needing to file a lawsuit.
You have no obligation to accept a demand letter that does not contain a reasonable number considering your full range of damages. If you do get a settlement offer, you must weigh your options and consider if there are any practical reasons to settle the case rather than proceed with litigation.
It is rare for lawsuits not to take place after a demand is made, even when the demand is met immediately. Demand letters are used to get a feel for how the other party will respond in a legal setting, so do not take it too personally if your demand is raised or lowered and you’re asked to negotiate further.
There are examples of what a demand letter should look like online. A sample demand letter should include all of the elements you would likely find in a real demand letter. Usually, a sample demand letter is much cleaner and clearer than an original demand letter.
Key Elements of a Demand Letter
To understand what you may need to include in a demand letter, it is helpful to look at the key components. Although a demand letter carries no legal obligation, for the most part, there are some items that are generally important to be included in a contract dispute demand letter:
Parties. First, and most importantly, identify the parties and the underlying contract at issue.
Next, briefly explain the nature of the dispute and the facts surrounding the breach. The breach itself does not necessarily need to be expressly articulated in a demand letter, although this has typically been the approach when initially sending a demand letter to a counterparty. Nevertheless, this is less critical if the parties have already been negotiating the issues prior to issuance of the demand letter, and/or, if the demand letter is subsequent to a mediation session. In fact, if the parties have already articulated the underlying dispute in writing, this may suffice for purposes of a demand letter, as long as the letter identifies and provides reference to the mediation statements and/or prior correspondence discussing the dispute.
Remedy. Provide a clear demand for what you wish to receive. This is generally done in a non-monetary form, such as specific performance, but it can also involve a money component, too. Be clear about what type of relief you are trying to achieve, and your basis for that relief, so that it does not appear arbitrary or punitive.
Future Action. Finally, explain the next step(s) you will take if the demand is not met. If the matter is going to arbitration or litigation, rationalize your reasoning for moving forward with the suit, and briefly explain how it may be resolved by those means.
It is important to note that there are other things you may want to include in a demand letter, such as additional contractual provisions that highlight your reasoning for the demand and warning statements that provide further notice that a lawsuit may be in the future. Again, a demand letter is not a legally mandated document, so there is a great deal of flexibility in composing one.
Drafting Demand Letters
Best practices for demand letters, even in less "pleasant" situations:
Stay Calm and Collected: When someone breaches the agreement you never should be too emotional, or reactive, in your response. Don’t react in anger or frustration. Stay calm and measured because in all likelihood emotions will only work against you.
Keep it Professional: Make sure to avoid using profanity or inflammatory language. The demand letter should not be about what the other party said or did to upset you and shouldn’t assign blame. Avoid engaging in battle with the other party – the battle will come later, if necessary, when discovery is being taken.
Keep it Simple: A demand letter should "stand on its own" without requiring the reader to go back and forth between footnotes, exhibits and other attachments . Keep the demand letter succinct and to the point without too much background or additional "overview" information.
Be Direct and Specific: You should be clear about which contract terms were breached, when they were breached, and the specific and identifiable damages you are requesting in your demand letter. If your damages are based on missing or unpaid invoices, a completed balance and breakdown of the damages are required.
Provide Concrete Evidence of the Breach: Directing the recipient to a myriads of emails, texts, voice messages, etc. that may support your case is not going to help you. Include the evidence you intend to use in support of your claims in the demand letter itself. Don’t make it too hard to review the evidence you intend to present in court.
Sample Breach of Contract Demand Letter
[Date]
[Your Name]
[Your Address]
[City, State, Zip Code]
[Telephone Number]
[Name of Contact Person (if applicable)]
[Company’s Name]
[Company’s Address]
[City, State, Zip Code]
Re: Demand for Relief for (Insert Type of Breach)
Dear (Company Name or Contact Person):
I write to you regarding the contractual obligations owed to me under the Agreement dated (date). Like you, I have been careful to abide by all the covenants contained in the Agreement. As such, I trust that you will regard this correspondence with the seriousness it deserves.
(Present your legal argument here to support your demand for relief. Explain what specific obligations the other party is bound to — like the amount of money they owe you — and cite specific paragraphs of the applicable contract to back up your assertions.)
I look forward to hearing from you soon with a response to this letter. I believe that negotiation is the most efficient way to achieve a long-term solution to this dispute.
As I am sure you can understand, this is not be the first breach of the Agreement by your company. As such, it is likely that you are aware of your obligations and repeating performance will not remedy this situation.
If you do not respond to this letter by (insert date), I will be forced to seek legal action in order to restore my rights. Please be advised that I look forward to resolving this matter as quickly as possible to avoid such action and to preserve our business relationship.
Please do not hesitate to contact me via the telephone at (insert your telephone number) or via email at (insert your email address) at any time.
Thank you for your time and attention to this matter.
Legal Considerations & Next Steps
A demand letter is an essential tool in the negotiation process. It can be used to attempt resolution of a claim that does not result in a lawsuit or to precisely frame the issues in dispute if a lawsuit must eventually be filed. Although rules governing contract actions are governed by State law, there are some legal considerations to keep in mind when deciding whether to issue a demand letter, the contents of the letter and options for next steps if your demand letter is ignored. The letter should be sent with a method of proof of delivery. Email is fine. A fax is even better. The method of delivery is important. Generally, oral requests for contractual performance must be reduced to writing if there is no subjective agreement to the form of notice in the contract. Essentially, if the contract requires a specific method of notification, oral notice may not be enough to trigger your contractual right to seek redress. Some contracts will include the following provision: All notices, requests, demands, claims and other communications ("Notices") required or permitted under this Agreement must be in writing and: (i) delivered personally, (ii) sent by certified, registered or overnight mail, postage prepaid, return receipt requested, or (iii) sent by email confirmed by telephone. All Notices will be effective upon receipt or upon refusal to accept delivery. Notice to Cxpro will be addressed to the attention of [CB]. Notice to Archford will be addressed to the attention of [SA]. This language presumes that all notifications must be in writing. Oral notification is insufficient. The method of delivery in this clause calls for either personal delivery , mailed delivery or email. Court cases have held that oral notifications are insufficient if the contractual language specifies notification must be "in writing." A demand letter that involves express legal rights in a contract (i.e., demand a payment, correction of defective work or material, etc.) should address the matter as a "demand." A demand must be accompanied by a deadline for compliance. Without a specific deadline for compliance, the demand could be construed as a request. An opinion letter, as the name implies, is just that – an opinion on the legal rights of the parties. It is not normally accompanied by a deadline for compliance. An opinion letter would be appropriate for advice on matters such as who is entitled to a portion of the proceeds of a contract dispute. The demand letter can be a precursor to a lawsuit. If the demand letter is ignored by the recipient, you may proceed with filing a lawsuit or requesting arbitration of the matter. The demand letter may be attached to the complaint, demand for arbitration or other pleading asserting a claim for breach of contract. Although the complaining party could proceed with litigation without first sending a demand letter, the letter serves two functions: it demonstrates good faith by the aggrieved party and it pinpoints the issues the other party must address in its response.