When you are a party to a contract and your counterparty is not performing his obligations, what is the process for redressing the non-performance? The initial step for the injured party is to provide a notice of breach to the defaulting party. The notice may be specific or brief, depending on the nature of the breach and the complexity of the contract. Below is a summary of the elements of a notice; these items should be included to ensure that the matter is handled in a timely manner and relevant legal principles are taken into account.
Notice clause. Most contracts contain a notice provision that sets forth contact information for both parties and details how notices to the opposing party should be communicated. The parties must follow these procedures to ensure that notice of a breach is properly handled and that neither party’s rights are compromised.
Identify the contractual breach. The notice identifies the date upon which the breach has been communicated to the opposing party. This is important as it relates to the timeliness of the obligations under the contract. The notice should specifically outline the provisions of the contract that were breached and identify the nature of the default. The breach may result from: (i) the failure of the party to perform its obligations, (ii) the objective refusal of the party to perform its duties in the future, or (iii) the actions of the other party rendering it impossible to perform the terms of the contract.
Review the contract. Most contracts contain provisions with procedures for addressing breaches of contract. The contract should be reviewed to look for specific information about actions to be taken and remedies in the event of a default.
Is it a material breach? Some breaches are regarded as material – they go to the “heart” of the contract and render the contract irreparably terminated. If the breach concerns a material term of the contract, the opposing party may have the right to dismiss the contract. If the breach is regarded as immaterial, such that the breach is not severe enough to defeat the purposes of the contract, a court may be less inclined to regard the agreement as terminated. A notice of breach can be provided for any type of breach (including a non-material breach), but it is important to be familiar with the nature of the default.
Contact Shane Coons at 949-333-0900 or visit his website at www.ShaneCoonsLaw.com to find out more about his practice.