Breach of contract: what if a contract is not fulfilled?

Breach of contract occurs when a contracting party fails to meet its obligations. This can have major financial and operational consequences for your business. Often a notice of default is required before you can take legal action.

What is breach of contract?

Breach of contract occurs when a party does not fulfill, or does not properly or timely fulfill, a contractual obligation. This can relate to delivery, payment, quality or other agreements.

Forms of breach of contract:

• ✓ non-performance (e.g., no delivery);
• ✓ late performance (delivery after the agreed term);
• ✓ defective performance (delivery of different quality);
• ✓ refusal to perform.

The notice of default

In many cases, you must first send a notice of default before you can take further steps. This is a formal warning to the other party that they are falling short.

Requirements for a valid notice of default:

• ✓ written notice to the other party;
• ✓ clear description of the shortcoming;
• ✓ reasonable period for remedy;
• ✓ mention of consequences if performance fails.

Your remedies in case of breach of contract

In case of breach of contract, you can demand performance, claim damages or terminate the contract. The right strategy is essential and depends on your specific situation.

Possible remedies:

• ✓ demand performance (still execute the contract);
• ✓ claim damages (compensation for damage suffered);
• ✓ termination of the contract (termination of the agreement);
• ✓ suspension of your own obligations;
• ✓ invoke penalty clauses (if included in contract).

Evidence and documentation

In case of breach of contract, good evidence is crucial. Make sure you document all communication and agreements properly.

Important evidence in case of breach of contract:

• ✓ the original contract;
• ✓ correspondence about the execution;
• ✓ evidence of services rendered or payments;
• ✓ the notice of default;
• ✓ calculation of damage suffered.

Strategic choices

The choice between performance, damages or termination is not always simple. Sometimes negotiation is the best way, in other cases a legal procedure is necessary.

Considerations for your strategy:

• ✓ severity of the shortcoming;
• ✓ possibility of remedy;
• ✓ amount of damage;
• ✓ importance of continuing business relationship;
• ✓ chance of success in procedure.