Acting correctly in the event of a breach of contract

In the event of a breach of contract, you have five options: put the other party in default, enforce performance (if necessary through the courts with a penalty payment), claim damages, suspend your own obligations, and dissolve the agreement in the case of serious breaches. Which route is most suitable depends on the severity of the breach and what you ultimately wish to achieve: performance, a refund, or termination of the contract. Below is an overview of the options.

What is breach of contract?

Breach of contract is legally non-performance or failure to perform . It occurs when a party fails to fulfill its obligations under an agreement , or fails to do so on time or in full. Whether the agreement is in writing or not makes no difference: failure to comply with an oral agreement also constitutes a breach of contract.

Examples range from failure to deliver at all to delivering goods that do not meet the agreed quality requirements, or paying late. In all those cases, the counterparty falls short of what was agreed.

What can you do in the event of a breach of contract?

1. Send a notice of default

The first step is usually a notice of default: a letter in which you indicate that the other party is in default, what you expect of them (usually performance), and within what reasonable period. If the other party fails to meet that deadline, they are in default — an important condition for being able to claim damages or dissolve the contract later. Sometimes default has already occurred even without a notice of default, for example, if a fixed deadline has passed.

2. Demand performance, possibly through the courts

If the notice of default yields no results, you can enforce performance through the court. The court can order the opposing party to perform and attach a penalty payment to this, so that non-compliance becomes costly.

3. Claim damages

If you have suffered damage as a result of the breach of contract, you can claim compensation. However, in principle, the other party must be in default for this. Examples include extra costs for purchasing elsewhere, lost revenue, or consequential damages.

4. Suspend your own obligations

As long as the counterparty remains in default, you may in many cases suspend your own performance — for example, postponing a payment until the other party does deliver. Suspension is a means of pressure, but it must be proportionate to the failure; unjustified suspension can put you in default yourself.

5. Dissolve the agreement

In the event of a sufficiently serious breach, you may dissolve. The agreements then become void, and performances already rendered must, in principle, be reversed. Dissolution is a severe measure: a minor or slight breach usually does not justify it.

How do you protect yourself against breach of contract in advance?

You can include provisions in your agreements and general terms and conditions that give you an additional position if the other party defaults:

• Penalty clause: a fixed financial sanction for non-compliance. The clause must be reasonable and clearly defined — see how high a contractual penalty may be.
• Retention of title: ownership only transfers once the full invoice has been paid. A strong incentive to pay on time.
• Fatal deadlines: hard deadlines that automatically result in default, without notice of default.
• Clear quality and delivery agreements: the more concrete the agreement, the easier it is to demonstrate a shortcoming.

Frequently asked questions about breach of contract

Is a verbal agreement also binding?

Yes. In principle, a verbal agreement is just as binding as a written one. The difficulty lies mainly in the proof: you must be able to demonstrate what was agreed upon. Therefore, it is wise to record agreements in writing, even if only by email.

Do I always have to send a notice of default first?

Not always. In the case of a fatal deadline or if performance is permanently impossible, default occurs immediately. However, in most cases, a notice of default with a reasonable period is required before you can claim damages or terminate the contract.

Can I demand both performance and damages at the same time?

Often, yes. You can demand performance and, in addition, compensation for the damage you have suffered due to the delay. If you opt for dissolution, you can combine this with compensatory damages. Which combination is most favorable depends on your situation.

Legal assistance for breach of contract

In cases involving significant financial interests, complex contractual relationships, or uncertainty regarding the correct approach, legal assistance is advisable — and for court proceedings, a lawyer is sometimes mandatory. The legal experts at MKB Juristen assess your situation and choose the most effective route, from notice of default to debt collection or litigation. View our expertise in contract law or schedule a no-obligation intake.