Responding Business Breach Demand Letters
Strategic guidance for businesses receiving breach of contract demand letters—evaluating claims, asserting defenses, and negotiating practical resolutions
Receiving a breach of contract demand letter is stressful, but it’s not the end of the world. Most demand letters overstate claims and don’t result in litigation. Your response strategy in the first 10-15 days determines whether this matter settles quickly, drags into expensive litigation, or gets dismissed entirely.
Take these steps immediately upon receiving a demand letter, before responding or consulting with the claimant:
- Implement litigation hold: Instruct all employees who worked on the project or contract to preserve all documents, emails, texts, Slack messages, and files related to the matter. Do NOT delete anything.
- Secure the contract and all related documents: Gather the original agreement, all amendments, change orders, SOWs, purchase orders, email confirmations, and any other documents that define your obligations.
- Notify insurance and indemnitors: If you have general liability, E&O, or other insurance, immediately notify your carrier. If you have indemnity rights against upstream vendors or partners, notify them as well. Late notice can forfeit coverage.
- Do not respond emotionally: Resist the urge to fire off an angry email or call the claimant. Any response should be carefully considered and ideally reviewed by counsel.
- Evaluate the deadline: Most demand letters give 10-15 business days to respond. This is usually negotiable, but don’t ignore it entirely.
Before you can assess whether you breached the contract, you need to understand exactly what the contract requires. Many breach claims fail because the claimant misinterprets the contract terms.
Many businesses, in an effort to be cooperative or maintain relationships, respond to demand letters with admissions like “We’re sorry we didn’t meet your expectations” or “We’ll work to make this right.” These statements can be used against you as admissions of liability.
Instead, use neutral language: “We’re reviewing your letter and will respond substantively within [timeframe]” or “We dispute your characterization of events and are evaluating our position.”
Break down the demand letter into specific factual allegations and legal claims. For each allegation, ask:
- Is this factually accurate? Do you have documents or testimony contradicting the claimant’s version of events?
- Does the contract actually require this? Or is the claimant claiming you breached obligations that don’t exist in the written agreement?
- Did they breach first? If the claimant materially breached before you allegedly did, their breach may excuse your performance (see “prior breach defense” below).
- Did they waive the requirement? If the claimant previously accepted non-conforming performance without objection, they may have waived strict compliance.
- Are damages properly calculated? Even if you breached, are the damages claimed reasonable and supported by evidence?
In many cases, the best initial response is a brief, professional letter acknowledging receipt, stating you’re reviewing the matter, and proposing a call or meeting to discuss. This buys time, signals you’re taking it seriously, and often reveals whether the claimant is interested in reasonable resolution or just posturing for litigation.
Even if the claimant’s allegations have some factual basis, you may have strong legal defenses that reduce or eliminate liability. Here are the most common defenses in business contract disputes.
The most straightforward defense: you performed your contractual obligations, and the claimant’s interpretation of the contract is wrong.
Key arguments:
- Contract language is clear: Quote the specific provision and show you complied.
- Specifications were met: Provide test results, quality reports, acceptance records, or third-party validation showing your work met contractual standards.
- Claimant’s expectations exceed contract: Show the claimant is demanding performance beyond what the written agreement requires.
If the claimant materially breached the contract before you allegedly did, their breach may excuse your performance. This is sometimes called the “prior breach defense” or “failure of condition.”
Requirements:
- The claimant’s breach must have occurred first in time
- The claimant’s breach must have been material (not just a trivial or technical violation)
- Your non-performance must be causally related to their breach
Example: You contracted to deliver software by a certain date, but the client failed to provide required access to their systems or necessary information, causing delays. Their failure to cooperate excuses your late delivery.
Many contracts contain “conditions precedent”—events that must occur before a party’s obligations are triggered. If these conditions weren’t met, you had no duty to perform.
Common examples:
- “Vendor shall commence work upon receipt of 50% deposit” – no deposit, no obligation to start
- “Payment due within 30 days of Client’s written acceptance” – no written acceptance, no payment obligation
- “Contractor’s warranty obligations commence upon final project completion” – if project isn’t final/complete, warranty may not apply
Many commercial contracts include provisions requiring a party claiming breach to provide written notice and an opportunity to cure before terminating the contract or filing suit.
Example clause: “No breach shall be deemed to have occurred unless the non-breaching party provides written notice specifying the breach and allows thirty (30) days to cure.”
If the claimant didn’t follow these procedures, their demand may be premature and unenforceable.
Even if you breached, the claimant must prove their damages with reasonable certainty. If the damages claimed are speculative, inflated, or unsupported by evidence, you can challenge the amount.
Common damage challenges:
- Consequential damages: “Lost profits” or “lost business opportunities” are often too speculative to recover without strong proof
- Failure to mitigate: The claimant had a duty to minimize damages; if they sat idle instead of finding replacement vendors, their damages should be reduced
- No actual loss: If the claimant can’t show they suffered real economic harm, nominal damages may be all they’re entitled to
If the claimant previously accepted your performance without objection, or repeatedly waived similar violations in the past, they may have waived the right to claim breach now.
Evidence supporting waiver:
- Emails saying “looks good” or “approved” after delivery
- Payment without objection
- Continued use of deliverables for weeks or months without complaint
- Pattern of accepting late or non-conforming performance in the past without objection
If your contract includes limitation of liability clauses, these can cap your exposure or eliminate certain types of damages entirely.
Common provisions:
- Damage caps: “Total liability shall not exceed the fees paid under this agreement”
- Consequential damage waivers: “In no event shall either party be liable for consequential, incidental, or indirect damages, including lost profits”
- Exclusive remedies: “Client’s sole remedy for defective performance is re-performance or refund at Vendor’s option”
These provisions are generally enforceable in commercial contracts between sophisticated parties, but courts scrutinize them closely. Make sure yours are clearly written and conspicuous in the contract.
Contract claims have time limits, typically 2-6 years depending on the state and contract type. If the alleged breach occurred years ago, check whether the statute of limitations has expired. This is an absolute defense if applicable.
If the claimant owes you money or breached other obligations to you, consider asserting counterclaims. Strong counterclaims dramatically increase your settlement leverage and can offset or exceed the claimant’s damages, incentivizing them to settle or walk away.
Systematically gather and organize evidence to support your defenses. The better your documentation, the stronger your position in settlement negotiations or litigation.
Create a written litigation hold memo to all employees involved in the contract, instructing them to preserve all documents and communications. Include:
- Description of the dispute and parties involved
- Types of documents to preserve (emails, texts, Slack, files, notes)
- Instruction not to delete anything, even routine deletions
- Contact person for questions (your attorney or legal team)
- Warning that failure to preserve evidence can result in sanctions
Most breach of contract demands settle without litigation. Understanding when to fight and when to settle is critical to minimizing costs and business disruption.
When evaluating whether to settle, consider:
- Litigation costs: Attorney’s fees to defend through trial typically range from $50,000-$200,000+ for commercial contract disputes. Arbitration may be 30-50% less but still substantial.
- Management time: Discovery, depositions, and trial preparation consume enormous management time. Value this at your team’s hourly rates.
- Win probability: Honestly assess your likelihood of prevailing. Few cases are slam dunks. Factor in risk.
- Insurance coverage: If insurance covers the claim and provides defense, the calculus changes significantly.
- Reputational risk: Will litigation result in public filings, negative publicity, or harm to business relationships?
- Enforcement risk: Even if you win, can the claimant pay a judgment in your favor on counterclaims? Or will you spend more money trying to collect?
One of the most common commercial settlements is the “walk away”: both parties agree to mutual release of all claims, no money changes hands, and each side bears its own costs. This works well when both sides have legitimate grievances, neither wants to spend money litigating, and the relationship is over anyway.
If you decide to settle, make sure the settlement agreement includes:
- Mutual general release: Both parties release all claims arising from the contract and relationship, not just the specific claims in the demand letter
- No admission of liability: Settlement is “to avoid costs and uncertainty of litigation” without admitting wrongdoing
- Confidentiality and non-disparagement: Neither party discloses settlement terms or makes negative statements about the other
- Payment terms: If money is changing hands, specify amount, payment schedule, and consequences of default (e.g., confession of judgment where permitted)
- Final project completion (if applicable): If there’s outstanding work, define exactly what will be delivered and when, with IP transfer and finality
- Attorney’s fees provision: Typically each side bears its own fees, but specify this clearly
These templates provide starting points for responding to breach of contract demand letters. Customize based on your specific facts and defenses.
I represent businesses facing breach of contract demand letters and lawsuits. My approach is practical, cost-focused, and designed to achieve the best outcome with minimal disruption to your business.
What I Do: I review the demand letter, your contract, and key evidence to assess the strength of the claim and your defenses. I provide a written evaluation including:
- Likelihood the claimant will prevail if they sue
- Your strongest defenses and counterclaims
- Estimated range of potential liability if you lose
- Estimated cost to defend through trial or settlement
- Recommended response strategy (fight, settle, or hybrid)
Timeline: Typically delivered within 5-7 business days of engagement.
I draft professional, legally sound response letters that assert your defenses without making unnecessary admissions, position you for favorable settlement, and preserve your options for litigation if needed.
Response letters can take several forms depending on strategy: denial of liability, assertion of affirmative defenses, counterclaim warnings, settlement proposals, or requests for additional information.
If settlement is appropriate, I handle all negotiation with opposing counsel or the claimant directly. I work to achieve cost-effective resolution that minimizes payment, includes full releases, and protects confidentiality.
I draft all settlement agreements with provisions protecting your interests: mutual releases, no admission of liability, confidentiality, non-disparagement, and clear finality.
If the claimant files suit, I handle all phases of defense:
- Answer and Counterclaims: Asserting all defenses and offensive claims
- Discovery: Obtaining evidence to support your defenses and undermine claimant’s case
- Motion Practice: Seeking dismissal or summary judgment where appropriate
- Trial: Full trial representation if settlement isn’t achieved
If you’ve received a breach of contract demand letter and need help evaluating your options, I can provide practical, cost-focused guidance to minimize liability and business disruption.
Use the Calendly link below to schedule a strategy call, or email me directly at owner@terms.law.
Schedule Strategy CallMost demand letters give 10-15 business days to respond. This deadline is usually negotiable—you can often get an extension by sending a brief acknowledgment saying you’re reviewing the matter and need additional time. However, don’t ignore the deadline entirely, as that signals you’re not taking it seriously. Ideally, respond within 15-20 business days at most.
It depends on the amount at stake and complexity. For demands under $10,000-$25,000 involving straightforward facts, direct negotiation may work. For larger amounts, complex contracts, or situations where the claimant has hired an attorney, you should strongly consider retaining counsel. Anything you say can be used against you, and early legal advice often prevents costly mistakes.
The claimant will likely file a lawsuit. Ignoring demand letters almost never makes them go away—it just escalates the dispute and eliminates opportunities for pre-litigation settlement. Even if you believe the claim is baseless, send a brief response denying liability to preserve your defenses and demonstrate you’re not intimidated.
It depends on your contract and state law. If your contract includes a “prevailing party” attorney’s fees clause, the winner can recover fees from the loser. Some states also have statutes allowing fee recovery in certain contract disputes. This significantly increases the stakes and is a key factor in settlement analysis. Check your contract’s fee-shifting provisions carefully.
Sometimes yes, as a purely economic decision. If defending will cost $50,000 in attorney’s fees and you can settle for $20,000, settlement may be the rational choice even if you’d likely win. However, consider precedent effects—if you’re at risk of repeat claims, fighting may be strategically important. Discuss the cost-benefit analysis with counsel before making settlement offers.