No breach: Overview, definition, and example
What is "no breach"?
No breach refers to a statement or warranty made in a contract where one party affirms that they are not in violation of any term, condition, or obligation outlined in the agreement. This clause typically assures the other party that no events of default, legal violations, or other breaches have occurred and that the party has complied fully with their contractual duties. The “no breach” provision is important for ensuring that the contract is valid and enforceable and that both parties are fulfilling their responsibilities.
For example, a borrower in a loan agreement may provide a "no breach" representation to confirm that they have not violated any other agreements that could affect their ability to repay the loan.
Why is "no breach" important?
The no breach clause is important because it helps ensure that the contract is being executed as intended, without issues arising from the failure to meet legal or contractual obligations. It provides assurance to the other party that the agreement can proceed without complications due to prior violations or defaults.
For businesses, this provision reduces risk by affirming that there are no existing issues that could undermine the terms of the agreement. For counterparties, it ensures that the contract is not hindered by past or ongoing breaches and that the party making the affirmation is in good standing.
Understanding "no breach" through an example
Imagine a company enters into a service agreement with a vendor to supply software. The agreement includes a “no breach” clause, where the vendor confirms that they have not violated any other contracts or legal requirements that could affect their ability to provide the agreed services. If the vendor’s representation is false (e.g., they are in breach of another contract), the company may have grounds to terminate the agreement or seek remedies.
In another example, a business enters into a loan agreement with a bank. The loan agreement includes a “no breach” clause, ensuring the borrower is not in breach of any other loans or financial obligations. If the borrower has defaulted on a different loan, the bank may use this clause to claim a breach and call the loan.
An example of a "no breach" clause
Here’s how a "no breach" clause might appear in an agreement:
“The Borrower represents and warrants that as of the date of this Agreement, there is no existing breach or default of any other contract, obligation, or law that could materially affect the Borrower’s ability to perform its obligations under this Agreement. The Borrower further affirms that no event has occurred that would constitute a breach of any material terms of this Agreement.”
Conclusion
The "no breach" provision is a key clause in many contracts to ensure that both parties are fulfilling their obligations and that no hidden legal or contractual issues exist that could affect the performance of the agreement. For businesses, it provides assurance that the contract is valid and enforceable. For counterparties, it offers clarity that the agreement is not undermined by past or present breaches. Including a “no breach” clause helps maintain trust and reduces legal risk for all parties involved.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.