A reader asks: Do you see the new fee on refinancing mortgages being permanent?
What is a breach of covenant?
Breach of covenant is the violation of an agreement or promise made in a written contract or property deed. It can refer to an express or implied condition to which a party agrees. A covenant has always been part of any contract.
To be sure, the promise may refer to something you either promised to do or promised not to do sometime in the future.
Indeed, a claim of breach of covenant may be for damages or specific performance. If the covenant is important enough, it might be for rescission or termination of an action.
In the case of Bak-A-Lum Corp. of America v. Alcoa Building Products, a dispute over the distribution of aluminum siding in the late 1960s, the court found that in every contract there is an implied covenant that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.”
Breach of covenant example
Michael is a salesperson for a paper supply company and has signed a noncompete agreement. The contract states that he cannot work for a competing paper supply company for two years after leaving his current employer.
The term likely used in the contract was “covenant not to compete.” If he willingly leaves his current employer and goes to work for a competitor before the two-year mark is completed, his employer has the right to seek an injunction or restraining order.
Such an order would prevent him from keeping the new job because doing so puts him in violation of the covenant that he has with his original employer.
Courts tend to take breach of covenant cases seriously, making it particularly important for employees to read any contract from top to bottom before signing.