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Defining “Default” or “Event of Default” In San Diego Business Contracts
A good San Diego business contract will define the concepts of “default” and “event of default.” With a simple contract, default is probably failure to deliver or failure to pay. These terms should be defined for more complex transactions. A good corporate lawyer can help if your San Diego business has contracts with such terms or if your business wants to include definition of these terms in contracts to be written. Here is a brief overview
San Diego Corporate Law: Default vs. Breach
In general, legal terms, a “default” can be viewed as synonymous with the idea of “breach.” Both are terms that mean a party to a contract has failed to meet his/her/its obligations under a contract. Lawyers often use the terms interchangeably, but “default” has a nuance that involves ongoing obligations, passive non-actions, and failures to cure or fix the non-performance over time. Thus, if the contract involves delivery of goods — a truckload of grapes, for example — failure to deliver the produce at the specified time and location is a breach of the contract. Most lawyers would use the word “breach” in a one-off contract situation like that. However, imagine that the contract requires a weekly delivery, but a delivery is missed, then another and another. As time passes, the grape grower falls more and more into default and, at some point, it is not possible for the breaching party to cure or fix the violations of their obligations under the contract. Here, most lawyers would use the term “default.”
San Diego Corporate Law: Drafting the Contract
Whatever the term used, with written contracts, it is important to specify what constitutes a breach or a default under the contract. This helps the parties understand the full parameters of the expectations under the contract. The specific language, of course, must be specific to the parties and to the contract. A typical provision might be as simple as this:
“Default: Failure of either party to honor its obligations under this Agreement shall constitute a default under this Agreement.”
However, as we discussed here, sometimes the contract needs to specify a number of possible defaults — such as the filing of a bankruptcy. Thus, the “Event of Default” language might work better. For example:
“Event of Default: The following shall be considered events(s) of default under this Agreement: (i) failure of either party to honor its obligations under this Agreement, (ii) the filing of a Petition for Bankruptcy, (iii) …”
Most business contracts combine the default provisions with notice and cure provisions. In general, business contracts are about getting the task completed — receiving the materials, selling the goods, making the machine, constructing the building, etc. In general, the parties WANT the contract to be completed. As such, when a party starts to fall behind on his/her/its obligations, a notice can help get the project/contract back on track. Finding someone else to complete the contract is expensive and time-consuming.
Contact San Diego Corporate Law
For further information, contact Michael Leonard, Esq. of San Diego Corporate Law. To schedule a consultation, contact Mr. Leonard via email or call at (858) 483-9200. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters. Mr. Leonard has been named a “Rising Star” by SuperLawyers.com for three years running. Mr. Leonard has the experience and knowledge to help your business succeed.
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