A contract default clause states what will happen if one of the parties fails to live up to their side of the agreement. Generally a default clause allows the non-breaching party to terminate the contract, execute a specific course of action or request damages based on the default. Most default clauses come into effect when a party fails to make payment by a certain date or fails to perform some type of work or service in a timely manner.
Review all state law related to contract construction and how default clauses are generally construed in your jurisdiction. Knowing the intricacies of contract law is a very daunting task so you may wish to consult an attorney to help you draft the contract.
Consider how your performance on the agreement or how the project you are working on will be affected if the other party breaches the contract. Make a list of potential reasons the other party might breach or potential delays which would be detrimental to the project.
Create a list of potential remedies to the other party's breach of contract. Common remedies include monetary damages, specific performance and the right to bring someone else in to complete the project or agreement.
Draft the contract default clause stating explicit actions which govern when the other party will have defaulted on the contract. Be sure to also include what remedies will be available to the aggrieved party when the other party defaults.
Consider adding a liquidated damages clause to your default clause which will give the non-defaulting party specific monetary relief on top of the other relief granted in the default clause.
- Learning the entire body of state law surrounding contract construction and default clause interpretation is an extremely difficult task which you shouldn't consider undertaking unless you are already familiar with the legal system.
- Find a form contract specific to your state which contains a default clause. You can use this default clause to guide you in your own drafting.
- Expert Law: Common Contract Clauses; Aaron Larson; December 2010
- Bankrate: Universal Default Rules Explained: Bill Burt
- Personal Financial Network: What is a Universal Default Clause?
- Watson and Associates: Termination For Convenience & Default
- American Bar Association: Learning How to Draft Contracts in the Real World
- Googobits.com: How to Successfully Write and Negotiate a Contract ; Robbi Erikson; September 2005
- United States Government: Sample Contract Termination for Default
- The Florida Bar Association: Be Careful Using Form Real Estate Contracts
- Irmi.com: Liquidated Damages Clause and Waiver of Consequential Damages
- San Diego Home Finder: Understanding Liquidated Damages
- Cohen, Seglias, Pallas, Greenhall and Furman: Termination for Default - Clause
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