Breach of Contract vs. Default

In general legal terms, there's no real distinction between a breach of contract and a default. Both terms represent a failure on the part of one of the parties to fulfill his contractual obligations. However, contracts are often drafted by providing specific definitions to words used in the contract that may differ from conventional, common usage. In those cases, "breach" and "default" may have differing meanings.

Basic Contract Definitions

A contract is a written agreement in which two parties exchange promises and become legally bound to perform these promises. A breach of contract is a failure of one of the parties to meet one of those obligations underlined in the agreement without a legal excuse. "Default" is a general legal term that also means a failure to fulfill a legal commitment. In contract law, the most common use of the term "default" is when it refers to a borrower failing to make payments on his loan. Therefore, in general legal terms, a breach of contract and a default often mean the same thing.

Breaches in General

A breach of contract may be caused by a single act, such as not delivering a product, or a series of actions, such as not making mortgage payments over a period of time. To remedy a breach, the nondefaulting party may sue in civil court to compel the breaching party to fulfill his obligation, provide monetary compensation, return property the nondefaulting party lost due to the contract, or terminate the contract.

Interpreting Contracts

Contracts often provide explicit definitions for terms that are used consistently within the document to minimize confusion and misunderstandings in carrying out the contractual obligations. Therefore, it's entirely possible that the terms "breach" and "default" may have different meanings within the context of a contract. For example, assume you have a lease that not only establishes how long a renter may use a property and the rental rate, but also limits the use of the property to commercial purposes. The lease may define a renter who's not paying his rent as defaulting, but define him using the property for residential purposes as a breach. A renter may be in default but not in breach of contract, and vice versa. Carefully review the contract to see if it applies a specific definition to these terms.

Defenses to Breach

Parties that are in breach of a contract may avoid penalties by arguing that the contract was inherently flawed and should therefore not be enforceable. Reasons for terminating a contract include that it's unconscionable, or against the public interest; it was a mutual mistake by both parties; or the breaching party was compelled to sign the contract due to undue influence, fraud or duress. The breaching party may also argue that the contract itself was never valid because it lacked a mutual exchange of promises or because the breaching party lacked the mental capacity to agree when the contract was drafted.

Considerations

If you're drafting or need to interpret a contract, consult with a licensed attorney in your area to help. This article doesn't provide legal advice; it's for educational purposes only. Use of this article doesn't create any attorney-client relationship.

References

About the Author

John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.