The notice of default: an extremely important tool
Date: August 17, 2020
Modified November 14, 2023
Written by: Floris Pels Rijcken
Reading time: +/- 2 minutes
Date: August 17, 2020
Modified November 14, 2023
Written by: Floris Pels Rijcken
Reading time: +/- 2 minutes
The notice of default is essential legal tool. Not just for attorneys. Often a notice of default is sent before a lawyer (or legal counsel) is even in the picture. Failure to apply it, or to apply it correctly, can result in a claim for damages being (completely) killed. This is obviously a shame and can easily be avoided. This article contains a brief user's guide.
In order to make this contribution more lively, we will deal with the legal framework along a (fictitious) case study.
Contractor X is commissioned to perform a complete roof renovation on a dozen homes. To supply roof tiles, X enters into an agreement with supplier Y. It is agreed that Y will supply various building materials, including 20,000 ceramic roof tiles. Three weeks after entering into the agreement, Y delivers the building materials. However, the roof tiles delivered are concrete tiles.
If Y fails to perform the contract, he is in principle obliged to compensate X for the damage suffered. Before such a claim for damages can be awarded (by a judge or arbitrator), it is (usually) necessary that a notice of default is first sent.
It regularly occurs in practice that a claim (for compensation of damages) fails because of the absence of a (proper) notice of default. The key question, therefore, is:
It is imperative that:
It goes without saying that a letter (or a fax) satisfies the writing requirement. An e-mail (usually) also satisfies. It is not entirely clear whether an SMS or WhatsApp message also satisfies; there is (virtually) no case law on the subject. In any case, a (registered) letter is the safest option.
The notice of default must include a formal notice (also called a summons or notice). A friendly exhortation to comply is usually not sufficient. Required is a clear demand (summons) to comply. For example, the notice from contractor X to supplier Y that "the wrong roof tiles" have been delivered is not sufficient; a demand must also be made to deliver the correct roof tiles.
The debtor (in the example: Y) must be reminded to comply within a reasonable period of time. That reasonable period must also be clear and/or specified. If contractor X summonses supplier Y "to deliver the ceramic roof tiles in the near future" or "within a reasonable time", this is not sufficient. If Y is summoned/exhorted by X to deliver the ceramic roof tiles "within two weeks from today" or "no later than June 15, 2020," that is sufficiently clear and specific.
What constitutes a reasonable period of time cannot be said in generalities. It depends on the circumstances of the case. For example, a period of a few hours to pay a monetary claim will generally be reasonable (a payment order to the bank is quickly made). If the obligation is more complex, the deadline of a few hours will be too short (and thus the requirement of reasonableness will not be met). It must be possible for the debtor to fulfill the performance within the specified time period. It is also possible for the parties to agree on what they consider reasonable. Back to the example: if the average delivery time of (ceramic) roof tiles is one week, then X should expect Y to still deliver the correct roof tiles within one week.
What is required is that the creditor (in the example: X) clarifies what he claims. After all, several obligations may arise from one contract. For example, if contractor X claims that Y "within one week from today still fulfills the contract" this is not sufficient. X will have to claim that Y "within one week from today still delivers the agreed 20,000 ceramic roof tiles."
Notice of default is not necessary in certain cases. No notice of default is necessary if a specific ('fatal') date for performance has been agreed upon, if there is a question of a wrongful act or if the debtor (in the example: Y) clearly lets it be known that he is not going to perform anyway. It is beyond the scope of this contribution to elaborate on these exceptions.
Below are some real-life examples of default notices where something is lacking.
"I declare you in default to remedy the above mentioned defects within a reasonable time"
Faulty: term is not specified/concrete. The use of the words "in default" does not change this.
"You are requested, if necessary summoned, to ensure that recovery in accordance with our recovery plan is completed by May 15, 2019"
Unsound: under established case law, repair is the contractors' business. By enjoining a specific method of repair, the debtor is being "overcharged. In short: there is no contractual basis for the claim. Note: whether this is the case obviously depends on the specific circumstances of the case.
"On behalf of the client, I summon you to confirm to me no later than two weeks after this that a warranty will be issued on the painting work"
Unsound: in this case, the painting work should have been summoned/enjoined to be repaired.
A notice of default is an essential legal tool. Not only the lawyer or legal professional benefits from mastering it. Properly handling the formal notice prevents many (costly) problems at a later stage of a dispute.
A formal notice is not always necessary, but when in doubt it is advisable to send one. Make sure that all requirements are met (in writing, a clear demand/claim, a reasonable and clear/concrete deadline and specify what you are claiming and on what basis). For security purposes, send the notice of default by registered mail and to the wideparty's known mailing address. If you follow these steps, little can go wrong!
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