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Remember the notice of default

18

April

2016

Default

The terms “notice of default” and “default” are surely familiar to you, but what were the exact rules again?

Take, for example, the seller of a certain product. When the product contains a defect and the seller fails to honour their obligations, it is not possible to terminate the contract immediately. The seller must first be in default.

The seller will only be in default after they have been given a final opportunity to honour the terms of the agreement after all. This is what the notice of default is for. The jurisprudence is filled with verdicts that state a party was not in default because the notice of default was not issued (correctly). It would be a shame if your claim ended up being rejected on similar grounds.

Notice of default

A notice of default is a written summons in which the seller is called upon to honour the terms of the agreement. It is important that the seller is informed of the reason behind the notice of default, the problem that needs to be resolved and the timeframe within which this must take place. Note that you must offer the seller a reasonable amount of time to take action. What constitutes “reasonable” depends on the specific situation.

The seller must also be informed of the consequences of their failure to respond to the notice of default, e.g. the announcement of legal procedures, liability for damages (to be) suffered and, possibly, the extrajudicial termination of the agreement.

To make sure you can provide evidence that the notice of default was actually sent (and the default entered into force), it is advisable to send the notice of default via registered mail or by writ. Of course, the letter can also be sent via email, fax and/or regular mail in addition to one of the aforementioned methods. Given the fact that the party who sent the notice of default has the burden of proof regarding this fact, it is important to at least send the letter via registered mail or by writ.

When is a notice of default not needed?

Generally speaking, a notice of default is not needed in three cases. In these scenarios, the other party will be in default even without prior notice:

  • The firm date that was explicitly agreed upon has been exceeded;
  • The seller announces that they will no longer be able to honour the agreement;
  • An obligation resulting from compensation or unlawful action is not honoured.

Conclusion

In short, it is important to always check whether you are required to send a notice of default. Be mindful of this requirement, as overlooking this step may lead to a situation in which the other party is not in default and your claims are rejected because of it.

Written by:
Bas van der Eijk
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