Default Law Definition: Everything You Need to Know
Being "in default" in legal areas refers either to the failure of a party to contract to do what is expected of them as per the contract.3 min read
2. Default Judgment
3. Circumstances Under Which Courts Can Return a Default Judgment
4. Conditions for Issuance of a Default Judgment
5. Defaulting in Financial Transactions
Updated November 19, 2020:
Default law definition? Being "in default" in legal areas refers either to the failure of a party to contract to do what is expected of him as per the contract or the failure of a debtor to pay the debt at the agreed time. In lawsuits, a default judgment is one that is issued against a party that has failed fulfill the procedural requirements for the courts.
Defaulting and Contract Law
Defaulting means failing to live up to one's obligation. In contract law, when one of the parties to a contract fails to fulfill his obligation in the contract, he is said to be "in default."
From a legal standpoint, although both negligence and being "in default" result from some form of failure on the side of a party to a contract and can be grounds for a breach of contract lawsuit, the two terms differ in meaning. Negligence is due to carelessness but defaulting is the intentional refusal to fulfill the terms of the agreement.
A default judgment in lawsuits can be issued when one of the parties fails to live up to the procedural requirements for the lawsuit. A default judgment does not address the roots of the lawsuit and it can be compared to a forfeit victory in sports in which the winner is declared on a technicality or because the other team did not show up for the game.
On the request of the other party, normally the complainant, a court may issue a default judgment in favor of the complainant if it is satisfied that such a judgment is warranted under the circumstances.
Before issuing a default judgment, the court may do the following:
- Investigate the allegations
- Conduct an accounting
- Determine the right amount of damages
- Investigate any other matter arising from the lawsuit
For example, a man named John sues his neighbor Tom for damaging his fence which he claims is worth $6,000. In court papers, in addition to demanding that Tom pays him $6,000 for the fence, John asks the court to award him $2,000 in damages. Although John serves Tom with court papers, Tom fails to show up for the hearings. John then asks the court to enter a default judgment. The court complies and rules in favor of John and automatically awards John the amount he asks for.
The steps taken by federal courts to grant a default judgment in the U.S. are outlined in Rule 55 of the Federal Rules of Civil Procedure. State courts have local rules that they follow for the issuance of default judgments.
The defendant, although he may not be present during the lawsuit, is legally obligated to comply with the judgment issued. However, in some cases, a default judgment can subsequently be challenged and trashed by the court.
Circumstances Under Which Courts Can Return a Default Judgment
A default judgment can be announced by the court in the following situations:
- If one of the parties to lawsuit fails to show up for court proceedings.
- If one of the parties to the lawsuit fails to file the needed paperwork to court in time.
- If a party to the lawsuit fails to answer to a specific complaint in the time that was allotted for that purpose.
The procedure for issuing a default judgment is harder if the lawsuit is against the U.S. government.
Conditions for Issuance of a Default Judgment
Courts normally want to ascertain some basic facts before issuing a default judgment.
- The claimant must give evidence that the defendant was served and is aware of the court proceedings.
- A reasonable amount of time must have passed between the time when the defendant was notified and the court hearing for the default judgment. Rule 55 directs that the entity against whom a default judgment is issued must have received a notice at least seven days before the hearing.
- For minors or incompetent persons, a default judgment can only be entered if the person is represented by a guardian.
Defaulting in Financial Transactions
When the borrower fails to pay a loan within the agreed time frame according to the loan agreement, the borrower is said to have defaulted on the loan. Defaulting takes two forms.
- Fiscal defaulting results when a borrower fails to pay off a loan by the due date.
- Covenantal default refers to failing to live up to one or more covenants of the loan agreement. This may happen when a borrower exceeds the amount of borrowing.
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