Default

Legal Meaning

For the debtor’s default, the debt must be due and performance must still be possible. A formal notice (ihtar) is the express direction of a demand for performance to the debtor. Consequences such as default interest, compensation for delay, specific performance, withdrawal from the contract or termination vary according to the type of the debt and of the contract.

In contracts imposing reciprocal obligations, an appropriate additional period may need to be granted for the creditor’s elective rights. In the creditor’s default, on the other hand, the issue is that performance tendered by the debtor was not accepted without justified reason or that the preparatory acts were not carried out.

The debtor’s fault is not mandatory for default to arise; in consequences such as compensation for delay, the defense of absence of fault is also important (TBK Articles 117-119). In a tort, the date on which the act was committed, and in unjust enrichment, the date on which the enrichment occurred, is taken as the basis; notification is required for the default of a good-faith recipient of unjust enrichment. In contracts imposing reciprocal obligations, the additional period and the exceptions to that period are examined separately under TBK Articles 123-125.

Core Elements and Practical Criteria

• The debt must be due.
• As a rule, a formal notice is required.
• There are cases of default without notice, such as the jointly fixed date of performance.
• The consequences vary according to the type of debt and contract.

Practical Significance

The timing, content and notification of the notice may be decisive for the start of interest, elective rights and the termination of the contract. The maturity and notice provisions of the contract should be examined together.

Commonly Confused Concepts

• In default, performance is possible but delayed; in impossibility of performance, the performance can no longer be rendered.
• The creditor’s default is not the debtor’s but the creditor’s failure, without justified reason, to provide the cooperation needed for performance.

Practical Example

Non-payment on the due date of a money debt whose payment date was set definitively in the contract may give rise to the consequences of default; whether a further notice is required is assessed in light of the contract and the statutory provisions.

Frequently Asked Questions

Is a notice required for every delay?

No. Where the parties jointly fixed the date of performance, or in other exceptions in the law, the debtor may fall into default without notice. That no notice is required and that no additional period is required are separate issues.

Does default terminate the contract automatically?

As a rule, no. Depending on the type of the contract, an additional period, elective rights and notification steps may be required.