Also known as: default clauses · events of default
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
A clause in a donative instrument that identifies persons who take appointive property to the extent a power of appointment is not effectively exercised. The clause supplies the disposition when an attempted appointment fails and the donor provided no other direction.
A contractual provision in a security agreement that enumerates events constituting default and thereby triggers the secured party's remedies. The clause may address nonpayment, financial reverses, or other occurrences the parties agree will permit acceleration or foreclosure.
Each sense below has its own examples, sources, and questions.
A clause in a donative instrument that identifies persons who take appointive property to the extent a power of appointment is not effectively exercised. The clause supplies the disposition when an attempted appointment fails and the donor provided no other direction.
Select any source to read its text and confirm it supports the definition.
Kurt created a trust granting his daughter Gemma a general power of appointment over the principal after a life estate in his sister. The instrument named no takers in default. Gemma attempted to appoint the assets to an ineligible institute. After Gemma's death the trustee must distribute the principal. Because no gift-in-default clause existed, the property passes into Gemma's estate rather than reverting to Kurt's successors.
Donor placed assets in trust for Donee for life with a remainder as Donee shall appoint by will. The instrument contained a gift-in-default clause directing the property to Donee's surviving issue. Donee's will contained only a residuary clause devising all her property to her spouse. The residuary clause does not exercise the power because a valid gift-in-default clause exists.
The property passes to the donee or the donee's estate when the donor provided no takers in default or the gift-in-default clause is ineffective. This rule prevents an unintended reversion and treats the general power as broadly as the donor granted it.
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A residuary clause does not manifest an intent to exercise the power unless the power is general, the donor provided no takers in default, and the gift-in-default clause is ineffective. When a valid default clause exists the residuary clause leaves the appointive property untouched.
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A contractual provision in a security agreement that enumerates events constituting default and thereby triggers the secured party's remedies. The clause may address nonpayment, financial reverses, or other occurrences the parties agree will permit acceleration or foreclosure.
Select any source to read its text and confirm it supports the definition.
Nanakuli contracted to purchase minimum annual tonnage of asphalt from Shell. The written agreement contained a default clause addressing only failure to pay for delivered product. When market prices fell Nanakuli sought price protection based on trade usage. The court examined course of dealing and usage to determine whether the parties intended the quantity term to be adjustable despite the limited language of the default clause.
Default is whatever the security agreement says it is, subject only to unconscionability and good-faith limits. A well-drafted clause addresses nonpayment, bankruptcy, assignment for creditors, loss or damage to collateral, and other events that impair the creditor's position.
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An insecurity clause is enforceable if the creditor in good faith believes the prospect of payment has been impaired by an event occurring after the loan was made. The clause permits acceleration when the creditor's reasonable belief arises after the transaction.
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…a declining market; (3) the minimum tonnage was expressed in the contract as Products Supplied, not Products Purchased; (4) the default clause of the contract did not state a penalty for failure to take delivery; and (5) apparently most important in the court’s view, the parties had deviated from similar express terms in earlier…
…documents would contain the “usual and customary” representations and warranties, closing conditions, other covenants, and
If the gift-in-default clause fails, the rule directing ineffective appointments to the donee's estate applies. The clause may be ineffective because it covers only part of the property, violates the Rule Against Perpetuities, or is conditioned on an event that never occurs.
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