Default Clauses: What Happens When a Buyer or Seller Breaches a Contract?

One of the pleasures of working in the legal world of aircraft transactions is that, unlike litigation, the buyer and seller are both willing participants.

It’s safe to assume that the buyer wants to buy and the seller wants to sell. But what happens when a party changes their mind? Or they’re unable to perform their obligations?

Properly drafted default clauses are key to giving the parties certainty over what will happen in the event of a breach of contract. Sometimes more importantly, they explain what won’t happen.

Additionally, a default clause should always include a cure period, allowing each party the opportunity to address and resolve a breach. This is especially important when a party may even be unaware they’re in default. Ideally, the breach is identified, promptly corrected, and the transaction proceeds as planned. 

From there, the clauses should specify what remedies each party is entitled to.

Understanding Buyer and Seller Default Remedies

For a purchaser default, the seller is typically entitled to receive the purchaser’s deposit directly from the escrow agent. This is in lieu of collecting other damages from the purchaser, such as costs incurred for the transaction, loss of use of the plane during the attempted transaction. 

It also accounts for the loss of value, as the plane would typically be worth slightly less after the transaction started). The purchaser would not owe the seller any other amounts related to the transaction.

For a seller default, the purchaser is typically entitled to receive their deposit back from the escrow agent, but that does not begin to make the purchaser whole. Additionally, purchasers often negotiate the seller default clause to include reimbursement of all purchaser’s out-of-pocket costs incurred for the transaction. 

This still doesn’t compensate the purchaser for their loss of bargain, particularly if they must find a replacement aircraft at a higher price. In some cases, the purchaser can negotiate for the seller to pay an amount equal to the deposit.

Why Waiving Specific Performance Matters

Perhaps most importantly, both parties’ clauses should include a waiver of the right to specific performance. This is a party’s right to sue to force the other party to complete the transaction as planned. 

However, this could tie up the plane for years in litigation, leaving the “winner” of the lawsuit with a neglected aircraft that has depreciated in value and may require significant maintenance or repairs to return to service.

Nobody wins in this case—both parties endure financial losses, operational setbacks and prolonged uncertainty.

Hopefully, your default clauses will never end up on a judge’s desk, but they do provide guardrails to disincentivize each party from breaching the contract. By establishing clear remedies and limitations, well-crafted default clauses help ensure that disputes are resolved efficiently, allowing both buyers and sellers to move forward with minimal disruption.

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This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, are purely informational. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.

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