The two can have important legal consequences. Here's what contractors need to know.

February 23, 2024

2 Min Read
Alamy

The words breach and default are often used interchangeably to indicate that somebody hasn’t done what they were legally required to do.

According to Black’s Law Dictionary, the words appear somewhat interchangeable. Black’s defines breach as “a violation or infraction of a law, obligation, or agreement, especially of an official duty or a legal obligation.” It similarly defines default as “the omission or failure to perform a legal or contractual duty.”

While those definitions may suffice in common parlance and many areas of the law, in the construction law context breach and default may have different meanings that can have important legal consequences. (See LeChase Construction Services, LLC v. Argonaut Insurance Company, No. 6:20-CV-06915, 2024 WL 554297, at *3 (W.D.N.Y. Feb. 12, 2024.)

LeChase involves a contractor’s claim against the surety of a subcontractor. The language of the surety bond required any claim to be made within one year of any “default” by the subcontractor.

The surety moved for summary judgment arguing that the contractor’s claim was untimely. In support of this argument, the surety pointed to a change order issued by the contractor more than one year before making the bond claim. The description on that change order stated that it was for costs due to the subcontractor’s “breach of contract.” It was thus undisputed that the subcontractor had breached the contract more than one year before the surety bond claim was made.

The question remained whether a “breach” is equivalent to a “default.” To answer that question, the LeChase court looked to the common law (i.e. judicial opinions) because the term default was not defined in the surety bond itself. The court held that in the context of construction suretyship law, those terms are not equivalent:

[N]ot every breach of a construction contract constitutes a default. … A legal default requires a material breach or series of material breaches such that the obligee is justified in terminating the contract….Thus, there is a distinction in the concepts of ‘breach’ and ‘default’ that is to be recognized in construction suretyship law.

The court therefore refused to hold as a matter of law that the contractor’s claim was untimely. Even though the subcontractor was undisputedly in breach more than one year before the surety bond claim was made, that did not necessarily mean the subcontractor was in default. The court therefore denied the surety’s motion for summary judgment, permitted the contractor’s bond claim to proceed, and provided a valuable lesson about how context matters.

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