Contract Glossary
Cross-Default
Definition
A clause that says defaulting on one agreement automatically counts as a default on a different agreement with the same party. One domino falls, and the rest go with it.
In Practice
You have two contracts with the same supplier: one for raw materials and one for finished goods. A cross-default clause means that if you miss a payment on the raw materials contract, you're also in default on the finished goods contract — even if you're current on those payments. Lenders use cross-default clauses heavily: default on one loan, and all your other loans with that bank come due.
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Frequently asked questions about cross-default
Self-protection. If you're defaulting on one obligation, you might be in financial trouble across the board. Cross-default lets the lender accelerate all your debts before you run out of money or assets to cover them. From the lender's perspective, it's an early warning system.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.