Death constitutes a default

[CYNthesys]

I cant get my head round this, in a loan agreement that I read recently apart from the usual scenarios that constitute defaults, the death of a borrower is also listed as a default.

If a loan has always been paid on time and there are no arrears, how can an account be automatically deemed to be in default on the borrowers death?

[des8]

Re: Death constitutes a default

.......and presumably a DCA will be sending threatening letters.

[Tools]

Re: Death constitutes a default

In this case I assume that the contract itself is technically in default, the legal definition of default means that the contract cannot exist in its original state. Mainly because in practice the deceased party to the contract is unable to fulfil their duty to the contract.

[CYNthesys]

Re: Death constitutes a default

not exactly, but formal demand for repayment of the loan was made on the spouse who was not a party to the agreement

[Tools]

Re: Death constitutes a default

The spouse is considered to be jointly and severably liable? I assume we are talking about Yorkshire Bank here

[CYNthesys]

Re: Death constitutes a default

No, not YB (for a change)LOL

The loan was a joint loan with another party, the spouse was not involved

[Tools]

Re: Death constitutes a default

In that case the second party will be liable. Are they chasing the deceased's spouse personally or the estate of the deceased.

A bit more detail would hep

[Guest]

Re: Death constitutes a default

The term default is in itself part of the agreement, if both parties agree that the agreement will be in default if one of them dies then the agreement will have its way unfortunately.

You could put a term into a contract which says the agreement will be considered to be in default if one of the parties wears a green hat, if both agree to it and sign on the dotted then that is the way the contract will work.

There are issues about whether such a term can be used to reclaim liquidated sums due under a contract, which would have to be considered however.

The term would have to say that the death of the party would be considered a repudiatory breach of contract and enable the offended party to make an action for demanding full payment, if it were just a contractual termination clause any such action would be a penalty and unlawful, in such a case it would be in theory possible to challenge under the unfair terms provisions, I would think.

[CYNthesys]

Re: Death constitutes a default

Tools - they are chasing the spouse as executor of the deceased's estate.

Andy - I was thinking on the same lines where you say
" if it were just a contractual termination clause any such action would be a penalty and unlawful, in such a case it would be in theory possible to challenge under the unfair terms provisions".
BUT
neither the legal charge or the contract appear to have termination clauses, and they have not chased or made demand on the joint party to the agreement who is alive

[wales01man]

Re: Death constitutes a default

Surely if its a debt of the deceased the estate must pay it same as other debts left by the deceased before any balance is distributed if there are funds available .
If the spouse was not party to the debt they cannot be liable?

[CYNthesys]

Re: Death constitutes a default

Wales01man- Agreed, that the debt would form part of the estate, but shouldn't they also be chasing the joint debtor as well who is alive

[Guest]

Re: Death constitutes a default

I suppose it has to be remembered that the term default just means that the agreement between the party has broken down. The equitable remedy for a defaulted account (without an action for breach) is rescission, in other words both parties are returned to the condition where they were before the agreement was taken out. this would mean that any funds would have to be returned.

So what we are talking about is whether the bank had the right to terminate the contract, which brings us back to the contractual (agreed) )term again if any.

[wales01man]

Re: Death constitutes a default

Think they chase the easiest target same as CT joint debts why expend to much effort to get the money?

[CYNthesys]

Re: Death constitutes a default

As borrowings were repayable on demand it seems that as the contract included death as a default demand was made, but there are no termination clauses within the contract.

Re my case both the legal charge & the personal guarantee contained the following termination clause-

“This security shall not be affected or discharged by any change in any firm in which the customer may be a partner and shall not be affected or discharged by the death or incapacity of the owner or anyone or more of the persons who are herein called the owner and shall continue in full force until the expiration of three calendar months after receipt by the bank of notice in writing given by the owner or anyone or more of the persons who are herein called the owner or the personal representatives of any owner lacking
capacity to determine the same and at the expiration of such notice the liability of the owner hereunder shall determine in respect of any future indebtedness (save as hereunder set out) and in such case the property and/or assets hereby charged shall stand as security for the payment and discharge on demand

[Guest]

Re: Death constitutes a default

Can you copy the term mentioning the default upon death of the debtor ?