Contracts, Termination, Repudiation and Rescission

Contracts, Termination, Repudiation and Rescission

Lately there has been much debate about the above , this is my take on it.

If we first look at an unregulated business contract we can perhaps define the terms a little more easily.
My simple definition of a contract is ; An agreement between two or more parties to provide benefits to all sides in equal proportion in consideration of there respective expectations.
These respective expectations are laid out in the terms of the agreement.
Perhaps If we first look at an unregulated business contract we can define the terms a little more easily.

Worked example:

A window cleaner contracts to do your windows at a fee that you pay in arrears of service of service.
This kind of an arrangement would not usually be documented but just humour me and lets say an agreement was drawn up.
The contract would say I the window cleaner will, etc etc for the weekly fee of £*** .

So far so good but what happens if the customer fails to pay .
This is a simple contract and common law would say that the breach by the customer was a repudiation of agreement and the window cleaner would be within his rights to accept that repudiation, terminate the contract and claim damages of the sum owed.

Say now that the window cleaner had negotiated a contract with a housing association to clean all their windows, on a house by house costing and on the strength of this contract had invested in building his business to the degree where he could fulfil his obligations under the contract.

Since it would be some time until he could recoup his investment he would want to ensure the continued custom of the housing association so he includes a time element into the contract. The housing association agrees to an annual contract.

If the association now fails to pay then this would still be a core term breach and covered under the common law rights of repudiation, termination and recovery but in addition common law would allow the window cleaner to reclaim an amount which would represent the future loss of income(a genuine pre-estimate of loss).

Failure to perform of the window cleaner, also would be covered in the same way under common law.

Say then the window cleaner being a sound business man said what I need is the ability to terminate this agreement if for instance the number of houses referred to me dropped to the extent that it was no longer profitable for me to continue. This would not be a repudiatory breach of contract as none of the core terms would have been compromised, so common law would not operate.
He introduces a new term in the agreement saying that if the number of referrals drops to a certain level he has the right to terminate the agreement and includes that in this event all outstanding charges due at the time of termination would be due and payable.
So now the contract has two means of termination one is contractual and one is through repudiation and the common law rights of the aggrieved party to recover damages.

I think we should pause here and recap the difference represented by these two different types.
“Termination” means the withdrawal of all rights under the agreement this is unchanged, what is different is the actions that can be taken because of the way the termination is made.
The contractual termination(made under a term of the agreement) is not a core breach, the termination was made by the trader so he would not be able invoke common law and sue for future losses, in the case of a repuiatory breach whilst the trader still terminates, it is due to the actions of the other party and termination would allow a claim.
Looking at it another way by invoking a term of the contract the trader has affirmed that the agreement still exists so he can not claim it has been repudiated.

Before applying these definitions to consumer agreements I would like to make a point. There has been much talk on here of contract law taking over when the act does not apply. This is to my mind a basic misconception.
A consumer credit agree it still a contract. Contract law still applies to the agreement in the same way it always has.
It is up to the creditor to say what terms appear on the agreement and the debtor to agree or not just as it always was.
All statute does is place parameters on those terms in the intent of protecting consumers.
This is important to understand as it is not for the statute to initiate actions under the contract.

The act may require the creditor to take certain actions, provide copies , default notices, bit these are requirements of statute not of the contract.

So when someone says,” where does it say in the act that you can do such a thing ?” , the answer is, “it doesn’t” the act does not work like that.
The question should be,” where is the statute that limits the creditor ,s contractual right to do a thing?”
All this may seem to be off the original topic but I think when it comes to discussing default notices the connection will become clearer

Regulated agreements

In the knowledge that a regulated agreement is no different in essence from any other agreement we can apply the above definitions.
　 Termination under contract
This is usually a section contained in the contract which states the creditor may terminate at any time and on termination all sums due under the agreement become payable.

The common reaction to this is, ”They cant do that can they” well has we have previously established they can, the reason is that there is nothing in the statute that says they cannot.

The fact is that if there is a term in the contract that says the creditor can terminate at any time and on that termination the amount under the contract becomes due and payable it is perfectly within the creditors rights for him to put it there..

The banks would say that they would also have aright to recover under a demand via the court. ,
They say that the only reason they do not is because they are required by the lending code to behave sympathetically with the customer.
Personally I think the present Legislation contained within the CCA 2006 would make it very difficult for them to do so.

The liabilities under the contract are still there and common law would still expect them to be replayed In the manor originally required by the contract.

However having said that the agreement has been terminated, on a consumer credit agreement there is no real difference between a contractual termination and a termination under common law, because there are no issues of damages just recovery of liabilities currently under the contract.


Termination on breach of contract

The other cause for termination is breach by the debtor of one of the core terms of the agreement, the repayment schedule.
The act of not repaying the loan would be a repudiatory breach of the agreement and actionable under common law. If it where not for the act this repudiation would be accepted, the agreement discharged and procedures commenced to recover the liabilities due under the contract.
However as part of its function of consumer protection the act ensures that we have a chance to remedy before the agreement is discharged. (section 87)
In this respect the default notice could be considered as the acceptance of the repudiation.
As a consequence of this analysis it is plain that the associated termination /discharge of the agreement cannot take place unless the repudiation is confirmed (a correctly executed default is issued)therefore there can be no termination.
This conclusion is further compounded by the wording of section 87
(1) Service of a notice on the debtor or hirer in accordance with section 88 (a “default
notice”) is necessary before the creditor or owner can become entitled, by reason of any
breach by the debtor or hirer of a regulated agreement
Notice it says “breach of an agreement” not, “ breach of a term of the agreement”
Also it says,” can be come entitled to “ this means that if there is no breach no repudiation there is no entitlement to terminate under this statute.

So the issue of whether a termination issued after a incorrectly executed notice is unlawful is solved because the contract cannot be terminated in that instance.

Defaulting a Terminated account
So what happens if an account is terminated and then sometime down the line the debtor stops paying the instalments.
Surely the requirement for the debtor to repay disappears when the contract is terminated.
No I am afraid it does not.
Common law says that all liabilities under a contract must be repaid, so whilst the terms of the contract no longer apply the liabilities are still there.
It is still quite acceptable to issue a default notice on a terminated account contra to common belief.
Section 87 just says “of a regulated agreement” it does not say under a regulated agreement.
In other words the agreement does not have to be current it just has to have liabilities still due on it.
We know this is true because DCAs with a total assignment do it everyday.
So what about the remedy of a breach under section 89
Section 89 of the act says:
If before the date specified for that purpose in the default notice the debtor or hirer takes the
action specified under section 88(1)(b) or (c) the breach shall be treated as not having
Occurred
The misconnection about this is that it means they agreement should be put into the same position as before any breach was committed.
Lets examine what that would mean.
The creditor would be compelled to ignore maybe years of missed payments and re start the account, the CRA would have to remove any defaults or missed payments off their records as if they never happened .
Firstly common sense does anyone really believe this could happen?
The act of course says no such thing. The reference to the breach having not occurred refers to section 87 where it says,” by reason of a breach”, its function is to remove the entitlement of section 87 to enforce the agreement.
The statement mealy closes the loop in the same way that a none compliant DN under section 88 does.
This is why a DCA can issue a default it does not have to return the account to its functioning state just to its condition before the default was issued.

Source material used for this post
　
Barclays Bank
Goodes Consumer law
CAB information leaflets
Stocksnya Gdynia SA V Geaarbrook Holdings Ltd 2009
Consumer Credit Act 1974 Assoc SI

Best regards
Peter

[SeeThumb]

Re: Contracts, Termination, Repudiation and Rescission

Thanks Davy,

Sorry if there is confusion, but I am talking about a fixed term loan. Have I missed something major here?

Re: Contracts, Termination, Repudiation and Rescission

In this instance the CCA protects us by ensuring that they give notice before they enforce a contractual term, the use the CCA because they must.

An open ended agreement must have a termination clause , if it didn't the banker wold be committing himself to an eternal contract, irrespective of what may happen down the line, it is not like a fixed term agreement.


D

[SeeThumb]

Re: Contracts, Termination, Repudiation and Rescission

Hi Davy,


Why do banks use CCA 1974? They seem to be better protected by simply saying they can ask for their money back at anytime. And if they choose to, the consumer cannot do anything about it, as the CCA makes them powerless to act.

I thought the CCA was their to protect us.

Re: Contracts, Termination, Repudiation and Rescission

Hi Davy,




I can find nothing in the T&Cs mentioning termination, so I can only assume that there is nothing other than what is available in CCA 1974 applied to the agreement.

It will be there somewhere, if it isn't they cannot terminate, the CCA does not enable the creditor to terminate, that has to be part of the contract, it just says he must give notice before he does.

D

[SeeThumb]

Re: Contracts, Termination, Repudiation and Rescission

...if there is a term in the agreement that says he can terminate, then he can.

Hi Davy,




I can find nothing in the T&Cs mentioning termination, so I can only assume that there is nothing other than what is available in CCA 1974 applied to the agreement.

Re: Contracts, Termination, Repudiation and Rescission

HI
No I don't think i am missing anything.

Simply, the whole argument revolves around the idea that the creditor has done something wrong by terminating an agreement.
Fact is that he has not, if there is a term in the agreement that says he can terminate, then he can.

So again we agree to differ. still as said let us know how you get on.

D

[SeeThumb]

Re: Contracts, Termination, Repudiation and Rescission

Nope wouldn't work.
Simply if the creditor had not loaned the money he cold have invested it elsewhere in order for the rescission to be equitable the agreement would have to leave both parties in no worse position( de futoro).

What you might be missing here is that the rescission is a mutual decisions. Therefore, if the OC has rejected the agreement, they have rejected everything in it, including any claim to interest. They are not due it, as they have rejected the agreement that allowed for it. As they also acted unlawfully in terminating, they have no right to claim damages. Only the injured party has the right to do that. It is the penalty for terminating an agreement unchecked and without process.

This also ignores the fact that there would be (and could not be repudiation of contract in any case).

I don't see this. If the OC ceases to observe any part of CCA, they have fundamentally breached the contract. Once the account is terminated, it is no longer overseen by CCA 1974.

Termination of the contract is a fundamental breach (i.e. repudiation). If the OC chooses to do this without due processes, they act unlawfully, injuring the debtor, and if the debtor so chooses, they can accept the repudiation as an invitation to rescission. The OC cannot just roll back to the contract as if they haven't done anything unless the debtor allows it.

Re Contractual termination. I can find nothing about it in the T&Cs I have. However, I believe completely that they would have to demonstrate that the termination was a deliberate and considered act, which would have to be supported by notice and consideration being given. This did not happen.

The only case law for successful claims of this nature are in cases where an advance was promised and then not forthcoming, the resultant losses incurred by the debtor, due to loss of trade or reputation are recoverable under common law.

Re Case law. If a creditor recognises that it has unlawfully breached the contract, they are not going to let it get to court.

We are talking about something completely different in consumer credit agreements, the "rescission" is the removal of the right to repay under the terms of the contract, more correctly it is termination of contract.

What you describe here is how the OC would play it. They would say that the debtor breached, rejected the contract, and are now no longer held by the agreement to pay back in installments. The creditor, as the injured party, could claim losses and damages (interest and charges) and that is pretty much what they do. But where the debtor is the injured party, they can claim back the money they have paid plus statutory interest and damages. Fair is fair, and if rescission is available to the creditor, it must be available to the debtor.

Re: Contracts, Termination, Repudiation and Rescission

No he performs when he issues the first loan. Goode is very clear on this.

Think about it , a creditor loans £200 on a credit limit of £300 he then terminates the contract, does this mean that he has repudiated his rights to recover his money.

I do not think a court would agree.

Agree to differ i think.

D

[Lord_Alcohol]

Re: Contracts, Termination, Repudiation and Rescission

For a creditor to get contractual interest on a terminated agreement there must be a contractual provision to do so. CCA does not prescribe the payment of contractual interest.

True and there always is

I don't think this is correct. I have a couple of terminated CC agreements and contractual interest was not added on either. A look at the t&cs shows that there is no provision to continue to charge CI post-termination, and I think that is common for terminated CC ags. Loan agreements would be different for sure.

No not repudiatory because he is still owed money under the agreement, he has performed when he issued the loan. He refuses to advance any more, terminating the agreement.

D

In this case Davy it is rolling credit, requiring that the OC performs the contract for the duration and not just at the outset ("when he issued the loan") as you say.

SeeThumb entered into the agreement on the basis given. The OC unilaterally and without cause or entitlement ends the agreement, withdrawing the debtor's entitlement to make monthly payments and terminating without contractual provision (as far as we know).

How else can this be described, other than a repudiatory breach? And what are SeeThumb's options?

LA

Re: Contracts, Termination, Repudiation and Rescission

For a creditor to get contractual interest on a terminated agreement there must be a contractual provision to do so. CCA does not prescribe the payment of contractual interest.

True and there always is

For a rolling credit agreement such as SeeThumb's, the normal (or safer?) way for the OC to terminate and get contractual interest is to serve a notice under s.98A restricting credit and then, when the balance is repaid, to send another notice that ends the agreement.

Yes the creditor should give notice, if he doesn't it would be a statutory breach, not sending one does not remove his contractural right to charge CI, section 170 again.

I don't see any way for a creditor to get contractual interest on a terminated rolling credit agreement unless there is contractual provision to do so. The creditor can claim statutory interest, of course, which is a separate issue, and yes of course the courts will award this if the creditor is successful. I cannot see a court awarding contractual interest at 29% to a creditor who ended a rolling credit agreement 2 years earlier - the bill would be crippling and completely unfair, hence simple (not compound) stat interest (which is fair).

Yes see above

Fixed sum credit is different and I believe as you say here Davy.

The "repudiation" here is SeeThumb's creditor not performing the contract. Whether that is repudiation or not I don't know but it seems that by the creditor no longer wanting to perform the contract and in the absence (apparently) of a termination clause this is a fundamental breach that can best be described as "repudiatory". Not sure how else it could be described, as the term "breach" doesn't seem to go far enough.

LA

No not repudiatory because he is still owed money under the agreement, he has performed when he issued the loan. He refuses to advance any more, terminating the agreement.

D

[Lord_Alcohol]

Re: Contracts, Termination, Repudiation and Rescission

The bank will say they are entitled to interest on sums loaned for the period in which they were outstanding, and the court will enforce this position, any argument that contradicts this is frankly nonsense.

D

For a creditor to get contractual interest on a terminated agreement there must be a contractual provision to do so. CCA does not prescribe the payment of contractual interest.

For a rolling credit agreement such as SeeThumb's, the normal (or safer?) way for the OC to terminate and get contractual interest is to serve a notice under s.98A restricting credit and then, when the balance is repaid, to send another notice that ends the agreement.

I don't see any way for a creditor to get contractual interest on a terminated rolling credit agreement unless there is contractual provision to do so. The creditor can claim statutory interest, of course, which is a separate issue, and yes of course the courts will award this if the creditor is successful. I cannot see a court awarding contractual interest at 29% to a creditor who ended a rolling credit agreement 2 years earlier - the bill would be crippling and completely unfair, hence simple (not compound) stat interest (which is fair).

Fixed sum credit is different and I believe as you say here Davy.

The "repudiation" here is SeeThumb's creditor not performing the contract. Whether that is repudiation or not I don't know but it seems that by the creditor no longer wanting to perform the contract and in the absence (apparently) of a termination clause this is a fundamental breach that can best be described as "repudiatory". Not sure how else it could be described, as the term "breach" doesn't seem to go far enough.

LA

Re: Contracts, Termination, Repudiation and Rescission

Surely "rescission" is the un-making or winding back of a contract, which is possible in law as Pumpkinhead OTR discovered. If an agreement is rescinded the aim is simply to restore both parties to the point prior to the formation of the contract, AFAIK. I see nothing "wrong" with this if both parties agree.

No absolutely not , but this was ordered by a judge and the rescission include all sums due up to date, which i think would defeat the object.

As for "repudiation", this can and does happen on a regular basis, on both sides. In SeeThumb's case, it seems that the OC no longer wants to perform the contract and has ended it without an apparent contractual entitlement. I would very much doubt whether the contract doesn't have such a clause but assuming it doesn't and there was no default, then the default termination notified to SeeThumb is in effect a breach of contract for which s.170 doesn't apply because we are not looking at faults in observing the regs.

No it happens when the debtor, denies the debt by not repaying, i don't think that the creditor can do this as it is his money, on the contrary he would affirm the contract by enforcing it. Ending a contracts contractual entitlement is termination of contract. not repudiation.

It seems that SeeThumb now has the option of accepting the termination and entering into discussion to rescind equitably, or of claiming that it is a breach of contract and that the agreement should continue. If the former, and as the OC acted to end the contract, then the bank cannot expect to be rewarded by receiving unclaimed interest from lending the money elsewhere. The bank would be unfairly enriched through its failure to observe the contract. If the latter, then I think that SeeThumb has to look to s.140 as I do not see any other route under CCA. S.140 offers a route to effectively rescind the agreement anyway, by discharging liabilities.

The other factor is DPA, which opens up the possibility of a claim under s.13 if adverse data is recorded.

But this might be academic anyway because the OC could always revoke the termination and simply serve a notice under S98A restricting credit, getting SeeThumb to repay the capital plus contractual interest as per the t&cs of the contract. However, if the termination is accepted then this might be difficult.

The last point is the contract itself. Is there really no termination clause SeeThumb? Also, is there a provision allowing restriction of credit? It's worth remembering that CCA is regulating a contract, and so has no effect where there is no provision.

LA

The bank will say they are entitled to interest on sums loaned for the period in which they were outstanding, and the court will enforce this position, any argument that contradicts this is frankly nonsense.

D

[Lord_Alcohol]

Re: Contracts, Termination, Repudiation and Rescission

Nope wouldn't work.
Simply if the creditor had not loaned the money he cold have invested it elsewhere in order for the rescission to be equitable the agreement would have to leave both parties in no worse position( de futoro).

This also ignores the fact that there would be (and could not be repudiation of contract in any case).

The only case law for successful claims of this nature are in cases where an advance was promised and then not forthcoming, the resultant losses incurred by the debtor, due to loss of trade or reputation are recoverable under common law.

We are talking about something completely different in consumer credit agreements, the "rescission" is the removal of the right to repay under the terms of the contract, more correctly it is termination of contract.

D

Surely "rescission" is the un-making or winding back of a contract, which is possible in law as Pumpkinhead OTR discovered. If an agreement is rescinded the aim is simply to restore both parties to the point prior to the formation of the contract, AFAIK. I see nothing "wrong" with this if both parties agree.

As for "repudiation", this can and does happen on a regular basis, on both sides. In SeeThumb's case, it seems that the OC no longer wants to perform the contract and has ended it without an apparent contractual entitlement. I would very much doubt whether the contract doesn't have such a clause but assuming it doesn't and there was no default, then the default termination notified to SeeThumb is in effect a breach of contract for which s.170 doesn't apply because we are not looking at faults in observing the regs.

It seems that SeeThumb now has the option of accepting the termination and entering into discussion to rescind equitably, or of claiming that it is a breach of contract and that the agreement should continue. If the former, and as the OC acted to end the contract, then the bank cannot expect to be rewarded by receiving unclaimed interest from lending the money elsewhere. The bank would be unfairly enriched through its failure to observe the contract. If the latter, then I think that SeeThumb has to look to s.140 as I do not see any other route under CCA. S.140 offers a route to effectively rescind the agreement anyway, by discharging liabilities.

The other factor is DPA, which opens up the possibility of a claim under s.13 if adverse data is recorded.

But this might be academic anyway because the OC could always revoke the termination and simply serve a notice under S98A restricting credit, getting SeeThumb to repay the capital plus contractual interest as per the t&cs of the contract. However, if the termination is accepted then this might be difficult.

The last point is the contract itself. Is there really no termination clause SeeThumb? Also, is there a provision allowing restriction of credit? It's worth remembering that CCA is regulating a contract, and so has no effect where there is no provision.

LA

[Hurricane Puffrose]

Re: Contracts, Termination, Repudiation and Rescission

BUMPED