Get the basics right
The case of County Leasing Ltd and another v East is a reminder of the need to get the simple things right when enforcing hire-purchase and loan agreements, such as calculations of arrears, notices of termination and demands for payment, even the agreements are unregulated.
In this case, the parties entered into hire-purchase agreements for two vehicles and a business loan agreement. East defaulted in payment on each of the agreements and County purported to serve notices of termination of the hire-purchase agreements and repossessed the cars.
The court found that the termination notices were either premature (as East was not actually in arrears in relation to one vehicle due to a set off agreement), or had not been served. Therefore it was County who was in repudiatory breach of the hire-purchase agreements and liable for conversion of the cars. Fortuitously for County, the court found that East had suffered no capital loss as a result of the seizure, since to have obtained ownership of the vehicles at the end of the agreements, East would have had to pay more for the vehicles than their value upon repossession. No evidence as to the cost of hiring replacement vehicles had been put forward either.
The court also found that a clause in the business loan agreement obliging East to pay, on termination, the outstanding principal amount plus interest for the entire outstanding period of the loan was a penalty clause and so was unenforceable. However, that finding did not mean that there had been no valid demand for payment (which included both the principal sum and interest) under the clause.
Whether or not a demand is valid will depend on the terms and conditions of the agreement which will state whether or not it is necessary for the demand to state accurately the amount due. If it is not necessary, then a statement of the correct sum due is not required for the demand to be valid. A demand for an amount in excess of that actually due will not necessarily render the demand ineffective. There had been a valid demand here albeit that the lender was only entitled to a much reduced amount.
Check all balances and any side agreements with borrowers to ascertain the true financial position before notices of termination are issued. Make sure processes for service of termination notices are in order, followed and documented. Check the terms and conditions to see what needs to be included in any demand for payment. Of course, where the agreement is regulated by the Consumer Credit Act, the provisions relating to default and termination notices will need to be followed to the letter.
For further information about this published article, contact Kathryn Hobbs on +44 (0)121 685 2785, Rebecca Davies on +44 (0)121 685 3819, Gayle Biddle on +44 (0)121 685 2708 or Amy Richards on +44 (0)121 260 9973
This published article may contain information of general interest about current legal issues, but does not give legal advice.