Understanding Legal Terms: Interest Rates, Misrepresentations, Collateral Security, And Force Majeure

Write a report explaining why these key clauses are important

Explain the legal implications with reference to case law and statute.

The rate of the default interest must be justifiable as a reasonable amount or it will considered as a penalty and won’t be applicable and not only to discourage default. The court’s way on deciding if a term is considered penal is to enforce the clause "if it does not exceed a genuine attempt to estimate in advance the loss which the claimant would be likely to suffer from a breach of the obligation in question".

Interest Rates and Legal Implications

Rate of interest in legal term is the highest rate that can be charged on any kind of debt. All debts that are borrowed have specified rates of interest in them. The companies that have been accepting a loan from the banks or the moneylenders know that they are just not responsible for paying the money back. Rather, they have to pay the interest as well (Simon 2015). Under the EU law, when the clients pay the invoices late, the interest for payment of late interest can be claimed. This is applicable for all the commercial transactions with the different businesses like the sole traders and the public authorities (Weatherill 2014). Taking the case of Corporation Bank Vs D.S Godwa in India, 1994, insc 344, dated 20^th June, Citation: 1994 SCC (5) 213 JT 1994 (7) 87 1994 SCALE (3) 46, dealt with the entitlement of the banks to claim interest with a rest at periods, for example a monthly, quarterly or annual rest or gap. The case also dealt with the purview of the banks and their implications to follow the directives of the Reserve Bank of India conferred by 21^st Section of the Banking Regulation Act in India 1949. The court observed that the practice of charging interest rates in compound by banks would be applicable in matters of overdraft only and specifically when the relationship is fixed as the banker and the customer and not as mortgagee and mortgager. In a similar case, namely the Bank of India vs. Rao Sheb Krishna Rao Desai, the bank had granted a loan to the borrower at an interest rate of 4.5% to buy a tractor under a promissory note and hypothecation deed by the borrower, over the prevailing interest rate of 9.5% per annum. On failure of payment of the loan by the borrower the bank instituted a suit for loan recovery and claimed a compound interest with quarterly and periodical rests. The court dismissed the approach of the bank to claim compound interest. There are complications and terms and conditions behind interest rates throughout the world and a number of legal suits. In case if the borrowers knew as to how the interest rate works, they would not borrow money (Keynes 2016). Interest rate is a necessary resource for the banks to create profits by allowances of debt in the market, but to control unlawful practices of enforcing illegal interest rates legal implications are necessary.

Default Interest Provision and Legal Implications

The default interest provision is a contract in which contractual sanctions are provided against the non-payment of a certain money. It is also an important form of the liquidated damages for that particular non-payment (Amiram and Owens 2016). The default interest rates must be justifiable having valid reasons before sanctioning and enforcing otherwise rather than being default interest it might as well be considered as penalty in a the absence of clear understanding of the term. In the case of Lordsvale Finance PLC Vs Bank of Zambia dated QBD March 20^th 1996, the bank opened an agreement of facility in the defendant’s favor which provided that when there arises a case of default the borrower has to pay the rate of interest in default terms. They have to pay during the period of default at a rate of aggregation that would equal to the obtaining cost of the bank required to collect the deposits to fund the banks participation at an agreed margin and additional 1%, which is unexplained. The borrower stated that the 1% fee was penalty and not default interest and hence unenforceable. The default interest provisions are always included in the agreements where the interest will be paid in the normal course of the dealings, mostly in a loan agreement. The rate of the default interest in such cases is usually around one percent or two percent, which is above the total rate that is payable where the money has been paid within the given time. In the other kinds of transactions, there may be a default interest clause.  This clause needs to be included for supporting an obligation for paying a particular sum within the specified date (Li, Lou and Vasvari 2015). Care should be taken about the default choice. The rate should also be able to reflect the loss to suppliers who are deprived of using the funds. The court may find that the clause in a particular contract amounts to penalty clause. In this case, it will not be enforced. This, in turn, may cause frustration for the persons who expect that the contract will be enforced according to the terms (Shibut and Singer 2015). In the case of Edgeworth Capital SARL v Ramblas investments in 2015 the default interest fetched a good sum of money which was approved and not considered as a penalty of any form and a proper default interest since it had proper justification and legal support behind its application. The courts have played an important role in guarding the interests of the consumers and citizens against exploitation of any kind by the banks in the name of default interest.

Misrepresentations and Legal Implications

A number of statements can be done for winning a work and there can also be temptations of overstating the fact. Representations are the statements of the facts. They are neither opinions nor intentions. Misrepresentations are the untrue representations. In case if the injured would come to know about the false statement after they had made the contract, they could not have taken any contract. Misrepresentations are generally fraudulent, innocent and negligent (Weiss 2014). Fraudulent representations are made when a person who is making it, knows and believes that the statement is not true (Shichor 2015). The famous case of Leaf Vs International Galleries (1950) is one of innocent misrepresentation under the purview of sale of goods. A picture was bought from the defendants who had claimed that the painting was created by painter J.Constable. After 5 years time period when the buyer plaintiff or the complainant wanted to auction the mentioned painting he was informed that the painting was not created by the above mentioned artist. The plaintiff was Ernest Louis Leaf who bought the painting allegedly known as “Salisbury Cathedral”. The jury Denning LJ observed that too much time had lapsed and that the right to rescind does not prevail forever but is lost because of the extended period of time taken for the decision to rescind. The trial judge also observed that the case was of innocent misrepresentation on the basis of which the contract has been executed. The court contemplated that the error regarding the name of the painter of the artist was fundamental but not severe and enough damaging that can cause the withdrawal of the contract after a time frame of 5 years. Negligent misrepresentations are made when the persons who make it are careless and have no idea if the statement id true or false. Innocent misrepresentations are made when a person who makes it thinks that the statement is true. This distinction is extremely important as the remedies or the damage levels depend on the type of misrepresentation that has been made. For the fraudulent misrepresentations, the party of the injured has the right to claim the compensation for the losses that have resulted from this particular misrepresentation (Beatty, Samuelson and Abril 2018). The losses that are incurred due to a negligent misrepresentation may be restricted to the reasonable foreseeable. The misrepresentation may be claimed under the Misrepresentation Act of 1967 instead of being claimed under the common law (Hooley 2016). In this case, the damages will be assessed differently and the burden of the proof will also be taken into consideration. The effects of the misrepresentation can be made voidable by injured parties. They can either choose to set the misconception aside and behave like it had never been committed or they can even choose to continue with it. Generally, the remedy for the innocent misinterpretation of the statements is the rescission of the entire contract and no damages are awarded for this. Similarly, under the Misrepresentation Act of 1967, the court can award damages in place of rescission.

Collateral Security and Its Importance in Loans

Collateral security suggests the mortgage of some kind of asset having financial value equal or greater than the loan granted to the borrower of the money. The lender of the loan or any kind of financial benefit, will hold a direct beneficial interest, based on its proportionate amount of interest in the form of a secured obligation. This will be recorded in the documents and agreements that will constitute the loan documents. Terms and conditions will constitute the obligations of the borrower to return the loan in the stipulated time or face consequences of the bank or the lender taking over the collateral security (Geanakoplos and Zame 2014). The case of Bank Of India vs Mrs. Trilochan Chopra, 14 December, 2015, cs no. 372/2014 1/7. The Bank was the plaintiff in this case in which it granted an Auto Loan of 6,09,000 Rupees to the defendant. The defendant had communicated the inability to offer any kind of collateral security, hence the loan was given under the “Credit Guarantee Fund Trust for Micro and Small Enterprise” which is operated by SIDBI or Small Industries Development Bank of India, which has clauses to grant loan without collateral security in special cases. The judgment was passed that defendant have failed to show any triable issue on record, hence the plaintiff based upon the supplied documents is entitled to recover the amount along with pendentillite and an interest in future of 9% per annum on the principal amount outstanding, the cost of the legal suit is awarded in plaintiff’s favor as well. The collateral security is held as a guarantee or security against the loan provided. The security interest is returned when the loan amount has been returned and the borrower does not become insolvent (Fabozzi 2016). The English common law also introduces equitable mortgages, in which case the lender is ensured security by taking possession over the original documents of the collateral security, property in this case. The borrower needs to sign a “Memorandum of Deposit of Title Deed”, which states the borrowers wish and will to deposit the equitable security.

Force Majeure and its concepts are convoluted and have many variables included. Thus, an organization that does not plan properly can be left with vulnerable and unprotected claims of breaching a contract in case of a disruption. Force majeure is a notion that allows the parties in a contract to be relieved of all the contractual duties that they have when any performance is stopped by force majeure events (Polkinghorne and Rosenberg 2015). Parties that are affected by force majeure will be required to attempt to perform contracts despite this event. These clauses are generally about allocating risk in the unforeseen circumstances. Contract law in UK states that force majeure implies to exceptional and unusual events and circumstances which poses hindrance to the performance and execution of previously promised obligations. The article 360 of the Civil Code of Libya asserts force majeure as “an obligation is extinguished if the debtor establishes that his performance has become impossible by reason of causes beyond his control” (Stigall 2014). In the case named Atlantic Paper Stock LTD V Anne-Nackawic Pulp and Paper Co (1976) 1 SCR 580, Canada, St. Anne was the owner, controller, and operator of a paper and pulp mill contracted to exclusively purchase from Atlantic Paper Stock or the appellants all the required waste paper and secondary fiber raw material. They promised a minimum of 10000 tons purchase of waste paper, every year for ten years, but the after a time period of 14 months the company called St. Anne stated to the appellant that they cannot buy secondary fibers any more and the paper stock company sued for damages. St Anne defended that there was unavailability of pulp markets or the medium of corrugating mediums. The unavailability of market meant unavailability of economic market of the company, St. Anne in this case. The case could be considered within the ambit of Force majeure clause because of the use of the words “non-availability of market” from the defendant’s side, because the availability of the market is not within the purview of any of the parties. When a force majeure event is triggered, the contractual obligations can be suspended. Parties are given longer time for fulfilling the obligations, or the contract would be cancelled immediately or even after the suspension period has been completed. The force majeure clauses are drafted with sophistication. The parties should be careful when drafting the clause to make sure that they are appropriate, mostly where the critical infrastructure’s operation is involved.

Force Majeure: Understanding the Concepts and Implications

Disputes are disagreement in external or internal levels of the businesses and include issues, which are irritating, overwhelming, and have the capability to drain a business financially. Many important ways can be taken by a business to limit all the instances of the business disputes experienced by them. Firstly, the owners should create various procedures and policies that will help in governing the daily actions for reducing the disputes and the possibilities (Goldberg et al. 2014). Obtaining all the necessary information from both the clients and the customers and ensuring that the products help in demonstrating the necessary warnings and the information, will help in limiting the liability and also make sure that the customers know about the products that they are purchasing (Benner and Lande 2017). Business contracts may create disputes that should be fulfilled by those parties who have entered the agreement. When one side of the party fails to fulfill the contractual obligations, it is referred to “breach of contract” (Issa 2015). Breach occurs when the party fails to perform within the time, or does not act in accordance to the terms of the agreement, or do not perform. Adidas America Inc et al V Payless Shoesource Inc, 2002, U.S Dist LEXIS 27438, case was registered against Payless Shoesource and the appellant was Adidas, the case was a dispute regarding the infringement of trademark and its dilution, causing injury to the reputation to business. The Trademark Act of 1946 was cited apart from a various anti dilution laws and “fair business practices and unfair and deceptive trade practices” laws of several states of the USA. The complainant Adidas alleged that the defendant Payless Shoesource are selling footwear that bears similar three stripes that is a trademark of the former which is likely to deceive and mislead potential purchasers into comprehending that the shoes sold by the defendant is produced or associated with the Plaintiff’s when actually it is not. The judges held that the Payless shoes actually resembled that of the complainant’s and decreed Adidas US a sum of 30.6 million dollars in damages of actual nature, 137 million dollar quittance in punitive damage and 137 million dollars in Payless Shoesource profits amounting in total to dollar 304.6 million. Breach of contracts is categorized as immaterial or material for determining the legal solution of the breach. When there is a breach of contract, both the parties can enforce the contract or recover the financial harm that has been caused due to the breach.

Confidentiality is extremely important in employment and it does not matter if a confidentiality agreement has been signed or not (Androulaki et al. 2016). An employer can expose confidential information about the business or the owner. This may lead to a legal trouble because the employee confidentiality has been breached. In certain cases, the employer also has the right to obtain the punitive damages of the employee (Wolf et al. 2015). When the circumstances become extreme, the breach of confidentiality may also lead to criminal charges. Apart from own company employees confidential secrets of an organization can be leaked by any third party as well without permission. This can lead to legal implications as well. In the high profile case of Apple V Does, 2004 Apple sued unnamed individuals termed “does” in the Santa Clara County region in California which alleged that the defendants termed as Does leaked and exposed information about Apple products in several online news sites which were yet to be released and not announced. Two named were “Apple Insider” and “Power Rage”. Apple planned a FireWire interface for audio codified by Apple as “Asteroid” or “Q7”. Apple in first instance claimed authority to issue subpoena of civil nature to the publisher of the defendant websites and to the email service providers of on publisher in question. The said publisher again moved to court for protections via a protective order for the prevention of such discoveries. The protection was declined on the ground that the defendant publisher had engaged in unlawful disclosure of trade confidentiality.

References:

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