Default Clause In Instalment Payments
A default clause in a contract provides that actions can be taken by the innocent (non-breaching/ defaulting) party in the event of default by the party in breach, usually the debtor.
Default occurs when one party to a contract fails to perform their obligations/ duties under the contract or fulfil the contract terms, commonly known as a breach of contract.
Settlement by Instalment Payments
Very often when parties enter into a settlement of debts due, it can take the form of an instalment payments.
Sometimes the parties in high spirit and joy of having received an instalment payment offer, often forget the bane of the instalment scheme. That is, unless it is specifically provided for, the creditor’s rights to a full payment is delayed for the entire term of the instalment scheme.
A Recent Suit
In a recent matter, a creditor sued our client for the full amount after the first instalment was in default, after the full trial the honourable court only granted a judgement in favour of the creditor for the first instalment. The suit number is Kuala Lumpur Sessions Court Suit No. WA-B52NCC-428-06/2018
The Saviour: The Default Clause
A properly drafted default clause will enable the creditors to demand for a full payment of the remaining instalments once there is a default. For example, the settlement is by way of 25 instalments, if the 7th instalment is default the entire balance from 7th to the 25th instalment is payable immediately.
Without the default clause, the right to sue will only be accrued (available) after the due dates of the respective instalments
With the default clause, it will save the creditors much time, please obtain proper advice on how to draft it.
Lim Wen Mi