Bank contract cancellation is one of the controversial topics in legal advice in banking matters. Whether bank contracts are voidable, whether the customer can void a contract due to the bank’s violation, and in general, which types of bank contracts are voidable are among the questions that are raised in this regard. In this article, we have tried to introduce the types of legal contracts between the bank and the customer, also explain the contracts that can be canceled and see under what conditions you can cancel your banking contracts.
Introducing the types of bank contracts and how to cancel them
As an economic institution, banks play a prominent role in the lives of citizens, so many legal contracts are concluded between banks and citizens. The types of bank contracts are divided into different categories according to their function and framework.
Three of the most important types of bank contracts that can be canceled include exchange contracts, partnership contracts, and obligation contracts. Before we start canceling bank contracts, we first introduce these three categories of bank contracts and their sub-categories:
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Exchange contracts
Exchange contracts are contracts in which the relationship between the bank and the customer is the relationship between debtor and creditor. The desired profit in these contracts is determined at the same time as the contract is concluded and is mentioned definitively. In exchange contracts, the bank has no supervision over the use of facilities and it is only enough to ensure the correctness of the necessary documents at the time of signing the contract; In other words, the real intention of the customer to receive a loan is not very important, and only the invoice or the apparent accuracy of the documents is enough for the bank to sign the contract.
Exchange contracts have different types, which include:
- Buying religion
- Jaalah
- Rent subject to possession
- leasing
- Predecessor
- Murabahah
- Istisna
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Partnership contracts
In partnership contracts, as the name suggests, the bank and the customer as economic partners sign a contract in which the bank shares in the profit of the customer’s economic activity while providing facilities. Partnership contracts also have several types, which are as follows:
- Civil partnership
- Legal partnership
- Madaraba
- I am Fadzia
- competitions
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Commitment contracts
Obligation contracts are another category of banking contracts in which money is not necessarily exchanged. This contract is concluded in such a way that the customer undertakes to do something in a certain period of time; But if the desired result is not achieved within a certain period of time, the bank covers the possible damage and pays an amount as damages.
In the commitment contract, the customer also guarantees to the bank that if the bank pays the said damage, the customer will also return this damage money to the bank. Now, if the customer is able to complete the desired work on time and in a favorable manner, there will be no damage and as a result, money will not be exchanged. Accrual contracts do not have an interest rate, and instead, merely issuing a guarantee has a fee of between 2 and 4 percent, which is paid by the customer.
Now that we have learned about the three most common types of bank contracts, it is time to learn how to cancel bank contracts.
The most common types of bank contracts
How to Bank contract cancellation
All the banking contracts that we have mentioned so far have specific legal effects and are concluded with a specific purpose; But sometimes these contracts deviate from their main purpose or face legal problems that question the validity of the contract. It is in this situation that it is possible to file a lawsuit for annulment of bank contracts and invalidate a contract that is out of scope.
Now the question arises, what is the way to cancel bank contracts and what are the necessary conditions for filing this lawsuit? As we mentioned, a bank contract can be canceled if the validity of the contract is questioned. The validity of the contract is also subject to the conditions that are called the main terms of the validity of the transaction. Whenever one of these main conditions is violated, the validity of the contract will be completely lost and the contract will be voidable.
The main conditions of transaction accuracy include the following:
- The intention of the parties and their consent
- Eligibility of the parties
- The specific subject to be traded
- Legitimacy for the transaction
In order to raise the issue of canceling the contract, it is enough to violate one of these four conditions. Then the authenticity of the transaction will be questioned and the possibility of filing a lawsuit with the aim of canceling a banking contract will be provided.
Which bank contracts can be canceled? (Examination of general and specific causes of cancellation of contracts)
Now that we have become familiar with the types of bank contracts and how to cancel bank contracts, it is time to see which are the most common bank contracts that can be canceled.
General directions for Bank contract cancellation
The reasons that can cause the cancellation of bank contracts are divided into two general and specific categories. The general category is almost all common bank contracts, which include the following:
- Disqualification of contractors
- Lack of intention to conclude a transaction and formality of the contract
- Usury of the contract
- Failure to determine the subject of the contract
- Failure to determine the duration of the contract
- Illegality of the contract
- Contravention of the country’s monetary and banking laws and regulations
- Inserting a condition contrary to the nature of the contract
- Non-fulfillment of the contract
- Extension and renewal of the contract contrary to banking laws
- Settlement of former debt
If any of the above cases occur, you can cancel the relevant contract. Of course, it should be noted that the use of legal consulting services in banking matters is strongly recommended, because even determining whether your contract includes the above items or not, requires a specialized examination of the contract by banking lawyers.
Specific ways of canceling bank contracts
In addition, the banking lawyer has a significant influence in the field of pursuing the judicial process of the case. Now that we have examined the reasons or the general ways of canceling the contract, it is time to address the specific ways of canceling six of the most common bank contracts:
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Cancellation of installment sale contract
Installment sales contract includes contracts in which the bank grants all or part of the purchase amount of a product to the customer and then recovers that amount in equal or unequal installments and at certain deadlines. The installment sale contract can be for the installment sale of housing, the installment sale of raw materials, spare parts and work tools, and the installment sale of production equipment, machinery and facilities. The lawsuit for annulment of the installment sales contract can occur due to various reasons, which we will briefly review here:
- Failure to determine the exact date of payment of installments
- Failure to determine the exact amount of installments
- Failure to determine the return period of the principal amount of the installment sale facility
- Failure to determine profit from installment sales
- Not including interest contrary to the approvals of the Central Bank
- Determining the untrue issue in the installment sales contract
- Failure to perform economic activity related to the installment sales contract
- Failure to declare the cash price of the property to the creditor
- Receiving the advance payment amount in the installment sales contract contrary to the approvals of the Money and Credit Council
- Lawsuit for annulment of the contract for the installment sale of shares of Al-Sharka Bank after the end of the civil partnership contract in order to annul or terminate the civil partnership contract.
- The suit for the annulment of the installment sale contract due to the mistake in dividing the calculations of the civil partnership contract
2.Cancellation of Mudarabah contract
Two very common types of partnership contracts include mudarabah contract and civil partnership contract. In the mudarabah contract, the bank entrusts an amount to the customer to do business with, and then, within a maximum period of one year, the profit obtained is divided jointly between the bank and the customer. Among the specific reasons for canceling the Mudarabah contract, the following can be mentioned:
- Determining a certain interest rate
- Determining the minimum or maximum profit share of the bank or Mudarab in the Mudarab contract
- Death, insanity or sef mudarib
- Capital guarantee condition
- Bankruptcy
- Loss of all capital and its profit
- Failure to determine the subject
- Determining the subject contrary to reality
- Non-payment of capital to the agent
- No time limit
- Failure to determine the time and terms of contract repayment
- Ambiguity in the distribution of shares
- The amount of capital is unknown
3.Cancellation of civil partnership contract
The civil partnership contract is concluded between the bank and the customer in order to carry out economic activity and gain profit. Specific conditions for canceling a civil partnership contract include the following:
- Failure to pay capital to the partner
- Failure to determine the subject of civil partnership
- Determining the issue of civil participation contrary to reality
- Failure to determine the duration of the civil partnership contract
- Failure to open a special account by the bank
- Lack of supervision of the bank on the subject of the civil partnership contract
- Failure to determine the minimum or maximum profit share of the bank or partner
- Determining the predetermined fixed profit
- Failure to determine how to settle the contract
4.Cancellation of the terms of the contract
Cancellation of bank contracts can also include cancellation of contractual conditions. There are different types of these conditions, and special conditions are set for each contract. By signing the contract, both parties undertake to follow the terms of the contract in addition to the main provisions. Cancellation of the terms of the contract does not necessarily mean cancellation of the entire contract.
In most cases, the cancellation of the terms of the contract is only related to a part of the terms of the contract, but the whole of the contract remains intact; But if the annulment of these conditions calls into question the authenticity of the transaction, then the contract will be completely void.
5.Cancellation of bank facility contracts
All types of bank facility contracts can also be revoked. In general, there are three main factors for canceling bank facility contracts, which include:
- Absence of intent or formal contract
- Contradiction with the approvals of the Council of the Central Bank of Money and Credit, as well as the banking and monetary law of the country
- Contrary to Sharia and law
6.Cancellation of the contract
According to the definition of Iran’s Civil Code in Article 561: “Jalah is a personal commitment to pay a certain fee in return for an act, whether the party is definite or indefinite”; In other words, in the Ja’ala contract, one party undertakes to pay the other party a certain wage as long as he/she performs specific services. The conditions for the cancellation of the contract are that if the contract is related to an illegal or irrational act, the contract is void. Also, in case of death or insanity of each of the parties to the contract, it is possible to cancel the contract.
The legal way to cancel bank contracts
So far, we have known the types of common bank contracts and we have also learned about the general and specific reasons for their cancellation. Now it’s time to see how the legal path of canceling the contract is. As mentioned, all bank contracts, such as facility contracts, create obligations for both the customer and the bank. Whenever one of the conditions of validity of the contract is violated or legal and religious problems of the contract are found, you as a customer of the bank can take action to cancel the contract.
At this stage, a petition for cancellation of the contract is filed against, and the directions or the same reason intended for cancellation are stated. The bank is obliged to submit the documents related to the petition to the judicial authorities for a detailed examination of the matter, and from this stage onwards, the case will follow its judicial path.
It should be noted that since banks have a lot of power and also bank contracts have many legal complications, using the services of an experienced banking lawyer plays a key role in reaching the conclusion of such banking claims. You can contact the experts of Dadista Law and Arbitration Institute right now and consult about your case.
Because one of the specialized departments of Dadista Group is related to banking claims, where expert and experienced banking lawyers are ready to help you. Cancellation of bank contracts is also one of the bank claims that Dadista bank lawyers handle and show you the best and fastest way to bring the case to a conclusion.