If a loan agreement is unilaterally terminated by the lender (i.e., without cause or breach by the borrower), the lender may not be able to recover the remaining money immediately—and possibly not at all—depending on the terms of the agreement and jurisdictional law.
Here’s a general breakdown:
1. Nature of Termination
- If the loan agreement allows termination only upon certain events (like default by borrower), and the lender terminates it without such cause, the termination may be considered wrongful or invalid.
- A unilateral termination without breach could itself be a breach of contract by the lender.
2. Recovery of Outstanding Loan
- If the lender wrongfully terminates the loan:
- They may lose the right to demand immediate repayment of the entire outstanding amount.
- The borrower could potentially sue for breach of contract or damages, especially if they suffer losses due to early recall or revocation.
- If the agreement permits early recall with notice, the lender can recover the balance subject to those conditions (e.g., notice period, prepayment penalty).
3. Doctrine of Repudiation
In contract law, if one party repudiates (i.e., wrongfully ends the contract), the other party is not obligated to perform their part. So if the lender wrongly terminates, the borrower could argue that they are no longer bound to repay under the original terms.
4. Exceptions
- If the agreement is structured as a demand loan (payable on demand), the lender can typically terminate and demand repayment at any time.
- If termination is due to a borrower default or breach, the lender is usually entitled to recover the outstanding dues.