Coolio owns a house in Bloemfontein and can’t stop talking about rising interest rate costs and how it affects his bond payments. You reminded him that he should return your set of golf clubs.
You don’t really understand how he can say that he “owns” the house, since he is still paying off a bond. You also know that he purchased his nice green couch from FabFurn with a payment scheme, so does that really “belong” to him then?
As far as you know, he owns the latest 70-inch flat-screen Samsung TV which he won after hitting a “hole-in-one” last September at the Kovsie golf day. His father’s speedboat stands in the driveway but is just gathering dust due to the high petrol price. Apparently, that was a gift to Coolio for his 30th birthday from his father. You wonder what the insurance premiums are.
And that is not the end of Coolio’s flashy lifestyle - he also owns a brand-new red sports car. He paid a deposit of R100 000, but the rest is paid off to Wesbank in terms of an instalment sale agreement. He didn’t want to listen to you when you advised him to make use of a hire purchase agreement. You also wonder what difference the insurance premiums are on these two types of loans. Did the bank even require security for that transaction?
10.1 Should interest rates rise too much, Coolio will be unable to pay back his monthly premiums. In which ways would FNB be protected from bad debt in respect of Coolio’s home loan? (4)
10.2 In the event that Coolio didn’t own the home but rented the home from Bloem Rentals, would the sheriff be allowed to seize your golf clubs in the execution of a warrant against Coolio for bad debt on his rental agreement with Bloem Rentals? The sheriff didn’t ask Coolio who the owner was as he assumed every item on the premises belonged to Coolio and Coolio was too shocked to even mention that it belonged to you. (4)
10.3 The sheriff acting for Bloem Rentals left the green couch alone. Explain why he didn’t seize the couch in terms of the law as applied between creditor/debtor matters. (4)
10.4 The sheriff acting for Bloem Rentals did not leave the TV behind. Does this not infringe upon a South African’s right to support national sports teams? Coolio will now not be able to follow the Springboks in the 2023 World Cup in France. He knows you are studying law and approached you for advice. Advise your friend Coolio. (4)
10.5 Coolio obtained a loan from a friend, Greedella, who insisted that she would keep his speedboat as a pledge for the loan. What are the legal implications if Coolio doesn’t pay back the loan to his friend within the agreed-upon timeframe? (4)
10.6 After Coolio paid off the loan to his friend Greedella, her husband, Tjita, promised to look after the speedboat for two months. Coolio agreed that Tjita could use the boat at his holiday home in East Londen. While using the boat, Tjita realised the previously repaired crack in the boat started to leak again resulting in urgent repairs of R30 000. The repairs prevented the boat from sinking. Coolio now refuses to repay the R30 000, and Tjita refuses to give his boat back. He again approached you for legal advice. Advise your friend Coolio. (4)
10.7 In contrast to their home loan division, how would Wesbank (a subsidiary of FNB within the FirstRand Group) protect their rights as a creditor from Coolio defaulting on payments on the instalment sale agreement of his sports car? (4) How would their rights differ from the situation where Coolio is defaulting due to being sequestrated? (2)
10.8 In the event of a fire destroying Coolio’s house and all his belongings inside, including the speedboat and motorcar, what happens to the rights of creditors involved? (4)
10.1 FNB would be protected from bad debt in respect of Coolio's home loan through several ways:
- They would have conducted a credit assessment before granting the loan to Coolio, ensuring that he meets the necessary criteria for affordability.
- They would have required collateral or security for the loan, such as a mortgage bond on the house. In the event of default, FNB would be able to sell the house to recover their funds.
- FNB would also have included a clause in the loan agreement allowing them to increase the interest rate in case of rises in the market rate. This would ensure that Coolio's monthly premiums would adjust accordingly, mitigating the risk of him being unable to make payments.
10.2 If Coolio didn't own the home and rented it from Bloem Rentals, the sheriff would not be allowed to seize your golf clubs in the execution of a warrant against Coolio for bad debt on his rental agreement. Your golf clubs do not belong to Coolio, and the sheriff has a legal duty to only seize assets that belong to the debtor, in this case, Coolio.
10.3 The sheriff acting for Bloem Rentals didn't seize the green couch because, under South African law, certain movable assets are exempt from seizure in terms of creditor/debtor matters. These exempt assets are known as "necessary goods" and include items like furniture and appliances that are necessary for the debtor and their dependents to maintain a basic standard of living. The green couch would fall under this category and therefore cannot be seized.
10.4 The seizure of the TV by the sheriff acting for Bloem Rentals does not infringe upon a South African's right to support national sports teams. The sheriff is simply carrying out a legal order to seize assets in order to recover the debt owed by Coolio. Coolio can still choose to support the Springboks in the 2023 World Cup through other means, such as watching the matches at a sports bar or streaming them online.
10.5 If Coolio doesn't pay back the loan to his friend Greedella within the agreed-upon timeframe, the legal implications would depend on the terms and conditions of the loan agreement. If the agreement includes a pledge clause where Coolio pledges his speedboat as collateral, Greedella would have the right to take possession of the speedboat as security for the loan. She can then choose to sell the speedboat to recover the loan amount.
10.6 After Coolio paid off the loan to Greedella, her husband Tjita promised to look after the speedboat for two months. During this time, the boat experienced urgent repairs costing R30 000. Coolio refuses to repay the R30 000, and Tjita refuses to return the boat. In this situation, Coolio may have a legal right to demand repayment of the R30 000 from Tjita since the repairs were necessary to prevent the boat from sinking. He should consult a lawyer to assess the terms of their agreement and determine the appropriate legal action to take.
10.7 Wesbank would protect their rights as a creditor in the event of Coolio defaulting on payments for his sports car through several ways:
- They would have conducted a credit assessment before granting the loan to Coolio, ensuring that he meets the necessary criteria for affordability.
- They would have required collateral or security for the loan, such as a lien on the sports car. If Coolio defaults on the loan, Wesbank would be able to repossess and sell the car to recover their funds.
- They would have included a clause in the loan agreement allowing them to increase the interest rate in case of rises in the market rate. This would ensure that Coolio's monthly premiums adjust accordingly, mitigating the risk of him being unable to make payments.
In the event of Coolio being sequestrated, his rights as a debtor would be significantly limited. A sequestration is a legal process in which a person's assets are placed under the control of a trustee to settle their debts. In this situation, Wesbank would not be able to pursue individual legal action against Coolio for defaulting on the payments. Instead, they would need to submit their claim to the trustee and be part of the collective process of distributing the debtor's assets amongst all creditors.
10.8 In the event of a fire destroying Coolio's house and all his belongings, including the speedboat and motorcar, the rights of creditors involved would depend on whether the items were insured or not. If the items were insured, the creditors would have the right to claim against the insurance policies to recover their respective debts. If the items were uninsured, the creditors may have limited recourse and would need to rely on any remaining assets or income from Coolio to settle their debts.