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The Trouble with Family Loans: A R540,000 Lesson

Written by Nicole Ross Attorneys on . Posted in Credit Law, Debt Recovery, Uncategorized.

“How sharper than a serpent’s tooth it is to have a thankless child!” (Shakespeare)

“Family helps family in times of need” – that’s been part of human culture since long before the dawn of history but be sure to observe all legal formalities. A recent High Court decision provides an excellent example of the risks of not doing so.

Parents lose R540,000
  • A daughter in the middle of a divorce borrowed R540,000 from her parents so that she could buy out her spouse’s 50% share in her house.
  • As far as her parents were concerned it was a repayable loan, but when they had to sue their daughter for repayment they were in for a rude shock.
  • Although their daughter had admitted asking to “borrow” the money, the Court held that the parents had failed to prove (the onus being on them to do so) “the existence of a loan agreement, its terms and consequent breach thereof on a balance of probabilities”. Nor had they proved “the material terms and conditions agreed upon including the amount of the loan and the date of repayment”. Another nail in their coffin – they had failed to prove animus contrahendi (lawyer speak for “a serious intention to contract”).
  • Their claim was dismissed with costs, so it’s goodbye to their R540k.
5 reasons why you need a contract, no matter how strong your family

One wonders how many families have rued their attitude of “We have a very close and strong family, and we trust each other with everything. No way do we need a contract. Forget it.”

But it’s not just a matter of trust. Consider these scenarios –

  1. Without a written contract, who is to say for certain that you are all on the same page as to whether it is a gift or a loan, and if so when and how it is repayable? You could in all innocence have two totally different visions of what you have agreed on. It’s only fair to everyone to put everything on record.
  2. Even the strongest families go through rough patches – it may be highly unlikely, but it happens, and our law reports are full of unforeseen and bitter family fights.
  3. What if (horrible thought, but we must all be realistic) one of you dies before the debt is repaid? Now you are dealing not with a parent, a grandparent, or a child, but with the executor of their estate, an executor who will need proof of the loan and its terms.
  4. If a divorce should intervene, a family loan is as much an asset (or liability) as any other, and solid proof of it will be essential.
  5. The same applies to an attack by a third party such as the taxman or a creditor.

Bottom line: Have a clear, written contract recording at the very least the amount of the loan and the agreed date and terms of repayment. For significant amounts of money, professional advice is essential.

A final thought – ask about the National Credit Act

It may seem strange in the context of a family, but your loan agreement will be unenforceable if you didn’t register as a “credit provider” in terms of the National Credit Act (NCA) in circumstances where you should have registered. In many cases it won’t be necessary, in that it doesn’t apply where family members are dependent on each other. Plus, only “arm’s length” transactions will as a general rule fall under the NCA. But there are grey areas here, so specific advice is again essential.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Unemployed, Can’t Pay Bond and Credit Instalments? “Credit Life Insurance” May Save You

Written by Nicole Ross Attorneys on . Posted in Credit Law, Employment and Labour Law, Personal Finance, Property.

If you are one of the many employees retrenched or put on short pay or unpaid leave as a result of the COVID-19 crisis and lockdown, you will be wondering how to cover the monthly instalments on your mortgage bond and other credit agreements. You have no doubt heard of the “payment holidays” banks are offering, but remember that although these are a lot better than losing your house, car etc, they are no free lunch. Interest and fees will still be building up.

Credit life insurance is not just death cover

That’s why you need to check right now whether or not any of your credit agreements are covered by “credit life insurance”. Many people don’t even realise they have this cover in place, and those that do may look at the “life” part of the name and think “well that’s no good to me or my family, I’m unemployed not dead”. The good news there is that most policies cover a host of other events leaving you unable to pay instalments – see below for more.

Do you have cover?

You may well have this cover in place without even realising it because it is commonly required when you take out any form of credit – think mortgage bonds, vehicle finance, credit cards, retail credit (store cards etc) and so on. 

If you aren’t sure, check your latest bond or credit statement for any sign of an insurance premium deduction (it may be called “balance protection” or the like). Then contact the bank (or whichever credit grantor you are with) and ask them to check. You may not have it for example if at the time you ceded another life policy to the credit grantor.

What are you covered for?

Check what the terms of your particular policy are, but the minimum cover required by National Credit Act Regulations (which only affect credit agreements entered into on or after 9 August 2017) is –

  • Death or permanent disability: The outstanding balance of your total obligations under the credit agreement is covered.
  • Unemployment or inability to earn an income: You are covered until you find employment or are able to earn an income, with a maximum of 12 months’ instalments. 
  • On temporary disability: You are covered until you are no longer disabled, with a maximum of 12 months’ instalments.

Exclusions – the Regulations allow a long list of exclusions to be incorporated in your policy so check which apply to you. Most of them are common sense – for example lawful dismissal, retirement or resignation from employment – but if you are told that a particular exclusion applies to you and you don’t agree ask your professional advisor for advice before conceding anything. Employers may be able to assist in this regard when structuring crisis outcomes with staff, but remember to do so only after taking your own legal advice! 

Self-employed people and pensioners should check what cover they have under their particular policy, and what terms apply to them.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews