Let’s take a scenario and then discuss it from there.
Mr X entered into a small credit agreement with a financial institution in terms of Section 92 of the National Credit Act 34 of 2005 (herein after referred to as the “NCA”)
A loan application was made and approved for the amount of R10 000.00. Mr X agreed that the total amount that would be owing to the credit provider in terms of the agreement, which included interest, fees and credit life insurance, amounting to R15 808.33 over the 12 month time period.
The amount was payable to the credit provider in installments over a period of 12 months. Clauses to take note of normally in these kind of agreements are that the applicant confirm they have been explained all the terms and conditions and understand and accept it and further that if the applicant is in default of payments under the agreement the credit provider can proceed with legal steps to claim the amount owed and cancellation of the agreement with appropriate cost orders relating to legal fees.
To calculate interest, legal fees it is important to make sure when debt becomes due and payable in terms of the Credit agreement.
In the matter of Standard Bank of RSA LTD v Miracle Mile investments 67(PTY) LTD and another the court was exactly faced with this question. It was found that that in cases pertaining to the matter of when debt will become due and payable depends on when the creditor elects to terminate the loan agreement which will have the effect of the acceleration clause come into operation.
The credit provider has 2 options when installments are in arrears and a certain time period of the agreement have not passed:
- The credit provider can choose to not exercise the acceleration clause and wait until the full 12 month period has passed and all installments are due before suing the debtor.
- Choose to cancel the agreement and sue for arrear installments and all future amounts which would have been paid under the agreement.
Just make sure if you choose option 1 that the arrear installments claims do not prescribe while waiting to institute action.
Important is to give notice to the debtor to remedy the non-payment and, failing payment by the debtor, the creditor had to elect to terminate the facility and claim repayment of the full amount due under the loan agreement for the 12 months period. Notice should be given of termination in terms of section 129 and 130 of the NCA delivered as prescribed by the agreement.
The issue that always causes a dispute is what interest is payable if this option is chosen as this is discussed as damages that flow from the failure to make payment timeously as per agreement.
Let’s simply follow the general principle when damages are accessed and make sure that when a claim is done that this results in the sufferer by the breach should be placed in the position he would have occupied had the contract been performed as agreed. According to several cases even in the absence of a contractual obligation to pay interest, where a debtor is in mora in regard to the payment of a monetary obligation under a contract, the creditor to be compensated by and award of interest for the loss or damage that is suffered as a result of not having received his money on due date.
Interest is seen as the “life blood of finance” and failure to make payment under a monetary agreement will invariably deprive the creditor of the productive use of the money and thereby cause a loss and/or damage. The compensation for the loss is by awarding interest as per agreement. Mora interest is a common law right which will automatically be applied BUT if a prescribed rate is agreed on that rate can be claimed.
Finally, to confirm after perusing several cases the following applies, when an agreement as referred to above is cancelled the interest that was agreed on for the full time period can be charged and added to the capital amount. Then further mora interest can be added to this amount, plus legal fees from the date of which the credit agreement would have been concluded to act as award of damage due to the fact that the debtor did not honor their obligations for as agreed. This action should just be instituted within 3 years from the date which the debtor defaulted and the creditor elected to cancel the agreement, in that instance the full contractual debt becomes due and payable.