Standard Bank of SA Ltd v Mbewu and Another

• Jurisdiction: South Africa

Standard Bank of SA Ltd v Mbewu and Another
2003 (4) SA 418 (SE)

2003 (4) SA p418

Citation	2003 (4) SA 418 (SE)
Case No	1804/2001
Court	South Eastern Cape Local Division
Judge	Ludorf J
Heard	October 30, 2002
Judgment	November 5, 2002
Counsel	P W A Scott for the plaintiff.; R Totos (attorney) for the defendants.

Flynote : Sleutelwoorde B

Insurance — Prohibition of certain conditional transactions in terms of s 23C of Insurance Act 27 of 1943 — Prohibition on lending of money subject to taking out of insurance policy to secure debt, unless it is reasonable to require that, having regard to creditworthiness of debtor, any other security furnished and other relevant considerations, person concerned C take out policy — Prudent, reasonable and in accord with sound commercial practice for plaintiff bank to require defendant debtors to take out life insurance policies as security for debt where debtors' joint monthly income satisfactory to cover monthly premiums, but where available income would be substantially reduced in event of death of either one of them. D

Headnote : Kopnota

Section 23C(1)(a) of the Insurance Act 27 of 1943, which deals with the prohibition of certain conditional transactions, provides as follows: 'No person shall lend money to any person (hereinafter in this section referred to as the debtor) on condition that any person, irrespective of whether he is the debtor, shall take E out any policy unless (a) where for the purposes of securing the debt in question it is reasonable to require the person concerned, having regard to (i) the creditworthiness of the debtor; (ii) any other security furnished or offered by the debtor; and (iii) any other relevant considerations, to take out a policy of the nature and amount of the policy in question . . . .' F

The defendants had been granted a home loan by the plaintiff. A first continuing covering mortgage bond was registered by the defendants in favour of the plaintiff over the defendants' immovable property as security for the loan and the money loaned was thereafter advanced. The defendants fell in arrears with their repayments on the loan and the plaintiff called up the bond. It had been a precondition to the granting of the application for the loan to G the defendants that they insured their lives and that the policies be ceded to the plaintiff. This precondition had been met by the defendants. The premiums payable under the policies were paid by the plaintiff monthly and then debited to the defendants' account. In an action in a Local Division on the bond the issue before the Court was whether, having regard to the particular circumstances of the matter, it was reasonable of the plaintiff to require of the H defendants to take out the life insurance policies in question. It appeared from the evidence that the joint incomes of the defendants were taken into account in assessing their eligibility for a loan and the monthly repayments they could afford. The plaintiff's testimony was that experience showed that repayment instalments should not exceed 25% of available income of the borrower. In casu the stipulated monthly repayment fell comfortably within the 25% I restriction taking into account the joint income of the defendants. The plaintiff further testified that in the event of either defendant's demise, within the period of the currency of the loan agreement, the deceased's income would cease, in which event the stipulated bond repayment would exceed the 25% limitation substantially. The plaintiff testified that in the event of a drastic diminution of income J

2003 (4) SA p419

people almost invariably fell into arrears with their monthly repayments, which led to foreclosure on the part of the A plaintiff and more often than not a sale in execution of the bonded property. Invariably there was a delay between foreclosure and the eventual sale in execution during which time the property became run down, with a negative effect on the amount realised. In addition, the...