Joburg couple lose two houses over photo-copier machine
A young Joburg couple ended up losing two houses after falling R17,500 in arrears on a copier machine they were renting. The Kromers knew nothing of the law when all this was going down, but now they do - and they're fighting back. They ended up in this position because they did not know their rights and assumed the creditor had every right to clean them out.Greg and Charlene Kromer ended up losing their two houses after falling R17,500 into arrears on a photo-copier machine they acquired by way of a rental agreement in 2010.
In 2010 their printing business was expanding, and they pulled in a new client who needed large volumes of bar-coded printing. The Kromers went out hunting for a machine that would do the job, and were sold an OCE machine that would supposedly deliver the quality of work required.
Having found a machine, they copier company arranged a rental agreement with Finance Online, and the Kromers filled out the application form. The rental fee was R7,800 a month, excluding VAT, for 60 months. They signed surety which would make them personally liable in the event of default. But they never imagined they would end up losing two houses over the deal.
“We assumed we were dealing with Finance Online, and we did not know we were signing surety for Finance Online to secure a loan for finance on the copier,” says Greg Kromer.
Only later they found out that the rental finance was provided by Corporate Finance Solutions, a company based in Bedfordview, Johannesburg. They assumed they were dealing with Finance Online, but then discovered that the agreement had been ceded to Corporate Finance Solutions. The company they ended up dealing with is Fintech.
Soon afterwards, they realised the machine was not exactly fit for purpose, and they were unable to deliver the quantity and quality of printing required. They fell R17,500 into arrears on the rental agreement. In September 2012 Corporate Finance Solutions issued summons against the Kromers, but this did not stop the company processing the usual debit order for the months of August and September 2012.
The summons was issued to the Kromers and their company, SA Print Promotions, claiming the all future rentals, amounting to R349,000. Though the photocopier remains the property of the company, it did not come to repossess its machine, claiming it was not in the second hand business.
The problem with the case
Here’s the first problem with the case: the Kromers say they were not given a final demand, this being a rental agreement that supposedly falls outside the ambit of the National Credit Act. When presented with the summons, they went to a meeting at the offices of Fintech South Africa in November 2012 to see if the matter could be sorted out amicably. They promised to work to catch up on the two months arrears, but also sounded the company out about taking back the copier, but were told it was a finance house, not a second hand copier business.
By now the Kromers knew they had better catch up on the arrears, or – because they signed surety for the copier – they stood to lose their two houses. But the business continued to struggle, and they were unable to catch up on the arrears. By now it was too late: judgment had been issued against them for the amount of R349,000. All because they fell into arrears to the amount of R17,500.
This was when Greg Kromer realised his two houses in Alberton, Johannesburg, were under threat. He had another problem: a tenant in one of the houses had fallen behind on his rent. This, coupled with the cash flow troubles in the business, meant he also started to fall into arrears on his Absa bond.
So now he found himself under threat from two sources: Absa Bank and Corporate Finance Solutions. KWA attorneys, it turns out, managed to obtain an interdict preventing the Kromers from selling their two houses in Alberton, Johannesburg, one bonded to SA Home Loans, the other to Absa. Greg Kromer approached KWA and asked if he could sell the one property privately to fetch a better price than it would do at the sheriff’s auctions, which are renowned nesting grounds for vultures and bargain hunters. KWA agreed. The Kromers were given six months to sell the house bonded to SA Home Loans, after which the property would be put on auction. The property was worth R1,25m, and had an outstanding bond to SA Homeloans of R761,000. It was sold for R1,15m, and R204,000 of this was paid over to Corporate Finance Solutions in settlement of its claim of R349,000. When Kromer attempted to transfer the property, he says he found out KWA had an interdict preventing him selling his property, which had to be lifted before the transfer could happen.
The second property was worth roughly R500,000 and had an outstanding bond to Absa of R329,000. The Kromers had fallen behind on this bond because the tenant had fallen behind on his rent. Greg Kromer had heard about the vultures at the sheriffs auctions, and wanted to avoid his property being sold for less than the outstanding bond.
But on 14 November 2014 a person purporting to be the new owner of the property arrived at his doorstep, claiming to have bought the property at auction. He immediately phoned Absa’s legal department to find out if this was true, and was told the unit had not been sold. He then contacted KWA Attorneys, who broke the sad news that the property had indeed been auctioned for the princely sum of R196,000, leaving Kromer with a shortfall of R130,000 to the bank. But that didn’t cover attorney and other fees of R230,000, for which Kromer was also liable. He was hauled before the magistrate’s court earlier this year, and agreed to pay of this amount at the rate of R300 a month.
The new owner, meanwhile, broke into the property and changed the locks.
Inspecting the wreckage
Inspecting the wreckage of his life, Kromer was understandably pissed off, but still unable to comprehend what had happened. He asked Absa for full bank statements, which he has yet to receive. The bank offered to write of the balance, provided he indemnify Absa. The judgment remains as a black mark against his name. But his real beef is with the finance company and its heavy-handed lending practices.
So let’s tally up the damage here. The Kromers ended up losing two houses to pay for a photo-copier machine on which they were R17,500 in arrears. The equity foregone on the one house was R300,000. Then they have to pay legal fees of R230,000. That’s at least R500,000 in damages.
Once the dust had settled, the Kromers decided they had been done in and want restitution. They are now planning to bring an application to rescind the judgment it obtained on the one house, and have now taken on legal counsel to fight the matter on their behalf.
We contacted an attorney for comment after inspecting the relevant legal papers. “First of all, this is a rental agreement that falls outside the National Credit Act because ownership of the copier machine never passes to the Kromers. That means the finance company does not have to comply with the NCA by notifying the client of the default. In this case, the company went straight for summary judgment on what is a damages claim, and this is something our courts should not be allowing. Damages cannot be decided at summary judgment level. Only liquidated amounts – in other words, amounts which can be determinable from documents – can be decided at summary judgment.”
The finance company invoked an acceleration clause allowing it to call up the full amount of the outstanding loan.
The Kromers should have defended the matter, in which case the court would have to consider the extent of the damages, which should have been R17,500 plus some costs.
They also should have relied on the Conventional Penalties Act, Section 3:
If upon the hearing of a claim for a penalty, it appears to the court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of the act or omission in respect of which the penalty was stipulated, the court may reduce the penalty to such extent as it may consider equitable in the circumstances: Provided that in determining the extent of such prejudice the court shall take into consideration not only the creditor's proprietary interest, but every other rightful interest which may be affected by the act or omission in question.
The loss of two houses over a photocopier machine certainly seems completely out of proportion.
This was argued successfully Plumbago Financial Services (Pty) Ltd t/a Toshiba Rentals v Janap Joseph t/a Project Finance 2008 (3) SA 47 (C), wherein it was reported as follows:
The defendant had leased two photocopiers from the plaintiff, but had defaulted under these agreements. The plaintiff instituted action for payment of all arrears and accelerated rentals, plus interest thereon at the rate of prime plus 6%, and had repossessed the photocopiers and thereafter used them to generate an additional income. The issue of whether the Conventional Penalties Act 15 of 1962 was applicable to the plaintiff's claims had not been raised in the pleadings.
Held, that a court was entitled to raise and deal with the issue of whether a penalty was excessive even where it had not been formally pleaded, subject to it being fully canvassed in evidence and argument. (Paragraph [18] at 53A - C.)
Held, further, that the best method of determining whether a penalty was excessive was to compare what the plaintiff's position would have been had the defendant not defaulted and what the plaintiff's position would be if it obtained judgment in the amount claimed. (Paragraph [31] at 56E - F.)
Held, further, on the facts, that to require the defendant to pay interest at the punitive rate of 6% above prime on accelerated rentals was, in all the circumstances, disproportionate to the plaintiff's prejudice. The plaintiff's prejudice was adequately met by awarding interest at the prescribed rate a tempore morae. (Paragraph [32] at 57B - C.)
Held, further, on the facts, that to disregard the additional income earned by the plaintiff from the repossessed equipment would result in the defendant's being visited with a penalty out of all proportion to the prejudice suffered by the plaintiff. To give the benefit of that income to the defendant in the form of an abatement of the accelerated rentals would, together with interest thereon but at a reduced rate, constitute an equitable reduction of the penalty stipulations as a whole. (Paragraphs [35] and [36] at 58B - D.) Judgment granted in favour of the plaintiff against the defendant for payment of the arrears rentals, abated accelerated rentals and interest at the prescribed rate of interest.
Held, further, that the best method of determining whether a penalty was excessive was to compare what the plaintiff's position would have been had the defendant not defaulted and what the plaintiff's position would be if it obtained judgment in the amount claimed. (Paragraph [31] at 56E - F.)
Held, further, on the facts, that to require the defendant to pay interest at the punitive rate of 6% above prime on accelerated rentals was, in all the circumstances, disproportionate to the plaintiff's prejudice. The plaintiff's prejudice was adequately met by awarding interest at the prescribed rate a tempore morae. (Paragraph [32] at 57B - C.)
Held, further, on the facts, that to disregard the additional income earned by the plaintiff from the repossessed equipment would result in the defendant's being visited with a penalty out of all proportion to the prejudice suffered by the plaintiff. To give the benefit of that income to the defendant in the form of an abatement of the accelerated rentals would, together with interest thereon but at a reduced rate, constitute an equitable reduction of the penalty stipulations as a whole. (Paragraphs [35] and [36] at 58B - D.) Judgment granted in favour of the plaintiff against the defendant for payment of the arrears rentals, abated accelerated rentals and interest at the prescribed rate of interest.
A similar matter has also been argued in Bridoon Trade and Invest 197 (trading as Nashua Cape Town) versus Neale Peterson in the Cape High Court earlier this year. This case also involved in the rental of a photocopier. In this case, Bridoon was claiming accelerated future rentals of R182,339 plus VAT, making a total of R207,867. Peterson successfully argued that Nashua would in the normal course of its business have re-sold or re-leased the machines and made a profit. The relative value of the machines (R18,500) an d the claimed future rentals (R207,867) were deemed disproportionate. In the Peterson case, Nashua repossessed its machines but was still claiming all future rentals. The court did not grant Nashua summary judgment.
Fight back
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