18 September 2019 by and Dispute Resolution Alert

No good deed goes unpunished

There is much to be said for the phrase that “no good deed goes unpunished”. The issue of whether certain agreements were defined as credit agreements in terms of s8(5) of the National Credit Act, No 34 of 2005 (NCA) arose in the case of Jacobs v De Klerk and Another [2019] JOL 45014 (FB).

The plaintiff’s cause of action in the application for summary judgment was based on a partly oral and written resignation agreement, together with an acknowledgement of debt agreement (Agreements). The first defendant undertook to settle the second defendant’s debt in the sum of R1,682,289 to the plaintiff on a stipulated date. Furthermore, the first defendant undertook to pay monthly instalments of R14,000 for a specified period on behalf of the second defendant. The first defendant subsequently failed to make sufficient payments in terms of the Agreements.

The underlying loan agreement concluded between the plaintiff and the second defendant was a large agreement as envisaged in s4(1)(b) read with s9(4) of the Act and therefore did not fall within the ambit of the Act.

The first defendant averred that he had a bona fide defence to the plaintiff’s claim as he alleged that the Agreements were unlawful credit agreements in terms of s89(2)(d) read with s89(5) of the Act because the plaintiff was not registered as a credit provider. The first defendant stated that despite the underlying loan agreement falling outside the ambit of the Act, the Agreements were in fact credit agreements falling within the ambit of s8 of the Act. The first defendant further contended that the obligations of the original loan agreement and those of the Agreements differed significantly, so that it could not be said that the Agreements guaranteed the second defendant’s obligations under the loan agreement.

Conversely, the plaintiff alleged that by virtue of the provisions of s4(2)(c) of the Act, the Act was not applicable to the Agreements as they constituted agreements in terms of which the first defendant undertook and promised to satisfy the second defendant’s obligation to the plaintiff, which obligation did not arise from a transaction to which the Act applied. Therefore, the plaintiff did not have to register as a credit provider.

In concurrence with the plaintiff, the court held, in reference to the case of Ratlou v Man Financial Services SA (Pty) Ltd [2019] ZASCA 49 where the Supreme Court of Appeal found that the settlement agreement did not fall within the ambit of the Act; that if the underlying causa did not fall within the parameters of the Act, then its compromise in terms of the settlement agreement, could not logically result in the agreement being converted to one that did. Therefore, as the court held, the Act was not designed to regulate agreements where the underlying agreements or cause would not have been considered by the Act.

The court held that the first defendant was not a party to the loan agreement between the plaintiff and the second defendant; and his involvement arose when he undertook to pay the admitted indebtedness of the second defendant. Consequently, the Agreements constituted credit guarantees in terms of s8(5) of the Act which states that an agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit guarantee if, in terms of that agreement, a person undertakes or promises to satisfy upon demand any obligation of another consumer in terms of a credit facility or a credit transaction to which this Act applies.

Regardless of the above, the Agreements were held to be exempted from the Act in terms of s4(2)(c) of the Act because the loan agreement was not subject to the provisions of the Act. Section 4(2)(c) states that the Act applies to a credit guarantee only to the extent that the Act applies to a credit facility or credit transaction in respect of which the credit guarantee is granted.

The court therefore adopted the standpoint taken by the Supreme Court of Appeal that where an underlying agreement is exempted from the application of the Act, it follows that the subsequent credit guarantee cannot be converted into an agreement, which falls within the ambit of the Act.

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