Study Theme 7: Unlawful Agreements

Question 1

❖ The following common law requirements must be met
when concluding a credit agreements

Answer 1

➢ Consensus
➢ Contractual capacity
➢ Legality
➢ Physical possibility and certainty
➢ Formalities
❖ Compliance with these requirements constitutes the
agreement valid and binding

Question 2

Influence of NCA on
requirements

Answer 2

❖ The NCA has an influence on the general principles of the
South African law of contract with reference to the
formation of credit agreements.

Question 3

❖ Consensus

Answer 3

Incidental Credit Agreements: These agreements start later even after mutual consent, due to regulatory provisions.

Deemed Period: The effect of the agreement is considered to be initiated after 20 business days as per S5(2).

Credit Quotation: S92 mandates a binding credit quotation, making the provider’s offer binding for 5 business days, similar to holding an option open.

Question 4

❖ Contractual capacity and legality

Answer 4

Contractual Capacity:
* Defines who can enter credit agreements.
* Protects vulnerable groups from harmful agreements.

Legality:

• Ensures credit agreements comply with NCA regulations.
• Establishes consumer rights and responsibilities.
• Prohibits reckless credit granting and provides court mechanisms for intervention.

Question 5

❖ Physical possibility and certainty

Answer 5

Definition:
* Physical Possibility: The ability for an action or event to occur in the real world.

• Certainty: The assurance that something will happen or be the case.

❖ The NCA has no real influence on these requirements.

Question 6

❖ Formalities

Answer 6

❖ The NCA does not require specific formalities.

Question 7

❖ Types of unlawful agreements

Answer 7

❖ S89(2) of NCA
❖ Credit agreement is unlawful if:
➢ At the time the agreement was made the consumer
was an unemancipated minor unassisted by a
guardian
➢ At the time the agreement was made the consumer
was subject to an order of court holding the consumer
to be mentally unfit.
➢ At the time the agreement was made the consumer
was **subject to an administration order in terms of S74 ** of the Magistrates’ Courts Act and
➢ The administrator did not consent to the credit
agreement, AND
➢ The credit provider knew, or could reasonably have
determined, that the consumer was the subject of
such an order.
➢ The agreement is the result of negative option
marketing in terms of S74(1) NCA.
➢ The agreement is a supplementary agreement or
document prohibited in terms of S91(2).

Question 8

❖ S91(2) of NCA

Answer 8

❖ A credit provider must not directly or indirectly require or
induce a consumer to enter into a supplementary
agreement or sign any document,
❖ That contains a provision that would be unlawful if it were
included in a credit agreement.
❖ At the time the agreement was made, the credit provider
was unregistered and the NCA requires that credit
provider to be registered
❖ The credit provider was subject to a notice by the NCR in
terms of S54 to stop offering, making available or
extending credit and no further appeal or review is
available in terms of the notice

Question 9

❖ Exclusions to unlawfulness:

Answer 9

❖ S89(3) of NCA
❖ S 89(4) of NCA

Question 10

❖ S89(3) of NCA

Answer 10

❖ A credit agreement with:
➢ Minor,
➢ Mentally unfit consumer or
➢ Consumer whose estate is under administration,
❖ Is not unlawful if the consumer or somebody on behalf of
consumer:
➢ Induced credit provider to believe consumer had the
legal capacity to contract, or
➢ Attempted to obscure or suppress fact consumer was
subject to such an order

Question 11

❖ S 89(4) of NCA

Answer 11

❖ Credit agreement by unregistered credit provider not
unlawful if:
❖ At the time the credit agreement was made, or within 30
days after that time, the credit provider had applied for
registration, and was awaiting determination of that
application

Question 12

Consequences of
unlawfulness

Answer 12

❖ S89(5) of NCA
❖ S164(1) of NCA

Question 13

❖ S89(5) of NCA

Answer 13

❖ If a credit agreement is unlawful in terms of S89, despite
any other legislation or any provision of an agreement to
the contrary:
❖ A court MUST make a just and equitable order including
but not limited to an order that:
(a) the credit agreement is void as from the date it
was entered into
(b) deleted (2014 NCA Amendment Act): as result of
the Chevron case
(c) deleted (2014 NCA Amendment Act): as a result of
the Opperman case
❖ BUT

Question 14

❖ S164(1) of NCA

Answer 14

❖ Nothing in the NCA renders void a credit agreement that,
in terms of the Act, is prohibited or may be declared
unlawful unless a court
❖ OR, in future, the Tribunal declares that agreement is
unlawful. (in terms of 2019 Amendment Act)

Question 15

❖ The common law consequences prevail:

Answer 15

❖ Ex turpi causa:
❖ Par delictum rule:

Question 16

❖ Ex turpi causa:

Answer 16

❖ The credit agreement cannot be enforced as no party has
an action against the other party.

Question 17

❖ Par delictum rule:

Answer 17

❖ If any party has delivered performance in terms of the
unlawful contract, performance could be reclaimed from
the other party based on the grounds of unjust
enrichment.
❖ However, this rule applies.
❖ The rule holds that where both parties are to blame for
the unlawful contract, the right of the possessor of the
performance is the stronger.
❖ Which means that the other party cannot reclaim his/her
performance.
❖ The courts are sometimes prepared to relax the
enforcement of the par delictum rule and to order the
possessor to return the performance to the other party

Question 18

❖ Sedwin Investments (Pty) Ltd v Datnow

Answer 18

❖ Court held that the amendment to the Act restored the
common-law right to restitution.
❖ The plaintiff submits that if no restitution order is made
against the defendants, it would be unjust to the plaintiff.
❖ And that should the application not succeed obtaining
default judgement on the loan agreements, it should at
least succeed with it’s alternative claims based on
unjustified enrichment.