Redress in terms of the National Credit Act and the Consumer Protection Act for defective goods sold and financed in terms of an instalment agreement

• Jurisdiction: South Africa
• Date: 25 May 2019
• Published date: 25 May 2019
• Author: Jannie (J M) Otto
• Pages: 247-281

REDRESS IN TERMS OF THE NATIONAL

CREDIT ACT AND THE CONSUMER

PROTECTION ACT FOR DEFECTIVE GOODS

SOLD AND FINANCED IN TERMS OF AN

INSTALMENT AGREEMENT

JANNIE (J M) OTTO*

Professor of Law, University of Johannesburg

CORLIA M VAN HEERDEN**

Professor, Department of Mercantile Law, University of Pretoria

JACOLIEN BARNARD***

Senior Lecturer, Department of Mercantile Law, University of Pretoria

I INTRODUCTION

The scene seems all too familiar, representative of thousands of similar

agreements concluded every day in South Africa. The consumer buys a

motor vehicle from a motor dealership. He cannot pay the full amount

of the purchase price immediately. The motor dealership assists him to

apply for f‌inance at a f‌inancial institution (for example, a bank). After

that, the motor vehicle is f‌inanced and an instalment agreement

(previously called an instalment sale agreement)

1

is concluded between

the consumer and the bank. Within six months after the delivery of the

vehicle, the consumer starts to experience problems with it, and it

becomes clear that the vehicle is of an unsatisfactory quality, cannot be

used for the purposes for which it was bought, and is defective. If

the customer attempts to hold the motor dealership responsible, the

dealership argues that it no longer owns the vehicle and that the bank

should be approached. Indeed, the dealership argues that the bank was

the seller of the vehicle — which it often is. Should the consumer

attempt to hold the bank responsible, the bank refers to the instalment

* BA LLB LLD (UP). Professor of Law, University of Johannesburg.

** BLC LLB LLM (UP) LLM (Unisa) LLD (RAU). Professor, Department of Mercantile

Law, University of Pretoria.

*** LLB (UP) LLM (Unisa) LLD (UP). Senior lecturer, Department of Mercantile Law,

University of Pretoria.

1

The terms ‘instalment agreement’ and ‘instalment sale agreement’ will be used inter-

changeably throughout this article.

247

(2014) 26 SA Merc LJ 247

© Juta and Company (Pty) Ltd

agreement in which any warranty as to the condition of the vehicle is

expressly excluded, and the bank also argues that it only f‌inanced the

deal. After all, the bank is not a seller of vehicles in the f‌irst place.

To make matters worse, it seems that uncertainty over the application

of two very important pieces of consumer protection legislation (the

National Credit Act 34 of 2005

2

and the Consumer Protection Act 68 of

2008

3

) may leave the consumer without adequate protection.

We will attempt to answer the vexing question that arises in the

context of the consumer’s remedies where he has been sold defective

goods after 31 March 2011 (the date on which the CPA came into general

effective operation) under an instalment agreement governed by the

NCA. We will therefore also focus on the nature of an instalment sale

agreement, and the rights and obligations of all the parties involved in

the sale of the vehicle and the eventual conclusion of an instalment

agreement in terms of the NCA. Further, we will examine the interplay,

if any, between those rights and obligations in terms of the NCA in the

case of an instalment agreement, and the rights and obligations of a

supplier and a consumer under the CPA as regards the issue of defective

goods.

II COMMENTS ON THE RELATIONSHIP BETWEEN THE

PARTIES (CONSUMER, MOTOR DEALERSHIP AND

FINANCIAL INSTITUTION)

It is necessary to dissect and discuss all the contractual relationships

relevant to f‌inancing a motor vehicle, f‌irst, under the common law and,

secondly, under appropriate legislation (the NCA and the CPA). This

analysis is important to establish the nature of the obligations and the

parties’ true intention. It is particularly important to establish against

whom the buyer (the consumer) is entitled to enforce his common-law

rights. Only then can it be established whether the NCA and the CPA

conf‌irm or amend his common-law position.

(a) The initial contractual relationship between the motor

dealership and the consumer (the common-law position)

Before applying for f‌inance in terms of an instalment agreement

governed by the NCA, a consumer will usually go to a motor dealership

to select and buy a vehicle. The nature of the initial contractual

2

Hereinafter referred to as the NCA.

3

Hereinafter referred to as the CPA or the Act.

(2014) 26 SA MERC LJ248

© Juta and Company (Pty) Ltd

relationship between the motor dealership (the seller) and the consumer

(the buyer) is that the parties clearly conclude a contract of sale. Apart

from the requirements for the conclusion of a valid contract,

4

the parties

also need to reach consensus on the essentialia of a contract of sale: the

intention to buy and sell, the thing sold (merx), and the purchase price

(pretium).

5

Prima facie the motor dealership and consumer do conclude a valid

sale. The parties to the contract have consensus on all the sale essentialia

as mentioned directly above. An important result of a valid sale is the

naturalia that now form part of the sale agreement between the motor

dealership and the consumer and that, more importantly, include

the common-law rights and duties of the parties.

6

The most important

common-law duty of the buyer is to pay the purchase price,

7

and the

most important common-law duties of the seller are the safe-keeping of

the thing sold; the delivery and transfer of ownership if the seller is the

owner; and the warranty against eviction and the warranty against latent

defects.

8

The parties may, however, amend or even exclude certain of the

naturalia to a sale inter partes which will form part of the incidentalia of

that particular sale.

9

For example, the parties may include a voetstoots

clause in the sale to exclude the seller’s liability for latent defects, or they

may limit the amount of damages claimable for a breach of the warranty

against eviction.

10

The common-law position is dramatically altered,

though, where the buyer applies for f‌inancial assistance at a f‌inancial

institution for the payment of the purchase price of the vehicle and in the

event of conclusion of an instalment agreement (previously an instal-

ment sale agreement) between the f‌inancial institution (the bank) and

the buyer (the consumer).

(b) The contractual relationship between the motor dealership and

the financial institution (the bank)

It could be argued that the relationship between the motor dealership

and the bank may differ from case to case and will depend on the

procedures and trade usage of each individual f‌inancial institution.

4

Chris J Nagel et al Commercial Law 4 ed (2011) para 3.89.

5

Idem para 13.04.

6

Ibid. For a comprehensive discussion, see J Barnard The Influence of the Consumer

Protection Act 68 of 2008 on the Common Law of Sale (LLD thesis, University of Pretoria, 2013)

ch 2.

7

Nagel et al op cit note 4 para 15.01.

8

Idem paras 14.01–14.02.

9

Ibid.

10

Idem paras 14.51–14.53, 14.56–14.74.

REDRESS UNDER THE NCA AND CPA 249

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