An agreement constitutes a credit agreement if, as pronounced in the National Credit Act 34 of 2005 (“the NCA”), it provides for a credit facility, a credit transaction (such as, among others, a mortgage agreement or an instalment agreement), a credit guarantee, or any combination hereof. Naturally, a credit agreement is entered into between a consumer and a credit provider. When a consumer has failed to perform an obligation in terms of a credit agreement, such as paying a monthly instalment, the consumer will be in default under the credit agreement.
In terms of section 129(3) of the NCA, a consumer may remedy a default under a credit agreement, and consequently reinstate the credit agreement, by, inter alia, paying “all amounts that are overdue” at any time before the credit provider cancels the credit agreement. In the context of section 129(3), reinstatement of the credit agreement will effectively place the credit agreement into the position it was prior to the consumer falling into default. Credit agreements, however, commonly contain an acceleration clause, which, if invoked by the credit provider, provides for the full debt under the credit agreement to become immediately due and payable as a result of the consumer’s default.
The question that arises is whether a credit agreement may, in the instance where a credit provider has invoked an acceleration clause, be reinstated, as contemplated in section 129(3) of the NCA, if, despite the full outstanding debt being accelerated, only the amounts for which the consumer is in arrears are fully paid.
In Nkata v First Rand Bank Ltd and Others 2016 (6) BCLR 794 (CC), the Constitutional Court considered a decision by the Supreme Court of Appeal to deny an application brought by a consumer to rescind a default judgment granted against her for the entire amount outstanding in terms of two credit agreements (namely, mortgage loans).
In the Nkata case, the credit agreements contained acceleration clauses which were invoked by the credit provider when the consumer defaulted on her instalment payments. As a result, the entire outstanding amount in terms of the credit agreements became immediately due and payable, and it was on that basis that the credit provider obtained default judgment for the accelerated outstanding debt under the credit agreements and not only the instalments that were in arrears.
Prior to the execution of the default judgment granted against the consumer, she had in fact made payment, in full, of the amounts for which she was in arrears. The Constitutional Court, per the majority judgment of Deputy Chief Justice Dikgang Moseneke, held that only the arrear instalments, as opposed to the full accelerated debt, needed to be paid in order to effect reinstatement of the relevant credit agreement. The Court held that this interpretation was consistent with the purpose of section 129(3)(a), being a rescue mechanism available to the consumer precisely when she fell into arrears and may have been liable to pay the full accelerated outstanding debt.
According to section 129(4) of the NCA, however, a consumer may not reinstate a credit agreement after the sale of any property pursuant to an attachment order or the surrender of such property or the execution of any other court order enforcing that credit agreement. Despite the bonded property having been attached in the Nkata case, no sale in execution of the property occurred and no proceeds of the sale were realised at any time before the consumer paid the arrear amounts. In this regard, the Court held that the barrier to a reinstatement of the credit agreement should only apply when the proceeds from a sale in execution have been realised, and the Consumer was, therefore, well within her rights to reinstate the credit agreement that the credit provider had not cancelled.
The above Constitutional Court judgment seems to bring what may be seen as a reprieve to consumers staring down the barrel of an acceleration clause, and credit providers should be cognizant of the fact that consumers may reinstate a credit agreement by making payment in full of all the amounts which are in arrears thereunder in circumstances where the credit provider has not duly terminated the credit agreement and the proceeds of the sale have not yet been realised.