A significant aspect to consider under the auspices of the National Credit Act 34 of 2005 (“NCA”) is when a repayment of a loan agreement is made by way of cheque and upon such cheque being presented for payment, the payment fails and the cheque is subsequently dishonoured. The notable question which emerges is will the cause of action arise out of the failure to pay amount due in terms of the initial loan agreement or will the cause of action arise out of the rights and obligations derived from the drawer/drawee relationship under the cheque or alternatively does one have a choice? 

Section 4 (5)(a) of the NCA provides “if a person sells any goods or services and accepts, as full payment for those goods or services…a cheque or similar instrument upon which payment is subsequently refused for any reason…the resulting debt owed to the seller by the issuer of that cheque or charge does not constitute a credit agreement for any purpose of the Act”. One would have to interpret the granting of a loan to be included under “services” for the aforementioned section to apply. Then is it safe to assume that the NCA would not apply to loans which are repaid by cheque? Surely such a deduction would be invalid when reading it together with the purpose and objective of the NCA. If it were to be considered acceptable it would grant credit givers a chance to escape the grasps of the NCA by insisting that the respective credit agreement be repaid by cheques.

Take the following scenario into consideration:

A enters into a loan agreement (which satisfies the requirements of a credit agreement under the NCA) with B, in terms of their agreement B shall repay the loan by way of cheque. B presents A with a cheque for repayment of the loan, however the cheque is subsequently dishonoured. If the cheque were to be excluded from the ambit of the Act, A would be able to sue B on the cause of action which arose out of the dishonoured cheque without having to comply with the provisions of the NCA (i.e. s129 and 130).

 In Philip Claasen t/a Mostly Media v Delport t/a AD Industrial Chemicals (16123/2008) [2009] ZAWCHC 84, the court held that a cheque which is presented for payment of an amount due in respect of a credit agreement and is subsequently dishonoured, it will be subject to the NCA.  The court cited Western Bank Ltd v Rautenbach 1974 (4) SA 960 (E) at 964D-H which stated a notable comparison with the repealed Usury Act 73 of 1968. The parties had concluded a credit agreement, the debtor handed the creditor a promissory note providing for the acceleration of the payment of the instalments in the event of default. The promissory note was dishonoured on presentment. The debtor was sued on the promissory note, the creditor claimed that there was a novation and that such novation was not subject to Usury Act. The court rejected the argument and held that in substance the claim arises from the credit agreement and not from the promissory note and the Usury Act is applicable. Although one cannot compare the Usury Act with the NCA and nor promissory notes with cheques, the underlying legal question bears the same principle.

However, in Essa V Asmal (PTY) LTD 2012 (2) SA 576 (KZP), the court stated it would be “incongruous” (par 24.1 of the report) if a dishonoured cheque is excluded from the NCA when goods and services are bought (as in s 4(5)(a)), but is subject to the NCA when the cheque is intended as full repayment of an advance of money. The case followed the dictum of SA Timber (Welkom) (Edms) Bpk v Lezim 2815 BK unreported, case no 2607/2008 which held that should a cheque be dishonoured the seller has a choice. He can sue on the original cause of action (i.e. rendering of services or goods) or on the independent cause of action created by the agreement to accept the cheque as payment. If the plaintiff sues on the dishonoured cheque, the Act does not apply.

Upon appeal in Asmal v Essa (38/2013) [2013] ZASCA 62, although the question of cheques and the NCA was not the main focus before the Supreme Court of Appeal, the court did make a comment on cheques which is agreeable to cheques being exempted from the NCA,  as stated at [15] of the judgment “… it makes no sense that the provisions would distinguish between a cheque in terms of which the payment for goods or services is to be effected and one in which the repayment of a loan is intended by exempting only the former from the operation of the Act. Simple logic dictates that both classes of cheques should similarly be excluded from the ambit of the Act.” With the SCA then confirming that, should a Plaintiff choose to institute action on a cheque in respect of repayment of a loan/credit agreement, then such cheque could escape the grasps of the NCA.

It is clear from the aforementioned which direction our courts have preferred to interpret the question reiterated throughout this article, however one can only imagine that the legislator surely would have expressly included loan agreements under section 4 (5)(a), for the consequence of allowing the repayment by cheque to escape the liability of the NCA does not read in harmony with the objectives of the said act i.e.  promote a fair and non-discriminatory marketplace…prohibit certain unfair credit and credit-marketing practices…promote a consistent enforcement framework relating to consumer credit”.