Legal Requirements for Cancelling a Credit Agreement: Insights from Mbombi v BMW Financial Services

 

Introduction: Legal Framework for Cancelling Credit Agreements

When a creditor cancels a credit agreement due to the consumer's failure to meet payment obligations, it must follow the proper legal process. In South Africa, the National Credit Act 34 of 2005 (NCA) sets out the procedure creditors must follow to enforce credit agreements, such as giving the consumer written notice before legal action is taken (under section 129). However, the NCA doesn’t apply to all credit agreements. For example, it excludes certain agreements involving juristic persons (companies or close corporations) with an annual turnover or assets over R1 million and “large agreements” where the principal debt is over R250,000.

The recent case of Mbombi and Another v BMW Financial Services SA (Pty) Ltd (Free State High Court) addressed whether BMW had complied with the law when it cancelled a vehicle instalment sale agreement and whether the NCA applied to the transaction and related suretyship.

Background to the Case

BMW Financial Services SA entered into an instalment sale agreement with a close corporation, Ignite Services CC, for the sale of a BMW X6 vehicle. The purchase price exceeded R2.1 million, with repayments spread over 71 months plus a final lump sum payment. On the same day, Mr Sifiso Mbombi signed a suretyship agreement, making himself personally liable for the debt as co-principal debtor.

Ignite Services defaulted on the agreement. BMW served summons to cancel the agreement and claim the vehicle. The defendants did not respond, and the court granted default judgment, allowing BMW to repossess the vehicle.

After judgment, the applicants (Ignite and Mr Mbombi) tried to set aside (rescind) the judgment, claiming that BMW did not serve a section 129 notice, which is a formal warning required under the NCA before legal action can be taken. They also argued that by the time judgment was granted, they had caught up on some payments and were no longer in arrears.

Analysis of the Legal Issues

1. Applicability of the NCA

The applicants argued that because the NCA applied, BMW should have sent a section 129 notice. However, the court examined Section 4(1)(b) of the NCA, which says the Act does not apply to large agreements where the principal debt exceeds R250,000. The court held that since the vehicle loan exceeded R2.1 million, the agreement was a "large agreement" and therefore exempt from the NCA.

2. Suretyship and the NCA

The NCA generally protects consumers by extending its rules to suretyship agreements, but only if the main credit agreement is subject to the NCA. Because the vehicle instalment sale agreement was not governed by the NCA (as it was a large agreement), the suretyship also fell outside the Act.

3. Lawful Cancellation of the Agreement

The court accepted that BMW had lawfully cancelled the agreement by serving summons to the applicants at their domicilium citandi et executandi (their chosen legal addresses). According to South African contract law, serving summons at this address is sufficient for cancellation if the agreement permits it.

The applicants’ later payments were considered irrelevant because, in law, once an agreement is cancelled, it cannot be revived unless both parties agree. Therefore, even if they paid some instalments after receiving the summons, those payments did not undo the legal cancellation.

The Court’s Decision

The court considered the application to rescind the default judgment under Rule 42(1)(a) of the Uniform Rules of Court, which allows a judgment to be set aside if it was “erroneously granted”. To succeed, the applicants had to prove that the court made an error when granting the judgment — such as missing a key fact.

The court found no such error. The NCA did not apply to the agreement, the cancellation was legally sound, and the subsequent payments were of no consequence. As a result, the application for rescission was dismissed, and BMW retained the right to repossess the vehicle and claim damages.

Conclusion

This case confirms the principle that not all credit agreements fall under the NCA. If a credit agreement qualifies as a “large agreement” (i.e. over R250,000), creditors like BMW do not need to send a section 129 notice before taking legal action. It also highlights that cancellation is final once done lawfully, and late payments won’t undo the cancellation unless agreed upon by both parties.

This decision provides important guidance to creditors and consumers alike on how and when the NCA applies, and what is required for the lawful cancellation of credit

 

Customary Law Adoption and Succession: The Importance of Following Proper Procedures

Case Law Discussion: Tshali and Another v Nandi and Others

Introduction: Legal Principles in Customary Law Adoption

Customary law plays a significant role in the lives of many South Africans, particularly regarding family matters such as adoption and succession. Customary law operates alongside common law and statutory law, but it has its own specific procedures and rituals that must be followed for legal recognition. In matters of inheritance, the Reform of Customary Law of Succession and Regulation of Related Matters Act, 2009 (“the Act”) is crucial. Section 1 of the Act expands the definition of “descendant” to include persons accepted as children in accordance with customary law, even if they are not biological children. However, for such acceptance to have legal effect, it must strictly comply with customary law procedures.

Facts of the Case

• Parties Involved:
  Ms Nandipha Tshali (“Ms Tshali”) and her child, Lubabalo Tshali (“Lubabalo”), brought an application before the Eastern Cape High Court, Mthatha, following the death of Nompumelelo Veronica Tshali (“the deceased”) who died intestate (without a will).
• Claims:
  Ms Tshali and Lubabalo sought to be declared the customarily adopted children (descendants) of the deceased and therefore her intestate heirs. They also wanted the court to set aside the Liquidation and Distribution Account that listed the deceased’s siblings as heirs, and to restore the estate’s assets.
• Basis of Claim:
  They argued that the deceased had accepted and raised them as her own children, citing:
• Their inclusion on her medical aid card
• Employment records listing them as her children
• Their status as beneficiaries in her retirement annuity
• Section 1 of the Act, which allows for recognition of non-biological descendants if accepted under customary law

Customary Law Requirements for Adoption

The court relied on an expert report by Professor Ndima, which set out that:

• Customary law adoption is a private affair but must follow significant formalities.
• The process requires:
• A meeting between the natural father and adoptive parent(s) in the presence of the community leader
• A public announcement by the adoptive parent, accepting the child as a successor
• Attendance by relevant clan members, as it affects family membership and clan affiliation
• None of these formalities were proven to have occurred in this case.

Respondents’ Position

• Ms Tshali’s biological father (the deceased’s brother) contested the claim, stating:
• He never relinquished his parental rights over Ms Tshali.
• The deceased merely cared for Ms Tshali on his behalf.
• In Lubabalo’s case, he had received damages from Lubabalo’s biological father, indicating no adoption had taken place.

Court’s Decision

The court found that Ms Tshali and Lubabalo had not met the burden of proof required to be recognized as customarily adopted children and thus intestate heirs:

• Key Findings:
• The Act requires acceptance “in accordance with customary law,” not merely informal acceptance.
• There was no evidence of:
• Parental rights being relinquished by biological parents
• A public family meeting or ceremony
• Any customary law formalities being followed
• Ms Tshali did not dispute her father’s account or provide evidence of customary adoption rituals.
• Their evidence only showed that the deceased supported them and treated them as her own, but this was insufficient for legal recognition under customary law.
• Outcome:
• The application was dismissed.
• No cost order was made against Ms Tshali and Lubabalo, as the court acknowledged their genuine belief and emotional attachment to the deceased.
• The attorney’s oversight in not properly considering the Act was not deemed grossly negligent.

Conclusion

The Tshali v Nandi and Others case underscores the critical importance of strictly following customary law procedures for adoption if such relationships are to be recognized for inheritance purposes. Emotional bonds, financial support, and informal acceptance, while meaningful, do not fulfil the legal requirements under customary law or the Act. The court’s decision highlights that:

• Customary law adoption must be formalized through recognized rituals and community involvement.
• Failure to follow these procedures means that individuals cannot claim intestate succession rights as descendants under customary law.
• Legal practitioners must ensure that customary law requirements are fully understood and complied with when advising clients on inheritance and family law matters.