The Court of Appeal decided that acceptance of a loan offer comprised the credit contract, and not execution of the formal loan agreement. This meant that declarations that the loan was for investment purposes should have been obtained at the time of acceptance of the offer.
In this case1, a couple completed an application form attached to a loan offer from a lender. The loan was to fund a subdivision of their property. An acceptance fee was paid and, a month later, the couple completed declarations confirming that the loan was to be used primarily for business or investment purposes. Another month later, they signed the loan and security documentation and completed further declarations on similar terms.
In the Court of Appeal, the couple claimed that the loan was in fact for non-business purposes and that, accordingly, the agreement was a consumer credit contract in terms of the Credit Contracts and Consumer Finance Act (the Act). If that was the case, the lender would be prohibited from enforcing the loan because proper disclosure had not been made as required by the Act.
The lender maintained that the contract was not a consumer credit contract, that the contract was the formal loan agreement, and that the couple's declarations had been given before that was signed. Therefore, the presumption in section 13 of the Act that a credit contact is a consumer credit contract was not applicable.
The Court of Appeal decided that acceptance of the loan offer comprised the credit contract, and not signing of the formal loan agreement. This determination was on the basis that the couple would not have been likely to have paid the substantial application fee had they not been committed to borrowing the money. Because the declarations were not made at, or before, that time, the presumption in section 13 of the Act was not rebutted.
However, in this case, the lender was saved because the totality of the evidence (including, but not limited to, the declarations made by the couple) proved that the loan was in fact to be used primarily for business and/or investment purposes, and the evidence rebutted the section 13 presumption.
This case should serve as a warning to lenders to ensure that, where loans to individuals are for business or investment purposes, declarations to that effect are obtained at the earliest possible opportunity.
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This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.