It is common practice for those who sell goods to others (on credit) to expressly reserve ownership in those goods until payment of the price is received in full – but should it be?

Something to think about:

• the National Credit Act, 34 of 2005 ("NCA") legislates credit agreements and  imposes numerous obligations on credit agreements and credit providers (being  those that enter into credit agreements with consumers);

• credit agreements (as defined in the NCA) include "secured loans";

• a "secured loan" is defined in the NCA as "an agreement, irrespective of its  form but excluding an instalment agreement, in terms of which a person – (a)  advances money or grants credit to another; and (b) retains, or receives a  pledge or cession of the title to any movable property or other thing of value  as security for all amounts due under that agreement."  Notably, the payment of  a fee, charge or interest is not a requirement for a transaction to constitute a  secured loan (as it is for some other types of credit agreements).

Now consider your standard terms and conditions.  Can you, with certainty, exclude the agreement which arises between you and your customers from the definition of a secured loan?

You will:

• have "an agreement" with your customer if there is as little as an arrangement  or understanding between you (as an "agreement" is widely defined in the NCA);

• "grant credit" if you agree that payment of the price of the goods can be  deferred;  and

• "retain title to movable property … as security for all amounts due" if you  provide that ownership in the goods does not pass to your customer until the  price is paid in full [this part of the "secured loan" definition has been criticised  but was not amended recently when other amendments were introduced to the  NCA].

If those 3 requirements are met and your standard terms and conditions do not also provide for the payment of "interest, fees or other charges" in respect of the agreement or the deferred amount, your agreements with your customers could constitute secured loans (and therefore be "credit agreements" for purposes of the NCA.  [Please also note, if your standard terms and conditions do provide for the payment of such "interest, fees or other charges", the transaction would then fall within the definition of an "instalment agreement" and whilst the resulting agreement would not be a "secured loan" it would nevertheless be a "credit agreement" and accordingly, subject to the (limited) requirements of the NCA].

So why is this important?:

• this is important because secured loans are credit agreements and credit  agreements are legislated by, and subject to the requirements of, the NCA.  As  are the credit providers which enter into those credit agreements with  consumers.

For example, did you know that if your business has 100 or more such agreements with consumers (to whom the NCA applies), or the total value of deferred payments allowed to your customers exceeds             R500 000, then it is likely that your business is obliged to register as a "credit provider" under the NCA.  A credit agreement concluded by someone who should have been registered as a credit provider under the NCA and was not, is unlawful and void from the day it was concluded.

• however, absent the inclusion of the reservation of ownership clause, it is  possible that your business' STC's would not create an agreement that is a  credit agreement subject to the NCA, and that your business could therefore  avoid those additional legislated obligations (which may have material  implications for your business).

If your business or the agreement with your customer would not be subject to the NCA but for the inclusion of a reservation of ownership clause in your STC's, it is worthwhile asking whether that clause is an imperative to your business.  Should your STC's then include a reservation of ownership clause?  Are there not other effective mechanisms available to secure payment of the price thereby allowing your business to operate outside the requirements of the NCA?