- Cash Converters overcame a prescription defence in a R696 002 debt claim.
- The acknowledgement of debt was found to be a promissory note.
- The ruling confirms that a properly drafted acknowledgement of debt can extend the prescription period to six years.
A signed acknowledgement of debt can give a creditor six years, rather than the usual three, to recover unpaid money if it meets the legal requirements of a promissory note.
This was the outcome of a dispute between Cash Converters Southern Africa (Pty) Ltd and Motsetsi Fraser Chalala over an outstanding debt of R696 002.42.
The debt arose from a franchise agreement between the parties. Cash Converters is trying to recover the outstanding amount, along with interest and costs, after Chalala allegedly defaulted on an acknowledgement of debt signed in July 2020.
Under the agreement, Chalala admitted owing the company R473 778.24 and agreed to repay it in monthly instalments of R15 000, together with interest at the prime lending rate plus 3%. Chalala made payments at first but stopped in April 2021.
Prescription defence rejected
Chalala argued that the claim had prescribed because more than three years had passed before the summons was served. He claimed the acknowledgement of debt was an ordinary debt, subject to the three-year prescription period under the Prescription Act.
Cash Converters replied that the document did more than simply record a debt. It contained an unconditional written promise to repay a fixed amount in monthly instalments. This meant it qualified as a promissory note under the Bills of Exchange Act and attracted a six-year prescription period. Acting Judge DR Thompson agreed with this view.
Judge Thompson explained that the acknowledgement of debt in this case met the requirements set out in Section 87(1) of the Bills of Exchange Act, and therefore counted as a promissory note.
Why the claim survived
Judge Thompson found that the agreement included all the essential features of a promissory note. It recorded a specific amount owed, contained an unconditional promise to pay, set out fixed monthly repayments, and was signed by the debtor.
Because the acknowledgement of debt qualified as a promissory note, the applicable prescription period was six years instead of the usual three years. Judge Thompson confirmed that the debt had not prescribed, as the summons was issued and served within the six years.
The judgment also makes it clear that the title of a document does not determine its legal effect. An acknowledgement of debt does not have to be called a promissory note if it meets the legal requirements in the Bills of Exchange Act.
Drafting can change legal rights
The ruling highlights the importance of carefully drafting acknowledgements of debt. If a document goes beyond merely recording a debt and includes an unconditional promise to pay, it may give a creditor twice as long to enforce payment.
For businesses, lenders and legal practitioners, the decision confirms that the legal effect of an acknowledgement of debt depends on its contents, not just its title.
Judge criticises litigation conduct
Although Cash Converters won, Judge Thompson criticised the way the litigation was handled. Most of the facts were not in dispute, yet the special plea took up two full court days.
Judge Thompson stated that the matter could have been handled more responsibly and without wasting valuable court time and resources.
The special plea of prescription was dismissed, and the costs of the application were ordered to be costs in the main action.
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