Prescription can be defined as the role that the passage of time plays in the making and ending of certain rights.
This means that after a specific period of time a debt can be expunged only because of the lapsing of time.
It is important that you, as a credit provider, take prescription into consideration, especially when managing your accounts and demanding payment from your clients. This will limit the risk of being unable to claim money legal owed to you. It will also prevent incurring unnecessary legal fees in the event of claiming payment for a debt that has been extinct by the Prescription Act.
In terms of the Prescription Act all debt, except for judgment debt, will prescribe after 3 years. Judgment debt is subject to a 30 years extinctive period. This means that your right to recover debt will be lost after the 3 or 30 years periods. To ascertain whether prescription will be applicable to a specific debt you would need to determine when prescription started to run and whether prescription was interrupted.
Prescription begins to run as soon as the debt is due, meaning when the debt becomes payable (section 11(d) of the Prescription Act 68 of 1969). Debt is due when the debtor does not have any reason for not paying his or her debts. Furthermore in a recent court case it was held that debt will be due when the creditor is entitled to institute legal action for the claim and the debtor does not have a legal defense against the claim (Santam v Ethwar). In Truter and another v Deysel it was found that a debt is due when a creditor acquires a complete cause of action for the recovery of the debt. This will be the case when the entire set of facts which the creditor must prove in order to succeed with his or her claim against the debtor is in place or in other words when everything has happened which would entitled the creditor to institute action and to pursue his or her claim.
This means that if the debtor does not pay and raises a defense of, for example, unsatisfactory rendering of a service or a defective product, then prescription will not start to run. It will only commence once the debtor does not have a lawful reason for not paying. A further requirement for the debt to be due is thatyou as a credit provider must also have knowledge of the debtor’s identity.If, for example a person concluded a transaction under a false identity prescription will only commence once you have been able to determine the true identity of the debtor. The last requirement is that the credit provider must have knowledge of the facts from which the debt arose. This means that if, for example, an employee caused damages to the company vehicle in 2007, but it only came to light in 2009, prescription will only commence on the day that employer was informed of the damage to the car, in other words of the facts from which the debt arose.. It is however possible for prescription to be interrupted. This can incur in different ways, amongst others by the acknowledgment of liability for the debt or by the service of a legal process. An example of the service of a legal process is the service of a summons by the Sheriff of the court. Acknowledgement can be express or tacit and either a complete or partial acknowledgment – in other words if the debtor only acknowledge the debt in part, then the acknowledgment will only interrupt prescription for that specific portion of the debt. An undertaking in writing to pay the debt is an express acknowledgment. Tacit acknowledgment is for example when a debtor pays his account as it becomes due and payable without raising any defenses.
The intention of the debtor will be crucial when determining whether the debtor has acknowledged the debt and one would have to look at the circumstances to determine this. It is important to note that the debtor must not just acknowledge that he or she incurred the debt, but must also acknowledge that the debt is still in existence and that he or she is liable for that debt. Petzer v Radford confirmed that the acknowledgment must be an acknowledgment of a legal liability and it must also be an admission of a present liability and not merely an acknowledgment that an obligation was incurred. This means that if a person acknowledges that they incurred the debt but disputes that he or she still owes the money, then it is not an acknowledgment. The same will apply for a query on an account Acknowledgment can be made to you as the credit provider or to an agent, for example an attorney or debt collecting agency.
If interrupted, prescription will start running from the day of interruption or from the due date upon which the debt becomes due in the event of postponement of payment by the debtor and creditor. This will happen where the parties agrees to settling the debt by means of monthly installments.
Prescription is therefore an important consideration when collecting debt owed to you. It is advisable to diarise the proposed prescription date to ensure that you claim the money before the prescription date to limit the risk of a debt being unclaimable because of prescription.
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