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Beware of the dangers of prescription
07 July 2016
 

“I lent money to a business partner nearly 3 years ago when he was in a bit of financial trouble. It wat not a massive amount, so I did not press him for the money. He recently won a big contract and I know things are going better with his business. When I asked him to pay back my loan, he refused and said that my claim had prescribed so there was nothing I could do and he was not going to pay it back. Surely this cannot be the case?”

Before determining when a debt prescribes, one must first understand the concept of “extinction of debts by prescription.” The Prescription Act 68 of 1969 states that “a debt shall be extinguished by prescription after the lapse of the period which in terms of the relevant law applies in respect of the prescription of such debt”. In simple terms it means that a debt is completely extinguished after the lapse of the relevant period for the recovery of that debt.. The general period for most civil claims to take action and enforce a debt is usually 3 years. If no action is taken within the allowed 3 years a debt is seen as prescribed. 

Now that the concept of prescription is clarified, the next question that needs to be answered is when does the 3 year period for prescription start running? The following scenario can be used to explain the start of the running of prescription: 

Peter lends R1000 to Paul on 1 March 2012. They agree that Paul will pay back the R1000 on 1 April 2012. The moment that Peter lends the R1000 to Paul the debt came into existance but the debt is not due yet. The debt will only become due on 1 April 2012, on the day that Paul is supposed to pay back the money that was lent to him by Peter. If Paul fails to pay back the R1000 on 1 April 2012 prescription will start running as from the 2nd of April 2012. This means that Peter has 3 years starting on 2 April 2012 to take action to recover the debt from Paul. If Peter does not take any action, the debt will prescribe 3 years later on 2 April 2015 and Peter will lose his claim against Paul.

The distinction between when a debt arises and when it becomes due is of the utmost importance to ensure that action is taken within the allowed time frame of 3 years. Our courts have taken the approach that the prescriptive period will start running the moment that the identity of the debtor and the facts from which the debt arises are known to the claimant. In other words the claimant does not need to have knowledge of the relevant legal conclusion. The prescriptive running is also not postponed until the person becomes aware of his full legal rights. If the approach of our courts are applied to the scenario of Peter and Paul - even if Peter was not aware of the fact that he would be able to recover the money that was lent to Paul, the prescriptive period would still start running on 2 April 2012. The reasoning behind this is that Peter was aware that Paul owed him money and that is sufficient to constitute the facts that are required for prescription to start running.

In light of the above, it is therefore adviseable that you consult with an attorney as soon as possible to ensure that the debt owed to you does not prescribe as otherwise it cannot be revived. 

 
 
 
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Tags: Debt, Litigation