Prescription of debt is regulated by The Prescription Act 68 of 1969 (“the act”). In terms of Section 11 of the Act the period of prescription of debt shall be three years in respect of a normal debt, thus debt not due in respect of a mortgage bond, judgment debt or debt owed to the State. In terms of Section 12 of the Act prescription commences to run as soon as the debt is due. Prescription is there to protect debtors from old claims against which debtors cannot effectively defend themselves because of loss of records or witnesses caused by the lapse of time. Prescription is a defence that the debtor must raise and a court is not allowed to mero moto (out of own motion) take note of prescription.
The dispute between the parties in Standard Bank of SA Ltd V Miracle Mile Investments 67 (Pty) Ltd and Another  3 All SA 487 (SCA) arose from a credit facility extended to Mr. P by Standard Bank (the bank) in 2005 for which the respondent, Miracle Mile, and another company stood surety. The companies also registered mortgage bonds in favour of the bank over certain immovable properties to cover their obligations. In the court of first instance it was held that the principal debt had prescribed and the sureties were accordingly also no longer liable.
In terms of the provisions of the credit facility the principal debt was payable over a period of 240 months. It also contained an acceleration clause in terms of which the bank could convert the instalment obligation into an obligation to pay on demand if Mr. P failed to pay any instalment and failed to rectify such default within seven days of a written notice by the bank. The bank was also entitled to cancel the agreement and claim immediate payment of the full outstanding amount in such eventuality.
Mr. P defaulted on the facility and the bank sent a notice in terms of section 129 of the National Credit Act 34 of 2005 advising him of his default. The notice did not contain any indication that the bank would be exercising its right to accelerate the claim if the default was not cured within the stipulated period. Mr. P made no further payments after 21 October 2008 and his estate was sequestrated on 27 August 2013.
During June 2013 Miracle Mile applied for an order directing the bank to consent to the cancellation of the mortgage bonds, arguing that as Mr. P made no further payments after 21 October 2008, the debt had prescribed on 21 October 2011. The bank argued that its notice of 12 August 2008 did not constitute an election to accelerate the payment of the debt, but merely called on Mr. P to cure the default. The court of first instance held that the debt had prescribed as prescription started to run from the date that the bank was entitled to accelerate the debt and claim the full amount.
On Appeal to the Supreme Court of Appeal (SCA) Mbha JA pointed out that the court a quo recognised that, whether or not the debt incurred by Mr. P in terms of the facility had prescribed depended on when the debt had become due, within the meaning of that word in section 12 (1) of the Act. The authority on which the court of first instance relied dealt with the provisions of the previous Prescription Act 18 of 1943 and which was differently worded. In terms of the current Act, prescription only starts to run when the debt is due and not when it first accrued. The approach equating the two positions was endorsed by several Hgh Court decisions.
Where an acceleration clause affords the creditor the right of election to enforce the clause on default by the debtor, the debt in terms of the acceleration clause only becomes due when the creditor has elected to enforce the clause. Before an election by the creditor, prescription does not begin to run.
If a creditor elects not to enforce the acceleration clause, he or she is entitled to wait until all the individual instalments have fallen due before instituting action, albeit at the risk that prescription may then have taken effect in respect of earlier instalments. Depending on the terms of the contract an acceleration clause may automatically come into effect on default by the debtor, without any election by the creditor. This would be the case where the creditor has in advance made an election in terms of the contract to enforce the acceleration clause. This approach has the support of all the leading authorities on this topic.
In terms of the 1969 Prescription Act, a debt must be immediately enforceable before a claim in respect of it can arise. In the normal course of events, a debt is due when it is claimable by the creditor, and as the corollary thereof, is payable by the creditor.
In the present case, the acceleration clause in the agreement had its own procedural requirements to be satisfied before the bank could claim the full balance owing. The debt was, therefore, not due and prescription did not begin to run on the entire debt. Compliance with the jurisdictional requirements for acceleration of the outstanding balance is not simply a procedural matter but is essential in establishing a cause of action.
The appeal was upheld with costs.
By: RICHARD MOKHELE: LL.B