Very simply, an acknowledgment of debt (“AOD”) is a written agreement between a debtor and a creditor in terms of which the debtor agrees that he is unequivocally liable to the creditor for a sum of money.
Are there benefits?
The benefits of AODs lie mostly with the creditor.
It is common practice for a creditor to suggest that a debtor sign an AOD allowing him to pay back the amount owed to the creditor in instalments, where the creditor has originally demanded repayment of the full amount owing. The debtor may not be able to afford to repay the full amount at that time, and thus an agreement to repay in instalments is seen as a benefit for the debtor.
However, debtors should be very careful when signing an AOD. While he may not be in the financial position to refuse signing an AOD, he should at least be fully informed of the legal implications of such a written agreement.
An AOD is a liquid document, which means that it proves a debt (on the face of it) without any need for additional evidence, entitling a creditor to obtain a court judgment summarily (provided that there is no bona fide defence to the claim). Without the AOD, the creditor would be required to lead evidence in order to prove the debt. This would invariably take time and would entail the likelihood of incurring additional legal costs.
However, with an AOD in hand, a creditor may be able to obtain swift judgment against the debtor, referred to in the rules of court as summary judgment.
At summary judgment, a court will merely consider the liquid document – being the signed AOD – as proof (on the face of it) that the debtor is indebted to the creditor and award judgment against the debtor. With judgment in hand, the creditor can obtain a warrant of execution to attach the debtor’s property, which will be sold by the sheriff at a public auction.
Default on payment in terms of the AOD
A standard clause in an AOD is what is referred to as an acceleration clause. This clause allows a creditor to claim the full amount owing should the debtor fail to pay any instalment timeously in terms of the AOD.
Moreover, it should be borne in mind that any acknowledgement of a debt has the effect of interrupting prescription in terms of the Prescription Act 68 of 1969. So, from a creditor’s perspective, if the debt owed to her is about to prescribe, and she does not wish to issue summons at that stage, an AOD signed by the debtor would assist her in preserving her claim by interrupting the prescription period. Conversely, a debtor might be reluctant to agree to an AOD if his debt is about to prescribe, as the AOD will have the effect of extending the life of the debt owed.
It is important to bear in mind that an acknowledgement of indebtedness need not be in writing in order for it to interrupt prescription, and that an oral acknowledgement would be sufficient to interrupt prescription (provided that it can be proven that such an acknowledgment has been made by the debtor).
It is, therefore, imperative that a debtor understands the legal implications of entering into an AOD which he may initially be all too eager to sign.
Lucien has a BMus LLB from UCT and was admitted as an attorney in 2010 after having completed articles at ENS. He practiced as an associate in ENS’ litigation department until 2011 and served as the head of legal at Capespan Group Limited. Lucien joined Caveat in 2014, specialising in litigation support work