Aug 16, 2013 3:19 PM

However, it may be possible to draft an acknowledgment of debt in such a way that it becomes a negotiable instrument, thus extending the period of prescription.

This may be the difference between being able to collect on a debt or not.

Acknowledgments of debt

There are acknowledgments of debt that are only acknowledgments of debt; and others that amount to both an acknowledgment of debt and a promissory note.

The relevance of this distinction lies in s 11 of the Prescription Act, which provides:

“Periods of prescription of debts

The periods of prescription of debts shall be the following:

—

(c) six years in respect of a debt arising from a bill of exchange or other negotiable instrument or from a notarial contract, unless a longer period applies in respect of the debt in question in terms of paragraph (a) or (b);

(d) save where an Act of parliament provides otherwise, three years in respect of any other debt.”

Whereas a debt arising from an acknowledgment of debt will prescribe in three years, a promissory note is a negotiable instrument, and a debt arising from a promissory note will prescribe after six years.

The question then is: When does an acknowledgment of debt amount to a promissory note?