Introduction
The use of an acknowledgement of debt (“AOD” for purposes of this article) is common practice in everyday life whether by organisations or individuals. It is common that a debtor owes a creditor an amount of money, pays something towards the debt but a balance remains outstanding, at times it is overdue. In such circumstances a creditor usually insists that a debtor signs an AOD in favour of the creditor.
Effect of an acknowledgement of debt
An AOD is a document executed by a debtor in favour of a creditor wherein the debtor clearly and unequivocally acknowledges that he or she owes money to another person (a creditor). It is a formal recognition of debt by a debtor to a creditor.
There are advantages associated with an acknowledgement of debt such as those explained below:
- The debtor formally acknowledges that he or she owes a certain amount to the creditor. Once he has signed the AOD it will be difficult to controvert it.
- The AOD usually contains provisions for settlement of the debt, commonly referred to as a payment plan. Through the AOD the debtor makes a commitment to pay the creditor.
- Once a debtor has signed an AOD the need to probe or agree on the transaction and circumstances giving rise to the debt falls away.
- It is competent at law for a creditor to sue a debtor on the basis of the AOD. In the event that the creditor wants to take legal action against the debtor he or she can competently do so on the basis of the AOD if he is able to prove the validity of the document, for example absence of duress. This is why it is important to include wording to the effect that the acknowledgement of debt and payment terms offered are voluntary. Lawyers can use an AOD when seeking a provisional sentence.
Contents of an acknowledgement of debt
The AOD can be simple or detailed depending on the situation. It normally includes the following elements.
Heading of the document
It is ideal to show that the document is an AOD. However, absence of a heading will not necessarily invalidate the AOD if the contents clearly show that it is an AOD.
Parties
The AOD has to clearly show details of the debtor such as his or her full names, identity number and address. The document also has to show full details of the creditor such as full names, address, etc.
Details of the debt
The debt being acknowledged must be stated clearly. Such details to include:
- Amount in figures and words.
- Currency.
- Transaction giving rise to the debt e.g. goods purchased, services rendered, rent, etc.
- Period the debt relates to or accrued.
Payment terms
In addition to acknowledging the debt creditors and debtors usually agree on payment of the debt. Payment terms may include the amount and timing of payments, whether debt will be paid in cash or by transfer, if there is interest or not.
Breach
It is common to find provisions on what constitutes breach or what happens in the event of breach. Non-payment normally constitutes breach and in the event of breach a creditor may:
- Demand payment in full,
- Take legal action against the debtor.
Renunciation of legal exceptions or defence
Lawyers usually include provisions that disempower debtors from raising certain excpetions or defences in the event of litigation. These exceptions include non-numeratae pecunaie, non causa debiti, no error calculi, revisions of accounts, etc.
Address of service
The debtor has to include his or her address of service or domicilium citandi et executandi.
Rights of creditor
An AOD may include the creditor’s rights, for example:
- To take legal action in the event of default,
- That a certain Court, for example the High Court, will have jurisdiction over the debt in the event of default and litigation.
Signature section
The AOD is normally signed by the debtor and two witnesses.
Conclusion
When dealing with defaulting debtors it is advisable to ask the debtor to sign an acknowledgement of debtor acknowledging the debt and committing to settle the debt in a certain way.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA (EBS, UK) is a practising commercial lawyer and conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
