Why creditors should pay closer attention to AOD wording

Factual background

The plaintiff issued summons against the defendant for payment of R696,002.42, together with interest and costs. The claim was founded upon an Acknowledgement of Debt (“AOD”) concluded between the parties on 21 July 2020 at Bloemfontein.

In terms of the AOD, the defendant acknowledged being truly and lawfully indebted to the plaintiff in his personal capacity in the sum of R473,778.24. Interest was to accrue at the rate of prime plus 3% per annum, calculated from 1 June 2020 to the date of payment in full. The defendant undertook to repay the debt by way of monthly instalments of R15,000.00, payable on the 1st day of each consecutive month effective from 1 June 2020, until the outstanding debt (inclusive of accrued interest) had been discharged in full.

The defendant initially made payments in fulfilment of his obligations under the AOD. However, he subsequently defaulted, with the last payment having been made on 26 April 2021. The plaintiff thereafter caused summons to be served on the defendant on 5 November 2024.

In response to the plaintiff’s claim, the defendant raised a special plea of prescription, dated and served on 9 December 2025. The defendant pleaded that the plaintiff’s cause of action arose on 26 April 2021 and that, as the action was only instituted on or about 29 October 2024—more than three years after the debt arose—the claim had become prescribed in terms of sections 11 and 12 of the Prescription Act (“the Prescription Act”).

The plaintiff filed a replication on 10 January 2025, denying that the claim had prescribed. The plaintiff pleaded that the AOD constituted a promissory note as contemplated in section 87(1) of the Bills of Exchange Act 34 of 1964 (“the BEA”) and that, accordingly, the applicable prescription period was six years as provided for in section 11(c) of the Prescription Act.

Issues

The court was tasked with determining the following:

(a)         Whether the AOD in question constitutes a promissory note as defined in section 87(1) of the BEA, thereby qualifying as a negotiable instrument subject to the six-year prescription period under section 11(c) of the Prescription Act; or

(b)         Whether the AOD is an ordinary acknowledgement of debt, subject to the three-year prescription period under section 11(d) of the Prescription Act.

In essence, the resolution of the special plea turned on the proper characterisation of the AOD.

Ruling and reasoning

The court first considered the Prescription Act. Section 10 provides that a debt is extinguished by prescription after the lapse of the relevant period. Section 12(1) provides that prescription begins to run as soon as the debt is due.

The court quoted section 11 of the Prescription Act, which provides among other things that a debt arising from a bill of exchange or other negotiable instrument prescribes after six years (section 11(c)), whilst any other debt prescribes after three years (section 11(d)).

Turning to the BEA, the court quoted section 87(1), which defines a promissory note as:

“[A]n unconditional promise in writing made by one person to another, signed by the maker, and engaging to pay on demand or at a fixed or determinable future time, a sum certain in money, to a specified person or his order, or to bearer.”

The court further referred to sections 7(1) and 9(1) of the BEA. Section 7(1) confirms that a sum payable with interest or by stated instalments remains “a sum certain in money.” Section 9(1) provides that a bill is payable at a determinable future time if expressed to be payable at the expiration of a fixed period after date or sight, or after the occurrence of a specified event which is certain to happen.

Authorities

The court relied upon Allwright v Gluck and Wiehahn NO v Wouda, in which it was established that an acknowledgement of debt coupled with a promise to pay can constitute a valid promissory note. The principle enunciated is that a promissory note is a promise—an undertaking to pay—which involves more than a mere acknowledgement of debt with an implied undertaking to pay.

The court’s finding

The court examined the wording of the AOD and found that it contained the following elements satisfying section 87(1) of the BEA:

• An unconditional promise in writing to pay;
• Made by the defendant to the plaintiff;
• Signed by the maker (the defendant);
• A sum certain in money (R473,778.24, ascertainable from the document); and
• Payable at a determinable future time, namely in monthly instalments of R15,000 on the 1st of each month from 1 June 2020 until the debt was paid in full.

The court emphasised that it was not necessary to look outside the document to ascertain the amount due. The AOD went beyond a mere acknowledgement of indebtedness; it contained an express, unconditional undertaking to pay. This brought it squarely within the definition of a promissory note under section 87(1) of the BEA and rendered the instrument a negotiable instrument for purposes of the Prescription Act.

Since the last payment was made on 26 April 2021 and summons was served on 5 November 2024—a period of approximately three years and seven months—the claim fell within the six-year prescription period provided by section 11(c) and had not prescribed.

Conclusion

The court held that the AOD met all of the requirements of section 87(1) of the BEA and accordingly constituted a promissory note. As a negotiable instrument, the debt arising therefrom attracted the six-year prescription period under section 11(c) of the Prescription Act, rather than the three-year period under section 11(d).

This judgment provides useful guidance on the characterisation of acknowledgements of debt as promissory notes. In particular, it confirms that an acknowledgement of debt which contains an unconditional written promise to pay a sum certain in money at a determinable future time, signed by the maker and directed to a specified person, will satisfy the statutory definition of a promissory note—irrespective of whether the document is expressly labelled as such. Practitioners should note that the distinction between a mere acknowledgement of debt and a promissory note carries significant consequences for the applicable prescription period.