According to section 11(d) of the Prescription Act, 1969, the general rule is that most debts prescribe after three years from the date the debt became due. This means that a creditor ideally must initiate legal action to recover such a debt within 3 years after the debt arose. However, sections 11(a) to (c) of the Act outline specific categories of debts with differing prescription periods: which range from 6 to 30 years. A debt secured by a mortgage falls into one of these special categories, with a prescription period of 30 years.
In a recent judgment handed down in Schneider and Another v Standard Bank of South Africa Limited, the court had to consider when the debt had become prescribed.
Background
On 10 March 2006, the Bank and Simcha Properties 10 CC ("Simcha") concluded a home loan agreement. Subsequently, Aubrey Schneider ("Aubrey") and Stephen Zagey ("Stephen") concluded a suretyship agreement in which they bound themselves as sureties and co-principal debtors in respect of the loan agreement.
In 2011, Simcha defaulted in making payments in terms of the loan agreement and was later placed under voluntary liquidation on 16 October 2012.
The Bank lodged a claim against the liquidated company and received a dividend for a portion of the money owed to the Bank. On 19 September 2014, the Bank served Aubrey and Stephen with notices of the default in which the Bank demanded payment of the shortfall owed by Simcha. Aubrey and Stephen did not pay the demanded amount, and on 10 February 2016, the Bank caused a summons to be served on Aubrey and Stephen.
Subsequently, the Bank sought summary judgment, and Aubrey and Stephen filed an affidavit opposing the summary judgment based on several defences including prescription. Aubrey and Stephen specifically contended that their indebtedness had prescribed because they were served with summons more than three years after Simcha defaulted in its payments to the Bank; alternatively, more than three years after Simcha went into liquidation.
The court a quo granted the summary judgment in favour of the Bank and held that "In the particulars of claim the [Bank] alluded to the fact that the loan amount was secured by a mortgage bond." Thus according to the court a quo, since the debt related to a mortgage bond, the prescription period was thirty years.
On appeal
On appeal, the crux of the dispute was the fact that the Bank had failed to plead that the home loan was subject to a mortgage bond. One of the arguments raised by the Bank in response to this contention was that the Bank's particulars of claim ought to be read together with its annexures which indicate the existence of the mortgage bond.
The Supreme Court of Appeal ultimately granted the appeal and granted Aubrey and Stephen leave to defend the action. In reaching that conclusion, the court held:
- The court a quo did not indicate the basis for its finding that the Bank alluded "in the particulars of claim" that the loan was secured by a mortgage bond. The finding that the debt was secured by a mortgage is at odds with the court a quo's analysis of the Bank's pleaded case.
- The Bank did not plead that a mortgage bond was registered following the home loan agreement. This is contrary to the authorities relied on by the parties, where the existence of a bond was expressly pleaded in disputes where prescription was raised in the context of a loan agreement secured by a bond.
- The fact that a certain annexure of the particulars of claim referred to the property, subject to the home loan, as a "mortgaged property" does not cure the Bank's failure to plead that the indebtedness was secured by a bond.
- Summary judgement proceedings do not require speculation.
- Aubrey and Stephen's defence of prescription is bona fide (was made in good faith) and thus the court a quo ought to have granted Aubrey and Stephen leave to defend.
Conclusion
The judgment serves as an important reminder to practitioners to plead their cases comprehensively. Moreover, it is crucial to anticipate the prescription argument in cases where a claim has been initiated three years after the debt arose, and consequently, to plead the special circumstances that justify the delayed institution of the matter beyond this period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.