Consider the following scenario: Max (Debtor) and Jennifer (Creditor) enter into a lease agreement. Unfortunately, due to unforeseen circumstances, Max defaults on his monthly rental payments as stipulated in the agreement. Max then receives a letter of demand requesting immediate payment of the of full outstanding amount. In response, Max makes the proposal to repay the amount in monthly instalments, to which Jennifer agrees. However, Jennifer insists that the payment plan will only be accepted if Max signs an Acknowledgement of Debt (“AOD”).
An AOD is a legal document that serves as binding evidence that a Debtor owes a Creditor a specific sum of money, and stipulates the terms on which this money must be repaid. An AOD is a useful tool for Creditors who are owed money but are facing difficulties in recovering it.
The AOD typically includes the following terms:
1. Identification of the parties:
The AOD should include the names, identification (or registration) numbers of both the Creditor and the Debtor/s, as well the address of the Debtor/s.
2. Amount owed:
The AOD must state the amount that the Debtor/s owes to the Creditor.
3. Repayment terms:
The agreement should clearly layout the repayment terms, including but not limited to the instalment amount, the dates on which payment must be made, applicable interest rate and liability for costs incurred.
4. Consequences of default:
The agreement should set out what will happen if the Debtor fails to make the required payments. This can include penalties, interest accruing, and/or legal action.
Both the creditor and the Debtor must sign the agreement. If the Debtor is a company, an authorized representative/agent must sign on behalf of the company.
Other common terms that a Debtor could expect to see in an AOD are exceptions to various defences that a debtor may use to challenge the validity or enforceability of an AOD.
6. Non numeratae pecuniae:
This term refers to the defence that the debtor did not receive the money that the Debtor is being asked to repay. For example, if the Creditor claims that they lent the debtor R5000.00, but the Debtor disputes this claim and rather argues that the Debtor only received R2500.00, then non numeratae pecuniae would be raised as a defence by the Creditor which says that the Debtor cannot rely on this argument.
7. Non causa debiti:
This term refers to the defence that there was no valid cause for the debt in the first place. For example, the Debtor argues that services were never rendered and therefore the cause of debt does not exist. In this instance the Creditor would rely on the non causa debiti defence which means that the Debtor cannot argue the cause of the debt does not exist.
8. Error of calculations:
This defence relates to a mistake in the calculations of the debt owed. For example, if the creditor made a mistake in calculating the debt owed, then the Debtor can use error of calculations as a defence to challenge the amount of the debt. However, having this as an exception in the AOD means that the Debtor is no longer able to rely on this defence.
In addition to providing proof of debt owed, there are several benefits to signing an AOD. Firstly, it can provide a sense of certainty and security to both parties: for the Creditor, it means that they have a legally binding document outlining the terms of repayment which in turn can alleviate concerns about the debtor defaulting. For the Debtor, it means that they have a clear outline on how to repay the debt owed, which can assist the Debtor to better manage their finances and avoid further legal action.
Secondly, an AOD is a useful tool used to avoid lengthy legal proceedings. If the Debtor defaults on the agreed repayments, the Creditor is entitled to take further legal action to recover the debt. The instance signed AOD may result in the legal process being much faster and less expensive, as the debt owed and terms of repayment have already been agreed upon and admitted.
In conclusion, an Acknowledgment of Debt agreement is a useful tool for Creditors who are struggling to recover debts owed to them. The agreement should clearly state the parties involved, the amount owed, repayment terms, consequences of default, and signatures of both parties. Furthermore, it is important to note that an AOD is a legally binding agreement, and once it is signed it cannot be changed or cancelled easily. Therefore, it is advisable that both parties fully understand the terms of the agreement before signing it.
Written by Craig Catto - Candidate Attorney
Supervised by AJ Truter - Director