Prescription of debts payable on demand November 2017

By HUGH LANE, Published in Financial Law

Prescription principles

The majority judgment of the Constitutional Court in the recent case of Trinity Asset Management v Grindstone Investments [2017] ZACC 32 has serious and far-reaching implications for commerce generally, and the banking and credit industries in particular. It finally rules on the prescription of debts payable on demand, which are ubiquitous in the commercial world.

Both the preceding judgments in the Supreme Court of Appeal on this issue, and those in this case, involved very close split decisions – 3:2 and 6:5 respectively. A close call which reflects the conflicting views held at a senior level of our judiciary.

Justice Cameron's majority judgment agreed with the underlying principles governing when a debt payable on demand is due, as stated (para 47) in Mojapela AJ's minority judgment, which are to the effect that:

  • A contractual debt becomes due in accordance with the terms of that contract.
  • If no due date is specified, it is generally due immediately on conclusion of the contract (the General Rule). [The minority judgment explains (para 41) that this rule evolved from the policy consideration that a creditor should not by his or her own inaction delay the running of prescription, and the majority judgment records (para 106) that in the case of loans payable on demand, prescription begins to run when the money is paid out.]
  • The parties may, however, intend that the creditor be entitled to determine the time for performance, in which event the debt becomes due only when demand has been made as agreed. The demand becomes a condition precedent to "claimability", a necessary part of the creditor's cause of action, and prescription begins to run only from the demand.


Thus both the majority and minority judgments recognised the entitlement of the parties to delay the "dueness" of the claim, and consequently the running of prescription, until a letter of demand is issued. The minority judgment holds (paras 49 and 50) that such a discretion vested in the creditor is not an invalid potestative condition comprising a unilateral decision to perform the agreement but rather a valid right given to choose if and when to enforce it. However, the majority judgment disagreed with the minority judgment by holding that a proper interpretation of the loan agreement in this matter did not clearly show such an intention by the parties which would be necessary to avoid application of the General Rule.

The reasons of the majority judgment why such an intention was not shown, and those of the minority judgment why it was, make interesting reading and both judgments should be considered by those who draft agreements that regulate the creation and discharge of on-demand debts.

Because of the close split in these decisions, they are likely to be the subject of academic analysis and debate. In the meanwhile, the practical reality is that there is now a final decision on this issue by our "apex" court. Its consequence is that to avoid application of the General Rule, contracts must be worded in such a way that in clear terms the creditor is entitled to determine the time for repayment so that the debt becomes due only when the creditor demands repayment – the demand thus constituting a condition precedent to claimability. In other words, as permitted by all the judgments in this case, the parties would be specifying when the repayment debt is due, thereby determining when prescription begins to run in terms of s12(1) of the Prescription Act, 1969.

Requirements for a valid demand

The minority judgment also usefully reminds us that what constitutes a valid demand is a matter of fact, and refers (para 74) to Kragga Kamma Estates v Flanagan [1994] ZASCA 137; 1995 (2) SA 367 (A) at 374E-G. Compliance with these requirements is obviously fundamental to the concept of debts payable on demand and would be worth reviewing by those who draft, sign or send these demands.

Lane is a Legal Consultant with HKA Global (Pty) Ltd.