Jeannette Valerie Scally (the “Applicant”) and Feltra (Pty) Ltd (the “Respondent”) concluded a sale agreement (the “Agreement”) in terms of which the Respondent would pay the full purchase price in 5 (five) instalments.
The Respondent failed to effect payment of the second and remaining instalments timeously but part payments in lesser amounts were made by the Respondent on a regular basis. The final instalment payment was made in June 2018, however the Respondent had not effected payment of the full purchase price.
During or about February 2019, the Applicant delivered summons and accordingly made an application for summary judgment. The Respondent raised 2 (two) technical arguments and 1 (one) substantive argument in its affidavit opposing summary judgment.
Firstly, the Respondent submitted that the Applicant cannot claim interest given that the Applicant did not demand in respect of the outstanding amounts. As such, the Respondent contended that it was not placed in mora. The breach clause in the Agreement, provided that in the event of a breach, a notice breach must be delivered and same must be remedied within 14 (fourteen) days thereof. Should the breach not be remedied, the aggrieved party would be entitled to claim specific performance, terminate the Agreement or accelerate the amounts owing without prejudice to any other rights which the aggrieved party may have at law. In that regard, the Respondent submitted that interest could only run after demand or breach notice had been delivered.
Secondly, the Respondent argued that the Agreement did not stipulate a rate for interest and that the amount claimed was made of compounded interest which is not permitted. Furthermore, the Respondent contended that the Applicant failed to include the basis for claiming compounded interest. The Applicant then submitted that should that be an issue; a simple recalculation could be done which excluded compound interest.
Thirdly, the Respondent argued that the Applicant’s claim had prescribed in that the second instalment was due on 17 August 2013 and the remaining instalments were due by no later than 1 June 2014. In that regard, all amounts were due by 1 June 2014 and 3 (three) years lapsed by the time the Applicant delivered summons. The Applicant argued that the part payments made by the Respondent until June 2018 constituted a ‘tacit acknowledgment of liability’ and as such, prescription had been interrupted and the prescriptive period started afresh meaning that the claim had not prescribed.
Legislation & case law
(a) Compound Interest
With regard to the issue of compound interest, the Applicant relied on the dicta in Davehill (Pty) Ltd & others v Community Development Board 1988 which held that:
“In principle there appears to be no reason why the right to claim interest on interest should be confined to instances regulated by agreement, and why it should not extend to the right to claim mora interest on unpaid interest which is due and payable.”
(b) Prescription and tacit acknowledgement of debt Section 10(1) read with section 11(d) and 12(1) of the Prescription Act 68 of 1969 provides that:
“The running of prescription shall be interrupted by an express or tacit acknowledgement of liability by the debtor.”
In Lubbers & Canisius v Lazarus 1907, the court held that Roman law accepted that an acknowledgement of liability could be established by conduct and not just words. As such, a part payment of a debt would be recognised as such conduct. A test to prove a tacit agreement (which is objective) was set out in Standard Bank of South Africa Ltd & another v Ocean Commodities Inc & Others:
“In order to establish a tacit contract, it is necessary to show, by a preponderance of probabilities, unequivocal conduct which is capable of no other reasonable interpretation than that the parties intended to, and did in fact, contract on the terms alleged”
|The Court held that argument that a breach notice was required before interest could run was misconstrued and that the legal principle is that “failure to pay on time means that mora operates ex re.” As such, interest runs from the date payment becomes outstanding. Furthermore, in the event that an agreement does not stipulate an interest rate claimable, the set interest rate in terms of the Prescribed Rate of Interest Act 55 of 1967 shall prevail. Given the second instalment was not paid and became due on 17 August 2013, and the remaining instalments were payable by no later 1 June 2014, the prevailing interest of 15.5% per annum was found to be applicable until payment irrespective of any changes. |
The Court further found that compound interest is permissible and as such, mora can be charged on interest due and payable when unpaid amounts became due on certain dates formed part of the debt due and payable for interest. In the current case, however, the court held that mora interest could not be found to be ‘due and payable’ in that the interest accrued on the unpaid instalments was in itself mora and there was no provision for compound interest on any mora interest which might accrue.
Finally, the Court held that the issue of tacit acknowledgment of debt would have to be considered to properly draw an inference as to whether there was tacit acknowledgment of debt. The Court stated that when a defence of prescription is raised, the onus is on the debtor to allege and prove the date of commencement of prescription and then the onus would shift to the creditor to allege and prove interruption of prescription. The Court further held that:
“Granting summary judgment would deny it an opportunity to place its version before a court. This offends the basic principle of audi alteram partem. In the result, I am satisfied that the respondent has raised a defence which gives rise to a triable issue. As a consequence, summary judgment must be refused, and the respondent given leave to defend the action.”
|Charging compound interest is permissible and a breach notice is not required prior to the interest running. Interest runs from the date payment becomes outstanding. Should an agreement not provide for an interest rate, the interest in terms of the Prescribed Rate of Interest Act 55 of 1967 shall prevail. Furthermore, when a defence of prescription is raised, one should be granted an opportunity to place its version before a court and a summary judgement cannot be granted in those circumstances.|
Written by Mohau Ledwaba and supervised by Omphile Boikanyo