The appellants stood surety to the respondent (Absa Bank) for the debt of a partnership, D B Boerdery, in terms of various written guarantees. During 1995, there were negotiations between the parties regarding D B Boerdery's alleged outstanding debt and the appellants' suretyship. During these negotiations, the appellants, represented by their attorney, indicated they would be prepared to give an undertaking not to raise prescription as a defence. On 20 November 1995, the appellants signed a written undertaking to this effect, which was drafted by the respondent. The undertaking was unconditional and irrevocable, with no time limit. Settlement negotiations failed and in July 1996, the respondent issued summons against the appellants as sureties. The appellants raised a special plea of prescription, claiming that any debit balance on the account became due in November 1991, and that the debt had been extinguished by prescription under the Prescription Act 68 of 1969 before the undertaking was signed.
The appeal was dismissed with costs, including the costs of two counsel. The court a quo's decision upholding the validity of the undertaking and dismissing the special plea of prescription was confirmed.
An undertaking by a debtor not to raise prescription as a defence, given after the underlying debt has already been extinguished by prescription, is valid and enforceable and not contrary to public policy. Once prescription has run, legal certainty already exists, and the matter concerns the private interests of the parties rather than public interest. Since the Prescription Act permits a debtor to pay a debt after prescription has run or not to raise prescription as a defence (sections 10(3) and 17), and such conduct is permitted by the legislature, a contractual undertaking not to raise prescription cannot be contrary to public policy. Freedom of contract prevails, and if a debtor is free not to raise prescription, there is no principled reason why he cannot bind himself contractually not to do so. Such an undertaking creates a valid and enforceable contractual obligation, even if given for an unlimited duration, provided the debtor had the freedom to negotiate terms and was legally represented, and enforcing it would neither be unfair nor harm the public interest.
The court made several obiter observations: (1) The validity of advance undertakings not to raise prescription (given before prescription starts running) was left open, noting conflicting decisions in the High Courts (Nedfin Bank Bpk v Meisenheimer en Andere 1989(4) SA 701 (T) holding such undertakings valid; Absa Bank Bpk h/a Bankfin v Louw en Andere 1997(3) SA 1085 (C) holding them invalid). (2) Regarding consensual adjustments or extensions of prescription periods during the running of prescription (typically for limited periods to facilitate negotiations), the court stated there is no objection in principle provided it does not amount to a negation of the institution of prescription, and validity would depend on the particular circumstances. (3) The court noted obiter that in Absa Bank Bpk v Louw, it was suggested it would probably be better not to legitimize undertakings for an unlimited period, but the court in this case respectfully disagreed, holding that such undertakings remain valid based on freedom of contract and fairness considerations when given after prescription has already run.
This judgment is significant in South African law as it clarifies the validity of undertakings not to raise prescription as a defence, particularly when given after the debt has already been extinguished by prescription. It establishes that such undertakings are not automatically void as being contrary to public policy. The case is important for: (1) Distinguishing between different types of prescription waivers based on timing (before prescription runs, during the prescription period, and after prescription has already run); (2) Emphasizing the primacy of freedom of contract and party autonomy once prescription has run and legal certainty has been achieved; (3) Clarifying the relationship between prescription, public policy, and contractual freedom; (4) Providing guidance on when public interest considerations give way to private party interests in the context of prescription. The judgment is particularly relevant for banking and suretyship law, where such undertakings are commonly negotiated during settlement discussions.
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