If a loan is repayable in instalments and includes an acceleration clause that if the debtor defaults on paying any instalment, the creditor is entitled on notice to terminate the loan agreement and claim the full balance outstanding, the debt ordinarily only prescribes three years after the date of the notice claiming the full outstanding balance.

In Standard Bank v Miracle Mile Investments, Standard Bank granted a loan for an amount of R13 984 600. The loan was repayable in monthly instalments over 240 months. Two companies (Miracle Mile Investments and Present Perfect Investments) bound themselves as sureties for the loan and registered mortgage bonds over immovable properties in favour of Standard Bank as security for their obligations.

The principal debtor made no payments to Standard Bank after 21 October 2008 and the principal debtor was sequestrated.

The sureties in June 2013 instituted an application against Standard Bank seeking an order directing Standard Bank to consent to the cancellation of the bonds, despite the fact that the debt for which they stood surety, remained unpaid. The sureties contended that the debt had prescribed by October 2011 because the principal debtor had not paid any instalments after 21 October 2008. The Supreme Court of Appeal rejected this argument. Where an acceleration clause affords the creditor the right of election to claim the full amount outstanding on the default by the debtor, the debt only becomes due when the creditor elects to enforce the acceleration clause.

The position is different if the contract contained an automatic acceleration clause which provides that the full outstanding amount becomes due as soon as the debtor falls into arrears.

Banks should not see this judgment as an opportunity to delay instituting legal proceedings. While the full outstanding balance will not prescribe before the bank elects to enforce the acceleration clause, parts of the debt can prescribe if the bank fails to institute legal proceedings within three years of each instalment falling due.

The full outstanding balance will be the whole debt less instalments already paid and unpaid instalments which have prescribed. The question was left open whether the claim against the sureties were claims “secured by a mortgage bond” with a 30 year prescription period.