An acknowledgement of debt relating to a loan from one friend to another for a capital amount of R831 000 and interest at 18% per year was held to be a credit agreement for the purposes of the National Credit Act.

The agreement identified the capital, the interest at 18%, deferred payments, collection fees to be levied and non-payment that could trigger litigation with litigation costs on a punitive scale between attorney and client. This was not comparable to, for instance, a loan advanced to a family member without commercial interest and without the lurking notion of litigation with punitive costs.

Although the lender and borrower had been friends for 18 years and loans had previously passed between them, the agreements were clear business transactions concluded at arm’s length. None of the arm’s length exceptions in section 4(2)(b)(iii) applied.

Whenever there is a loan or other credit transaction on commercial terms and the receiver of the credit is an individual or small corporation the National Credit Act will apply. Some people are fooled by the name ‘acknowledgement of debt’ thinking it is not a credit agreement governed by the Act. The consequences are that the agreement is void, so this needs to be front-of-mind.

The case is Fourie v Geyer.