It is said that out of debt is out of danger and it is also said that it is better to go to bed hungry than to wake up in debt. However, these adage seems to be archaic in the face of so many ‘perspire to inspire messages’, which encouraging people to dream big and act fearlessly, even if it will mean borrowing or taking goods on credit. Many businesses have taken the advantage of credit facilities either from friends or financial institution and are able to build striving business. However, some could not pay back their creditors due to unfavorable government policies, unforeseen business downturn such as imposed by covid 19, conversion of business fund to personal use and some bad business decision. This write up will discuss the legal concept of debts and different ways of responding to debt claim.
DEFINITION OF DEBT:
A debt is “a sum of money due from one person to another … An action of debt lay where a person claimed the recovery of a liquidated or certain sum of money affirmed to be due to him’. It is generally founded on some contract alleged to have taken place between the parties, or on some matter of fact from which the law would imply a contract between them. A debt exists when a certain sum of money is owing from one person (the debtor) to another (the creditor). ‘Debt’ denotes not only the obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment. NIPOST V. IRBOK NIGERIA LTD(2006) LPELR-7701(CA)
POSSIBLE RESPONSE TO CLAIM OF DEBT
There are basically 4 ways of answering claim of indebtedness namely:
I. Admission of Debt: This happens where the debtor admit the debt as claimed. Where the debt is not denied, the creditor will not need to further proof the debt as fact admitted need no further proof. This position is upheld by Pa NIKI TOBI, J.S.C in the case of CHIEF EDMUND I. AKANINWO & ORS. V. CHIEF O. N. NSIRIM & ORS. (2008) LPELR-321(SC) that ”An admission in pleadings basically puts an end to proof. This is because by the admission, the parties no more join issues on the matter. Since proof presupposes a dispute and since admission drowns the element of dispute, proof becomes superfluous.”
Admission of debt will also be implied where the creditor makes demands for settlement of debt by letters and the amount of debt is contained in the letter(s) and the debtor does not query the figure written in the letter(s) as the overall debt due but rather writes letters in response explaining the reasons for non-payment of the debt, the debtor will be deemed to have impliedly admitted the quoted figure as the amount of debt due. Failure to react to a demand letter leads to a presumption of admission by conduct(see the case of IFEMESIA v. ECOBANK (2018) LPELR-46589(CA) and IGA VS CHIEF AMAKIRI (1976) 11 SC)
Once a debt is admitted it must be given effect regardless of any excuse or technicality thrown in to derail the process.
Where debt is admitted, the process of recovery is usually shorter as the creditor may file an application for summary judgment in the sum admitted which may be enforced by a garnishee proceeding, execution against the movable and immovable properties of the debtor; the creditor can apply to take over the business of the debtors through a receiver manager or administrator to recoup the sum owed; file a bankruptcy proceedings against the individual debtor or winding up proceedings against the debtor company.
II. Denial of Debt:
This occurs where the debtor deny owing the creditor. In the circumstance, the creditor will have to proof how the debt is incurred which can be done by production of statement of account; waybills, contract documents or such other secondary evidence showing how the debt was owed. Where the creditor has convincingly proved how the debt was incurred, the burden of proof will shift on the debtor to show how he has paid off the amount claimed against him. Mere denial of indebtedness is untenable in law, a defendant must state why he is not indebted in full or in part to the creditor. Where an action of debt for money had and received, the alleged debtor must specifically contend the receipt of the money or existence of facts which are alleged to support the claimant’s claim; for goods sold and delivered, the defendant must deny the order or contract, the delivery, or the amount claimed; and if the debt is based on bill of exchange, promissory note or cheque, the defendant will have to contend the drawing, making, indorsing, accepting, presenting or notice of dishonor of the bill or note.
For the possibility of denial of claim of debt, it is important for parties to keep records, and have a comprehensive and simple agreement of the money, goods and services advanced.
III. Counterclaim against the debt:
By a counterclaim, the alleged debtor is making a claim against the claimant after an original claim of debt has been made. Counterclaim can also be termed counteraction, counter suit, cross demands, cross action. This may occur where the alleged debtor is contesting the claim of debt, for instance where Mr. A advanced goods on credit to Mr. B, and a claim to recover the outstanding bill is made, Mr. B may contest the claim of debt and counterclaim in damages that the goods was not delivered to him within the specified time or that it was not fit for use and consequently claiming for damages suffered as a result of the breach. Where a claim of debt is responded to with a counterclaim, both parties will have to proof their claims upon balance of probabilities, as the claims are independent of each other.
IV. Set off against the debt:
It is a cross-claim which partly or fully offsets the original claim. It is a shield available to the defendant to combat the claims against him to adjust, wipe out or reduce the plaintiff’s claim in a suit for recovery of money.
This defence will be available where the claimant is also indebted to the defendant or there are mutual debts between the plaintiff and the defendant and one debt is used to settled against the other.
Unlike counterclaim, the defence of set-off is restricted to suit for claim of ascertained monitory claim which is legally recoverable.
WHEN AN ACTION FOR RECOVERY OF DEBT CAN BE FILED:
Right to make debt claim does not exist in perpetuity. Depending on the limitation law of the state where the cause of action arose, generally action to file claim for recovery of debt has to be made within 6 years when the claim arose. Otherwise, when an action for recovery of debt is filed after 6 years, the alleged debtor could successfully asked the court to dismiss the claim as the right to make claim is barred after the limited years. However, the right to make claim can be revived, where any right of action has accrued to recover any debt; and the person liable therefore has acknowledged the debt; the right of action shall be deemed to have accrued on and not before the date of the acknowledgment. Every acknowledgment of debt has to be in writing and signed by the person making the acknowledgment. A mere promise to pay by word of mount does not suffice.
The rationale for limitation of actions is founded on public policy and is intended to ensure that litigants do not go to sleep on their right. In KOLO VS. A.G. FEDREATION (2003) 10 NWLR 9PT. 829) PG 602 AT 627 the Court held thus:
“it is also conceded that it is necessary as a matter of public policy by legislation, to impose pre-conditions for the exercise of rights so that claims to rights may not be exercised in perpetuity as in inter alia:-
- Long dormant claims have more of cruelty than justice in them;
- The Defendant must have lost the evidence to disprove the stale claim; and
- Persons with good cause of action should pursue them with reasonable diligence;
- Those who go to sleep on their claims should not be assisted by the Courts in recovering their property; and
- That there should be an end to stale demands.”
In conclusion, if you want to see how people are wait till money is involved. While dealing with people or any entity, ensure that your transactions are documented so as to avoid any surprises being spring on you. There is no claims that cannot be resolved amicably if parties involved are truthful and acting good faith, hence explore mediation before resorting to Court as same is faster, cheaper and help maintain the existing relationship, however, where no progress is made vide mediation, take the necessary action before your claim become stale.
Written by Eunice Tolu Olatunji, LLB, MBA, ACTI, Cert. Mediator
email:@dazzlingeunice;
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The information provided in this article does not, and is not intended to, constitute legal advice. The content is for general informational purposes only. Readers of this Article should contact their lawyer to obtain advice with respect to any particular legal matter and if you donot have a lawyer, we will be willing to assist and guide you appropriately.