When recording loan transactions between parties it is important to consider the type of agreement or deed that is most suitable based on the parties involved and the nature of the transaction.

While in certain circumstances complex loan agreements involving the provision of securities might be appropriate, where a straight forward loan is to be recorded, it may well be advisable to record the transaction as an acknowledgment of debt. Creditors can still require debtors to provide a security such as a third party guarantee to underpin the debtor’s performance under the acknowledgement of debt.

An acknowledgment of debt essentially represents an acknowledgment by a debtor of his or her indebtedness to the creditor. It may arise out of any cause whether as a result of a loan transaction, tort, breach of contract or otherwise. The acknowledgment includes:

• confirmation of the debt amount; and
• an agreement to pay off the debt whether in one lump sum or instalments.

If the debt is disputed at a later stage, the acknowledgment of debt can be produced in court as evidence of the debt, including the payment terms.

This precedent sets out common clauses to be found in an acknowledgment of debt. Note that this is not an agreement between creditor and debtor but rather an acknowledgment by the debtor of the debt and payment terms. It is only the debtor who signs the acknowledgment.