12th March 2014

When is it too late to demand payment of a debt?


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Over the years a number of our clients have complained to us about receiving letters demanding payment of debts which, if they existed at all, must have been incurred a long time ago.  A fairly common situation where this arises is where a debt collection company buys all the debts of a business, and then sends out letters to everybody who might possibly be a debtor, with little regard to whether those debts are still owed or not.  At such times it is worth considering whether, leaving aside any other considerations, the alleged debt is simply too old to be still payable.

The law in Scotland, generally, is that a person who is owed money must sue the debtor within 5 years of the debt becoming due.  So, if A must pay B £100 on 1st January 2009 and does not do so, B must serve a writ on A no later than 1st January 2014.  If he serves it on 2nd January he is too late, and A can say the money is no longer owed.  The court has no discretion – the debt simply no longer exists.

A slightly different, but connected, problem arose for a client of ours recently, when her bank suddenly contacted her to demand that she repay an overpayment they had made to her.  If this overpayment had been made five years or more ago, she would have been able to say that the bank was too late.  Unfortunately, it was only two years ago, so at first glance it seemed that she would have to repay.  However, it seemed to us that she had a defence.  The bank had written to her two years previously, saying that they had found £3,000 belonging to her, lying in an old account.  She did not think this could be right, and wrote to them saying that she thought they had made a mistake.  The bank checked the account, and then wrote to her again, insisting that the money was hers.  So she gratefully accepted it, spending it on a holiday.  It was only two years after this that the bank contacted her again, saying that it had indeed been a mistake and demanding the money back.

The law is that repayment of money paid by mistake is only ordered by a court if it is fair to do so.  Here it seemed to us that it was not fair to expect our client to repay.  The bank had created the entire situation itself.  Our client had told them they must be wrong and had asked them to check.  They had insisted, and our client had taken the money in good faith. It would be difficult for her now to repay it.  After a little correspondence the bank agreed to drop the matter.

We have heard of several situations where official bodies have written to people demanding repayments, and it is always worth taking legal advice as to whether these demands are fair before simply paying up.

Richard Godden 
Partner – Dispute Resolution 



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