Advice and Opinion

Are debts secured by mortgage bonds and notarial bonds treated equally?

Legal generic

Section 11(A)(i) of the Prescription Act, No 68 of 1969, (Act) stipulates that a debt secured by a mortgage bond prescribes after 30 years. Unlike the previous Prescription Act of 1943, the Act does not have a definitions clause and consequently the concept of a mortgage bond has not been defined. The Act also makes no reference to a notarial bond. The question whether the phrase mortgage bond also includes a reference to a notarial bond was the focus of a Supreme Court of Appeal judgment last month in the matter of Factaprops 1052 CC and Another v Land and Agricultural Development Bank of South Africa t/a Land Bank (353/2016) [2017] ZASCA 45 (30 March 2017).

Factaprops concluded a written loan agreement with the Land Bank. The Land Bank registered a special notarial bond over specified movable assets of Factaprops as security. The loan was to be repaid in five annual installments. During October 2010, the Land Bank proceeded to summon Factaprops for payment. In its plea, Factaprops raised a special plea of prescription alleging that the debt became due and payable sometime between June 2000 and June 2004, and as the Land Bank’s summons was issued in 2010, more than three years after the debt became due, the Land Bank’s claim had prescribed. The Land Bank’s response to the special plea was that the debt was secured by a special notarial bond and the applicable prescription period is like that of a mortgage bond, 30 years.

Saner’s commentary on Prescription in South African Law confirms that the position of whether the phrase mortgage bond includes a notarial bond is not clear, but the better view is that the 30-year period applies only to mortgage bonds in the narrow sense.

The Supreme Court of Appeal held that the phrase mortgage bond appearing in the Act should be read as including a special notarial bond and therefore the applicable period of prescription of a debt secured by a special notarial bond is 30 years. In arriving at its decision, the Court closely analysed the language used in s11 of the Act. It looked at the definition of ‘mortgage’ in the Shorter Oxford English Dictionary and concluded that mortgage may be used in relation to the hypothecation of both immovable and movable property. It also looked at the definition of ‘verband’ according to the HAT Verklarende Handwoordeboek van die Afrikaanse Taal and came to the same conclusion. It also looked at the history of the Prescription Act. The Transvaal Prescription Amendment Act 1908 made reference to “mortgage bond, general or special”. The Court then concluded that the there is no indication that the Legislature intended to deviate from that meaning when it used ‘mortgage bond’ in the Act.

By Eugene Bester, Cliffe Dekker Hofmeyr.