16 Aug 2017

Claims Secured by Special Notarial Bonds Prescribe After 30 Years

Practice Area(s): Corporate & Commercial |

There have been conflicting judgments in our law as to what prescription period applies to a debt secured by a notarial bond. Notarial bonds are like mortgage bonds, except they are registered over “movable” items, rather than over immovable property (like with mortgage bonds). The judgements turn on whether a "mortgage bond" should be interpreted to include a "notarial bond".

In the recent case 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), the Supreme Court of Appeal (“SCA”) clarified the matter as it relates to “special” notarial bonds (where security over items is particularised). Regrettably the judgment did not include the position relating to “general” notarial bonds.

The question before the SCA was whether the term “mortgage bond” in section 11(a)(i) of the Prescription Act also included a “special” notarial bond. The First Appellant had loaned R250,000.00 from a bank. The loan was secured by the registration of a special notarial bond over certain specified movable assets owned by the First Appellant, in favour of the bank. As an additional form of security, the Second Appellant bound himself as surety and co-principal debtor in favour of the bank. The First Appellant then defaulted on its payments.

Action was in due course instituted by the bank against the Appellants. The Appellants raised a defence in which they alleged that the bank’s claim for payment of the loan had prescribed in terms of section 11(d) (three years), and, alternatively, in terms of section 11(c) (six years) of the Prescription Act. The bank argued that its’ claim was for the payment of a debt which was secured by a special notarial bond and that the applicable prescription period is thirty years in terms of section 11 (a)(i).

The High Court, sitting as a court of first instance, held that the bank’s claim had not prescribed because the phrase ‘mortgage bond’, as set out in section 11(a)(i) of the Prescription Act, is wide enough to include reference to a special notarial bond.

On appeal, the SCA confirmed the court a quo’s decision that the meaning of ‘mortgage bond’ includes a special notarial bond. The SCA held that the period of prescription in respect of a debt secured by a special notarial bond is thirty years, and it accordingly dismissed the appeal with costs.