Must the movable assets be corporeal?
A notarial bond is defined in section 102 of the Deeds Registries Act 47 of 1937 as follows:
"means a bond attested by a notary public hypothecating movable property generally or specially" (my underlining)
The question begging an answer is whether corporeal movable property and/or incorporeal movable property may serve as security under a notarial bond.
Section 1 of the Security by Means of Movable Property Act No. 57 of 1993, which reads as follows, gave rise to the question posed:
"If a notarial bond hypothecating corporeal movable property specified and described in the bond in a manner which renders it readily recognizable, is registered after the commencement of this Act in accordance with the Deeds Registries Act, 1937 (Act No. 47 of 1937, such property shall -
be deemed to have been pledged …………………" (my underlining)
Subsequent to the enactment of Act 57 of 1993, the question arose as to whether only corporeal movable property may serve as security under a notarial bond. It is quite clear that the legislature did not intend that only corporeal movable property should serve as security. The intention of the legislature is that if corporeal movable property, readily recognizable, serves as security, it will be afforded real security on insolvency, etc. However, should corporeal movable property, not readily recognizable or incorporeal movable property, serve as security under a notarial bond, such movable property will not be regarded as real security and will not be afforded the protection afforded on insolvency.
What Can Serve as Security
It is thus clear that the security serving under a notarial bond may be corporeal movable things, such as furniture, the goods of a business, animals and even future increase of progeny of animals, e.g. calves and lambs, etc., and/or incorporeal things such as e.g. an unregistered lease, a short term lease of immovable property, a liquor license, shares in a company, etc. (see RCR 15 of 2004).
If a merchant's stock-in-trade is mortgaged under a special notarial bond, not only the original articles will be covered (if unsold), but also subsequent replacements and additional stocks will serve as security. Similarly accessions to original articles will be hypothecated, e.g. a radio set fitted into a car.
Different forms of security are now discussed:
A notarial bond hypothecating movables specially or generally
In Reeskens v Registrar of Deeds 1964 (4) SA 369 (N), the court held that the extending meaning "and/or" is to be given to "or" in the definition of "notarial bond" in section 102 of the Act, and that therefore special movables plus movables generally (excluding the special movables) may serve as security in one notarial bond.
If in the notarial bond assets are generally bonded and provision has been made therefor, the bondholder may attach the mortgagor's movable goods in order to perfect his/her security. If the bond does not make provision for such an attachment, the court will not grant an order in favour of the bondholder (Boland Bank Ltd v Vermeulen 1993 (2) SA 241 (E)).
Where a notarial bond binds special movable property, the bondholder enjoys a preferent claim where the mortgaged property is sold in execution and in terms of the section 95 of the Insolvency Act the proceeds (minus costs) of the movable property which was specially bonded at the time of insolvency of mortgagor may be used to satisfy the bondholder's claim.
Hypothecation of leases and sub-leases by notarial bonds
Sections 81, 82 and 83 of the Deeds Registries Act 47 of 1937 lay down, inter alia, certain rules for and in connection with the hypothecation of leases and sub-leases by notarial bonds. These are briefly:
If a lease or sub-lease is not immovable property, it can only be hypothecated by means of a notarial bond (section 81(b) of the Act).
If one compares the definition of "immovable property" in section 102 of the Act, it appears that the following leases or sub-leases are "movable property":
? Unregistered leases (Smith v Farrely's Trustee 1904 TS 949).
? Registered short term leases of land, i.e. registered leases of land which are not "immovable property" according to section 102 of the Act.
Where hypothecation of a registered lease or sub-lease is effected by means of a notarial bond, the deed of lease or sub-lease must be produced to the registrar of deeds, and must be endorsed as to the bond and after that, the lease cannot be further dealt with unless the bond is disposed of as provided in section 56(1) of the Act. This applies only where a registered lease or sub-lease is hypothecated (section 82 of the Act).
Notarial bonds and the Ship Registration Act 58 of 1998
In terms of Items 9 to 11 of Schedule 1 to the Ship Registration Act 58 of 1998, a ship or a share of a ship may be mortgaged as security for the discharge of an obligation, however not in terms of a notarial bond registered in a deeds registry.
It is thus the responsibility of the notary to ensure that a ship, as defined in the Ship Registration Act, is not included in the movable property forming part of the security in a notarial bond (RCR 2.20/1999).
Notarial bonds and the Convention on the International Recognition of Rights in Aircraft Act 59 of 1993
An aircraft or a share in an aircraft shall not after the coming into operation of the Convention on the International Recognition of Rights in Aircraft Act, 59 of 1993 (hereinafter referred to as the "Rights in Aircraft Act") be mortgaged by bond registered in a deeds registry, and no bond so registered shall confer upon the mortgagee any preference over other creditors (section 3(1) of the Rights in Aircraft Act).
It is the responsibility of the notary to ensure that an aircraft, as defined in the Rights in Aircraft Act, is not included in the movable property forming part of the security in a notarial bond (RCR 2.20/1999).
However, the said Act is not applicable to the following:
Section 3(2) of the Rights in Aircraft Act provides that a bond registered in a deeds registry, after the coming into operation of this Act, by which an aircraft or a share in an aircraft is hypothecated, shall be recorded by the Director General: Transport in the register kept by him/her for that purpose, if a copy of the duplicate original of the bond, certified by the registrar of deeds is produced to him/her.
Liquor licenses and hypothecation
A liquor license may be hypothecated by means of a notarial bond (Solomon v Registrar of Deeds, 1944 CPD 319).
Where the mortgagor is also the licensee, no difficulty is experienced because the mortgagor is not specially described as the licensee. Where the mortgagor is e.g. a company or close corporation and the licensee is an employee or nominee of the company or close corporation, it is the company or close corporation which mortgages the license and not the licensee. In the latter case it is preferable to describe the property mortgaged as the interest of the company or close corporation in the liquor license.
Stock-in-trade is normally intended for sale, therefore it is impractical for it to be used as an object in a notarial bond. It is in practiced permitted to determine to what extent stockintrade is identifiable and as an object for utilization in a notarial bond. It will be necessary to disclose in the bond specifically:
- what the property is;
- type and sort of each;
- the sum of each.
It will look more or less like a stock list.
Existing as well as future crops which have not yet been harvested are regarded as immovable property and cannot be mortgaged under a notarial bond.
Corporeal as well as incorporeal movable property may serve as security under a notarial bond, however, certain movable property such as ships and aircrafts are excluded.
The article is helpful in research and in particular for exam preparation as it covers lots of information in a shortened version.