IURI272: Property Law

SU 20
Real Security Rights:
Introduction
Pledge; Mortgage & Cession
Chapter 18 Textbook
Prof Mitzi Wiese
 i. Introduction
Outline of module

ii. Ownership

iii. Possession
and holdership
iv. Limited real
rights
v.
Constitutional
property law
 Real security rights

Learning outcomes for SU 20

After completion of this unit, you should be able to:
• Distinguish between personal security and real security.
• Identify the different forms of personal security.
• Identify the different forms of real security.
• Explain what is meant with the 'accessory' nature of real
security rights.
• Define a right of pledge.
• Indicate what the object of a right of pledge is.
• Discuss control of the pledge object as a requirement for
the vesting and existence of a right of pledge.
.
 Real security rights

Learning outcomes for SU 20

After completion of this unit, you should be able to:
• What are the requirements for the creation of personal
servitudes?
• Which categories of praedial servitudes are distinguished?
• What is usufruct and what are the parties’ respective
rights and obligations?
• How are servitudes acquired?
• Can unregistered servitudes be enforced?
• What legislation applies to the acquisition of servitudes?
• How are servitudes terminated?
• What is the legal nature of restrictive conditions?
• How do restrictive conditions differ from servitudes?
 Before we begin
Name three forms of limited real rights
Have you ever lent someone money?
Did you trust them to repay the loan?

What property do you own?

Do you know what “interest rate” is?

 Real security rights: INTRODUCTION

LIMITED REAL RIGHTS

RESTRICTIVE
SERVITUDES REAL SECURITY RIGHTS
CONDITIONS

Preadial/Land Broad sense Express

Personal Narrow sense Pledge

Public real Mortgage

personal Cession

Tacit / operation of law

Statutory
Tacit hypothecs

Judicial pledge
Limited real rights
→ always over another person’s thing Statutory
→ limits another person’s ownership
Lien (right of retention)
 Factual scenario
After completion of your LLB studies and your article
clerkship you want to start your own attorney’ firm.
You do not have enough money to buy the things
necessary for the firm, eg computers, desks, chairs,
cabinets, telephones etc.
 Real security rights: INTRODUCTION
Example
(A) She wants to buy computers and printers for
her office from a computer shop, B. A cannot pay
the purchase price to B immediately. B requires
security for the payment of the principal debt
(cost of computers and printers). C (A’s father)
concludes a contract of suretyship with B in terms
of which C undertakes to pay the amount due to
B if A should fail to do so. This is an example of
personal security, since B acquires a personal
right against C on the basis of the contract of
surety with C, as security for A’s payment of the
purchase price (principal debt) to B.
Real security rights:
INTRODUCTION
•Example
(B) A wants to buy a painting from
an artist, D, for her office. She
cannot pay the purchase price to
D immediately. As security for A’s
payment of the principal debt
(cost of the painting), she pledges
a valuable watch to D. This is an
example of real security, since D
acquires a limited real right to A’s
watch as security that A will
perform her obligation (settle the
principal debt).
 Real security rights: INTRODUCTION

TWO KINDS OF SECURITY

Personal security implies that

In the case of real security the
a creditor, on the basis of a
creditor acquires a limited
performance due to her as a
real right in the property of
result of a personal right
the debtor as security for the
against a debtor (the principal
payment of the principal debt
debt), also acquires a personal
by the debtor to the creditor,
right against another person
until payment of the principal
as security for the payment of
debt.
the principal debt.
Law of contract Law of property
 What is ‘security’?

• Loan – security for repayment of principal debt

• Object of security determine the right:

Object = thing Object =

Real security right, performance
eg pledge or Personal right,
mortgage eg surety
 Personal security v real security
Real security
Principle
debtor debt creditor
Registration
/delivery
Limited real right
Enforceable against 3rd parties

Personal security
Principle
debt creditor

Personal right
Enforceable inter partes
Real security rights: INTRODUCTION
LIMITED REAL RIGHTS
REAL SECURITY RIGHTS

Express

Pledge Mortgage Cession

Kustingbrief Pledge of claims

Money lent in advance General

(Fudiciary)
Covering bond
Surety bond
Participation bond
General
Notarial bond
Special
Sectional mortgage
bond
 Real security rights: INTRODUCTION

LIMITED REAL RIGHTS

REAL SECURITY RIGHTS

Tacit / operation of law

Tacit hypothecs Judicial pledge Statutory Lien (right

of retention)
Credit grantor
Contractual
Landlord
Enrichment

Salvage

Improvement
 Vesting of a real security right

Differentiate between:
EXPRESS REAL SECURITY RIGHTS
TACIT REAL SECURITY RIGHTS
ITO an agreement between the
ITO legal operation (eg lege)
parties

loan agreement certain legal facts present

security
agreement
tacit real security right
publicity
registratio
delivery
n

express real security right

 Express real security rights

Immovable Movable Incorporeal

Mortgage Pledge General Notarial Bond

Notarial Bond Security Cession

Different real security rights
Real security rights: INTRODUCTION

GENERAL PRINCIPLES
• Real agreement
• Real security right = accessory in nature
• Object → property of debtor or third party
• Two legal relationships

Personal right

Loan agreement
Real
Delivery/
Security agreement registration security
right
Real security rights: INTRODUCTION
GENERAL PRINCIPLES
• If debtor defaults → creditor preferent claim
• property sold in execution → proceeds of sale
• insolvency → debtor’s insolvent estate
• Real security in respect of principle debt + all
interests (unless otherwise agreed)
• Creditor – no use and enjoyment of security object
(unless pactum antichreseos)
• Security object →
movable, immovable, corporeal, incorporeal
Real security rights:
INTRODUCTION
•Example
(B) A wants to buy a painting from
an artist, D, for her office. She
cannot pay the purchase price to
D immediately. As security for A’s
payment of the principal debt
(cost of the painting), she pledges
a valuable watch to D. This is an
example of real security, since D
acquires a limited real right to A’s
watch as security that A will
perform her obligation (settle the
principal debt).
Real security rights: PLEDGE
TB 18.4
PLEDGE
• Corporeal or incorporeal movable property of a
pledgor (the debtor or third party in terms of a valid
principal debt),
• given to a creditor in pledge as real security for the
payment of the principal debt,
• grants the pledgee (creditor in terms of the
principal debt) a limited real right to the property as
security until the principal debt has been paid in
full.
Real security rights: PLEDGE TB 18.4

PLEDGE OBJECT
• Only movable

• Single or collection of objects (eg flock of

sheep)
• Shares in a company
• Fruits of object forms part of object of pledge
• -Pactum antichreseos
 Real security rights: PLEDGE
TB 18.4
Continuous control is a requirement for
existence of a right of pledge
Mobilia habent non sequelam
Movables cannot be followed or pursued

Lose control?
Willingly? Unwillingly?
Spoliation remedy or
Cannot follow/pursue
Actio quasi Serviana
Real security rights: PLEDGE
TB 18.4
PLEDGE OBJECT (Only movable things)
Delivery
• Actual delivery YES
• Constructive delivery
• Symbolic delivery YES
• Short hand YES Mere change of intention
• Long hand YES Only if in a position to get control to the
exclusion of others

• Constitutum possessorium NO Vasco Dry Cleaners-case

• Attornment Only if things separated from other things
and the third party agree to hold on behalf of
pledgee, not pledgor
 Express real security rights
Pledge

Delivery
Clauses in pledge
agreement later
Vasco Dry Cleaners case

Z sells Vasco Dry Cleaners X

Reserves ownership until payment of purchase price in full

Financial
Twycross borrow money
trouble
T bought machines from X, True
but X still in control intention →
pledge
Did Twycross acquire Simulated contract
X insolvent Constitutum
ownership? possessorium
T not owner
Real security rights: PLEDGE TB 18.4
Rights of pledgee
• Pledgee obtains a limited real right which exists
for as long as the pledgee controls the thing and
the principal debt is outstanding
• Process to realise security if the debtor does not
pay the debt:
summons judgement warrant of execution

preferential proceeds sale in

claim of sale execution
Real security rights: PLEDGE TB 18.4
Rights of pledgee
• Process to realise security – what if there are
more creditors?

proceeds sale in
of sale execution

preferential Get paid

claim first
Real security rights: PLEDGE TB 18.4
Rights of pledgee
• Process to realise security – what if the
proceeds are not enough?

preferent
proceeds sale in
of sale execution
Debt outstanding = R20 000
co Proceeds of sale = R10 000
n
cu
rre Outstanding = R10 000
nt
R5 000

Estate in total
Real security rights: PLEDGE TB 18.4
Rights of pledgee
• Enrichment claim against pledgor
Pledge object Expenses incurred
Necessary / useful / luxurious
Real security rights: PLEDGE TB 18.4
Rights of pledgee
• Prior in tempore – rule
• Preference?

general notarial special notarial

pledge pledge
bond bond

Jan 2022 Apr 2022 Jun 2022 Sep 2022

Real security rights: PLEDGE TB 18.4
Obligations of pledgee
• Take care of pledge object like a reasonable
person
• Return pledge object to owner when pledge is
terminated
• May not use and enjoy the thing (unless pactum
antichreseos)
• Pledgor can require
pledgee to provide
security in the case
of neglect
Real security rights: PLEDGE TB 18.4
Obligations of pledgee
• Pledgee is liable for damage to the property
caused by him/her
Real security rights: PLEDGE TB
18.4
National Credit Act 34 of 2005
Pledgee’s liabilities:
• Date on which credit
agreement must be specified
• Pledged goods are held by
pledgee at own risk
• Pledged goods must be
returned at the termination of
pledge
 Express real security rights TB 18.5
Mortgage (general)
A mortgage registered in respect of the movable or immovable
property of the mortgagor (debtor or surety in terms of a valid
principal debt), grants the mortgagee (creditor in terms of a
principal debt) a limited real right to the movable or
immovable property as an object of security until the principal
debt has been paid in full.
Debt? Property? Agreement to create real security rights.
Written instrument Real security right

Registration (immovable) In deeds office in area where property is

Creates real security right In favour of bank/financial institution/creditor

Over specific immovable property Who is the owner of the house?

 Express real security rights TB 18.5
Mortgage

Immovable
OBJECT Movable

Notarial bonds
S 102 Deeds Registries Act 47 of
1937: Mortgage bond: “a bond General notarial bond
attested by the registrar specially Common law
hypothecating immovable property”. Special notarial bond
Statutory law (SMMPA)
Express real security rights: Mortgage TB
18.5
OBJECT
• Movable, immovable, corporeal and incorporeal
• Fruits of movable and immovable → forms part of
object of mortgage (does not accrue to mortgagee
– unless pactum antichreseos)
• If mortgagee gather fruits → must report to
mortgagor (set-off)
• Immovable property → all attachments to land =
object of mortgage
Express real security rights: Mortgage
TB 18.5
Registration requirements
• Mortgagee → acquires real security right after
registration in deeds registry
• Special notarial bond → registration ito SMMPA
• Must be drawn up by a conveyancer and must
contain:
• Description of parties (mortgagee//mortgagor)
• Description of property
• Admission of principal debt owing, the reason
(causa), the amount plus interest, repayment
term
• Any other condition of loan agreement, eg place
of payment, domicilium citandi et executandi),
method of payment, consequences of default
Express real security rights: Mortgage
TB 18.5
Registration requirements
• Mortgagee → noted in mortgage register and
endorsed on deed of transfer
• Unregistered agreement NOT a limited real right
• The mortgage must be cancelled before security
object is sold. However, if property is sold without
cancellation – property sold subject to real security
right
• Various mortgages over the same property → prior in
tempore, potior in iure.
ABSA FNB NEDBANK STDBANK
R500 000 R200 000 R400 000 R150 000

Jan 2016 Jun 2018 Sep 2020 Feb 2022

Express real security rights: Mortgage
TB 18.4

ABSA FNB NEDBANK STDBANK

R500 000 R200 000 R400 000 R150 000

Jan 2016 Jun 2018 Sep 2020 Feb 2022

Sale in execution PROCEEDS:

R1 000 000
 Secure preferent claim?
NEDBANK
R400 000
ABSA FNB STDBANK
R500 000 R200 000 R300 000 R150 000
R100 000

Jan 2016 Jun 2018 Sep 2020 Feb 2022

R1000 000 R500 000 R300 000 R0
– R500 00 – R200 000 - R400 000 - R150 000
= R500 00 = R300 000 = - R100 000 = - R150 000

PROCEEDS: Unsecured concurrent creditor against estate / insolvent estate

R1 000 000
%
%
R700 000
Sale in %
execution %
Express real security rights: Mortgage TB
18.5
DISTINGUISH
• Secured creditor → preferent claim ito PROCEEDS OF
SALE OF SECURITY OBJECT
• Unsecured creditor → concurrent claim ito REMAINDER
OF ESTATE
Express real security rights: Mortgage
TB 18.5
Registration requirements
• Only the owner of the immovable property or
person duly authorised by the owner can
grant a mortgage bond over the property
• ABSA Ltd v Moore
• Owner of property victim of fraudulent
scheme → unintentionally sold his
property
• Mala fide purchaser used property as
security of mortgage bond
• Transfer of ownership and mortgage bond
registered simultaneously
• Court → not a valid transfer of ownership
• Mala fide purchaser could not grant
mortgage over original owner’s property
• Mortgage bond invalid
 Express real security rights
Mortgage
Foreclosure
Immovable
If mortgagor cannot /
Types of bonds do not pay
TB 18.5.3
Apply to court for
Kustingbrief Legal operation
order declaring
Money lent and Owner needs property ‘executable’
advanced permission from the Property sold ito
Covering bond bank/financial court order at public
institution/creditor to auction
Participation bond register a second bond
No parate executie
Surety bond or servitude over the
property, but not to Debt covered,
Sectional title bond remainder to debtor
lease out the property
What if property to be sold is a person’s
primary home?
Jaftha – case // NCA (loan = credit agreement)
Judicial overview
 Express real security rights
Mortgage
Types of bonds
Immovable

Kustingbrief
A kustingbrief is a mortgage
in favour of a seller of land as security for the
unpaid balance of the purchase price or
in favour of any other person or financial institution who advanced the
balance of the purchase price to the buyer (mortgagor).

Money lent and advanced

A mortgage for money lent and advanced is registered as security for money
lent and advanced by the mortgagee (creditor) to the mortgagor (debtor) for
other purposes than the payment of the balance of the purchase price.
 Express real security rights
Mortgage Types of bonds

Immovable

Covering bond
A covering bond is a mortgage registered as security for an amount that will be
lent or advanced to the mortgagor by the mortgagee in future or for future
debts in general. It serves as continuous covering security to the maximum
amount mentioned in the mortgage bond.

Surety bond
A surety bond is registered against the property of a surety of the debtor, who
undertakes to give security to the creditor for the payment of the principal debt
by the debtor.

Remember surety = personal security (object → person (surety))

Surety bond = real security (object → property of surety)
 Express real security rights
Mortgage Types of bonds

Immovable

Participation bond
A participation bond is registered, in terms of the requirements of the Collective
Investment Schemes Control Act 45 of 2002, in favour of participants in a
collective investment scheme, in the name of a nominee company as
mortgagee over the immovable property of the mortgagor who was granted a
loan by the nominee company.

security
Lend
% money

% ABC Company

%
mortgage
%
 Express real security rights
Mortgage Types of bonds

Immovable

Sectional title bond

A sectional mortgage bond can be registered over a sectional title unit or over
an undivided share in the sectional title unit.
Express real security rights: Notarial Bonds
Mortgage Types of bonds

Movable

Notarial bonds
Express real security rights: Notarial Bonds
Mortgage Types of bonds

Movable

General notarial bond

A general notarial bond is registered over all of the movable property
(corporeal and incorporeal property ̶ for instance share certificates, book
debts or liquor licenses) of a debtor in general.

A registered notarial bond does not provide the mortgagee with real
security.

There must be a perfecting clause in the bond.

It allows the mortgagee to attach the movable property
(debtor – willingly; or court order)

After attachment → real security right of pledge

Express real security rights: Notarial Bonds
Mortgage Types of bonds

Movable

Special notarial bond

A special notarial bond is registered against specific corporeal

movable property of the mortgagor (debtor in terms of the principal
debt)

as security for the payment of the principal debt to the mortgagee

(creditor in terms of the principal debt) and,

after registration, this grants the mortgagee a limited real right to

the objects of the security without these objects being delivered to
the mortgagee.
Express real security rights: Notarial Bonds
Mortgage Types of bonds

Movable

Special notarial bond

IKEA TRADING CASE
Facts:
• S registers a special notarial bond over certain of his movable property
in favour of BOE Bank.
• The movable property is not described in the bond, but in a schedule
attached to the bond.
• S is declared insolvent → one of his other creditors contests the validity
of the special notarial bond.
Court:
ITO sec 1(1) SMMPA
• Property must be described in the mortgage bond (not attachments or
schedules to the deed)
• In such a way that the object is readably recognisable
• Without looking at external evidence
Judgement: Special notarial bond is invalid.
Express real security rights: Notarial Bonds
Mortgage Types of bonds

Movable

Special notarial bond

IKEA TRADING CASE & Sec 1(1) SMMPA 1993

WHY – it replaces delivery for purposes of the publicity principle.

EXAMPLE: Make: Volvo Model: FH 460 Year: 2022 VIN: YV2XTY0C4DB679051

Engine Number: D13K46012345 License Plate Number: ABC123GP License
Disc Details: Expiration Date: 31/12/2024, Weight Class: 10,000kg Color:
White Mileage: 25,000 kilometres Body Type: Flatbed Engine Type: 13.0L
Diesel, 460 horsepower Transmission: 12-speed I-Shift automatic GVWR:
18,000 kg Axle Configuration: 6x4Additional Features: Air suspension, GPS
navigation, dual fuel tanks.
Express real security rights: Notarial bonds
Movable
Notarial Bond

General
All movable
Special
property of
Common law debtor, Security by means of Only specified
corporeal movable property corporeal
Registration and
does not create Act (SMMPA) movable
incorporeal property
a real right Registration creates a
Bond must be perfected real right
ito perfecting clause
Thing must be clearly
Debtor willingly give control
described in bond
Court order: specific performance
Ikea Trading case
Creditor in control

pledge
Express real security rights: Mortgages
Rights of mortgagee:
• Usually not in physical control
• Mortgage bond is a liquid document → for
purposes of insolvency proceedings
• Sale in execution of immovable property?
• Section 26 Constitution → right to housing
• Consider all circumstances – human dignity and
vulnerability of the owner
• Judicial overview before the property is declared
specially executable (previous only Registrat of court)
• Jaftha-case; Gundwana-case
• Distinguish between declaring a property specially
executable and the eviction procedures after the
property was sold in execution
Real security rights: PRESCRIBED CASES
Gundwana v Steko Development
(Horn et al Law of Property Casebook Juta: 2021)
• Gundwana had bought a house and paid part of the purchase
price with a loan from Nedcor Bank, secured by a registered
mortgage bond.
• In terms of the mortgage bond the property served as security for
the loan.
• Gundwana fell in arrears with the bond payments → Nedcor
obtained default judgment against her in the high court, together
with an order declaring the property executable for the
outstanding amount.
• A writ of attachment was issued on the same day to give effect
to the order declaring the property executable.
Real security rights: PRESCRIBED CASES
Gundwana v Steko Development
(Horn et al Law of Property Casebook Juta: 2021)
• Nedcor nevertheless failed to proceed with the execution of the
property for a number of years and Gundwana continued to
make a number of payments on the bond.
• She did not vacate the property either.
• Four years after the default judgment the property was sold in
execution to Steko Development and the transfer was registered,
but Gundwana still did not vacate the property.
• When Steko Development obtained an eviction order against
her, Gundwana still attempted to have the default judgment
rescinded.
• The constitutional court had to decide whether to confirm the
eviction order.
Real security rights: PRESCRIBED CASES
• Where execution against the homes of indigent
debtors who ran the risk of losing their security of
tenure was sought after default judgment on a money
debt, further judicial oversight by a court of law of
the execution process was a requirement.
• An evaluation of the facts of each case is necessary
to determine whether a declaration that
hypothecated property constituting a person’s home
is specially executable, may be made.
• This evaluation must be done by a court of law, not
the Registrar.
• To the extent that the High Court Rules and practice
allow the Registrar to do so, they are unconstitutional.
Real security rights: PRESCRIBED CASES
• The effect of the court’s order was overtaken by an amendment of
Rule 46(1) of the High Court Rules with effect from 24 December
2010.
• Since then, the rule provides that where the property sought to be
attached is the primary residence of the judgment debtor, no writ
shall be issued unless the court, having considered all the relevant
circumstances, orders execution against such property.
• Following Jaftha, the court confirmed that the original order of
unconstitutionality had retrospective effect.
• However, this did not automatically invalidate all transfers that
were made subsequent to such an invalid execution sale.
• Individuals who were affected by the ruling needed to approach the
courts to have the sale and transfer of their specific property set
aside if it was granted by default.
Express real security rights: Mortgages
Rights of mortgagee:
• Mortgagee = secured creditor → preferent
- ito value of security object
- if proceeds of security object (after sale in
execution) is not enough → remainder of
claim → unsecured concurrent creditor.
• Prior in tempore potior in iure
Express real security rights: Mortgage

ABSA FNB NEDBANK STDBANK

R500 000 R200 000 R400 000 R150 000

Jan 2016 Jun 2018 Sep 2020 Feb 2022

Sale in execution PROCEEDS:

R1 000 000
 Express real security rights
Clauses in pledge and mortgage agreement

Clause for summary execution (execution without court order – parate executie)

INVALID VALID

Clause that pledgee may keep thing if pledgor fails to pay (pactum commissorium)

INVALID

Clause that pledgee may buy thing at specific price

Agreement after debt due, agree on price VALID

Clause that debt may not be redeemed

INVALID

Pactum antichreseos
VALID
Real security rights: PRESCRIBED CASES
Mapenduka v Ashington 1919 AD 343
FACTS:
M purchases bags of mealies from A on credit. As security for the
repayment of the debt, M leaves 6 oxen, a cow, and a horse with A as a
pledge. The parties agree in writing that A may keep the pledged animals if
M does not repay the debt by the due date. M fails to pay, and A considers
the animals as his property according to the written agreement. Two years
later, M tenders payment to A and demands the return of his animals or
compensation for their value. pactum commissorium
JUDGEMENT:
In Mapenduka v Ashington De Villiers AJA, in whose judgment Wessels AJA
concurred, analysed the common authorities and concluded by stating the
law as follows (at 352 in fine – 353):
‘The language of the Digest is designedly indefinite. It is not a real sale, for the
transaction does not lose the character of a pledge and the debtor retains the
right to claim his property against payment of the debt. But if when the time for
payment arrives the debtor is willing that the creditor should retain the pledge
as his own, there can be no objection to this provided a fair price is given.’
Real security rights: PRESCRIBED CASES

Graf v Buechel (Horn et al Law of Property Casebook Juta: 2021)

FACTS:
• Buechel ceded shares in a company to Graf as
security for a loan.
• Thereafter the debtor (Beuchel) failed to pay the
debt.
• In accordance with the loan agreement, Graf was able
and proceeded to transfer the shares into his own
name, thereby assuming full ownership of the
company.
• One argument raised in opposition to this result was
that the agreement amounted to an invalid pactum
commissorium.
Real security rights: PRESCRIBED CASES

Graf v Buechel
• According to the common law a pactum commissorium
is an agreement (in the context of pledge) that allows
the pledgee, if the pledgor fails to pay the principal
debt, to retain the pledge as her property.
• The common law prohibited these agreements and
declared them invalid to prevent abuses.
• In this case it was decided that the prohibition against
these agreements is still part of modern South African
law, even in instances where there is perhaps not such
a clear reason for the original prohibition.
• It was further held that the same prohibition also holds
in the case of pledges of intangible property such as
shares.
 Express real security rights

Immovable Movable Incorporeal

Mortgage Pledge General Notarial Bond

Notarial Bond Security Cession

 Express real security rights
General Notarial Bond
Incorporeal
Security cession

Cession: transfer of personal rights from one person

to another

Security cession is a ‘sub-category’ of cession

Purpose: to cede rights as a form of security
Example: Company’s book debts

Two construction
Out and out / fiduciary Transfer of
Pledge
security cession ownership to

Dominium? creditor +
agreement to re-
Pledgor (debtor) Creditor becomes transfer when debt
remains owner owner is paid
Real security rights: TERMINATION

• Destruction of the property

• Payment of principal debt (accessory principle)
• Loss of physical control (pledge)
• Cancellation of bond (mortgage)
• Sale of the security object
• Creditor becomes owner of the security object
• Court order
Real security rights: QUESTIONS
1. Define express real security rights in South African law.
2. Name three express real security rights recognised
under South African law.
3. How does a mortgage bond differ from a notarial bond
in terms of real security?
4. What is the requirement for a pledge as a real security
right?
6. In what circumstances would a cession in securitatem
debiti be used as a form of real security?
7. What is the difference between a general notarial bond
and a special notarial bond?
8. Describe the rights of a creditor holding a mortgage bond
in the event of the debtor’s default.
9. Can movable property be subject to a mortgage bond in
South African law? Explain.
Real security rights: QUESTIONS
FACTS: Zane is the owner of a small-scale dairy farm, Milky
Mountain. He owns 50 jersey cows and produces an average
of 1500 litres of milk daily. The dairy has milking machines,
refrigerators, a cream separator and a pasteurizer. None of
these is permanently affixed to the building (thus movable
things). Zane supplies milk to the local supermarket. The
supermarket has a standing order of R15 000 per month.
Zane and the supermarket agree that the supermarket pays
Zane at the end of each month.

To increase the productivity of the dairy farm, Zane purchases

an automatic bottle filling machine from Brothers Inc in terms
of a credit agreement. Bothers Inc reserves ownership of the
bottle filling machine until the last instalment of the purchase
price is paid.
Real security rights: QUESTIONS
QUESTION 1
Zane wants to buy more cows and applies to ABC Bank
for a loan of R100 000. ABC Bank requires security for
the repayment of the loan. Zane can use his farm or his
movable things as security for the repayment of the loan.
(i) Fully discuss the relevant real security rights that
Zane can register in favour of ABC Bank.
(ii) Assume that you are ABC Bank’s legal advisor.
Indicate and motivate which real security right you
would recommend.
Real security rights: QUESTIONS
QUESTION 2
Zane’s farm worker, Jethro, wants to borrow R5 000 from
Zane. Zane agrees to lend Jethro the money and keep
Jethro’s watch as security for the repayment of the R5 000. In
the written security agreement between Zane and Jethro,
Zane includes the following clause:
“Should Jethro fail to repay the full amount after three months,
I have the right to keep the watch, or to sell it without a court
order.”
Fully discuss the real security right that is created in favour of
Zane and the validity of the clause Zane inserted in the
security agreement.
Real security rights: QUESTIONS
QUESTION 3
At the beginning of January 2020, Zane experiences a cash
flow problem. Zane must buy supplements for the cows, and
the cooperative shop, Farm Co, agrees to provide the
supplements (worth R10 000) and to extend payment until the
15th of February 2020. Farm Co requires security for the
payment of the R10 000. A friend of Zane suggests that he use
his claim against the supermarket (for milk delivered during
January) as security for the payment of R10 000.
(i) Is it possible to use a claim as security for the repayment
of a debt?
(ii) If so, explain how this process works.