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Creditor’s hypothec over property attached in execution

A notarial bond is a form of security used by creditors to ensure the repayment of large sums of money loaned to debtors. Once a notarial bond is approved, a hypothec or a right is registered in favour of the creditor, at the Deeds Office in the area in which the property is located.

This right is protected by our courts, where preference is given to creditors holding hypothecs. In the case of Bokomo v Standard Bank Van SA Bpk , the Respondent held a special notarial bond over movable property in the possession of Minas Minasssian t/a Rolo Bakery (hereinafter referred to as “the company”), who had subsequently sold the property to the Appellant. The Respondent, thereafter, obtained judgment against the company for monies owed in terms of a lease agreement. Judgment was granted against the company and consequently, their property was attached to be sold in execution. The Appellant then lodged a claim with the Sheriff on the basis that they were the owners of the property so attached. Interpleader proceedings were instituted by the Sheriff. The court found in favour of the Respondent and held that by virtue of the special notarial bond held by the Respondent, they had a stronger claim in respect of the property concerned.

Movable property subject to a hypothec remains in the possession of the debtor. Whilst the property is subject to the hypothec, the debtor is prohibited from alienating such property. In the event the debtor defaults, the creditor has the right to exercise his or her hypothec by applying to court for the removal of the property from the debtor’s control, sell the same to recover the money owed, alternatively, the creditor may retain the property as settlement towards the debtor’s debt.

It then follows, how would a creditor who holds a notarial bond over movable property (hereinafter referred to as the “holder of the bond”) protect his or her interest should the hypothecated property be alienated? For instance; in the event one of the debtor’s creditors (hereinafter referred to as the “judgment creditor”) obtained judgment against the debtor and consequently the hypothecated property being attached by the Sheriff to be sold in execution. What recourse would the holder of the bond have in order to protect his or her rights over the attached property?

The holder of the bond may lodge a claim to the property so attached with the office of the Sheriff in whose jurisdiction the property is located, provided however, that the hypothec over the property existed prior to attachment of the property. The process of lodging a claim is as follows:

  1. The holder of the bond must deliver to the Sheriff, an affidavit in triplicate which affidavit shall set out the following details: his or her full name, identity number, occupation and residential and/or business address. The affidavit shall also set out the nature and grounds for his or her claim together with all relevant documentation in support thereof;
  2. The Sheriff will notify the judgment creditor and the debtor of the claim by delivering a copy thereof to each of them respectively;
  3. The judgment creditor will have the option to either accept or reject the claim. In the event the claim is accepted, the Sheriff may release the property from attachment. In the event that the claim is rejected, the Sheriff will institute Interpleader proceedings in the court which has jurisdiction over the area where the property is located, where the matter will be adjudicated upon. The holder of the bond will have the onus of proving his or her claim in the property.

A hypothec is a reliable form of security utilised by creditors, who are afforded preference by our courts and legislation over claims by creditors not holding the same.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.