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Can an obligation prescribe like a monetary debt?

by Shona Nicoll on 2 July 2019


In eThekwini Municipality v Mounthaven (Pty) Ltd [2018] ZACC 43 the Constitutional Court was called upon by eThekwini Municipality to set aside the Supreme Court Appeal's decision which held that a revisionary right, registered in the deeds registry, constituted a "debt" that had prescribed under the Prescription Act.

Prescription is a principle in terms of which a debtor's obligation to pay an outstanding debt is terminated upon the expiration of a prescribed time period.  

The Prescription Act No. 68 of 1969 sets out the following periods of prescriptions: 
  1. debt secured by a mortgage bond, judgement debt, debt in respect of any taxation or any debt owed to the state is subject to a 30 year prescription period; 
  2. any debt owed to the State and arising out of an advance or loan of money or a sale or lease of land by the State to the debtor is subject to a 15 year prescription period; 
  3. any debt arising from a bill or exchange, negotiable instruments or from a notarial contract is subject to a 6 year period; and 
  4. any other debt is subject to a 3 year prescription period. 
Facts

On the 24 May 1985, eThekwini Municipality concluded a sale agreement in which property was transferred to Mounthaven subject to a revisionary right which imposed an obligation on the latter to erect buildings on the property to the value of no less than R100,000 within 3 years from the date of sale, failing which the property would revert back to eThekwini Municipality.  

Mounthaven failed to meet this obligation, however eThekwini Municipality only exercised its revisionary right, by means of an application to compel re-transfer in 2014.  This was 26 years after the obligation to transfer ownership to the eThekwini Municipality arose thereby falling outside the 3-year period permitted by the Prescription Act. 

eThekwini Municipality contended that the revisionary clause did not constitute a debt for the purposes of the Prescription Act; the revisionary right under the deed of transfer is a limited real right in the property and therefore not subject to the Prescription Act and alternatively, it is a claim secured by a mortgage bond that only prescribes after 30 years. 

Is the claim a debt? 

The Constitutional Court relied on the dictionary meaning of debt accepted in Makate v Vodacom Ltd [2016] ZACC 13 as being something owed or due; something which one person is under an obligation to pay or render to another and a liability or obligation to pay or render something; the condition of being so obliged.  The court held that in terms of the accepted meaning of debt a claim to transfer immoveable property in the name of another, as in this case, is a claim to perform an obligation to deliver goods and therefore constitutes a debt for the purposes of the Prescription Act. 
A real right? 

eThekwini Municipality argued that Mouthaven's obligation to transfer the property flows from a real and not a personal right.  Real rights are concerned with the relationship between a person and a thing, not with the relationship between parties therefore real rights give rise to competencies, not correlative personal obligations that translate into a "debt" for the purpose of prescription.  On account of this real rights are not subject to prescription. 

The court held that the revisionary clause fell short of being a real right as it did not meet the test endorsed by the Supreme Court of Appeal which holds that in order for a right to be considered a real right the following 2 requirements must be met:
  1. the person who created the right must have intended the present owner as well as successors in title to be bound; and 
  2. the right must result in a subtraction form the dominium of the land against which it is registered.
The revisionary clause did contain any indication that it was binding on successors in title therefore it did not qualify as a real right.  The court held that the mere fact that the revisionary clause was registered under the Deeds Registries Act No. 47 of 1937 does not convert an ordinary personal right into a real right. 

The court dismissed the argument that the registration of the reversionary right created a mortgage bond, subject to a 30-year prescription period, as a mortgage bond creates accessory liability as security for compliance with the principal debt.  The accessory liability cannot extend beyond that of the principal debt; therefore, the accessory liability terminates on the expiration of the principal debt. 

Conclusion

This case demonstrates how important it is for creditors to understand the nature of their rights as failing to do so can result in the creditor's failure to enforce such rights within the prescribed time.  Once the prescribed time has elapsed debtors are entitled to raise prescription as a defence. 




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