HIGH COURT OF LESOTHO
RAMAKATANE t/a SPEEDY FIVE Applicant
BANK (In Liquidation) Respondent
Applicant: Mr. K. Sello
Respondent: Mr. P. V. Fischer
by the Honourable Mr. Justice T. Monapathi on the 4th day of March
Respondent Bank submitted that the crisp question which needed to be
answered was whether or not the relevant deed was a mortgage bond in
the classic sense of the word. Alternatively whether the relevant
document (deed) which Respondent contended was a covering bond
upon mere payment of the maximum limit of indebtedness (stated in
this case as M150,000.00) notwithstanding that a large sum of money
in excess thereof was still due and owing to the Respondent Bank.
Respondent contended that there was simply no basis for such claimed
or intended cancellation.
Applicant had brought an application for an order whose terms were
that the Deed of Hypothecation executed by the applicant in favour
of the respondent on or about the 20th July 1993 covers the
principal sum of the loan extended by the respondent to the
applicant up to but not exceeding the sum of M15,000.00 and all
the Respondent to pay the costs of this application.
the Applicant further or alternative relief.
observed that the precise reason for the application may not have
been apparent from the application itself. It was however for the
purpose hereof accepted that Applicant sought to contend that the
relevant Deed of Hypothecation
and must be cancelled by the Respondent once Applicant had tendered
and or made payment of the sum of M150,000.00 being the limit of
indebtedness in respect of the relevant deed. This was referred to in
paragraph 4, 5 and 6 of founding statement as well as in pages 7 and
8 of the Deed of Hypothecation attached to the papers.
Applicant said that; on or about the 20th July 1993, he caused to be
registered in favour of the Respondent a mortgage bond against his
immovable property situate on plot number 13283-331 Maseru Urban
3.1 The bond stated that it is ".....for securing the due
payment of the said sum
(of M1 50,000.00) or any portion thereof together with all interest
which may be due thereon."
3.2 The bond further provided that the bond ".....shall be
deemed the principal
sum of the mortgager indebtedness to the said Bank at any time up to,
but not exceeding the sum of M150.000.00 (One Hundred and Fifty
Thousand Maloti."(as Applicant sought to emphasize)
3.3 One special condition of the bond was stated to be: " (2)
demand made by one accruing to the bank after the date of this Bond
shall be deemed to be covered or secured thereby to the extent of and
not beyond the said principal sum of M1 50.000.00 (One Hundred and
Fifty Thousand Maloti). (Underlining made where Applicant sought to
emphasise) The Applicant was desirous of having the said bond
cancelled and replaced by a form of security in the sum of Ml
50,000.00 acceptable to the Respondent. The principle relied on was
mortgagee is not entitled to retain the mortgaged property as
security for another liquid debt of the mortgagor which accrued while
the mortgage was in force". See Willes Principles of South
African Law, 8th Edition, page 347.
4.1 The Respondent refused to accede to the cancellation. It
contended that the bond has contained or constituted a covering bond
constituting security for all Applicant's debts to the bank which,
according to the Respondent, amounted to some M8,322,522.62 (Eight
Million Three Hundred and Twenty Two Thousand and Five Hundred and
Twenty Two Maloti and Sixty Two Lisente) Is the alter sum included in
"a debt that will arise in the future11 as envisaged by the bond
issue in casu? If the answer be in the affirmative the application
ought to fail.
Applicant contended that nowhere in its answering affidavit did the
Respondent provide any basis in law for its interpretation that
"such a bond secures a fluctuating state of indebtedness and
give security for whatever is due under a running account with the
mortgagee. As Applicant contended the bond clearly stated that it
shall serve as security for debts up to M150,000.00 and not beyond.
It was submitted that even relying on the Respondent's answering
affidavit reference was made to the bond covering all manner of
debts but not exceeding M150,000.00.
It was submitted furthermore by Applicant that the Respondent cannot
refuse to cancel the bond as security for debts other than which the
bond was intended to cover. Inasmuch as the amount owed of
M8,322,522.62 was covered by other properties it was an untenable
stance to seek to hold on the bond in issue in casu. That is to say
in the Applicant's own words: "It cannot be said that if a
(debtor) has a number of accounts with a bank each covered by its
own mortgage as (security) the bank would be entitled to refuse to
cancel a bond over the debts which it served as security has been
liquidated in full."
last submission by the Applicant as to why the application ought to
succeed was that in any event the validity of the bond in issue was
like all mortgages in Lesotho conditional upon the Minister having
consented thereto. Without such consent the mortgage bond was in
terms of the Land Act 1979 invalid and of no legal effect. It was
opposed that there was such consent by the Minister and it was "to
the extend of its being ".....for a consideration of
M150,000.00.........." by the applicant.
Court was sought to be persuaded by the Respondent that the following
was trite law:
Firstly, that the term "mortgage" in the normal sense of
the word refers to real right of security in an immovable asset which
is created by registration in the Deeds Registry pursuant to an
agreement between the parties. See Lawsa Vol.17 para 395.
term "mortgage bond" strictly speaking does however refer
to the deed instrument the registration of which brings about the
mortgage while the term "hypothec" is today used for a
particular type of real security arising ex lege and it differs from
mortgage, not in the manner of its creation but also in its operation
and effect. See again Lawsa Vol 17 para 393 and 395.
8.3 In banking and conveyancing practice the term "deed of
hypothecation" has become established as indicating a particular
species of mortgage bond namely the covering bond. See Barclays
National Bank Ltd v Chaldon Investments (Pty) Ltd and Swartzinberg
1975(2) SA page 350(N) and Barclays National Bank Ltd v Wollach
1980(1) SA page 615(C)
8.4 A Deed of Hypothecation or "covering bond" is used to
indicate instruments which seek to secure "a debt which will
arise in the future" or all such debts as may in the future
arise between the parties involved and the security as such is given
in advance to cover a liability which the parties intend shall be
incurred in the future. See Lawsa Vol 17 para 464 and Rooth &
Wessels v Benjamin's Trustees and The Natal Bank Ltd 1905 TS page 624
and Barclays Bank v Wollach's case (supra). I agreed with respect.
now be clear, a distinction was sought to be made by the Respondent
between what is called the classic mortgage bond, on the one hand,
where the indebtedness is complete upon the passing of the bond as
opposed to the covering bond, on the other hand, where the obligation
secured by the bond has not yet given rise to any indebtedness. What
has to be considered now is the acknowledgement clause in the bond.
that the clause will be differently written in each case as shown
10.1 Firstly, in the case of a standard Mortgage Bond where the
indebtedness is complete on passing of the bond, such clause usually
reads as follows:
"And then appear to acknowledge his constituent to be lawfully
indebted to and on behalf of...........".
10.2 In the case of a covering bond such clause will read as follows:
"And the.......acknowledged his constituent to be lawfully
indebted to and head firmly bound to and on behalf of...".
referred to The Law and Practice of Conveyance in South Africa
(Jones at pages 544-545). What will be discussed hereunder is the way
the cause of debt will be set out in each case. It is as follows:
the case of the ordinary or classic mortgage bond the cause of debt
will be usually set out as follows:
"..........Being money lent and advance from time to time at
the discretion of the mortgage, that being the capital of the actual
the case of a covering board the claim is usually embodied in a
clause stating that:
"It is a condition of the bond that it shall be and-----of full
force and effect as a continuing covering security for the amount of
I was in
that respect referred to Rooth and Wessels case (supra) at page 624
and The Law and Practice of Conveyancing in South Africa, pages
Respondent submitted that if regard was had to the following
important aspects relating to the deed in question this Court could
but conclude that was in fact a covering bond and not otherwise. The
aspects were as follows:
Firstly, where the document in itself it referred to as a deed of
said before) used to refer to a covering bond as opposed to a
mortgage bond as shown on the cover and the first page of the deed
annexed to the proceedings.
Secondly, where as in the instant the acknowledgement clause on the
first page contains the words "acknowledge and declared the
said......to be fairly and lawfully indebted and.....unto and on
Respondent therefore said, in order to indicate the different nature
of the indebtedness in a covering bond, that the document in question
is such that it contains an express clause to the effect that it be,
declared the condition of the bond to be such that it shall be and
remain of full force, virtue and effect as a continuing security and
covering bond for each and every sum in this the mortgager ".....may
now be or hereinafter become indebted to the said bank from whatever
cause arising notwithstanding any fluctuation in the amount or even
temporary extension of such indebtedness .....". (See last
paragraph of the page of the bond or page 9 of the record).
seems to be the correct legal position.
Respondent in its submissions added that consequently authorities
make it clear that any bond which has been registered in order to
secure future advance is a covering bond and in conveyancing practice
the term "conveyancing bond" is used in respect of a bond
which purports to act as a continuing cover or security in respect of
any indebtedness, existing or future, which may at anytime be due to
the mortgagee from the mortgager arising from any cause whatsoever or
even for that matter specified causes.
addition, furthermore, such a bond secures a fluctuating state of
indebtedness and it gives security for whatever is due under a
running account. (My emphasis) I was in this regard referred to The
Law and Practice of Conveyancing in South Africa (supra) at page 549
and to Rooth and Wessels case (supra) at page 625.
During argument it had been pointed out by the Applicant's Counsel
that there was an advantage to be derived in having a fixed or
expressed sum of money in the bond. The advantage being this that the
mortgagee would not be bound beyond such a fixed sum. So would his
property be accordingly bound to a fixed sum and not beyond.
Court was dealing with the manifold legal issue of the Respondent's
under an ordinary mortgage if the Court established that the document
in dispute was ordinary mortgage. And, on the other hand, the rights
of the Respondent under a covering bond if the Court made a finding
that the arrangement or kind of security in dispute was a covering
bond. The crisp question being that the creditor says: "You owe
me for any amount for which this bond is security": And the
debtor saying: "No I may owe you any amount but this bond is
security for only up to M150,000.00."
the factual plane there seemed to be no dispute that the Applicant
was still indebted to the Respondent in quite substantial sum in
excess of M8 Million.
remained to decide was the rights of the Respondent as posed in the
last paragraph. If decided in line with Respondent's submission the
document in question would be a covering bond with a limit of
M150,000.00 for insolvency purposes only and for no other. To repeat
as Respondent submitted the only relevance or advantage to be
obtained from referring in the covering bond to a fixed or express
sum of money, is that the mortgagee may thereby derive preference
Non-compliance with stipulation will affect the mortgagees position
insolvency and will not detract from the other rights which the
mortgagee derives from such mortgage registered in its favour. And
furthermore the covering bond would not be liable to be cancelled at
the instance of the Applicant as long as the Applicant remained
indebted to the Respondent as presently he is so indebted.
covering bond as defined by The Law and Practice of Conveyancing in
South Africa (supra) at Page 443 is defined in the following terms:
in conveyancing practice the terms is used in respect of a bond which
purports to act as continuing cover or security in respect of any
indebtedness, existing or future, which may at any time be due to the
mortgagee from the mortgagor, arising from any cause whatsoever, or
from specified causes. Such a bond secures a fluctuating state of
indebtedness. It gives security for whatever is due under the running
account with the mortgagee." See also the case of Rooth v
Wessels case (supra)
implication of the above quotation is that, an ordinary bond may even
be converted by a condition into a covering bond.
Where Mr. "A" enters into an agreement of loan with "B"
Bank for loan of unstated amount of moneys, that would be contract
simplicata. A mortgage bond is also based on this contractual
agreement. (See Lawsa vol. 17 para 395)
Where a mortgage bond is registered in favour of "B" Bank
over "D" property of Mr. "A" and the mortgage
says: "Not in excess of this amount," then that is a
covering bond. This is because one element of a covering bond as
outlined by Willies Mortgages and Pledges (supra at page 54 is that:
"A sum is fixed in the bond as an amount beyond which future
debts shall not be incurred."
Gibson 7th ed. At page 556 and Cope v Atkinson's Motor Garage Ltd
1931 AD 366
covering bond is an example of a conditional bond. Therefore
preference under a covering bond accrues at a date when the debt is
incurred, and not at a date when the bond is registered. See
Heydenryck v Mackie, Young & Co's Trustee & the Standard Bank
1906 2 Buch AC 279.
question whether any particular debt is covered by the bond depends
wording and construction of the covering clause or the facts of the
Willies Mortgages and Pledges at page 179. However, the usual terms
used to describe the debt/debts in the covering bond are "arising
from and. being money lent and advanced by the bank to the mortgagor,
whether as cash advanced, overdrawn current account." see
Principles of South African Law (supra). In the case of COPE (supra)
it was held that in the case where the declaration of indebtedness
provided that the appearer declared the debtor indebted to the
mortgagee in a certain sum
"Arising from and being the amount the debtor hereby guarantees
to pay to the mortgagee in respect of the indebtedness upon any just
cause of indebtedness whatsoever of R.........in the event of the
said R making a default in respect of any such indebtedness;"
not only guaranteed existing debt of R......but also covered debts
arising in the future. Therefore the question whether any particular
debt is covered by the bond depends on the working and construction
of a covering clause or the facts of the case.
bond may cover both existing and future debts. Such a bond is a
covering bond. The following passage was quoted with approval in the
Sheriff & Others 1955(4) SA 56 at 61-62, from the case of Rooth v
Wessels (supra); and it is self-explanatory.
"The main difference, it seems to me, between an ordinary and a
covering bond, is that in the case of the latter, the full amount of
the debt which the bond is intended to cover is not in existence at
the date of the execution of the instrument. The pledge or security
is given in advance to cover a liability which the parties intend
shall only be fully incurred in the future. When that liability has
been fully incurred and the moneys contemplated to be paid by the
mortgagee to the mortgagor have been supplied, and are included in
the amount of the bond then the position of the mortgagee to the
mortgagor have been supplied, and are included in the amount of the
bond then the position of the mortgagee seems to me to be secured as
much under a covering bond as under an ordinary bond."
the preference only arises after the registration of the bond;
assuming the bond complies with the basic requirements, to wit,
intention to secure future debts; a fixed amount beyond which future
debts shall not be secured - the remaining question as per facts in
casu would be whether the debt which equals the value of the
mortgaged property, was incurred before or after the bond was
registered. If it was after registration of the bond, then this
element, together with other ancillary elements - will render the
bond a covering bond. But if the debt was registered before the debt
this is a conditional bond; the condition being a stipulation of a
certain (absolute) amount beyond which the security does not cover.
In this case the rights of the mortgagee accrue only when the
condition is fulfilled i.e payment of the principal debt. See Willies
Mortgages & Pledge (supra) at p. 131.
acknowledgement clause clearly stipulates that it covers moneys that
are to be advanced after the registration of the bond. The mortgagor
concedes that he may even be owing Two Million Maloti, and he could
only have been allowed to owe that much because this was a covering
bond. Otherwise the mortgagee would have exercised
rights under the ordinary mortgage bond where debts exceede the
general principle is that the mortgage is not extinguished unless the
whole of the debt has been paid, and property will only be released
on payment of the debt.
repeat non-compliance with the basic requirements of a covering bond
as outlined above will only affect the mortgagee's position upon
"Will not detract from other rights which a creditor derives
from a mortgage registered in his favour." (Lawsa vol.17 para.
clear therefore that I was unable to exercise my discretion in favour
of allowing the application. It must fail with costs.
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