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Section 40 endorsement

7 July 2005

In the midst of the present uncertainty as to whether an endorsement in terms of Section 40 of the Administration of Estates Act 66 of 1965 constitutes a transfer of ownership or not, deeds registries do not insist that bonds be lodged for disposal or that the mortgagee consent to the endorsement. From a practical perspective, it is submitted that this practice is incorrect and might render the Registrar liable for damages sustained by the mortgagee.

In Holness and Another v Pietermaritzburg City Council 1975 (2) SA 713, Shearer J held that, once the Section 40 endorsement was made, the executor was functus officio in relation to the immovable property to the same extent as if he had transferred the property to the legatee. Other case law and opinions indicate that the trustees do not become owners of the trust assets, but that the property vests in the trustees for the benefit of trust beneficiaries. Nevertheless, it is clear that the current owner of the property (the executor) is forever out of the picture once the endorsement is registered.

The question one is confronted with now is who has locus standi in judicio to be sued on the bond? One cannot sue the previous owner (executor) because the control over property was handed over to the trustees and the executor is no longer in the picture. On the other hand, although the deeds registry practice over the last seventy years or so has been to regard the trustees as the owner of the property, it is also evident that deeds registries do not regard an endorsement in terms of Section 40 as a transfer of ownership, and therefore the trustees cannot be sued either. The trustees might even argue that they are not the mortgagors who passed the bond and that they were not substituted as debtors under the bond.

In Registrar of Deeds v Shaws Executors 1928 AD 425 it was decided that a creditor could waive his rights to payment. This means that if a mortgagee consents to the title of the mortgaged property being endorsed under Section 40, he releases the executor from payment. A mortgagee should not consent unless he has established that the trustees have full power to mortgage the property and are thus able to be sued under the bond. A trustee has only those powers which are conferred upon him by the will. If he cannot alienate the property, the administration of which has been entrusted to him, he may have no locus standi in judicio to be sued on the bond and the mortgagee may find that he has no remedy, e.g. where the beneficiaries are undetermined.

In the past, registrars of deeds called for a consent from the holder of a mortgage bond to be lodged when an application was made for endorsement under Section 40. It is submitted that the current practice of not insisting that bonds be lodged for disposal is dangerous and might lead to claims for damages. Executors applying for endorsements are nevertheless urged to obtain at least such written consent from the mortgagee to protect both themselves and the trustees.

What is your opinion in this regard?

Published from SA Deeds Journal with permission

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