Parate Executie: A fancy phrase for “self-help”

As business owners, we sometimes get carried away when signing documents on behalf of our companies such as mortgage deed and loan agreements. We sometimes forget to read and understand what the implications of some of the clauses are until it is too late, but then again, who plans for their company to fail?

This legal insight focuses on the validity of the parate executie clause in an agreement. In layman’s terms, this phrase refers to a creditor using self-help to sell a debtor’s property without a court order in the event where the debtor is in default of the agreement. A parate executie clause gives the creditor (mortgagee) an entitlement to sell the debtor’s (mortgagor’s) property privately without recourse from the courts or consultation with the debtor.

Practically, parate executie can never be executed without prior agreement between parties executing a loan agreement or mortgage deed

A practical example of parate executie.

For example, Benon behalf of his company enters into a loan agreement with ABC Bank, in this loan agreement there is a clause that reads as follows: “… the creditor shall at their own sole discretion be entitled to dispose of a pledged property and declare the property executable without the intervention of a court order to the amount of the debtors indebtedness”. In essence this means that that should the debtor default on a payment, then the creditor is entitled to take the decide your fate without any further recourse to legal processes.

Should we apply the abovementioned example and Ben agrees to parate executie in the original loan agreement with the ABC Bank BEFORE he defaulted in any of his payments and ABC Bank declares his property executable without the intervention of the court then it will be considered to be invalid and unconstitutional as it deprives his right of access to courts by allowing the ABC Bank as the creditor to exercise self-help, by circumventing the courts in order to enforce its claim, instead of utilising normal court procedures.

However, should Ben default on his payment to ABC Bank and subsequently enter into an agreement with ABC Bank in terms of which the parties agree upon a parate executie clause AFTER his default; it will then be considered to be valid and constitutional for ABC Bank to declare his property executable without the intervention of the court as ABC Bank would then be acting in terms of a brand new agreement and not on the basis of the original loan agreement.

So, when can one parate executie?

It is clear that the best time to enter into parate executie whether a as a debtor or a creditor is in a subsequent agreement after the debtor has fallen into default and not in the original agreement. The validity and enforceability of parate executie depends entirely on when the agreement is entered into. Know when to parate executie.

Manopi Makwela – Associate