If my understanding is correct, the possessive personal pronouns (which are mine, thine, yours, his, hers, its, ours, and theirs) are used in place of nouns, whereas the possessive determiners (which are my, thy, your, his, her, its, our, and their) are used as adjectives.
If this is the case, then why is example 1 below correct, as opposed to example 2?
Adjective and noun are not useful categories here. Mine and its like function as NP (noun phrases), while my etc function as determiners, that require a head (such as a noun) to form a NP.
Pronouns have traditionally been regarded as one of the parts of speech, but some modern theorists would not consider them to form a single class, in view of the variety of functions they perform cross-linguistically. An example of a pronoun is "you", which is both plural and singular. Subtypes include personal and possessive pronouns, reflexive and reciprocal pronouns, demonstrative pronouns, relative and interrogative pronouns, and indefinite pronouns.
Possessive determiners (from Latin: possessivus; Ancient Greek: constitute a sub-class of determiners which modify a noun by attributing possession (or other sense of belonging) to someone or something. They are also known as possessive adjectives, although the latter term is sometimes used with a wider meaning. Examples in English include possessive forms of the personal pronouns, namely: my, your, his, her, its, our and their, but excluding those forms such as mine, yours, ours, and theirs that are used as possessive pronouns but not as determiners.
Possessive determiners may also be taken to include possessive forms made from nouns, from other pronouns and from noun phrases, such as John's, the girl's, somebody's, the king of Spain's, when used to modify a following noun.
