Zusammenfassung der Ressource
Security (1)
- Introduction
- What is Security?
- To ensure contractual performance
- Benefits of security?
- Enforcement of contract may be difficult & time consuming,
as you have to go to court etc. Security avoids this.
- Accessory in Nature
- Depends on the existence of a valid principal
obligation between debtor & creditor, eg. Loan
- THEREFORE: If principal obligation fails (if
unlawful), security (agreement) fails
- Extinction/fulfilment of principal obligation
leads to termination of security
- NOTE: If subject of security is destroyed,
principal obligation will still remain
- Types of Security
- Real
- Forms of real security
- Special mortgage bond over
immovable property (mortgage bond)
- Creditor obtains registration of bond over immovable
property mortgaged as security by debtor / 3rd party
- NOTE: Creditor = ‘mortgagee’, Debtor =
‘mortgagor’, who owns the property
- Formation REQUIREMENTS
- 1. Valid principal obligation
- 2. Bond established over property of
somebody other than creditor/mortgagee
- 3. Mortgagor must be owner of property
- 4. Property must be immoveable
- 5. Registration
- Once fully registered, it will be deemed
to give rise to a limited real right
- Registration is vital as bonds rank
according to date of registration
- Execution by owner / authorised conveyancer
- Mortgage Bonds for future
debts (eg. medical expenses)
- 'Covering Bond' - May register
mortgage bond to secure future debt
- Requirements
- 1. Specify future debts
which MB intended to cover
- 2. Fixed sum covered by bond
Can’t be floating amount
- Features and Effects
of Mortgage Bonds
- Mortgagee acquires (ltd) real right in , but
THEY ARE NOT EQUIVALENT TO AN OWNER
- Result of this is that If you are not the owner, you cannot pass on the rights of ownership. You
cannot transfer greater rights than you have. Linked to this, is that you cannot dispose of the
property if you are a mortgagee without recourse to the courts or without the owners permission.
- HOWEVER where the mortgagor’s estate has been sequestrated or the principal obligation is not
discharged, the mortgagee may approach the court, and without the owners consent, obtain a order
for execution from the court on the property.
- Position of M/ee where other
creditors attach mortgaged property?
- Because it’s a real right, it means it is
enforceable against third parties
- Debtor Solvent
- If there was an attachment by other creditors, and the property were sold as a result of
that attachment, and money is brought in, then the mortgagee has a preference to that
money. So they will be paid before the other creditors, and if there is anything left over,
the mortgagor will receive the rest. So the mortgagee is a secured creditor in the case of
insolvency or solvency.
- Debtor Insolvent
- Mortgagees are secured creditors in the estate, so they will
be paid before the preferent and concurrent creditors.
- Limitations on M/or’s ownership of property? The mortgagor can still use the
property, and continue to live on it/use it as business premises, however if it comes
to the mortgagees attention that the mortgagor is doing something that diminishes
the value of the property, then the mortgagee can approach the courts for relief
- When will Mortgagee NOT be secured?
- Requirements
- 1. Security is a mortgage bond
- 2. Parties purport to secure a
previously unsecured debt that is
older than 2 months
- 3. Debtor is declared insolvent
within 6 months of lodging of bond
- IF ALL REQUIREMENTS MET:
mortgage bond will not be valid,
and it will NOT give rise to
security.
- When will a mortgage bond be terminated?
- 1. Discharge / failure of principal obligation
- 2. Destruction of property
- 3. Release by Mortgagee
- 4. Set-off btwn 2 principal obligations
- 5. Order of court
- 6. Prescription --> 3 years
from date payable
- Forms of real security over MOVEABLE property
(All NEED AGREEMENT, PLEDGE ALSO DELIVERY)
- Pledge
- Pledge
- Moveable property -->
Any ‘thing’ BUT NOT
‘future things’
- Creditor = ‘pledgee’ Debtor / 3rd
party owner of property = ‘pledgor’
- If you have the requirements of
agreement and delivery this will
give rise to a ltd real right
- FUNCTIONS OF DELIVERY
- Gives rise to physical control so pledgee
can protect their security
- Notifies public lets public know that
they can’t trade for this property
- No delivery?
- Pledge is VALID btwn parties BUT… if 3rd party bona fide (in good
faith) obtains real rights in property, then pledgee NOT secured
- What happens if there is delivery, but pledgor/debtor is declared Insolvent?
- Just like a mortgage bond, the pledgee will have a preference
(preferent creditor) to the proceeds of the sale of the property
- AND IF proceeds insufficient to settle principal
obligation, pledgee = concurrent creditor
- Forms of Delivery
- Real Delivery
- Object is physically
handed over to pledgee
- Constructive 'deemed' Delivery
- Object not handed over to pledgee physically BUT:
Pledgee still exercises control over object
- POSSESSION
- So pledgee must have POSSESSION
of property, whether
physical/mental possession
- Pledgee may retain possession of
object UNTIL debt discharged
- The main things that distinguish a pledge from
a m.bond, is that it is moveable property, and
that there is no requirement of registration,
but rather a requirement of delivery, and
thirdly, the fact that the pledgee has to possess
the property.
- Rights & obligations of pledgee
- Required to care for property (reasonable person std) BUT
disbursements (expenses) necessary for reasonable preservation
(to preserve) & expenses incurred = covered / secured by pledge
- Liable for damage
- NOT entitled to use & enjoyment of property
- MUST restore object & fruits of that object to pledgor
- NOTE: Agmt that pledgee may keep property
IF debtor defaults IS NOW INVALID IN SA
- On default of pledgor / debtor, pledgee may apply to court to
obtain judgment & to execute (sell) on pledged property
- UNLESS paratie executie clause, which allows
them to execute without courts approval
- Termination of Pledge
- Discharge / extinction of principal obligation, as the pledge is accessory to the PO.
- Voluntary dispossession of object
- Involuntary dispossession of object
(someone steals the property)
- Rights revived if possession restored
- Destruction of property
- Damage to property
- Real right in the property will be lost indefinitely
& CANNOT be revived by repossession
- Special notarial bonds over
moveable & corporeal property
- Notarial bonds
- ‘Bond attested by a notary public hypothecating (securing) a
specific moveable asset, or all of the assets, of a debtor and
registered in the Deeds Registry by the Registrar of Deeds’
- Very similar to a pledge, but the difference is
that instead of delivering the property, you
register a bond over the property.
- Requirements?
- 1. Agreement
- 2. Registration
- NOTE: NO DELIVERY REQUIRED
- Serves the same purpose as delivery,
which is to notify the public of the
fact that the particular property
forms the subject of security.
- Requirements for Registration:
- 1. Bond must be attested to (approved) by a notary public
- 2. Must be registered with the registrar at the deeds office.
- 3. Between the time when the bond is attested to by the notary
public and its registration must not be more than three months.
- 4. Must be registered at the deeds office where the
debtor resides or where they conduct business.
- Types
- General Notarial Bond
- Covers a whole range of property
items belonging to the debtor common
example is all of the household goods
(very general, non specific)
- What happens if the debtor is insolvent?
- They are entitled to first
preference to sale of the free
residue of the insolvent estate
(so they get paid before
concurrent creditors, but only
out of the pool of money left
after secured and preferent
creditors are paid.
- Special Notarial Bond
- The items that form the subject of
the bond are specific, and are
specifically stated in the bond.
- Effects
- As long as they’re not incorporeal property,
they will give rise to real rights.
- Solvent debtor?
- If the debtor is solvent and they sell
the property to a 3rd party, or a
creditor executes on the property,
because the bond holder has REAL
RIGHTS, he can claim from that 3rd
person or that creditor.
- Insolvent debtor?
- If there is a insolvent debtor, the property
vests in the trustee, however unlike a general
notarial bond, the holder of a special notarial
bond is a secured creditor, and will be paid
first from the proceeds of the sale from the
SPECIFIC property that acted as security.
- Section 88 of the Insolvency Act
- This section says that a bond will be
invalid if the bond tries to secure a debt
that is older than 2 months, and where
the bond is lodged for registration within
6 months of the debtors insolvency as
invalid wont give rise to valid security.
- Which rights arise following agmt & registration?
- Following AGREEMENT, you will only have
personal rights. Following registration, which
occurs after agreement, there will be real
rights arising from the notarial bond, but this
will only happen if the bond is a SPECIAL
NOTARIAL BOND. So from GENERAL
NOTARIAL BONDS you get personal rights,
SNB’s you get real rights. In this, with SNB’s if
you want a real right you must have
CORPOREAL PROPERTY forming the subject
matter of the bond.
- Termination
- Failure / discharge of principal obligation
- Destruction of property
- Damage to property
- Cession in securitatem debiti
- Cession in securitatem debiti
- Property is INCORPOREAL (personal right).
Personal rights are conveyed from one
person (the ‘cedent’), who is the holder of
the right to another 'the ‘cessionary’’. Eg.
IOU.
- How does CISD function as security?
- Rights transferred by cession
- IF Purpose of cession is to secure debt, then cession = cession
in securitatem debiti
- NO registration & NO delivery required
- Effect of CISD depends on construction
- Out & out’ cession, with agreement to re-cede right(s)
- Complete transfer of rights with contractual
entitlement to claim return of rights on
discharge of principal obligation/debt
- EFFECT: Cedent loses ownership of right(s) - Rights vest in cessionary
- CREATES PERSONAL RIGHT ONLY
- Pledge
- Ceded rights pledged as security for debt owed
BUT ownership of rights remains vested in cedent
- This is a reversionary right --> Entitles cedent to
reversionary interest & claim for re-cession of rights
- EFFECT: Cessionary has rights of pledgee , and
cessionary may not compromise ccedents position
- Insolvency of cedent? Rights vest in insolvent
estate BUT cessionary becomes secured creditor
- Insolvency of cessionary? Cedent
entitled to return of rights
- Debtors Rights
- Debtor’s consent to CISD: Required ONLY IF debtor’s
obligations to perform affected by performance to cessionary
- Termination
- Principal obligation
terminates / is discharged
- Court orders that cession =
invalid / cedent lacked capacity
- Security by operation of law
- Rights of retention/liens
- Rights of retention / liens
- A person who spends money on somebody
elses property where that person is in
possession of the property then the money
spender can keep the property until the money
that they have spent has been repaid.
- Legal Nature
- Ltd real right to retain property
until compensated IF in possession
- Lien terminates in case of dispossession, so
you HAVE TO HAVE POSSESSION to have a lien.
- If the disposition is voluntary,
then the lien can’t be revived.
- If it’s involuntary, such as when the owner steals the
piece of property back, then then you can go and reclaim
possession, then the security would be restored.
- Types
- Enrichment Liens
- Salvage Liens
- No requirement that there is any
contract between the parties, but gives
rise to a limited real right, and the person
who spent the money can usually claim
whatever the cost of the enrichment was.
- Claim available to the lienholder:
- They can claim everything that they spent
on NECESSARY expenses, in the sense that
the expenses were required for the
preservation or protection of the property.
- Necessary expenses are expenses which are
necessary to prevent the property from being
seriously damaged or destroyed completely
- Improvement Liens
- Expenses are NOT necessary for
the preservation of the property,
they are just useful to the property
by increasing its value. Luxurious
expenses are NOT included.
- Claim available to the lienholder:
- The lien holder is secured even for the full
amount spent, or for the value which has been
added to the property, WHICHEVER IS LESS.
- Lienholder must be
possessor / occupier
- Doesn’t matter whether you act in good faith or
bad faith, lawfully or unlawfully, you will still
have the right to hold onto the property.
- Debtor/Creditor Liens
- There is a contract between the parties in terms of
which one party is going to make changes/increase
value (do work) on the other parties property. THIS
ONLY GIVES RISE TO A PERSONAL RIGHT.
- TERMINATION: Debtor alienates
(sells) property & buyer is bona fide
(takes property in good faith)
- Rights of lienholder?
- Necessary AND luxorious are covered, provided that it is in
terms of a contract between the parties. If it is, the lien holder
can hold onto property until the full contract price is paid.
- If the debtor in terms of the contract is not the owner of the property
then the creditor can only hold the property/keep the property from
the debtor, and if the owner comes along and demands to have the
property back, then you have to give the property back.
- If owners estate is sequestrated, the
lien holder will have a preference to the
proceeds of the sale of the property.
- Where the debtor is solvent, the
lien holder can go to court and
have the property sold in
execution in the underlying claim
- LH’s right to obtain judgment once they
obtain judgement against the debtor, then a
judicial mortgage arises. These secure the LH
rights, and the LH no longer has to be in
possession of the property to uphold the lien.
- Responsibilities/Rights of Lien Holder
- To eep the property in good condition. Liable
for any damage caused by negligence, however
if it costs them money to maintain the
property, then that amount of money to pay
the security guard is also secured by the lien.
- Termination
- Cause of action (principal debt) extinguished
- Object destroyed
- Holder abandons rights
- Holder loses possession
VOLUNTARILY
- Alternative form of security offered &
court order saying that the LH must accept
that kind of security instead.
- Tacit hypothecs
- Judicial mortgages
- Comes into being by operation of law (an act) or an agreement
between parties (WITH REGISTRATION AND DELIVERY)
- Asset is ‘given’ as security to creditor for payment of debt
- Ltd real right (NOT OWNERSHIP, less than
ownership) = enforceable against everyone
- Failure to pay in terms of principal obligation?
Creditor may execute against asset
- < Advantages / Disadvantanges >
- Very strong form of security as it
is enforceable against everyone
- There is a physical asset that forms
your security, you as a creditor will not
be prejudiced by the insolvency.
- Say car is security: The debtor has to give you the car for safe keeping. You as
the creditor has to store that car, and the debtor is not allowed to use that car.
Hence the disadvantage of real security is that it can be inconvenient.
- The amount you can claim from security is directly linked to the value of the
asset. If the asset deteriorates in value, your security will deteriorate in value.
- People might not have any assets that they can put up as security.
- Personal
- Comes into being by
agreement between parties
- Person (3rd party) other than
debtor undertakes to pay if debtor
does not (Like a surityship)
- Personal right is enforceable
against party to agreement ONLY
- < Advantages / Disadvantanges >
- The fact that it is only enforceable against
the party in the agreement, means that if
that person dies or is declared insolvent, or
disappear, your security falls away.
- More convenient to have a piece of
paper which says so and so will pay you,
than having to look after someones car.
- More accessible way of providing security,
so students may have a wealthy family
member who is willing to stand surety,
who will pay if the student defaults.
- Impact of the NCA
- Imposes duty on credit providers to assess
creditworthiness of mortgage applicants
- Failure to do so may lead to mortgage
bonds being declared ‘reckless credit
agmt(s)’ the agreement can be set
aside in whole or in part
- AND IF mortgage applicant also over-indebted entire agreement can be suspended.
- Creditor may not enforce agreement / security UNTIL:
- Consumer is in default AND Debt review application dismissed OR Court finds
debtor is not over-indebted OR Debtor defaults on debt re-arrangement