STANDARD SECURITIES

STANDARD SECURITIES

1. statutory form of charge

   • introduced by Conveyancing Fuedal Reform (Scotland) Act 1970
     • abolished the bond & disposition in security
     • & ex facie absolute disposition
     • replaced with one very simple and very flexible basic form of standard security

2. normally most valuable asset you can own

   • land and buildings
     • without a mortgage beyond means of the individual

3. Lord Diplock - English case Pettit v Pettit

   • "that we are a real property mortgaged to a building society owning democracy"
     • reasonably accurate statement of position in Scotland, three decades on

4. flexibility of 1970 Act

   • statute provides for social and economic changes
     • take place over the life of secured loan
       • without need of discharging loan and creating new one
   • allows debtor transfer - more economically viable agreement
     • s14 assignation of transfer of standard security

5. all heritable loans since 1970 Act, constituted by standard security

   • s3 CFR(S) A 1970
     • part 11 s9-32 contains law of standard security 1970 Act
       • standard security either in terms of schedule 2 form A or form B 1970 Act
         • Form A - personal obligation and details of loan are connected in standard security
           • widely used by building societies
           • whether form A or B Albatown Ltd v Credential Group Ltd
         • Form B - where personal obligations and details of loan are in a separate unrecorded document
           • widely used by banks in housing loans or commercial lenders
             • loans in connection with trade (garahes/breweries)
               • & large loans over factory/office buildings
                 • where parties don't wish to make details public
           • Form B security- express assignation of secured debt required
             • Watson v Bogue No 1

6. Personal bond

   • Bird v HBOS
     • PB properly regarded as a bond of caution my/not give defenders secuirty for the loan
       • bond of caution was irrelevant as absence of valid standard security

7. Deed of Variation s16

   • allows for a number of variations to be made
     • without creditors consent
     • used to release one of a number of original debtors from further liability
       • or introduce a new debtor
   • utilized where a single person, owns property subject to standard security
     • makes over one half share of property to their partner
     • partner in turn agrees - undertake joint and several liability for the secured loan
       • creditor will want to ensure the partner is a co-debtor to the change
         • before consenting to the change to the original obligation
   • where couple break up
     • one of them can take over the whole of the property
       • assume sole respnsibilty for the loan
         • partner can make over their share to the first and be released from any further liability
   • in either situation - a suitably worded deed of variation - easily give effect to these changes in debtor

8. deed of restriction

   • s15 form c&d - allows debtor to have portion of security subjects released from secuirty
     • usually on payment of a substantial amount of the original loan
       • useful when building company, purchase land for residential developement
         • gives standard security to bank in security of loan, covering development costs
         • developed plots subsequently sold to purchasers
           • buidling company obtains deed of restriction for each plot when sold
             • purchaser takes plot free of any debts of building company
     • area of original security subjects will be reduced
       • normal for company to repay its creditor - portioned amount of proceeds of sale of plot
         • provides flexible way of securing the financing of the development

9. Discharge s17 purpose is 2 fold

   • 1) releases debtor from continuing personal obligation to the creditor
   • 2) releases security subjects from the burden of the standard security as a real secuirty thereon
   • short statutory form provided for is CFR(S) A 1970
     • achieves both objectives by granting of discharge, following form F of the schedule 1970 Act
       • recording of discharge in statutory form, the subjects are disburdened thereof

10. Assignation s14 (1) - duly recorded standard security may be transferred

    • whole or in part, by a creditor by assignation in conformity
      • with Form A or B schedule 4 1970 Act.
        • upon the tranfer being duly recorded, the security or part thereof
          • shall be vested in the asignee as effectually as has been granted in his favour
    • (2) assignation of standard security shall except where otherwise stated
      • deemed to convey to the grantee
        • all rights competent to the grantor to the writs
          • effect inter alia of vesting in the assignee
            • a) full benefit of corroborative or subtantial debt obligation or part thereof
              • irrespective of whether obligations are contained in any deed or arise from operation of law or other wise
            • b) right to recover payment from debtor of all properly incurred expenses incurred by the creditor in connection with the security
            • c) entitlement to the benefit of any notices served and all procedure instituted by the creditor in respect of the security
              • effect that the grantee may proceed as if he had originally served or instituted such notices or procedures

11. Notice of default

    • 1970 Act gives creditor range of remedies
      • personal action, summary diligence, poinding of the ground, adjudication
        • removing the debtor and letting the property
      • Scotland generally held to be 3 roads to sale
        • 1) calling up notice s19 1970 Act, debtor once served required to pay whole of the debt within 2 months
          • failure creditor has automatic power of sale
            • 1970 Act does not state circumstances justifying the service of the notice
              • No problem if loan is on demand or term loan
                • where there is an acceleration clause which has been activated
                  • loan agreement defines circumstances which amount to default
                    • procedure does not need to involve any court involvement
                      • In practice common for Creditors to obtain Action of Declarator
                        • the right to sell has crystallised
        • 2)Notice of default s20 and 21 1970 Act, on default creditor serves Notice of Default, stating the default
          • calls upon debtor to cease to be in default within one month
            • failing which enforcement powers emerge. Act is not clear meaning of default
              • default usually failure to make periodic payment s9(1)(b)
          • merely requires the arrears are brought up to date
        • 3) last - road to enforced sale by s24 warrant
          • application by creditors to the court, stating debtor is in default, requesting permission to sell
            • involves the court, rather rare to use this road
            • procedure may be used where creditor wishes to sell, not as a result of failure to pay but because debtor is insolvent
              • not as expensive as it might be, since creditors can prove statutory requirements have been met
                • court has no discretion to refuse the warrant
                • missives concluded in normal way, no moveables included, disposition granted by creditors
                  • s26 1970 Act provides on sale by creditor, property automatically disburdened of security or pari passu security

12. joint and several obligations and rights of relief

    • often taken out by joint borrowers husband/wife
      • jointly and severally liable
        • each has one half pro indivisio share burdened by the whole loan
          • often standard security contains " all sums due and to become due"
            • in such a case all future loans from the same lender will be on the same footing as the original security of the house
    • problems when future loans made to only one of the parties
      • husband/wife as co-owners grant a standard security for joint loan
        • thereafter the husband (only) borrows money from the same lender
          • loan is made out to him in name only
            • wife may not know of the transaction
        • if the new loan is covered by the standard security, it will affect both the husband and wife
          • usually banks/building societies expressly provide that any debt incurred at any time
            • by either party will be burdened by the whole property
            • such a style will solve any problems that may occur
              • but should be noticed that it still allows one of the parties to create a loan without the knowledg of the other
                • may be unethical to construe the ignorant party as liable for the addtional debt
                  • position may be challenged under Unfair Terms in Consumer Contracts Regulations 1999
    • odd situation occurred in Christie v Armstrong
      • bought house in common with survivorship destination
        • joint loan secured on the house
          • also assigned life policy in Mr Christies name
          • Mr Christie died shortly after buying house and was intestate
            • Mr C's daugher confirmed as executor dative
            • Life assurance paid the proceeds of life policy to the lender
              • discharged the debt
              • Ms C argued whole loan repaid from fathers estate, since life policy formed part of the estate
                • but only half of policy proceeds should have used to repay the debt as father was only liable for half the debt
                • father jointly and severally liable, Ms C entitled to claim relief from Ms Armstrong
                  • Ms C claimed repayment of one half of policy proceeds from Ms A
                    • stained by court in principle
                      • court held proof was necessary to establish
                        • intentions of the deceased
                          • could have been deceased intention to repay all
                            • therefore, no right of relief in circumstances
    • Royal Bank v Wilson
      • acknowledge bank failed on number of issues
        • 1) where joint and several obligations, defaults/calling up notices must be served on all debtors
          • individually in addition to a letter addressed to the occupier
    • where borrowers have separated only one remains living in security subjects
      • party may continue to pay the mortgage payements
        • may wish to claim relief from non-paying party
          • non-paying party claims implied understanding
            • relief would not be claimed in this situation
              • as an implied term of the agreement to move out