Cessions, Liens and Hypothecs Flashcards
The cession of personal rights as security can take place in one of two ways,
- An out-and-out cession, i.e. assets are shifted and the parties’ positions are governed by the law of cession.
- A pledge to secure the debt owing to the cessionary, where the parties’ positions are governed by the general rules pertaining to the law of property.
FORMALITIES IN EXECUTING CESSION
No formalities are required in terms of our common law for a cession to be valid. It is thus not necessary for a cession to be in writing except, for example, in the case of the cession of a mortgage bond. For the latter to be enforceable against third parties, this bond must be registered with the Registrar of Deeds.
ceded - Mortgage Bonds
A bank, as mortgagee, can cede a bond held over its customer’s property to a third party. The cessionary (the third party to whom the bond was ceded) will only be entitled to claim from the mortgagor the amount owing under the bond as at the date when the cession was signed (plus interest). Similarly a bank may take cession from the customer of a bond.
Book Debts
For a cession of book debts to be valid, it is not a requirement for the cedent to deliver the books of account to the cessionary. Neither the cessionary nor the cedent need to inform the debtors of the cedent of the cession nor do they need to obtain their permission.
cession - TERMINATION
Cession of a right of action does not terminate by the mere repayment of the debt for which the cession was taken as security. A cession must be re-ceded by the cessionary to the cedent to become extinct. If a cession makes provision for the cancellation of that cession upon repayment of the debt implies an automatic oral re-cession by the cessionary to the cedent.
LIENS
Where a person has expended money or labour on the property of another, he has a right of retention over that property until he has been sufficiently compensated for his efforts. Liens are only valid whilst the creditor remains in possession of the asset. A lien is only a defence to a debtor’s action demanding return of his asset.
Types of liens
Debtor and creditor liens
This type of lien arises from a contractual relationship between a debtor and creditor in terms of which it is agreed that the creditor will incur expenses in respect of an article belonging to a debtor.
Debtor and creditor liens
This type of lien arises from a contractual relationship between a debtor and creditor in terms of which it is agreed that the creditor will incur expenses in respect of an article belonging to a debtor.
An improvement lien comes about where the owner was enriched as the market value of his article was increased by the possessor. A salvage/storage lien comes about when an owner is benefited by the salvaging or storage of his article by the possessor. In respect of the latter type of lien, the full amount expended by the possessor is usually recoverable.
The possessor’s claim is usually limited to necessary and/or useful expenses that were incurred. Luxurious expenses are generally only recoverable in the case of a debtor/creditor lien.
Termination of Lien
Repayment of the debt automatically has the effect of the lien being terminated. Liens also terminate where the lien holder voluntarily parts with the lien object.
Define HYPOTHECS
Hypothecs exist ex lege, i.e. through the operation of law and as such, the debtor’s consent is not necessary for this form of security to exist. There are various types of hypothecs, such as the landlord’s tacit hypothec in respect of arrear rental, a credit grantor’s hypothec in the case of the insolvency of the credit receiver or hypothecs by order of Court.
Landlord’s tacit hypothec
A landlord has an ex lege hypothec over the lessee’s movable goods on the rented premises in respect of arrear rental for so long as the rental is in arrears. This means that the landlord can obtain an order of Court to attach the lessee’s goods and to sell them in execution to pay for the arrear rental. It is important to note that the hypothec lapses upon the payment of the arrear rental.
Credit grantor’s tacit hypothec
Section 84(1) of the Insolvency Act 24 of 1936 provides that upon the sequestration of a credit receiver’s estate, ownership of the goods bought in terms of an instalment sale transaction by the insolvent (credit receiver) will immediately transfer from the credit grantor to the insolvent. However, the credit grantor will have a hypothec over these goods to secure the payment of the outstanding balance.
Hypothecs by order of court
Once judgement had been granted against a debtor and a creditor obtained a warrant of execution, the judgement creditor has a preferent right over the article, if that creditor is the only execution creditor. Please note that the secured creditors’ rights are not affected. This means that, where the bank is, for example, the mortgagee in respect of immovable property and this property is attached and sold in execution, the bank will still be considered a secured creditor unless the bank had waived its rights in this regard. Moreover, such hypothec does not grant a creditor priority in the case of insolvency. The normal insolvency rules will be applied.
