Chapter 28: security Flashcards
Security
Bank looks at security before approving a loan.
Real security (collateral) puts bank in the strongest position since pledges and mortgage holders have priority over other preferential creditors/ordinary creditors
Real Security
Borrower can provide 1 or more assets as underlying security, lender can ssell assets if borrower doesn’t repay
* Real rights = material/tangible assets (buildings/stocks)
* Property rights = intagible (right of egress/future income from accounts)
Right of mortgage
Owner of registered property can assign a right of mortgage to the lender.
* Registered property is registered in a public register. Lender becomes holder of the right of mortgage and sell if debtor defaults on the loan
* Mortgage holder has a right of summary foreclosure = can sell the security/collateral at a public auction wihtout a court order
RIght of pledge
Relates to non-registered property
* not registered in a register
* if pledger does not fulfil obligations, credit prover can sell pledged property to cover
Undisclosed pledge
used w/ property rights
only pledgor and pledgee know about the pledge
Disclosed pledge
Everyone including pledgor and pledgee knows about pledge
Possessory pledge
Established on goods that are tradable (e.g. car)
* relevant object is handed over to the pledgee, pledgor no longer has right of disposal over good
* Example: Bank pledge - bank automatically pledges all customer assets in its possession to itself. Can claim against customer (e.g. debt balance) from same customer
Non-possessory pledge
Goods are not handed over
Pledgor still has possession
Works for machinery/inventory
Done via notarial deed/private deed
Protection of other creditors
Holders of a mortgage/right of pledge are in a strong position against other creditors - already have possession beyond other creditors
Enforcement of security
Mortgage holder/pledge holder are able to recover their claims first for a foreclosure sale
If sale is not enough to cover claim, mortgage holder/pledge holder are treated as ordinary credtiors
Personal security
Can be provided if a company does not have nough real security for credit needed
Done through
* contractof suretyship
* a guarentee
* join/several debt obligation
Contract of suretyship
- Takes on the obligation to the creditor if they are unable to pay
- Surity can only be held liable if the borrower defaults on the loan
- can be attached to a specific debt
Guarentee
The guarantor guarantees that the debtor will fulil obligations.
Main difference to suretyship is that the guarantee will not become extinguished when debt is extinguished, has to be cancelled by the guarantor
Joint/Several debt obligation
One or more third parties obligate themsselves to pay a debt
* creditor can choose which party to recover the debt from
Quasi-security
AKA intagible security
* promise by borrower/third party to do something or not for the benefit of the bank
* bank has no guarentee that promise will be fulfilled, thus not a guarentee security
