Inhibition Flashcards
What is inhibition?
This is a general prohibition on the debtor being able to deal with his land. You can carry out an inhibition against them which means that they will be unable to sell.
What type of diligence is inhibition?
This is a diligence against land. This is a freeze diligence - it prevents the debtor from dealing with land (and applies to every bit of heritable property that the debtor owns so it applies to land and buildings but also rights in relation to land and buildings.
It blocks the debtor from acting with their assets.
Freeze diligence – makes property litigious, does not give the creditor a real right.
Affects all debtor’s heritage - not merely specified subjects.
Do you need to identify the property you are inhibiting?
Inhibition does not need to identify the heritable property in question - you simply need to know the identity of the debtor.
Why is inhibition useful when the debtor wants to sell?
It is also useful if you have a debtor who is wanting to sell property - if you carry out an inhibition against them then this will stop them selling - the nuisance value is often enough to compel payment of debts.
So if you are a debtor and you are inhibited, you lack the capacity to transfer the property to a third party. If you do carry out the transfer the conveyance of this property can be struck down by the creditor.
What kind of right in the property does inhibition give the creditor?
Does not give creditor real right but only limited rights described below.
Where are the provisions for inhibition found?
The provisions are found in Part 5 of the 2007 Act.
Changes brought in by the BAD Act 2007 part 5
⁃ Some of these provisions are in the Titles to Land Consolidation (S) Act 1868[ In Avizandum statutes pages 4 and 5.] and some are in the BAD Act 2007 itself (ss 146-168)[ In Avizandum statutes pages 428-432]
⁃ YOU MUST BE FAMILIAR WITH THESE PROVSIONS
What is required to be served prior to inhibition?
Prior to an inhibition a debt information package must be served.
What transactions does inhibition prevent?
1) Stops the debtor selling the property
2) Stops the debtor granting a security
What is the procedure of inhibition?
⁃ Inhibition action is raised in the sheriff court - it can either be carried out in execution of a final decree or on the dependence of a court action[ I.e. where you’ve initiated the court action for payment but the court has not yet pronounced the order.].
⁃ If you are a creditor who is planning to apply for an inhibition you can apply to register a notice of inhibition - this is a notice that the inhibition is going to be carried out.
- This is registered in the Register of Inhibitions[ In practice this is known as the “personal register” - in contrast with the Land Register which is the “property register”.]. It is referred to in day to day practice as the personal register. This register is searchable by an individual to find out if a person has an inhibition registered against them.
⁃ If you apply to the court for an inhibition and it is registered within 21 days of the notice of inhibition, the inhibition takes effect not from the date of registration of the inhibition - it takes effect from the date of registration of the notice of inhibition[ So the registration is backdated if within this 21 day period.].
⁃ If registered outwith the 21 day period then it takes effect on registration of the inhibition itself.
[[This rule on creation of an inhibition is found in s 155 of the 1868 Act:
An inhibition has effect from the beginning of the day it was registered unless there is a notice of inhibition which is registered and the inhibition is registered within 21 days.]][ So this is the modern source of this rule - but it replicates the prior law. this is newly worded section inserted into the 1868 Act. Read this section. ]
What property is affected by inhibitions?
⁃ Inhibitions attach all heritable property owned by the debtor at the date of registration. The debtor is barred from dealing with any of that property.
⁃ Inhibitions DO NOT cover acquired - so property acquired after the date of registration is not caught, it is unaffected by the inhibition (does not affect acquirenda).
- So if you are inhibited on day 1 and if you acquire property on day 2 the property is not caught.
When is property acquirenda for purpose of inhibition?
- You are treated as being the acquirer for the purpose of the law of inhibitions at the point of delivery of the conveyance. S157 Title to Land Consolidation Act 1868.
⁃ But what is the date you are deemed to acquire heritable property?
⁃ The case law suggests that the key date is the date of delivery of the disposition for acquirenda but this was decided before Sharp v Thomson and Burnett’s Trs v Grainger accordingly there is a strong likelihood that Burnett’s Trs will be given application to in this context and therefore the date of registration will be the key date for acquirenda.
How does inhibition operate?
⁃ Inhibitions do not create a real right but they exemplify prohibition theory rather than attachment theory. They block the debtor from dealing with the property. Effectively they impinge on the capacity of the debtor to transact with the particular asset. The two principle effects are that you can’t sell the property and you can’t grant a security on the property.
- The creditor does get the power to stop future voluntary acts. They can block sales and they can block securities.
- If a sale takes place before the inhibition, the inhibition does not affect it. It only affects future voluntary acts.
⁃ The way in which this is described in the cases is that you are barred from future voluntary acts.
What is a future voluntary act?
⁃ The key provision is s 160 of the BAD Act- it doesn’t mention future voluntary acts. However the interpretation that this only applies to future voluntary acts is made in the cases below (Rhodes and Playfair).
- Day 1: you have a contract entered into with A and B
Day 2: Inhibition against A (property becomes acquirenda)
Day 3: Dispositon A to B
So if you are inhibited on 1 March and enter missives to sell the property on the 3 March those missives cannot be implemented because this would be a future voluntary act. However acts which are entered into before the inhibition is made can potentially be given effect to.
Rhodes v Boswell; Playfair Investments v McElvogue
⁃ The scenario in these cases was such. Dat y: missive are entered into between A (owner) and B (purchaser). Day 2 Carol inhibits A. Day 3 A conveys the property to B. Is this caught by the prohibition from the inhibition? Is this a sale which is taking place after the inhibition.
⁃ The Playfair case confirmed that what is affected is future voluntary acts. The action of A on day 3 is not voluntary[ This is because it is implementing the earlier contract. if the inhibition takes place after the contract is entered into, the party who is inhibited is not affected by the inhibition. they can still carry our the transaction because it is now involuntary (they are now contractually bound to follow through). ] - his obligation is to implement an obligation which already existed at the time the inhibition was entered into. Because this obligation arose before the inhibition was created this means that A’s action on day 3 is involuntary. Therefore, A’s acts on day 3 are not future voluntary acts and thus B will receive an absolutely good title to the property. A then receives the money and gets to keep it.
What happens if there is an inhibition but a transaction is made in breach of it?
⁃ The creditor (inhibitor) can raise an action of reduction[ In practice this is virtually unheard of since if you are a buyer and discover an inhibition you are not going to pay money over until that inhibition is paid off. Once the creditor is paid off they can register a discharge and the personal register is cleared. ] (get the sale or security struck down). This gets the property vested back in the debtor so that the inhibitor can realise their debt from the property.
⁃ In practice - the buyer of a house will require the seller to have a search carried out against their name. The search in the register of inhibitions goes back 5 years because an inhibition prescribes after 5 years. If there is an inhibition then the buyer will not hand over the money. This links into the warrandice - one of the obligations is to give a good and marketable title - if there is an inhibition the debtor is in breach of the warrandice and this is a material breach so the buyer can withhold the price.
