Intoduction to Real Security

Question 1

Describe the basic relationship that exists when there is a debt

Answer 1

What comes from the credit relationship is an obligation of the debtor to repay the creditor

A right will arise in the favour of the creditor, which will be against the debtor for the repayment of what’s owed to the creditor

Question 2

Describe a personal right that arises from this basic relationship

Answer 2

The right that the creditor has over the debtor
will be the creditor’s primary claim for the repayment of a debt

Question 3

Effect of the personal right

Answer 3

Contract law principles and remedies would be available to the creditor ito non-payment

Question 5

Describe the scope of real security rights as limited real right

Answer 5

they have the effect of detracting from or limiting the ownership right relating to a piece of
property.

Question 6

Describe the right vested in the holder of the real right

Answer 6

The holder of the real security right thus has a right in an asset that is owned by someone else.

The holder of the security right is a
creditor that can retain its hold over the asset until the debtor (who will most often be
the owner of the asset) performs according to the underlying indebtedness.

Question 7

Function of a limited real right

Answer 7

The purpose of a limited real right is to serve as security for (or to help guarantee) the fulfilment of a personal obligation.

Question 8

What are ways in which a personal obligation may be created ?

Answer 8

Through contract, delict and unjustified enrichment.
A debt can even be created through statute, with
tax liability being an example of such a debt.

Question 9

What leads to credit security?

Answer 9

In all instances where a person (the debtor) owes performance to someone else (the
creditor), there will invariably exist the risk that the debtor cannot or will not fulfil
his/her duty to pay according to the terms of the contract.

It may also be that the creditor would have to share with a number of other creditors and therefore would be able to retrieve only a small portion of what is owed, particularly if the debtor is sequestrated (or liquidated, in the case of a corporation)

Question 10

How does the law mitigate the risks associated with credit?

Answer 10

the law provides a few ways in which a
creditor can, in addition to its claim for repayment, obtain an additional right (a security
right) to strengthen its chances of retrieving the money

Question 11

What are the two categories of security

Answer 11

personal security and real security

Question 12

Describe a personal security

Answer 12

The creditor will have a personal right over the surety where another person agrees to stand in as the debtor’s surety.
In other words, when the debtor cannot pay, the creditor can claim the money from the surety.

Question 13

Describe a real security

Answer 13

A solution provided by the law of property, in which a piece of property serves as the
creditor’s ‘backup’ in the event of the debtor’s inability to pay.

Question 14

How is real security achieved?

Answer 14

Real security is achieved by granting the creditor a limited real right in the relevant
object and not a mere personal right as with suretyship

Question 15

How can the real security right be created?

Answer 15

The real security right can be created through a contract when the debtor voluntarily agrees to grant the creditor such a right in one of his/her assets.
These rights created through through contract
(ex contractu), will be referred to as an express real security right

It can also be established under a rule contained in common law or statute, regardless of the debtor’s wishes.
a security right created by operation of common or statutory law (ex lege) is referred to as a tacit real security right

Question 16

What’s the main difference between express and tacit real security?

Answer 16

Express real security involves a real agreement between the parties that expresses their intention to create the security right

Tacit real security does not require the parties’ intention

Question 17

What’s important to note about the difference between express and tacit security

Answer 17

The difference does not relate to the way in which the underlying debt is created, since the creation of the debt and the creation of the security right entail two separate juridical acts

Question 18

Three important benefits that real security entails for the creditor

Answer 18

• Until the creditor is paid, the creditor can restrain the debtor from exercising some of
  his/her normal ownership entitlements such as the use and enjoyment of the burdened property. Most notably, the property cannot be alienated (or otherwise disposed of) without the creditor’s permission.
• If the property is sold – whether through a normal sale, a sale in execution at the instance of another creditor, or as part of the insolvency process – the secured creditor enjoys a preference for the proceeds of the sale.
  From these proceeds the creditor with
  a real security right will receive payment of his/her full claim before any other creditor
  is paid (provided that there is anything left for other creditors).
• If the debtor fails to meet his/her payment duties to the secured creditor, the creditor
  may call up (foreclose) its security right by following the formal court processes to
  have the burdened property attached and sold in execution so it can retrieve the money
  it lent to the debtor.

Question 19

What kind of property does real security vest over?

Answer 19

Any kind of property that is in the commercial sphere and capable of being owned and transferred (res in commercio):
movable
immovable
incorporeal property

Question 20

What further distinction is made in addition to the difference between tacit and express real security?

Answer 20

distinction between real security rights over movable and those over immovable.

Question 21

Whats the third way in which real security rights are subdivided

Answer 21

This way regards the way in which the physical element (publicity) is fulfilled

Question 22

The division of real security rights into four categories

Answer 22

• Express real security over immovable property
• Express real security over movable property
• Tacit real security created by operation of a common-law principle
• Tacit real security created by operation of statutory law

Question 23

Elaborate on Express real security over immovable property

Answer 23

Its called a mortgage and which can be created only through the registration of a mortgage bond.
Control of the property remains with the debtor.

Question 24

Elaborate on express real security over movable property

Answer 24

Is usually referred to as a pledge and can be created either by passing physical control of the property to the creditor or by registering a notarial bond.

In addition, an incorporeal movable asset
can be pledged by means of a so-called cession in securitatem debiti (cession as security
for a debt).

There are also special instances where certain movable objects (like ships, aircraft and some kinds of intellectual property) are given in security by having the creation of the security right recorded in special registers established specially for such assets.

Question 25

Elaborate on tacit real security created by operation of a common-law principle

Answer 25

namely the landlord’s tacit hypothec and the right of retention (lien).
The security right established by judicial attachment is also included in this category.

Question 26

Elaborate on tacit real security created by operation of statutory law

Answer 26

This category includes a number of examples of different statutory measures specially enacted to create forms of real security to fulfil certain purposes.

Question 27

What are the Elements of Express Real Security (ex contractu)

Answer 27

– Principal debt (secured debt)
– Real security right
* Security agreement
* Real agreement
– Animus (Intention)
– Corpus (Delivery/Registration)

Question 28

Give examples of express real security

Answer 28

Pledge
notarial bonds
special mortgage bonds

Question 29

What are the Elements of Tacit real security (ex lege)

Answer 29

– Principal debt (secured debt)
– Real security right: By operation of law

Question 30

Give examples of Elements of Tacit real security

Answer 30

Tacit hypothecs
rights of retention
judicial and
other statutory real security rights

Question 31

Three stages in which the development of real security rights in Roman law can be seen as progressing

Answer 31

Originally, if one wanted to use an asset to secure a debt, ownership and physical possession of the asset had to be transferred to the creditor and would be transferred back to the debtor after the debt was discharged.
This transaction was called a fiducia cum creditore because it involved a transfer of ownership that placed certain fiduciary duties on the transferee/creditor.

Secondly, over time the law developed so that it was no longer necessary (or even permissible) to transfer ownership of a security asset.
Instead, what was required was the mere transfer of possession of the asset, with the effect that the debtor remained owner while the creditor obtained a limited real right called
pignus.

In the third stage the law developed a form of security where neither ownership nor possession had to be transferred.
This was called the hypotheca.

Question 32

What’s the pignus?

Answer 32

the origin of the Roman-Dutch vuistpand and the modern pledge

It was used for movables, where physical delivery was required.

Question 33

What’s hypotheca?

Answer 33

The predecessor of the Roman-Dutch
hypotheek and modern hypothec.

It was used for immovables, where delivery was not required, although there were some instances where the hypothec was used for movables, too.