LECTURE 7+8 SECURITY LAW Flashcards
RELEVENCE OF SECURITY LAW
The biggest risk for a credit grantor: The inability of a debtor to pay debts.
Creditors can reduce the risk by requiring real or personal security.
Various forms of security will place a secured creditor ahead of other creditors if the debtor goes insolvent. (secured creditors do not form part of the concursus creditorium).
PERSONAL SECURITY
Creditor obtains a
personal right…
against a third party,
to ensure payment
of the principal debt by the principal debtor.
SURETYSHIP:
An accessory contract…
in terms of which the surety agrees with the principal creditor…
that the principal debtor will perform his or her duty to the principal creditor…
and, that insofar as the principal debtor fails to do so, the surety will perform this duty.
ACCESSORY NATURE OF SURETYSHIP:
Without the primary obligation between creditor and debtor, the suretyship cannot exist, thus its accessory nature.
CREATION OF SURETYSHIP CONTRACT:
Suretyship = Contract: therefore must comply with all general requirements for valid contract.
Section 6 of General Law Amendment Act:
- Must be in writing;
- Signed by or on behalf of surety;
Spouses married in community of property?
CONSEQUENCES OF SURETYSHIP:DUTIES
Duties of Surety
Has same defences as principal debtor.
Undertakes to perform obligation of principal debtor if he fails.
CONSEQUENCES OF SURETYSHIP:RIGHTS
Rights
Benefit of excussion.
Benefit of division amongst
co-sureties.
Benefit of cession of actions.
Right of recourse against principal debtor.
Right of recourse against
co-sureties.
TERMINATION OF SURETYSHIP:
Surety automatically terminates* upon discharge of the principal debt by the debtor (ancillary obligation);
Retraction of surety, in writing and accepted by credit grantor;
Replacement of one surety by another surety.
Death of surety.
REAL SECURITY
Creditor acquires a limited real right to a thing.
The thing can belong
to the debtor or a
third person willing to
provide security on
debtor’s behalf.
TYPES OF REAL SECURITY:
Express mortgage
Created by agreement between debtor
and creditor.
Tacit mortgage
Arises by operation
of the law.
o Mortgage in simple terms means to place a thing/property as collateral for a debt.
SECURITY CONTRACT:
Loan agreement
Creditor lends sum of money to debtor.
Security agreement
Security grantor undertakes to provide security for debt.
Vesting of limited real right
Act will depend on type of real security.
PLEDGE:
Limited real right…
over pledgor’s thing…
delivered to the pledgee…
as security for repayment of principal debt…
which pledgor or third party owes to the pledgee.
DUTIES OF PLEDGEE:
Keep thing under his control until debt is paid.
Take care of thing.
Liable to pledgor for any damage caused to thing by his fault.
Pledgee obliged to return thing to pledgor.
RIGHTS OF PLEDGEE:
Acquires a limited real right.
May obtain judgment if pledgor does not pay.
Preferential right in case of insolvency.
DUTIES OF PLEDGOR
Payment of principal debt.
Compensate pledgee for necessary expenses.
