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.
RIGHTS OF PLEDGOR
Return of pledged thing upon payment.
Claim for damages to pledged thing (not wear & tear).
EXTINCTION OF PLEDGE:Pledge may be extinguished by any of the following circumstances
Discharge of principal debt.
Merger.
Destruction of pledged article.
Prescription.
Effluxion of time.
Voluntary loss of control.
Pledgee’s renunciation of pledge.
Court order.
Novation of principal debt.
Sale in execution.
Extinction of pledgor’s title.
MORTGAGE:
A limited real right…
over a thing belonging to the mortgagor…
in order to secure payment of a debt owed by debtor.
Types of Mortgages:
Express - Through execution of agreement;
Tacit - Through operation of the law (Hypothec & Lien)
EXPRESS MORTGAGES:
Type of mortgage
Description
Notarial bond
Registered over specific movables of debtor or third party.
Real security right in form of a pledge.
Special mortgage over immovable property (Bond)
Registered only with regard to a particular immovable thing.
Bond is endorsed against title deed of the land.
Kustingbrief
Special mortgage over immovable thing where seller gives loan for unpaid balance to buyer & secures the loan by means of a bond over the immovable property sold.
Deed of hypothecation registered simultaneously with deed of transfer.
Statutory participation bond
Investors make money available to investment companies to lend out against security of a mortgage bond over immovable property of debtor.
Limited real right created by mortgage bond secures repayment of amount invested.
TACIT MORTGAGES:
Tacit hypothec
Over movables brought onto leased premises by tenant.
Comes into operation as soon as rent overdue.
Does not itself create limited real right, goods must be attached.
Lien
Limited real right.
To secure claim of a person who has spent money or done work on another person’s thing.
Can keep the thing until paid (car service)
Judicial pledge
When sheriff attaches judgment to debtor’s movable or immovable things in terms of a court order.
Attachment of movables has same effect as pledge.
Attachment of immovables has same effect as special mortgage over immovables.
