Real and Personal Security

Question 1

What is the nature of a security interest

Answer 1

It is security given by a debtor to a creditor in order to get a loan or some sort of financing.

Question 2

The forms a security can take

Answer 2

1) the right to have proceeds of property owned by a debtor
2) the right to look to a third party to fulfil the debtors obligations

Question 3

The ways to receive proceeds of a property

Answer 3

1] Mortgage bond
2] Pledge
3] Notarial bond

Question 4

Ways to ensure a third party fulfils the debtors obligations

Answer 4

suretyship

Question 5

Notarial bonds characteristics

Answer 5

-movable bond
-this gives limited security
- having a general clauses that bind a debtors movable and immovable property is invalid.

Question 6

What is a pledge of movable properties

Answer 6

a type of mortgage of movable property given by a borrower (pledgor) in favour of a lender (pledgee) as security for a debt or other obligation.

Similar to a mortgage bond with regards to security, in this case movable property. However the creditor is allowed to sell the property privately without recourse. The debtor can however seek protection in court in an instance where the creditor has acted prejudicially

Question 7

How can one create security over movable property

Answer 7

Registration of Notarial bond

Question 8

Within what time frame must the bond be registered after its date of execution

Answer 8

3 months

Question 9

Types of Notarial bonds

Answer 9

Special
General

Question 10

Which act governs Notarial bonds

Answer 10

Security by Means of Movable Property Act 1993 ( SMPA)

Question 11

[before SMPA] Notarial bonds:

Answer 11

-bondholder had limited rights to the proceeds of the property

The mortgagor could dispose of the property to a third party

If this property is attached to another creditor the mortgagee could not prevent its sale neither are they entitled to the proceeds

Question 12

Notarial Bonds (Natal) Act 1932

Answer 12

This act applies in Kwazulu-Natal

The bondholder has a right of security over other creditors and is entitled to the proceeds of the movables in the event the debtor becomes insolvent

This only applies to bonds registered over a specific property

Question 13

Changes brought about by SMPA

Answer 13

It brings the law in other provinces in line with the whole of South Africa

A special notarial bond is similar to a pledge ( the debtor however does not need to deliver the property to the creditor )

Question 14

Common law applicable due to similarities between a pledge and a notarial bond

Answer 14

The notarial bondholder has real right over the property as if it was pledged to them even if the property is subsequently sold

Question 15

The following applies to a special Notarial Bond over movable goods

Answer 15

The holder has a possessionless pledge, meaning they don’t need to physically have possession or control over the property to ‘perfect’ their security as opposed to a general notarial bond.

Question 16

Readily recognisable

Answer 16

Is the asset easily identifiable based on its description alone ( must comply with SMPA)

Question 17

Notarial bonds registered before 7 May 1993 ( before the SMPA Act)

Answer 17

Theses bonds are given the same preference as mortgage by a general bond

Question 18

General Notarial bonds Characteristics

Answer 18

• the mortgagor can dispose of the asset to a third party without the consent of the bondholder
• the bondholder cannot prevent the sale in execution of the property and has no claim over the proceeds
• in the event of insolvency the bondholder ranks above only the unsecured creditors

Question 19

What rights does a bondholder of a general notarial bond have

Answer 19

Basically no real rights except in the case of insolvency but only has preference over unsecured creditors and they themselves are not secured with regards to proceeds

Question 20

How does a bondholder of a general notarial bond change their right of security

Answer 20

This is achieved when they ‘perfect’ their right of security by obtaining ownership of the movable property

however they can only do this if the mortgagor defaults

Question 21

Which rights take precedence ..Real rights or personal rights

Answer 21

Real rights takes precedence.
Whoever takes possession first has right over the property even in a instance where that property had a bondholder

if the purchaser is not aware of any pledge over the property they can obtain rights through ownership

Question 22

Cession in securitatem debiti/ cession as security

Answer 22

A holder of a personal right transfers it to secure their indebtedness to a third party.

Question 23

The impracticalities of cession of security

Answer 23

The cessionary can dispose of the ceded right to a third party ( unless otherwise agreed on)

If the cessionary is sequestrated, the ceded rights falls into their insolvent estate.

The cessionary merely holds the right not own and only once payment is made in full do they now own it

Question 24

The consequences of a cession in securitatem debiti

Answer 24

• the position of the cedent
• the position of the cessionary
• the position of the debtor

Question 25

Cedent and Cessionary

Answer 25

Cedent (the original owner of the rights)
Cessionary (the new owner of the rights).

Question 26

The position of the cedent

Question 27

The position of the cessionary

Question 28

The position of the debtor

Question 29

Suretyship

Answer 29

A contract between two people in which one party (surety) undertakes to the other (the creditor) that he will discharge, wholly or in part, an obligation (the principal debt) owed to the creditor by another person ( the debtor ) if the latter defaults in performing the principal debt.

Question 30

What type of right is a surety

Answer 30

A personal right

Question 31

Requirements for a suretyship (elements)

Answer 31

1) Valid contract of suretyship
2) Principal Debt owed by another person
3) Undertaking to satisfy the principal debt on default

Question 32

suretyship contract requirements

Answer 32

a) capacity
b) consensus between the creditor and the surety
c) intend to be bound
d) formalities