Real and Personal Security Flashcards
What is the nature of a security interest
It is security given by a debtor to a creditor in order to get a loan or some sort of financing.
The forms a security can take
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
The ways to receive proceeds of a property
1] Mortgage bond
2] Pledge
3] Notarial bond
Ways to ensure a third party fulfils the debtors obligations
suretyship
Notarial bonds characteristics
-movable bond
-this gives limited security
- having a general clauses that bind a debtors movable and immovable property is invalid.
What is a pledge of movable properties
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
How can one create security over movable property
Registration of Notarial bond
Within what time frame must the bond be registered after its date of execution
3 months
Types of Notarial bonds
Special
General
Which act governs Notarial bonds
Security by Means of Movable Property Act 1993 ( SMPA)
[before SMPA] Notarial bonds:
-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
Notarial Bonds (Natal) Act 1932
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
Changes brought about by SMPA
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 )
Common law applicable due to similarities between a pledge and a notarial bond
The notarial bondholder has real right over the property as if it was pledged to them even if the property is subsequently sold
The following applies to a special Notarial Bond over movable goods
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.
Readily recognisable
Is the asset easily identifiable based on its description alone ( must comply with SMPA)
Notarial bonds registered before 7 May 1993 ( before the SMPA Act)
Theses bonds are given the same preference as mortgage by a general bond
General Notarial bonds Characteristics
- 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
What rights does a bondholder of a general notarial bond have
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
How does a bondholder of a general notarial bond change their right of security
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
Which rights take precedence ..Real rights or personal rights
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
Cession in securitatem debiti/ cession as security
A holder of a personal right transfers it to secure their indebtedness to a third party.
The impracticalities of cession of security
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
The consequences of a cession in securitatem debiti
- the position of the cedent
- the position of the cessionary
- the position of the debtor
Cedent and Cessionary
Cedent (the original owner of the rights)
Cessionary (the new owner of the rights).
The position of the cedent
The position of the cessionary
The position of the debtor
Suretyship
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.
What type of right is a surety
A personal right
Requirements for a suretyship (elements)
1) Valid contract of suretyship
2) Principal Debt owed by another person
3) Undertaking to satisfy the principal debt on default
suretyship contract requirements
a) capacity
b) consensus between the creditor and the surety
c) intend to be bound
d) formalities
