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Contract Law > Security Notes > Flashcards

Security Notes Flashcards

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0
Q

•What is personal security?

A

Where a 3rd PARTY binds HIMSELF contractually for the proper performance of the obligation (debt) of the principal debtor (suretyship)

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1
Q

•Why security?

A

– Debtor/creditor relationships are a characteristic of all developed societies/legal systems
– Protection of the creditor against debtor being unable to pay.

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2
Q

•What is real security?

A

Where the debtor BINDS all / some of his ASSETS as security for his debt
- (eg pledge + mortgage)

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3
Q

•Why is it better to have real security?

A

Real security far more advantageous to creditor:

  • Suretyship: mere additional personal right vs the surety (cr now has personal rights vs principal debtor and vs surety)
  • Real Security (pledge/mortgage): a real right in relation to a thing of value + makes cr a secured creditor (vs concurrent)
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4
Q

What does it mean to say that a security contract is “accessory” in nature?

A

Security contract is dependant on the existence of a valid underlying principal debt / obligation.

  • Does not create a Principal Obligation.
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5
Q

How can Suretyship be defined?

A

•Definition:

  • 3rd Party (the “surety”);
  • Binds himself to the creditor;
  • For the proper performance of the obligation (debt);
  • Of the principal debtor
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6
Q

Suretyship:

Who are the parties to a Suretyship contract?

A
  • 3rd Party (Surety) binds himself to;
  • The Creditor, for proper performance of;
  • Principal Debtor’s debt.
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7
Q

Suretyship:

What is the nature of the Suretyship contract?

A

•Nature of the suretyship contract:

– ACCESSORY to valid, underlying principal obligation/debt
•exists only for so long as the principal debt exists
•Terminates/extinguished when principal debt/obligation terminates

– Provides a PERSONAL RIGHT to the creditor
•if principal debtor fails to perform, cr can call on surety to perform in his place (ie surety has NO primary oblig)

)

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8
Q

What is the difference between a Surety and a Co-Debtor?

A
  • Surety only becomes liable for the debt once the Principal debtor falls into default.
  • Co-debtors are jointly and severally liable for the principal debt.
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9
Q

Suretyship:

What problem arises where a person binds himself as Surety and Co-principal debtor?

A

•“as surety and co-principal debtor” - ?

– Differs from ordinary suretyship
– Surety = liable jointly and severally with the principal debtor as soon as debt becomes due and payable

– Cr can elect to claim against surety or principal debtor from the outset

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10
Q

Suretyship:

How is a Suretyship Contract concluded?

A

A Suretyship Contract:

  • Ordinary Reqs for validity:
    1) Consensus; 2) Contractual Capacity; 3) Legality; 4) Possibility;
5) Formalities:
i- In writing;
ii- Signed by/on behalf of Surety;
iii- Identities of parties and principal debtor.
iv- Nature of Principal debt
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11
Q

Suretyship:

What are the consequences of Suretyship?

A

• Surety is liable when due and payable principal obligation (debt) is not met by PD timeously
–unless: cr and surety have agreed otherwise / surety is able to rely on the benefit of excussion

  • Where surety has also bound himself as co-principal debtor: may be liable from moment principal debt falls due
  • Surety can rely on any defence vs the cr’s claim that the principal debtor could have relied on except those defences attaching to the person of the principal debtor (eg that the PD is a minor).
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12
Q

Suretyship:

What are the benefits of Surety?

A

1) Benefit of excussion
• Surety may insist that cr demands payment from PD first before looking to the surety

2) Benefit of division (only where more than 1 surety)
• Any surety held liable by the cr may insist that the principal debt be divided pro rata among all the sureties (ie that he is held liable only for his pro rata share)

3) Benefit of cession of action
• Where surety has performed to the cr, he may demand that the cr cede all securities and personal rights of the cr vs the PD or vs the co-sureties to that surety

4) Recourse vs co-sureties
• Ex lege claim vs co-sureties for pro rata amount of princ debt

5) Recourse vs principal debtor
- Surety who has satisfied prin. oblig. has ex lege right to claim amount from principal debtor.

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13
Q

Suretyship:

When will a Suretyship contract terminate?

A

•1) Extinction of principal debt
–owing to accessory nature of suretyship

  • 2) Performance by principal debtor
  • 3) Valid for limited period only
  • 4) Material alteration of the principal obligation
  • 5) Ordinary methods by which a contract can be terminated
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14
Q

What are the general characteristics of a Mortgage and Pledge?

A

• Accessory in nature
– Real security Inextricably linked to underlying principal oblig (arising from contract, delict, enr)

•= Dual Relationship

(i) Agreement to mortgage /pledge gives cr the personal right to demand that;
(ii) Real security be registered (mortgage) / delivered (pledge)

– Limited real right (ie real security) then brought about by:
• Pledge: Delivery of thing pledged
• Mortgage: Registration of bond in Deeds Office

Subject matter- Movable; Immovable; Incorporeal.

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15
Q

Mortgage and pledge:

What does indivisibility with regards to a Mortgage or Pledge mean?

A

Mortgaged/pledged thing remains subject to mortgage/pledge for as long as the principal debt remains unsatisfied in FULL.

-eg where A has repaid 90% of the principal debt, he won’t be able to claim that 90% of the (eg) pledged object should be released from the pledge

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16
Q

Mortgage and Pledge:

What are the consequences of mortgage and pledge?

A

Consequences:

(i) In the event of non-payment by the debtor: cr can have the mortgaged / pledged thing sold in execution
(ii) In the event of the debtor’s insolvency: cr will be a secured cr vs debtor’s insolvent estate (vs mere concurrent cr)
(iii) Debtor cannot sell pledged thing to deprive cr of his security (secured object will remain subject to the pledge and debtor will not be able to pass ownership over thing (delivery not possible)
(iv) Sale of mortgaged thing: to transfer ownership, mortgage bond must first be cancelled in Deeds Registry (consent of mortgagor required for cancellation)

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17
Q

Mortgage and Pledge:

How can a mortgage and pledge be terminated?

A

Mortgage/Pledge can be terminated in one of the following ways:

1) Performance of secured obligation;
2) Total destruction of hypothecated object;
3) Period for which security granted expires;
4) Pledgee loses possession;
5) Merger;
6) Pledgor loses title to object;
7) Pledgee/Mortgagee waives security;
8) Novation;
9) Court Order;
10) Sold in execution;
11) Prescription by non admittance of 30 years.

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18
Q

What is a Pledge?

A

•Definition:

– Provides a limited real right to a creditor;

  • which secures a debt owed to the creditor;
  • by placing a movable thing belonging to the debtor (“pledgor”) or 3rd party;
  • in the possession of the creditor (“pledgee”)

*3rd party? consent of owner of thing = essential to validity of the pledge

19
Q

Pledge:

What is an agreement to pledge?

A

Agreement to pledge

  • Pledgor and pledgee conclude pledge contract
  • No formalities
  • Delivery of pledged thing = essential (pledgee obtains real right only upon delivery of the thing to him)
20
Q

Pledge:
What happens where a bona fide 3rd party obtains possession of the pledged thing (eg a purchaser) after concl of the pledge contract but before delivery to the pledgee - ?

A

Proposed pledgee cannot claim thing from 3rd party.

- BUT: where 3rd party was mala fide, the Pledgee may claim object in accordance with doctrine of notice.

21
Q

Pledge:

What is a Pactum Commissorium clause?

A

In terms of this clause the Pledgee becomes owner of the pledged thing if the Pledgor fails to pay.
- Such a clause is INVALID.

22
Q

Pledge:

What is a Pactum antichresis clause?

A

This type of clause allows the Pledgee to USE & ENJOY the pledged object for the duration of the pledge (often a substitute for payment of interest)
- Such a clause is VALID.

In absence of such clause: Pledgee commits breach if uses/enjoys pledged object.

23
Q

Pledge:

What is a Parate Executie (Summary Execution) clause?

A

This clause allows Pledgee to sell pledged object without recourse to the court and to satisfy the principal debt from the proceeds.
- Such a clause is VALID (Bock v Dubororo)

  • Pledgor can object to sale if sale will be to Pledgor prejudice.
24
Q

Pledge:

What are the Real Rights of the Pledgee?

A

Right of pledge confers certain powers on Pledgee, such as:

1) Pledgee may keep object as long as pledge subsists;
2) Pledgee can sell object in execution after:
- Obtaining judgment; or
- Ito Parate Executie.
3) Object doesn’t form part of Pledgee insolvent estate;
4) Where Pledgor insolvent- Pledgee is secured creditor.

25
Q

Pledge:

What duty does the Pledgee have in terms of the pledge agreement?

A

Pledgee has duty to take proper care of pledged object.

26
Q

What is a Mortgage?

A

A mortgage is where:

  • Mortgagee (cr.) obtains a Limited Real Right;
  • Over Immovable Property;
  • Belonging to the Mortgagor (dr) or 3rd party;
  • To secure payment of a debt.
27
Q

Mortgage:

How do parties agree to mortgage?

A

Mortgagor and Mortgagee conclude a Mortgage Contract (which creates a Mortgage Right)
BUT:
- Security constituted by REGISTRATION of bond in Deeds Office.
(NB: Must be in writing)

28
Q

Mortgage:

Is a Parate Executie clause valid in terms of a mortgage contract?

A

In principle such a clause is invalid.

- Only be valid where Mortgagor gives specific consent to such execution, AGAIN, after falling into default.

29
Q

Mortgage:

What does the real right of a mortgage entail?

A

1) Bond on property includes other accruals (eg building on land);
2) Mortgagor remains in possession of use & enjoyment of property;
3) Possible to have more than one mortgage over same property;
4) If Mortgagor wishes to sell property, bond must first be cancelled.

30
Q

Mortgage:

What are the different types of mortgage bonds?

A

1) Special bond over specified immovable property;
2) Kustingsbrief;
3) Kinderbewys;
4) Covering Bond;
5) Bond over movable and immovable incorporeal property;
6) Notarial bond.

31
Q

Mortgage:

What is a Notarial bond?

A
  • “Special” or “General” (description of objects of security)

Brings about a mortgage over MOVABLE PROPERTY.(Same principles as mortgage bonds.)

  • Bond embodied in a deed which must be notarially executed.
  • Bond must be lodged for registration within 3 months of its Notarial execution.
32
Q

Mortgage:

What is the difference between a special and general Notarial bond?

A

NB- Only SPECIAL Notarial bond provides REAL SECURITY.

  • General Notarial bond= Mortgagor has no real security in respect of property, BUT: does give Mortgagor statutory preference in insolvency.
33
Q

What is a “cession in security”?

A

Aka Cession in Securitatem debiti.
- Debtor and creditor conclude a CESSION AGREEMENT.

This is when:

  • a debtor (cedent) cedes personal rights;
  • to creditor (cessionary);
  • as security for performance of debtor’s obligation.
34
Q

Cession in security:

What form may cession in security take place.

A

It may take the form of:
1) Complete Cession: ownership passes
OR
2) “Pledge” of personal rights: no change in ownership over pledged object.

  • NB- intention of parties
35
Q

What are hyphothecs?

A

Hyphothecs provide real security but debtor’s consent isn’t necessary.
- Operate ex lege.

36
Q

What types of hyphothecs are there?

A

1) Landlord’s tacit hypothec;
2) Credit grantor’s tacit hypothec Ito s84(1) of Insolvency Act;
3) By order of court.

37
Q

Hypothec:

What is the credit grantor hypothec?

A

The credit grantor hypothec Ito s84(1) of Insolvency Act, is where:

  • CG has hypothec over an object sold on credit by way of instalment agreement (NCA)
  • Offers protection to CG in event of insolvency of debtor.
  • secures payment of balance of purchase price still owing.
38
Q

What is a liens?

A

A Liens is a “Right of Retention”.

  • Where a person in POSSESSION of a thing, belonging to another, has incurred expenses in respect of the thing (money/labour);
  • He has the right to KEEP POSSESSION of the thing, until he has been reimbursed by the owner.

Serves as a method for SECURING reimbursement.

*POSSESION= ABSOLUTE PRE-REQUISITE.

39
Q

Liens:

What 2 types of Liens are there?

A

1) Debtor/ Creditor Liens (based on contract)

2) Enrichment Liens (based on unjustified enrichment)
- (i) Salvage/storage Liens
- (ii) Improvement Liens

40
Q

Liens:

What is the debtor/creditor liens?

A

This liens is constituted by a DEBTOR/CREDITOR RELATIONSHIP.

  • The creditor incurs costs based on an agreement with debtor.
  • There is contractual consent to expenses (express/tacit).
  • Creditor entitled to remain in POSSESION until paid.

Eg. Builder of house in terms of building contract
- also service garage over car brought in for repairs.

41
Q

Liens:

What does an Enrichment Liens entail?

A

This is where a person is in POSSESSION of property, and has incurred costs WITHOUT CONSENT.

  • Lien is constituted if Owner BENEFITTED/ is ENRICHED.
42
Q

Liens:

What costs are recoverable with regards to a Salvage/storage liens?

A

Usually all costs are recoverable (ENRICHMENT).

43
Q

Liens:

What costs are recoverable with regards to an Improvement Liens?

A

The amount by which an owner is enriched is recoverable.

HOWEVER: the DOUBLE CAP RULE applies, where the claim of the lien holder is limited to:

  • The smaller of:
    (i) Amount of enrichment to defendants estate; or
    (ii) Amount of impoverishment to Plaintiff’s estate.
44
Q

Liens:

What types of expenses are recoverable in terms of the Enrichment Liens?

A

1) Necessary Expenses
- Preservation and protection of thing
- > RECOVERABLE

2) Useful Expenses
- Increase Market Value of thing.
- > RECOVERABLE

3) Luxurious Expenses
- Neither necessary nor useful
- > Recoverable ONLY UNDER DEBTOR/CREDITOR LIEN!!!

45
Q

Liens:

What is legal effects do liens have?

A

1) Gives lien-holder/possessor right to RESIST OWNER’S CLAIM for return of thing.
2) Retention until settlement;
3) After obtaining judgment- Sale in execution
4) Insolvency of owner- Lien-holder= secured creditor against insolvent estate.

46
Q

Liens:

How is a lien terminated?

A

1) If the obligation/debt is satisfied/ terminated;

2) If lien-holder voluntarily parts with object.
Possession is essential

Contract Law (11 decks)

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