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    Week 6 Slides

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    Week 6 Slides

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    4 views38 pages

    Week 6 Slides

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    khanyisilengwenya59

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    You are on page 1of 38

    LAW OF PROPERTY

    LWPRA3

    Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with the Department of Higher Education and Training as a private higher education institution under the
    Higher Education Act, 101, of 1997. Registration Certificate number: 2001/HE07/008
    WEEK 6: REAL SECURITY RIGHTS
    Learning Outcomes
    To be able to understand the rationale behind
    real and personal security

    To distinguish between personal security rights


    and real security right

    Comprehend the functions of real security rights

    List the categories of real rights

    Describe the nature of real security right


    •Chapter 12
    To Lend or Not to Lend:
    Unveiling the Money Dilemma

    Ø Whenever a creditor lends money to a


    person (debtor), the creditor takes the
    risk that the debtor may not repay
    Ø To reduce this risk, the law has created
    a process that provides some
    protection for the creditor
    Ø It allows the creditor to take steps to
    recover money still owed in the event
    that the debtor does is unwilling or is
    unable to repay the loan
    How does the
    law protect the
    creditor?
    LESSON 1
    Personal and real
    security
    • SA law provides for several forms of security for example
    suretyship
    • The are two broad categories of security namely personal
    and real
    • Personal security right- this gives the creditor a personal
    right against a third party (person who is not a debtor) who
    undertakes personally to settle the principal debt if the
    debtor fails to do s
    • Real security right- this gives the creditor a limited real
    right in property that belongs to the debtor
    • PLEASE NOTE: PERSONAL SECURITY RIGHTS are regulated
    by law of obligations and REAL SECURITY RIGHTS are
    regulated by Property Law. Focus of the lecture will
    therefore be on REAL SECURITY RIGHTS
    INTRODUCTION: REAL SECURITY RIGHTS

    Primary reason for real security rights is to give a secured creditor the right of first preference over the
    property in question ( the security object)

    Note, however that a prior secured creditor with a real security in the same security object outranks the
    later creditor.

    N.B It is crucial for creditors to conduct thorough due diligence to ensure that the property being offered
    as security is not already encumbered by existing security interests. This diligence is essential to safeguard
    the creditor's interests and to avoid potential complications arising from overlapping security claims
    CATEGORIES OF REAL
    RIGHTS
    REAL
    SECURITY
    RIGHTS
    ACTIVITY 1

    1 2 3
    Define each List the Explain each
    category different types type
    under each
    category
    EXPRESS REAL SECURITY RIGHTS

    These are created by express agreement


    between the creditor and the debtor and
    include the following:
    EXPRESS REAL MORTAGAGES
    SECURITY RIGHTS
    Discuss
    What is special mortgage in immovable property?

    How does is come into existence?

    How does it operates?

    Types of mortgages

    How does it terminate?


    PLEDGES

    EXPRESS
    REAL
    SECURITY
    RIGHTS
    Discuss
    What is a pledge?

    How does is come into existence?

    How does it operates?

    What is meant by the delivery of a plegde?

    How does it terminate?


    NOTARIAL BONDS

    EXPRESS
    REAL
    SECURITY
    RIGHTS
    Discuss
    What is a notarial bond?

    What is the difference between a general and special


    notarial bond?

    Explain how the object of the two different bonds differs


    and also what rights are created?
    LESSON 2
    TACIT REAL SECURITY RIGHTS

    These are created by the operation of the


    law and include the following:
    TACIT REAL SECURITY RIGHTS
    TACIT HYPOTHEC
    TACIT REAL SECURITY RIGHTS
    CREDIT GRANTOR TACIT
    HYPOTHEC
    • If the credit grantee is declared
    insolvent before the last installment is
    paid, the Insolvency Act 57 of 1993
    provides that the installment sale
    agreement creates a tacit hypothec in
    favor of the credit grantor.
    LIENS

    • A lien may be a real security right


    that arises by operation of the law
    or it may be a personal right
    • Purpose of the lien is to secure
    repayment of the minor that the
    lien holder has expended on the
    owner’s movable or immovable
    property
    • It functions as a defence to the
    owner’s rei vindication and
    entitles the lien holder to retain
    possession of the property until
    compensation has been paid.

    This Photo by Unknown Author is licensed under CC BY-SA


    LIENS- Requirements
    • A lien comes into existence only if the property in
    question was in the l holder’s possession at the
    time the expenditure was incurred
    • Both elements of possession must be satisfied
    • To sustain the lien, the lien holder must continue to
    possess the property until payment occurs.
    • If lien holder losses possession lien is terminated
    automatically
    When a creditor has taken judgement against a debtor
    who has failed to comply, the creditor may enforce the
    judgement by applying for a writ of execution

    Judicial real The writ serves as a warrant that authorises the sheriff
    to attach the debtors movable or immovable property
    security rights
    Attachment of the property creates a real security
    right in favor of the creditor
    Judicial pledge- is where the property is movable
    Judicial mortgage- where a property is immovable
    Nature of real security right

    They are iura in re


    Real security rights are The confer limited and
    aliena- i.e rights in the
    limited real rights specific entitlements
    property of another.

    They are accessories in


    If the underlying
    nature- their existence is
    principal debt is invalid, See Kilburb v Estate
    dependent on the
    the real security will not Kilburn on next slide
    existence of the
    come into existence
    underlying debt
    ACTIVITY 1

    Read: Kilburn v Estate Kilburn

    What is the facts of this case?

    What is the legal question?

    What did the court decide?


    Kilburn v Estate
    Kilburn
    • Facts- Husband agreed to pay his wife an amount of
    £500. To secure debt he passed a notarial bond in favour
    of his movable property. Husband died insolvent and the
    widow claimed £500 from the insolvent estate
    • Legal question whether the widow had a preferential
    claim to the proceeds of the sale of her late husband’s
    movable property
    • Court’s decision: Court held that the principal debt was
    invalid which meant that the notarial bond was also
    invalid and, consequently, widow had no claim
    Legal Transactions
    • Different legal transactions are involved when
    parties create a real security right. These
    transactions may be categorized as follows:

    Act to
    Credit create real
    Agreements security
    right

    Security
    Agreement
    Pre-conditions
    • A number of preconditions must be
    fulfilled before a real security right
    can come into existence namely:
    • Property must be res in commercio
    • Parties must have the capacity to enter
    into a legal transaction
    • The owner of the property must
    consent to the creation of the real
    security right
    • Parties must intend to create a real
    security right
    Credit Agreement
    • Agreement that establishes a principal debt
    • Governed by the law of contract: National Credit
    Act
    • Creates personal rights
    Security Agreement
    • Agreements to provide security
    • Identifies the nature of security
    • Governed by the law of contract
    • Creates personal rights
    Act to create real
    security right
    • The security agreement by itself is insufficient to create a
    real security right
    • Parties must comply with requirements for establishing a
    limited real right
    • Creation of the real security must be publicised
    • Movable-delivery
    • Immovable-registration
    Activity
    John, a small business owner, needs a loan to expand his operations. He
    approaches ABC Bank for a loan of R500,000. The bank agrees to lend
    him the money, but as a condition, they require security for the loan.
    John offers his car (a movable property) and his house (an immovable
    property) as security. They enter into a credit agreement and a security
    agreement, and the necessary steps are taken to create real security
    rights in both the car and the house.

    Outline the steps John and ABC Bank must take to create real security rights
    in John's car and house. What legal requirements must be met for these
    security rights to be valid?
    Answer
    To create real security rights in John's car and house, the following steps and legal requirements
    must be met:

    Credit Agreement:
    Establishment of Principal Debt: John and ABC Bank must enter into a credit agreement where the
    bank lends R500,000 to John. This agreement establishes the principal debt and is governed by the
    law of contract and the provisions of the National Credit Act.

    Security Agreement:
    Agreement to Provide Security: John and ABC Bank must enter into a security agreement where
    John agrees to provide his car and house as security for the loan. This agreement determines the
    nature of the security (e.g., a pledge for the car and a mortgage for the house) and is also governed
    by the law of contract.

    Creation of Real Security Rights:


    Publicisation: The creation of real security rights must be publicised to be valid. The method of
    publicisation differs for movable and immovable property.
    Answer continuing…
    Movable Property (Car):
    Delivery of the Car: The real security right in the car comes into existence when John delivers the car to ABC
    Bank. Delivery ensures the security interest is publicised.
    Fulfillment of Additional Requirements: Any other requirements, such as registering the pledge if required by
    specific regulations, must also be fulfilled.
    Immovable Property (House):
    Registration in the Deeds Registry: The real security right in the house comes into existence when the
    mortgage is registered in the Deeds Registry. This registration publicises the security interest.
    Fulfillment of Additional Requirements: Any other statutory or contractual requirements must also be met.
    Preconditions for Validity:
    Property Must Be Res In Commercio: The car and house must be legally capable of being traded or used as
    security.
    Capacity to Enter Legal Transactions: Both John and ABC Bank must have the legal capacity to enter into the
    credit and security agreements.
    Owner's Consent: John, as the owner of the car and house, must consent to the creation of the real security
    rights.
    Intention to Create Real Security Right: Both parties must intend to create real security rights over the car and
    house.
    By following these steps and meeting these legal requirements, John and ABC Bank ensure that the real
    security rights in the car and house are validly created, providing the bank with security for the loan.
    Conclusion
    It provides
    mechanisms that
    allow owners to
    Real security is It affords creditors
    maximize the
    important to limited real rights
    potential to generate
    commercial activity over bonded property
    wealth by offering
    their existing property
    as security for credit
    REMINDER FOR THIS
    WEEK

    • ONLINE TEST DEFERRED

    • ATTEMPTS: 1 ATTEMPT ALLOWED

    • Only available for students that


    successfully applied for it.

    • SCOPE: ALL CONTENT FOR WEEKS 0 - 3


    Revision

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