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Summary Property law notes

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Summary of 14 pages for the course Property Law at wits

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  • March 7, 2022
  • 14
  • 2021/2022
  • Summary
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REAL SECURITY
Brief Introduction

Personal Rights – only claimable between the parties. If someone is insolvent, the claim dies.

Real rights – attach to an object such that the changing of hands does not affect the right!

Limited real rights – a right in respect of a thing which belongs to another. It is a burden on the
property. Person has an interest in something owned by another. The limited RR attaches to the
thing through the person who has RR’s.

Purpose of security? It is designed to achieve performance of an obligation by securing debt.

Could be personal security (like standing surety for the debt of another) or it could be RS. (Example
of personal security – Brian can’t afford to pay his varsity fees. His dad stands surety for him. His
dad’s surety is personal security. The bank cannot go to just anyone and claim payment.

Real Security

Real Security confers a limited real right to a creditor over the property of a debtor for the purpose
of securing payment of a debt or generally the performance of an obligation. On default of the debt,
the creditor may demand that the property subject to the security, be sold to satisfy the claim (this is
what we were talking about yesterday in relation to mortgage’s).

RS does not vest entitlements of use or enjoyment. It exists only for the purpose of RS.

NB NB NB TWO THINGS are essential for a RS agreement:

1) A principle obligation (debt & loan)
2) An accessory obligation that is contingent on the principle obligation.

The accessory obligation is the real security.

No RS without a principle obligation & if the PO is invalid, fulfilled, terminates in some way, that
extinguishes the RS obligation.

RS can take the form of mortgage, pledge, notarial bond, lien etc.

 You can enforce through execution subject to specific rules or if the debtor goes insolvent or
liquidates, you will be a secured creditor and be higher up the payment order.

Parties in principle obligation are the debtor and creditor.

Parties in the RS obligation are either the Mortgagor and Mortgagee OR pledgor & Pledgee (don’t
mess this up).

Kilburn v Kilburn Estates 1931 AD (authority for accessoriness)

- A husband (k1) and wife (k2). K1 agreed to pay k2 500 pounds and as security for the
payment, he pledged all his immovable property as RS for the debt.

PRINCIPLE OBLIGATION = k1  k2 (500 pounds)

REAL SECURITY = k1  k2 (pledge to secure debt)

, - K1 wanted to give his wife RS so if a debtor came after his assets or he went insolvent she
will have preference.
- Court held neither party regarded the PO as a debt. It was a simulated contract because
neither spouse felt bound to the PO. They did not have animus and so the PO is invalid THUS
via the principle of accessoriness, the RS is extinguished.
- ‘The settlement of security, divorced from the obligation it secures seems to me
meaningless, by our law there must be a legal or natural obligation to which the
hypothecation (real security) is accessory’.

PLEDGE

Requirements

1) There must be a principle obligation to which the pledge is accessory.
2) There must be a real agreement (intention to create a pledge agreement, so real intention to
secure a debt via an object and intention to receive security via the thing).
This requirement has effects for simulated contracts (ie vasco dry cleaners).
3) Must be delivery from the pledgor to the pledgee of possession.

On agreement:

- Agreement will be carefully scrutinized to ensure transaction is not simulated to remove
assets from possession to the detriment of creditors (Kilburn).
- Sometimes parties intend to confer benefits of a pledge through the likes of a sale and resale
agreement, this is a simulated transaction and unless it confers to the requirements of a
pledge, the courts will not be able to effect the true intentions of the parties (Vasco).
- Chelwik v Penny – A ‘sold’ his furniture to B and delivered it on condition that he had the
right to repurchase it. True nature of the agreement was a pledge and the sale agreement
was simulated. A pledge was given effect to.

On Delivery:

- Because object of a pledge is to confer a RR on the pledgee which he or she can enforce
against others, it is essential that the pledge has possession.
- Most preferred means is actual delivery but constructive means can be used.
- The publicity principle underlies delivery because there is no title deed for movables.
Creditors must be protected.
- All constructive modes are fine except Constitutum Posessorium
- Vasco confirms that CP can never constitute a pledge. The pledges cannot simply change his
mental attitude and retain physical control.
- The mode of control must give exclusive control to the pledgee (Vasco and Quenties
Motors).

Clavium traditio – requires exclusive control & so will work.

Traditio Longa Manu – pointing out must be sufficient to give control over thing (must be exclusive
control for a pledge, not just sufficient control).

Attornment can work because pledger cant make use. Pledgee must have exclusive control.



- The requirements for a pledge are very strict to prevent fraud.

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