In depth summary of Mercantile Law 198 notes relating to Securities, which are taught and tested on in second semester. The notes are typed up with extra information attained through attending all lectures.
I received over 80% for my final Merc Law exam in first year.
SECURITIES
Creditors can demand a form of security in order to ensure that debtors fulfl their obligatonss
2 forms of securities:
1. Real Security
The debtors property serves as security for payment of his debt
The creditor obtains a real right through the real security - This means that, if
the debtor fails to make payment, the creditor can have the house atached,
sold in executon and the proceeds received from the sale will be used to setle
the debts
In the event of insolvency a real security provides the creditor with a secured
and preferent claims
2. Personal Security
A third party serves as security for payment of a debt - a third party undertakes
to fulfl the obligatons of the original debtor if the debtors is unable to do sos
Creditor only obtains a personal right against the third person and it is therefore
a weaker form of security than a real securitys
Any form of security is an accessory right, which means that the right is DEPENDENT on the validity
of the original obligatons
If the principle debt is void, the right of security will also be voids
HOWEVER, if the security right is void, the principle obligaton will contnue to exists
Once the principle obligaton has been satsfed, the security will be terminateds
Forms of real security:
1. Mortgage Bond on immovable property:
A mortgage bond arises from an agreement between a debtor & a creditor and can only be
registered over immovable propertys
The bond confers a real right on the mortgagee (creditor) and is an accessory obligaton,
which is dependent on the original obligatons
The real right is acquired through registraton in the Deeds Ofce - If the property is sold, the
Registrar of Deeds will not register the transfer of ownership UNLESS the mortgage bond is
, frst cancelled or the property is exempted from the bond through writen permission of the
creditorss
It is possible to register more than mortgage over a single property without the
consent of the mortgagee (creditor)
If the debt is not paid: The mortgagee may foreclose on the bond and have the property sold
in executon to satsfy the outstanding debtss
Due to being a secured creditor, the mortgagee receives a preferent claim on the insolvency
of the mortgagors
Due to the provisions of the 88 Insolvency Act - if the debt originated 2 months
prior to registraton of the mortgage and the debt was not initally secured
before registraton, the creditor WILL NOT HAVE any preferent claims
(Except in the case of Kustngsbrief)
Bonds must comply with the formalites and provisions stpulated in the Natonal Credit Acts
Bonds can be registered over existng debts as well as future debtss
Covering Bonds: A mortgage bond registered over future debts such as bank
overdrafts and loanss They can also be registered over movable property and are
then known as a NOTARIAL COVER BOND
Partcipaton Bonds: Are well established forms of investments where investors lend
money to an investment company which in turn lends money to a third partys The
loans are secured by bonds in favour of the partcipants in the scheme in relaton to
their contributons to such schemess
2. Real Security over movable property:
2.1 Pledge:
A Pledge is a form of security held over another person’s movable propertys
It is created by agreement between the pledgor (debtor) and the pledgee (creditor) -
The pledgor undertakes to deliver movable property to the pledgees
(NO FORMALITIES ARE REQUIRED)
After the obeect of the pledge is delivered the pledgor (debtor) DOES NOT have the use
thereof any longer, however the pledgee is also NOT allowed to use the obeect of the
pledge eithers
Before delivery the creditor has a personal right and after delivery the creditor
confers a limited real right over the pledged propertys
A pledge is an accessory right and functons as a form of security for payment of a debts -
the pledged property can be sold in executon and the creditor will receive a secured and
preferent claim on the proceeds of sales
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