• An amount is owed by a debtor to a creditor = principal debt
• Creditor may require that debtor provides some security in respect of the
performance of the debt (to ensure money is paid back)
• Particularly important in insolvency
• Right of security = accessory right
Þ The right is dependent on the validity of the principal debt
Þ Once principal debt is satisfied, security is terminated
Þ If debt is void, right of security is void
• Two types: real security vs personal security
• National Credit Act and common law
CHAPTER 2 – Forms of real security
General principles
• Debtor’s property serves as security for payment of debt e.g. mortgage
• Creditor obtains limited real right
• Right “attaches” to the asset/property of the creditor
• In event of insolvency, creditor has preferential and secured claim to proceeds
from sale of asset
• Best form of security
• Real security is enforceable as long as the principal debt exists (accessory)
• Distinguish between nature of the object of the security (movable vs immovable)
• Forms of real security
1. Mortgage bond on immovable property
2. Real security over movable property
3. Security obtained by operation of law
Real security over immovable property (mortgage bond)
• Can only be registered over immovable property
• Confers on creditor a limited real right to property
• Must be registered in the Deeds Office (to acquire real right)
§ If property is sold, Registrar of Deeds will not transfer ownership unless
mortgage bond is cancelled or property is exempt
• Debtor retains ownership in and use of the property
• In event of debtor’s default payment, creditor may have mortgaged property sold
in execution with court order (section 26)
, § Creditor has preferent claim on insolvency of debtor
§ Unless debt originated 2+ months prior to registration of bond and was not
secured before registration
§ Exception: “Kustingsbrief” – bond registered simultaneously with registration
of transfer of land to buyer
• Regulated by National Credit Act
• Mortgage over future debts:
§ Covering bond – secures future debts e.g. bank overdrafts
• Participation bond – investors lend money to an investment company which in
turn lends money to a third party
Real security over movable property
1. Pledge
• Security over another person’s movable property e.g. diamond ring
• Delivery of property required by debtor (pledgor) to creditor (pledgee)
Þ After object is delivered, pledgor does not have use thereof any longer
Þ Pledgee also cannot use the object
Þ Delivery confers a limited real right to pledgee (before only personal right)
• No formalities required
• Pledge = accessory right
• In case of insolvency, creditor has a secured claim on proceeds of sale
• Object can also be sold in execution with court order OR without court order if
contract provides parate executie clause (immediate exemption)
2. Special notarial bond
• Security held over a corporeal, movable property or assets that are reasonably
identifiable
• Requires registration in the Deeds Office to acquire the limited real right
Þ Only applies for special notarial bonds registered after 7 May 1993 outside
Natal (real right was acquired there before)
• Does not require delivery since debtor retains physical control
• If debt is not paid, burdened property can be sold in execution in payment of
outstanding debt
Þ In case of insolvency, secured creditor receives share in proceeds
• General notarial bond
§ No real right acquired
§ This also applies to special notarial bonds registered prior to 7 May 1993
(except in Natal)
§ Not a secured creditor, but has preferent claim on free residue of insolvent
estate
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LaurenMcJannet. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R60,00. You're not tied to anything after your purchase.
