REAL SECURITY RIGHTSREAL SECURITY RIGHTS(Mortgage and pledge)(Mortgage and pledge)

Chapter 18Chapter 18Chapter 18Chapter 18

Learning outcomes of this UnitLearning outcomes of this UnitDistinguish between the different forms of Distinguish between the different forms of security.security.

List the categories of real security in our law.List the categories of real security in our law.

Explain why real security is described as an Explain why real security is described as an accessory legal relationship.accessory legal relationship.accessory legal relationship.accessory legal relationship.

Know the following regarding pledge:Know the following regarding pledge:–– What this concept meansWhat this concept means

–– What requirements must be met regarding the object of What requirements must be met regarding the object of the pledgethe pledge

–– What requirements must be met regarding controlWhat requirements must be met regarding control

–– The rights and duties of the pledgeeThe rights and duties of the pledgee

Learning outcomes of this Unit Learning outcomes of this Unit (Continued….)(Continued….)

Know the following regarding mortgage: Know the following regarding mortgage: –– What this concept meansWhat this concept means–– The requirements that must be met regarding the object The requirements that must be met regarding the object of mortgageof mortgage

–– The requirements that must be met for the registration The requirements that must be met for the registration thereofthereof

–– The distinction between the various categories of The distinction between the various categories of –– The distinction between the various categories of The distinction between the various categories of mortgagesmortgages

–– The rights of a mortgageeThe rights of a mortgagee

Identify the conditions that are unenforceable in Identify the conditions that are unenforceable in the case of a mortgage and pledge.the case of a mortgage and pledge.Explain how a pledge and mortgage can be Explain how a pledge and mortgage can be terminated.terminated.

INTRODUCTIONINTRODUCTIONCategories of securityCategories of security–– Personal / real securityPersonal / real security

DefinitionsDefinitionsPersonal security:Personal security: creditor on basis creditor on basis performance due (principal debt) , acquires performance due (principal debt) , acquires performance due (principal debt) , acquires performance due (principal debt) , acquires creditor’s right as security for payment of creditor’s right as security for payment of principal debt.principal debt.

Real security:Real security: creditor acquires limited real creditor acquires limited real right as form of security against payment of right as form of security against payment of principal debt.principal debt.

Creditor(Bank)

Object/Thing

Debtor

Principal debt

REAL SECURITY

(Bank)Object/Thing

Limited real right

Creditor(Bank)

Debtor

Principal debt

PERSONAL SECURITY

(Bank)Debtor

Personal right

Categories of real securityCategories of real security––PledgePledge

––MortgageMortgage

––Cession in Cession in securitatemsecuritatem debitidebiti

––Security granted by operation of Security granted by operation of lawlaw

––Security granted by operation of Security granted by operation of lawlawTacit hypothecs of landlord and credit Tacit hypothecs of landlord and credit grantorgrantor

Judicial pledgeJudicial pledge

Statutory security rightsStatutory security rights

Liens (Retention)Liens (Retention)

GENERAL PRINCIPLES GENERAL PRINCIPLES REGARDING REAL SECURITYREGARDING REAL SECURITYterminates automaticallyterminates automatically

against 3rdagainst 3rd partiesparties

preferential claimpreferential claim

principal debt and interestprincipal debt and interestprincipal debt and interestprincipal debt and interest

no entitlements of use and enjoyment no entitlements of use and enjoyment

butbut pactumpactum antichreseosantichreseos-- agreementagreement((may enjoy fruits instead of interestmay enjoy fruits instead of interest ))

form of securityform of security

PLEDGEPLEDGE

DefinitionDefinition

ObjectObjectmovablemovable

single object or collection single object or collection egeg flock of flock of sheepsheepsheepsheep

incorporeal movable property incorporeal movable property egeg shares shares in company (in company (BritzBritz v v SniegockiSniegocki))

fruit form part of object of pledgefruit form part of object of pledge

DeliveryDeliveryexercise control continuouslyexercise control continuously

ConstitutumConstitutum possessoriumpossessorium not not recognisedrecognised

if removed from control without if removed from control without permission, may claim back and permission, may claim back and continue to exercise controlcontinue to exercise control

Rights of Rights of pledgeepledgee (holder of (holder of pledge)pledge)

Limited real right as securityLimited real right as security

Preferential claim to proceeds of sale in Preferential claim to proceeds of sale in executionexecution

Sequestration Sequestration –– preferential claimpreferential claim

Enrichment claim for necessary Enrichment claim for necessary Enrichment claim for necessary Enrichment claim for necessary expenses and useful expensesexpenses and useful expenses

Prior in tempore Prior in tempore potiorpotior in in iureiure

Obligations of Obligations of pledgeepledgeeCare for property like reasonable manCare for property like reasonable man

No right to use, alienate or enjoyNo right to use, alienate or enjoy

Must return on terminationMust return on terminationMust return on terminationMust return on termination

PledgorPledgor can ask security from pledge in can ask security from pledge in case of neglect of propertycase of neglect of property

Compensation if damaged or destroyedCompensation if damaged or destroyed

–– (intentional or negligent actions)(intentional or negligent actions)

MORTGAGEMORTGAGEDefinition Definition

Object Object -- movable / immovablemovable / immovable

RequirementsRequirements

Functions of mortgage bondFunctions of mortgage bondFunctions of mortgage bondFunctions of mortgage bond

Information in a mortgage bondInformation in a mortgage bond

CategoriesCategoriesKustingsbriefKustingsbrief

Covering bondCovering bond

NotarialNotarial bondbond

Rights of mortgageeRights of mortgagee

Unenforceable conditionsUnenforceable conditions

––NBNB PactumPactum commissoriumcommissorium

Ownership transfer if payment Ownership transfer if payment not in fullnot in full

Graf v Graf v BeuchelBeuchel 2003 (SCA)2003 (SCA)

––NB NB parateparate executieexecutie p 269p 269

May sell without recourse to May sell without recourse to courtcourt

Bock v Bock v DuburoroDuburoro (Pty) Ltd 2004 (SCA) (Pty) Ltd 2004 (SCA)

How How parateparate executieexecutie is appliedis applied

Termination of pledge and Termination of pledge and mortgagemortgage

Self StudySelf Study

CESSION IN SECURITATEM DEBITICESSION IN SECURITATEM DEBITI

Leave outLeave out

Homework ActivityHomework ActivityDiscuss the obligations of the pledgee Discuss the obligations of the pledgee towards the pledgor.towards the pledgor.Will attornment be a valid form of Will attornment be a valid form of delivery to establish pledge? Motivate delivery to establish pledge? Motivate your answer.your answer.your answer.your answer.Briefly describe the following terms:Briefly describe the following terms:-- Pactum antichreseosPactum antichreseos

-- Pactum commissoriumPactum commissorium

-- Parate executieParate executie

Indicate how pledge or mortgage may be Indicate how pledge or mortgage may be terminated.terminated.