Security (2)

Daniel Freedman
Mind Map by Daniel Freedman, updated more than 1 year ago
Daniel Freedman
Created by Daniel Freedman over 4 years ago


Mind Map on Security (2), created by Daniel Freedman on 11/19/2015.

Resource summary

Security (2)
1 Security by Operation of Law
1.1 Tacit Hypothecs
1.1.1 Arises automatically, in certain circumstances, where one person becomes indebted to another or particular relationship exists which might result in indebtedness
1.1.2 Types Landlord’s tacit hypothec Security granted over certain moveables on leased property. Granted in favour of the landlord of that property, so the person who owns the property, has the security. What does it secure? OVER DUE RENTAL When does it arise? It arises as soon as the rent becomes overdue, however at that point in time its only a personal right. How do you PERFECT THE HYPOTHEC? (ie. give rise to what will ultimately be a limited real right)) The landlord must go to court and attach the property in question, and once a notice of attachment has been served on the lessee, the landlord will have a ltd real right in that property, and the security will be perfected. What is the relevance of the Magistrates’ Courts Act (s31) & Automatic Rent Interdicts? This act says that a landlord in this situation can go to the mag court provided it is a case where the overdue rental falls within the monetary jurisdiction of the mag court (up to max of R400K), anything more it goes to the high court. Then the land landlord can ask for an automatic rent interdict which will prevent the lessee or anyone else from moving the property from the premises. NOTE: Interdicts are quick, and you don’t have to notify the lessee. Rights of landlord on insolvency of lessee? Landlords tacit hypothec gives rise to a ltd real right, and thus if anyone else tries to claim the property to pay their debt, the landlord can say no, they have a ltd real right and thus entitled to the proceeds from the sale of the property. HOWEVER, is only the case when rejecting other creditors who SECURED THEIR CLAIMS AFTER THE DATE IN WHICH THE OVER DUE RENTAL BECAME PAYABLE Limitations on rent claimable? You cannot claim the full amount necessarily. If the rental is payable in up to one month intervals then the maximum amount that the landlord is secured for is 3 months. If payable in 1-3 month intervals then max amount secured is 6 months. Intervals of 3-6 months --> max amount secured is for 9 months. In all other cases, max amount secured is 15 months. Property subject to hypothec? The general principle is that everything on the property could be subject to the hypothec. Exceptions: Cannot claim the property of a sub-lessee unless they owe rent too 3rd parties property, unless lessee and sub-lessee's property cannot cover the debt Any property subject to a Notarial bond Any property secured by a Credit grantor’s hypothec Termination Payment of arrear rental Does the hypothec terminate upon cancellation / termination of lease agreement? NO Only once the rent has been paid!!!!!! Credit grantor’s hypothec What is it & when does it arise? Arises automatically, purchaser doesn’t have to do anything to give rise to a CGH Exists to secure debts which have arisen in terms of an iINSTALMENT SALE AGREEMENT Agreement must either say that you wont be the owner of the car until the FULL AMOUNT has been paid at 60 months, or the agreement must say that you will become the owner immediately on signing the agreement but if you default then toyota is entitled to claim that you return the car to them. Insolvency of purchaser? Seller becomes a secured creditor in the insolvent estate (best position)
1.2 Judicial Mortgages
1.2.1 Created by judicial authority ie. courts
1.2.2 When do they arise? Arise as soon as the sheriff has gone to someone house to find enough property to pay off the debt, and they’ve attached the relevant property.
1.2.3 What is the effect of a judicial mortgage? Solvent Debtor It gives the creditor who has the judicial mortgage a preference over the proceeds of the sale of the property that has been attached over the other creditors in the estate. There is a qualification in this, in that creditors rank in the order in which they have obtained attachment. Insolvent Debtor Question is when the sale of the goods in question are PROCESSED. If the person is declared insolvent before the sale of the goods then the creditors preference will end and they will just become a normal creditor in the insolvent estate.
2 Ranking Of Security
2.1 Over Immoveable Property
2.1.1 1. Enrichment lien(s) 2. Special mortgage bond(s) *NB date of registration must be taken into consideration 3. Debtor & creditor lien(s)
2.2 Over moveable property
2.2.1 1. Enrichment lien(s) 2. Pledge(s) 3. Special notarial bond(s) 4. Debtor / creditor lien(s) 5. Credit grantor’s hypothec(s) 6. Landlord’s hypothec(s)
3 Suretyship
3.1 How does suretyship differ from the other kinds of security discussed?
3.1.1 A person and not a thing gives rise to the security.
3.2 Advantages
3.2.1 The major advantages are commercial (director can stand surety) and convenience (no possession, and little admin required).
3.3 Disadvantages
3.3.1 Only gives rise to a PERSONAL RIGHT. This means that if the surety (person who is extending the security themselves) becomes insolvent, dies, leaves country, then the creditors security is meaningless.
3.4 Definition and Structure
3.4.1 A contract where a 3rd party (the surety) binds himself to the principal debt (either to the whole or just a part of that debt) while the debtor is still bound.
3.4.2 The surety will only be liable if the debtor DEFAULTS.
3.4.3 The contract is between the surety and the creditor ONLY. There is no requirement for the debtor to consent or even know about the suretyship
3.4.4 Suretyship is similar to other forms of security in that it is ACCESSORY to the principal contract. Principal Obligation Must be valid & legal Need NOT exist at the time of concluding the suretyship agmt
3.4.5 Can a company not yet formed enter into a suretyship agmt? NO, if the debtor doesn’t exist yet, then a suretyship cannot be entered into for a debtor’s debts.
3.5 Formation REQUIREMENTS
3.5.1 1. Contract concluded btwn creditor & surety 2. Must be in writing, and must be signed 3. Must contain 5 specific terms Needs to specify (1) the identity of the creditor, (2) the identity of the debtor, (3) the identity of the surety, (4) the nature and amount of the principal debt, and (5) the duration of the suretyship
3.5.2 Non-compliance with requirements? Renders contract void, for two reasons: 1. there must be certainty for the parties, 2. it prevents exploitation of the surety by the creditor.
3.6 Effect of Suretyship?
3.6.1 What is the surety’s principal obligation? To pay if the debtor doesn’t pay.
3.6.2 To what extent may the surety be held liable? This is entirely dependent on what the contract says. The contract may say that the surety is liable for the full amount of the principal debt, for example. What it CANT be, is MORE than the principal debt.
3.7 Co-sureties
3.7.1 More than one surety providing security in relation to one debt. They are jointly and severably liable for the payment of the principal debt ie. The creditor can proceed against one or all of the co-sureties… all or one can be held liable. If only one is held liable, the others are absolved and can’t be held liable.
3.7.2 Where co sureties are solvent They will be liable only for a pro rata share of the principal debt UNLESS they have agreed otherwise.
3.8 Relationship between surety & creditor
3.8.1 UNLESS otherwise agreed, debt enforceable on debtor’s default HOWEVER, there are FOUR defences available to surety 2. Defences in rem Any defenses based on the underlying obligation, which will be a debt. If the debt is invalid or unlawful, the contract will be invalid or unlawful. HOWEVER the defences that surety cannot rely upon are those that relate to the personal status of the debtor. 4. Benefit of excussion NB Refers to the obligation of the creditor which the surety can raise to exhaust all legal remedies against the debtor (must try and get the debtor to pay) before a approaching the surety to pay. NB This only applies if the surety RAISES it. If there is a shortfall of excussion, then surety must pay remaining amount Circumstances when this defense may fail: 1. when the debtor has been declared insolvent and his estate has been sequestrated 2. when the surety fails to raise this defense 3. Where the surety waives his benefit of excussion. 4. Where the surety has bound themselves as co-principal debtor, then the benefit of excussion will fail. 3. Benefit of Division Only applies when there are co-sureties on board. If creditor proceeds against one of the sureties, that co surety can say that they are only liable for THEIR share of the debt. So this allows co surety to claim from the other co sureties where he has paid the whole of the principal obligation. 1. Defence of public policy Contract contrary to public policy = unenforceable Whats contrary to public policy? Contrary to the desires of the community. Unreasonable in terms of the businesses requirements NO commercial justification for the clause Clause makes unnecessary inroads into the surety’s rights
3.9 Termination
3.9.1 Payment / discharge of principal debt, as suretyship is accessory Material alteration of suretyship agmt by creditor to detriment of surety Expiration of time Notice of termination
3.10 Surety’s remedies
3.10.1 Surety who pays has recourse (can claim money back) against Debtor AND Co-sureties REQUIREMENTS Surety must have paid debt already OR must have raised any defenses available or not have been negligent in failing to raise those defenses WHAT IF surety pays creditor & debtor does too? Surety is entitled to the debtors enrichment claim against the creditor to get his money back.
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