Security: Part 2MORTGAGE

(General)

• = mortgagee (creditor) obtains a limited real right over immovable property belonging to the mortgagor (debtor) or a 3rd party to secure payment of a debt

Agreement to mortgage & registration of bond• mortgagor and mortgagee conclude a mortgage contract

(which creates mortgage right)• security is constituted by registration of bond in the

Deeds Registry• NB – must be in writing (formality)

MORTGAGE(General)

Section 88 of the Insolvency Act, 1936 NB

• self-study– Nagel par 28.28

MORTGAGE(Ancillary clauses)

Ancillary clauses / agreement• Pactum commissorium

– invalid (as in the case of pledge)

• Parate executie– in principle: invalid (contra pledge)– will be valid only where mortgagor’s specific consent

to such execution is given again to mortgagee after default in performance

MORTGAGE(Rights and Duties)

Rights of mortgagee• bond on property includes other accruals (eg building on land)• mortgagor usually remains in possession and retains right of

use and enjoyment of property (contra pledge)• possible to have more than 1 bond over same property• conferral of further bonds? need written consent of mortgagee • sale of mortgaged property? bond must be cancelled in

Deeds Registry firstDuties of mortgagee• if in possession of property? (unlikely) – same duties as pledgee

MORTGAGES(Types)

Special bond over specified immovable property• agreement registered in Deeds Registry• registered mineral rights & registered leases

Kustingsbrief• a bond to secure payment of balance of purchase price

iro immovable property• registered simultaneously with transfer of ownership

MORTGAGES(Types)

Kinderbewys• bond passed by surviving spouse over specific

immovable property bequeathed to minor child born of the marriage

• to secure minor child’s inheritance

Covering bond• provides security for debts incurred in the future• usually iro bank overdrafts

Bond over movable and immovable incorporeal rights• Self-study: Nagel par 28.39

MORTGAGES(Types)

Notarial bond• “special” or “general” (description of objects of security)• brings about a mortgage over movable property• same principles as mortgage bonds

• NB – only special notarial bond provides real security – general notarial bond = mortgagor has no real right iro property– BUT: does give mortgagor statutory preference in insolvency

• bond embodied in a deed which must be notarially-executed

• bond must be lodged for registration within 3 months of its notarial execution

CESSION IN SECURITY

• debtor (cedent) cedes personal rights to creditor (cessionary) as security for performance of debtor’s oblig

• debtor and creditor conclude a cession agreement

– cession in securitatem debiti

HYPOTHECS

• operate ex lege (vs by agreement)• provide real security BUT dr’s consent is not necessary• Types:

– 1) landlord’s tacit hypothec (contract of lease)– 2) credit grantor’s tacit hypothec ito s 84(1) of

Insolvency Act, 1936 • CG has hypothec over an object sold on credit by way of an

instalment agreement (NCA)• offers protection to CG in event of insolvency of credit

receiver/debtor• secures payment of balance of purchase price still owing

– 3) By order of court• Self-study: Nagel pars 29.18 – 29.21

LIENS(General)

• = a right of retention NB

– where a person in possession of a thing belonging to another has incurred expenses irt that thing (money / labour), he has the right to keep the thing in his possession until he has been reimbursed by the owner

• serves as a method for securing reimbursement• Possession = an absolute prerequisite (contra hypothecs)

• Types: NB– (a) Debtor / creditor liens (based on contract)

– (b) Enrichment liens (based on unjustified enrichment)• Salvage / storage liens• Improvement liens

LIENS(Types)

Debtor / creditor liens• constituted by debtor / creditor relationship

• creditor incurs costs based on an agreement with debtor • contractual consent to expenses (express / tacit)

• creditor entitled to remain in possession until paid

• example - ?

LIENS(Types)

Enrichment liens• in possession of property & incurred costs w/o consent• lien constituted if owner benefitted / is enriched• property salvaged / stored - ? (= salvage / storage lien)

– usually: all costs are recoverable (enrichment)• increase in market value of property due to expenditure?

– = improvement lien– amount by which owner is enriched = recoverable– additional costs (labour) - ?

• claim of lien-holder limited to:– smaller of: amount of enrichment of def’s estate or

amount of impoverishment of pl’s estate– = “double cap” rule of unjustified enrichment

LIENS(Types of expenses)

• Necessary expenses– for preservation and protection of thing– recoverable

• Useful expenses – increase market value of thing– recoverable

• Luxurious expenses– neither necessary nor useful

• recoverable only under DR/CR lien NB

LIENS(Effects and Termination)

Legal effects• gives lien-holder / possessor right to resist owner’s claim

to return thing• retention until settlement• after obtaining judgment – sale in execution• insolvency of the owner - ? lien-holder = a secured

creditor vs insolvent estate

Termination• if obligation (debt) is satisfied / terminated• if lien-holder voluntarily parts with object

– possession essential