BA 265 week 7 Assignment Securities

Securities

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Securities

Security is given by providing the creditor the right of ownership to a property in the event that there is non-payment of the principal debt to secure payment by means of a personal right against another party to carry out the expected performance. In this case the principal debtor remains liable in terms of their agreement with the creditor. Real security occurs when the debtor is insolvent and the creditors gets or acquires the complete protection against the potential default of the debtor by ensuring that the value of his real security is adequate.(Scott,1987)

There are two contracts entered, first, one is between Steve and Liv for $ 4000 and secondly between Steve and Dane for $10,000. In the scenario presented we can state that there is a loan and a further loan created in our situation. One may choose to call it charge and further charge. Further charges/loan arise out of the same security used to obtain the first loan which in this case the security is the motor vehicle belonging to Steve. In the order of priority the first one obtains the equitable interest in the motor vehicle owned by Steve the same scenario applies to the second loan (Havenga & Roshana, 2007).

The law of equity states that in the event equities are equal, the first in time prevails this falls under the maxims of equity. Maxims of equity are a creation of equity that ensures fairness and justice is attained or prevailing. The above maxim is used in the event that there are two interests competing that is one may be is legal and the other equitable or equitable wholly. This though has been discussed, disputed, reviewed based on the circumstances arising and displaced by legislations adopted by various systems. On the other hand there may be a scenario where the parties involved both have got right to possess something of which in this case the motor vehicle belonging to Steve. The one who acquired an interest first should carry the day in equity. The value of the security should cover both the loan and the further loan (Havenga & Roshana, 2007).

Liv will get his $ 3000 security and sue for the remaining $1000. Dane is then exposed. He gets no return for his money based on the provision of the maxim if it were to be strictly applied. He can sue in contract under the demand of the unpaid debt. In the likely event that Steve has a house under his name or other attachable, Dane would obtain judgement for $ 10,000 debt and attach Steve’s other properties for the same. But this might not be the case because we are not told about the house title or any other attachment belonging to Steve. In other words as the law states Dane gets nothing based on the law of equity under maxims of equity (Hoffer, 1990).

Contract law and equity both come to a conclusive point in an example that was established to explain this maxim. In a precedent transaction there were two interested parties and it was decided by the court that the first buyer gets the boat and the second person however high his sum is would get his money back. The courts intention in this case is to curb the inequality that would rise where highest bidders would come and carry the day regardless of the timing the contract is entered which might be termed as financial supremacy and defaulting from contracts would rise due to the highest bidder. The maxims of equity in their operation are flexible and purposed at ensuring justice for both parties of the agreements. Equity goes into looking at circumstances that one party or both are faced with (Hoffer, 1990).

On the contrary one would then say that the intent of equity in the order of priority is to ensure that no equity suffers a wrong that would go without a remedy and in this case Dane in as much as he had loaned Steve $10000 would then sue Steve to obtain judgement for the money owed and attach Steve’s other properties that is if information were provided that the house or whatever he owns has his name on the title. The same may be adopted by Liv to get his remaining sum of $1000.

This situation is experienced a lot with the banks and in most occasions they are usually suspicious and circumspect when it comes to further charges or loaning. Ideally the value of the security should be adequate to cover both the loan and further loan in this case. Banks would then try to estimate the whole sum of that would amount to the estimate of the security issued to be able to release the funds for the basic fear of the exposure as is the position of Dane (Havenga & Roshana 2007).

References

TJ Scott and Susan Scott, (1987)Wille’s law of mortgage and pledge in South Africa 3ed Cerda Communication.

Hoffer, Peter Charles, (1990). The laws conscience: Equitable constitutionalism in America. Chapel hill: University of North Carolina press

Havenga Peter, Havenga Michele, Kelbrick Roshana et al, 2007, General Principles of Commercial Law,Juta and Co Ltd