cautionary obl Flashcards

Question

royal bank of scot v wilson

Answer 1

live next door to eachother std security requested because business concerned. there was w was an all sums secured by security WIFE secures business for husband HELD NO ACTIONABLE WRONG SHE HAD INTEREST IN BUINESS. ONLY GRAT INTEREST ARE STUCK DOWN

Answer 2

no letter in file to show that bank of scot could prove tht co owner was given independent advice thus SECURTIY STRUCK DOWN LECTURE VIEW IN PREACTICE DO NOT HAVE TO KEEP LETTERA FOR MORE THAN 6 YEARS PROBS THROWN AWAY

Answer 3

``` smith relationship not fully formed actionable wrong did grant gart did cred warn to get independent advice if you FAILE ONE = NO CLAIM ```

Answer 4

where the house house of lords set down detailed compulsory guidelines for the cred to fllow to ensure that it was satisfied proformal agreement cautionar has 2 options sue the bank strike down OR sue the sol as the advice wass not good eniugb to explain consequenses

Answer 5

Principal obligant and cautioner liable in solidum. So it is joint and several liability (discussed earlier – meaning the creditor can claim whole sum from either). Must be default, but creditor need not first seek to enforce against principal obligant. The cautioner has a right of relief against the principal obligant, if the cautioner has to pay the creditor.

Answer 6

(1) Caution for a fixed debt (eg £10,000 loan). Cautioner’s liability can never increase. (2) Caution for a fluctuating amount (eg overdraft). This is a continuing guarantee and (unless otherwise agreed) may be terminated by notice to creditor, which fixes liability at sum then due. Example (combined with rule in Clayton’s Case): Anne is cautioner for overdraft of Beta Ltd. When overdraft stands at £25,000 Anne terminates. Thereafter credits to account of £12,000 and debits of £10,000. Anne now liable only for £13,000. (The £10,000 of debits are post-termination loans

Answer 7

Caution is often limited to defined ceiling: eg caution for overdraft but maximum liability £60,000. This can lead to interpretation problems. Suppose principal debtor sequestrated. Debt £100,000. Dividend (which is the amount paid out of the debtor’s estate on sequestration) 30% = £30,000. Then: 1) Is the £30,000 to be ascribed to guaranteed part of debt? In that case cautioner now liable only for £60,000 minus £30,000 = £30,000. The creditor gets the £30,000 dividend plus the amount due from the cautioner, a maximum of £60,000 10/29/ 2) Or is the £30,000 to be ascribed to non-guaranteed part of debt? In that case cautioner liable for full £60,000. The creditor in this case gets the £30,000 dividend PLUS the amount due from the cautioner – recovering £90,000 in total. 3) Or is the £30,000 to be ascribed rateably to both? That would mean: £12,000 to non-guaranteed part and £18,000 to guaranteed part. In that case cautioner liable for £60,000 minus £18,000 = £42,000. The creditor in this case gets the £30,000 dividend PLUS the amount due from the cautioner after rateable apportionment. This means the creditor gets £72,000 in total.

Answer 8

if cautioner applied a cap then no.over draft fluctuated can be increased the cautioner mey not want to be held resp so may apply a cap to prevent them from being held liable for full debt of cautioner the cap can either be a PROP if the debt or a FIXED SUM CONTRACT WILL STATE EXPLICITLY

Answer 9

1. earlies credt meets earliest debt 2.this means any money that b receives into their account goes to pay off the debt pre cap. 3. so total credit going in to account in 3 k 4. this will pay of 3k of debt pre cap pre cap debt= 2 k- which still has a guarantee 5. debt after cap remains at 3k

Answer 10

defendant rules in interpresting if flux = prop where as fixed will be cap the interpretation is dependent onb the wording of the bond a clause that leads to 2 is called an ultimate loss caclause The creditor in this case gets the £30,000 dividend PLUS the amount due from the cautioner – recovering £90,000 in tota seems to be wbaf the law presumes :The creditor in this case gets the £30,000 dividend PLUS the amount due from the cautioner after rateable apportionment. This means the creditor gets £72,000 in total.

Answer 11

 Right of relief – the right to get payment from the principal obligant (but what happens in bankruptcy? See below)  If cautioner has paid, creditor must assign the right to enforce the debt and any existing securities to the cautioner: beneficium cedendarum actionum.  Division and discussion (if proper cautionry) Division: a co-cautioner is only entitled to a pro rata share of debt and can only be asked to pay if all creditors asked to pay o Discussion: the cautioner only had to pay when the creditor has taken all reasonable steps to enforce the debt against the principal obligant. This is only available if contracted for: Mercantile law Amendment (Scotland) Act 1856, s 8. o Both can be supplanted by agreement. (see earlier for discussion)  Cautioner has right to rank in bankruptcy of principal obligant (if the cautioner has paid the debt in full) but the cautioner cannot rank in the bankruptcy of the principal obligant if the creditor has ranked for the debt in the bankruptcy (as a result of the rule prohibiting double ranking). The rule on bankruptcy is complicated and warrants special consideration

Answer 12

termination of cautionary obls | The creditor can agree to discharge the cautione

Answer 13

termination of cautionary obls When the principal debt is extinguishe passage of time

Answer 14

termination of cautionary obls Any alteration of loan terms, without consent of cautioner, implies discharge of cautioner, even if not prejudicial. However, note that further advances may not be covered. See Bank of Scotland v MacLeod 1986 SLT 504 overdraft = 10k day 1 extend to 20k cautioner argued material charge still caught by cautionary obl caution

Answer 15

termination of cautionary obls lend you more money = terminate cautionary obl material difference

Answer 16

termination of cautionary obls Giving time Where creditor does not demand payment when it falls due (which serves to impact on the cautioner’s right of relief). Where the creditor gives up securities If the creditor voluntarily discharges a security the cautioner is released (to the extent of the security released). Discharge of a co-cautioner If there are multiple cautioners discharging one can lead to release of the other cautioners.

Answer 17

termination of cautionary obls 5 years from the date that the obligation becomes enforceable. This may be 5 years from the date of demand: Royal Bank of Scotland v Brown 1982 SC 89

Answer 18

termination of cautionary obls | distriction between real and personal rights

Answer 19

Bankruptcy: the rule against “double ranking” No. This debt already “ranked for” by Bert (as part of the £60,000). If Carol could rank for it, that would be unfair to other creditors, since more than 20% would be paid on the original debt of £60,000.

Answer 20

A has a std sec over the house with B for 40k but A debt is greater than the std sec. so B recovers part of the sdebt by selling the house then becomes unsec cred for the rest. trustee in seq= 20% of 20k = 4k b total recovery = 44k

Answer 21

``` a-b 60k. Bert recovers £40,000 from her as he rank first. Bert still ranks in sequestration for full original debt 20% of 60k= 12k 40k+12 Total recovery: £52,000 ```

Answer 22

IF CAUTIONER PAY CRED FIRST THENTHEY GET FIRST RIGHT OF RELIEF AGAINST THE PO IF THEY PAY AFTER THE INSOLVENSY PROCESS BEGAN THEN CRED CAN CLAIM RIGHT OF RELIF FROM CAUTIONER IF B CLAIMED AGAINST A COULD PAY B THEN C, WOULD LOOSE THE RIGHT TO RELIEF THROUGH DOUBLE RANK RULE Suppose that Carol paid the £40,000 before Alf’s sequestration. Then Bert ranks only for £20,000. Total recovery £40,000 + £4,000 = £44,000. Carol ranks for £40,000. Recovers £8,000. Her total loss only £40,000 minus £8,000 = £32,000. So in her interest to pay early: Mackinnon’s Trs v Bank of Scotland 1915 SC 411

Answer 23

principal obl unable to pay | rule against double ranking

Answer 24

capped cautionary obl example the cred get 500 from 50p to £1 div the cautioner agreed to oay 200 so they can retrieve that overall cred gets 700 in theory cautioner has right of relief but doube ranking = not valid

Answer 25

goes insolvent with prop cap cautioner = gurentee 1/5 of debt PO will contribute 500 as div set at 50 p to a £1 1/5 of total debt = 1/5 of 500 to find out what cautioner contributes = 100 cred gets a total of 600

Answer 26

Mere obligation to grant security is not security. Must be constituted as a real right. This usually means possession or registration

Answer 27

(1) proper from (2) improper asset security (sometimes referred to as quasi-securities). In (1) there are two real rights in the thing: the real right of ownership, which the debtor has, and the (subordinate) real right of security, which the creditor has (jus in re aliena). In (2) there is only one real right, ownership, which is vested in the creditor. The debtor has no real right, but has personal right to be made owner when debt is paid. Debtor may be regarded is owner in functional sense, but in law creditor is owner. Ownership is being used as security

Answer 28

a right in sec is over property belonging to someone other than cred

Answer 29

the debtors liability is distinct fromliaability of asset cannot be pushed cannot be passed onto someone else remaining until exec pays with property transfer of cres right= assignation of debt transfer of debtors right transfer of ownership changes of debtors right is not prevented by excsitance of sec and does not affect cred rights NEITHER PERSONAL/REAL accessory rights parasitic rights secures obligatipon 1970 act secures debts and obls ad factuem praestandum remedy to selling the asset and get money out disconnection with money value for breach of obl real rights right to sell asset pact to sell goes beyond that attaches to cred. can get paid before other cred cannot have secret real right PUBLICITY PRINCIPLE seecutrity of land not crwated by debtor acceptance but by REG

Answer 30

accessory rights and the 2 year missives | dependent can personal right secured. security have no existance if NO DEBT

Answer 31

rela right credit over property std sec can say no if security value reduced = ancillary pursuers to protect investment

Answer 32

taxonomies corpeal movables= lien pledge land lords hypothec heritable property- std sec( includes long lease) incoperal movable- no right in sec as assignation required

Answer 33

taxonomies possesioory= pledge and lien (car don't pay garage excerciese lien and take pos until debt paid) non possessiory- hypothecs includes std sec

Answer 34

``` taxonomies express- voluntary consensual tacit- lega; arising out of operation of law steps in provides application to the court of any cred cease asset judicial-dil= inhibiton and adjudication attachment arrestement ```

Answer 35

you can have one or more security over property (eg floating charge and std sec) leads to Q of priority ranking who gets what when asset is sold gfloating charge is a NON POSSESORY HERITABLE MOVANLE over everything it owns express sec not normal sec can be real right as soon as it goes into liquidation to have floating charge oteher examples = double glazinfg finance std sec double glasxing finance anf bank std secBANK PARID FIRST POST OOSENED RANKING

Answer 36

more than one sec is possible where one sec is a non possessory in this case either post posed ranking or paripasi ranking will apply

Answer 37

Gavin receives £120,000 and Harriet receives £60,000. She is an unsecured creditor for £20,000. G reg first so prior tempore jure = has real right prevails

Answer 38

1. they are ranked equally so house sold for 150k they each get 75k then are unsecured cred for the rest 2. if b ranks first because reg first then he can claim his real right in se first

Answer 39

200k:100k 2:1 1/(1+2) of 150 2/(1+2) of 150 1/3of 150k= 50k 2/3 of 150k= 100k then unsecured cred for rest house sold for 150k Bankruptcy of deb tor: If asset worth more than debt, creditor is paid in full and balance goes to trustee in sequestration or liquidator. (Creditor cannot recover more than 100%.) If asset worth less than debt, creditor takes value of asset and is unsecured ordinary creditor for the deficiency

Answer 40

If X has a security over plots A and B and Y has a postponed security over plot B, in the event of default X would have the power to realise either plot A or plot B. If X realised plot A and X’s debt was paid in full Y would be free to realise plot B and could be paid. However, if X instead decided that the outstanding debt would be satisfied by the sale of plot B then the proceeds of sale of plot B would go to X initially, and Y would only receive a payment in the event that X’s debt was not fully paid. If X was not fully paid from the proceeds of sale Y could end up with only a personal right against the debtor. This is not in the interests of the debtor. The interest of the debtor is to ensure that debts should be paid as fully as possible. So the law steps in to make an equitable adjustment to the default position. In the example given X is known as a catholic creditor, and Y is known as a secondary creditor and a series of rules apply to protect the secondary creditor’s interests. The principles applicable to catholic and secondary creditors apply whether the securities are voluntary or involuntary. However, it appears that the rules do not apply where the catholic creditor has a floating charge: see Forth and Clyde later.

Answer 41

“Where there is one secondary creditor, the catholic creditor is not entitled to proceed so as to injure the secondary creditor while not obtaining any benefit himself.” In effect this means that the catholic creditor should act in such a way as to leave the largest possible sum for the secondary creditor. However, this does not prevent the catholic creditor from realising plot B. Plot B may be more marketable. If the catholic creditor realises plot A and the debt due is satisfied the catholic creditor’s security over plot B will be discharged and the secondary creditor will be able to realise plot B and obtain payment. However, if the catholic creditor realises plot B the catholic creditor must assign his security over plot A to the secondary creditor.

Answer 42

gen= often std sec special security that only goes over debt Some securities general/unrestricted ("all sums due and to become due") ie creditor can charge asset with any debt due to him by that debtor. Others special/restricted ie creditor can charge only certain debts to that asset

Answer 43

follows the acceory principal

Answer 44

the personal right against against the debtor for fulfilment of personal obl- when they assign the personal right they have to assign the right in the security and intimate to the debtor. if they do then no assignation the real right in the encumbered subject - there is an attempt to assign the claim to payment there is an attemot to assign the right to sec it matters if the right in sec is created by reg

Answer 45

uk arcorn was about transferring righ in sec had to assign the personal right and the real right which required reg of the std secHELD if it was to be a valid assignation the personal right of assignating by communicating and real right = the public act of reg the std sec would need to be sone

Answer 46

Security can generally be enforced by sale. (Exception to the principle of nemo plus juris ad alium transferre potest quam ipse habet?) Obligation to get best price. Balance returned to debtor, or to other secured creditors. The principal exception to this is the floating charge where the creditor has no power to realise the asset. But see also the landlord’s hypothec. APPLY to court to get power to sell cred can sell as non owner. crd will get a real rihg agreement/ opledge no needed where commercial need to serve a calling up notice = 2 month to comply OR notice by default= 1 month RESIDENTIAL GO TO COURT any money left from sale of house goes to debtor or other cred FLOATING CHARGE GETS PRIORITY BEFORE UNSECURED CRED .

Answer 47

Extinction of rights in security Rights in security can be extinguished in various ways including: (a) following the accessory principle, extinction of the obligation (see payment and commercial paper for discussion of extinction of debts); (b) discharge of the security; (c) the destruction of the encumbered property ; (d) voluntary renunciation (in whole or in part) of the security by the creditor; (e) confusio – where the holder of the security is also owner of the encumbered subjects ; (f) compulsory acquisition of the property; ( g) being struck down by the court under (i) vices of consent; (ii) the offside goals rule (see your lectures on property law – but note the special rule for offside goals where the competing real right is another right in security); (iii) the rules striking down unfair preferences (see the insolvency lectures later); and (h) enforcement of the security

cautionary obl Flashcards

(71 cards)