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Security 1) Types of Security a. Pledge a.i. Possession is the strongest form of security a.i.1. Way of creating security by the actual delivery of a tangible movable asset to a creditor to be held until the performance of an obligation a.i.2. Confers certain implied rights, such as the right to sell the pledged assets to meet a defaulted debt b. Lien b.i. Right to retain possession of another person's property until he settles an obligation b.i.1. Legal lien requires actual possession of the property but does not confer any right to sell it b.i.2. Equitable line does not require possession and will give a right of sale through application to the court c. Mortgage c.i. Confers ownership to a bank along with a right to sell on default and an obligation to re-transfer title on satisfaction of the debt c.i.1. Can have a legal mortgage 101 LPA 1925 c.i.2. Can have an equitable mortgage resulting from c.i.2.a. A written agreement by a borrower that the property is to be secured by way of equitable mortgage c.i.2.b. An agreement to provide a legal mortgage c.i.2.c. A mortgage over an equitable interest c.i.2.d. A mortgage over property not yet owned by the borrower c.i.2.e. A purported legal mortgage that does not comply with all the necessary formalities c.i.2.e.i. Equitable mortgages can be ignored by a bona fide purchaser for the value of the legal title to an asset without notice of the equitable security d. Assignment d.i. It will in effect create a legal mortgage if it complies with 136 LPA 1925 d.i.1. In writing and signed by the assignor d.i.2. Absolute d.i.2.a. Walter v Sullivan the whole of the debt/contract needs to be assigned d.i.3. Notified in writing to any person against whom the assignor could enforce the assigned rights d.ii. If it is not a legal assignment, it will be an equitable one d.ii.1. Ranks above a floating charge in an insolvency proceeding d.iii. An assignment cannot transfer the assignor's obligations d.iii.1. There is a danger that any indemnity provisions for increased costs might be unassignable without consent because they are personal e. Charge by deed expressed to be by way of legal mortgage e.i. Legal mortgage over land e.i.1. No transfer of ownership e.i.1.a. Freehold property - 3000 year lease e.i.1.b. Leasehold property - 1 day less than the length of the lease f. Fixed Charge f.i. Gives lender rights over the asset which f.i.1. Prohibit the borrower from disposing of the asset without permission f.i.2. Attempt to maintain the asset's value whilst it is in the borrower's hands f.i.3. Allows the bank recourse to the asset in the event of the borrower's default under the loan
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