Question 2 Mr Madikwe, a millionaire, assisted his cousin by lending him R 2 000 000. Mr Madikwe requested his cousin to provide security by leaving his BMW 320I at his house until he (the cousin) paid back the money he had borrowed. Name and explain the type of security provided by Mr Madikwe's cousin and the consequences thereof. In South African law
The security provided by Mr Madikwe's cousin in this situation is known as a pledge. A pledge is a type of security where the debtor (Mr Madikwe's cousin) transfers possession of a movable asset (the BMW 320I) to the creditor (Mr Madikwe) as security for the debt (the R 2 000 000).
In this case, the BMW 320I serves as collateral for the loan. Mr Madikwe can keep the car until his cousin repays the borrowed amount in full. If the cousin fails to repay the debt, Mr Madikwe has the right to sell the car to recover the outstanding amount owed to him.
This type of security places the risk on the debtor since the debtor's property is used as collateral. If the debtor defaults on the loan, the creditor can enforce their right to sell the pledged asset to recover the debt, as agreed upon in the pledge agreement.
The type of security provided by Mr Madikwe's cousin is called a Pledge. A pledge is a type of security where the borrower (cousin) gives possession of an asset (BMW 320I) to the lender (Mr Madikwe) as collateral for a debt (the loan). In this case, by leaving his BMW with Mr Madikwe, the cousin is pledging the car as security for the loan of R 2,000,000.
The consequences of this pledge are that if the cousin fails to repay the loan within the agreed upon time period, Mr Madikwe has the right to sell the BMW in order to recover the amount owed to him. The sale of the pledged asset (BMW) would be conducted through a legal process and the proceeds from the sale would be used to settle the debt. If there is any surplus after settling the debt, it will be returned to the cousin. However, if the sale of the BMW does not cover the full amount of the debt, Mr Madikwe may take legal action to recover the remaining balance.
The type of security provided by Mr. Madikwe's cousin in this scenario is called "pledge" or "pawn" in South African law.
In a pledge, also known as a pawn, the borrower (Mr. Madikwe's cousin) gives possession of an item of value (the BMW 320I) to the lender (Mr. Madikwe) as security for the loan. This means that Mr. Madikwe has the right to hold on to the BMW until the borrowed money is repaid in full.
The consequences of this type of security in South African law are as follows:
1. Possession: Mr. Madikwe has the right to keep and possess the BMW until the debt is fully paid off. If the borrower fails to repay the loan, Mr. Madikwe may proceed to sell the BMW to recover the outstanding debt.
2. Priority: The pledge gives Mr. Madikwe a priority right over the BMW in case of any competing claims. This means that if there are other creditors who are owed money by the borrower, Mr. Madikwe's claim to the BMW will be prioritized before others.
3. Default: If the borrower fails to repay the loan and does not fulfill their obligations, Mr. Madikwe can sell the BMW to recoup the money. However, this must be done in accordance with the relevant laws and procedures, which usually involve notifying the borrower, providing an opportunity to rectify the default, and following proper legal channels for selling the pledged item.
It is important to note that the specific legal provisions and procedures regarding pledges may vary, and it is advisable for both parties to seek legal advice and refer to relevant laws and regulations to ensure proper handling of the pledge and any potential disputes that may arise.