Rights in Security QUASI – SECURITY
Heritable securities granted by third parties are envisaged by Conveyancing and Feudal Reform (S) Act 1970. No personal obligation by owner, debt due only by debtor. Many small business funded by banks. Require security over family home. Where owned jointly spouse required to grant security
The standard security held over any land or real right in land may be registered in the register of Sasines or land register in Land reform 1970 act. Once it is registered the security will have a real right.
This is not caution. Sterilising use of family home as security would inhibit commerce. No duty of care or duty of disclosure at common law or so it appeared. No duty of disclosure under cautionary obligation either
Position in England began to change in1980s in Court of Appeal and law was finally clarified in House of Lords in Barclays Bank v O’Brien (1994) Held creditor owed duty to advise spouse because ought to be aware of propensity of spouse to unduly influence other
House of Lords reached same result in Smith v Bank of Scotland. Law of cautionary obligations where there was no duty of disclosure was clear. Use made of exceptions such as French v Cameron. Settled on contractual good faith as basis of new principle. Creditor obliged to advise ‘spouse-cautioner’ to be separately advised
Typical mortgage is secured by ‘all sums’ security. Where granted by both spouses for joint obligation eg. House purchase. Both benefit –duty never arises. Royal Bank v Wilson (2003) – Even when security subsequently used for husband’s business debts. Does principle only apply to Matrimonial home? Not clear
Duty is based on good faith of creditor. If creditor reasonably believes spouse has been separately advised still in good faith even if not the case – Broadway v Clydesdale Bank (2000 + 2001) and Forsyth v Royal Bank (1999)
England HL has developed requirements considerably in Royal Bank v Etridge [No 2] Not followed in Scotland, Clydesdale Bank v Black & Thomson v Royal Bank. Current state of Scots law uncertain and unsatisfactory
A standard security may be transferred in whole or in part via assignation with the two forms prescribed by Sch.4. It is possible for a debtor to grant more than one standard security over the same property, the first has highest priority however open to challenge. Holder of standard security may find he has competition, thus he can seek to inhibit the debtor form alienating his heritable estate.
Where a debtor is in breach of some non-monetary obligation, the creditor may serve a notice calling on the debtor to remedy the default within a month S21.