Legal Framework for Securing the Repayment of Secured Loans - Essay Example

1 Legal Framework for Securing the Repayment of Secured Loans When we trace the Common Law of twelfth century England, it is obvious that jurisprudence in the UK has come a long way over the course of time. One historical account which we found in a piece from Historical Framework, titled "debt", describes the law as that of relational obligations. The law at this time was normative. The elemental legal categories of twelfth century England were wrongs (unilaterally involuntary, damage producing occasions) and relational obligations. Relational obligations were, of course, obligations that arose from a voluntary relationship, not from a promise. You will tend immediately to equate the actions of debt, and covenant with obligations deriving from a promise to pay or to do. That later becomes so; it was not so originally. With tenures, of course, one can speak of relational obligations in the twelfth century: they concentrated on maintaining the expectations that arose out of the relationships between the parties, rather than analyzing rights vested "in" one party or the other, the equivalency of what was given or gotten. In just this way the relationship of buying-selling, lending-borrowing, leasing, suretyship, and agency were socially recognized relationships with obligations which the laws of the time sought to maintain. The proper remedy was standing to the relationship, not damages. The presence of Anon v. Warein [1343] YB Mich 17 Edward III, fol. 48, pl.14, points to the fact that the Court of Common pleas was experiencing litigation, which led to some semblance of substitutive law being argued. In debt the character pleading is different, in that there is little substantive law (what constitutes a debt). The most important point in a debt case during the twelfth century is what the creditor has to 2 evidence the debt. Thus the two different varieties of debt were different not because they were founded on different kinds of relationships, but rather only because in one the plaintiff could present specialty to evidence the debt (=debt on an obligation) [obligation meaning specialty], whereas in the other the plaintiff only has suit, that is, two people (either actually there in the thirteenth century, or there only by obligation by early in the fourteenth century (=debt on a contract) [contract meaning a transaction (not an agreement), such as buying, selling, lending, borrowing). Do not be fooled by this usage of the word "contract": that word is now used for agreements whereas then, the word meant a transaction.1 The difference between the debt on an obligation and debt on a contract, the difference that it made whether one had specialty or only suit, was in the form of proof that followed. If the plaintiff had specialty, the defendant had two possible replies: (1) the specialty is a forgery (= not my deed) or (2) I have repaid as proven by your written acquittance under your seal. The debtor could not allege repayment unless he had the written acquittance. The only issue that could go to the jury was whether the specialty was forged (or, after circa 1380, whether the debtor was illiterate so that he did not know what the specialty said so it was, similarly, not his deed). Thus there was no possible discussion about the nature of the debt and thus little chance for the development of a 1UK Legal Framework, Debt 3 body of substitutive law. In debt on a contract substitutive discussion was usually avoided by the defendants plea: I owe nothing.2 We find in John de C v. Robert de T. (before 1309) Harvard MS 162, fol.191,3 where the emergence of substantive discussion based on proof (written and sealed tally) prevailed in court. Albeit, the defendant challenged both the validity of the tally's existence and its accuracy (the two basic forms of debtors defences) the Court of Common Pleas accepted the plaintiffs presentation that the deed was in fact that of the defendant affixed with the defendants signature, and the amount owed was accurate. This ruling established a precedent on the legal framework for securing the repayment of loans advanced on the security of property. However, it did not assure each plaintiff who possesses similar evidence and claims, that the court would as a matter of course, rule in their favor. Corruption, favoritism and the granting of special treatment prevailed in Common Pleas Courts and among sheriffs. Albeit the writ of false judgment was in effect (protected litigants against wrong judgments), the inherent incongruities of the system still caused delays which produced unjust impediments to a worthy plaintiff or similar problems to an innocent defendant. Consequently, most of the cases involving debt and property were heard in the Kings Court. Through most of the thirteenth Century 2ibid 3John de C v. Robert de T. (before 1309) Harvard MS 162, fol.191 4 the Kings Court jurisdiction was largely in matters of real property. The assurance that a debtor understands the terms and agrees to repay the secured loan is explained in the Insolvency Act of1986 S 248(B); When a creditor grants a borrower a secured loan he in effect obtains security where a person (the creditor) to whom an obligation is owed to another (the debtor) by statue or contract, in addition to the personal promise of the debtor to discharge the obligation, he obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor's obligation to the creditor.4 Mortgages are governed by the Law of Property Act 1925 which stipulate that they (mortgages) must be covered by a fixed term. The terms of the mortgage are set out in the mortgage deed. The owner (mortgagor) signs a deed (mortgage) that gives the lender (mortgagee) an interest in the property. The term mortgage is applied to the transaction itself, the deeds and the rights of the mortgagee. Also, The Law of Property Act describes the most common mortgage in s2, s13, as being the equitable mortgage, which was formerly only recognized in the court of equity, but, as a result of the fusion of the courts of law of equity, all courts are now able to exercise that equitable jurisdiction. An equitable mortgage arises where; there is an agreement to charge the property but there is 4Insolvency Act of 1986 5 some defect in the formality required to create a legal mortgage; or the borrower lacks the capacity to create a legal mortgage, e.g., where he is a joint owner. The most common incidence in this area is matrimonial properties. In these circumstances it will operate as an equitable mortgage of the equitable interest he has in the property.5 In Barclays Bank PLC v. Boulter and Boulter,6 and again in Barclays Bank v. O'Brien [1994] A.C.180,7 situations which involved equitable mortgages. Albeit, these two cases involved undue influence, they exhibit the special circumstances and special problems which equitable mortgages bring to the playing field. Further the Law of Property (miscellaneous Provisions) Act 1989 s2, with effect from 27 September 1989 states: any contract for the disposition of an interest in land, i.e., a mortgage or change, is not valid unless it is in writing, incorporates all terms agreed by the parties and is signed by all the parties.8 Each party to the agreement has clearly defined duties and responsibilities which are stipulated in the Consumer Credit Bill. The bill details the responsibilities of each party which are required to avoid a breach. On the part of the debtor a breach can 5Law of Property Act 1925 6Barclays Bank PLC v. Boulter and Boulter 7Barclays Bank v. O'Brien [1994] A.C. 180 8Law of Property (Miscellaneous Provisions) Act 1989 6 arise if he does not make payments promptly and on schedule or (2) if he makes shortfall payments, If the debtor becomes guilty of either of the two infractions, the creditor as per the Consumer Credit Bill S10, the creditor must duly inform the debtor of the amount of arrears as per S86 (Notice of Sums in Arrears Under running account credit agreements). Subsequent to notification the debtor is compelled to adhere to the notice and comply with the overall agreement. In the event that the debtor fails to comply with the arrears notice, he will then be subjected to the stipulations found in s14 default Notices. After the debtor receives the default notice and there is continued infringement as per S127 of the 1974 Act,9 the debtor will be issued a time order and he is required to give the creditor notice of his intent. This intent will be in the form of a detailed proposal. In the event he does not live up to his stated commitments and again default on payment of the mortgage, the ultimate remedy is foreclosure and sale of the property by the mortgagee. Some legal charges or mortgage deeds will say that a lender has a right to "foreclose". This means they can enter and take over the property if you fail to pay the loan and the property will belong to them. Even if they sell the property and there is a balance left over it will not be paid to the "debtor". Courts in general do 9Consumer Creditors Bill 7 not like granting foreclosure orders if a possession order will allow the lender to recover his loan. Sometimes it is better for the debtor to try and sell the property instead of the lender, if it is likely the lender will be looking for a quick sale price.10 10Compact Law.Co.UK Works Cited Barclays Bank PLC v. Boulter and Boulter Barclays Bank v. O'Brien [1994] A.C. 180 Compact Law.co.uk Consumer Credit Bill Insolvency Act 1986 John de C. v. Robert de T. (before 1309) Harvard MS 162, fol. 191 Law of Property Act 1925 Law of Property (Miscellaneous Provisions) Act 1989 UK Legal Framework, "Debit" Read More