Return to Contents Hypothecation Auarantee: Lecture Given To An Audience Of Bankers On The 6th December, 1955 [1] Philip Le Couteur This paper is intended to give you an outline of the development of that branch of the Jersey Law of real property that relates to hypothecation and guarantee. I have, however, gone into considerable detail when discussing the modern law relating to hypothecs as that part of the law is obviously of special importance to bankers. Jersey was probably taken over by the Normans in about the year 931 when William Longsword was Duke of Normandy. The Duke first reserved a good slice of the land for himself and then he granted the rest to religious houses and to his cronies. In return for their land these feudal lords had certain services to perform, many of those owed by the lay lords relating to the defence of the Island. Until the reign of King John the more important ones sat as assessors in the Royal Court but in the reign of King John they were supplanted by the Jurats. The feudal lords divided up their fiefs or manors among the serfs that they found living on the land when it was granted to them in consideration of an annual rente which might consist of anything that an agricultural holding could produce, such as grain, beans, poultry or eggs. (All these rentes were called seignorial rentes.) They also usually stipulated the performance of certain services, such as the carrying of the lords' crops and the ploughing of his fields. At first these grants of land by the feudal lord were only made for the life of the serf, but the lord usually made a fresh grant to the son or next of kin of the grantee and these estates soon became patrimonial. As soon as this happened the tenant could deal with his land as he pleased. He could sell it, pledge it or create rentes on it. I shall say a few words about the land retained by the Duke when the Normans seized the Channel Islands. He retained this land in order to provide revenue for the payment of the Governor of the Islands, the building and upkeep of the castles, the payment of the garrisons and other expenses necessary for the security of the Islands. Much of the land was leased in perpetuity, or as we say bailée à fin d'héritage for a sum that varied from 3-10 sols a bouvée . A bouvée, originally as much as an ox could plough was 5 acres, and a sol is worth about ½d in modern currency. You will now appreciate why the Crown Revenues are so small at the present time. If the Crown lands had only been leased for a term of years, the Crown Revenues would still be an extremely valuable source of income, but, on the other hand, the economic development of the island might have been seriously retarded, especially as, in all probability, the feudal lords would have followed the example of their Duke and limited their grants of land to a term of years. If this had happened, a visitor to Jersey today would probably find a few immense manor houses surrounded by dilapidated hovels. Our laws on the division of real estate, which have always insisted, generally speaking, on an equal division of land amongst the sons, have also contributed to a large extent to an even distribution of wealth. The responsibility of the Duke's tenants was, however, not confined to the payment of the small annual rent that I have mentioned. They had other duties to perform. Perhaps the most important one was, and still is, the annual election of a Prévot. The principal duty of the prévot is the serving of summonses. These officers are ted each year and take oath before the Royal Court. The services of nearly all summonses is, therefore, still effected without any expense to the taxpayer. [2] Some of the Duke's tenants, however, did not pay an annual rent in mo example, Raulin Le François owed for 42 acres of land an annual dinner to the king at Michaelmas, which was however partaken by the Bailiff, the Viscount and the Greffier. This dinner could be commuted for the payment of 1 sol that is ½d [3] in modern currency, which does not raise any extravagant notions of the style of living in those days. The history of our land tenure is an extremely interesting subject and it is a pity that practically nothing has ever been written about it. In early times all legal acts of importance including transfers of land, took place in the parish church `publicly, in the hearing of the parish' (à ouïe de paroisse). The written document, when there was one, was secondary, and served only to record that a public act had taken place. Even an agreement made in the Royal Court would subsequently be confirmed `in the hearing of the parish'. Until 1279 the people of the Channel Islands had only been able to make their contracts `verbally'. In that year Edward I granted an official seal to the Bailiffs of the islands in order that transactions might be done in a more seemly and official manner. Soon after 1300 this seal fell out of use, and in its place, apparently without authority, two similar seals appeared, one in Jersey, the other in Guernsey, and these were used on the authority of the Bailiff. These two seals are still in existence. (The Royal Seal of Edward I). In 1460 the Comte de Maulevrier took possession of the island in the name of the King of France. He remained in control of the Island until 1463 when he was ousted by Sir Richard Harliston. In 1462 he made numerous Ordinances for the good government of the Island and one of these provided for the setting up of a registry of contracts and sales of land. The Royal Commissioners who visited the Island in 1562 and 1591 made a similar Ordinance. However, it was not until 1602 during the governorship of Sir Walter Raleigh, that the Public Registry was finally established by Act of the States. After that date all contracts passed before Justice had to be registered. If they were not registered they only ranked as private agreements. This meant that they did not create a hypothec and did not rank according to their date in a bankruptcy. A creditor, for example, who neglected to register a contract passed before Justice for the purpose of securing a loan ranked only with the unsecured creditors. If on the other hand, he had his contract registered, his priority in a bankruptcy was regulated according to the date of his contract. At the time of the establishment of the Public Registry in 1602 and for more than 150 years afterwards, all judgments of the Royal Court condemning a person to pay a fixed sum of money or by which a debtor acknowledged his indebtedness to his creditor in a fixed sum were considered to create a hypothec, the priority of which was regulated according to the date of the act of Court. These judgments did not need to be registered in the Public Registry in order to create a hypothec. This was obviously very inconvenient as at that time the books of the Royal Court were not indexed. In 1769 the practice arose of registering these judgments in a separate book called the book of obligations, and the Code of 1771 made this registration obligatory. From that time a plaintiff who did not have his judgment registered and a creditor who did not have his acknowledgement of indebtedness registered ranked only with the unsecured creditors in a bankruptcy. I shall now try to explain what a hypothec is. The most ancient method of securing a loan was by means of a pledge. A pledge is the transfer of the possession of property as security for the payment of a loan, the lender remaining in possession until repayment of the loan. This method of securing a loan was found to be very inconvenient, especially with regard to real property. For example, if the property pledged was land, not only did the borrower have to give up possession of his land but the lender often did not take the trouble to cultivate it properly. In order to remedy this unsatisfactory state of affairs, the ancient Greeks evolved a method of securing loans by which the borrower merely charged his property without giving up possession and undertook to give it up if he failed to repay the loan at the stipulated time. This method of securing loans was called hypothecation. In order to avoid fraud the ancient Greeks affixed to a hypothecated property a notice stating the amount of the loan and the value of the property. At first a hypothec only charged property owned by the borrower at the time of the loan, but later all property acquired by the borrower after the date of this loan was also held to be hypothecated as a security for the repayment of the loan. The Romans borrowed both these methods of securing loans from the Greeks. A hypothec may be defined as a right given to a creditor by contract or by operation of law over property belonging to his debtor without transfer of possession or title to the creditor. This right given to the creditor is a droit réel, a jus in re, a real right. A right is real when it can be enforced against all the world. This droit réel confers on the creditor the right to avail himself of his security not only against his debtor but against any third party to whom the property hypothecated may have been transferred. On the other hand a droit personnel, that is a jus in persona, a personal right, can only be enforced against the debtor himself. A hypothec is a droit réel accessoire. The word accessoire indicates that a hypothec cannot exist alone. It is only a collateral or dependant right guaranteeing a debt. To summarise: a creditor who has a hypothec to secure a loan:- (1) Does not have possession of his security. (2) Has the right to follow his security into the hands of third parties. (3) Has priority over all simple contract creditors, his priority being regulated according to the date of his hypothec. The Grand Coutumier, which was put into writing between 1235 and 1258, described two methods of securing a debt on land: by mort gage and by vif gage. These were two forms of pledge. A mort gage or mortuum vadium means a dead pledge. The creditor entered into possession of the land and took the rents and profits in discharge of the interest only. The debt was not paid off by the operation of the pledge. When the capital of the loan was reimbursed, the creditor handed back the land to the debtor. A vif gage or vivum vadium means a living pledge. The creditor entered into possession of the land and took the rents and profits in discharge of both the principal and the interest of the loan. It was called a living pledge, because it automatically and by its own force discharged the entire debt. When the debt was discharged the creditor handed back the land to the debtor. In early times these pledges were made verbally. These were obviously most unsatisfactory methcuring a debt, but they were still in use about 1630 when Poingdestre wrote his commentaries on the Grand Coutumier [4], and they are mentioned in the Code of 1771. A third method of securing a debt on land was by the creation of a rente. I have no doubt that this method was used here in the 13th century and many of the oldest contracts still in existence record the creation of these rentes. This was a far more satisfactory method of charging land than the pledge. Rentes were invented long before the time of the Roman Emperor Justinian. There are many different kinds of rentes and I don't propose to give you a detailed description of them. I have already given you a brief sketch of the origin of rentes in Jersey. When a person sold land he almost invariably did so in consideration of a rente. If he wished to borrow money, he could create a rente on it. All these rentes were treated as realty and created a hypothec; in the case of a sale, in favour of the seller, in the case of a loan in favour of the lender, and this hypothec extended to all the property both present and future of the purchaser or borrower. The wide scope of the hypothec gave rise to serious difficulties to which I shall refer later. The creation of rentes in kind continued until 1880. Sales of real properoney were very rare until the adoption of Marett's law of real property in that year [5] . The comparatively small amount of money in the Island was not the only reason for this. I shall tell you why later. I shall now return to the last method of securing a loan: that is by obtaining a judgment of the Royal Court. In early days judgments did not automatically carry a hypothec. If, however, the debtor's property was distrained in virtue of a judgment, the property seized became hypothecated for the payment of the judgment, and the hypothec dated from the day of the distraint. About 1506, the French jurists decided that all judgments should carry a hypothec from the day of their delivery and this practice was later adopted in Jersey. As I have told you before, these judgments did not need to be registered in the Public Registry in order to create a hypothec until 1771. Their appearance in the books of the Royal Court was considered to be a sufficient safeguard against fraud until that time. I shall now give you a brief outline of the procedure of décret, which was the local method of transferring a bankrupt's property to his creditors. Décret proceedings could be set in motion by any creditor. The first step was to bring an action in the Royal Court. This might be for the recovery of a debt, loan, rente, or arrears of interest. In view of the judgment of the Court, the personal property of the debtor might be distrained. If it became necessary to proceed against the debtor's real property the creditor had to obtain yet another judgment of the Court, called an acte de prison. In view of this act the debtor was lodged in gaol and detained there until he made cession, that is, until he abandoned all his property, both real and personal, to his creditors. Upon the debtor's making cession the Viscount was placed in possession of his personal property for the benefit of the creditors. The Court then authorised the commencement of décret proceedings. The first step was to call on all the creditors of the debtor, and all persons who had transacted with him to file with the Greffier their accounts, bonds, acts of court, deeds, pledges, and generally all documents relating to transactions affecting the debtor's real property. A Register or Codement of the creditors and persons who had transacted with the debtor was then prepared in which they were placed according to the dates of their judgments and contracts, commencing with the most recent in date. I have already explained what steps a creditor or lender had to take in order to obtain a hypothec. If a debt or loan did not carry a hypothec, it had no date and could not appear in the Register. The person who was first on the Register, that is to say, the person who had last transacted with the debtor, was then called upon either to accept the tenure of all the real property of the debtor or to renounce his debt. If he accepted, the décret was at an end. If he renounced his debt, the next creditor was called upon either to accept or renounce. This procedure was continued until one of the creditors found it to his advantage to accept the tenure. If no one became tenant, the Court ordered the décret of the real property of the person from whom the debtor had inherited or purchased his real property. From the time when the debtor made cession of his property until someone had accepted the tenure, the Seigneur or Lord of the Manor remained in possession of the real property and enjoyed the income and profits of the houses and lands without paying any of the rentes or charges due. I shall now try to explain why the Law on Real Property of 1880 was adopted. I have already told you that not only land and houses are considered to be real property but rentes are also. This has always been the law. Before 1880 rentes could be hypothecated. All rentes acquired by a person became, from the moment they were acquired, hypothecated in guarantee of all his previous transactions in real property and could only be sold or disposed of subject to this hypothec. The Code of 1771 had provided that rentes sho reimbursable. This was altered by the Law on Décrets of 1832 [6] which provided that any provision in a contract allowing a debtor to reimburse a rente should be void. Many reasons have been advanced for this alteration in the law. The most weighty one is, in my opinion, that a redeemable rente offered no security to a person who transacted with the holder of these rentes. For example if a person who had 100 quartiers of redeemable rentes bought an estate and gave them in part payment, then if the rentes were reimbursed the person who had sold the estate might lose the advantage of his security. Again a person might owe 50 quartiers of rente and also have 50 quartiers of redeemable rentes in his hands. If his rentes were reimbursed, the persons to whom he owed rentes would lose that part of their security. Before 1880 the only way of freeing oneself from the payment of most rentes was to assign to your creditor a similar rente due to you by someone else. This assignment had the effect of hypothecating all the real property, present and future, of the person assigning for the perpetual guarantee of the rente assigned, which if lost, however many years after, had to be replaced or paid by the person assigning or his heirs. The clause of guarantee which appears in nearly all contracts of sale had the effect of subjecting all the real property, present and future, of the seller and in many cases of the purchaser also, to a hypothec which guaranteed the execution of the clauses and conditions of the contract. This hypothec lasted for ever and was unlimited in amount. It could not be extinguished either by prescription or by the payment of money. It is obvious that a system that did not allow rentes to be reimbursed, but only assigned, and that allowed rentes, which are really only hypothecs themselves, to be themselves hypothecated, had nothing to recommend it. The result was to impede the disencumberment of all the real property in the island, because even if a debtor had funds available to free his real property of rentes he might not think it advisable for several reasons - One reason was that he might have to buy rentes to assign. This meant the expense of an extra contract. Another reason was that the assignment of a rente to a creditor did not extinguish the rente due by the debtor to the creditor. The rente due by the debtor to the creditor would revive if the rente given in exchange was lost in a décret. This might very easily happen. All guarantees created a hypothec that was unlimited in amount, for example, a person who sold a house was responsible to the purchaser in the event of his being evicted for the value of that house at the time of eviction. The value of the house might have increased tenfold in the interval between the sale and the eviction. (Before 1880) A sold a plot of land to B for £100. All A's property present and future was hypothecated to guarantee B's title. B built a hotel costing £20,000 on the plot of land. B was evicted. B was entitled to claim from A £20,100 - all the real property that A owned at the time of the sale (including rentes) and any that he acquired afterwards was hypothecated to guarantee B's claim of £20,100. A, probably, would be unable to pay B's claim. This might mean the ruin not only of A but of all the persons who had bought property from him since the date of the sale to B. All purchases from A after the date of the sale to B would probably have to renounce their contracts of purchase in the décret conducted on A's property. It is also obvious that a system of guarantee that created a hypothec that was unlimited in amount, that could not be extinguished and that extended to all the real property, present and future, of a contracting party had the effect of entangling in one mass all a person's transactions in real property. It made it impossible to buy a single property from a person without becoming involved in all his other real property transactions and without running the risk of being forced, in order to be able to retain the property that one had bought, to take over all the seller's other real property. Again, it was impossible to buy a property without becoming entangled in all the guarantees attaching to the property retained by the seller. That is why on a sale of real property the purchase price was seldom paid in cash. It was much safer to give a rente in exchange. If a man bought for cash and was forced to give up his property in a décret in order to avoid saddling himself with all the vendor's other real property he lost the money he had paid in consideration for the sale. Since 1880 a guarantee given on the sale of real property no longer creates a hypothec unlimited in duration and amount on all the real property both present and future of the seller. Also rentes can no longer be hypothecated. A person's transactions are no longer entangled in one mass and it is possible for him to hypothecate and sell his property in entirely separate lots. The law of 1880 provides that when a property is sold for a rente, the hypothec attaching to that rente shall affect only the property sold and not any other real property retained by the seller. Also since 1880 if a man creates a rente or hypothec on his real property in order to secure a charge, only property belonging to the borrower at the time of the creation of the rente or hypothec can be hypothecated. I have already mentioned one of the most serious disadvantages of the old procedure. In a décret, in order to retain the property that one had acquired from a bankrupt, one had to take over the whole of his real property. That only happened of course if one had the misfortune to be one of the persons called upon to accept or renounce. I have already explained the procedure adopted in a décret in which the last person to have transacted with the bankrupt is called first. The Law of 1880 introduced the system of dégrèvement with which many of you are no doubt familiar. In a dégrèvement a creditor is only called upon to take over the property upon the security of which he has lent money or of which he has acquired a portion. The procedure followed in a dégrèvement is very similar to that followed in a décret and it is set in motion in exactly the same way. I shall now explain to you in more detail some of the most important articles of the Law of 1880. Article 2 defines the word hypothec as a real right attaching to a rente or other claim by virtue of which one or more properties belonging to the debtor are specially charged with the repayment of this rente or claim and which confers on its possessor the following advantages: -
In the case of a dégrèvement the right, according to the rank of such hypothec, to take over the bankrupt's real property or to be paid by the person who has accepted the property in virtue of a contract or hypothec created by a deed later in date. -
Where the debtor's goods are insufficient to satisfy the creditor's claim, the right to follow any part of the property hypothecated into the hands of third parties. Although such third party was not expressly charged with the payment of the rente or claim, the creditor is entitled, in virtue of his hypothec, to compel him to pay the balance of the rente or claim remaining unpaid or to abandon the property to the creditor. Article 3 provides that in future only land and houses can be hypothecated. Also, in effect, that a hypothec cannot extend to biens futurs et à venir. Article 5 provided that hypothecs may be either légales, judiciaires or conventionelles. That is legal, judicial or conventional. Article 6 defines a legal hypothec as one which is produced by effect of law. It goes on to describe the different kinds of legal hypothec - 1. That given to a wife to secure her dower, and 2. That given to unsecured creditors on the real property of a deceased debtor. I shall say a few words about each of these legal hypothecs. That given to a wife to secure her dower can date either from the date of her husband's death or from the date of the marriage. The wife may choose. Her choice is dictated by the state of her husband's affairs at the time of his death. If the husband is hopelessly insolvent she usually repudiates his estate. If she does this, she does not share in his personal estate and she is entitled to claim dower on the real property which he owned at the time of the marriage or which he subsequently inherited in direct line of succession, for example from his father or mother, grandfrandmother, and the hypothec given to her by the law to secure her dower dates from the date of the marriage [7] . If a wife does not repudiate her husband's estate, she is entitled to share in his personal estate. She must however pay her proportion of the debts and the hypothec given to her to secure her dower only dates from the day of her husband's death. You will now understand why married women are always appearing in court to declare that they will not avail themselves of their right of dower to the prejudice of creditors who have advanced money to their husbands. I shall now refer to the second form of legal hypothec, that is, that given to unsecured creditors on the real property of a deceased debtor. In order to acquire this hypothec, an unsecured creditor must sue the debtor's heir within a year and a day of the date of the debtor's death and register his judgment in the book of obligations. (Article 11, 1880 Law) If a creditor does this he obtains - -
A legal hypothec on the real property forming part of the estate of the deceased. This hypothec dates from the day of the death of the deceased, and, -
A judicial hypothec on the real property of the heir. This judicial hypothec dates from the date of the judgment of the court if the judgment is registered in the book of obligations within 15 days from the date when it was obtained. If, however, the real property of the deceased has been put en dégrèvement before the expiration of a year and a day from his death, the law confers on an unsecured creditor a legal hypothec dating from the date of death of the deceased without requiring him to bring any action in court for the payment of his debt or to effect any registration in the book of obligation. (Article 11, 1880 Law). The second kind of hypothec defined in the law is the judicial hypothec. This is the kind of hypothec with which all local bankers are familiar. Article 12 defines a judicial hypothec as one which results from acts and judgments of the Royal Court. Article 13 provides that all acts and judgments of the Royal Court, whether obtained after hearing the defendant or by default, in an action for the recovery or acknowledgement of a bond, account or other debt, or for the settlement of accounts, shall give to the plaintiff a judicial hypothec for the amount to which he is entitled by the act or judgment, provided that the act or judgment has been registered in the book of obligations. The hypothec has the same date as the act or judgment, provided that it is sent to the Registrar for registration within 15 days from the date upon which it was obtained. If the act or judgment is not sent within 15 days, the hypothec dates from the date when it was sent to the Registrar to be registered. Article 14 provides that no judicial hypothec shall be valid unless the act or judgment registered in the Public Registry sets out one or more definite sums of money. Article 15 provides that a judicial hypothec gives to the person who has obtained it a droit réel et spécial et de suite per hypothèque, a right real and special, and the right of suite in hypothec from the day of the date of the hypothec on all the houses and land that the debtor owns at that date. A droit de suite means that the creditor can exercise his rights against the property hypothecated even after it has passed into the hands of a third party. I have already explained the meaning of the expression droit réel. When a debt or claim to which a legal or l hypothec is attached is extinguished, the person entitled to the hypothec must bring his act to the Registrar who cancels the registration in the book of obligations. This is a very satisfactory and simple procedure and costs only 2/6d. [8] I have already mentioned that Article 15 of the law provides that a judicial hypothec gives to a creditor certain rights over all the land and houses that the debtor owns from the day of the date of the hypothec. Those of you who deal with these matters probably know that a clause is often inserted in the action brought against a debtor requiring him to acknowledge a note of hand or a bond restricting the scope of the hypothec to certain specified property. Doubts have often been expressed by eminent practitioners as to the legality of this clause. I don't think, however, that a clause of this kind is likely to be declared null and void by the Court for this reason:- the Law gives a creditor certain rights over all the property owned by the debtor but the creditor is surely entitled to consent to these rights being restricted to certain specified property belonging to the debtor at the time of the loan, though according to the strict letter of the law the hypothecation of a specific property should be effected by a conventional hypothec. Conventional hypothecs are those that result from the covenants and the free consent of the parties thereto. They can only be created by a contract passed before Justice and duly registered. (Article 17) Conventional hypothecs can only be constituted or executed by persons capable of alienating. Conventional hypothecs are of two kinds - hypothèques foncières and hypothèques simples, that is ground hypothecs and simple hypothecs. A ground hypothec is one that results from the constitution or creation of perpetual rentes, rentes perpetuelles, or of life annuities, rentes viagères. A ground hypothec is imprescriptible, and lasts as long as the rente or annuity itself has not been extinguished by prescription or otherwise. A simple hypothec is one that is constituted or created for a money consideration and is reimbursable according to the agreement of the parties and is repayable on demand in the absence of any express agreement in this respect. (Article 19). Unless for some reason a ground hypothec, that is, a perpetual rente or an annuity, ceases to be properly secured on a specified property, its reimbursement cannot be demanded by the creditor. (Article 20) A creditor, therefore, who has secured his debt by means of a perpetual rente can only realise his security by selling his rente to a third party. Both perpetual rentes and loans that are secured by simple conventional hypothecs can be reimbursed by the debtor at any time or after the delay that is stated in the contract which can in no case exceed 20 years (Article 20). An annuity cannot be reimbursed or sold unless there is an express covenant to that effect in the contract constituting the annuity. (Article 20). Article 21 provides that every conventional hypothec, whether it is a ground hypothec (that is a perpetual rente or an annuity) or a simple hypothec must be created or constituted upon some special and defined property. This property alone is hypothecated. This hypothecation of a specified property is one of the most important innovations introduced by the new Law. I have already told you that judicial and legal hypothecs charge all the land and houses owned by the debtor from the day of their date. In no circumstances can property in expectancy be subjected to hypothecation. This was a most important change in the law. Article 22 - A conventional hypothec dates from the day of the passing before the Justice of the contract creating it. The contract must, of course, be registered. Article 23 - A perpetual rente or a loan sec simple conventional hypothec can only be sold, transferred or reimbursed by means of a contract passed before Justice. This is a very expensive matter as an ad valorem stamp fee is payable. [9] I have already told you how a judicial hypothec is extinguished. The procedure is simple and costs 2/6d. A loan secured by judicial hypothec is sold or transferred by means of a transfer endorsed on the bond and signed by the creditor. No fee is payable and no note of the sale or transfer is made in the book of obligations. Article 26 contains provisions regarding the droit de suite. I have already explained the meaning of this expression to you. This Article provides that the possessor of a legal, judicial or conventional hypothec charged on property in the possession of a third party, is not entitled, unless the third party is expressly charged by his title, to take any legal proceedings against the third party by virtue of his hypothec, for the purpose of recovering the sum of money or the rente hypothecated, except after the assets of the principal debtor have been exhausted. Article 27 provides that all new rentes or moneys secured by conventional hypothecs shall be deemed to be immovables, that is real property. This is extremely important and must be borne in mind by persons drafting wills as wills disposing of Jersey real property must comply with the requirements of the local law on wills of realty. Again, as they are foreign realty, rentes and moneys secured by conventional hypothecs may not attract foreign death duties. They were a popular form of investment for persons domiciled in the United Kingdom until they became subject to U.K. death duties. Article 29 of the law of 1880 was a in 1922 [10] and now provides that legal, judicial and conventional hypothecs shall remain in force until the debts or obligations which they secure are extinguished, but that all these hypothecs, with the exception of conventional hypothecs, that is perpetual rentes, annuities and simple conventional hypothecs, may be barred by prescription in so far as the right of following the hypothecated estate into the hands of a third party is concerned, although the hypothecated claim or debt may not have been extinguished. As regards judicial hypothecs and legal hypothecs (with the exception of that given to a widow to secure her dower) the right of following the hypothecated estate into the hands of a third party is barred by the lapse of ten years from their date. This means that a creditor who has secured his loan by means of a judicial hypothec should demand repayment before the expiration of 10 years from the date of his hypothec. If he does not do so, after the expiration of 10 years, he will lose his right to follow the property hypothecated if it has passed into the hands of third parties. He can, of course, obtain a fresh registration in the book of obligations, but if other hypothecs have been obtained in the meantime these would have priority. As regards the legal hypothec given to a widow to secure her dower, the right of following the hypothecated estate is only extinguished by the death of the widow. You will now understand why it is unnecessary when buying a property to make researches in the book of obligations covering a period of more than ten years, (but necessary when lending on it, if acquired more than 10 years previously). Article 30 of the law provides that all rentes must now be established in money. Formerly they could be established in any form of produce. I have referred to this before. Article 35 provides that the reimbursement of a new rente or hypothecated sum of money shall effect the complete extinction of all the guarantees attached to it and the extinction of the rente or hypothecated sum itself and of the hypothec as well. You will now appreciate that new rentes and hypothecated loans can be reimbursed without any risk whatever. Article 44 deals with guarantees. I have already touched on the changes introduced by the Law of 1880. Briefly, no guarantee can now confer a hypothec on the property of the guarantor. But a suit in guarantee may give rise to a judicial hypothec provided that the provisions of the Law of 1880 with respect to judicial hypothec have been complied with. The right of suit in guarantee is barred by the lapse of thirty years since the day when the guarantee was stipulated or arose. Article 45 gives the purchaser of a property certain rights whether or not any guarantee has been stipulated:- If the purchaser is evicted, (this would happen, for example, if a man sold a house as heir of his father and it was afterwards discovered that the father was still alive), the purchaser has a right of recourse in guarantee against the vendor for any sums of money that he may have paid or reimbursed to him. If a sale is made with an express stipulation that the vendor shall not be subject to make good any loss or to guarantee the title, the purchaser has no recourse in guarantee against him. A donee or a legatee are assimilated by the law to a purchaser without guarantee. You will remember that before 1880 a clause of guarantee created a hypothec that lasted for ever, that was unlimited in amount and that could not be extinguished by prescription or by the payment of money. Until that time, if a purchaser was evicted, the seller had to pay him the value of the property sold at the time of the eviction. I shall now say a few words about dégrèvements. The procedure in a dégrèvement is very similar to that followed in a décret, but with this very important exception, that, generally speaking, the dégrèvement of each property is carried on separately. Therefore a person who lends money on the security of a simple conventional hypothec created on a small cottage cannot be faced with the option of either renouncing his claim or accepting the tenancy of perhaps twelve dilapidated and heavily charged properties. He can only be called upon to accept the tenancy of the cottage that he accepted as security. The Law of 1880 had provided that, in all cases, the discumberment of each corpus fundi should be carried on separately. A corpus fundi is any hereditament (other than a rente) forming a distinct and complete whole. In 1904 (Article 17) [11] however, it was enaat all houses, lands and appurtenances acquired by a bankrupt by one contract, though described in that contract as separate corpus fundi, should be subject to one dégrèvement. If, however, rentes or simple conventional hypothecs have been created by the bankrupt on a special part of the property, the dégrèvement of that part must be conducted separately. This amendment also applies to real estate inherited by a bankrupt provided that it forms part of the estate. - Article 7, Loi (1904) (Amendment No 2) sur la Propriété Foncière. It is clear that this amendment can save a great deal of expense. Take the case of a bankrupt who has purchased twelve houses by one contract. Before 1904 each of those twelve houses would have been the subject of a separate dégrèvement. Since 1904, all twelve houses would be dealt with in one dégrèvement provided, of course, that none of them was specially hypothecated to secure a rente or simple conventional hypothec. Any house specially hypothecated would be the subject of a separate dégrèvement. If all the loans incurred by the bankrupt were secured by judicial hypothec only one dégrèvement would be necessary as all twelve houses would be charged. A creditor called upon to accept or renounce would of course have to abandon his claim or accept the tenancy of all twelve houses. I have always considered Marett's Law of 1880 to be the finest piece of legislation in our statute book. He was determined to make the purchase of real property as safe as the purchase of a cow and I think that he succeeded. I don't propose to say much about leases for a term of years. A lease for a term of years cannot be hypothecated. It might, however, be pledged by mortgage or vif gage. The consent of the lessor would of course have to be obtained as by the Law of Jersey a tenant cannot sublet without the consent of his lessor. If a lessee becomes bankrupt, I don't think that his creditors derive any benefit from his lease however valuable it may be. In these circumstances the lessor would probably be entitled to ask the Court to order the cancellation of the lease. Philip Le Couteur is an advocate of the Royal Court and a former Judicial Greffier. |