KIGALI INDEPENDENT UNIVERSITY (ULK)

FACULITY OF LAW
LLB YEAR III

COURSE : THE LAW OF SECURITIES

LECTURER: Etienne DUSABEYEZU (LLM)

COURSE OUTLINE

GENERAL INTRODUCTION

1. General presentation
2 The notion of securities
3. The role and importance of securities
4. Causes of increased utilization of securities
5. Merits and weaknesses of personal and real securities
6. The law of securities
CHAPTER I. REAL SECURITIES

SECTION 1: GENERAL NOTIONS AND CLASSIFICATION

SECTION 2: THE BASIC RULES APPLIED TO REAL
SECURITIES
SECTION 3: SECURITIES BY INDIRECT MEANS
SECTION 4: PLEDGE
SECTION 5: THE MORTGAGE
SECTION 6: PRIVILEGES
CHAPTER II: PERSONAL SECURITIES

SECTION 1: THE TRADITIONAL PERSONAL SECURITIES: THE SURETYSHIP

SECTION 2: CREDIT INSURANCE

CHAPTER III: SECURITIES DERIVING FROM BUSNESS PRACTISE

SECTION 1: REAL SECURITIES IN PRACTISE

SECTION 2. THE PERSONAL SECURITIES DERIVING FROM PRACTICE
 GENERAL INTRODUCTION
1. General presentation

▪ The objective of securities is to reduce risk of default in

payment, by giving to the creditor a priority action (real
securities) or supplementary action (personal securities)
on properties of the debtor or the third party.

▪ This includes a security contract (Mortgage contract or

movable security agreement) concluded between the
debtor and the creditor or institution of suretyship/
guarantor.
▪ As a rule, a creditor, irrespective of the date and the origin
of his claim, has the right of seeking payments on the value
of all assets of the active. i.e. “the right of general
pledge”.

▪ according to the rule of competition, all creditors of the

same debtor are in equal position ( the obtained price of
the collateral or mortgage is shared in accordance with the
procedure of distribution by contribution).

▪ However, the ordinary creditors may encounter the risk of

the debtor’s insolvency.
▪ The elimination or reduction of this threat can be found
using two ways:

- Personal securities : attaching another debtor or many

others to the principal debtor (surety)

- Real security: attaching, as a matter of priority, certain

assets of the active of the debtor, if not all the assets, to
the payment of the creditor

➢ This can be done through mortgage contract or movable

security agreement.
 2. The notion of securities

▪ Le term "security" comes from the latin word securitas

▪ A security protects the creditor against the risk of of

the debtor’s insolvency

▪ This results in the fact that the creditor acquires an

increased guarantee and an additional chance of
payment.
▪ The scholars define the securities as a legal institution
with purpose and effect or with only effect to provide to
the creditor the guarantee of payment either in the
patrimony of the debtor with priority to other creditors,
or in the patrimony of the third party who undertakes
personally the obligation to pay on behalf of the
principal debtor.

From this definition:

▪ The security is a creditor’s prerogative added to others by

the contract, the law, judgement and conservatory
measures and its particular objective is to protect the
creditor against the insolvency of the debtor.
The security increase chances of payment at the expiry of
time stipulated within the security contract. Securities are
more advantageous than the « general pledge » since the
latter includes the conservatory acts such as, direct action,
oblique action (art.64 CCB III) as well as paulian action
(art. 65 CCB III).

▪ attaching the value of an asset or a group of assets to

the payment of a debt.
This attachment may concern a thing from the patrimony
of the debtor or a third party (real securities), or the
patrimony of another person or many others (personal
securities)
 3. The role and importance of securities

▪ Real securities protect the creditor against the rule of

competition by giving him a right of preference (rank of
priority) and, to some extent, by decreasing the risk of
reduction of the active because of his right to follow up
the asset of the debtor. Thus, the creditor is protected
against the risk of the debtor’s insolvency.

▪ Securities are conceived to ensure the payment of debts

▪ securities were born from the loans and the experience in
loans practice entails development of securities
▪ good security is an economic instrument of first plan and
contribute to the vitality of any economic sector

▪ Importance of securities on juridical ground: the judicial

formalism accompanying the constitution of mortgage
make it the most preferred in Rwanda

4. Causes of increased utilisation of securities

▪ Expansion of loans practice

▪ The multiplication of unknown or less known debtors

 5. Merits and weaknesses of personal and
real securities
Merits

▪ The simplicity of the constitution of personal securities

(no formalities)
▪ The real securities are subjected to the principle of
speciality which hinders this evolution. In contrary, the
personal security will be more adapted to the
guarantee of continued relations and repeated claims.
▪ The possibility to continue to be used by the debtor
▪ Conclusion- Efficient and simple execution at a lower cost
(not expensive)

Weakness

▪ The loss of value of pledge on the day of execution

▪ The surety’s assets may have disappeared, voluntarily or
involuntarily
▪ depreciation of immovable markets

▪ Risk for collateral to be very specific or obsolete,

deteriorated or diverted.
 6. The law of securities
▪ The expression “law of securities” designates a number
of rules applicable to securities
▪ These rules are composed of general and specific
provisions applicable securities

▪ Two legal issues by analysing the law of securities

➢absence a legal definition of securities

➢is the extraordinary vitality of the law of securities and
the profound modifications that affected its recent
evolution. Vitality certainly inherent to the actual nature
of this law that aims at resolving the conflicts between
contradictory interests
Definition suggested by scholars

“Security is a legal institution whose purpose and effect or whose

effect is to provide to the creditor a guarantee of a payment, either
in the patrimony of the debtor, by giving a right of preference to one
or several creditors over one or several assets or in the patrimony of
the third party who is obliged “propter rem” or who personally
undertakes to pay the creditor accessorily or as a principal debtor or
who undertakes to perform his/her personal obligation whose
execution will extinguish the debtor’s duty in part or in whole
without taking part in the payment”
This definition is at the same time strict and flexible:

➢Strict because it rules out mechanisms deriving from the

law of obligations from which the law of securities
originates, but whose purpose is to preserve the debtor’s
patrimony (direct action, oblique action, paulian action,
seizure…

➢Flexible because it recognises other institutions the status

of securities, whereas they were not established to that
end and whose only effect, but not purpose, is to ensure
the guarantee of execution of the debtor’s obligation
▪ It is also flexible because it puts together (guarantee of
payment, economic function of security) securities found
in the debtor’s patrimony and others provided through the
third party’s patrimony

i.e. It includes two main traditional categories of

securities, real securities and personal securities.
 CHAPTER I. REAL SECURITIES
SECTION 1: GENERAL NOTIONS AND CLASSIFICATION OF
SECURITIES

1. Definition

▪ Real security refers to that one which is established in the

patrimony of the debtor. It is based on either one of the
assets or the assets which make up the whole patrimony and
it is realised by allocating the asset for the payment of the
debt that it is guaranteeing.

▪ This makes an exception to the general principle of equality

of creditors and which creates a right in favour of secured
creditor or “legal causes of preference”.
2. Aim of real securities

▪ The preferential payment (rank of priority)

▪ Allocation of the debtor’s asset or a group of assets for
reimbursement of the claim.
▪ Real security cannot have an autonomous existence it is
accessory to loan and confers to the creditor the right of
follow up.

3. Securities and real rights

Security establishes a real right in favour of the creditor,
based on the asset that was given as a mortgage or collateral
4. Classification of real securities

A.Classical trilogy

❖Privilege

▪ It is a right attached to a specific claim which gives a creditor a

certain kind of preference to other creditors including the
mortgagees

▪ two common characteristics of privileges:

- The legal origin

- the prerogative attributed in consideration of the quality of the
claim.
➢This privilege is found in the field of movable property
and a legal mortgage in the field of immovable property

➢the generality or speciality of the allocation, the

immovable or movable nature of the burdened properties
lead to have 3 types of privileges:

• General privilege
• special movable privilege
• special immovable privilege(legal mortgages)
 ❖ Movable security (Pledge)
▪ Movable security is security agreement that creates or
provides for a security interest and includes a writing
that evidences a security agreement (art.2 of Law
N°34/2013 of 24/05/2013 on security interest in
movable property).

▪ Furthermore, this movable security has to be based on

one or several movable assets (corporeal or incorporeal)
of the debtor or of a third person.
▪ pledge is a real right and a real right of guarantee (or in
value), because, despite its possession, the creditor
cannot benefit from the usufructus of the thing pledged
or from its utility.

▪ Under the Belgian civil code;

pledge is a contract by which a debtor or a third party

acting on behalf of the former, gives a movable
property to his creditor or third party agreed upon by
the parties as a security guaranteeing the payment
(art.2071)
▪ The main objective of the pledge is to provide the
creditor with a security, especially having a priority on
the price, when the thing which was pledged is sold by
way of execution.

▪ The pledge has a particularity in that, it derives from an

agreement and it is not related to the quality of the claim

▪ A security interest shall be created when a written

security agreement exists between the secured creditor
and the debtor
▪ a security interest shall be effective upon its registration
by the Registrar General (art.7)- Mortgage Law

▪ This law does not require the dispossession of the property

as a condition of validity of pledge.

▪ However, this law allows the secured creditor with priority

over other secured creditors to take possession of when
the debtor is in default under the security interest
agreement.
▪ In such a case, the Registrar General shall issue the
creditor with a certificate authorizing possession of
collateral (art.19)

▪ In practice, commercial pledge and all its particular forms

is what is common. Nevertheless, the rules of the civil
code keep regulating those kinds of securities
 ❖ Mortgage
▪ The mortgage is a real right attached to an immovable
meant for the clearance of an obligation

▪ The absence of dispossession is then an important

element in the notion of mortgage; it is this element that
fundamentally differentiates a mortgage from the
traditional pledge that was provided by the Civil Code
Book III and forms the basis of distinction between these
two types of securities.

▪ However, for the interest of business, pledge does not

require dispossession.
▪ this may be the common characteristic with the
mortgage, in this regard, the main difference is that the
pledge is based on movable asset while the mortgage is
attached to immovable

B. Classification in relation to the base

1. General securities and special securities

▪ a security is general when it is based on the total active

(assets) of the debtor

▪ a security is special when it is based on one or several

specific and individualized properties
2.Immovable and movable securities

➢classification depending on the base

▪ Movable security: based on movable asset
▪ Immovable security : based on immovable (conventional
mortgages, legal mortgage)

C. Classification of securities basing on their origin

▪ Conventional securities
▪ Legal securities
▪ Securities deriving from practice
D. Classification based on the techniques of allocation
(affectation)

This classification permits to make a distinction between security

with dispossession , and security without dispossession
SECTION 2: THE BASIC RULES APPLIED TO REAL
SECURITIES

1. The rules based on the preservation of common

pledge of creditors

▪ The assets of the debtor are common pledge to all his

creditors. This prerogative recognised to all put the
creditors of the same person in an equal position, and
consequently a competition between creditors.
▪ However, this general principle which extended in the rule
of competition provided by the civil code (Code of Civil,
Commercial, Social and Administrative procedures), is
strongly counterbalanced by the recognition of lawful
causes of preference.

▪ In case of the insolvability , these legal causes of

preference confer to the creditors the rights to be
reimbursed by way of rankings and not by the system of
proportional distribution
▪ In the eventuality of insolvency, the principle of common
pledge only has a limited place of equality between the
creditors, because it cohabits with the freedom to
exercise individual proceedings. The situation is
traditionally summarised in an adage “first come, first
served”

§2. Rules based on the nature of securities

A. The principle of indivisibility of the real securities

▪ Because they are real rights and a real right relates to the
totality of the thing which forms its object, the securities
are indivisible.
B.The attribution of insurance indemnities

▪ The possessor of a security has a prerogative to be paid

on the value of the thing in case of compensation
resulting from damage or loss caused by any event (real
subrogation)

▪ In case disaster, affecting the encumbered thing, the

insurance indemnity will replace the mortgage or
collateral and this indemnity will be attributed to the
privileged or secured creditors in accordance to their
ranking.
▪ If the indemnity is an asset, the latter will replace the
destroyed thing and the security is imputed to this new
asset(real subrogation).

▪ However, the parties have to make an amendment of their

contract and its registration.

C.The accessory nature of the security: The transmission

and extinction with the claim

▪ A general principle shows that the accessories of the claim

follow it as a matter of right when it is transferred to
another patrimony
▪ Extension of the loan implies the extension of the security.
§3. Particular rules concerning public order in relation to
securities

A.The protection of the constituent: the prohibition of

the “via parata clause” and the commissory pact

▪ This aims to protect the debtor who is often in the

position of weakness.

▪ These clauses are prohibited by the law, this is for the

protection of the debtor against abuse because the
creditor may appropriate an asset that the value would
exceed the claim guaranteed.
▪ The first form of prohibition is that of the clause of “voie
parée” (from the Latin word, via parata or parata
executie), the form of execution prepared in advance,
which enables execution outside the forms imposed by the
law.

▪ This is a summary execution clause called also “ parata

executie”.

▪ This clause provides that, the mortgagor defaults in

payment, the mortgagee (creditor) may take possession of
the mortgaged property and arrange for private sale.
▪ However, Rwandan law forms an exception to the rule, in
accepting the application of the via parata clause when
executing contracts containing such a clause (art. 195
COFCC)

▪ The second form concerns the commissory pact (pact

commissorium), a stipulation which authorises the
creditor to appropriate the pledged property in case of
non-payment (art. 607 CCB III).

▪ The commissory pact is a forfeiture clause which provides

that, if the debtor defaults in payment, the creditor may
keep the collateral (property) for his own.
SECTION 3: SECURITIES BY INDIRECT MEANS

1. OWNERSHIP USED AS SECURITY: Reserved ownership

▪ The reservation of ownership is a guarantee where the

seller stipulates that ownership will pass only after the
total payment of the price.
2. Detention used as a guarantee: The right of retention

A. Notion

The right of retention is the right of the creditor to refuse giving

back the debtor’s commodity so long as he has not been paid,
even he did not receive the commodity as a security.

The civil code gave certain creditors the right of retention .

Unfortunately, it was repealed.

Here below are some examples where the civil code provided
such right-
Articles 289 & 290 which gave the seller a right to retain the thing
sold until the total price is paid.

Article 349 which provided that, the seller who has right of
repurchase will claim the commodity sold after paying all costs
incurred by the buyer.

Article 405 which provided that the lessee or tenant farmer,

ejected from the house or farm, has the right to remain in that
house or farm until he gets damages from the landlord or third
party acquirer.
▪ Article 511 authorised the depositary to keep the thing
deposited until he is fully paid the cost of deposit.

▪ Article 611 gave the pledgee the right of retention on the

thing pledged.
 SECTION 4. PLEDGE

1. General notions

▪ The pledge is now regulated by the law Law N°34/2013

of 24/05/2013 on security interest in movable
property (which repeals also the previous law nº
11/2009 of 14/05/2009), but also with some provisions of
civil book III, in case they do not contradict the law
mentioned above.

▪ All those legal texts do not define the pledge.

▪ Under the law 34/2013 a security agreement is the one
which creates or provides for a security interest and
includes a writing that evidences a security agreement.

▪ according to article 2071 of the Belgian civil code; pledge

is a contract by which a debtor or a third party acting
on behalf of the former, gives a movable property to
his creditor or third party agreed upon by the parties
as a security guaranteeing the payment.
▪ The main objective of the pledge is to provide the creditor
with a security, especially having a priority on the price,
when the thing which was pledged is sold by way of
execution.

▪ The pledge has a particularity in that, it derives from an

agreement and it is not related to the quality of the claim

▪ The law regulating security interest on movable property

requires a written and registered document in order for
the pledge to be valid.
▪ a security interest shall be effective upon its registration
by the Register General (art. 7 of the Law No.34/2013)

▪ This law does not require the dispossession of the

property as a condition of validity of pledge.

▪ However, this law allows the secured creditor with

priority over other secured creditors to take possession
of when the debtor is in default under the security
interest agreement.

▪ In such a case, the Registrar General shall issue the

creditor with a certificate authorizing possession of
collateral (art.19).
▪ validity of the pledge which is the security interest on
movable property requires the registration to the
Registrar General, this last condition may have been
provided, so as to provide sufficient guarantee in favour
of the creditor, especially towards the third party.

▪ The dispossession is not excluded; it depends on the will

of the parties but it is not a requisite of validity of a
security agreement (see art.8)
▪ The creditor acquires real right on the collateral and the
security is also extended to the proceeds of the collateral
and continues to be effective against third parties (art.9).

▪ It is possible for the creditor to ask for the sell of the

collateral, when it is kept by the debtor.

▪ Furthermore, it is possible for the creditor to take the

collateral in satisfaction of the obligation secured, if it is
still on the hands of the debtor.
§2. Characteristics of a movable security (pledge)

▪ Generally, the movable security is real, accessory, and

unilateral.

▪ according the Law N°34/2013 of 24/05/2013, the

movable security agreement is also solemn.

▪ The unilateral characteristic implies that the contract of

pledge gives rise to obligations to one party, who is
obliged to keep the thing and give it back in case of
dispossession.
▪ Traditionally, the pledge was valid when there was
dispossession of the movable property in favour of the
creditor. As a result, the creditor acquires real right on
the collateral.

▪ But in accordance with the new law on movable security

the dispossession of the collateral (substance of
guarantee) depends on the will of the parties,

▪ since the law does not provide it as a compulsory

condition for the validity of movable security agreement
as it is the case for the registration of the security.
▪ In case of default in payment, the secured creditor with
priority over other secured creditors may take possession
of the collateral when the debtor is in default under the
security interest agreement (art.19)

▪ the Registrar General shall issue the creditor with a

certificate authorizing possession of collateral

▪ The pledge has accessory character means that as all

securities, the pledge is bound, in its existence and extent,
to the claim guaranteed.
▪ Movable security applies to all rights in movable assets
created by agreement that secures:

▪ payment or other performance of an obligation,

regardless of the form of the transaction, the type of the
movable asset, the status of the debtor or secured
creditor or the nature of the secured obligation (article 3
of the Law no N°34/2013 of 24/05/2013)

▪ Consequently, the pledge’s civil or commercial nature is

determined by the principal obligation’s nature.
▪ As far the commercial or civil characteristics are concerned, one
may say that the law nº34/2013 is only dealing with movable
security on commercial matters, since all movable securities
must be registered and the dispossession is not necessary,
while it was a condition concerning the pledge on civil matters

▪ the accessory character of the pledge is not an obstacle to the

actual constitution of a pledge to guarantee an eventual

▪ or future claim on condition that such a claim being sufficiently

determined when making the pledge.
▪ In this regard, the Rwandan law on security interest accepts
that security interest may secure one or multiple obligations,
which may be described specifically or generally, and which
may be present, pre-existing or future obligations (art.6).

▪ This is true because the security guarantees, not the claim’s

existence but its payment

▪ The only required condition to meet the accessory’s

requirement is that the claim exists at the time of the security’s
execution or realization.
▪ the contract of pledge in Rwanda is a solemn contract.

▪ a security interest shall be created when a written security

agreement exists between the secured creditor and the debtor,
value is given by the secured creditor and the debtor has rights
in the collateral (art. 5 of the Law N°34/2013 of 24/05/2013)

▪ Even if it is not expressly required by the law on movable

security, in practice the security agreement must be authentic
deed.
▪ security interest relating to a movable property shall be
effective upon its registration by the Registrar General
(art.7)

▪ The Registrar General shall issue a certificate of registration

of security interest to the debtor and give a copy to the
creditor.

§3. Conditions of validity of pledge

To be valid, the contract of pledge shall comply with the

common conditions of validity of contracts: consent,
capacity, cause and object (CCB III, art.8)
▪ particular conditions to the pledge: the quality of being
owner of the thing, as well as registration by the Registrar
General; the handing over is not compulsory.

▪ A. Ordinary conditions

• The ordinary condition is rating to the asset subject to

the security

• According to the article 599 CC B III, all moveable things,

incorporeal and corporeal which are in commerce could
be given as a pledge, provided that they can be subject to
possession.
• Law N°34/2013 of 24/05/2013 also enumerates the
movable property subject to security interest (see for
details, article 4 )

• The asset subject to movable security (pledge) must:

➢ a) Movable thing

Corporeal things can be given as pledge, as well as

incorporeal things which are claims and rights provided that
those incorporeal properties are evidenced by a written
document.
E.g. bill of exchange, bill of lading, warrant, copyrights etc

➢ b) Things in commerce
Drugs, proceeds of the crime cannot be subject of pledge

➢ c) Sufficiently individualised things:

A set of goods of various species in disparity, vague and not

sufficiently precise, cannot constitute a pledge. The
individualisation of the thing is required.

The law accepts the pledge of those future properties, but

the parties must specify them within the contract
B. Particular Conditions of the pledge

1º Ownership condition

In principle, the debtor must be the owner of the collateral in

order to be validly constituted, the pledge giving a real right of
privilege and preference to the creditor.

The pledge of a res aliena as it for the sale, is null and void.

That pledge will not only be opposable to the verus dominus but
also void between parties
▪ However, given the fact that the pledge only exists in
moveable thing and that a movable corporeal or movable
incorporeal are transmitted by a simple handing over,
these solutions should be combined with the rule was
provided by article 658 CCB III (In movable matters,
possession equals to having a title on that movable)

▪ In fact, the creditor of a pledge is in his right to be

protected by this article, the same as the acquirer all
other possessors.
▪ The creditor of a pledge can however, as a possessor,
reject all pretentions of the verus dominus who, on basis
of claiming, wishes to disappropriate him that thing. In
these conditions the nullity of pledge is rarely raised.

▪ If the creditor prefers to ask for the cancellation of the

pledge constituted on the thing of third person, that will
be relative and can then only be claimed by the bona fide
creditor and not by the debtor.

▪ The creditor of the pledge will prefer about always to

invoke article 658 CCBIII, so that the owner can only regain
possession of his thing on condition to pay the creditor the
amount of his claim.
▪ But the article 658 CCBIII seems to have less value in the
context of protecting the creditor who received the
movable property which does not belong to the debtor,
since the law N°34/2013 of 24/05/2013 on security
interest on movable property shall be effective upon its
registration by the General Registrar.

▪ If the creditor prefers to ask for the cancellation of the

pledge constituted on the thing of third person, that will
be relative and can then only be claimed by the bona fide
creditor and not by the debtor.
2º Dispossession: facultative condition

▪ dispossession is not necessary or compulsory, since the art.

19 of Law No.34/2013 on movable security interest states
that a secured creditor with priority over other secured
creditors may take possession of and sell collateral when
the debtor is in default under the security agreement.

▪ In such a case, the Registrar General shall issue the

creditor with a certificate authorizing possession of
collateral.
4. Effects of the pledge
▪ The pledge confers on the creditor a real right of
possession
If the security belongs to the third party who may claim for
it against the creditor, the latter may only be protected if
there has been Registration of the security to the Office of
the General Registrar.

Otherwise, the only agreement between the parties is

effective but cannot be raised against the verus domino, in
case the registration has not been perfected.
▪ pledge confers to the creditor vis-à-vis the debtor the right of
retention

▪ a pledge confers the right to provoke sale of the object in case

there is no payment of the principle debt at the expiration of
time in accordance with the law

▪ However, the “Commissory pact” and “parata executie” clauses

are prohibited by the law, this for the protection of the debtor
against abuse because the creditor may appropriate an asset that
the value would exceed the secured claim/loan.
▪ The law grants to the pledgee the right of preference
when distributing the price.

▪ Right to redeem collateral

This is the new prerogative provided by the law nº 34/2013

of 25/05/2013 according to which at any time before the
secured creditor sells the collateral or is deemed to have
taken the collateral in satisfaction of the obligation
secured by it, any person who is entitled to receive a
notice may redeem the collateral
5.Extinction of the pledge

A. Extinction of the principal obligation

➢ Because of the accessory characteristic of the pledge, it

is extinguished by any of the circumstances which may
terminate the principal obligation

➢ Removal of data from register

data in a registration may be removed from the register:

- When the registration is no longer effective;
- on the registration of the notice change by deletion of all
the registration or of a part thereof;

- if a competent court directs the Registrar General to

remove the registration upon a finding that there is no
underlying obligation.

B. Modes of extinction particular to the pledge

The pledge is also extinguished by some modes which are

particular to it, notably; nullity, voluntary surrender,
forfeiture due to abuse and the loss of the thing.
§6. Particular modalities of the pledge

▪ All pledges are governed by the law relating to the security

interest on movable property, since it accepts the pledge
of incorporeal property

▪ The law nº 34/2013 of 24/05/2013 provides that negotiable

instruments, negotiable documents, rights to payment of
funds credited to a bank account, rights to receive the
proceeds under an independent undertaking and
intellectual property can be given as security.
A. Financial instruments lodged as securities

a) Titles to the bearer lodged as securities

The bearer title is a document of which detention confers rights

that are determined by its nature and mentions

Any cheque bearer shall be entitled to all rights on that cheque

starting from the date of its issuance by the drawer. A bank or a
financial institution cannot pay the cheque before the date of
issuance.
▪ One may say that currently the cheque may be given as a
guarantee, different from its traditional function of being
an instrument of payment. Therefore it is a security
mechanism in favour of the creditor.

▪ This kind of security relating to incorporeal properties do

not need registration in RDB, since the law regulating
negotiable instruments, including cheque is particular.
(specialia generalibus derogant)
b) Nominative titles lodged as securities

▪ the nominative title is a document that gives to the person

designated by it, the right of variable nature (right to payment
of a sum of money, right on a claim, on goods, etc.).

▪ The fundamental characteristic of the nominative title is being

transmitted by endorsement i.e. by the delivery of the
document that contains the signature of the assignor indicating
the transmission to the assignee.

▪ Thus, the beneficiary of rights incorporated in the title, the

legitimate bearer, is the one that is shown by the chain of
endorsements which must be uninterrupted.
▪ In spite of the incorporation of rights in the document, the
nominative title doesn’t have the status of corporeal movables
because the bearer is not invested with those rights by the mere
fact of detention but by the designation in that quality.

▪ The result is that the pledge of a nominative title cannot be

constituted according to the general plan, but according to a
process adapted to its mechanism.
▪ That method is one of endorsement with a repurchase option
which consists in precising with a mention on the back side of
the document by any formula (i.e. value in guarantee, or value
in pledge), that the title was delivered as a pledge, and not
transferred to the new bearer as his property.

▪ This formula is sufficient and does not need to be followed by a

document with a definite date, even though the pledge has got
a civil character. The registration is still a condition for validity of
any pledge.
B. The pledge on cash and security on money
▪ In pledge on cash system, the amount to cover the
engagement is transferred to the creditor as a pledge.

▪ However, considering the fungible nature and

consummability of its object, it was recognised that it is a
pledge of a particular nature called « irregular pledge ».

▪ According to some authors, the particular character of this

kind pledge lies in the fact that the creditor becomes the
owner of the cash given (cash collateral) to secure the
obligation and is duty bound to repay the equivalent
amount if the principle obligation is executed.
▪ In the case of non-execution of the obligation, the
creditor would remain with the amount in pledge without
formalities, because of the particular nature of pledge.

▪ The cash deposit as a security has been viewed as

representing an anticipated payment

C. The securities on stock of goods: the warrant

1. General Notion

The warrant is a document transmitted by the depositary of

goods delivered by him to the person who has the right of
taking delivery, which is transmissible by endorsement.
▪ The warrant is governed by the decree of 20th march 1923
▪ Warrant is document which facilitates and allows diverse
operations on goods without their shifting or
manipulation.

▪ It comprises two parts,

▪ the “warrant” which confers to the bearer a right of

pledge on the goods it indicates and

▪ the « cedule » whose bearer enjoys the right of taking

delivery of goods under pledge.
▪ The both parts are susceptible circulating separately. If
combined, they confer to the bearer the right of taking
delivery of the goods from the depositary at any time.

2. The functioning of warrant

▪ The warrant constitutes a title representing the goods that

it designates and its main function is to facilitate and
simplify the putting into pledge of these goods
▪ the warrant almost exclusively serves to enable the borrowing
of goods without transferring the material possession to the
creditor.

▪ the common practice is that the warrant and the cedule are
always in circulation together and they are endorsed together to
the financial institution, the latter wishing notably to know the
acquirer and have at its disposal not only the right of pledge on
the merchandise, but also the right of taking delivery of it which
constitutes a security more complete and then easy to
implement.
▪ The borrower of the warranted goods will endorse a
warrant to the financial institution which also has right to
present it on certain conditions, on discount

▪ All the goods in general that can be deposited and kept

can be an object of warrant. That warrant may be
delivered by anybody who accepts to be the depositary of
those goods.

▪ In practice there are specialised professional companies

which exercise that activity. In Rwanda, it is done by the
“Magasins Généraux du Rwanda”(MAGERWA).
▪ In case of non-reimbursement of the guaranteed credit at the
time agreed upon, the bearer of the warrant can within 24 hours
after the warning signified to the borrower, introduce a demand
to the president of the tribunal, to get an executory order
authorising public or private sale
SECTION 5: THE MORTGAGE

§1. General notions

▪ The mortgage is regulated by the law No.10/2009 of

14/05/2009 on mortgages modified and completed in
2010.

▪ This law does not define what is the mortgage. It only

stipulates that any owner of an immovable property has
the right to mortgage all or part of his property to secure
an existing or future debt.
▪ the mortgage is real security, in principle an immoveable,
realised without dispossession of the debtor’s asset and
permitting to the unpaid creditor, at the same time of
payment, to get payment on the thing by preference to
ordinary creditors, without any opposition of whoever may
have possession of it.

▪ the mortgage is considered to be valid when recorded in

the mortgage register in the office of the Registrar
General (article 4 of the law regulating the mortgage)
otherwise the mortgage is valid but only between the
parties and cannot be raised against the third party if
that formality did not fulfilled.
▪ Apart from the registration, the law provides that the
debtor must be the owner of the immovable property
subject of mortgage.( Article 3) It does no provides the
possibility to mortgage an immovable property of
someone else.

▪ The mortgage is legal or conventional.

▪ The legal mortgage is that established by the law to the

benefit of a claim without the creditor having to request
for it.

▪ The legal mortgage has the same source as the privilege.

▪ the privilege is attached to the quality of the credit, while the
legal mortgage seems to be attached to the quality of the
creditor either because it merits a special protection

▪ or because it is public collectively by which it is necessary to give

particular prerogatives (see also article 63 law n° 97 of
26/6/1997 which provides the treasury with a right of legal
mortgage on all the immovable of the debtor).

▪ The conventional mortgage is that which depends on the

conventions and on the external form of acts and contracts.
▪ A mortgage contract is convention by which the owner of
the immovable (mortgagor) mortgages it to the profit of the
creditor (mortgagee) for the security of the claim

§2. The essential characteristics of mortgage

A. It’s a real right

▪ The real right deriving from the mortgage would be a sui

generis real right, a real right of security which is
established on the right of ownership itself and not on the
thing, and which has the only objective of permitting the
creditor to obtain his due.
B. The right of preference
▪ It is a priority right

▪ The mortgage is real security which permits the creditor

to be paid on the price in case of execution of the thing
encumbered, by preference to the other creditors.

▪ The exercise of the right of preference is subordinated

to the mortgage registration by virtue of the principle of
publicity.

▪ It is registration which in principle determines the rank

of the creditor because the latter shall take precedence
over other creditors registered after him.
▪ Pari passu contract

This is a kind of mortgage contract which is considered as an

exception to the system of rankings. This occurs where one
bank alone may not be able to cover the huge amount money
requested by the borrower.

In this respect, the bank looks for the co-lenders (other banks)
to share the amount of loan.

As a result the banks (Lenders) are co-creditors and the latter

are equally managed without any display of preference. The
creditors have equal rights of payment, or equal rank of
priority.
Example:
The Banks gave a syndicated loan of 20 Billion in 2019 to GM
Industries Ltd as follows:

❑NCBA: Rwf 3 billion,

❑I&M Bank: Rwf 3 billion,
❑Equity: Rwf 3 Billion,
❑BK: Rwf 6 billion

▪ The loan was secured by the factory located in plot UPI 195.
After two Years, the company became insolvent.

▪ The receiver sold the property to repay the outstanding as

follows NCBA: Rwf 3 billion, I&M Bank: Rwf 3 billion, Equity:
Rwf 3 Billion, BK: Rwf 6 billion.
▪ The sale proceeds were 12 Billion. How much each bank will
get?
Answer

a. NCBA: 12 Billion X Rwf 3 billion = 2.4 Billion

15 billion
b. I&M Bank: 12 Billion X Rwf 3 billion = 2.4 Billion
15 billion

c. Equity: 12 Billion X Rwf 3billion = 2.4 Billion

15 billion

d. BK: 12 Billion X Rwf 6 billion = 4.8 Billion

15 billion
Case of many creditors- privileged, secured and unsecured creditors

The Court ordered INY Industries Ltd to pay the creditors as follows:

▪ NCBA: Rwf 3 billion,

▪ I&M Bank: Rwf 3 billion,
▪ Equity: Rwf 3 Billion,
▪ BK: Rwf 6 billion;
▪ employees salaries and benefits: Rwf 2 billion plus Rwf 500 million as liquidator
remuneration,
▪ taxes: Rwf 500 million,
▪ farmers and suppliers having supply contract with the company: Rwf 3 billion.

After the liquidator sold all properties of the company under liquidation, the proceeds
collected including cash on bank account closed at Rwf 15 billion.

Please explain how the liquidator will pay all creditors and amount of money to be paid to
each creditor.
The distribution of the proceeds will be as follows:
❑ employees salaries and benefits: Rwf 2 billion plus Rwf 500 million as liquidator
remuneration.

❑ taxes: Rwf 500 million.

❑ Bank to share by contribution the balance that is 12 billion as follows

NCBA: 12 Billion X Rwf 3 billion = 2.4 Billion

15 billion
I&M Bank: 12 Billion X Rwf 3 billion = 2.4 Billion
15 billion

Equity: 12 Billion X Rwf 3billion = 2.4 Billion

15 billion

BK: 12 Billion X Rwf 6 billion = 4.8 Billion

15 billion

❑ farmers and suppliers being unsecured creditors will not receive any payment as the
liquidation proceeds would be exhausted by the payment of secured creditors
C. The right of follow up (ius persequendi) also called right
of pursuit .
▪ This is a right in favour of the creditor to follow the
property into whosoever’s hand it may pass or it may be.
▪ The mortgage creditor who has not been paid at the agreed
time can ask the sale of the immovable either when it’s still
in the hands of the debtor or of the third party.

▪ The right to follow up this property wherever it is found,

which the creditor has got, permits him to seize it and sale it
wherever it may be. Thus the one who acquirers in
immovable property mortgaged takes risk.
▪ In case the debtor fails to fulfil his obligation at the time
agreed upon, the mortgagee (creditor) shall have the right
to request the Registrar General to appoint a receiver.

▪ The institution of the Receiver is one of the new aspects of

this law

▪ The receiver has the power:

➢ to demand and recover all the income accruing from the

mortgage (Law No. 10/2009, art.18) either by filing an
action with a court or otherwise, on behalf of the
mortgagor and to furnish the necessary receipt thereof.
➢ To sell the mortgage at the market price after informing
the two parties thereon (Law No. 10/2009, art.19 amended
by the Law No.13/2010 on mortgage, art.3).

➢ To use the funds received in the payment of all expenses

incurred in management of the mortgaged property, paying
off the whole loan covered by a security, deducting his/her
remuneration and restituting to the mortgagor any balance
(art. 18).
D. Accessory real right

▪ The mortgage is an accessory right, the guarantee of a

personal obligation.

▪ We cannot conceive the concept of a mortgage

independently of the obligation to guarantee.

E. Immovable right

It is an immovable right because of its base which is an

immovable (article 3).
F. Indivisible right

▪ The Immovable mortgaged is subject to execution of the

obligation

▪ all parts of the immovable asset answers for the whole

debt.

▪ According to article 7 of the law indicated above

concerning the mortgage, where immovable property has
been mortgaged it shall therefore become a secured
property.
▪ Both parties shall not be allowed to exercise any other
right on the security within the period of mortgage as
prescribed in the mortgage contract (art.7).

▪ But when reading through article 9 of the law indicated

earlier, where a mortgagor (debtor) has given more than
one security,

▪ the mortgagee (creditor) may return one or several

mortgages where he has already been paid a portion of
the debt that is greater than the mortgage to be
resituated.
▪ In such case the mortgage contract shall be amended and
shall be notified to the Registrar General

§3. Things that can be mortgaged

▪ The law indicated above does not provide the list of the
things that can be mortgaged. According to the doctrine, is
can be either an immovable corporeal property or an
immovable incorporeal one.

▪ Thus, one may conclude that the only things that are
susceptible of mortgage as it was provided by article 6 of
the decree of 1922.
• It is important to mention that the law regulating the mortgage
does not provide the possibility to mortgage the future things. It
only stipulates that any owner of immovable property has the
right to mortgage all or part of his property to secure an existing
or a future debt (article 3).

• From this provision, it is impossible to mortgage an immovable

property to be acquired as it is the case for the security interest
on movable property. But in Rwanda, the practice shows that it
is possible to mortgage an immovable property to be
constructed.
are excluded from mortgage:

- Things not in commerce;

- Future things;
- Movable things;
- Things belonging to the third party;
- Certain immovable rights which cannot be conceived in
isolation - (immovable by destination); servitudes; joint
ownership ; immovable shares; and
- The mortgage itself.
§4. Debts that can be guaranteed by mortgage (45)

▪ Without a debt, no mortgage can exist. It is the

consequence of its accessory character.

▪ The law does not request the existence of the debt to be

secured at the moment when the mortgage is registered.

▪ The possibility to mortgage a future claim is stipulated on

article 3 of the law indicated above, since it says that any
owner of an immovable property has the right to
mortgage all or part of his property to secure an existing
or a future debt.
▪ In the latter case, the future debt must be determined and
specified at the moment of the constitution of the mortgage

▪ A conditional claim may be secured by a mortgage but this one

will be conditional as the credit itself to which it is accessory.

▪ The condition must exist from the date of registration and this
date shall determine the rank of the mortgage. An eventual claim
may also be the object of the mortgage.
▪ In this case it may be a possible or probable claim if there
is not any link between the creditor and debtor. The claim
must be specialised in its cause and its amount.

5. Particular regime of the mortgage of matrimonial

property

▪ The protection of matrimonial property was one of the

concerns of the legislator when adopting the law
regulating the mortgage.
▪ According to article 5 of the law indicated above, a mortgage of a
matrimonial house shall be valid:

▪ only if any document or any other instrument used in obtaining

such a mortgage is signed by both parties the mortgagor (debtor)
and his or her spouse living in that matrimonial house

▪ or where there is evidence of consensus between them so as to

grant the mortgage.

▪ The law adds that the creditor shall have the responsibility to
ensure whether or not the mortgagor has a spouse
▪ This shows that the interest of the whole family must prevail over the
interest of one or another spouse, even if they are married under the
regime of separation of property.

▪ the matrimonial home means a home comprising of the house in

which a house in which a husband and wife reside together, the land
on which they cultivate crops and rear livestock.

§6. Principles of publicity and speciality of mortgages

▪ The publicity is not only prescribed in favour of the third party but
the law has linked the existence of the mortgage to its registration
with in the register book.
• The Registration being the generator of the immovable real right;
the mortgage takes place at the moment of the registration not on
the title deed as it was the case from the decree of 1922, but to the
Office of the Registrar General (article 4 of the new law on
mortgage).

• However, there is a precision to mention: the rules related to the

publicity can be invoked by the third parties and are not applied
between parties
▪ The principle of speciality is not provided expressly by the new law on
mortgage but seems to be like that of publicity of which it is
additional

▪ Thus, it is important to determine with precision the encumbered

immovable subject of mortgage; otherwise the creditor may suffer
from the competition with other creditors

▪ As the registration is a condition for validity of mortgage, the

Registrar General must first of all request the parties to determine
the immovable property subject of mortgage otherwise the security
and credit would be illusory.
§6. Constitution of mortgage

A.Registration of mortgages

▪ The real right of mortgage exists when the registration is realised not
by the registrar in the title deeds office, but by Registrar General.

▪ Four conditions are required for the constitution of the mortgage: An

encumbered immovable; the guaranteed claim;

▪ a contract which permits the creditor to proceed to registration, but

the law does not indicate if the contract must authentic or not. But
in practice the mortgage contract must be authentic one
B. Hierarchy of mortgages

▪ The law gives right to the owner to mortgage his property for
several creditors.

▪ Between those creditors, the rank is determined by registration and

consequently the order of preference of the creditors.

▪ In other words, the rank of mortgagees is determined according to

the date of registration on the mortgage register, except for the
legal mortgage.
§7. Effects of mortgages on immovable

A.General effects

1. Extent of mortgage on regards to its object

▪ The mortgage concerns the whole or part of immovable which is

its base.

▪ It therefore applies on the whole or a part of immovable with all

the accessories, as far as they are also immovable
▪ The mortgage extends to different ameliorations (or/and
renovations) occurred to the immovable.

▪ Through “amelioration” we should understand every increasing act

that may be made on the immovable all that which can be unified
by means of accession either natural or industrial.

▪ The mortgage also extends to the immovable by incorporation

whenever they belong to the owner of the thing on which they are
incorporated.
▪ Mortgage extends to contiguous immovable that the owner
would join to the immovable in mortgage to constitute in
this, a unique registered immovable.

▪ Mortgage extends also to the fruits perceived or to revenue

from rent and income from farms which has already
reached the deadline since seizure or if the sale has
occurred according to the via parata clause.

▪ The new law on mortgage does not clarify the theory of the
subrogation.
▪ Article 2 of the decree of 1922 determined the conditions of real
subrogation in mortgage.

▪ In general, real subrogation takes place when a determined

patrimony is replaced by a new property and thus the new
property follows or is under the same rules of that which has
disappeared.
▪ If the real subrogation is realized as soon as the property which
was mortgaged has disappeared for whatever reason and when
the new property substituting or replacing it from the debtor
patrimony is governed, ratione hypothecae, by the same rules as
those applied the disappeared thing, thus that the new property
is given as a guarantee to the creditor in the same conditions as
the former property.

▪ The real subrogation is attached to the extent of the mortgage in

a way where it is just to know if the security does not apply to
some elements which, from the debtor’s patrimony, are
replacing the mortgaged property.
▪ But it is up to the parties in the contract to determine the
extent of mortgage.

▪ 2. Extent of the mortgage as regards the guaranteed

claim

▪ This means to examine the effects of the mortgage on the

accessories of the claim that the mortgage guarantees.

▪ This claim is constituted by a determined amount. This

amount can produce interests, on condition that it has
been stipulated and included in the contract and
registered whatever that can put in danger the claims of
other creditors.
▪ The creditor (mortgagee) whose credit is written as
producing interests or arrears has a right to be listed at the
same level as to his capital.

B. Special effects towards the third party possessor

▪ The debtor’s patrimony is the general pledge of all

creditors, but all creditors do not have the same rights on
the patrimony of their debtor.
▪ Thus, the rights of ordinary creditors on the immovable in
mortgage disappear in case of alienation while those of
the mortgagee continue to exist in spite of the number of
alienations that the mortgaged immovable may be
subjected thereto.

▪ Despite the new law stipulates that both the mortgagor

and the mortgagee shall not be allowed to exercise any
other right on the security referred to in the same law
within such period as prescribed in the mortgage contract,
nothing prohibits the mortgagor to alienate the immovable
property.

▪ But the creditor still has the right of follow-up.

▪ The right to follow up this property wherever it is found,
which the creditor has got, permits him to seize it and
sale it wherever it may be. Thus the one who acquirers in
immovable property mortgaged takes risk.

§8. Transfer of mortgages

▪ The debtor or mortgagor may, in writing, request a

mortgagee to transfer the mortgage to a person named in
the written request.
▪ Upon approval by the mortgagee, the mortgage transfer
shall be notified to the Registrar General to insure the
responsibility to redeem the mortgage and the right
formerly exercised by the mortgagor on the mortgage

▪ §9. Extinction of mortgages

▪ A. Ordinary causes

▪ It is obvious that the extinction of the credit leads to the

extinction of the mortgage which is attached to the credit
because the accessory cannot survive without the
existence of the principal.
▪ Upon approval by the mortgagee, the mortgage transfer
shall be notified to the Registrar General to insure the
responsibility to redeem the mortgage and the right
formerly exercised by the mortgagor on the mortgage are
transferred to the names of the person mentioned in the
request

▪ §9. Extinction of mortgages

▪ As an accessory credit, the mortgage can be extinguished,
when principal obligation which it guarantees has itself
disappears.

▪ However, this extinction can occur by its own cause, in

this case the credit remains
▪ However the credit must be total, due for payment, valuable and
regular so that the extinction of the principal obligation can lead
to that of mortgage.

▪ The mortgagor has an obligation to pay off the debt in

accordance with the provisions of the mortgage contract, so as to
end (the extinction) the mortgage.
▪ If the debtor fails to execute his/her obligation and after a period
of 30 days from the last notice issued by the mortgagee to the
mortgagor to clear his/her debt

▪ the mortgagee shall have the right to request the Registrar General
to appoint a receiver for the mortgage for auctioning the mortgage
and management proceeds from the mortgage – rentals.

▪ This is a new aspect from the current law on mortgage. In case the
Registrar General designates one in witting and informs both
parties.
▪ A receiver that has the following power:

❖ to demand and recover all the income accruing from the

mortgage (Law No. 10/2009, art.18) either by filing an
action with a court or otherwise, on behalf of the
mortgagor and to furnish the necessary receipt thereof.

❖The receiver has also the power of selling the mortgage at

the market price after informing the two parties thereon
(Law No. 10/2009, art.19 amended by the Law No.13/2010
on mortgage, art.3).
❖Moreover, The receiver shall have the power to use the funds
received in the payment of all expenses incurred in management of
the mortgaged property, paying off the whole loan covered by a
security, deducting his/her remuneration and restituting to the
mortgagor any balance (art. 18).

▪ The remuneration of the receiver shall be agreed on by the two

parties who signed the mortgage management contract and shall
not exceed 5% of the amount of the received within the time
equivalent to such period as prescribed in the appointing document
(article 17).
▪ Here the creditors denounce the mortgage and not the credit.

▪ However, the renunciation to the claim consequently leads to the

renunciation of the mortgage. Renunciation is only done by the one
with capacity to alienate the guarantee or mortgage.

▪ It can be tacit or express.

▪ 3. Total loss of immovable

The total loss of the immovable leads to the total extinction of the
mortgage except when there is any indemnity given to the owner of
the immovable.
▪ It is the same in the case of the sale of immovable and in
the case of expropriation for public utility (here the real
subrogation applies).

▪ It is the same in the case of the sale of immovable and in

the case of expropriation for public utility (here the real
subrogation applies).

4. The cancellation of registration ( see supra)

C. Causes of termination for public interest

1. Peremption (lapsing)

▪ Traditionally, the registration of the mortgage had a strict

time limit of 15 years. The duration was prefixed.
However, today the law on mortgage leave to the parties
the duration of mortgage contract.

▪ After the expiration of the time stipulated by parties and

registered at RDB and that there no renewal or addendum
to this registration, it is considered as having
disappeared, this disappearance of registration leads to
that of mortgage because this one exists only when it is
registered.
▪ The option of paying off is a legal benefit by which the debtor or
the third party possessor of the immovable encumbered with
privileges or mortgage can prevent or stop the legal proceedings
which could result from the right of follow up and

▪ release the immovable by offering the privileged or mortgagor the

amount which represents the real value of the said immovable or
reimbursing the amount of the claim.

▪ The paying off thus has the aim of taking off the mortgages which
are attached to the immovable.
▪ The rights recognised by the art. 658 will be an obstacle
to the exercise of this right in matter of movable
privileges

SECTION 6: PRIVILEGES

§1. General Notion of privilege and its characteristics

the term “privilege” derives from the Latin language

« privata lex », the law adopted or made for an individual,
and in law it indicates any prerogative, any advantage
reserved for a person or for a limited category of people.
▪ Belgian mortgage law defines a privilege as a right that a
quality of claim confers to a creditor to be preferred
among other creditors, even secured creditors, of the
debtor.

▪ The idea of privilege originates in a legal favour which

confers to certain creditors’ priority which permits them to
escape from the law of equality in case of payment of their
claims.

▪ The legal character of privileges does not mean that the

rules concerning privileges are of public interest. These
rules regulate private interests.
▪ The provisions concerning privileges are interpreted restrictively.

▪ Therefore, in case of absence of real subrogation, the privilege

does not automatically play in favour of the one who pays the
creditor.

▪ The privilege is given basing on the quality of the claim and not in
taking in account the quality of the creditor.

▪ The law assumes that certain creditors deserve a particular favour

for reasons of humanity, equity or public interests, etc
▪ The date of claim, the importance of the amount of the
claim is unimportant.

▪ The privilege confers to creditors the right to be paid by

preference on the product from the sale of the thing on
which the privilege is based.

▪ It is first a right of preference on the price.

▪ In principle, the privilege does not confer any right on the

thing on which it is based.

▪ The creditor cannot prohibit the debtor to sell it or the

third party to buy it. However, traditionally, privileges are
considered as accessory real rights.
▪ Contrary to other forms of real securities (mortgage and
movable security), privilege confers only to the creditor a rank
of priority to be paid before other creditors and not a specific
real right. It is only the right of preference to the price.

▪ The privilege does not confer, in principle, any right on a

collateral or mortgage since the creditor cannot prevent or
negate that the debtor may sale the asset or oppose from its
seizure.

▪ In addition, the privilege does not require any formalities for

its validity as it is for the mortgage and movable security.
▪ More importantly, mortgage and movable security originate from a
convention concluded between parties in respect of the necessary
conditions and in accordance with the legal requirements as to the
forms and their effects (pledge and its variations, mortgage) while
privileges are determined by the law.

▪ Generally, privileges, except for some special privileges, do not

confer the essential attribute of real rights that is the right of follow
up

▪ Even the rule stated under the provisions of article 658 will be an
obstacle to the exercise of this right in matter of movable privileges
§2. Classification of privileges

Generally, the law classifies privileges according to their subject

matter. The privileges may concern all kind of things, being movable
or immovable.

A.Privileges on things (movables and immovables)

1. Privilege on salaries: superprivilege

▪ In case of bankruptcy or judicial liquidation of a company, its
employees will have benefit of a privilege opposable to other
special and general privileges, including those of public treasury.
▪ It is therefore considered to be a superprivilege.

▪ The superprivilege of the employees is provided on article 84 and 85

of the law regulating the labour in Rwanda.
3. Social security privilege

▪ Article 14 (10) of the decree-law of 22/8/1974 on the organisation

of social security, establishes a privilege of the social security fund
on the contributions and additional charges for late payment which
takes immediately the rank after the super-privilege guarantying
payment of salaries.
4. The privilege of public treasury
▪ According to article 50 of the law no 25/2005 on taxes
procedures, where a taxpayer has been declared insolvent, any
tax, penalty or interest he or she is obliged to pay in
accordance with the law on tax procedures, and in respect to
the law governing companies and other laws relating to civil
and commercial matters, have priority over other debts he or
she owes other parties.

▪ However, the priority of the tax administration may not prevail

the privilege of the workers.
▪ Consequently for the recovery of tax, interest, fines and other cost
used in collection, the tax administration holds a lien on the income
and all movable property for the taxpayer, wherever it may be
located.

▪ the recovery of tax, interest, fines and other cost used in

collection, the tax administration holds a legal mortgage on the
property of the taxpayer, wherever it may be located.

▪ The privilege of the public treasury is valid not only for the movable
property of the taxpayer but his immovable property.
§3. The privileges based on the notion of tacit pledge

a) The treasury privilege on customs duties

According to article 200 of the law no 21/ 2006 of 28/04/2006

establishing the customs duties, where the customs duties debts is not
paid within the prescribed period, customs may seize any property of the
debtor, movable or immovable, whether held by the debtor or any other
person.

The seize property may be sold by public auction, in accordance with

legal provisions in force.
▪ customs holds legal mortgage, on the real estate of the
debtor, to secure the recovery of amount of duties and
interest due.

▪ Moreover the recovery of duties, the treasury has a

privilege on goods which are in the warehouses or other
places supervised and controlled by the customs, if they
were deposited by on behalf of the debtor or if they belong
to him.

▪ That privilege has precedence on all other privileges.

b) The privilege of the carrier

▪ Basing on article 28 of decree-law of 19/01/1920, relating

to the commissioners and carriers, the privileged claim is
made of all the amounts due to the carrier because of the
transportation operation and other incidental operations
like (storage, transit, customs, etc.).

▪ The privilege relates to the transported goods, meaning

all the goods that form part of the same expedition that is
to say, those with the same transport document.
▪ The privilege remains until when the goods are still in his
possession of the carrier or just after he delivers them
(within 7 days after delivery).

▪ The privilege of the commission merchant and of the

lessor of funds

▪ From article 6-8 of decree law of 1970, the commission

merchant, a merchant middleman who acts in his name
but on behalf of the principal, has a privilege on all the
goods he has in his possession, whether they were sent, or
deposited or consigned to him.
▪ The guaranteed claim widely covers all the amounts due to
him as a result of his commission (all the advances, in a
generic sense, sums and values paid to third parties,
interests, commission, all expenses incurred on the behalf
of the principal), on condition that such amounts were
incurred by the broker in his quality of agent.

▪ The foundation of this privilege is constituted by the goods

on condition that they are still under possession of the
commission merchant.
▪ The lessor of funds (bailleur de fonds) who lends to the
commission merchant amounts of money in cash or
commercial values, necessary for loans, advances or
privileged payments money, shall also benefit from the
same privilege as the commission merchant.

▪ The privilege applies to goods given to the commission

merchant on condition to this latter to have transferred
possession to the lessor of funds.
2. The special privilege based on the notion of preservation of
the debtor’s assets.

The comparative law provides notably for:

❖The privilege of the keeper by which the amount of money he used

in keeping the asset (s) are privileged over the thing.

According the language of Belgian court this privilege covers all

expenses without which the thing or things would have been totally
or partially destroyed or would have become improper to its
appropriate usage.
❖The privilege of the seller

❖The privilege of the insurer: Under Belgian law it is used

to guarantee payment of the premium in correspondence
with the risk to be covered, and because it shall be based
on the assured thing, it is falls under the notion of
insurance of things.

❖ Immovable privileges

It is privilege that confers a right of preference on the price

of an immovable. It is privilege that confers a right of
preference on the price of an immovable.
Examples of privileges

▪ the privilege of seller of immovable, the privilege of the

lender who lends money for the purpose of buying an
immovable, the privilege of the joint owner, the privilege
of architects and contractors, cultural warrant and to the
hotel keeper warranty.
CHAPTER II : PERSONAL SECURITIES

▪ Personal security can be defined as legal institution which

has the aim of guaranteeing the creditor the payment of
his claims,

▪ from the patrimony of a third party, who commits himself

to pay the debt of the debtor principally or subsidiarily, or
who commits himself to pay his own debt of which the
payment will terminate the one of the debtor, totally or
partially, without contributing to that debt.
The traditional personal securities are principally the
following:

➢Suretyship (guarantor)
➢surety and co-principal debtor,
➢solidarity, for that which exceeds the contributory part of
the guarantor and co-principal debtor,
➢the bank guarantee (aval),
➢the credit insurance, and
➢the «del credere» clause.

➢The reasons for success of the personal securities are

multiple. They are simply formed without any formality of
publicity towards third parties.
➢They easily conform with the guaranteed claim, especially when it
is a matter of future or undetermined claim.

➢The guarantor doesn’t need to encumber anything from his

patrimony. Due to the closeness of the surety to the debtor, the
surety can inform the creditor on the solvability of the debtor.

➢In fact these guarantees are in respect of the principle of

autonomy of the will and they are insensitive to the rule of
competition of creditors.
SECTION 1: THE TRADITIONAL PERSONAL SECURITIES: THE
SURETYSHIP (cautionary security)

§1. General Notions

▪ The suretyship (cautionary security) is a core of personal

securities.

▪ suretyship is a contract by which a person engages himself

towards the creditor to guarantee the execution of the
debt contracted by another person, in committing himself
to pay in case the debtor fails to execute his/her
obligation.
▪
▪ The debtor of the principal obligation is called principal debtor
or original debtor.

▪ The one who guarantees towards the creditor payment of the

debt of the principal debtor is called surety. Precisely, the surety
is a third party, because his obligation, even though having the
same object with the principle obligation, is distinct from it and
is only attached to it.
▪ These sureties give mostly a legal format to a community
of interests (familial sureties in case of parents, economic
and social sureties in case of main companies and their
subsidiaries), or they are aimed at abolishing vis-à-vis the
creditor the distinction between the social patrimony of a
company and that of managers or owners of the company
(suretyship of administrators or shareholders for their
company).

▪ §2. Characteristics of suretyship

It is a consensual, unilateral and accessory contract.

A. Consensual contract

According to article 555 CCBIII, the requirement that the suretyship

must be express doesn’t change the consensual character of the
suretyship : it is only a matter of proof, meaning that the consent to
suretyship must be certain.

B. Unilateral contract

The contract creates obligations of one party, the surety, even if the
principal debtor could pay the surety, because these circumstances
cannot change the relationship between the creditor and surety.
▪ C. Accessory contract

▪ The extent of the accessory principle in suretyship

contracts has been precised above with the contract of
pledge.

▪ From this characteristic derives notably that the

commitment of the surety cannot be greater than the
guaranteed debt (Art. 553 CCBIII).

▪ The suretiship can be commercial or civil

▪ The consequences of the distinction between the civil and
commercial characteristic of the suretyship are important.

▪ In our law, they will concern especially producing proofs of the

suretyship, which in commercial matters may be proved by all
legal means. In fact the commercial suretyship is a jointly liable
(solidary) suretyship.

▪ The solidarity has one objective of removing the benefit of

excursion or of division, but does not change the accessory
character of suretyship.
▪ When the contract of suretyship is of a fixed period, it
comes to an end on the due time

▪ The surety shall only be asked to pay at that time even if

in application of article 86 CCB III there was lapsing of
time for the principal debtor. However, the expiry of time
the surety cannot invoke his discharge since it is precisely
that time which renders his obligation due for payment of
the debt.
§3. Effects of suretyship

A.Relationships between the creditor and the surety

▪ The surety takes an undertaking vis-à-vis the creditor and

this undertaking doesn’t depend on the relationship that
may exist between him or her and the main debtor.

▪ In this regard, the surety’s commitment constitutes an

abstract act in so far the surety cannot, as a matter of
fact, oppose to the creditor exceptions deriving from his
or her relationships with the principal debtor.
▪ The creditor has the right to claim, when due, the
payment of debt from the surety, if the main debtor has
not done it, without prior obligation of warning the debtor.

▪ It results from the accessory character of the suretyship

that the surety can oppose to the creditor all the
exceptions inherent to the debt (art. 575 CCB III) as
opposed to the exceptions purely personal to the debtor
which the surety cannot rely on.
▪ the surety can invoke all causes of extinction of the main
obligation (payment, novation, compensation, payment of
the debt, fortuitous loss of the thing due, confusion,
transaction, prescription) with the exception concerning
the extinction of suretyship

B. Relation between the surety and the principal debtor

▪ Practically, contracts of suretyship may contain a clause in

which the surety will abstain from exercising any recourse
against the principle debtor as long as the creditor has not
been integrally paid.
▪ In case the surety has paid on behalf of the principal
debtor the surety is subrogated in all rights of the
creditor against the debtor (art.567 et seq.)

▪ Subrogation occurs from when payment is done by the

surety and covers not only the right that the creditor had
at the moment of the conclusion of the suretyship
contract, but also those born subsequently in his favour.
▪ Under Belgian law, the surety is not bound towards the
creditor unless the debtor defaults payment, which
debtor must be previously asked to pay from his
patrimony first, unless the surety has renounced to the
benefit of excursion, or is at least bound jointly (in
solidarity)”.

▪ From this principle, the undertaking of the surety is not

only subsidiary, but also subsidiary to the excursion of the
debtor (excursion of the debtor in his patrimony),
meaning that the creditor can only turn against the surety
for payment if the execution made on the patrimony of
the debtor does not satisfy him.
▪ The suretyship must offer a possibility of immediate
execution on the thing from the time when the debtor
does not pay. The creditor looks for a security and not for
a simple guarantee of solvency.

▪ The benefit of division supposes plural sureties who

guarantee the same debtor for the same debt and it is very
clear because each surety is generally supposed to pay the
whole debt.

▪ In practise, the creditor must ensure a renunciation of

sureties to the benefit of division, this renunciation can be
express or tacit. Thus, stipulation for solidarity between
sureties is a form of renunciation to the benefit of division.
C. Relationship between the co-sureties

▪ According to article 572 CC B III, when many persons have guaranteed

for the same debtor, the surety who has cleared the debt has
recourse against other sureties, each for his part and portion.

▪ The surety who has paid can only act against other co-sureties for
their part and portion. In case of insolvency of one of the co-sureties
must be divided between all sureties (article 565 CC B III).

▪ The surety conventionally subrogated in his rights by the creditor,

must however, divide his recourse against his co-sureties.
§4. Extinction of suretyship

Suretyship is extinguished in two ways (a principle way and by way

of consequence)

A. Extinction by principle way

Suretyship may end by all proper ways to the obligations in general

such as self-invalidation to undertaking of the surety, expiration of
the time period for which suretyship has been contracted,
payment, novation, compensation
B. Extinction by accessory ways

▪ Suretyship is extinguished by the effect of all eventualities

that are capable of extinguishing the guaranteed obligation
such as:

▪ nullity of the principle obligation, causes of dissolution of

contracts, forfeitures and debarment, payment, novation,
compensation, cancellation of debt, merger, destruction of
the thing, transaction, prescription, modification of the
principle obligation
SECTION 2: CREDIT INSURANCE

▪ Credit insurance is a contract by which an insurer insures

a creditor against losses incurred due to his debtor's
insolvency.

▪ The risk covered is the non-payment of the debt due to

insolvency of the debtor that the insurance policy clearly
defines.

▪ There are several forms of credit insurance in accordance

with the moment of intervention of the insurer:
▪ In the classical form, the insurer only intervened when the
debtor's insolvency had been declared, or when the debtor
had asked the court to declare him insolvent. This is
generally referred to as “insurance – insolvability”.

▪ In the modern form, the insurer pays either when the

debtor does not pay on time (assurance - aval) or when he
presumes that the debtor might be insolvent by the time
the deadline of payment has reached (credit - insurance
with waiting period).
▪ Insurance companies insure against commercial related
risks and not politically related risks.

▪ Commercial risks relate to payment of a private debtor

who has become insolvent or who has refused to pay
without a legitimate reason, but not due to unforeseen
circumstances caused by political or natural factors.

▪ Credit - insurance is a type of personal surety, whose

advantage is that it is easy to deal with and has no
formalities that need a third party to accept its validity.
▪ Credit - insurance, however presents some inconveniences ;
the insurer only pays when the debtor has become
insolvent due to conditions already set in the insurance
policy, the creditor being forced to wait for the expiration
of waiting period, or wait for the declaration of his
insolvency.

▪ There are also several limitations on the payments made by

the insurer ; these include insuring only part of the risk,
specifying the particular risk to be insured against, insuring
risk up to a certain amount of money.
CHAPTER III: SECURITIES DERIVING FROM BUSNESS PRACTISE

Practise has manifested certain creativity in the domain of

commercial guarantees.

This creativity increased due to various factors : the economic crisis

reinforced the need to have security for all credits given ; the
formalities of certain traditional securities was deemed very
complicated in economic situations where the need for rapid
transaction commercial globalisation introduced foreign mechanisms
which were more or less flexible.
▪ In other cases the concern was to evade taxes and others
constraints which govern the creation of new securities.

▪ Despite their diversity and multiplication, they can be put

into two major categories that distinguish between real
securities and personal securities.
SECTION 1: REAL SECURITIES FROM BUSINESS PRACTISE

§1. Specific use of right of ownership for the purpose of guarantee

a) The discount, repo, factoring, leasing

The discount is a sui generis contract by which the bearer of a

negotiable instrument transfers its ownership to a banker who is
obliged to give him an amount of money equal to the title, with
interests calculated till date of payment; the bearer binds himself to
reimburse the banker the nominal value of the negotiable instrument
in case the latter is not paid on time
▪ The discount is a sui generis contract by which the bearer
of a negotiable instrument transfers its ownership to a
banker who is obliged to give him an amount of money
equal to the title, with interests calculated till date of
payment; the bearer binds himself to reimburse the banker
the nominal value of the negotiable instrument in case the
latter is not paid on time.

▪ two essential operations in this mechanism.

▪ There is credit operation, because the banker gives an

advance to the bearer before the maturity of the negotiable
instrument.
▪ There is also transfer of ownership, because the parties
agree that the bearer transfers ownership in the negotiable
instrument to the banker.

▪ The reimbursement of the advance given takes place of

payment made by a third party (principal debtor of
discounted instrument).

▪ Nevertheless, if the latter does not pay on time, the banker

can sue the bearer as per the contract between them, or
sue all the people who signed the instrument.
▪ The repo is a sui generis contract by which one of the
parties (the reported party) sells to another (the reporting
party) an immature negotiable instrument and the former
buys it back on its maturity for a higher price.

▪ The difference in price constitutes the rent of money during

the period of report.

▪ The characteristic of report is that it is formed of one

contract and not two distinct juxtaposed contracts.
▪ This one contract however is composed of a double sale,
one on cash, the other on a fixed time payment, concluded
simultaneously between the same parties and on similar
value.

▪ The repo permits the owner of the negotiable instrument

to get money with the help of the negotiable instrument
without definitively giving it away.
▪ The factoring is a contract by which a company binds itself
to transfer to the factor all its short term claims and the
factor to pay all or part of the invoices he has accepted.

▪ Transfer of the claims in pure and simple ownership, which

under factoring is operated by way of endorsement,
constitutes a guarantee of payment done by the adhering
client.

▪ It is in this sense that the factoring becomes a real surety,

thus its similarity to the discount, although, in spite of
what happens to the latter, the factor is not allowed to
make any claim against his client in case that the debtor
does not fulfil his duty.
The leasing (movable or immovable)

In Rwanda; the leasing is governed by the law nº06/2005 of

03/6/2005 establishing regulations and conditions governing lease
operations.

Leasing is a complex operation whereby a professional who is in

need of a capital good, contacts financial institutions to buy that
thing and lease it to him for an irrevocable period.

This period corresponds to the normal duration of depreciation:

after the expiration of that period, the user has the following
options:
▪ He can buy that commodity of its present
monetary value taking into consideration the
unilateral promise of sale made by the financial
institution creditor (crédit-bailleur) or he can
give back it or ask for the renewal of the lease at
a reduced price.

▪ Another particular modality of leasing is

constituted by the lease-back where someone
who is in need of money sells his property -in
most cases immovable property- to a financial
institution which leases it back to him.
▪ Far from being an accessory, it is totally independent from
the operation. As a result, if in that irrevocable period, the
lessee (debtor) fails to perform his obligations the financial
institution can put to an end the contract and take back
the commodity.

▪ The taking back of the commodity is not similar to

executing a security.

▪ It does not deprive the institution the right to seek for

payment from the lessee (debtor) of the rent he is behind
with and to claim for damages resulting from a penal
clause that was traditionally inserted in contracts
▪ Leasing is a contract by which a financial enterprise
undertakes to acquire or order the making of a thing
(movable or immovable) which comes in response of
professional needs of the other party (the user) and
procures him/her the usefulness (by means of ordinary
lease or emphyteutic lease) for an agreed duration.

▪ The user obliges himself to pay periodic rental fee to the

financial company.
§2. The cession of claim as a guarantee

▪ The cession is sometimes allocated in exchange for a price which

in most times is equal to the payment which will be made by the
ceded debtor to the cessionary,

▪ and which generally shall be credited on the current account of

the ceding party into the books of accounting of the cessionary
and in instantaneous compensation from the debit of his account.
▪ SECTION 2. THE PERSONAL SECURITIES DERIVING FROM PRACTICE

§1. Veritable guarantees

A. The bank card and credit card

The bank card is a card issued by the bank to its client which,
in return supports the cheque, permits the holder to operate
withdrawals from his account up to a ceiling amount at
whatever bank counter of an affiliated mechanism in the
country or outside.

Presented to the cheque beneficiary, guarantees him payment

of the cheque in return to respect certain conditions (notably,
the amount of the cheque).
▪ The system currently in place according to the European plan is
based on the agreement among numerous important banks
composed of a mandate given by each of the banks to others to
pay the “Eurocheques” to holders who present them.

▪ The bank which issues this card “Eurocheque” will reimburse on

the bank account of the latter which gave out money to the
“Eurocheque” holder from his account.

▪ The system is founded on the agreement between the bank and

the client.
▪ On one hand, the bank engages to guarantee payment to
all holders of this cheque, regular in form as provided by
the client according to certain conditions (amount of the
cheque, the number of the card on the cheque, etc.).

▪ On the other hand, the client engages himself through the

bank to never revoke and not to do opposition over the
cheque.

▪ The independent guarantee is used in the international

commercial transactions relating to work or building
contracts.
B. The irrevocable credit

▪ The irrevocable credit that is also known as documentary

credit has recently had a remarkable increase due to; in the
one hand, the increased need for the security in transaction
and on the other hand, the internationalisation of the
transaction.

▪ It consists of an operation whereby the banker obliges

himself on the demand of his client (i.e. the one who
ordered or ordering person) to pay a sum of money, to
accept or to discount a bill of exchange to the profit of a
designated third party (i.e. the beneficiary) in exchange for
the delivery of specific document.
▪ This undertaking is taken in consideration of an underlying
commercial operation whereby the one that is giving the order is
the debtor of the beneficiary. Generally, it is a sale, usually at a
distance and international.

▪ This operation can also be used to secure the execution of other

obligations other than those resulting from the sale (insurance,
construction, etc.).

▪ The banker obliges himself on condition that he will not invoke

the exceptions derived from the underlying contract.
▪ The irrevocable credit can be executed by payment in cash
at the time the documents are presented or at the end of
the term (credit with postponed payment), or by accepting
the bill drawn from the issuing bank, or by discounting a bill
of exchange withdrawn from the ordering person’s account
or third person’s account.

C. The independent guarantee

The independent guarantee which is also known as

autonomous, abstract, on the first demand.
▪ Automatic characterised by the fact that they must be
executed entirely, immediately, at the first demand of the
beneficiary without considering the proof of non-execution
or bad execution of the principle contract.

▪ The guarantee therefore, is manifested by its autonomy

compared to the principal contract and by the discretionary
power of the beneficiary to obtain execution.

▪ This guarantee can however be subordinated to the

presentation of certain documents by the beneficiary, who
may also put forward motives and justifications, all these in
order to be formally verified by the guarantor.
▪ In the independent guarantees, there is a major variation
which can be classified according to the types of obligation
guaranteed, in three principle categories:

➢Bid bond or tender guarantee, is delivered in the field of

procurement procedures, it permits the beneficiary who
makes a tender, to receive a determined sum of money in
case the adjudicator is unable of fulfilling his obligations
in relation to his “offer”, whenever this is accepted (e.g.
not signing the contract). The sum is frequently at the rate
of 1 to 3% of the amount of the procurement
➢Repayment bond or advance payment bond, it gives the
beneficiary the means to recover the advance ( 5 to 20%)
which he was supposed to pay to his co-contractor if this
one is not able to pay his part of bargain.

▪ As it is generally provided that the advance will be

progressively acquired by the exporter step by step in his
deliveries, it is advisable that the letter of guarantee
provides for correlative progressive reduction of guarantee
to be executed by the bank guarantor;
➢Performance bond protects the beneficiary importer
against the damages caused by inexecution or bad
execution of the principal contract. The bank guarantor
engages itself to pay him a sum money (5 to 10% of the
price) if it declares that the exporter has not fulfilled his
obligations.

§2. Indirect guarantees

offer the creditor certain protection against the insolvency of

the debtor.
A. The patronage letter

▪ documents generally delivered by the parent company at

the time of giving a credit to the subsidiary which, from the
simple description of the situation which does not produce
legal consequences to the precise engagement of guarantee
and the guarantee takes a form of surety or almost similar
to that institution

There are three categories of letters of patronage:

-Some of them do not contain any precise commitment; they

only serve to describe a given situation.
▪ The parent company declares her knowledge and approval
of the credit which consist in making sure that some
subsidiary honours its commitment, she declares the capital
she has in her subsidiary company.

▪ All these declarations in law have only consequences to

engage civil responsibility of the parent company, if they are
inexact to the prejudice of the person who granted a credit.

▪ The other letters contain one or several commitments over

the creditor:

▪ neither to modify the capital of the subsidiary nor to cede

its shares without having to inform the creditor or not to
root out the subsidiary of its substance.
▪ The violation of the commitment leads to the contractual
responsibility of the parent company.

▪ However, it will be difficult for the creditor to prove the

fault that caused the prejudice he encountered.

▪ Finally, the parent company can undertake a real

commitment vis-à-vis the creditor providing that,

▪ she will enable the subsidiary company to fulfil its

obligations. Depending on the provisions of the clause, the
judge will find in it either a simple obligation of means, or
actually an obligation result.
B. Negative sureties

This expression refers to many various clauses we find in either

credit contracts or in other contracts of suretyship, or in contracts of
claim subordination or patronage letters.

They can be divided into two categories: negative securities that

generate the right to veto, and the negative securities which create
the right of control.

All this is done to the benefit the creditor in relation with the
management of his patrimony by the debtor. It is not real securities
because these clauses do not offer the guarantee of payment.
▪ Their purpose is to protect the creditor against
unfavourable modifications of the property of a debtor.

▪ These clauses have relationship with positive obligations

imposed on the debtor and thus the creditor can verify their
execution:

▪ maintenance of adequate leverage of insurance, use the

credit to the determined purposes, to maintain social
personality, to pay the taxes, maintain certain elements of
the patrimony in good condition, to make a financial report.
MAY GOD BLESS YOU

AND

GOOD LUCK