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8E0UEITIE8 OVER lOYEABLES



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SECURITIES OVER MOVEABLES

FOUR LECTURES

DELIVERED AT THE REQUEST OF

THE SOCIETY OP ACCOUNTANTS IN EDINBURGH,

THE INSTITUTE OF ACCOUNTANTS AND ACTUARIES

IN GLASGOW,

AND

THE INSTITUTE OP BANKERS IN SCOTLAND,
IN 1902-3



BY



WILLIAM SHAW

WRfTKR, 0LA800W ; AND UDCTURKR ON MERCANTILE LAW
IN THE UNIYERSITT OF GLASGOW



V^ILLIAM BLACKWOOD AND SONS.



EDINBURGH


AND


LONDON


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TABLE OF CONTENTS.



PAOK

Table of Cases Cited vi

Table op Statutes Cited viii



LECTURE I.

^Definition of "security" — Security -rights, how constituted —
Distinction between corporeal and incorporeal moveables —
Actual and constructive delivery — The contract of pledge
— Negotiable instruments — Attempts to create security by
ex fade sale



LECTURE 11.

The Factors Acts 1889 and 1890 — Securities over incorporeal
moveables — Assignation in security — Shares in joint stock
companies — Policies of insurance 25



LECTURE III.

Retention and lien— Special lien and General lien— Banker's

lien 49



LECTURE IV.

Compensation. Illegal securities under the Act 1696, cap. 5.
Transactions excluded from the Act— (1) Cash payments, (2)
transactions in the ordinary course of trade, (3) nova dehita.
Transactions to which the Act applies— Moveable subjects
becoming heritable by accession 71



Appendix op Statutes 99

Appendix op Forms 113

Index 126



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TABLE OF CASES CITED.



Allan V. Jones & Co.'s Trustee, 39 S.L.R 263 .. .

Alston's Trustees v. The Eoyal Bank of Scotland, 20 R 889

Anderson v. M*Call, 4 Macph. 765

Anderson v. The North of Scotland Bank, 4 F. 49

Anderson's Trustees v. Fleming, 9 M. 718 .

Anderson's Trustee v. Sommerville, 36 S.L.R 833

Bamton Hotel Ck). v. Cook, 1 F. 1190 .

Barr & Shearer v. Cooper, 2 R, H.L., 14 .

Barstow v. Inglis, 20 D. 230 ....

Bell's Trustees v. The Coatbridge Tin Plate Co., 14 R

Bennet v. Mathieson, 40 S.L.R 421 .

Blincow's Trustee v, Allan & Co., H.L. 7, W. & S. 26

Borthwick v. Bremuer, 11 S. 716

Borthwick V. Bremner, 12 S. 121

Borthwick v. The Scottish Widows' Fund, 2 Macph. 595

Bradford Banking Co. v, Briggs & Co., 12 App. Ca. 29



26



Cahn V. Pocketts Co., 1899, 1 Q.B. 648

Campbell's Trustees v, Whyte, 11 R 1078 .

Carter v, Johnston, 13 R 698 .

Cook V. Sinclair, 1896, 23 R 925 .

Cooke V. Whelby, 12 A.C. 271 ... .

Cowdenbeath Coal Co., Ltd., v, Clydesdale Bank, Ltd.

Cranstoun v. Bontine, 6 W. & S. 79 .



Dall V. Drummond, 8 Macph. 1006
European Bank, L.R. 8, Ch. App. 44



Forbes' Trustee v. Forbes, 1903, 40 S.L.R 369 .
Fuentes v. Montes, L.R. 4, C.P. 93 . . .
Fulwell, 9 S.L.T. 21

Galbraith v. The British Linen Co., 36 S.L.R. 139

Gladstone V. M'CaUum, 23 R 785

Gourlay v. Hodge, 2 R 730

Gourlay v. Hodge, 14 R. 403

Graham v. Dyster, 6 M. & S. 1 .

Graham v. Webster, 13 R 1116 .



22 R 682



PAGE

5,92
14

8

68,77

58,80

90

57
52
14
43
92
80
54
64
46
44

33
37

89
92
74
83
81

58

63

93
26
57

84,88
52,55
83
88
25
79



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SEOUKITIES OVER MOVEABLES.



Vll



Gray*s Trustees v. The Eoyal Bank, 23 K. 199 .
Guild (Kettle's Trustee) v. Young, 22 S.L.R. 520
Gumey v. Behrend, 3 El. & Bl. 622 .

HamUton v. The Western Bank, 19 D. 162
Helby v, Matthews, 1895, A.C. 471 .
Hilton V. Tucker, 39 Ch. D. 669 .
Horsbrugh v. Eamsay & Co., 12 R. 1171

King V. The British linen Co., 1 F. 928
Kirkman v. Shawcross, 1794, 6 T.R. 14

Learoyd v. Robinson, 12 M. & V\7^. 745

Leese v, Martin, L.R 17, Eq., 22

London Joint Stock Bank v, Simmons, A.C, 1892, 201

Loudon Brothers v, Reid's Trustees, 5 R 293

Mackinnon v. Manson, 6 Macph. 974 .

Mackintosh v. McDonald, Fraser, & Co., 39 S.L.R. 776

Maclay v. Howie's Trustee, 40 S.L.R. 170

Meikle & Wilson v. Pollard, 8 R. 69 .

Miller v Hutchison, 8 R. 492 .

Mitchell V. Wright, 9 Macph. 516

Mitchell V. Heys & Sons, 21 R. 600 .

Moncrieff v. Hay, 14 D. 200

Murdoch v, Greig, 16 R. 396

M*Bain v. Wallace, 8 R, H.L., 106 .

MKIhitcheon v, M'William, 3 R. 565 .

M*Donald v, Kydd, 38 S.L.R 697 .

National Bank u Forbes, 21 D. 79 .
National Bank v, Mollison. 22 R 740.
Nicholson v. Harper, 1895, 2 Ch. 415 .
North- Western Bank, Ltd., v. Poynter, 22 R, H.L., 1

Patten v. Royal Bank, 15 D. 617 ....
Peebles v. The Caledonian Railway Co., 2 R 346
Pochin & Co. v. Robinson & Marjoribanks, 7 Macph. 6
Pringle's Trustee v. Wright, 1903, 40 S.L.R 396



Rhind's Trustee v, Robertson & Baxter, 18 R 623 .

Ritchie v. Maclachlan, 8 Macph. 815 .

Robertson & Baxter v. Inglis, 24 R 758, and 25 R., H.L.,

Robertson v, Ross, 15 R. 67

Robertson v. HolFs Trustees, 24 R 120
Robertson's Trustee v. The Royal Bank, 18 R 12
Robinson v. Kestell, 1896, 12 T.L.R. 174 .



. 67, 74
85
16

14, 19, 51, 52
35
6
90

69
59

31



71



11,62

87



87
93
56
56
87
61
84
34
23
37
50

53

14,63

31

21

65
60

7
80

8

37

7,29

56

24, 91, 92

62, 63, 70

34



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SECURITIES OVER MOVEABLES.



Scottish Provident Institution v. Cohen, 16 R 112

ti tt V. Bobinson, 29 S.L.R 733

Sewell V. Burdick, 10 A.a 74 . . .
Shand v. Blackie, 21 D. 878 .. .
Steven v, Scott, 9 Macph. 923 .. .
Stewart v. James Keillor & Son, Ltd., 39 S.L.B. 353
Stewart v. Scott, 11 S. 171 . • .

Taylor v. Jones, 39 S.L.R 263 .
Teale v. Brown & Co., 11 T.L.B. 56 .

Union Bank v. The National Bank, 14 R, H.L., 1

Vicars v. Hertz, 9 Macph., H.L., 65 .

Walker & Watson v. Starrock, 35 S.L.R. 26
Wylie's Executor v. M*Jannet, 4 F. 195 .



48
48
17,20
48
82
45
80

91
67



39, 54, 69



13

47



TABLE OF STATUTES CITED.



The Act 1592, cap. 141 71

The Act 1696, cap. 5 5,59,71,77-94,97

II II cap. 25 43, 98

The Bankruptcy Act, 1856 58; 85, 86

The Bills of Exchange Act 13

The Bills of Lading Act, 1855 99

The Bills of Sale Act, 1882 93

The Companies Act, 1862 41-43

II II 1867 13

The Debtors Act, 1880 78

The Factors Act, 1823 26

II II 1825 26

II II 1842 26

II II 1877 26

II M 1889 .... 10, 18, 25, 26, 27-36, 104

II It 1890 25, 109

The Mercantile Law Amendment Act, 1856 .... 23

The Policies of Assurance Act, 1867 47, 102

The Eailway and Canal Traffic Act, 1854 60

The Sale of Goods Act, 1893 . . . . 9, 16, 18, 24, 51, 92
Transmission of Moveable Property (Scotland) Act, 1862 . 36, 100



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SECURITIES OVER MOVEABLES.



LECTUEE I.

DEFINITION OF " 8B0URITY " SECURITY -RIGHTS, HOW CONSTITUTED

DISTINCTION BETWEEN CORPOREAL AND INCORPOREAL MOVE-
ABLES ^ACTUAL AND CONSTRUCTIVE DELIVERY — THE CONTRACT

OF PLEDGE NEGOTIABLE INSTRUMENTS ATTEMPTS TO CREATE

SECURITY BY EX FACIE SALE.

In mercantile and banking circles the term " security " is in
daily use. The word hardly requires any definition when
used in ordinary business transactions, as it naturally con-
veys the idea of something given or deposited to ensure the
due implement of an obligation or the ultimate payment of a
debt. Many contracts are made where it would be incon-
venient, and in some cases almost impossible, immediately
to provide the necessary capital for carrying them out.
Credit, however, is readily given on production of satis-
factory security, and in that way legitimate commercial
business is encouraged and developed.

The importance of the law of rights in security consists in
the fact that it is the foundation on which rests the great
credit system of this country. Without credit the industry
and commerce of a country must always be confined within
narrow limits. By means of credit capital finds its way into
the hands of enterprising men of business who can use it
to the most advantage, and who are thereby enabled to carry
out undertakings which would otherwise be altogether beyond
their reach.

A



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2 SECURITIES OVER MOVEABLES.

It has now come to be recognised that, from the point of
view of the public interest, it is of great importance that
every means should be taken to remove impediments to the
growth of credit, and to encourage the confidence on which
credit is based, in order that capital may flow as easily as
possible into the hands of those persons in the community
who are most competent to employ it efficiently in produc-
tive uses.

The progress of this department of law in recent times
has accordingly been all in the direction of increasing the
facilities for constituting security rights — ^in other words, the
facilities for obtaining credit. This progress, dictated by
public policy and rendered necessary by the requirements of
trade, has to a large extent consisted in the recognition and
regulation by the law (either in the form of statute or by legal
decision) of usages and customs previously existing in the
mercantile community. Nevertheless, so important is credit
to the mercantile community that, as the cases show, the
custom of merchants in dealing with instruments of credit is
constantly apt, so to speak, to outrun, and be in advance of,
the law of the land, with unfortunate results to individual
merchants. Hence it is of the highest importance that all
persons engaged in commerce — and in particular bankers
and others, through whose agency capital is in practice
largely loaned — should see to it that the form in which
they take security for loans is in conformity with the law,
and such as the law will recognise and enforce in a question
with other creditors of the borrower.

The term " security " is often used loosely — as in the ex-
pression " personal security " — to denote a document acknow-
ledging or evidencing a debt, such as an LO.U., a deposit
receipt, a personal bond, or a promissory note. A document
of that kind, however, which contains nothing more than
the personal obligation of the debtor (even if it expresses
an obligation by the debtor to pay the debt in a particular
way or out of a particular fund), does not constitute a
security in the legal sense of the term; for it does not
furnish the creditor with any means of ensuring payment
of his debt other than the enforcement of the debtor's



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SECURITIES OVER MOVEABLES. 3

personal obligation, and therefore, if the debtor becomes
bankrupt, does not entitle the creditor to any preference
over the general creditors of the debtor. A security-right,
in the legal sense, is a right which provides a creditor with
some means of realising payment of a debt, distinct from, and
additional to, the right which he has against the debtor in
virtue of the latter's personal obligation, and which, on the
debtor's bankruptcy, gives the creditor a preference over
the debtor's general creditors. A secured creditor, in other
words, has at his disposal, through the security which he
holds, a means of obtaining payment of his debt which is
not shared by the other creditors of the debtor, who have
been content to rely merely on the debtor's personal obliga-
tion.

It follows from what has been said that a security-right
is in its nature an accessory or subsidiary right. In order
to the existence of a right in security there must exist a debt
which is thereby secured, and when this principal debt is
extinguished, the accessory right held by the creditor in
security of that debt is also extinguished.

A security may take the form of a right held by the
creditor to enforce payment of the debt against a third
person or third persons other than the debtor primarily
liable — these third persons having undertaken by a guar-
antee or cautionary obligation to pay the debt, if the debtor
who is primarily liable fails to do so. Cautionary obliga-
tions and guarantees have already, I understand, formed the
subject of a course of lectures given to the societies with
which you are associated, and accordingly I shall not enter
on a discussion of this class of securities.

Again, a security may take the form of a right held by the
creditor to realise payment of his debt out of some specific
property belonging to the debtor. Any kind of property,
whether heritable or moveable, belonging to the debtor, may
by appropriate means be made to form a subject of security
to a creditor. In these lectures I propose to deal only with
what are called mercantile securities — ie., securities of a
kind which are given and received by merchants, bankers,
stockbrokers, and others in the ordinary practice of commerce.



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4 SECUBITIES OYER MOVEABLES.

That being so, the whole subject of securities over heritable
property falls outside the scope of these lectures, and we are
concerned only with securities over the diflTerent classes of
moveable property.

A security-right, then, over moveable property may either
be constituted by an express agreement between the creditor
and debtor — the agreement being accompanied by an overt
act, such as delivery or intimation, completing the creditor's
right in the security subject in a question with third parties ;
or, in certain circumstances, it may arise, without express
contract between the parties, simply by implication of law
in favour of a creditor who is in the legitimate possession
of property belonging to his debtor — the debtor, or his trustee
in bankruptcy, not being entitled to recover the property in
question until the debt or debts due to the creditor are paid.
These two classes of securities must be dealt with separately ;
and, in the first place, I shall deal with securities over move-
able property which result from an express contract between
the parties.

It is proper, however, that we should first of all consider
what is included in the expression Moveable Property as a
proper subject of security. There are two classes of move-
able property known in our law — viz.. Corporeal Moveables
and Incorporeal Moveables. The following definition of cor-
poreal moveables is given by Bell in his ' Principles,' section
1285:—

" Moveables corporeal in Scottish law correspond with chattels
in England. They include all things which, being themselves
capable of motion or of being moved, may be perceived by the
senses — seen, touched, taken possession of, as ships, household
furniture, goods and efiects of all kinds, farm stock and imple-
ments, horses, cattle, and other animals, com, money, jewels,
wearing apparel."

Incorporeal moveables, on the other hand, have no con-
crete existence, and cannot be delivered in substance to
a creditor in security, although they may be transferred
or assigned to him. Incorporeal moveables include, inter
alia, debts. Government funds, bank stocks, shares or stocks



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SECURITIES OVER MOVEABLES. 5

of public companies, insurance policies, reversionary interests,
trade marks, patents, copyrights, and rights arising under
onerous contracts.

It is a general rule in the law of Scotland, applicable both
to corporeal and incorporeal moveables, that a security-right
is not eflTectually constituted by a mere agreement between
the parties unless the agreement is accompanied by some
act or step conferring on the creditor a real nexus over the
property. The particular act or step necessary and suflBcient,
in addition to the agreement between the parties, to make
the security-right effectual depends on the nature of the
property which forms the subject of security, and, in partic-
ular, differs materially according as the subject of security
is a corporeal or an incorporeal moveable. In regard to
securities over corporeal moveables, a mere agreement to
transfer subjects of this sort in security of a debt or the
performance of an obligation transmits no real right in the
subjects, and therefore confers no preference on the creditor
unless and until the subjects conveyed are actually or con-
structively delivered to him. In other words, without de-
livery there is no security. A familiar example of this rule
is found in the case of an assignation of household furniture
in security of advances. A conveyance of this character
is absolutely worthless without delivery, and nothing has
yet been successfully devised to prevent the debtor from
selling the effects or his trustee from seizing them in the
event of bankruptcy. The last reported case on this subject
is that of Allan v. Jones & Go's Trustee, 1901, 39 S.L.R.,
263. In that case Jones & Co., cycle agents, in consideration
of a loan of £40, gave to the lender a receipted invoice for
certain bicycles priced at £72, 12s., as if there had been a sale
to him of the bicycles. In point of fact no price was actually
paid, and the bicycles remained in possession of the borrowers.
A number of the bicycles were sold within sixty days
of the borrowers' bankruptcy, and the proceeds paid to the
lender. It was held in an action for repetition of the pro-
ceeds by the trustee on the borrowers' estate, founded upon
the Act 1696, cap. 5, that the receipted invoice was an
ineffectual attempt to create a security over moveables left



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6 SECURITIES OVER MOVEABLES.

in possession of the debtors, and that the lender was bound
to repay the money handed over to him on the sale of the
bicycles, as it had not been received by him as a cash pay-
ment in the ordinary course of business. Lord Moncreiff
indicated in his judgment that if the bicycles had been de-
livered to the lender at the time of the loan, the judgment
would have been difiTerent.

Delivery of the subject of security may be actual or con-
structive. Actual delivery takes place when the subject is
transferred to the custody of the creditor or to a third party
representing him. Delivery into the creditor's cart or his
warehouse or shop are simple examples of actual delivery.
In some cases goods cannot always be conveniently taken
possession of by the creditor, who may not have the neces-
sary available accommodation for storing them, but if they
are delivered into a store on his account and subject to his
order, the delivery is complete. The same result follows if
the key of the store occupied by the owner of the goods
is given to the creditor with the intention of giving him
full control over them, so that he is put in possession
of them in fact. For instance, in the case of Hilton v.
Tucker, 1888, 39 Ch. D., 669, it was held that delivery of
a key of a room in which were certain goods pledged by
A to B was a sufficient delivery of the security subjects.
Justice Kekewich, in giving judgment in favour of the
pledgee, said: "The delivery of the key is the symbol of
possession when the possession itself is practically impossible.
A man being unable to carry about with him or to con-
veniently move to his own warehouse adjoining a large
quantity of timber, the delivery of a key giving exclusive
control is regarded as delivery of possession itself."

Constructive delivery occurs where specific goods are in
the custody of a third party and are transferred by an order
granted by the owner on the third party in favour of the
security holder. In order to operate constructive delivery—
%,e,, to complete the transfer of a security subject which is in
the custody of a third party such as a store-keeper — it is
necessary (1) that the delivery order should be intimated to
the third party, and (2) that the third party should be in an



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SEGURITISS OYER MOVEABLES. 7

independent position, and not a mere servant or warehouse-
man in the employment of the transferor.

(1) The former rule in particular is important — viz., that
without intimation of the order there is no delivery. The
only exception — apart from the pledge of a document of title
by a mercantile agent under the Factors Acts, of which I
shall speak later — ^is in the case of goods at sea, which can
be effectually transferred either absolutely or in security by
the endorsement and delivery of the bill of lading, without
intimation to the custodier of the goods. The principle of
intimation, as we shall see subsequently, applies in the same
way in the assignation or transfer of incorporeal moveables.
For instance, where a policy of insurance is assigned in
security the assignation does not become effectual until it
has been intimated to the insurance company. The law of
constructive delivery has been very clearly expressed by
Lord President Inglis in the case of Pochin & Co. v. Robinow &
MarfaribankSf 1869, 7 Macph. 628, as follows : " Constructive
delivery may take place, and generally does take place, where
specific goods or other moveables being in the custody of
some person other than the owner, the owner gives to a
purchaser of these goods a delivery order addressed to the
custodier ordering him to deliver to the purchaser these
specific goods. When this delivery order is intimated to the
custodier, constructive delivery is effected, because the
custodier from that time becomes in law holder for the
purchaser just as before he was holder for the seller. But
to the completion of such constructive delivery two things
are indispensable — (1) that the custodier shall hold an in-
dependent position and be neither the owner nor in any