Commercial Transactions Module 10 Summer Session 2005-06

Commercial Transactions

Module 10

Summer Session 2005-06

©MNoonan2005

This presentation and Copyright therein is the property of Maureen Noonan and is prepared for the benefit of students enrolled in the Commercial Transactions course conducted by the Law Extension Committee and is available for their individual study. Any other use or reproduction, including reproduction by those students for sale without consent is prohibited.

©MNoonan2005

Registration Systems & Priorities

Registration SystemsWe will look at 3 systems which provide for registration of securities on a Public Register so as to put third parties on notice of obligations. Students should know which securities can and should be registered, those which cannot be registered, those which might be required to be registered depending on drafting/effect, formalities required, consequences of registration and non registration.Corporations Act for eligible charges by CompaniesRegistration of Interests in Goods Act (for interests in boats and cars)Security Interests in Goods Act (charges by non-companies over tangible goods and replacing Bills of Sale Act)-commencing March 2006-not examinable summer semester 2005-2006.

PrioritiesWhen there is more than one security holder, it is often necessary to work out who has priority as there may not be enough assets to satisfy everyone.GenerallyCompeting Interests Under the same Registration SystemCompeting Interests under different Registration Systems

Registration Systems

1. Corporations Act

2. Registration of Interests in Goods Act

3. Security Interests in Goods Act

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Charges Required To Be Registered - Corporations Law

s. 262 (1) Subject to this section, the provisions of this Chapter relating to the giving of notice in relation to, the registration of, and the priorities of, charges apply in relation to the following charges (whether legal or equitable) on property of a company and do not apply in relation to any other charges:

(a) A floating charge on the whole or a part of the property, business or undertaking of the company;

(b) A charge on uncalled share capital;

(c) A charge on a call on shares made but not paid;

(d) A charge on a personal chattel, including a personal chattel that is unascertained or is to be acquired in the future, but not including a ship registered in an official register kept under an Australian law relating to title to ships;

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Charges Required To Be Registered - Corporations Law cont.

(e) A charge on goodwill, on a patent or licence under a patent, on a trademark or service mark or a licence to use a trade mark or service mark, on a copyright or a licence under a copyright or on a registered design or a licence to use a registered design;

(f) A charge on a book debt;

(g) A charge on a marketable security, not being;

(i) A charge created in whole or in part by the deposit of a document of title to the marketable security; or

(ii) A mortgage under which the marketable security is registered in the name of the chargee or a person nominated by the chargee;

(h) A lien or charge on a crop, a lien or charge on wool or a stock mortgage;

(j) A charge on a negotiable instrument other than a marketable security.

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s. 262 (2) The provisions of this Chapter mentioned in subsection (1) do not apply in relation to:

(a) a charge, or a lien over property, arising by operation of law;

(b) a pledge of a personal chattel or of a marketable security;(c) a charge created in relation to a negotiable instrument or a document of title to goods, being a charge by way of pledge, deposit, letter of hypothecation or trust receipt;

(d) a transfer of goods in the ordinary course of the practice of any profession or the carrying on of any trade or business; or

(e) a dealing, in the ordinary course of the practice of any profession or the carrying on of any trade or business, in respect of goods outside Australia.

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s. 262(3). The reference in paragraph (I)(d) to a charge on a personal chattel is a reference to a charge on any article capable of complete transfer by delivery, whether at the time of the creation of the charge or at some later time, and includes a reference to a charge on a fixture or a growing crop that is charged separately from the land to which it is affixed or on which it is growing, but does not include a reference to a charge on:

(a) a document evidencing title to land

(b) a chattel interest in land;

(c) a marketable security;

(d) a document evidencing a thing in action; or

(e) stock or produce on a farm or land that by virtue of a covenant or agreement ought not to be removed from the farm or land where the stock or produce is at the time of the creation of the charge.

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Definition Of Charge - S.9 Corporations Law

“Charge”

Means a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.

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Sally Anne Horsley v. Phillips Fine Art Auctioneers Pty Ltd - SCNSW 31.07.95 No. 3211/92

Concerns gifts, bills of sale, conversion.

Anthony Spies and his brother Carl lived with their parents in The Swifts. Their company Minjar purchased this property in Darling Point from the Catholic Church in 1986. It executed a Mortgage back. In the same year Carl and Anthony as Mortgagor executed an Ordinary Bill of Sale over certain antique furniture and chattels in favour of the Church.

Anthony Spies claimed the 1986 BS was discharged in 1987. Court found it more probably than not that it was paid out (32). The evidence was slim but an inference was raised by the fact that there was a later BS granted by Carl alone (the 1990 BS) to secure unpaid interest from the mortgage over ... “all furniture and furnishings mow and hereafter situated in the premises known as The Swifts ...” ... same furniture as in the 1986 BS.

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Sally Anne Horsley v. Phillips Fine Art Auctioneers Pty Ltd - SCNSW 31.07.95 No. 3211/92 cont (2)

This coincided with the principal mortgage being discharged and a refinancing by Minjar with St George. BS transferred to St George in 1992. St George seized the furniture.

Anthony claims a half interest and sues in conversion. He had to show that he had title to the furniture, that St George converted it and he suffered quantified loss and damage. St George contends that Anthony failed to establish any of these and that prior to the grant of the BS, the furniture had been gifted to their mother in 1987.

Anthony gave evidence of the gift to his mother in 1987 (33). See later paragraphs for discussion of an effective gift … delivery 53-83,84, 85, 86, 87.

©MNoonan2005

The Registration System for Cars & BoatsRegistration of Interests in Goods Act (NSW)

This act provides a system in which security interests relating to prescribed goods (currently only motor vehicles and boats) can be placed on the Public Register.

The Register is maintained by the Department of Fair Trading and is known as REVS - The Register of Encumbered Vehicles. It can be accessed online and students are encouraged to look at the material provided by the Department of Fair Trading.

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“Security Interest” in relation to goods means an interest or power: -

a) reserved in or over an interest in the goods; or

b) created or otherwise arising in or over an interest in the goods under a Bill of Sale, mortgage, charge, trust or power by way of security for the payment of a debt or other pecuniary obligation or the performance of any other obligation but does not include any interest or a power reserved or created or otherwise arising under a lease or hire purchase agreement or an agreement excluded by this definition by the regulations.

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“Registerable Interest” in relation to goods means:

a) The interest in the goods of the person to whom is owed the obligation of which the performance is secured by a security interest to which the goods are subject.

b) The interest in the goods of the leasor of the goods.

c) The interest in the goods of the owner under a hire purchase agreement relating to the goods; or

d) Any other prescribed interest in the goods whether arising under the Law of NSW or of a participating State.

©MNoonan2005

Purchase of Cars or Boats that are Subject to A Registerable Interest

Students are expected to have a good working knowledge of Sections 9 and 10 of the Act so that they are able to determine issues such as the following:

a) Whether a particular interest is a registerable interest and should be registered under the Act.

b) How a perspective purchaser of a car or boat can protect their interests and avoid purchasing a car that belongs to, or is encumbered to someone else.

c) The position of a purchaser who has purchased-from a dealer- a car or boat that belongs to someone else or is effected by a security interest of someone else.

d) The position of a purchaser who has made a private purchase of a car or boat that belongs to someone else or is encumbered.

e) The position of a financier who has an interest in a car or boat in both situations of registration and non-registration of a registerable interest.

©MNoonan2005

Register Encumbered VehicleSextract from DFT

Statistically, there is a one in five chance that a vehicle offered for private sale will be carrying a debt for which the new owner could become liable.

The Register of Encumbered Vehicles (REVS) is a service provided by the Office of Fair Trading that can tell you whether or not a vehicle is recorded as encumbered. Encumbered means that there could be money owing on the car or that the registered operator may not own the vehicle outright.REVS can also check if the vehicle is required for an RTA inspection or whether the vehicle has:money owing on it been reported as stolen been recorded as de-registered been recorded as a repairable or non-repairable write-off

Always purchase a REVS search certificate when REVS tells you the vehicle is not encumbered (cost = $10). This will provide confirmation of your inquiry and offer legal protection against the vehicle being repossessed by a creditor due to a previous owners unpaid debt.

©MNoonan2005

Security Interests in Goods-non companies

The Old Regime

The Security Interests in Goods Act has repealed

The Bills of Sale Act 1898This act distinguished traders bills of sale and ordinary bills of sale. Unregistered traders bills were absolutely void and conferred no security, Unregistered ordinary bills were valid as between grantor and grantee but void as against certain judgement creditors. The aim of registration was to prevent third parties from being misled into believing that the goods to which the bill related were unencumbered.

The Liens on Crops and Wool and Stock Mortgages Act 1898This act enabled the land holder to give a preferable lien over crops, an owner of sheep to grant a preferable lien over wool and an owner of sheep, cattle or horses the ability to grant a stock mortgage. Its aim was to overcome doubts at common law about the efficacy of securities granted over goods that were still in the course of production

©MNoonan2005

Security Interests in Goods-non companies The New Regime

The objects of a Security Interests in Goods Act are:

a) To modify existing law by removing the outdated distinction between traders bills and ordinary bills.

b) Make registration optional rather than mandatory.

c) Remove the need for constantly renewing registration.

d) Registration will generally confer priority over unregistered interests and subsequently registered interests, but a failure to register will not result in invalidity.

e) Registration of agricultural securities will create mortgages over existing and future crops and wool, instead of liens over growing crops.

f) Agricultural mortgages are extended beyond sheep, cattle and horses.

g) Aquaculture mortgages will be permitted.

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The term Security Interest in relation to goods (whether existing or future) is defined to mean interest or power:

a) reserved in or over an interest in the goods; or

b) created or otherwise arising in or over an interest in the goods under a bill of sale, mortgage, charge, trust or power by way of security for the payment of a debt or other pecuniary obligation or the performance of any other obligation but is defined not to include:

- a letting of goods with an option to purchase

- an agreement for the purchase of goods by instalment

- any other hiring agreement

- any other agreement, arrangement, instrument or circumstance prescribed by the regulations.

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Effect of registration under the Security Interests in Goods Act on priority of security interests.

Clause 31 sets out rules governing the determination of priority unless the holders have agreed otherwise.

A registered security interest will generally rank in priority over an unregistered security interest. However, an unregistered security interest will rank in priority if the holder of the unregistered interest takes possession of the goods before the registered interest is registered.

An earlier registered security interest ranks in priority over a later registered security interest.

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The location of the Register for Security Interests in Goods.

This will be located with the Registrar General in the same way that the Bills of Sale Register was kept with the Registrar General.

For more information, see the website.

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Priorities

1. Generally

2. Within systems

3. Between systems and non-registerable securities.

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Priorities

1. Equities being equal, first in time prevail.

2. Equities being equal, preference given to legal over equitable.

Subject to special rules, etc., for: Purchasers without notice. Fraud, estoppel and gross negligence. Dearle v. Hall. Statutory registration rules. Bankruptcy and Liquidation Statutes. Provisions re “tacking”. Marshalling of assets.

©MNoonan2005

Factors affecting priorities

Whether in or out of bankruptcy or liquidation Type of grantor of security. If Co, subject to

Corporations Act. Otherwise, State law. For of security-possessory or non-possessory and

in case latter, whether grant or title reservation. Type of property-tangible, intangible-statutory

scheme applicable? Where secured property is situated-law may differ

from State to State.

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Companies-priorities

The usual order in case of insolvency---

1.Fixed charges, mortgages

2. Preferential creditors (including employees)

3. Floating charges

4. Unsecured creditors

5. Subordinated (unsecured) creditors

6. Equity claimants-preference shareholders

7. Equity claimants-ordinary shareholders

8. Equity claimants-deferred shareholders

©MNoonan2005

Order Of Priority Of Charges - Corporations Law

General rules in relation to registered charges:A registered charge has priority over subsequent registered charge s.280(1)(a).A registered charge has priority over a prior unregistered charge s. 280(1)(b).A registered charge has priority over an unregistered charge created after the creation of the registered charge s. 280(1)(c).

Exceptions to general rule:

If subsequent charge created before the prior registered charge, and chargee of subsequent charge can prove that the prior registered chargee had notice of the subsequent registered charge at the time the prior registered charge was created s. 280(1)(a) and 280(2).

©MNoonan2005

Order Of Priority Of Charges - Corporations Law

Exceptions to general rule cont.:

The holder of a floating charge will be deemed to have conceded priority to a subsequently registered fixed charge created before the crystallisation of the floating charge, unless ASIC has been notified of any term of the floating charge that prohibits or restricts the company from creating subsequent fixed charges s. 279(3).

A registered charge loses its priority over a prior unregistered charge if the prior unregistered chargee can prove that the registered chargee had notice of the earlier unregistered charge when he/she took the registered charge s. 280(1)(b) and 280(2).

s. 278(2) provides that having notice includes constructive notice. A person has constructive notice of a prior interest if the existence of that interest would have come to that person's attention upon making the inquiries and investigations that a reasonable person, acting prudently in their own interests would have made. Aust. Central Credit Union v. Commonwealth Bank of Aust. (1991) 9 ACLC 396,402.

©MNoonan2005

Priorities example - Company Charges

A) Chargor Ltd borrowed $50,000 from Chargee Bank, secured by a floating charge over all its assets. The charge was registered with ASIC under s. 262. There was no negative pledge prohibiting the creation of future charges.

B) Chargor Ltd then borrowed $25,000 from Absolute Finance secured by a registered fixed charge over Asset #1.

C) Chargor Ltd then borrowed another $10,000 from Simpson Finance secured by a registered fixed charge over Assets #1,2,&3.

Chargor Ltd then goes into liquidation.

©MNoonan2005

Priorities example - Company Charges (2)

The order of payment is as follows:

The floating charge in A takes priority except over a later registered fixed charge: see s. 279.

The registered fixed charge in Loan B will take priority over the prior floating charge with respect to Asset #1.

Loan B takes priority over Loan C as it is first in time. See s. 280. The fixed charge in Loan C will not defeat the prior registered fixed

charge under Loan B over Asset #1. The fixed charge in Loan C will take priority over the registered

floating charge in Loan A.

©MNoonan2005


Back again to the usual order in case of insolvency-

1.Fixed charges, mortgages

2. Preferential creditors (including employees)

3. Floating charges

4. Unsecured creditors

5. Subordinated (unsecured) creditors

6. Equity claimants-preference shareholders

7. Equity claimants-ordinary shareholders

8. Equity claimants-deferred shareholders

©MNoonan2005

What is the difference between fixed and floating charges?

When a charge is taken, no transfer of ownership. A particular asset is set aside so if chargor fails to pay, chargee is entitled to receive and apply proceeds of sale against the liability.

Fixed charge given over a specific piece or pieces of property.

A floating charge “floats” over the assets until it crystallises and becomes fixed in accordance with terms of charge.

A fundamental difference is right of the chargor to deal with the asset during the charge. Under a floating charge, chargor can deal with it in ordinary course of business until crystallisation. Where a fixed charge given, no right to deal with it without consent chargee.

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It can be seen from previous list that creditors will make a considerable effort to be a secured creditor in order to get to top of list.

However, there is some pressure to leave a company debtor free to use secured property in the ordinary course of business-- to generate cash flow to service the debt.

A problem can sometimes arise with characterisation of charges.-e.g. book debts-is a charge over book debts fixed or floating?

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The trouble with book debts

Effectiveness of fixed charge over book debts upheld in 1979 decision of Siebe Gorman & Co Ltd. v. Barclays Bank Ltd (1979) 2 Lloyd’s Rep 142 and later in 1986 Supreme Court Ireland Re Keenan Bros Ltd (1986) BCLC 242

PC in Agnew disagreed with Siebe decision and found charge in Agnew only a floating charge because debtor could use proceeds in ordinary course of business.

The Hof L in National Westinster Bank plc v. Spectrum Plus Limited (2005) UKHL confirmed lower decision of High Court of England-if a charge permits the chargor to deal with any proceeds of realisation of book debts in ordinary course of business until some further step is taken, charge is floating, irrespective of how parties classified it.

Although these decisions are persuasive and not binding in Australia, if applied, for a charge over book debts to be fixed, chargee must have control over book debts and proceeds.

©MNoonan2005

Agnew v. Commissioner of Inland Revenue & 0rs. Re Brumark Investments Limited (2001) UKPC 28-persuasive but not binding in Australia.

Was a charge over uncollected book debts, which left company free to collect them and use the proceeds in the ordinary course of business a fixed charge or a floating charge?

The debenture deed sought to create a fixed charge on book debts outstanding when Receivers appointed, and proceeds of debts they collected. Prior to their appointment, the company was free to collect them and use proceeds in ordinary course. However, it could not assign or factor them.

The question was whether the right to collect debts and deal with proceeds free from security meant that charge on uncollected debts, while being described as fixed was nevertheless floating until it crystallised by appointment Receivers

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Agnew cont.

The Privy Council traced history floating charge paying particular attention to book debts.Useful for students as it should enable them to get good understanding of both. The extract in text is suitable for study.

Their Lordships concluded that the freedom to deal with charged assets without the consent of the holder of the charge made it a floating charge. They found it was clear from description attached that they intended to create a fixed charge over uncollected debts and floating charge over the proceeds. They had to deal with the question of whether a receivable could be separated from its proceeds-a single security interest or 2? And, whether a charge on book debts necessarily takes effect as a single and indivisible charge on the debts and proceeds, or 2 different charges.

They concluded property and its proceeds are 2 different assets.

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Agnew cont

Fixed charges over book debts-various possibilities

=Lender taking assignment of each debt and perfecting the security by giving notice to third parties entitling the lender to collect the debts itself or

= The Lender taking assignment of debts but refraining from giving notice until Debtor in default.

First usually commercially impractical. Second usually effective in creating fixed charge because company not collecting debts for its own benefit but for the account of the Lender. Hence, proceeds not available to debtor free of the security.

= Where a bank is involved, a blocked collection account with a bank can be used.

©MNoonan2005

SpectrumSpectrum opened an account with NatWest and obtained an overdraft of

£250,000 for working capital. By debenture 30.9.1997, Spectrum created a charge “by way of specific charge” in favour of NatWest over book debts to secure moneys due by it to NatWest.

Obligations of Spectrum were to pay the procees of any book debt into Spectrum’s account with

NatWest not to sell, factor, discount or otherwise charge or assign the book

debt in favour of any other person or purport to do so without the consent of the NatWest; and

if called on to do so, to execute legal assignments of such book debts. NatWest advanced £200,000 by debit to account. Proceeds of book

debts were collected and paid into account reducing overdraft an Spectrum drew on account as and when it needed to, thereby increasing overdraft.

©MNoonan2005

Spectrum cont(2)

Spectrum went into voluntary liquidation owing NatWest £156,554. Liquiators collected and realised book debts £113,484, but refused to account for them to NatWest. Natwest sought declaration it was fixed charge and order for Liquidator to account.

Court considered three part test in Agnew Nature of rights and obligations parties intended-ordinary account

with no restrictions Whether it was intention of parties that charged assets should be

under the control of company or charge holder-book debts under control of and available for use by Spectrum in ordinary course

Whether such an intention was consistent with nature of transaction as describe by label parties had put on it-no specific charge not consistent with freedom to use

Therefore floating and not fixed charge

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Creation of fixed charges over book debts-the practicalities.

Successful strategies include:

A prohibition in the charge against the company realising debts itself whether by assignment or collection without consent of chargeholder.

More realistically commercially, the chargeholder appoint the company its agent to collect the debts for its account and on its behalf.

Pay into blocked account so money not available as a source of cashflow. However, blocked account must operate in substance as well as in name to be effective-chargor must be denied right of access for withdrawals, any payment out of the account must be at chargee’s discretion and to be safe a separate decision by the bank on a case by case basis whether or not to release monies.

©MNoonan2005

Sample problem-Orbis Communications

Orbis Communications Limited (Orbis) provides internet services to businesses. Nibelheim Industrial Bank (Nibelheim) holds a floating charge over all business assets. Principal assets comprise telecommunications and computer equipment, accounts receivable and cash in an NAB account. The floating charge contains a restrictive covenant prohibiting Orbis from creating subsequent security interests ranking equally, or ahead, without consent Nibelheim. An automatic crystallisation clause in the event of any breach. Menard Finance Limited has agreed to advance funds to Orbis and take a fixed charge over receivables and floating charge over bank account-requires Orbis to deal with receivables in accordance with instructions of Menard. In absence instructions, Orbis must collect them in ordinary course business and pay them into their bank account but is otherwise prohibited from dealing with them. Orbis may deal freely with proceeds in the ordinary course of business prior to the crystallisation of the Menard floating charge over the bank account. Orbis is experiencing difficulties. Menard has requested your advice on legal status of its security interest and its priority vis a vis Nibelheim.

©MNoonan2005

Australian Central Credit Union V. Commonwealth Bank Of Australia No 566 of 1989 (1991) SASC 2724

2 people claimed a vehicle owned by KP Randall P/L (KPR P/L)

Mr. R living with Miss L, who was member of Credit Union and eligible to borrow. Miss L agreed to obtain a loan for Mr. R who authorised her to use vehicle as security. Miss L disclosed all this to the Credit Union and obtained a loan of $12,000, paid it to Mr. R who used it for the company. Miss L signed a Bill of Sale dated 18th September 1987 over vehicle as security. It named Miss L as grantor and made no reference to company. Vehicle remained in possession of KPR P/L.

A charge within CCode 1987 s.203 required to be registered . Notice of a charge required by s. 201(1). KPR P/L did not give notice of Bill of Sale; nor did credit union pursuant to s. 208 (interested person can give notice). It did register 22.9.87 on Vehicles Securities Register pursuant to Goods Securities Act 1986. On 24.11.87 KPR P/L executed Deed of Equitable Mortgage giving Bank floating charge. Registered as charge under Co

Code. On 10.2.89, company defaulted. Bank took possession.

©MNoonan2005

Australian Central Credit Union V. Commonwealth Bank Of Australia No 566 of 1989 (1991) SASC 2724 cont (2)

Who is entitled to proceeds of sale of vehicle? Valid Bill of Sale and effective to transfer title? No lack of formality…miss L agent for KPR P/L….Bill of Sale purported to transfer legal title subject to right to possession and equity redemption…consumer mortgage (Consumer Credit Act). Nothing to prevent passing of title. Is Bill of Sale a charge within Companies Code? Was it a charge on a personal chattel..i.e. article capable of complete transfer by delivery? Yes, neither Motor Vehicles Act (scheme for registration ownership) nor other statute deprive a MV capacity of being transferred by delivery.Therefore a charge and should have been registered under Co Code. A registered charge has priority over unregistered charge created before it, unless chargee of unregistered charge proves chargee of registered charge had notice of unregistered charge at time registered charge created. Was registration under Goods Securities Act notice?Would reasonable person, acting prudently in own interests have searched the register? No said majority. Yes, said dissenting Judge.

©MNoonan2005

BLUECORP PTY LTD (IN LIQUIDATION) V. ANZ(1995) QCA 487 (3.11.95)

This case concerns a fight between Trustee in Bankruptcy of Bluecorp ( formerly Lloyds Ships, a maker of luxury boats) and ANZ, Trustee of Mirage resorts-for proceeds of sale of Mirage III. Bluecorp sued ANZ in conversionMirage III was a vessel built for Mirage resorts and Qintex. The Contract for construction between Hover and Lloyds 21.6.85. At that stage they were independent companies. While under construction Qintex bought around 45% interest in Lloyds31.7.86 ANZ acquired all but one in the issued units in Port Douglas Resort Trust and Gold Coast Resort Trust21.10.86 Lloyds had applied to register Hover as owner but registration did not proceed25.5.87 boat completed and handed over to HoverAfter boat handed over, no attempt to register because of sales tax worries

©MNoonan2005

BLUECORP PTY LTD (IN LIQUIDATION) V. ANZ(1995) QCA 487 (3.11.95)Cont.

3.8.87 charges executed by Hover in favour of Operations and by Operations in favour of ANZ Charges registered

May/June 88 “recission”of sale of ship. 31.8.88 Lloyds issued credit advice and notified Registrar of Ships it had no interest

Boat registered in name of Lloyds.Lloyds never repaid Hover

13.9.88 boat registered in name of Lloyds

Lloyds mortgaged boat to Partnership Pacific 16.9.88

Bill of sale in blank 20.6.89 to ANZ

Decision

Boat being held by Lloyds on trust for whatever entity in the Qintex group it was decided on

No way appellants can challenge transfer of legal title during 1989 on the facts

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Trade Finance and SecuritiesThe import scenario

Bankers Lien

Pledge

Equitable charge

Trust receipt

Unpaid seller’s right of stoppage in transit

Carriers lien for unpaid freight

Bankers right of set off

Fixed and floating charges over importers assets

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END OF MODULE 10 FOR SUMMER SEMESTER 2005-6

The following slides are Bills of Sale reference slides only.

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ITEM BILLS OF SALE ACT 1898

BILLS OF SALE ACT 1898

REGISTRATION OF GOODS ACT 1986

TYPE ORDINARY BILLS OF SALE

TRADERS BILLS OF SALE

REGISTRABLE INTEREST

DEFN S.3 S.3 S. 3

REGN 30 days 15 days Discretion

EffectNon-regn

Void against

judgement creditors

and trustee in

bankruptcy of grantor

if goods in possession

of grantor at specified

times

Void against all, including grantee.

Loss of financier as against bona fide purchaser for value

Contents Not prescribed BUT certain things necessary

Prescribed s.5C

s.5

BILLS OF SALE

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HOLROYD V. MARSHALL (1862) 11 ER 999 1. Taylor manufactured damask 2. He obtained finance from Holroyd 3. Gave Bill of sale as security 4. Related to machinery in mill plus any new machinery 5. Registered 4 days later 6. Taylor subsequently got new machinery 7. Seized & sold by Marshall, sheriff in execution of judgements 8. Holroyds sued Marshall and won but lost on appeal. 9. Appeal to House of Lords Lord Westbury LC Did mortgagee have estate or interest in future machinery? If a vendor or mortgagor agrees to sell or mortgage property, of which he is not possessed at time and he receives consideration, and afterwards becomes possessed of property answering the description, no doubt a court of equity would compel him to perform and that the contract would in equity transfer the beneficial interest immediately on property being acquired… when new machinery became fixed or placed in mill, they became subject to operation of contract and passed in equity to mortgagees . Holyroyds preferred to judgement creditor.

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POULOS BROS (WHOLESALE) PTY LTD V. WILLIAM GEORGE ABBOTT Supreme Court of Tasmania No. 1282/1991 Judgement No A88/1994 1. Stephen Abbot had commercial crayfish-pot licence & boat 2. Poulos guaranteed debts to Commonwealth Bank 3. Agreement 4.7.86 between SA and P. 4. SA assigned boat and equipment to P and registered as a Bill of sale 14.7.86 5. Grant bill of sale inter alia over licence as well 6. Later assignment to William Abbott Zeeman J. Legal assignment of licence? Did P acquire an equitable interest? No legal interest because that can only be transferred in accordance with Regulations for transfer of such licences. Licence constituted property and not just a personal right because of various factors set out in judgement .Following on from Holroyd v. Marshall. Immediately after grant of bill of sale a court of equity could have intervened by requiring SA to do whatever was required to perfect assignment, notwithstanding that this might not have resulted in actual transfer. Bill of Sale…agreement of 4.7.86 ineffective to transfer licence to Plaintiff but was effective as agreement to do so and vested beneficial interest in plaintiff subject to proviso for redemption. Later agreement to William Abbott therefore not effective.

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BILLS OF SALE

DEFINITION - S. 3 BILLS OF SALE ACT 1898 INCLUDES

1. Bills of sale

2. Assignments

3. Transfers

4. Declaration of trusts without transfer

5. Other assurances of personal chattels

6. Powers of attorney authorities or licenses to take possession of chattels as security for a debt

7. Agreement by which equitable charge conferred over future acquisitions of personal chattels

DOES NOT INCLUDE Deeds of the Commonwealth Bankruptcy Act 1924-33-assignments for benefit of

creditors Marriage settlements Transfers or assignments of ship or share of ship Transfers in ordinary course of business of trade Bills of sale of goods in foreign parts or at sea Bills of lading India warrants Warehouse-keepers certificates Warrants or Orders for delivery Document used in ordinary course of business as proof of possession or control Or authority to transfer or receive such goods

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BILLS OF SALE

DEFINITION - TRADERS BILL OF SALE

S. 3 BILLS OF SALE ACT 1898

MEANS

A BILL OF SALE

MADE OR GIVEN BY WAY OF SECURITY

BY A TRADER

THE PERSONAL CHATTELS…WHICH ARE

NOT SPECIAL GOODS EXCLUSIVELY

AND ARE OR INCLUDE PLANT, FIXTURES, FITTINGS AND/OR

GOODS, WARES OR MERCHANDISE

WHICH AT TIME OF MAKING OR GIVING OF TRADERS BILL OF SALE

ARE OWNED AND USED OR INTENDED TO BE USED

OR WHICH ARE THEREAFTER ACQUIRED AND WHEN SO ACQUIRED

WILL BE OWNED AND USED OR INTENDED TO BE USED

BY THE TRADER

IN OR IN CONNECTION WITH

THE BUSINESS IN WHICH THE TRADER

IS ENGAGED OR ABOUT TO ENGAGE

BS3

©MNoonan2005

BILLS OF SALE

DEFINITION - TRADER


MEANS:

A PERSON

ENGAGED OR ABOUT TO ENGAGE IN

THE BUSINESS

OF SELLING BY RETAIL

ANY GOODS, WARES OR MERCHANDISE

BUT

DOES NOT INCLUDE:

A FARMER (a person engaged in farming, including dairy, poultry and bee farming, agricultural horticultural or grazing operations in NSW)

A COMPANY

AN HOTELIER

BS4

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BILLS OF SALE

DEFINITION - PERSONAL CHATTELS


MEANS:

1. GOODS,

2. FURNITURE,

3. FIXTURES

4. OTHER ARTICLES CAPABLE OF COMPLETE TRANSFER BY DELIVERY

DOES NOT INCLUDE: CHATTEL INTERESTS IN REAL ESTATE SHARES OR INTERESTS IN STOCK, FUNDS, SECURITIES OF ANY

GOVERNMENT CAPITAL OR PROPERTY OF COMPANY CHOSE IN ACTION STOCK OR PRODUCE OF FARM

BS5

©MNoonan2005

BILLS OF SALE

DEFINITION - SPECIAL GOODS


MEANS:

1. GOODS OF A CLASS

2. SPECIFIED IN AN ORDER

3. UNDER S. 9

4. OF REGISTRATION OF INTERESTS IN GOODS ACT 1986

5. Motor vehicles, boats.

BS6

©MNoonan2005

BILLS OF SALE

ORDINARY BILLS OF SALE

CONTENTS

1. Names, addresses, occupation parties

2. Consideration for the bill New loan? Security for existing debt?

3. Provide for transfer of personal chattels to grantee

4. Describe personal chattels and state their location

5. Provide for repayment with interest and thereupon for discharge

6. Provide that grantor is entitled to possession until default

7. Given an address for grantor for notices of caveat entered against filing (traders bills only in NSW)

Bs7

©MNoonan2005

BILLS OF SALE

TRADERS BILLS OF SALE

CONTENTS S. 5C

1. Full name and business/occupation grantor and grantee

2. Place of business and residence of grantor and grantee

3. Usual name or style grantor uses for business

4. A description of personal chattels

5. Situation of relevant chattels

6. Consideration for the bill specifying amount past debt, advance made and future advances secured

7. Given an address for grantor for notices of caveat entered against filing (traders bills only in NSW)

8. Accompanied by Statutory Declaration of trader that they are retailer and bill is a traders bill.

Bs8

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BILLS OF SALE SA FORM-FIRST SCHEDULE BILLS OF SALE ACT 1886

I, (state the full or usual given names of the grantor, the grantor’s proper surname, residence or place of business, and occupation)in consideration of the sum (here state consideration) lent to me by (here state the full or usual given names of the grantee, the grantee’s proper surname, residence or place of business, and occupation)the receipt of which I acknowledge, transfer and assign to (the grantee) all and singular the personal chattels described at the foot of this bill of sale, which are situated (describe the land or premises where the goods are situated) and all my right, title, claim, and demand to the personal chattels, to have, hold, take, and receive the personal chattels unto (the grantee), subject to the provisos, terms, covenants, conditions, and agreements expressed or implied in this bill of sale; but if I pay to (grantee) the sum of $ on the day of , 19 (or on demand or at such other time as provided for by the bill of sale) and interest on that sum or on so much as remains due at the rate of $ per cent per annum, payable in payments on during this security then this bill of sale becomes void. (Here insert any other necessary condition) And it is agreed that, upon payment of the money secured, (grantee) will, at my cost and my request, execute a discharge to me of this security, and that it will be lawful for me to retain possession of the personal chattels until default is made in the expressed or implied terms, covenants, conditions and agreements of this security.

Dated the day of 19

Signed by (grantor) in the presence of

Personal chattels comprised in this Bill of Sale (Here give a description of the personal chattels assigned, and in case of horses or cattle, state the brand or other distinctive mark)

Bs9

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HOLROYD V. MARSHALL (1862) 11 ER 999 1. Taylor manufactured damask

2. He obtained finance from Holroyd

3. Gave Bill of sale as security

4. Related to machinery in mill plus any new machinery

5. Registered 4 days later

6. Taylor subsequently got new machinery

7. Seized and sold by Marshall, sheriff in execution of judgements

8. Holroyds sued Marshall and won but lost on appeal.

9. Appeal to House of Lords

Lord Westbury LC

Did mortgagee have estate or interest in future machinery

If a vendor or mortgagor agrees to sell or mortgage property, of which he is

not possessed at time and he receives consideration, and afterwards becomes

possessed of property answering the description, no doubt a court of equity

would compel him to perform and that the contract would in equity transfer

the beneficial interest immediately on property being acquired…

when new machinery became fixed or placed in mill, they became subject to

operation of contract and passed in equity to mortgagees

Holyroyds preferred to judgement creditor.

Bs10

©MNoonan2005

PRICE V. PARSONS (1936) 54 CLR 332 1. Green owed Price money

2. He did not want to give bill of sale

3. 2 other documents

4. Account saying Green had sold machinery to Price and Price had paid + Hire purchase agreement

5. Green defaulted

6. Price took machinery and hired it to others

7. Green went bankrupt

8. Trustee sued Price for value of machinery and succeeded

9. Price appealed to HC

Rich, Dixon and McTiernan JJ Did receipted list of goods or the HP agreement or both together constitute a

bill of sale? Yes,Court found main object was advance secured by HP agreement Look at substance to see whether document operates to give licence to take

possession of goods as security for the debt. Power of seizure under HP agreement amounts to licence to take possession

as security within Bof S Act, if general property not vested already (see comments re estoppel)

HP agreement constitutes a Bill of sale because it includes assurance of personal chattels

Void as against Trustee

Bs11

©MNoonan2005

FRANOV V. DEPOSIT AND INVESTMENT CO (1962) 108 CLR 460

1. Mr. and Mrs Ramljak owned milk Bar

2. 2.5.60 gave traders bill of sale over equipment to D&I

3. 13.5.60 Franov agreed to buy 50% share business

4. 18.5.60 entered partnership agreement

5. Found out about traders bill of sale

6. Sarin replaced Ramljak

7. He and Sarin paid 615 pounds to D&I

8. D&I nevertheless sought to enforce

9. F and S sought injunction without success. Appealed to Court of Appeal

Dixon CJ Although bill lodged on day of execution, necessary to have 14 days to permit

caveat lodgement Could not be effective until 17.5.60 Alternative construction that once registered, it became operative ab initio

dismissed because of interpretation of intention of act to protect existing creditors from loss of assets and means of carrying this into effect.

Any legal title to chattels comprised in bill of sale obtained before that date might take priority

Appeal won on this point, but other complications meant no substitute order

Bs12

©MNoonan2005

SALTOON V. LAKE (1978) 1 NSWLR 52

1. Saltoon lent Scali money

2. On security of deed of mortgage over racehorse

3. Deed not registered

4. Scali disposed of horse to Lake

5. 4 months later declared bankrupt

6. Saltoon sued Lake

7. Lake appealed to Court of Appeal

The Court Not registered under Liens on Crops and Wool and Stock

Mortgages Act.

Never mind, not invalid against other party. A bill of sale but not registered

Assignment without transfer of personal chattels Non registration might have made it invalid against Official

receiver but not against the other party Probably not against OR either because horse not property of

bankrupt when sequestration order made.

Bs13

©MNoonan2005

POULOS BROS(WHOLESALE) PTY LTD V. WILLIAM GEORGE ABBOTT Supreme Court of Tasmania No. 1282/1991 Judgement No A88/1994

1. Stephen Abbot had commercial crayfish-pot licence & boat

2. Poulos guaranteed debts to Commonwealth Bank

3. Agreement 4.7.86 between SA and P.

4. SA assigned boat and equipment to P and registered as a Bill of sale 14.7.86

5. Grant bill of sale inter alia over licence as well

6. Later assignment to William Abbott

Zeeman J. Legal assignment of licence? Did P acquire an equitable interest? No legal interest because that can only be transferred in accordance with

Regulations for transfer of such licences Licence constituted property and not just a personal right because of various

factors set out in judgement Following on from Holroyd v. Marshall Immediately after grant of bill of sale a court of equity could have intervened

by requiring SA to do whatever was required to perfect assignment, notwithstanding that this might not have resulted in actual transfer

Bill of Sale…agreement of 4.7.86 ineffective to transfer licence to Plaintiff but was effective as agreement to do so and vested beneficial interest in plaintiff subject to proviso for redemption

Later agreement to William Abbott therefore not effective

Bs14

©MNoonan2005

©MNoonan2005

Documents

Commercial Transactions Module 10 Summer Session 2005-06