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Oxford Law Citator

Part III Registration and Other Perfection Requirements, 11 Interests Created By Debtors Who Are Not companies

From: The Law of Security and Title-Based Financing (3rd Edition)

Hugh Beale, Michael Bridge, Louise Gullifer, Eva Lomnicka

Previous Edition (2 ed.)

Content type:: Book content

Product:: Financial Law [FBL]

Published in print:: 08 March 2018

ISBN:: 9780198795568

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Subject(s):: Mortgage — Debt

(p. 462) 11 Interests Created By Debtors Who Are Not companies

A. Introduction

Registration of security created by debtors that are not companies

11.01 There are perfection requirements¹ for only certain types of mortgage or charge created by non-corporate debtors over their property. The perfection of mortgages and charges over goods by non-corporate debtors is for the most part governed by statute, principally the Bills of Sale Acts.² General assignments of book debts must also be registered under the Bills of Sale Act 1878.³ There are separate provisions for agricultural charges⁴ and charges created by cooperative, community benefit, and building societies.⁵

Impending reform of the Bills of Sale Acts

11.02 In the Queen’s Speech in 2017 the government announced its intention to reform the law on bills of sale pursuant to recommendations by the Law Commission. After further consultation, the Law Commission published a draft Goods Mortgages Bill in November 2017. If the legislation is enacted in the form currently proposed, the only form of non-possessory security over goods that individuals will be able to create over most goods will be a ‘goods mortgage’. General assignments of book debts will be registrable under the new Act. A summary of the draft Bill will be found in Chapter 23.

Assets for which there is a specialist register

11.03 A mortgage over some types of asset may need to be registered in a specialist registry in order to constitute a legal mortgage, and in some cases equitable mortgages and charges may be registered in order to (p. 463) preserve their priority. These requirements, which are not strictly speaking perfection requirements, are dealt with in chapter 14.⁶ Mortgages and charges over these assets fall outside the Bills of Sale Acts.⁷ For non-corporate debtors (i.e. for debtors that are not companies or industrial and provident societies) there is no additional perfection requirement equivalent to registration at Companies House, save under the provisions for agricultural charges.⁸

B. The Bills of Sale Acts

Introduction

Bills of sale

11.04 The Bills of Sale Act 1878 (the ‘1878 Act’)⁹ and the Bills of Sale Act (1878) Amendment Act 1882 (the ‘1882 Act’)¹⁰ lay down rules of form for written transactions that fall within their scope, and require that the ‘bill of sale’ be registered. Curiously they apply to the document—the bill of sale—rather than the transaction itself, so a purely oral agreement for an equitable mortgage or charge over personal property is outside the scope of this legislation. A purely oral agreement would seem risky for the creditor because it might be hard to prove, though it is debatable whether this risk is greater than the risk of invalidity through failure to comply with the complex requirements of the Bills of Sale Acts.¹¹ The Crowther Report commented in 1971 that it is difficult to imagine any legislation possessing more technical pitfalls.¹²

Growth in use of bills of sale

11.05 At one time it was generally thought that bills of sale had become rare. In its first consultation paper on security interests, the Law Commission noted that few bills of sale were granted: in 2001, only 2,840 were registered, most with a single group that specialized in lending on the security of used cars.¹³ However, by the time of the Law Commission’s Report in 2005, the number of loans secured by registered bills of sale had grown dramatically. In the first six months of 2005 nearly 11,000 bills had been registered. Several new firms had entered this market, again mainly making consumer loans secured on used cars.¹⁴ The Law Commission states that in 2016 over 30,000 bills of sale were registered at the High Court.¹⁵

Absolute bills and security bills

(p. 464) 11.06 The 1878 Act applies to every bill of sale whereby the holder or grantee has power¹⁶ to seize or take possession of any personal chattels comprised in or made subject to such a bill of sale.¹⁷ This includes both ‘absolute bills’ by which outright ownership is transferred to the holder¹⁸ and bills of sale given by way of security for the payment of money (which are known as ‘security bills’¹⁹). The 1882 Act applies to all bills except those given otherwise than by way of security²⁰ for the payment of money.²¹ Thus an absolute bill and a bill given to secure the performance of a non-monetary obligation would only be covered by the 1878 Act. The 1882 Act is to be construed as one with the 1878 Act so far as is consistent with the tenor of the 1882 Act, but enactments contained in the 1878 Act that are inconsistent with the 1882 Act are repealed.²²

Purposes of the Acts

11.07 The purposes behind the 1878 Act and the 1882 Act were different. The 1878 Act was designed to prevent the rights of creditors from being affected by secret dispositions of property by persons remaining in possession of that property.²³ The purpose of the 1882 Act was to prevent people being entrapped into signing complicated documents that they might not understand, and so being subject to the enforcement of harsh and unreasonable provisions.²⁴ It was also intended to prevent the debtor from being tied to the creditor for the future and to protect the other creditors of the debtor, by providing that a security bill may be given only over property that is specifically listed and that the debtor owns at the time, not after-acquired property.²⁵ In addition, security bills for which the consideration is under £30 are void.²⁶

Differences between the Acts

11.08 We will see that the two Acts impose different requirements of form and different registration requirements. Further, non-compliance with the requirements of each Act has different consequences: under the 1878 Act the bill is void as (p. 465) against the debtor’s other creditors or their representatives,²⁷ under the 1882 Act the bill of sale will in some circumstances be void also as between the parties.²⁸

Scope of the Bills of Sale Acts

Not applicable to charges created by certain types of debtor

Companies

11.09 It has been held that the Bills of Sale Acts do not apply to company charges. Section 17 of the 1882 Act states specifically that it does not apply to debentures²⁹ issued by companies and secured upon its capital stock, goods, chattels or effects, but the terms of the 1878 Act also show that it does not apply to companies. We have noted that even before 2013 a charge created or evidenced by an instrument that, if executed by an individual, would require registration as a bill of sale was, if created by a company, a registrable charge under the Companies Act.³⁰ Because of the scheme for registration of company charges, charges created by companies are outside the mischief of the Bills of Sale Act; and the language of the Act, in referring to indexing the register by the ‘surnames’ of the grantors of the bills, shows that it is not intended to apply to companies.³¹ It therefore does not apply to company charges that are not registrable.³²

Industrial and provident societies

11.10 Charges created by industrial and provident societies are also exempt if registration in accordance with the Co-operative and Community Benefit Societies Act 2014 (which replaces Industrial and Provident Societies Act 1967) is properly applied for.³³

Agricultural charges

11.11 Agricultural charges created by a farmer are also outside the Acts,³⁴ and likewise charges created by agricultural marketing boards.³⁵

Documents that are ‘bills of sale’

Definition of bill of sale

11.12 Section 4 of the 1878 Act provides a detailed definition of a ‘bill of sale’.³⁶ It includes assignments, transfers and declarations of trust without transfer, documents that give the creditor the right to take possession of personal chattels as security (p. 466) for any debt,³⁷ and any agreement conferring a right in equity to,³⁸ or a charge or security on, any personal chattels.³⁹ This third category was intended to catch assignments of future and after-acquired goods, which were not within the 1854 Act.⁴⁰ Equity will treat a charge over after-acquired property as attaching to the property when the debtor acquires it without any further act of transfer being required.⁴¹ But as we will see, an assignment of after-acquired chattels by way of security for a debt by an unincorporated debtor is likely to be ineffective, certainly against the grantor’s trustee in bankruptcy or other creditors⁴² and in some circumstances against the grantor himself.

Bills of sale in the 1882 Act

11.13 The 1882 Act states that ‘bill of sale’ has the same meaning for the 1882 Act as it does for the 1878 Act (save that the 1882 Act does not apply to such bills given otherwise than by way of security for the payment of money).⁴³

Deemed bills of sale

11.14 The 1878 Act also provides that certain instruments are deemed to be bills of sale, including attornment clauses in mortgages or agreements under which personal chattels that may be seized or taken under powers of distress under powers given by the instrument, or any rent is reserved or made payable as interest on a debt or as security.⁴⁴ These documents need not be in the form required for other bills of sale but must be registered if the relevant clause is to be effective.

Document must confer right on buyer or creditor

11.15 The essential point is that, to constitute a bill of sale within the Act, the document must confer the right on the buyer or creditor. It is not within the Act if it merely records a transaction that has already taken place⁴⁵ nor if it is a mere agreement for a transfer that is to take place in the future, for example when goods are delivered to the buyer or creditor. Thus an agreement to grant a bill of sale is effective in equity and requires registration;⁴⁶ likewise an agreement to assign specified goods to the creditor on demand.⁴⁷ In contrast, an agreement that legal property will be transferred by the debtor when the debtor brings building materials onto the creditor’s land will not be a bill of sale.⁴⁸

Pledges not bills of sale

(p. 467) 11.16 A pledge, even if its terms are set out in a document, is not normally a bill of sale because the pledge is created by the transfer of possession and not by the document.⁴⁹ A pledge that is completed by a third party who is in possession of the debtor’s goods attorning in writing to the creditor is not within the Acts since the document is not one that gives the creditor power to seize or take possession of the goods; it actually transfers possession.⁵⁰ If, however, the pledge is created by the debtor attorning to the creditor—which has been held to create a pledge⁵¹—and the attornment is in writing, or an oral attornment is later superseded by a written one, the document is a bill of sale and requires registration.⁵²

‘Title-retention’ agreements not bills of sale

11.17 A conditional sale or hire purchase agreement is not a bill of sale because it does not involve the owner of the goods giving the creditor the right to seize the owner’s goods: the creditor is taking back his own goods.⁵³

Documents excluded from ‘bills of sale’

11.18 A number of important documents are excluded.⁵⁴ The majority of exceptions appear to relate to absolute bills but some would seem to apply equally to transfers by way of security. They may be exempt because of the nature of the goods or because of the nature of the transaction.

Exempt goods

Ships

11.19 Transfers or assignments of any ship or vessel or any share thereof are not bills of sale.⁵⁵

Bills of lading for goods abroad or at sea

11.20 Documents such as ‘bills of sale of goods in foreign parts⁵⁶ or at sea, bills of lading … or any other documents used in the ordinary course of business as proof of the possession or control of goods’ are excluded. Thus a pledge of or a charge over a bill of lading is not registrable as a bill of sale.

Imported goods

11.21 Section 1 of the Bills of Sale Act 1890⁵⁷ additionally provides that:

An instrument charging or creating any security on or declaring trusts of imported goods given or executed at any time prior to their deposit in a warehouse, factory, or store, or to (p. 468) their being reshipped for export, or delivered to a purchaser not being the person giving or executing such instrument, shall not be deemed a bill of sale within the meaning of the Bills of Sale Acts 1878 and 1882.

It has been said that this exception applies only to instruments referring to specific consignments of goods, not to documents that create a general charge over future goods.⁵⁸

Aircraft

11.22 Mortgages of registered aircraft are exempt.⁵⁹ The Bills of Sale Acts also do not apply to any agreement creating or providing for an international interest in ‘aircraft objects’.⁶⁰ However, an international interest created by an individual over an aircraft object could be registered in the International Registry.⁶¹

Exempt transactions

Assignments for the benefit of creditors

11.23 Assignments for the benefit of creditors generally are exempt.⁶²

Transfers of goods in the ordinary course of business

11.24 Transfers of goods in the ordinary course of business of any trade or calling are also exempt.⁶³ It has rightly been pointed out that what is a transfer in the ordinary course of business will vary over time.⁶⁴

Trust receipts

11.25 It is not uncommon for a lender to whom the documents representing imported goods have been pledged to release them to the debtor so that the latter can sell the goods. The debtor agrees to hold the documents, the goods once it has obtained them and any proceeds on trust for the lender under what is known as a ‘trust receipt’.⁶⁵ The trust receipt is not a bill of sale because it falls within the exception for documents used in ‘the ordinary course of business as proof of the possession and control of goods’ in the 1878 Act,⁶⁶ as well as often being exempt by virtue of the 1890 Act.⁶⁷ It has also been held that the trust receipt is not a bill of sale at all but merely the continuation of an existing pledge that was not created by the document.⁶⁸ For the same reason the trust of the proceeds of (p. 469) sale is not a charge; it was regarded as a means by which the pledgor as the pledgor’s agent realizes the pledgee’s security.⁶⁹

‘Personal chattels’

Goods within ‘personal chattels’

11.26 The definition of ‘bill of sale’ in the 1878 Act,⁷⁰ which applies also for the purposes of the 1882 Act,⁷¹ is limited to documents affecting ‘personal chattels’.⁷² Section 4 of the 1878 Act provides a definition that covers goods, furniture, and other articles that can be transferred completely by delivery. Interests connected with land are excluded save that fixtures and growing crops are included when assigned or charged separately from the land.⁷³ Stock or produce on farms or land is excluded.⁷⁴

Future goods

11.27 It had been held that assignments of future and after-acquired goods were not within the 1854 Act as they were not ‘capable of complete delivery by transfer’ and thus were outside the definition of ‘personal chattels’.⁷⁵ This led Lord Macnaghten to suggest that future or after-acquired chattels are outside the 1878 Act also.⁷⁶ However, it has been pointed out that this ignores the new third category included in the 1878 Act, an agreement conferring a right in equity to, or a charge or security on, any personal chattels.⁷⁷ This was intended to catch assignments of future and after-acquired goods. Thus these must be within the meaning of ‘personal chattels’ within the 1878 Act.⁷⁸ The phrase ‘capable of complete delivery by transfer’ must mean of a kind that is capable of transfer by delivery. Therefore an absolute bill over future goods may be effective but will require registration. We will see, however, that a security bill over after-acquired goods is likely to be ineffective, certainly against the grantor’s trustee in bankruptcy or other creditors⁷⁹ and possibly against the grantor himself.⁸⁰

Trade machinery

(p. 470) 11.28 Trade machinery is treated differently. With various exceptions, any disposition of it that would be a bill of sale were it of other personal chattels is a bill of sale within the Act.⁸¹ Thus some trade machinery may be subject to the Acts even when it is not assigned separately from any land or building to which it is affixed but is assigned together with a freehold or leasehold interest in the land or building. However, this will not be the case when the machinery passes merely as part of the land to which it is affixed.⁸² The trade machinery will constitute personal chattels only when it is dealt with separately as chattels, in the sense that the transferee is to obtain rights greater than it would obtain under a simple conveyance of the land—if, for example, it is given the right to sever the machinery and sell it separately⁸³ or if the transfer of the machinery is outright whereas the land is only leased.⁸⁴

Investment property and choses in action

11.29 ‘Personal chattel’ does not include shares or interests in the stock, funds or securities of any government, or in the capital or property of companies, or choses in action.⁸⁵

Formal requirements and registration

11.30 For each type of bill there are both requirements of form and a requirement to register.⁸⁶ It is easiest to treat the two requirements for each type of bill together. The formal requirements for each type of bill are markedly different. The registration schemes differ slightly between absolute and security bills. In addition, with security bills the registrar has certain duties concerning transmission of entries to county courts.⁸⁷

Absolute bills

Formal requirements for absolute bills

11.31 The 1878 Act does not set out a detailed form for an absolute bill of sale. However, sections 8 and 10 set out a number of requirements that must be complied with.

(1) The bill must be attested by a solicitor and the attestation must state that the effect of the bill was explained to the grantor.⁸⁸
(2) The bill of sale must set out the consideration for which it was given.⁸⁹

Registration requirements for absolute bills

(p. 471) 11.32 Certain documents are required to be presented to, and filed with,⁹⁰ the registrar within seven clear days after the making or giving of the bill.⁹¹ The documents concerned are:

(1) the bill, together with every schedule annexed or inventory referred to therein,
(2) a true copy of the bill, schedule or inventory, and of the attestation of execution,
(3) an affidavit of the time of such bill being made or given, and of its due execution and attestation, and
(4) a description of the residence and occupation of the person making or giving the bill⁹² and of every attesting witness.⁹³

Effect of failure to register

11.33 Failure to register the Bill in the proper form within seven days renders the bill void as against all trustees or assignees of the estate of the person whose chattels are comprised in the bill (in relation to bankruptcy or insolvency law), or under any assignment for the benefit of the creditors of that person. It is also rendered void as against any person executing a court-authorized seizure of any chattels comprised in the bill.⁹⁴ However, the absolute bill is not avoided as between grantor and grantee.

Bills subject to defeasance, condition or declaration of trust

11.34 In the case of an absolute bill made or given subject to any defeasance or condition, or declaration of trust not contained in the body thereof, the defeasance, condition or declaration is deemed to be part of the bill, and is required to be written on the same paper therewith before the registration, and is required to be set out in the copy filed. Failure to do this will render the registration void.⁹⁵

Successive bills

11.35 ‘Successive’ or ‘duplicate’ bills of sale, in other words bills that comprise all or part of the personal chattels of a previous unregistered bill, and are executed within or on the expiry of seven days from the execution of the unregistered bill, are void unless they are bona fide given in order to correct a material error in the first bill and not in order to evade the Act.⁹⁶

Transfer and renewal of bills of sale

11.36 A transfer or assignment of a registered bill does not need to be registered.⁹⁷ The registration of a bill of sale has to be renewed once at least every five years, failing which the registration becomes void.⁹⁸

(p. 472) Security bills

Substance not form of transaction

11.37 The 1882 Act applies to any document that is in fact given as a mortgage, whatever its form, if the real nature of the document is such that it would fall within the Act. Thus a purported ‘sale and lease back’ will be within the Acts if in fact the parties never intended the ownership of the goods to pass from their owner to the purported buyer/lessor.⁹⁹ The result will normally be that the whole transaction is void because the documents will not comply with the requirements of the Act about to be described. At best the lender may have a restitutionary remedy for the sum advanced plus interest. If in addition the bill of sales secures credit provided under a regulated agreement under the Consumer Credit Act 1974¹⁰⁰ and the formal requirements of that Act have not been complied with, the agreement may be unenforceable except on order of the court.¹⁰¹ The regulated agreement must ‘embody’ the security¹⁰² but it has been pointed out that the bill cannot be combined with the regulated agreement and still comply with the form required by the 1882 Act, so the bill will have to be embodied by reference to it in the regulated agreement.¹⁰³ The consumer must be provided with a copy of the bill.¹⁰⁴

Substantive and formal requirements

11.38 The 1882 Act contains a combination of restrictions on the substance of a security bill with strict formal requirements. The two interact in ways that are not always easy to understand.

Restrictions on substance

Minimum sum

11.39 Any security bill for less than £30 is void.¹⁰⁵

Grantor not true owner

11.40 Section 5 of the Act provides that the bill will be void in respect of goods specifically listed in the schedule of which the grantor was not the true owner, except as against the grantor. The grantor may be both legal and beneficial owner, legal owner though the beneficial ownership is in another¹⁰⁶ or the beneficial owner of goods of which the legal title is already in the creditor or is in a third party, as where the grantor has granted a legal mortgage of the goods and thus has only an equity of redemption.¹⁰⁷ A person who has already parted with the goods under a sale, even if that was an unregistered absolute bill or one for which the registration has lapsed, is not the grantor.¹⁰⁸ A bill under which a person purports to grant security in goods that he does not have any interest at the time will be void against anyone except the grantor. This will prevent the bill being effective against the grantor’s other creditors or his trustee in bankruptcy, but it would not prevent the creditor from enforcing the bill against property that was not owned by the (p. 473) grantor at the time the bill was given provided the property was sufficiently listed in the schedule¹⁰⁹ and no third party claimed any right to the property.¹¹⁰ Nor does it render a loan agreement of which the grant of security forms part invalid as against the borrower.¹¹¹

Exceptions to the rule that the grantor must own the goods at the time

11.41 There are exceptions for crops that are assigned or charged separately from the land on which they are growing and were growing at the time they were charged, for fixtures separately assigned or charged and plant or trade machinery that is substituted for fixtures, plant, or trade machinery specifically listed.¹¹²

Restrictions on seizure

11.42 Section 7 of the 1882 Act provides that personal chattels assigned under a security bill of sale may be seized only in certain circumstances:¹¹³

(1) If the grantor defaults in payment of the sum or sums of money thereby secured at the time therein provided for payment, or in the performance of any covenant or agreement contained in the bill of sale and necessary for maintaining the security;
(2) If the grantor becomes bankrupt, or suffers the said goods or any of them to be distrained or taken control of¹¹⁴ for rent, rates, or taxes;
(3) If the grantor fraudulently either removes or suffers the goods, or any of them, to be removed from the premises;
(4) If the grantor does not, without reasonable excuse, upon demand in writing by the grantee, produce to him his last receipts for rent, rates, and taxes;
(5) If execution has been levied against the goods of the grantor under any judgment at law.¹¹⁵

Although the title to the section is ‘Bill of sale with power to seize except in certain events to be void’, the body of the section does not state any sanction if powers to seize exceed what is permitted. However, we will see that the Act requires that the bill be in a particular form, including restricting the grounds on which the chattels assigned may be seized or taken into possession by the grantor to the grounds listed in section 7. If it does not comply with this required form, the bill will be absolutely void.¹¹⁶

Formal requirements

Summary of form requirements for security bills

11.43 A security bill is subject to strict requirements as to its form. The effect of a failure to comply differs according to the requirements.

(p. 474)

(1) The Bill must have annexed to it or contain a schedule containing an inventory of the personal chattels comprised in the bill of sale. The bill will be effective only in respect of the personal chattels specifically described. It is also provided that the bill will be void, except as against the grantor, in respect of personal chattels not specifically described.¹¹⁷ In fact using a non-specific description may prevent the bill from being valid at all, under the fourth head below.¹¹⁸
(2) Unless the execution is attested¹¹⁹ by one or more credible witnesses (who are not party to the bill)¹²⁰ the bill is void in respect of the chattels comprised in the Bill. This means that the bill cannot be enforced as a form of security even as against the grantor, though it may leave personal covenants in the Bill effective as against the grantor.¹²¹
(3) The bill must also “truly set forth the consideration for which it was given” or it will be void in respect of the chattels comprised in the Bill.¹²²
(4) The bill must be made in accordance with the form in the Schedule to the 1882 Act.¹²³ Failure to comply with this renders the bill absolutely void.¹²⁴

The statutory form

11.44 In summary, the form in the schedule¹²⁵ requires that the bill of sale must state:

(1) the date of the bill of sale,
(2) the names of the grantor and grantee,¹²⁶
(3) the consideration,¹²⁷ (p. 475)
(4) an acknowledgement of the receipt of that consideration or, where all or part was a previous advance, a statement that the relevant amount (only) is due and owing,¹²⁸
(5) an assignment by one party to the other (and his executors, administrators and assigns) of chattels specifically described in the schedule,
(6) that the assignment is by way of security for the payment of a specified sum of money,¹²⁹ together with interest at a specified agreed rate,
(7) that the grantor agrees and declares that she will pay the grantee the principal sum, together with interest, and the dates for payment of whatever instalments¹³⁰ are agreed,¹³¹
(8) any other terms as to ‘insurance, payment of rent or otherwise’ that the parties may have agreed to ‘for the maintenance¹³² or defeasance¹³³ of the security’, and a provision that the chattels assigned by the bill are not liable to seizure or possession by the grantee for any cause other than those specified in section 7 of the 1882 Act and
(9) the name and address and description of a witness, in whose presence the deed was signed by the grantor.¹³⁴

Substantial compliance

11.45 It is sufficient if the bill of sale is ‘substantially in accordance with, and does not depart from, the prescribed form in any material respect’.¹³⁵ It will not be in accordance with the form if it is misleading:¹³⁶

… [A]‌ divergence only becomes substantial or material when it is calculated to give the bill of sale a legal consequence or effect, either greater or smaller, than that which would attach to it if drawn in the form which has been sanctioned, or if it departs from the form in a manner calculated to mislead those whom it is the object of the statute to protect.¹³⁷

Effect of failure to comply with statutory form

11.46 Failure to comply with these requirements renders the bill void. This means void absolutely, and not just against all but the grantor.¹³⁸ The grantee cannot enforce the personal covenants for payment and interest,¹³⁹ though he may bring an action in restitution for the principal plus reasonable interest.¹⁴⁰ (p. 476) If the document cannot be made to comply with the statutory form, then the transaction cannot be carried out unless it is not a security transaction at all, or relates to a type of document¹⁴¹ or a type of chattel¹⁴² that is exempt. Where the document referred to a number of personal chattels that were within the definition given by s 4 of the 1878 Act but also to a gas engine that did not, the bill was not in the statutory form and was void as to the personal chattels.¹⁴³ However the part that referred to the gas engine could be severed and was valid.¹⁴⁴

Property listed in schedule to bill

11.47 The chattels subject to the bill must be listed in a schedule to it and not in the bill itself.¹⁴⁵ This may be so that the grantor can see at a glance what is and what is not included.¹⁴⁶ Goods that may be substituted for plant or machinery are covered under terms ‘for the maintenance’ of the goods, which must be included in the body of the bill; the goods may also be referred to in general terms in the schedule.¹⁴⁷

Property need not be itemized

11.48 It has been held that where all the goods are in a particular place, e.g. a room of a house, they need not be listed individually since they are adequately identified.¹⁴⁸

Property not described specifically

11.49 Section 9 and the Schedule to the 1882 Act require the chattels to be specifically listed in a schedule to the bill of sale, and failure to comply with this renders the bill completely void. Yet section 4 indicates that the bill is ineffective in respect of chattels which are not specifically listed except as against the grantor. Similarly, under section 5¹⁴⁹ a bill would be void in respect of any property that the grantor does not own at the time against anyone other than the grantor. When will the bill be completely void and when will it be effective except as against the grantor? In Kelly & Co v Kellond¹⁵⁰ Fry LJ said:

It appears to me that, on the true reading of the Act, s. 9 deals with the form of the bill of sale and avoids an instrument which materially differs from the form given by the Act against (p. 477) the grantor and everyone else, while ss. 4 and 5 deal with the description in the schedule and not with the form of the body of deed. Suppose, for instance, a bill of sale in the form given by the Act, followed by an inventory which described chattels, but as to some of them contained no specific description or a specific description of things of which the grantor was not the true owner. In that case we should have a bill of sale in the form given in the Act, and therefore not avoided by s. 9, but imperfect under ss. 4 and 5, and such a bill of sale would be avoided, as to the chattels imperfectly described, or of which the grantor was not the owner, against every one but the grantor. That appears to me to prevent any inconsistency between the limited avoidance in ss. 4 and 5 referring to the schedule, and the general and absolute avoidance in s. 9 referring to the form of the bill of sale.

When the case was heard in the House of Lords under the name of Thomas v Kelly, this statement was approved by Lords Halsbury and Fitzgerald.¹⁵¹ Thus it seems that the bill may be valid against the grantor, though not as against third parties, if an item that the grantor owns at the time is not specifically described in the schedule, or if the schedule describes an item specifically but it is not yet owned by the grantor. However, if the bill or the schedule refers to property that is not capable of specific description, such as ‘after-acquired property’ in general, the bill does not comply with the statutory form. The result of section 9 is that the bill will be absolutely void.¹⁵² However, items that fall within the ‘substitution’ exemption may be listed in general terms, since if the original property is described specifically the substitutes are taken to be within the specific exemption.¹⁵³

No floating charges

11.50 The requirement that the personal chattels be listed specifically prevents ‘after-acquired’ property being covered by a security bill for personal chattels.¹⁵⁴ It therefore generally prevents floating charges over personal chattels (and a fortiori floating charges over all the chargor’s assets) being granted by non-corporate debtors.¹⁵⁵

Effect of previous unregistered absolute bill

11.51 The effect of section 5, in rendering the bill void, except as against the grantor, in respect of personal chattels of which the grantor was not the true owner at the time, is not limited purely to ‘after-acquired’ property. In Tuck v Southern Counties Deposit Bank¹⁵⁶ the Court of Appeal held by a majority that the wording of the section would cover after-acquired chattels, but also covered chattels that had been the subject of an earlier but unregistered absolute bill of sale. Though the earlier bill was invalid against third parties it was not void against the grantor, who therefore was no longer owner of the chattels at the time she granted the second, security bill. As a result the second bill was also void against all persons except the grantor in respect of that item of property.

Consideration

(p. 478) 11.52 If no consideration at all is stated, or if there is no acknowledgement of consideration received at the time,¹⁵⁷ the bill will not comply with the statutory form and will be absolutely void. If the consideration is not stated correctly, the bill will not comply with section 8 and will be void in respect of the personal chattels comprised therein. What is required is that the statement be substantially correct, and it has been held that the phrase ‘now paid’ includes money paid some days or weeks before.¹⁵⁸ The consideration is taken to mean the sums received by the grantor, whether at the time the bill is granted or past advances,¹⁵⁹ as opposed to the total amount that the grantor may have to pay and that is secured by the bill (which will normally include interest).¹⁶⁰ It has been suggested that future advances may also be included.¹⁶¹

Other terms

11.53 A bill will be void for non-compliance with the statutory form if it does not include in the schedule any other terms as to ‘insurance, payment of rent or otherwise’ that the parties may have agreed to ‘for the maintenance or defeasance of the security’, in addition to having to include the terms already mentioned. However, it does not have to contain all the other agreed terms, such as the loan agreement.¹⁶²

Registration

Registration of security bills

11.54 A failure to attest and register a security bill in accordance with the requirements of the 1878 Act within seven clear days after the making or giving of the bill¹⁶³ renders the bill void in respect of the personal chattels comprised therein.¹⁶⁴ Section 10 of the 1878 Act requires that the following documents be presented to the registrar:

(1) the attested bill, together with every schedule annexed or inventory referred to,¹⁶⁵ in the required form, and with on the same piece of paper any condition, or declaration of trust not contained in the body of the bill;¹⁶⁶
(2) a true copy of the bill, schedule or inventory, and of the attestation, and including any condition, or declaration of trust not contained in the body of the bill; and
(3) an affidavit of the time of the bill being made or given, and of its due execution and attestation, and a description of the residence and occupation of the person making or giving the bill¹⁶⁷ (and of every attesting witness).¹⁶⁸

(p. 479) The copy and the affidavit must be filed with the registrar.

Successive security bills

11.55 The rules in the 1878 Act on ‘successive bills’ apply equally to security bills.¹⁶⁹

Transfer and renewal of bills of sale

11.56 A transfer or assignment of a registered bill does not need to be registered.¹⁷⁰ The registration of a bill of sale has to be renewed once at least every five years, failing which the registration becomes void.¹⁷¹

The register

The registrar

11.57 The registrar¹⁷² is required to keep a register and to enter the name, residence, and occupation of the grantor, together with other particulars set out in Schedule 2 to the 1882 Act.¹⁷³

Inspection of the register

11.58 In respect of absolute bills, office copies or extracts of the bill and any affidavits can be obtained by any person, upon payment of a fee.¹⁷⁴ For security bills, a person is entitled to search the register and to inspect, examine, and make extracts from any such bill without having to make a written application or having to specify any particulars in reference thereto, on payment of a fee.¹⁷⁵ Where the grantor of a security bill is stated as living outside the London insolvency district, or the chattels specified in the bill are described as being outside that district, the registrar must transmit an abstract of the contents of the bill to the relevant county court registrar. Any person may search, inspect, and make copies of the abstract there.¹⁷⁶

Rectification of the register

11.59 A judge of the High Court may order (on such terms and conditions as thought fit) that the time for registration be extended or that there be rectification of an omission or mis-statement of the name, residence, or occupation of any person. The omission to register or the omission or mis-statement of the name, residence, or occupation must have been accidental or due to inadvertence.

Entries of satisfaction

11.60 Where the debt for which the bill was made or given has been discharged, the registrar may order a memorandum of satisfaction to be written upon any registered copy of a bill of sale.¹⁷⁷

Priority and enforcement

Priority by date of registration

11.61 Section 10 of the 1878 Act (which applies to both absolute and security bills) provides that priority between bills of sale comprising the same chattels is in the order of their date of registration. This is considered in more detail in chapter 14.¹⁷⁸

Enforcement of security bills

(p. 480) 11.62 Enforcement of security bills is governed by sections 7, 7A, and 13 of the 1882 Act. This is covered in chapter 18.¹⁷⁹

C. General assignments of book debts

General assignment of book debts registrable as bill of sale

11.63 Under the Insolvency Act 1986, section 344, if a person other than a company¹⁸⁰ makes a general assignment of his existing book debts, or any class of them, the assignment should be registered under the Bills of Sale Act 1878. If it is not and the person becomes bankrupt, the assignment will be void as against the trustee in bankruptcy as regards any book debts which were not paid before the presentation of the petition. In this context ‘assignment’ includes an assignment of book debts by way of security or charge,¹⁸¹ but it does not include an assignment of assets for the benefit of creditors generally. Nor does a ‘general assignment’ include an assignment of debts already due from specified debtors or of debts becoming due under specified contracts.¹⁸² For unincorporated debtors there is no perfection requirement¹⁸³ for such assignments of book debts, existing or future.¹⁸⁴

D. Agricultural charges

Agricultural charges by unincorporated farmers

11.64 In the case of farmers¹⁸⁵ the restrictive nature of the Bills of Sale Acts has been overcome by the provision of specific legislation. The Agricultural Credits Act 1928 (the ‘1928 Act’) provides that a farmer¹⁸⁶ can, by a written instrument, create a charge in favour of a bank¹⁸⁷ on farming stock and other agricultural assets.¹⁸⁸ Such charges are known as ‘agricultural charges’, and may be fixed, floating, or both a fixed and a floating charge. Agricultural charges are not deemed to be bills of sale, and take effect notwithstanding anything in the Bills of Sale Acts.¹⁸⁹

Agricultural charges by industrial and provident societies and agricultural marketing boards

(p. 481) 11.65 The 1928 Act allows industrial and provident societies to create a floating charge in favour of a bank over any farming stock in England or Wales,¹⁹⁰ and the Agricultural Marketing Act 1958 provides the same for agricultural marketing boards.¹⁹¹ The charge must be registered in the same way as an agricultural charge under Part II of the Agricultural Credits Act 1928 and it too will be exempt from the Bills of Sale Acts.

Registration

11.66 The 1928 Act provides that every agricultural charge must be registered within seven clear days after its execution, failing which it is void as against any person other than the farmer.¹⁹² The Land Registrar is required to keep a register of agricultural charges. Registration of an agricultural charge is effected by sending by post to the Land Registrar at the Land Registry a memorandum of the instrument creating the charge and such particulars of the charge as may be prescribed, together with the prescribed fee.¹⁹³ The register is open to inspection on payment of a fee.¹⁹⁴

Crystallization of floating agricultural charge

11.67 Charges under the Act have certain differences from floating or fixed charges created by companies. Under the 1928 Act, a floating charge: ‘shall have the like effect as if the charge had been created by a duly registered debenture issued by a company’.¹⁹⁵ However, it is specified in the Act that the charge will become a fixed one on the occurrence of certain events. These are the bankruptcy or death of the farmer, the dissolution of the partnership (where the charged property is partnership property), or a written notice by the bank on the happening of an event that by virtue of the charge allows the bank to give such notice.¹⁹⁶ This list is not, however, exhaustive and a floating agricultural charge will also crystallize if the farmer ceases to carry on business.¹⁹⁷ As with a fixed charge, the farmer is obliged to pay over sale or insurance money received (but not where the money received is used by the farmer to purchase farming stock that becomes subject to the charge).¹⁹⁸

Power of sale under fixed charge

11.68 A fixed charge does not prevent the farmer selling the charged property, but he is obliged to pay the bank the proceeds in respect of any sale of (p. 482) the charged property or money received under certain insurance payments (except in so far as the charge or bank allows otherwise).¹⁹⁹

Priority

11.69 The Act provides that ‘agricultural charges shall in relation to one another have priority in accordance with the times at which they are respectively registered’.²⁰⁰ The Act also provides that where the agricultural charge is a floating one, any subsequent fixed agricultural charge or a bill of sale comprising property in the floating charge that is purportedly created is void as respects that property, so long as the floating charge remains in force.²⁰¹ The effect of this provision is not wholly clear but seems less draconian than might at first sight appear. If the floating charge is paid off and a surplus is left, it can be applied to the subsequent fixed charge since by that date the floating charge will no longer be ‘in force’. In effect, then, the provision merely ensures that the floating charge (assuming it was duly registered) has priority over any subsequent fixed charge. What is not stated is the priority of a registered agricultural charge as against an earlier bill of sale that has been duly registered as such. Presumably the bill of sale will have priority. Property subject to a registered agricultural charge is still liable to distress for rent, taxes, or rates.²⁰²

Further advances

11.70 Registration is deemed to constitute actual notice of the charge, except for the purposes of further advances being made. Where the original charge is made for securing a current account or further advances the bank, in relation to the making of further advances under the charge, is not deemed to have notice of another agricultural charge merely because it has been registered if it was not registered at the time when the first-mentioned charge was created or when the last search (if any) by or on behalf of the bank was made, whichever was later.²⁰³

Priority as against mortgage of the land

11.71 The Act provides that where the farmer has mortgaged his interest in the land comprised in the holding, then, if growing crops are included in an agricultural charge, the rights of the bank under the charge in respect of the crops shall have priority to those of the mortgagee, whether in possession or not, and irrespective of the dates of the mortgage and charge.²⁰⁴

Remedies

11.72 The 1928 Act sets out certain rights and obligations in the case of fixed and floating charges. In the case of a fixed charge, the chargee bank has the right to seize the charged property upon the happening of any event specified in the charge as one that authorizes the seizure, and has the right (where such possession is taken) to sell the property by auction after five clear days.²⁰⁵ The bank also has the obligation to apply the proceeds of sale to discharge the secured liability and to pay any surplus to the farmer.²⁰⁶

(p. 483) E. Charges created by cooperative, community benefit, and building societies

11.73 A fixed or floating charge created by a registered cooperative society or community benefit society, or by a society that before 1 August 2014 was registered under the Industrial and Provident Societies Act 1965²⁰⁷ other than a floating charge over farm stock,²⁰⁸ will not be treated as a bill of sale, and will be exempt from the Bills of Sale Acts, if it is registered with the Financial Conduct Authority within twenty-one days of the execution of the relevant instrument.²⁰⁹ Charges created by building societies, which may now grant floating charges as well as fixed charges,²¹⁰ are not currently registrable. Regulations may be made to apply some or all of Part 25 of the Companies Act 2006 to charges created by building societies,²¹¹ but none have been made to date. However, if a building society is converted into a company under a special resolution regime,²¹² and the successor company thereby acquires property that is subject to a charge which would be registrable if created by the company, then the provisions for registration of property acquired subject to an existing charge²¹³ apply whatever the date of the original charge.²¹⁴ (p. 484)

Footnotes:

¹ Namely requirements additional to those for the creation of the security: see para 9.17.

² See paras 11.04–11.62, and for changes thought to be likely, paras 11.02 and 23.62 et seq.

³ See para 11.63.

⁴ See paras 11.64–11.72.

⁵ See para 11.73.

⁶ See paras 14.31–14.81.

⁷ See paras 11.19–11.22 and 11.26. Most are also exempted from the Goods Mortgages Bill: see para 23.70.

⁸ See para 11.64.

⁹ The 1878 Act replaced the Bills of Sale Act 1854, which first introduced registration of bills of sale, and the Bills of Sale Act 1866, which first required renewal of registration every five years.

¹⁰ Together cited as the Bills of Sale Acts 1878 and 1882: see the 1882 Act, s 1. The Bills of Sale Act 1890 and the Bills of Sale Act 1891 add minor provisions to these Acts. (We refer to these various statutes collectively as the ‘Bills of Sale Acts’.)

¹¹ See paras 11.30–11.60.

¹² Crowther, Report on Consumer Credit Cmnd 4596, para 4.2.11. See further para 23.62 et seq.

¹³ Law Commission, Registration of Security Interests: Company Charges and Property other than Land (Consultation Paper No 164, 2002), para 9.4. Compare the figures of 6,448 for 1965 and 9,179 for 1968, given in R Goode, Hire Purchase Law and Practice (2nd edn, 1970), 63.

¹⁴ Law Commission, Company Security Interests (Law Com No 296, 2005), para 1.52.

¹⁵ Law Commission, Replacing bills of sale: a new Goods Mortgages Bill - Consultation on draft clauses (July 2017), para 1.1.

¹⁶ With or without notice and either immediately or in the future.

¹⁷ 1878 Act, s 3. Charges are within the Act, since the definition of bill of sale in s 4 refers to charges, even though the chargee does not have the right to seize the goods, only to appoint a receiver. See Halsbury’s Laws of England, Vol 50(7), ‘Bills of Sale’ (5th edn, 2008) (cited below as ‘Halsbury’), para 1633, n 7.

¹⁸ Reasons for granting an absolute bill are given in R Goode, Hire Purchase Law and Practice (2nd edn, 1970), 65.

¹⁹ Or sometimes ‘conditional bills’.

²⁰ Thus a document that creates a mortgage or charge to secure a sum of money will be a security bill; and likewise one that gives the creditor the right to take possession of goods until money due has been paid, even though it may not amount to a charge (which point was not decided because the creditor has no power of sale: Online Catering Limited v Acton [2010] EWCA Civ 58, where the Bills of Sale Acts did not apply because the grantor was a company, even though if the document did not create a charge it would not be registrable under the Companies Act.) See further para 11.09, n 32.

²¹ 1882 Act, s 3.

²² 1882 Act, s 15.

²³ A similar purpose to the registration scheme introduced for company charges: see para 9.06.

²⁴ See The Manchester, Sheffield, and Lincolnshire Railway v North Central Wagon Company (1888) 13 App Cas 554, 559–60. See also Thomas v Kelly and Baker (1888) 13 App Cas 506, 513 and Charlesworth v Mills [1892] AC 231, 235–6. For a short explanation of why the earlier Bills of Sale legislation came about, see Cookson v Swire and Lees (1884) 9 App Cas 653, 664–6.

²⁵ 1882 Act, s 4. Protecting other creditors seems to have been a particular concern to the Select Committee of the House of Commons that discussed the 1882 Bill: see Halsbury, para 1635, n 8. There are certain exceptions. See further para 11.47 et seq.

²⁶ See the 1882 Act, s 12.

²⁷ Sections 8 and 9.

²⁸ See paras 11.31–11.36 and 11.43–11.56.

²⁹ In this context debenture means no more than a charge on the company’s property.

³⁰ Companies Act 2006, s 860(7)(b), replacing Companies Act 1985, s 396(1)(c). See para 10.23.

³¹ Re Standard Manufacturing Co [1891] 1 Ch 627. See the argument at 644 and the judgment at 647.

³² NV Slavenburg’s Bank v Intercontinental Natural Resources Ltd [1980] 1 WLR 1076 (involving an overseas company: see para 10.47), not following dicta in GNR CO v Coal Co-operative Society [1896] 1 Ch 187, a case dealing with a society registered under the Industrial and Provident Societies Act 1876; Online Catering Limited v Acton [2010] EWCA Civ 58, esp. at [17]–[21] and [35]–[36]: document not registrable even though if the document did not create a charge it would not be registrable under the Companies Act. The document gave the creditor the right to take possession of goods until money due had been paid, and it was said (but not decided) that it lacked the normal badge of a charge because the creditor had no power of sale: see at [22]–[23] and [33]–[34].

³³ See para 11.01 and para 11.73. However charges created by such societies before 14 September 1967 fall within the Bills of Sale Acts.

³⁴ Agricultural Credits Act 1928, s 8(1).

³⁵ Agricultural Marketing Act 1958, s 15(5); para 11.65.

³⁶ ‘The expression “bill of sale” shall include bills of sale, assignments, transfers, declarations of trust without transfer, inventories of goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal chattels, and also powers of attorney, authorities, or licenses to take possession of personal chattels as security for any debt, and also any agreement, whether intended or not to be followed by the execution of any other instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be conferred …’

³⁷ Present or future: Stevens v Marston (1890) 60 LJQB 192, CA, at 195.

³⁸ In Online Catering Limited v Acton [2010] EWCA Civ 58 it was said that a document which gave the creditor the right to take possession of goods until money due had been paid fell within s 4 and also the 1882 Act even though (which was not decided) it was probably not a charge because the creditor had no power of sale: See [2010] EWCA Civ 58 at [15] and [25]–[26].

³⁹ In Chapman v Wilson [2010] EWHC 1746 (Ch) a solicitor had agreed to deliver up papers related to certain cases as and when required to do so by the creditor. It was held that this merely created a personal obligation to deliver them, not a right to the title or property in the papers and therefore did not amount to a licence to take possession as security for a debt within s 4 (at [83]). Nor did it grant a ‘power … to take possession’ within s 3 of the 1878 Act (at [85]).

⁴⁰ Brantom v Griffits (1877) 2 CPD 212, CA. See Halsbury, paras 1635 and 1638.

⁴¹ Under the doctrine of Holroyd v Marshall (1862) 10 HLC 191. See para 6.13.

⁴² See para 11.40.

⁴³ 1882 Act, s 3.

⁴⁴ 1878 Act, s 6. There is an exception where the mortgagee is in possession but grants a demise to the mortgagor at a fair and reasonable rent.

⁴⁵ Ramsay v Magrett [1894] 2 QB 19, Lord Esher MR (at 23–4) applying a dictum of Lord Herschell in Charlesworth v Mills [1892] AC 231, HL, 241.

⁴⁶ Re Jeavons, ex p Mackay (1873) LR 8 Ch App 643.

⁴⁷ Edwards v Edwards (1876) 2 Ch D 291.

⁴⁸ Reeves v Barlow (1884) 12 QBD 436.

⁴⁹ Re Hardwick, ex p Hubbard (1886) 17 QBD 690, CA; similarly documents that record similar transactions under which the creditor already has possession: Charlesworth v Mills [1892] AC 231, HL.

⁵⁰ Re Hall, ex p Close (1884) 14 QBD 386.

⁵¹ See para 5.27.

⁵² Dublin City Distillery Ltd v Doherty [1914] AC 823, HL.

⁵³ McEntire v Crossley Bros Ltd [1895] AC 457, HL.

⁵⁴ Section 4 continues: ‘[Bill of sale] shall not include the following documents; that is to say, assignments for the benefit of the creditors of the person making or giving the same, marriage settlements, transfers or assignments of any ship or vessel or any share thereof, transfers of goods in the ordinary course of business of any trade or calling, bills of sale of goods in foreign parts or at sea, bills of lading, India warrants, warehouse-keepers’ certificates, warrants or orders for the delivery of goods, or any other documents used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by indorsement or by delivery, the possessor of such document to transfer or receive goods thereby represented.’

⁵⁵ 1878 Act, s 4. On security over ships see further para 14.34 et seq.

⁵⁶ Which for these purposes includes Scotland and Northern Ireland: Coote v Jecks (1872) 13 LR Eq 597 (agreement between English debtor and English creditor for charge over goods in Scotland; held to be effective under English law though not registered); Brookes v Harrison (1880) 6 LR Ir 85, aff’d 6 LR Ir 332. It seems likely that the Acts would apply to a document that under English law amounts to a bill of sale over goods that are in England, even if the transaction purports to be governed by a foreign law. See para 22.74 and Halsbury, para 1636.

⁵⁷ As substituted by the Bills of Sale Act 1891, s 1.

⁵⁸ NV Slavenburg’s Bank v Intercontinental Natural Resources Ltd [1980] 1 WLR 1076, 1101.

⁵⁹ Mortgaging of Aircraft Order 1972, SI 1972/1268 art 16(1) (for mortgages created after 1 October 1972). See further para 14.50 et seq.

⁶⁰ International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015, SI 2015/912, Sch 5, paragraphs 6 and 7.

⁶¹ See para 14.55.

⁶² For what amounts to an assignment for the benefit of creditors within the meaning of s 4 see Halsbury, para 1657. In Halberstam v Gladstar Ltd [2015] EWHC 179 (QB) Warby J said that ‘an “assignment for the benefit of creditors” is a term of art which covers the assignment by a person to one or more others for distribution to creditors [at [49]] … is in my judgment impossible to argue that a sale of goods by A to B ranks as an assignment for the benefit of A’s creditors merely because A has debts and A, or even A and B, intend at the time of the transaction that the proceeds will be used to discharge A’s liabilities. Still less, of course, could such a transaction fall within the exclusionary words merely because that is what occurred after the event’ [at [57]].

⁶³ E.g. Stephenson v Thompson [1924] 2 KB 240, CA.

⁶⁴ Halsbury, para 1660.

⁶⁵ For a specimen see E McKendrick (ed), Goode on Commercial Law (5th edn, 2016), fig 35.8.

⁶⁶ Re Hamilton Young & Co [1905] 2 KB 772, CA (Stirling LJ dubitante).

⁶⁷ Halsbury, para 1661. See para 11.21.

⁶⁸ In Re David Allester Ltd [1922] 2 Ch 211, 216, Astbury J held that the trust receipts were not bills of sale at all: they merely recorded the terms on which the pledgors were authorized to realize the goods on the pledgees’ behalf, and the pledgees’ rights over the goods did not arise under them but under the original pledge.

⁶⁹ Ibid., 219 (whether registrable under Companies Act as charge over book debt). The decision appears to owe more to commercial expediency than to logic.

⁷⁰ Section 4.

⁷¹ 1882 Act, s 3.

⁷² 1878 Act, s 4 includes: ‘goods, furniture, and other articles capable of complete transfer by delivery, and (when separately assigned or charged) fixtures and growing crops, but shall not include chattel interests in real estate, nor fixtures (except trade machinery as hereinafter defined), when assigned together with a freehold or leasehold interest in any land or building to which they are affixed, nor growing crops when assigned together with any interest in the land on which they grow, nor shares or interests in the stock, funds or securities of any government, or in the capital or property of incorporated or joint stock companies, nor choses in action, nor any stock or produce upon any farm or lands which by virtue of any covenant or agreement or of the custom of the country ought not to be removed from any farm where the same are at the time of making or giving of such bill of sale’. In Chapman v Wilson [2010] EWHC 1746 (Ch) at [88] Vos J said that the papers in a solicitor’s file on a case are ‘personal chattels’ even if the paper itself has no value.

⁷³ Fixtures and crops are not ‘separately assigned’ just because they are assigned by separate words or because the assignee is given the power to sever them: see s 7.

⁷⁴ Provided ‘by virtue of any covenant or agreement or of the custom of the country’ it ‘ought not to be removed from any farm where the same are at the time of making or giving of such bill of sale’: s 4. For agricultural charges see para 11.64.

⁷⁵ Brantom v Griffits (1877) 2 CPD 212, CA. See Halsbury, paras 1635 and 1638.

⁷⁶ Thomas v Kelly (1888) 13 App Cas 506, 519.

⁷⁷ See para 11.12.

⁷⁸ Welsh Development Agency v Export Finance Co Ltd [1991] BCLC 936 (Browne-Wilkinson V-C). In the Court of Appeal the point was left open [1992] BCLC 148, 169. In Chapman v Wilson [2010] EWHC 1746 (Ch), at [95], Vos J accepted the reasoning of the Vice Chancellor in the Welsh Development Agency case that Lord Halsbury had accepted Lord Macnaghten’s argument, and doubted Dillon LJ’s suggestion to the contrary. See also Re Reis, ex p Clough [1904] 2 KB 769, CA, 788; Halsbury, para 1635.

⁷⁹ See para 11.40.

⁸⁰ See para 11.49.

⁸¹ Section 5, which contains detailed provision excluding certain ‘fixed motive powers’ such as water-wheels and steam engines, shafts wheels and drums, and steam, gas and water pipes.

⁸² E.g. Meux v Jacobs (1875) LR 7 HL 481; Re Yates, Batchelor v Yates (1888) 38 Ch D 112, CA.

⁸³ Johns v Ware [1899] 1 Ch 359. See also Re Eslick, ex p Alexander (1876) 4 Ch D 503 (where the land was only leasehold: see text to n 84). If there is a mortgage of the land plus a separate mortgage of the fixtures which is void as an unregistered bill of sale, the mortgagor cannot claim that it is entitled to the fixtures as part of the freehold: Johns v Ware [1899] 1 Ch 359, 364.

⁸⁴ Re Wilde, ex p Daglish (1873) LR 8 Ch App 1072, and see further Halsbury, para 1669, n 9.

⁸⁵ 1878 Act, s 4.

⁸⁶ It should be noted that a bill that is registered may still be void if it has failed to comply with the formal requirements for validity.

⁸⁷ In the case of security bills, where the affidavit of attestation (see para 11.43) describes the residence of the maker as being outside the London insolvency district, or where the chattels listed in the bill of sale are so described, the registrar is required, within three clear days after registration, to transmit an abstract of the contents of the bill of sale to the county court registrar where such places are situated: see the 1882 Act, s 11. Details on what must be sent to the County Court registrar and the filing requirements of that registrar can be found in the Bills of Sale (Local Registration) Rules, SI 1960/326. The abstract is to be filed by that registrar, and the registered abstract can be examined and copied in the same way as the main register.

⁸⁸ 1878 Act, s 10(1). For any defeasance or condition, or declaration of trust, see para 11.34.

⁸⁹ Section 8. The section has been repealed so far as security bills are concerned by the 1882 Act, s 15.

⁹⁰ According to the wording of the Act, ‘in like manner as a warrant of attorney in any personal action given by a trader is now by law required to be filed’. See also Rules of the Supreme Court, Ord 95.

⁹¹ When the time for registering would expire on a Sunday or other day on which the registrar’s office is closed, the time is extended to the end of the next day on which the office is open: 1878 Act, s 22.

⁹² Where the bill is made or given by any person under or in the execution of any process, then a description of the residence and occupation of the person against whom such process was issued must be given instead: 1878 Act, s 10(2).

⁹³ It is the copy of the bill, rather than the original, and the affidavit that are filed.

⁹⁴ 1878 Act, s 8.

⁹⁵ See the 1878 Act, s 10(3).

⁹⁶ 1878 Act, s 9. This was aimed at the practice of issuing successive bills each within seven days of the last so that they did not need to be registered: Halsbury, para 1755.

⁹⁷ 1878 Act, s 10(3), last paragraph.

⁹⁸ Renewal is effected by filing an affidavit in a form set out in sch A to the 1878 Act: see the 1878 Act, s 11. For a recent case in which the registration had not been renewed, see Halberstam v Gladstar Ltd [2015] EWHC 179 (QB).

⁹⁹ See para 7.57.

¹⁰⁰ Cf para 7.31.

¹⁰¹ Consumer Credit Act 1974, s 65. In Bassano v Toft [2014] EWHC 377 (QB) the Consumer Credit Act 1974 did not apply because the lender was not acting in the course of a consumer credit business [at [34]], but Popplewell J said that if that had been been the case, he would have exercised his discretion to allow the agreement to be enforced, as the borrower had suffered no real prejudice from the fact that there was no formal document complying with the requirements of the Act: at [37].

¹⁰² Consumer Credit Act 1974, s 105(9).

¹⁰³ Halsbury, para 1714.

¹⁰⁴ Consumer Credit Act 1974, ss 62 and 63.

¹⁰⁵ 1882 Act, s 12.

¹⁰⁶ Re Sarl, ex p Williams [1892] 2 QB 591.

¹⁰⁷ Thomas v Searles [1891] 2 QB 408 (successive security bills).

¹⁰⁸ Tuck v Southern Counties Deposit Bank (1889) 42 Ch D 471, CA. See para 11.51.

¹⁰⁹ See para 11.49. Thus ‘an assignment of after-acquired property can be a bill of sale (whether as a licence to take possession of personal chattels or as an instrument creating a right in equity to any personal chattels) within the meaning of the Acts, but [it] may well be void for non-compliance with one or more of sections 4, 5, 8 or 9 of the 1882 Act’: Vos J in Chapman v Wilson [2010] EWHC 1746 (Ch), at [100].

¹¹⁰ Even then the bill may be effective against property that is not within the Bills of Sale Acts: see para 11.46.

¹¹¹ Chapman v Wilson [2010] EWHC 1746 (Ch), at [101].

¹¹² 1882 Act, s 6(2).

¹¹³ This part of s 7 does not apply to a default relating to a bill of sale given by way of security for the payment of money under a regulated agreement to which s 87 of Consumer Credit Act 1974, save in certain circumstances: 1882 Act, s 7A. See further para 18.48.

¹¹⁴ Under Tribunals, Courts and Enforcement Act 2007, Sch 12.

¹¹⁵ The effect of this section is considered at para 18.37.

¹¹⁶ Section 9. See para 11.46.

¹¹⁷ See the 1882 Act, s 4. There are certain limited exceptions to this, including fixtures, plant and trade machinery substituted for like materials described in the schedule: see the 1882 Act, s 6.

¹¹⁸ And see further para 11.49. Conversely, if the property is described specifically, the bill may be effective against the grantor even though the grantor did not own the property at the time, though the bill will be void against other persons under s 5: see para 11.40; Chapman v Wilson [2010] EWHC 1746 (Ch), at [101].

¹¹⁹ 1882 Act, s 5. In Chapman v Wilson [2010] EWHC 1746 (Ch), at [111], the fact that the witness attested that she had explained the nature and effect of the Bill to the grantor, when in fact he had told her that he did not require an explanation, was held not to vitiate the attestation.

¹²⁰ 1882 Act, s 10. The witness may be an agent of the grantee for other purposes; the agent’s action will not be attributed to an individual or partnership that is the grantee: Peace v Brooks [1895] 2 QB 452, nor to a grantee company: Log Book Loans Ltd v OFT [2011] UKUT 280 (AAC).

¹²¹ Heseltine v Simmons [1892] 2 QB 547, CA, at 551 (covenant to pay).

¹²² 1882 Act, s 8.

¹²³ 1882 Act, s 9.

¹²⁴ 1882 Act, s 9.

¹²⁵ The Schedule states: ‘This Indenture made the day of, between A.B. of the one part, and C.D. of the other part, witnesseth that in consideration of the sum of £now paid to A.B. by C.D., the receipt of which the said A.B. hereby acknowledges [or whatever else the consideration may be], he the said A.B. doth hereby assign unto C.D., his executors, administrators, and assigns, all and singular the several chattels and things specifically described in the schedule hereto annexed by way of security for the payment of the sum of £, and interest thereon at the rate of per cent. per annum [or whatever else may be the rate]. And the said A.B. doth further agree and declare that he will duly pay to the said C.D. the principal sum aforesaid, together with the interest then due, by equal payments of £on the day of [or whatever else may be the stipulated times or time of payment]. And the said A.B. doth also agree with the said C.D. that he will [here insert terms as to insurance, payment of rent, or otherwise, which the parties may agree to for the maintenance or defeasance of the security].

Provided always, that the chattels hereby assigned shall not be liable to seizure or to be taken possession of by the said C.D. for any cause other than those specified in section seven of the Bills of Sale Act (1878) Amendment Act, 1882.’

¹²⁶ On the forms of name that may be used see Simmons v Woodward [1892] AC 100 (trade name suffices if it enables party to be identified).

¹²⁷ In addition to the requirement of s 8 that the bill must ‘truly set forth the consideration’ for which it was given: see para 11.43. The consideration must be at least £30 or the bill is void: see para 11.39.

¹²⁸ Davies v Jenkins [1900] 1 QB 133.

¹²⁹ This must be a fixed amount.

¹³⁰ Although the form refers to ‘equal instalments’ it has been held that this is not required, since the whole sum may be payable on a single date, which could not be a payment in ‘equal instalments’: Re Cleaver, ex p Rawlings (1887) 18 QBD 489, CA.

¹³¹ These must be fixed dates or the date of an event that is bound to occur: Hetherington v Groome (1884) 13 QBD 789, 792, CA. It is permissible to include a clause making the principal sum payable immediately on default (an ‘acceleration clause’), but not to accelerate the payment of unearned interest: Re Johnstone, ex p Abrams (1884) 50 LT 184; Davis v Burton (1883) 11 QBD 537, CA.

¹³² E.g. to repair or replace damaged or worn out goods: Furber v Cobb (1887) 18 QBD 494. For further examples of what is and is not permitted, see Halsbury, paras 1738–9.

¹³³ For example, if the grantor chooses to pay early.

¹³⁴ The original requirement that the bill also be sealed was abolished by the Law of Property (Miscellaneous Provisions) Act 1989, s 1.

¹³⁵ See Thomas v Kelly and Baker (1888) 13 App Cas 506, 516, per Lord Fitzgerald; Chapman v Wilson [2010] EWHC 1746 (Ch), at [104].

¹³⁶ Re Barber, ex p Stanford (1886) 17 QBD 259.

¹³⁷ Ibid., at 270.

¹³⁸ Thomas v Kelly and Baker (1888) 13 App Cas 506, 510. Cf the 1882 Act, ss 4 and 5. For an example of an unsuccessful challenge to the validity of a bill based on allegedly defective particulars, see Simmons, trading as the Discount Bank of London v Woodward and Heseltine [1892] AC 100.

¹³⁹ Smith v Whiteman [1909] 2 KB 437, CA.

¹⁴⁰ North Central Wagon and Finance Co Ltd v Brailsford [1962] 1 WLR 1288, 1293; Bradford Advance Co Ltd v Ayers [1924] WN 152. The claims were on the basis of money had and received. In Davies v Rees (1886) 17 QBD 408, 411, Lord Esher had explained the remedy in terms of an implied contract. Lord Esher’s dictum was applied in Bassano v Toft [2014] EWHC 377 (QB) at [23].

¹⁴¹ See paras 11.23–11.25.

¹⁴² See paras 11.19–11.22.

¹⁴³ Re Burdett, ex p Byrne (1880) 20 QBD 310, CA. See similarly Cochrane v Entwistle (1890) 25 QBD 116, CA (document included chattels real); Chapman v Wilson [2010] EWHC 1746 (Ch), at [79]–[81].

¹⁴⁴ Re Burdett, ex p Byrne (1880) 20 QBD 310, CA. See similarly Re North Wales Produce and Supply Society Ltd [1922] 2 Ch 340 (valid charge on assets that were not ‘personal chattels’); Chapman v Wilson [2010] EWHC 1746, (Ch) (assignment of ‘whole right, title, interest and benefit in and to’ a solicitor’s cases by way of security included both an assignment of the solicitor’s own papers in the file, which was within the Acts and was ineffective because the papers were not specifically mentioned (at [112]), and of the income stream from the cases, which was severable and not a bill of sale because the income was not ‘personal chattels’ (at [114])).

¹⁴⁵ A bill without a schedule will thus be totally void.

¹⁴⁶ See the speech of Lord Macnaghten in Thomas v Kelly (1888) 13 App Cas 506, 520.

¹⁴⁷ See Thomas v Kelly (1888) 13 App Cas 506, 521.

¹⁴⁸ Davidson v Carlton Bank [1893] 1 QB 82, CA (1800 books in a room of a house: the added words ‘as per catalogue’ were held to be merely additional description that did not prevent the general description being adequate); contrast Carpenter v Deen (1889) 23 QBD 566, CA (‘21 milch cows’ not sufficient) and Witt v Banner (1887) 20 QBD 114, CA (‘At 77, Mortimer Street, aforesaid: Four hundred and fifty oil-paintings in gilt frames, three hundred oil-paintings unframed, fifty water-colours in gilt frames, twenty water-colours unframed, and twenty gilt frames’ insufficient; the Court said that s 4 requires the schedule to contain an inventory, and this was not an inventory as is usual in inventories of stock-in-trade.) The distinction between the Davidson and Witt cases is not altogether obvious.

¹⁴⁹ See para 11.40.

¹⁵⁰ (1888) LR 20 QBD 569, at 574.

¹⁵¹ (1888) 13 App Cas 506 at 511, 517. The case was heard by only three Lords, the third member being Lord Macnaghten, who considered that a bill over after-acquired property was not within the Act at all: see para 11.27.

¹⁵² In Chapman v Wilson [2010] EWHC 1746 (Ch) the documents that were the subject of an assignment that constituted a bill of sale were not adequately listed and therefore the bill was void: see [2010] EWHC 1746 (Ch) at [112]–[113].

¹⁵³ Thomas v Kelly (1888) 13 App Cas 506, 521.

¹⁵⁴ See, for example, Thomas v Kelly and Baker (1888) 13 App Cas 506, where a purported assignment of future-acquired chattels resulted in the bill being held to be void. Cf Tailby v The Official Receiver (1888) 13 App Cas 523, where an assignment of future book debts, being a chose in action and therefore not registrable as a bill of sale, was effective.

¹⁵⁵ Note the special provisions for agricultural charges: para 11.64.

¹⁵⁶ (1889) 42 Ch D 471.

¹⁵⁷ The Schedule provides: ‘This Indenture made … witnesseth that in consideration of the sum of £now paid to A.B. by C.D., the receipt of which the said A.B. hereby acknowledges [or whatever else the consideration may be] …’

¹⁵⁸ Re Chapman, ex p Johnson (1884) 26 Ch D 338, CA; Re Rouard, ex p Trustee (1915) 85 LJKB 393. For further details on the statement required see Halsbury, paras 1705–6.

¹⁵⁹ Re Rogers, ex p Challiner (1880) 16 Ch D 260.

¹⁶⁰ Halsbury, para 1702.

¹⁶¹ Ibid., noting that the advances must be for more than £30, since a security bill for less than £30 is void.

¹⁶² See para 11.44. But note that only conditions that are for the maintenance of the property, or which would have been valid if inserted in the body of the bill, may be included or the bill will not comply with the statutory form: Halsbury, 1750.

¹⁶³ Or, if it is executed outside England, within seven clear days after the time at which it would in the ordinary course of post arrive in England if posted immediately after execution of the bill.

¹⁶⁴ 1882 Act, s 8.

¹⁶⁵ See the 1882 Act, s 4 for the requirement to have a schedule containing an inventory of the personal chattels.

¹⁶⁶ See para 11.44.

¹⁶⁷ See para 11.44.

¹⁶⁸ See para 11.44.

¹⁶⁹ 1878 Act, section 9; see para 11.35.

¹⁷⁰ 1878 Act, s 10(3), last paragraph.

¹⁷¹ Renewal is effected by filing an affidavit in a form set out in sch A to the 1878 Act: see the 1878 Act, s 11.

¹⁷² The 1878 Act, s 13 provides that the Masters of the Queen’s Bench Division of the High Court shall be the registrar, with any one Master performing all or any of the registrar’s duties. The register is kept at the Royal Courts of Justice in London.

¹⁷³ 1882 Act, s 12.

¹⁷⁴ 1878 Act, s 16.

¹⁷⁵ 1882 Act, s 16.

¹⁷⁶ 1882 Act, s 11.

¹⁷⁷ See the 1878 Act, s 15.

¹⁷⁸ See further para 14.32 et seq.

¹⁷⁹ See para 18.37.

¹⁸⁰ Section 344 is in Part IX of the Act, which applies only to bankruptcy proceedings. The section derives from the Bankruptcy Act 1914, s 43.

¹⁸¹ Section 344(3)(a). Note, however, that it is the registration procedure for absolute bills under Bills of Sale Act 1878, not that for security bills under the 1882 Act, that applies: s 344(4). See para 11.32. The priority provisions of the Act are not applied and priority over assignments of book debts are governed by the common law. See para 14.09 et seq.

¹⁸² Thus if a debtor has made a general assignment that is void because not registered, subsequent assignments of specific debts may be effective: Hill v Alex Lawrie Factors Ltd (2000) The Times, 17 August.

¹⁸³ See paras 9.07–9.09.

¹⁸⁴ On assignment of future debts see Tailby v Official Receiver (1888) 13 App Cas 523; above, para 6.13.

¹⁸⁵ Although bills of sale in respect of crops and fixtures can be granted: see the 1882 Act, s 6.

¹⁸⁶ ‘Farmer’ means any person (not being an incorporated company or society) who, as tenant or owner of an agricultural holding, cultivates the holding for profit; and ‘agriculture’ and ‘cultivation’ shall be deemed to include horticulture, and the use of land for any purpose of husbandry, inclusive of the keeping or breeding of live stock, poultry, or bees, and the growth of fruit, vegetables, and the like: 1928 Act, s 5.

¹⁸⁷ ‘ “Bank” means (a) the Bank of England; (b) a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to accept deposits; and (c) an EEA firm which… [under various provisions of that Act] has permission to accept deposits or other repayable funds from the public: see 1928 Act, s 5(7) and (7A).’

¹⁸⁸ 1928 Act, s 5(1). The definition of ‘farmer’ in the 1928 Act excludes incorporated companies or societies, and ‘farming stock’ is widely defined to include crops (whether growing or severed from the land), livestock (including its produce and progeny) and agricultural vehicles and machinery: see ibid., s 5(7).

¹⁸⁹ 1928 Act, s 8(1).

¹⁹⁰ 1928 Act, s 14. The Industrial and Provident Societies Acts have been replaced by the Co-operative and Community Benefit Societies Act 2014, s 59(6) of which contemplates similar charges being created by ‘registered societies’ (i.e. those registered under the 2014 Act or the Industrial and Provident Societies Act 1965, see s 1; existing societies were deemed to be registered under the 1965 Act, see s 4); but s 14 of the 1928 Act refers only to industrial and provident societies registered under the Industrial and Provident Societies Acts 1893 to 1928. So it seems that floating charges over farm stock created by other societies will have to be registered with the Financial Conduct Authority if they are to escape the requirements of the Bills of Sale Acts, see para 11.73.

¹⁹¹ Agricultural Marketing Act 1958, s 15(5). For this purpose ‘bank’ and ‘farming stock’ have the same meanings as in Part II of the Agricultural Credits Act 1928. The only remaining board is the British Wool Marketing Board: see <www.defra.gov.uk/news/2010/10/14/public-bodies/> (last visited 13 August 2011).

¹⁹² 1928 Act, s 9(1). The time can be extended by the High Court on proof that the omission to register was accidental or due to inadvertence.

¹⁹³ 1928 Act, s 9(3).

¹⁹⁴ 1928 Act, s 9(4).

¹⁹⁵ 1928 Act, s 7(1). See para 6.71.

¹⁹⁶ 1928 Act, s 7(1)(a).

¹⁹⁷ National Westminster Bank plc v Jones [2001] EWCA Civ 1541, [2002] 1 P&CR Dig 12.

¹⁹⁸ 1928 Act, s 7(1)(b). A farmer who, with intent to defraud the bank, fails to comply with the obligations for paying over the required money, or who removes from his or her holding any of the charged property commits a criminal offence: ibid., s 11(1).

¹⁹⁹ 1928 Act, s 6(2).

²⁰⁰ 1928 Act, s 8(2).

²⁰¹ 1928 Act, s 8(3).

²⁰² 1928 Act, s 8(7).

²⁰³ 1928 Act, s 9(8).

²⁰⁴ 1928 Act, s 8(6). On priorities see generally chs 12–17.

²⁰⁵ However, the sale can be by private treaty and earlier than five days where the charge provides for this.

²⁰⁶ 1928 Act, s 6(1).

²⁰⁷ See Co-operative and Community Benefit Societies Act 2014 (which replaces Industrial and Provident Societies Act 1967), s 1; provided the charge was executed before 14 September 1967, Sch 3, para 12.

²⁰⁸ Section 59(6); on such charges see above, para 11.65. It seems that only societies registered under the Industrial and Provident Societies Acts 1893 to 1928 can make use of this, see para 11.65, n 190.

²⁰⁹ Section 59. There are provisions for extension of time: s 60; and provisions may be made for giving the FCA notice of any release, discharge or other transaction relating to a charge, s 61.

²¹⁰ Section 9B (restriction on creation of floating charges) of the Building Societies Act 1986 was repealed by paragraph 4 of Schedule 9 to the Financial Services (Banking Reform) Act 2013, as from 26 March 2015.

²¹¹ Building Societies Act 1986 s 104A(1).

²¹² See Banking Act 2009 s 84ZA(2)(a).

²¹³ Companies Act 2006 s 859C; see para 10.40.

²¹⁴ Bank Recovery and Resolution Order 2016, SI 2016/1239, art 28.

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Part III Registration and Other Perfection Requirements, 11 Interests Created By Debtors Who Are Not companies

From: The Law of Security and Title-Based Financing (3rd Edition)

Hugh Beale, Michael Bridge, Louise Gullifer, Eva Lomnicka

(p. 462) 11 Interests Created By Debtors Who Are Not companies

A. Introduction

Registration of security created by debtors that are not companies

Impending reform of the Bills of Sale Acts

Assets for which there is a specialist register

B. The Bills of Sale Acts

Introduction

Bills of sale

Growth in use of bills of sale

Absolute bills and security bills

Purposes of the Acts

Differences between the Acts

Scope of the Bills of Sale Acts

Not applicable to charges created by certain types of debtor

Companies

Industrial and provident societies

Agricultural charges

Documents that are ‘bills of sale’

Definition of bill of sale

Bills of sale in the 1882 Act

Deemed bills of sale

Document must confer right on buyer or creditor

Pledges not bills of sale

‘Title-retention’ agreements not bills of sale

Documents excluded from ‘bills of sale’

Exempt goods

Ships

Bills of lading for goods abroad or at sea

Imported goods

Aircraft

Exempt transactions

Assignments for the benefit of creditors

Transfers of goods in the ordinary course of business

Trust receipts

‘Personal chattels’

Goods within ‘personal chattels’

Future goods

Trade machinery

Investment property and choses in action

Formal requirements and registration

Absolute bills

Formal requirements for absolute bills

Registration requirements for absolute bills

Effect of failure to register

Bills subject to defeasance, condition or declaration of trust

Successive bills

Transfer and renewal of bills of sale

(p. 472) Security bills

Substance not form of transaction

Substantive and formal requirements

Restrictions on substance

Minimum sum

Grantor not true owner

Exceptions to the rule that the grantor must own the goods at the time

Restrictions on seizure

Formal requirements

Summary of form requirements for security bills

The statutory form

Substantial compliance

Effect of failure to comply with statutory form

Property listed in schedule to bill

Property need not be itemized

Property not described specifically

No floating charges

Effect of previous unregistered absolute bill

Consideration

Other terms

Registration

Registration of security bills

Successive security bills

Transfer and renewal of bills of sale

The register

The registrar