Chapter 4Classification and survey of types of business organisationmore likely to be upheld by the court than those which
are stated to survive redemption. Mortgages of personal property
Just as land can be used as a means of securing debts, so
also can personal goods. The main way in which this can
be done is by mortgage.
In this case the person who borrows the money retains
the business assets, e.g. office equipment, but transfers
the ownership of them to the lender to secure the loan.
As we have seen, this raises a problem because, since
the borrower keeps the assets, those who do business
with him, perhaps on credit, may be misled as to his
creditworthiness, because the assets displayed are owned
by a lender and not by the borrower who has them.
To stop this happening the security is void and the
lender cannot sell the goods mortgaged unless a bill of
sale is made out and registered in the Central Office of
the Supreme Court under the Bills of Sale Acts 1878 – 82.
These bills must be re-registered every five years if they
are still in operation. This Register is open to public ex-
amination and therefore those who do business with the
borrower can find out whether he has mortgaged his goods.Mortgages of choses in action
As we have seen, personal property (i.e. property other
than land) is divided into two kinds known as choses in
possession and choses in action. Choses in possession are
goods such as jewellery and furniture which are tangible
things and can be physically used and enjoyed by their
owner. Choses in action are intangible forms of property
which are not really capable of physical use or enjoy-
ment. Their owner is normally compelled to bring an
action at law if he wishes to enforce his rights over prop-
erty of this sort. A contrast is provided by a fire exting-
uisher and a fire insurance policy. The extinguisher is a
chose in possession. If you had a fire, you could use the
extinguisher to put it out – the insurance policy would
not be much use for this. However, it is a valuable piece
of property because although, as a chose in action,it has
no physical useit gives a right to require the insurance
company to make good any loss caused by the fire.
Other examples of choses in action are debts, patents,
copyrights, trade marks, shares, negotiable instruments
such as bearer bonds issued by some companies to those
who lend them money, and the goodwill of a business.85
Noakes and Co Ltd vRice (1902)Mr Rice wanted to buy a public house. He borrowed the
money from Noakes and Co Ltd who were brewers and
owners of the pub. The brewers lent Mr Rice the money
but he had to agree to sell only Noakes’ beer. After Mr
Rice had repaid his mortgage, Noakes said he must still
sell only their beer. The court decided that he was not
bound to do so. During the mortgage Mr Rice was bound
to sell only Noakes’ beer but not after repayment of the
loan.
Comment.Much depends upon the bargaining power
of the parties. In mortgage arrangements between large
companies what is called a collateral advantage may
be allowed to continue after repayment of the loan. For
example, in Kreglinger v New Patagonia Meat and Cold
Storage Co Ltd(1914) Kreglinger had lent money to
New Patagonia and New Patagonia gave Kreglinger a
mortgage of its property. The mortgage said that for
five years New Patagonia should not sell sheepskins to
anyone without offering them first to Kreglinger. New
Patagonia repaid the loan after two years but the House
of Lords decided that New Patagonia was still bound to
offer the sheepskins first to Kreglinger.The possibility of using the rules of restraint of trade to
attack restraints during the period of the mortgage is
considered above. (See Esso Petroleum Co Ltd vHarper’s
Garage (Stourport) Ltd(1967).)
Consumer Credit Act
By reason of sections inserted into the Consumer Credit
Act 1974 by the Consumer Credit Act 2006, the court
may make an order to regulate agreements arising out
of a relationship that is ‘unfair’ as between the creditor
and the debtor. The court has wide-ranging powers, e.g.
to reduce or discharge any sum payable by the debtor.
However, the unfair relationship test does not apply to
credit agreements entered into by incorporated associ-
ations or partnerships of more than four members. It
does apply to agreements made by individuals and so
would apply to a sole trader. (See further, Chapter 13.)