Securities

Question 1

Retention of title clause

Answer 1

A contractual provision by which says title won’t pass until payment of the full purchase price by the buyer (SOGA 1979 s17-19) AKA Romalpa clause.

Question 2

What is a cautionary obligation?

Answer 2

Where someone undertakes to perform a third party’s obligations should that third party fail to do so. If the cautioner is ‘excusably ignorant’ (Smith v Bank of Scotland) then the creditor must disclose all material risks within its knowledge. - RBS v Wilson required an actionable wrong as well as a breach of the duty of good faith to invalidate cautionary obligation.

Question 3

5 rules of accessoriness

Answer 3

1. Existence of accessory obligation depends on existence of debt
2. debt must be specific
3. if the debt is transferred, the security must follow
4. if the debt is extinguished, so is the accessory obligation
5. security can only be enforced if theres actual indebtedness

Question 4

RBS V Wilson

Answer 4

RBS v Wilson required an actionable wrong as well as a breach of the duty of good faith to invalidate cautionary obligation. Note that in this case the obligation wasn’t gratuitous- this is maybe why its been distinguished from Smith v Bos.
while the duty of good faith requires not misleading, there was no positive duty of disclosure on the brothers as neither of the wives had inquired as to their husband’s indebtedness.

Question 5

Smith v BoS

Answer 5

If the cautioner is ‘excusably ignorant’ then the creditor must disclose all material risks within its knowledge. No presumption of undue influence in married couples.

Question 6

Excusably ignorant

Answer 6

Smith v Bank of Scotland- If the cautioner is ‘excusably ignorant’ then the creditor must disclose all material risks within its knowledge.

Question 7

Where bank must disclose risks to cautioner

Answer 7

1) Anything the bank says must be full and fair
2) if creditor “excusably ignorant” due to relationship with debtor, the bank must disclose all material risks
3) if cautioner says something in front of creditor that shows they dont understand the obligation, the creditor must correct them

Question 8

Honeyman’s Exrs v Sharp

Answer 8

While Smith v Bank of Scotland held there’s no presumption of undue influence in married couples, where the facts “cry out for an explanation” the burden of proof will shift to the creditor.

Question 9

Why do creditors want security?

Answer 9

• security avoid pari passu by creating rights that give secured creditors priority and rank above those of unsecured creditors in insolvency

Question 10

What are quasi securities and what issues do they cause?

Answer 10

• quasi securities are arrangements that appear to be sale arrangements but which are intended to act as securities - hire purchase, sale and leaseback, retention of title in sale of goods and trusts.
• they dont have to be registered which causes problems for third parties