Where a debenture (not being one of a series) is given by a company to secure its ,account, the deeds of the property should be deposited with the banker along with the debenture, otherwise an equitable mort gagee, without notice of the debenture, might obtain priority.
A debenture which is issued in the names of the bank's nominees, as security, should be accompanied by a qualifying agreement, to show the purpose for which it has been given. (See QUALIFYING AGREEMENT.) A debenture is not a bill of sale. The Bills of Sale (1878) Amendment Act, 1882, Section 17, provides :—" Nothing in this Act shall apply to any debentures issued by any mortgage, loan, or other incorporated com pany, and secured upon the capital stock or goods, chattels, and effects of such com pany." Debentures are issued for amounts varying from, say„0 0 to £100, and are repayable either upon notice or at the end of a certain number of years, say five, ten, or fifteen years from the date of the instrument They may also be perpetual or irredeemable, in which case the bolder is entitled to an annuity or interest upon the money yearly in perpetuity. Although called irredeem able, they are usually redeemable upon the company going into voluntary or compulsory liquidation.
Where there is a series of debentures, each of them is expressed to rank equally with the others of the series. The interest upon the debentures may be paid by warrant or by coupons issued along with the debentures.
Debentures are sometimes payable to bearer and sometimes to the registered holder. And by custom they may be treated as negotiable instruments. When debentures to hearer are offered as security, a mere deposit of them may be taken (a form of transfer not being necessary), or they may be accompanied, as is preferable, by a memorandum of deposit or an agreement showing for what purpose they have been left with the hanker. In Bechuanaland Exploration Co. v. London Trading Bank (1898, 2 Q.B. 658), where bearer debentures of an English company had been stolen and pledged with the bank, it was held that the bank was entitled to the debentures because they were, by the general custom of merchants, negotiable instruments and transferable by delivery.
The negotiability of debentures payable to bearer was considered again in the case of Edelstein v. Schuler & Co. (1902, 2 K.B 145), when the decision in the Bechuanaland case was followed. In the judgment of Bigham, J. (afterwards Lord Mersey), it is said : " It has been argued that the attri bute of negotiability could not be attached to a contract except by the law merchant ; and that these bonds are of such recent creation that their negotiability under that branch of the law cannot be justified. It is no doubt true that negotiability can only be attached to a contract by the law mer chant or by a statute ; and it is also true that, in determining whether a usage has become so well established as to be binding in the courts of law, the length of time during which the usage has existed is an important circumstance to take into con sideration ; but it is to be remembered that in these days usage is established much more quickly than it was in days gone by ; more depends on the number of the trans actions which help to create it than on the time over which the transactions are spread ; and it is probably no exaggeration to say that nowadays there are more business transactions in an hour than there were m a week a century ago. Therefore the com
paratively recent origin of this class of securities in my creates no difficulty in the way of holding that they are negoti able by virtue of the law merchant ; they are dealt in as negotiable instruments in every minute of a working day, and to the extent of many thousands of pounds. It is also to be remembered that the law merchant is not fixed and stereotyped ; it has not yet been arrested in its growth by being moulded into a code : it is, to use the words of Cockburn. C. J., in Goodwin v. Roberts L.R. 10 Ex. 337), capable of being expanded and enlarged so as to meet the wants and requirements of trade in the varying circumstances of commerce, the effect of which is that it approves and adopts from time to time those usages of merchants which arc found necessary for the convenience of trade ; our common law, of which the law merchant is but a branch, has in the hands of the judges the same facility for adapting itself to the changing needs of the general public ; principles do not alter, but old rules of applying them change, and new rules spring into existence. Thus it has been found convenient to treat securities like those in question in this action as negotiable, and the courts of law, recognising the wisdom of the usage, have incorporated it in what is called the law merchant, and have made it part of the common law of the country. In my opinion the time has passed when the negotiability of bearer bonds, whether Government bonds or trading bonds, foreign or English. can be called in question in our Courts. The existence of the usage has been so often proved and its convenience is so obvious, that it must be taken now to be part of the law : the very expression ' bearer bond ' connotes the idea of negotiability, so that the moment such bonds are issued to the public they rank themselves among the class of negotiable securities. It would be a great misfortune if it were otherwise, for it is well known that such bonds are treated in all foreign markets as deliverable from hand to hand ; the attribute not only en hances their value by making them easy of transfer, but it qualifies them to serve as a kind of international cunency ; and it would be very odd and a great injury to our trade if these advantages were not accorded to them in this country." Where debentures or certificates of deben ture stock, payable to a registered holder, are given as security, they should, to to a complete security, be transferred into the n tines of the bank's nominees. When they give a charge upon the company's land the transfer must be under seal. (See TRANSFER OF SHARES.) The debentures or certificates may also be lodged with a blank transfer : that is, a transfer in which the space for the transferee's name is left blank, or which is undated. Notice of the charge should be given to the company. When necessary, the blank transfer is completed by the banker and sent in to the office of the corn any for registration. A blank transfer, however, is not a satisfactory document. (See BLANK TRANSFER.) If the debentures are about due for payment. they should be indorsed by the registered owner and authority given to the banker to write a receipt above the signature.