Where a company had power "to issue bonds, debentures, or mortgage debentures," which would entitle holders to be paid pari pasta out of the company's property, evi dences of debt expressed as "obligations" by which the company bound "themselves and their successors and all their estate property, etc.," were held to be debentures and to cre ate a charge; 10 Ch. Div. 530.
As issues of debentures are frequently, if not in most cases, made payable to the bear er, the question has been much litigated in England whether in that form they are trans ferable by delivery. There being no statute under which they are negotiable, they must be so if at all under the law merchant (q. v.). Debentures were at first held not negotiable under that law ; L. R. 8 Q. B. 374; but in the Exchequer Chamber upon a critical ex amination the decision was otherwise; L. R. 10 Ex. 346; which was affirmed by the House of Lords, which distinguished the cases and did not review the earlier case; 1 App. Cas. 476 ; and finally it was held that debentures issued in England by a home company pay able to bearer are negotiable by the law merchant and their transfer gives a good ti tle against anybody to a bona fide purchas er ; [1898] Q. B. 658. The same ruling was applied to those of a foreign company, com monly treated as negotiable in the market ; [1892] 3 Ch. 527.
Where a number of debentures are sealed one after another in numerical order they prima facie rank in priority accordingly, but if it is so provided, they rank pari passe; 21 Ch. D. 762 ; 38 id. 156, 171; Buckley, Com panies Acts 172. They are generally issued in a series, but need not be so, as a single debenture may be issued to one man; 36 Ch. D. 221.
Debentures are not issued until they are delivered ; id.; 34 Ch. D. 58. A contract to make or take debentures will not be specif ically enforced, but the party is left to his action for damages; [1897] 1 Q. B. 692, af firmed [1898] A. C. 309.
The exact nature of debentures has been much discussed in England as arising in cas es where the question was whether a paper required registration under the Bills of Sales Act which excepted from its provisions "de bentures" issued by any mortgage, loan, or other incorporated company and secured up on the capital stock of goods, chattels, and effects of such company.
A memorandum of agreement which con tained a covenant by a company to pay to each of nine persons, who were mentioned in it as lenders, the sum set opposite their names pari passe, and charged all the prop erty of the company, was a debenture ; 36 Ch. D. 215 ; and the covering deed which usu
ally accompanies debentures as a security for the payment of the debentures when due is not a debenture; 34 Ch. D. 43 ; though why it should be so held, it has been remark ed, it is difficult to see in view of the judicial definitions of the word "debenture" quoted supra; Simonson, Debentures, 4 (and see re marks Lord North ; 37 Ch. D. 281, 291) ; but it need not be registered under the Bills of Sales Act ; [1891] 1 Ch. (A. C.) 627; [1896] I 2 Ch. 212.
A mere memorandum in writing by a coal and fireclay working and brick-making com pany, of a deposit with bankers of title deeds, as a security for balances due or to become but which did not admit any specific debt, or contain an agreement to pay other ' wise than by an agreement to execute a legal I mortgage, was not a debenture; 37 Ch. D. 281.
The act referred to speaks of "debentures issued . . . and secured upon," and an English writer of authority considers that this means a borrowing money for the bene fit of several lenders ; Buckley, Companies Acts 170; but it has been held that the stat utory term debenture applied when there were several lenders but only one security given for the benefit of all ; 36 Ch. D. 215 ; it may consist of one document, not necessa rily of a series of documents; id.; and a single security to a single lender, not pur porting in terms to be a debenture, was one in law ; 37 Ch. D. 260. A security to a lend er on some part of a company's property is not one, while an issue secured upon its en tire stock in trade and undertaking is, and between these two is to be sought the line of demarcation ; Buckley, Companies Acts 172.
The remedy upon a default was formerly by an action to realize the security commenc ed by one holder on behalf of all and the ap pointment of a receiver and manager to car ry on the business; this was followed by a winding up petition, but more recently the proceeding has been for a decree of foreclo sure; [1897]1 Ch. 11. A power of sale may be, and usually is, included in the trust deed; 13 L. Q. Rev. 424.
Debenture holders with a floating charge were held to be superior to execution cred itors ; [1891] 1 Ch. 627, C. A. 3 id. 260.
As to spent debentures, see BONDS. See