Possessory pledge
Section 44 – Delivery
201.This section reforms and codifies the law on delivery of property to a secured creditor for the purpose of creating a possessory pledge.
202.Subsection (1) sets out four options for effecting delivery, at which time the pledge will be created (provided that the property is owned by the provider at the time of delivery). It makes clear, contrary to the decision in Hamilton v Western Bank (1856) 19 D 152, that delivery for the purpose of creating a pledge of corporeal moveable property is not restricted to physical delivery.
203.Subsection (1)(a) provides for physical delivery, either to the secured creditor or to their representative.
Example
Peter might decide to offer a watch as security for a loan from Renata, and will create the pledge by handing her the watch for that purpose.
204.Subsection (1)(b) provides for delivery by means of giving control of the premises in which the encumbered property is kept.
Example
Sean might decide to offer his yacht as security for a loan from Teddy, and will create the pledge by giving Teddy the only key to the boathouse in which it is stored.
205.Subsection (1)(c) provides for constructive delivery by means of an instruction to another person who is holding the property.
Example
Ulrike has stored whisky in a warehouse owned by Val. Ulrike decides to offer the whisky as security for a loan by Zebedee. Delivery is effected, and the pledge created, if Ulrike instructs Val to hold the whisky on behalf of Zebedee.
206.Subsection (1)(d) provides for symbolic delivery by means of delivery of a bill of lading for the property, such as cargo aboard a ship as represented by the bill of lading. A bill is a document of title, and will where necessary require to be endorsed in favour of the secured creditor.
207.Subsection (2) provides that delivery is not required if the property is already in the direct possession or custody of the prospective secured creditor. It is deemed to have been delivered as required.
Example
Joan has borrowed Karen’s bicycle. Karen agrees that the bicycle can be pledged as regards a debt owed by her to Joan. The pledge is created when the agreement is made.
208.Subsection (4) confirms that section 2 of the Factors Act 1889 (which allows mercantile agents to pledge goods by means of handing over documents of title) continues to apply. A mercantile agent, as defined in section 1 of that Act, is an agent having in the customary course of business authority to sell goods, to consign goods for the purpose of sale, to buy goods, or to raise money on the security of goods.
