CHAPTER VI. DEBENTURES. of debentures. The next subject for our consideration is that of debentures, Definition "a class of securities of a somewhat anomalous description, brought chiefly into vogue through the formation of companies" (1). What is a debenture? This is a question which has occasioned no slight trouble to the judges from time to time. It was pointed out in a case (2), decided in 1887, that the term "debenture" has never received a precise legal definition, that it was, comparatively speaking, a new term. The term "debenture" itself, the judge went on to say, imports a debt, an acknowledgment of a debt; and, speaking of the numerous and various forms of instruments which have been called debentures without any one being able to say the term is incorrectly used, said, "I find that generally, if not always, the same instrument imports an obligation or covenant to pay." Thus, a memorandum of agreement between a company and several persons named in the schedule, and called the lenders, in which the company covenanted to pay the sum advanced with interest, and, as security for the payment thereof, charged all its undertaking, property, estate, and effects of every kind, was decided to be a debenture in the ordinary acceptation of the term (3). But in another case where the memorandum contained no acknowledgment of any specific debt, or any covenant to pay, such memorandum was held not to be a debenture (4). A good general definition of a debenture is "an instrument in writing, generally under seal, creating a definite charge on a definite or (1) Cavanagh on Money Securities, 2nd ed. p. 358. (2) Edmonds v. Blaina Furnaces Co., 36 Ch. Div. 215. (3) The meaning of the word "debenture" is well illustrated by a passage from the writings of the celebrated Dean Swift in speaking of the unacknowledged obligations of certain writers to their literary predecessors. "Your modern wits should each And little would be left you, I'm If all your debts to Greece and Rome were paid." -Cited in Edmonds v. Blaina Fur- (*) Ashbury v. Riche, 7 H. L. 653; Principal kinds of debentures. indefinite fund or subject of property, in favour of a given person or of a given person and his order or bearer, and constituting a member in a series of similar instruments each entitling the original holder thereof to similar rights." Debentures made by a corporation must not exceed their borrowing powers. The Bills of Sale Act (1878) Amendment Act, 1882 (post, p. 338), provides that nothing therein shall apply to any debentures issued by any mortgage, loan or other incorporated company, and secured upon the capital, stock, or goods, chattels, and effects of such company (1). The principal kinds of debentures which are in general use are:-(1) Debentures to registered holder; (2) Debentures to bearer; (3) Debentures to bearer capable of registration; (4) Debentures to registered holder, but with interest coupons to bearer. And each of these kinds may be framed as (a) "Mortgage debentures," i.e., debentures secured by mortgage or charge contained in the debentures, or in a trust deed, or in both; (b) "Naked debentures," i.e., debentures not secured by any mortgage or charge (2). The following form of mortgage debenture is taken from a well-known case on the subject: "No. 404. "THE COMPANY, LIMITED. "Mortgage Debenture. £100 Form of debenture. "By virtue of the powers contained in our articles of association, we, the Company, Limited, in consideration of the sum of £100 paid to us by A. B., of &c., are held and firmly bound, and do hereby for ourselves, our successors and assigns, charge the said undertaking, and all sums of money arising therefrom, and all the estate, right, title, and interest of the company therein, with the payment to the said A. B., his executors, administrators, or assigns, of the said sum of £100, together with interest for the same at the rate of £6 per cent. by the year, the principal sum to be repaid on the of and the interest to be payable in the meantime half-yearly, on (1) 45 & 46 Vict. c. 43, sect. 17, Topham v. Greenside Glazed Fire Brick Co., 37 Ch. Div. 281; see also Levy v. Abercorriss Slate and Slab Co., 37 Ch. D. 260; Ross v. Army and Navy Hotel Co., 34 Ch. D. 432; Read v. Joannon, 25 Q. B. D. 300; (2) Palmer's Company Precedent, p. 465, 5th ed. the thereof. and in each year, until the repayment "Given under our common seal," &c. (1). Debentures charged on a company's "undertaking" or "estate and effects" constitute a floating charge only on the assets for the time being, leaving the company free to deal with the property in the ordinary course of business, as long as it remains a going concern, but attaching in preference to its general liabilities, so soon as the company is put an end to either by the appointment of a receiver in a debenture-holder's action, or by a winding-up order (2). The important questions whether debentures payable to bearer are negotiable instruments may here be briefly noticed. In the mercantile world, says Mr. Chadwyck Healy, it is the general practice to pass these instruments from hand to hand, and to accept the holder for the time being as entitled to receive payment of the debt, irrespective of any equities which may be subsisting between the company and any prior holder. "As to debentures executed since the Bills of Exchange Act, 1882," the same author goes on to say, "the doubt whether a (1) In re Panama, New Zealand, and Australian Royal Mail Packet Co., L. R. 5 Ch. 318. Debentures issued under the borrowing powers of companies may be divided into 1. Those issued by joint stock companies, registered under the Coinpanies Acts, 1862 to 1886. 2. Those issued under the Mortgage Debentures Acts, 1865, 1870. 3. Those issued in pursuance of the Companies Clauses Acts, 1845 and 1863. 4. Those issued in pursuance of the Commissioners Clauses Act, 1847. The following memorandum is sometimes placed on a debenture: "This debenture is to be treated as negotiable, and all persons are invited, as well by the company as by the owner thereof, to act accordingly, but the bearer may at any time write his name and address across the face of this debenture, and thereupon it shall cease to be negotiable, and shall be payable to the person whose name is so inscribed." -Palmer's Company Precedents, 5th ed. p. 471. (2) Re Panama Mail Co., 5 Ch. App. 318; Florence Land Co., 10 Ch. D. 530; Wheatley Silkstone Coal Co., 29 Ch. D. 715. A mortgagee of a trading company is entitled to have leave to continue an action to realise his security, notwithstanding that the company has been ordered to be wound up either compulsorily or under a supervision order, unless there be special circumstances, or unless the company can offer the mortgagee all that he is entitled to, by foreclosure or sale: Re David Lloyd & Co., 6 Ch. D. 339. Under the Railway Companies Act, 1867 (30 & 31 Vict. c. 127), s. 4, a creditor, after obtaining judgment, may obtain the appointment of a receiver, and, if necessary, a manager of the undertaking. Re Manchester & Milford Railway Co., 14 Ch. D. 645; Re Mersey Railway Co., 37 Ch. D. 610; and see Gardner v. London, Chatham, and Dover Railway Co., L. R. 2 Ch. 201; Attree v. Hawe, 9 Ch. D. 337. See also, as to railway debentures: Re Hull and Barnsley Railway and Dock Co., 40 Ch. D. 119; and as to debentures generally: Thorn v. City Rice Mills Co., 40 Ch. D. 359; Blake v. Herts and Essex Waterworks Co., 41 Ch. D. 399. writing under seal can constitute a promissory note has been removed, and if and so far as any given debenture could be held to be simply a promissory note, the incidents of negotiability would of course attach to it. With regard, however, to debentures not capable of being classed under the category of promissory notes-and it is believed they are very numerous—it may be doubted how far the practice to treat them as negotiable would be recognised in a Court of justice as an addition to the law merchant, and binding on all persons and for all purposes. Whether or not it be ultimately decided that debentures payable to bearer, not being promissory notes, have become negotiable instruments by the custom of merchants, it is, at all events, possible to frame such debentures in terms whereby many of the incidents of negotiability will be secured to them. Thus, there is no doubt that a company may so contract with its debenture-holders as to render itself unable to enforce equities subsisting between itself and any previous holder, and may also give a holder a right to recover in his own name” (1). (1) Chadwyck Healy's Law and Practice of Joint Stock Companies, p. 151, et seq., where the authorities are collected. See as to the position ... CHAPTER VII. PATENTS (1). A patent for an invention is a grant from the Crown to the Definition. author of a new and useful invention of the exclusive privilege of making, using, and selling that invention for a limited period. Such grants are made by literæ patentes, i.e., letters-patent, from which the term patent is derived; so-called, according to Blackstone, because "they are not sealed up, but exposed to open view, with the great seal pendent at the bottom, and are usually directed and addressed by the King to all his subjects at large." A patent is, however, now sealed with the seal of the Patent Office, instead of with the Great Seal as formerly, and the Act of 1883 provides that a patent so sealed shall have the same effect as if it were sealed with the Great Seal of the United Kingdom, i.e., "the patent proves itself, and cannot be denied" (2). The right to grant such monopolies is an ancient prerogative Statute of of the Crown, saved by a proviso in the Statute of Monopolies. Monopolies, This statute, passed in the twenty-first year of the reign of James I., declared that, subject to the all-important saving clause which shall next be noticed, all monopolies, grants, and letters-patent for the sole buying, selling, making, working, or using of anything whatsoever within the realm, were contrary to the law and void (3). (1) For a full account of the law and practice and history of letterspatent for invention: see Edmunds on Patents for Inventions. (2) Patents, Designs, and Trade Marks Act, 1883, s. 12. The present form which is sealed with the seal of the Patent Office is given, Sched. I. to the Patents, Designs and Trade Marks Act (46 & 47 Vict. c. 57). Hindmarch on Patents, p. 37. (3) See Macaulay's History of England,' vol. ii. p. 346, who tells us how the Sovereign of England had, in addition to his undoubted |