• Document: Commercial trusts law
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Commercial trusts law Section B: Equitable devices used to take security in commercial contracts A. Hudson This study guide was prepared for the University of London by: ‰ Professor Alastair Hudson, School of Law, Queen Mary, University of London. This is one of a series of study guides published by the University. We regret that the author is unable to enter into any correspondence relating to, or arising from, the guide. If you have any comments on this study guide, favourable or unfavourable, please use the form at the back of this guide. Publications Office The External Programme University of London Senate House Malet Street London WC1E 7HU United Kingdom www.londonexternal.ac.uk Published by the University of London Press © University of London 2005 Printed by Central Printing Service, University of London All rights reserved. No part of this work may be reproduced in any form, or by any means, without permission in writing from the publisher. Contents Contents Introduction 1 Chapter 1: Taking security in loan contracts 5 1.1 Introduction 5 1.2 The use of trusts to take security 6 1.3 The particular context of taking security in loan contracts 9 1.4 Quistclose trusts 9 1.5 Twinsectra trusts – another view of Quistclose trusts 11 1.6 Covenants in loan contracts and the crystallisation of rights 12 Chapter 2: Mortgages and equitable charges 17 2.1 Introduction 17 2.2 Mortgages as a security device 17 2.3 Fixed charges as a security device 19 2.4 Floating charges as a security device 20 Chapter 3: Establishing title at common law and in equity 25 3.1 Introduction 25 3.2 Liens 25 3.3 Pledge 26 3.4 Retention of title at common law 26 3.5 Comparison of retention of title with Quistclose trusts 27 3.6 Issues with actions in relation to electronic money 27 Chapter 4: Collateralisation in financial transactions 31 4.1 Introduction 31 4.2 Cash-settled derivatives transactions 31 4.3 The purpose of collateralisation 32 4.4 The use of trusts 33 4.5 ‘Mortgage, charge and pledge’ 33 4.6 Outright transfer 35 iii Chapter 1: Taking security in loan contracts Learning outcomes By the end of this chapter and the relevant readings you should be able to: differentiate between the various ways in which trusts are used to take security in loan contracts conceptualise the various forms of trusts and powers which are used in such circumstances. you should be able to distinguish between the uses of ƒ ordinary trusts ƒ Quistclose trusts (as explained by Lord Millett in Twinsectra v Yardley) ƒ retention of title clauses ƒ equitable charges ƒ mortgages ƒ liens ƒ pledges. 1.1 Introduction Essential reading Hudson, A. Equity and Trusts (2005), Chapter 22. Thomas, G.W. and A.S. Hudson The Law of Trusts. (Oxford University Press, 2004), Chapter 47 (extract in the accompanying reading). This section considers the way in which commercial people take security in their transactions. By ‘take security’ we mean the ways in which a commercial person will seek to protect himself from any action or omission of any other party to that transaction. The events against which the commercial person may want protection range from some other party’s failure to make a payment or to perform some act required by a contract right, through to the other party going bankrupt or being legally prevented from performing the contract in some other way. Commercial people therefore rely on their legal advisors to devise the means by which they can acquire some protection. That protection can take many forms. This particular chapter is concerned with taking security specifically in relation to loan contrac

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