First Principles of Business Law

5. Using property as a security

5.3.2. Securities involving durable chattels

Keeping in mind the circumstances outlined on the previous screen, consider the following additional facts.

Albert owns a large laminating machine, which he uses in the course of manufacturing kitchen bench-tops. This machine is worth at least $200,000. It is not permanently fixed to the building in which it is housed. Which of the following arrangements would be the most appropriate for Albert to offer Sunil as a security, using this machine. Click on the alternative of your choice.

(a) Albert agrees to sell the machine to Sunil, making Sunil the owner of it, but subject to an agreed right to repurchase it when the debt is repaid.

(b) Albert remains owner of the machine, but agrees to hand over possession of it to Sunil, to keep until the debt is repaid.

(c) Sunil, who is for some valid reason is already in possession of some property belonging to Albert, is permitted to remain in possession of that property until the debt owing is paid.

(d) Albert remains owner and in possession of the machine, but agrees with Sunil that the machine be designated as 'charged' with the debt, and that it will be made available to secure repayment if the debt becomes overdue.