UK Acorn Finance v Charles Smith, 14 July 2014 – enforcement of standard security by creditor after the granting of a second security and assignation of personal obligation to a third party

Sheriff Court case concerning the remedies available to a creditor (Acorn) under a standard security after it had granted a further security (and also assigned the personal obligation to pay the sums due) to a third party (Connaught) over the first security in its favour (The second security securing an advance made to Acorn by Connaught).

When Mr Smith (the debtor under the first security) failed to pay the sums due under the first security, Acorn served a calling up notice on him and, when he failed to comply, raised an action to enforce the first security and eject Mr Smith from the subjects (agricultural property). Mr Smith argued that, as the personal obligation to pay Acorn had been assigned to Connaught by way of the second security, there was no longer any debt due to Acorn. As such, Acorn had no title to sue.

The sheriff accepted Acorn’s argument to the effect that the statutory rights in a standard security which arise under the Conveyancing and Feudal Reform (Scotland) Act 1970 are separate to the common law rights in terms of the personal obligation contained in the separate contract between Acorn and Mr Smith. Both sets of rights could be held by different people. Acorn remained the creditor under the first security and, as such, was entitled to exercise the statutory rights to enforce the security albeit that the common law rights in the personal obligation had been assigned to Connaught and enforcement of the security would ultimately result in a payment to Connaught. This was logical as it provided Acorn with a powerful means of ensuring it could meet its obligation to Connaught and, from Connaught’s point of view,  it was right that a procedure by which Acorn could meet its obligation to them (along with any related costs) should be Acorn’s responsibility.

Accordingly the sheriff found that Acorn had both title and interest to sue.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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