An interesting legal puzzle at MG Global’s wrap party

I found this interesting but possibly inconsistent article about the disposition of certain gold and silver bars at MG Global: http://jessescrossroadscafe.blogspot.ca/2011/12/attempt-to-seize-and-liquidate-customer.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+JessesCafeAmericain+(Jesse’s+Caf%C3%A9+Am%C3%A9ricain)

 

The key question is who owns the gold, or who owns what portion. 

The article is possibly inconsistent because on the one hand it refers to the gold and silver already being owned, and on the other hand it refers to gold and silver to be delivered. 

In the context of such a bankruptcy, “ownership” and “delivery” have to be used in a technical legal sense which will be governed by the contracts and the jurisdictions involved. 

If you order widgets through company A and company A in turn orders them from wholesaler company B, and then goes bankrupt, who own’s the widgets when they arrive at company A? 

Generally it will be the bankruptcy trustee for company A that would own the widgets at common law.  The obligation to give the widgets to you when they come in is just another future obligation.  Unless title of the widgets has already passed to you before the bankruptcy, your right to them is kaput.

Ownership is in that sense a narrow, not colloquial concept. What matters is not that they are your widgets in the ordinary English vernacular sense, but rather whether title has legally passed. 

“Delivery” on the other hand can be broader and/or more varied depending on the terms of a statute or a contract than the meaning in ordinary language. 

Delivery can mean that something has actually arrived at your door and been signed for by you. 

In some cases delivery can be deemed to occur when the seller of property sends it for transport, which is an important issue for purposes of establishing who has the burden of insuring it.

So if company A delivers widgets to Fedex, depending on the contract and the law of the jurisdiction that applies, the transaction of the purchase of the widgets may be deemed complete and you may be deemed in receipt of them when they are delivered to Fedex, before you actually receive delivery in the colloquial sense. 

Delivery can be anywhere the contract and/or statute allow. It is certainly open to parties to a contract to contract that delivery of gold, or silver, or anything else, can be taken by depositing it into a vault, including a vault run by the seller.  It is not required that the seller send property anywhere for title to pass.  If the seller retains the goods by contract in that circumstance it has no more claim on them than any other storage facility. 

The situation described in the article could be hazardous to the bankruptcy trustee.  The bankruptcy trustee cannot turn somebody who is no a creditor into a creditor to secure their possessions.  It exceeds their jurisdiction and opens the door to personal liability. 

The courts will also have no jurisdiction to turn non-creditors into creditors in the absence of very poorly drafted legislation. 

In the case of modern muddled contracts another issue can arise.  

One must be very careful when the underlying essence of a transaction is that gold or silver  are security for an interest that is tradeable without it passing hands that one is getting actual legal title to gold or silver, not an interest that is secured by gold and silver bars.  

If what you are getting is a kind of security interest rather than legal title, you may be screwed. 

 

 

 

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