UNIVERSITY OF LAGOS
SCHOOL OF POSTGRADUATE STUDIES
FACULTY OF LAW
SECURED CREDIT TRANSACTIONS 1(PPL 813)
2010/2011
BEING A SEMINAR PRESENTATION IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF LL.M
TOPIC: NATURE, SCOPE AND ENFORCEMENT OF LIENS
PRESENTED BY GROUP 11
JIBUNO O. JOSEPH
EBERE, I.E.(109061107)
CHIMA O. N.(089061058)
ESOMONU JUDE N.
OGBONNAN. COLLINS (109061132)
OBI OLIVE(099061105)
SUPERVISING LECTURER:
DR. AMOKAYE
OUTLINE
Chapter One
Introduction
Nature of Liens
·Definition
·Features
·When it arises
·Differences with other securities
·Classification of lien
Chapter Two
Scope of Liens
·Conveyancing Lien: Vendor’s Lien - Purchaser’s Lien
·Lien on personal Chattels
·Common Law Lien: Agency lien - In keeper’s Lien - Bailment Lien for and without reward
·Statutory Lien: Lien under Sale of Goods Act, Nigerian Railway Corporation Act, Factors Act, Customs and Excise Management Act.
·Maritime Lien
·Lien on Company Shares
·Lien on Life Insurance Policy
Chapter Three
Enforcement of Liens
Chapter Four
Recommendation
Conclusion
CHAPTER ONE
1.1. INTRODUCTION
We have earlier gone through the preliminary issues of the concept of security and the classification of security. It then becomes pertinent to examine the various security interests applicable in security transactions.
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt[1].We have four traditional security interests:
-Liens
-Pledges
-Mortgage
-Charge
The above four interests are inter-related and may crisscross with one another or crystallise into another.
A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation[2].
To create a valid lien, it is essential:
1. That the party to whom or by whom it is acquired should have the absolute property or ownership of the thing or, at least, a right to vest it;
2. That the party claiming the lien should have an actual or constructive, possession, with the assent of the party against whom the claim is made;
3. That the lien should arise upon an agreement, express or implied and not be for a limited or specific purpose inconsistent with the express terms or the clear, intent of the contract; e.g., when goods are deposited to be delivered to a third person or to be transported to another place.
We shall examine the other forms of security interests subsequently.
1.2 NATURE OF LIENS
Here, we shall go in-depth into the liens proper and try to understand the interest.
Lien arises to fulfil the obligation which a party to a transaction has failed to fulfil upon the fulfilment of the other party’s obligation. For example, in a conveyance of land, there is an obligation on the part of vendor to convey a good title to the purchaser in return for an obligation on the part of the purchaser to pay the purchase price. Breach by any of the parties will give rise to an equitable lien, outside the express or implied contract of the parties to the transaction. Thus, in Barclays Bank Plc v. Estates & Commercial Ltd (1997) WLR @ pg 415 it was decided that a vendor of land who has conveyed the land to the purchaser has in equity, a lien upon the property for unpaid purchase money. Conversely, a lien will also arise in favour of a purchaser who has made a full or part payment of the purchase price by way of deposit but who has not obtained a conveyance of the property[3].
1.2.1 Definition
As with all concepts in the legal parlance, liens defy a single, universally acceptable definition. There is a myriad of definitions of lien. We shall examine some:
Professor I.O. Smith[4] defines lien as
“A right to retain property until indebtedness is discharged”
It has also been defined as the right to hold the property of another as security for the performance of an obligation[5].
We had earlier given a general definition of a lien. Suffice it to say that
’’A lien is a form of security interest granted over an item of property, either by operation of law or by agreement between parties, for the retention of the item by the creditor to secure the payment of a debt or performance of some other obligation by the debtor’’
It can safely be surmised from the foregoing that a lien arises when there is a debt (or loan) and property is held by the creditor to be returned to the debtor when the debt is repaid.
This will leads us to the features of a lien.
1.2.2 Features
The following are features of a lien:
-Debt (or loan) resulting from outstanding performance, It could be a vendor failing to convey title of a property paid for or a purchaser failing to pay for a property already conveyed.
-Property: This is the subject-matter of the lien.
1.2.3 When It Arises
Lindley LJ[6] described the unpaid vendor’s entitlement to a lien on land sold for the unpaid purchase price by the purchaser as “too well established to be disputed”. However, there is still some degree of dispute as to when the lien actually arises. There are two schools of thought.
The first and we may add less popular, school of thought is that the lien arises on exchange of contract. This doctrine received judicial backing in the ancient case of Wythes v. Lee 61 ER pg. 954 where Kindersley VC referred to the vendor’s lien as existing “at the moment of the contract”[7]. The position was well espoused by Millett LJ[8] as follows:
“As soon as a binding contract for sale of land is entered into
the vendor has a lien on the property for the purchase money
and a right to remain in possession of the property until
payment is made. The lien does not arise on completion but
on exchange of contracts…..”
Some legal scholars agree with this school of thought. Some of which include Prof. Snell[9] and Messrs. Keeton and Sheridan[10].
The second, and more popular, school of thought is that the lien arises when the time for completion has arisen. This was extended by Lindley LJ, in the case of Kettlewell v. Watson (1884) 26 Ch. D pg. 501 to cover situations where the purchaser is allowed into possession prior to completion without payment in full of the purchase price[11].
The consensus here is that once the vendor has parted with the possession of the property to the purchaser, without receiving money, he (the vendor) has no lien on the deeds for the unpaid money in common law except in equity where he has a lien on the conveyed land for the unpaid purchase money. This view is shared by some legal authors such as Sugden[12] and Barnsley[13].
Prof. I.O. Smith is also of this school of thought. According to the learned professor of law[14]:
“…there is no doubt that it arises when the purchase money
becomes due upon completion.”
It is our humble opinion that a lien arises upon completion and not after exchange of contract for the following reasons:
i) The debtor’s liability to pay in conveyance crystallises at completion
ii) Lien, being a relief/security in equity only comes into play when there is no other relief in common law. From execution to completion, the vendor has relief/or is protected by common law, but after completion, the relief under common law expires and equity comes in.
1.2.4 Differences with other securities
A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation[15].
A pledge refers to the act of delivering goods, property etc or something delivered as security for the payment of a debt or fulfilment of a promise, and subject to forfeiture on failure pay or fulfil the promise[16].
A mortgagearises when the assets are conveyed to the secured party as security for the obligations, but subject to a right to have the assets reconveyed when the obligations are performed[17].
A chargemeans the appropriation of a property upon the assurance by the debtor to the creditor that the said property shall, upon default of the debtor to repay the debt, attach to the debt for the purpose of using the proceeds of the property to satisfy the debt’’
What all four interests have in common is that they all possess the incidence of security, viz:
-right of pursuit
-right of preference
-proprietary rights[18].
1.2.5 Classification of Lien
In common law countries, liens are generally classified into:
a)Particular and General: When a person claims a right to retain property, in respect of money or labour expended on such particular property, this is a particular lien while, a general lien is available as a security for all debts arising out of similar transactions between the parties. A common-law lien only gives a passive right to retain; there is no power of sale which arises at common law[19]
However, in United States, liens are further classified into consensual(voluntary) and non-consensual(involuntary) liens, perfected and unperfected lien, common law and equitable liens and statutory and contractual liens.
Consensual Liens are agreed to by the parties such conveyance while non-consensual liens are usually based on statute or operation of law, e.g. tax liens, solicitor’s lien, judgement lien and maritime lien.
Perfected Liensare those liens for which a creditor has established a priority right in the encumbered property with respect to third party creditors. Perfection is generally accomplished by taking steps required by law to give third party creditors notice of the lien. The fact that an item of property is in the hands of the creditor usually constitutes perfection. Where the property remains in the hands of the debtor, some further step must be taken, like recording a notice of the security interest with the appropriate office[20].
Perfecting a lien is an important part of the task of protecting the secured creditor's interest in the property. A perfected lien is valid against bona fide purchasers of property, and even against a trustee in bankruptcy; an unperfected lien may not be.
Common law liens have been explained above. Equitable liens are non-possessory security right conferred by operation of law, which is similar in effect to an equitable charge. It differs from a charge in that it is non-consensual. It is conferred only in very limited circumstances, the most common (and least ambiguous) of which is in relation to the sale of land; an unpaid vendor has an equitable lien over the land for the purchase price, notwithstanding that the purchaser has gone into occupation of the property. It is seen as a counterweight to the equitable rule which confers a beneficial interest in the land on the purchaser once contracts are exchanged for purchase. However, there is still hesitation amongst scholars to accept equitable liens[21].
Statutory Liens are provided for in statutes while Contractual Liens are agreed upon by the parties in the contract.
CHAPTER TWO
2.1 SCOPE OF LIENS
2.1.1 Conveyancing Lien
A lot of our discourse thus far has centred on conveyancing lien. We shall now closely consider conveyancing lien under various sun-topics:
2.1.2. Vendor’s Lien
It has been decided that a vendor has a right to retain the property until the full purchase money is paid[22].The lien still avails the vendor even where he (vendor) executes an absolute conveyance with or without receipt for the purchase money and parts with possession both of the property and of the title deeds to the purchaser. Even where there may be implied agreements between the parties. This was the decision of the court in Conveyancing Lien: Vendor’s Lien for unpaid purchase money - Purchaser’ LienBarclays Bank v. Estates & Commercial Ltd[23].
The lien attaches on sale of the property and will extend to the purchase money[24].It will also cover compensation over property that was compulsorily acquired unless such compensation has been made subject of a separate agreement[25].
However, it should be noted that the unpaid vendor’s lien is postponed to the interest of a bona fide purchaser (or equitable mortgagee) for value without notice of the lien. This was the court decision in Ayorinde v. Scott[26] where the defendant bought a property from a purchaser which had earlier been conveyed by the plaintiff. The defendant was not aware of outstanding purchase money on the property. The Court held that the defendant was a bona fide purchaser for value having no notice of the plaintiff’s interest. A similar decision was taken in the case of Rice v. Rice[27].
2.1.2.1 Perfection of Vendor’s Lien
Issues raised in the preceding paragraph made it necessary for the unpaid vendor to affect subsequent purchasers or mortgagees with notice of his security. Odesanya J[28] enumerated some steps that can be taken to this effect:
-Endorsement at the Lands Registry to show encumbrance existing on the land.
-Lodging a caveat with the Registrar of Titles (for properties under the registration of Titles Law).
-Registering the written agreement to pay the balance within 30 days.
-Keeping the title deed as collateral security for the unpaid balance.
2.1.2.2 Sub-vendor’s Lien
An unpaid vendor’s lien is available in favour of the original purchaser against a subsequent purchaser and the original purchaser will be able to enforce the lien against the subsequent purchaser if, having acquired legal title from the vendor, the original purchaser then completes a contract with the subsequent purchaser without receiving the full purchase price.
To ensure that the original purchaser has a lien against the successor in title of the subsequent purchaser, the original purchaser can go ahead to “perfect” the lien as explained in Ayorinde v. Scott[29]
2.1.2.3 Loss of Lien
The vendor may waive his lien on the unpaid purchase money by taking security such as mortgage for the purchase money. The waiver may be express or implied from the circumstances of the case.[30] However, mere personal obligation such as bond, bill of exchange or promissory note will not of itself be sufficient to discharge the lien[31]. The circumstances of each case is taken into consideration by the courts before the inference is made as to whether the lien was intended to be received or that credit was given exclusively to the person from whom the other security was taken[32].
2.1.2.4 Transfer of Lien (Subrogation)
Where the purchaser borrows money equalling the purchaser price or part, such person, i.e. the lender may be subrogated to the unpaid vendor’s lien. This was the court decision in the case of Boodle v. Hatfield & Co v. British Films Ltd[33]where the plaintiff paid part of the purchase price of land to the vendor by way of loan to the purchaser. When the cheque issued by the purchaser to the plaintiff was not honoured, the plaintiff brought an action arguing that they were entitled to be subrogated to the unpaid vendor’s lien. The court agreed with the plaintiff holding that the plaintiffs were subrogated to the unpaid vendor’s lien for the mount of the loan. However, in the case of Nottingham Permanent Benefit Building Society v. Thurstan[34], it was held that where transaction with the lender is unenforceable, the lender cannot rely on the lien[35].
2.1.3 Purchasers Lien.
We have established earlier that a purchaser has a lien in the property in possession of the vendor for any deposit or instalment of his purchase money which the purchaser has paid to the vendor. The principles governing purchaser lien was first established by the court in Burgess v. Wheate[36]
The purchaser’s lien does not arise from any express contract between the vendor and the purchaser[37].
2.1.3.1 Grounds for Purchaser’s Lien
a) There has to be a valid contract between the parties[38].
b) The contract need not be susceptible to specific performance[39].
c) Where the vendor’s title is defective[40]
d) May arise even where contract is conditional and condition has not yet taken place[41].
e) Where the vendor repudiates the contract[42].
f) Where the contract goes off for want of title and even where the purchaser rescinds the contract under an enabling condition in the contract[43].
The lien, however, does not avail the purchaser where the contract goes off due to the purchaser’s default[44].
2.1.3.2 Scope of Purchaser’s Lien
The lien attaches to the vendor’s interest in the land contracted to be sold and provided that the vendor’s failure to convey the land to the purchaser is not due to any default of the purchaser, the purchaser has a lien over the land to secure:
a) Return of any deposit paid to the vendor[45]
b) Return of any other part paid of the price to the vendor[46]
c) Reimbursement for costs of investigating title[47]
d) Reimbursement for cost of an unsuccessful action for specific performance where the vendor fails because he has not adduced good title[48]
e) Reimbursement for expenditure on improvements incurred under a contractual term[49]
2.2.1 Lien on Personal Chattels
We are not unaware of the fact that there are some colleagues who have dedicated considerable time and effort to write on this aspect of liens in another treatise. For this reason, we shall be very concise on our discussion here.
Lien over chattels exists in different forms arising from a variety of circumstances brought about either by the involvement of parties in a contract of sale or in a situation where a party privileged to have custody of chattels property of another, exercises a right of retention in order to make the other party discharge certain obligations owed to him.