Overview of Liens
A lien is a right to retain possession of something until monies owed to or an accrued claim of the person in possession, has been satisfied. The person holding the lien is not permitted to make any greater use of the thing concern, usually goods, than their retention.
There are two types of lien; A general lien and a particular lien. Liens commonly arise by operation of law but may also be provided for or supplemented by contract. A lien is not assignable and exists only for so long as possession of the goods is retained. Retention is the only right granted by a lien as a general rule.
In some cases, particularly those governed by a contract, what is described as a lien is in the nature of a pledge. A lien which arises by a contract is subject to the general principles of contract law. The contract may supplement or vary a right existing at common law. It may create a lien like right by its terms.
A lien does not generally require registration as a bill of sale. This is because the owner of the goods does not remain in possession of them. The security holder usually takes physical or, at least constructive possession of the goods. A lien granted by a written agreement may be subject to the Bill of Sales Act, where the goods are not retained and possessed by the person who claims the lien.
Types of Lien I
A general lien entitles the person in possession of goods to retain them until the claim against the owner of the goods is settled and satisfied. It may arise at common law by general practice, custom or by a contract. General liens are less common because they give wider privileges and are prejudicial to other creditors on bankruptcy.
General liens have become established as part of common law in accordance with the long-established usages in particular trades or contexts such that they are accepted without proof of custom.
A particular lien is a right to retain goods until the charges incurred in respect of those goods has been paid. They may not be held until a general balance between the person owning the goods and the person possessing them has been paid. The courts lean heavily against general liens and towards particular liens. A person who is entitled to a general lien by law may be entitled to a particular lien only in some circumstances, where he acquires the goods for a particular purpose.
Types of Lien II
A contractual lien is effectively a contract for a pledge. A lien which subsists by law may be varied by contract. The existing usage and custom may be varied by the terms of a contract. A lien may be created by incorporation in a contract by public notice by bodies of traders who work in accordance with terms and conditions, which provide for such lien. The lien must come to the express or imputed knowledge of the persons against whom it is claimed.
Some types of non-possessory interests are described as liens and have some similar features. They may arise by statute, in equity or by order of the court. Certain equitable rights are described as liens. Trustees have a lien on the trust assets for monies spent by them on it. A solicitor has a lien on documents in his possession. Equitable liens arise in the course of the purchase and sale of lands and other assets in respect of the uncomplete obligation of the other.
Nature of Lien
The lien must be for present sums due. The liability may derive from contract, restitution or trade use. A lien operates as a defence to a claim for the goods concerned.
A lienholder does not generally give a right to sale, other than in certain circumstances. A lien does not pass with possession. It is a personal right. If goods are perishable, the person in possession who claims the lien must take reasonable care of the goods.
A lien arises with and requires the retention of possession of the goods concerned by the lien holder. Possession may be constructive, such as where title deeds are delivered in a box or a key is held. A person who obtains possession wrongfully, such as by misrepresentation may not claim a lien. Possession which is derived from the wrongful act of a third party is not sufficient to found a lien.
A lien requires that the person having the lien has possession and a right of continued possession of the goods. In limited circumstances, a lien may be retained where it is released for a specific purpose, with the intention of maintaining the lien. If, however, the owner of the goods is entitled to take them and return them as of right, there is an insufficient continuous possession for the lien to subsist.
General liens have been established in the case of bankers, factors, stockbrokers, insurance brokers, solicitor’s and in some cases, warehouse keepers. Where there is a general course of dealing between a merchant and a factor, the factor is entitled to a general lien for the balance due, where he is entrusted with goods for the purpose of sale. The lien applies to the price of goods sold on behalf of the business/merchant. It applies notwithstanding the bankruptcy of the factor or the merchant.
A general lien may be established by usage and custom in a particular trade or area. It must be certain, reasonable and universally acquiesced in by persons in the trade who are aware of it or who could by reasonable enquiry have ascertained its existence. There must be evidence of numerous instances of the usage and custom. If there is sufficient evidence, the parties are presumed to be aware of it and to be bound by it. Ultimately, the existence of the custom is a matter of fact.
A particular lien applies at common law in respect of certain persons or classes of person who receive and do work on goods of a particular description. The lien accrues by subrogation for the benefit of a third party who pays the debt, on behalf of the principal debtor.
Particular liens have arisen where the party is obliged to receive the goods at common law. The burden of being obliged to provide the service to all comers is balanced or compensated by the lien. At common law, where there is no obligation to receive the goods from all comers, there is no lien for work and effort spent on their maintenance, as distinguished from their improvement or repair. It is not certain to what extent there is a lien for a mixed sum including elements of improvement and maintenance.
A particular lien holds good against the owner even where the goods are received from a third party unless the person who received them knew that the third-party was wrongfully in possession of them.
A common carrier was under a legal obligation to carry goods and was entitled to a lien at law for the cost of carriage. Historically, hotel proprietors, as innkeepers were obliged to receive all comers and provide accommodation for everyone who presented himself as a guest. He was obliged to keep their goods secure and has a lien on such goods until the cost of food and lodgings, as well as storage, are discharged.
Title of Lien Grantor
A person cannot give a better right than he himself holds. This principle does not apply where a negotiable instrument is obtained in good faith without notice of wrongdoing or where the person who wrongfully handed over goods is protected by the Factors Act.
Where the owner of goods has transferred possession for the purpose of transport or sale or has shipped the goods in the name of another, and the person to whom they are sent does not have notice that the latter is not owner, the consignee may have the same lien on goods in relation to advances made or used, to or for the use of that person, as if he was the owner, under the Factors Act.
Lien for Work Done
A particular lien applies to persons who expend labour and skill on the improvement and repair of goods given to them for that purpose. Skilful work must be done, in relation to goods, mere maintenance is insufficient.
The lien applies to the goods on which work has been done. Where the thing is comprised of different parts and is sent in different parcels, there may be a lien on the entire, until all the work under a single contract is done.
The lien does not arise unless the owner or a person with his authority requests or authorises the work to be done. A person may have implied authority on behalf of the owner. From the circumstances or trade custom, an employee of the owner may, for example, have authority to place the goods for repair or maintenance.
The lien arises on completion of the work. If the completion of the work is prevented by the owner, the lien arises for the works actually done. If the owner breaches his contract, the work may nonetheless be done and the lien claimed, notwithstanding that the obligation to do or complete the works could have been repudiated.
Seller’s Lien for Price
A seller of land has a legal lien on the land until the execution of the conveyance. He also has a lien on the title deeds. In equity, the seller’s lien for the unpaid purchase money subsists until actual payment, after the conveyance is executed and even where the purchase monies are acknowledged to be received in it. The seller’s equitable lien supplants the legal lien.
The legal lien binds the purchaser and persons claiming through him, other than for value. It binds their creditors and personal representative. The lien applies to monies advanced by the seller for improvements as well as interest on unpaid purchase monies.
Under an equitable lien, there is a proprietary interest, but it is vulnerable to being lost by the sale of the legal interest to a bona fide purchaser without notice. The seller’s equitable lien applies to personal property and choses in action, where the court would grant specific performance for a contract for sale.
The equitable lien does not apply to goods which are subject to a seller’s legal lien under the Sale of Goods Act. Where, however, the sale of goods is part of a single contract for the sale of other property to which an equitable lien applies, those goods are subject to the vendor’s equitable lien.
Lien for Deposit and Monies Paid
A purchaser has a lien for the deposit paid or other monies paid on account of the purchase price, where the contract is lawfully terminated/repudiated by him. It applies to the seller’s interest in the land agreed to be sold for sums paid under the contract on account of the purchase price together with interest on it. It extends to interest, the unpaid purchase money, the cost of action for specific performance and the cost of investigation of title including the cost of a vendor and purchaser summons proceedings.
The lien continues even though the right of specific performance may be lost by delay. It can be asserted in the seller’s bankruptcy as if it were a charge. The lien applies to both real and movable property.
Expenditure on Another’s Property I
A person who spends money for the benefit of another or on the property of another does not acquire a lien by reason of so doing alone. In the maritime context, the doctrine of salvage, which may have this effect, is well established. There may be some scope for its application in a wider context.
Where sums are paid voluntarily without request on behalf of another, then in the absence of other circumstances, this is insufficient for a lien.
A lien will arise where the money is spent for the benefit of another where there is an express or implied contract, if the person incurring the expenditure is entitled to an indemnity as trustee at common law, by a written indemnity, by subrogation or by reason of an encumbrancer’s right to add monies expended on the subject of the charge to the secured sum. In this case, the lien is limited. Regard is had to the nature of the property concerned and the urgency of the expenditure.
A lender is entitled by subrogation, to the lien which the seller would have had if the price had remained unpaid. The principle applies where a person has advanced monies at the request of trustees. It applies to advances to a prospective purchaser for the purpose of payment of the purchase price.
Expenditure on Another’s Property II
A lien may arise from the parties’ relationships. The concept is similar to that in respect of a resulting trust. Where monies are spent on installments of mortgage repayments by family members, a lien may arise on the proceeds of sale.
Where the owner of property allows another to spend money on it in the expectation that he will receive the benefit of it, that latter person may be entitled to a lien. If the other person spends money on property in the belief that the has or will have an interest in it, he may be allowed a lien.
The expenditure must be on substantial and lasting improvements. It is not allowed for matters of personal convenience, taste or repair. The owner must know that the stranger was acting in this belief.
Where mortgagees, creditors or trustees spend money on saving property from destruction for the benefit of those interested, they may be entitled to a salvager’s lien for the expenditure incurred
The director of a company may have a lien on property purchased by the company out of monies advanced by him.
The lien applies to an implied obligation to pay a reasonable sum, as where a restitutionary obligation to pay arises.
Liens have been held to apply in circumstances such as the following:
- an accountant upon books of account;
- an arbitrator on the award for his fees;
- the cost of repairs of vehicles;
- conveyancer for works done;
- dyers for goods dyed;
- engineers in relation to work on machinery;
- farriers for curing a horse;
- an architect on plans prepared;
- an auctioneer for goods sold; t
- the deposit on purchase monies for the price and charges of commission;
- a horse breakers and trainers for works done, training etc.;
- shipwrights for building and repair work;
- a tailor on clothes for the price
- certain printers for printing;
- garages for works on vehicles.
An equitable lien is an equitable right to a charge on the property of another. It arises from principles of equity. Where a person has obtained possession of goods under a contract for payment of their value, the equitable principle is that the person is not allowed to keep them without payment.
In contrast, an equitable charge is generally based on a contract. An equitable lien has the same status in terms of priority and effect. Each may be subject to the Statute of Limitation.
Equitable Liens arise in various contexts. There may be both a legal and equitable lien at the same time. An equitable lien may arise from the relationship between partners, purchaser, and seller or by a course of conduct which manifests an intention that an equitable lien shall be created.
Proceedings for the sale and distribution of the proceeds of the sale of a property subject to a lien or charge may be taken in the courts. A common-law lien gives a right to hold the goods or other thing only until the debt is paid. In the absence of statute, it cannot be enforced by sale.
This rule is mitigated by court’s power and discretion to order the sale of perishable goods. There is also the discretionary jurisdiction of courts to order detention or preservation of property in the possession of a party to proceedings. A judge may allow the income or property that is subject to proceedings to be applied as ordered
A person claiming a lien must state a definite amount or give the owner details from which the amount can be calculated. If the owner tenders the amount covering the lien, he is entitled to the return of the goods.
In an action for the detention of goods, if the title of the claimant is admitted but the defendant claims a lien for money owed, the judge may order the claimant to be at liberty to pay an amount into the court to abide the result of the proceedings in respect of which the lien is claimed and such further sums for interest and costs. Upon payment of such sum, the property is to be released to the claimant. If monies are paid under protest as to the validity of the lien and debt, then they may be recovered by action.
Enforcement by Sale
There is a statutory power to sell goods subject to a lien in several cases
- innkeepers (Hotel Proprieters Act);
- certain carriers under the Railway Clause Consolidation Act;
- shipowners under the Merchant Shipping Act section 494;
- sellers of goods under the Sale of Goods Act section 39,
A contractual right to sale may be provided.
An unpaid vendor’s lien and an equitable lien on real property may be enforced by sale. A judgment is required which must bind all parties affected by the lien. A receiver may be appointed pending sale or by injunction to restore possession of the property. The unpaid vendor may as an alternative, rescind the contract and recover possession of the property.
Termination of Lien
The payment or the tender of the sums due terminates the lien. A demand by the creditor for a larger sum than is covered by the lien does not waive it. A lien may be waived where it has been abandoned, where a claim is made on different grounds in respect of the same goods without mentioning the lien or where a lien is claimed for a particular debt as opposed to a general lien. A lien for a particular debt is not destroyed by a lien for a general balance.
A lien is lost if possession is lost, where it cannot be recalled. If the redelivery is caused by a fraud or wrongful means, the lien revives when it is recovered.
A lien is lost when goods become fixed to land and buildings.
The lien continues where the goods are delivered temporarily to another, including the owner under an agreement that it be returned and the lien should continue.
The lien of an unpaid seller is terminated by the transfer of the documents to the goods to a person who takes it in good faith for valuable consideration.
An equitable lien may be abandoned. Abandonment may be inferred from the circumstances. Taking of security may constitute abandonment of the lien unless a contrary intention is inferred. Where parties agree to postpone payment of purchase monies until resale or the vendor takes a bond or a mortgage for part of the property sold, there may not be an intention to abandon the lien.
An equitable lien is a charge within the Statute of Limitations and is subject to defeasance after 12 years.
References and Sources
- Overview of Liens
- Types of Lien I
- Types of Lien II
- Nature of Lien
- General Lien
- Particular Liens
- Title of Lien Grantor
- Lien for Work Done
- Seller’s Lien for Price
- Lien for Deposit and Monies Paid
- Expenditure on Another’s Property I
- Expenditure on Another’s Property II
- Secured Liability
- Equitable Lien
- Court Proceedings
- Enforcement by Sale
- Termination of Lien
- References and Sources