Possessory Security

General

It is possible to mortgage or charge movable goods. However, the Bill of Sales Acts impose severe practical restrictions on the grant of security by an individual over goods.  A written mortgage or charge of goods must be registered within strict time limits. The requirement for registration is designed to protect against the risk that a person with apparent possession and ownership of goods, may give a false impression of his wealth and solvency.

The Bill of Sales legislation has a profound effect on the manner in which security is created over goods. There are considerable challenges in complying with the relevant legislation in the case of charges over goods by individuals. The particulars of the charge must be registered in detail, within 7 days in the High Court Offices. In practice, this is usually unduly onerous.

Several forms of security have developed under exceptions to the Bill of Sales legislation. The legislation does not apply if the possessor of the goods has never owned them. Therefore, it does not apply to the hiring or leasing of goods, nor to the retention of title to goods by the seller of goods on sale. It does not apply to security where the creditor retains possession of the goods such as pledges, pawns and certain liens. It does not apply to security created by operation of law or created without a written document.


Pledges and Liens

A pledge arises where there is a delivery of goods to a creditor for the purpose of securing a debt due to him by their owner.  A lien is a right to retain goods to secure payment.  Both a pledge and lien involve a bailment.  The pledgee and lienee are bailees and have the obligations of a bailee.

A pledgee has the right to hold the goods and, ultimately to sell them in order to realise the sum due. The pledgor may assign the benefit of his rights.  He may sub pledge the goods if permitted.

In contrast, a lien holder has a right to retain the goods, which cannot be disposed of or dealt with.  It is not an asset as such.  There is no implied right at law to sell the goods.  However, there may be a contractual right or a right by statute for the lien holder to sell.


Possessory Security

Possession by the creditor or on behalf of the creditor is fundamental to a pledge and a lien.  Possession may be actual, symbolic or constructive. A security where the creditor has possession of the secured goods is not subject to the Bill of Sales legislation because the debtor does not retain possession of the goods.

A pledge involves delivery of possession. This may be physical possession, or it may be symbolic (e.g. delivery of a key) in certain cases. If a third-party holder such as a warehouse keeper acknowledges that the goods are held for the pledgee, this will suffice. If the debtor retains any controls, this must be subject to the creditor’s superior right.

There can be no pledge or lien if the creditor does not have possession.  If he has a right to seize the goods in default, this is a security interest and must be registered under the Bill of Sales act. The creditor must obtain and hold the goods lawfully.  The creditor must not take the goods without the debtor’s consent.  If they are taken by force from the debtor or a third-party, no pledge or lien is created.


Pledges I

A pledge arises where goods are delivered by the debtor to the creditor for retention as security for the discharge of a debt. Possession and control of the goods must be taken by the security holder. Possession need not mean literal physical custody.  It may be taken by a warehouse keeper or an equivalent custodian of the goods, giving a receipt or trust to the effect that he holds the goods for the security holder

The debt may be a new loan or an existing loan.  The pledgee is a bailee and has the liabilities as such.   A pledgee can dispose of his rights either by assigning them or sub-pledging the goods.

The pledgee has a right to retain the goods by way of security.  The pledge is in addition to the debt. As with other security, the debt may be recovered unless the terms of the contract otherwise provide. The pledgee has an implied right to sell the goods in default.  This is in contrast to a lien holder. A lienholder cannot deal with his interest.

Pledges by individuals are commonly referred to as pawns and are subject to the Pawnbrokers Act.  Pawnbrokers must be licensed.  Licensing requirement applies only to pawnees who takes pawns not exceeding IR£50.


Pledges II

A pledge involves the delivery of possession. This may be physical possession, or it may be symbolic (e.g. delivery of a key) in certain cases. If a third-party holder such as a warehouse keeper acknowledges that the goods are held for the pledgee, this will suffice. If the debtor retains any controls, this must be subject to the creditor’s superior right.

There can be no pledge if the creditor does not have possession.  If he has a right to seize the goods in default, this is a security interest which must be registered under the Bill of Sales act.

The creditor must obtain and hold the goods lawfully.  The creditor must not take the goods without the debtor’s consent.  If they are taken by force from the debtor or a third-party, no pledge or lien is created.


Possession and Pledge

Possession is of the essence of a pledge. The possession may be actual or symbolic. Possession may arise by the delivery of the goods concerned or delivery of control of them, such as by way of a key, to the creditor.  Where goods are stored by a third party such as in a warehouse, that third party may “attorn” and recognise the pledgee as having possession.

There are not generally title documents to goods.  Where there are documents of title to the goods, the pledge may arise by transfer of the title documents.  The bill of lading is the most prominent example of where the documents themselves constitute title to goods.  A pledge of a bill of lading gives control of the documents, which indirectly controls the goods.

Possession must be obtained lawfully.  If the goods are seized or obtained by fraud or other challengeable transaction, there is no lawful pledge.

A pledge is not necessarily destroyed by the transfer of possession.  A sub pledge is permissible.  It must not secure a greater amount than the main principle pledge. If the goods are returned to the debtor, the pledge will end.  In limited circumstances, the debtor may retain physical custody or control, provided that the pledgee’s superior possession is maintained.


Enforcement of Pledge

At common law, a pledgee is enforceable if payment is not forthcoming by the agreed date.  If no date is specified, payment must be made within a reasonable time.

The holder of a pledge (a pledgee) has an implied power of sale, This goods may be sold by the pledgee, even though the title remains with the pledgor (also  pledgeor). The right to sell may only be exercised after the pledgee’s failure to satisfy the secured debt.

No particular method of sale is required. the pledgor may sell without court assistance but the seller must exercise due care to account to the pledgor for surplus monies, stock etc. Pawned goods must be sold by public auction.  In the case of small pawns, the ownership of goods may pass automatically by statute.

The sale must be at arm’s length and must not be at undervalue. The pledgee may appropriate the proceeds of the sale to the debt. He must account to the owner for any surplus. If the sale fails to realise the amount of the debt, the pledgor may sue to recover the balance of the underlying debt.


Various Common Law and Statutory Liens

A common carrier is a person who transports goods and is obliged to accept them from all parties.  A common carrier has a lien for the cost of transportation under the contract, or under restitutionary principles. It is relatively unusual to find a common carrier in modern times.

The master of a ship has a lien on cargo for the cost of carriage and on a passenger’s luggage for their fare.  This is separate from the common carrier’s lien.

A person who works on goods has a common law lien for work done on them. The improvement may be physical, such as where goods are worked on or improved. There may be a service, such as the training of a horse. The improvement may be the removal of a defect.  However, maintenance work alone does not give rise to a lien.  The lien arises once the monetary obligation arises.

The Hotel Proprietors Act restates the common lien of innkeepers. It provides for a lien over luggage, cars and other means of conveyance.  The lien covers food and lodgings, but not other monies owed by the guest.

The seller of goods has a lien for the unpaid price under the Sale of Goods Act.  The title may pass on the making of a contract for the sale of goods. If possession is lost, the lien is lost.   Even if possession is recovered, the lien will not automatically revive.


Features of Lien

A contract may vary the terms of the default lien provided by the common law (or by statute in the case of a hotelkeeper).  A lien may be negated where credit is given. Where payment is not immediately due, this will generally imply that there is no lien.

Most liens that arise at common law or by custom are “particular” liens and apply to sums due for the particular work or service concerned.  A general lien applies to all sums due as and between the parties. It may be provided for by a contract.

Breach of the agreement under which the lien operates may terminate it.  In contrast, a pledge terminates only on the basis of a very serious breach.


Types of Lien

Pledges are created by contract, while liens usually arise automatically. A lien is a right to retain goods as security for payment for services.  It may apply by custom in certain businesses or under the terms of conditions of business applicable by the terms of the contract. The terms of the contract under which work is undertaken on goods may provide for a lien, pending payment. This type of contractual lien resembles a pledge.

An unpaid seller of land has a lien for the purchase price, regardless of whether he retains possession. He must retain the title if he wishes to retain security after parting with possession. While he retains possession, he has a right to a possessory lien under the Sale of Goods Act. This is a right to retain possession, notwithstanding that title may by default pass to the buyer on making the sale contract.


Liens for Work Done I

Generally, where a person incurs expenditure on another person’s property, he does not have a lien.  Unlike the case in the United States there is no “mechanic’s lien” for work done on buildings or property by building contractors. Such a lien may exist in very limited circumstances.  Where a trustee incurs expenditure in maintaining trust assets, he is entitled to an indemnity a lien over the asset in respect of such expenditure.

Certain businesses, formerly called “common callings” who were obliged to accept all members of the public as customers, such as carriers and innkeepers, had a lien over goods received by them in the course of business. At common law, a common carrier, but not a private carrier has a lien.

A shipper has a lien for freight. An innkeeper has a lien over guests’ belongings.  This is now regulated by the Hotel Proprietors Act.  The lien covers goods, luggage and also means of conveyance such as a car.


Liens for Work Done II

A person who improves goods has a lien on them for the work done.  The improvement may involve an addition or work done on the goods. Certain professionals have liens on documents they work on, such, for example as architectural drawings and lawyers’ legal documents.

The lien normally attaches when the work is complete, and payment is due.  If the instructions for work are countermanded, the professional may claim for the reasonable value of work done and claim a lien in respect of it.

A person who salvages or saves goods at sea is entitled to a maritime lien. The rescuer of goods from a building has no equivalent lien nor has the finder of goods who takes them for safekeeping.


Terms of Liens

A contract may provide for the terms of the lien. A contractual lien may arise as with any other contract, by a course of dealing or by custom in the trade. Although a lien may be presumed to operate by law, the terms of the relevant contract may prevent it and displace this presumption.

There will generally be no lien if credit is given. Payment by cheque is conditional so that the lien may come into force if the instrument is not honoured.

A particular lien entitles the lien holder to retain the goods in respect of which services have been provided.  A general lien allows the person to retain all goods held for payment of for all services provided.  Most liens which are recognised by law are particular liens.

General liens usually arise under the terms of a contract.  However, certain businesses, as a matter of custom and practice, may in certain circumstances be able to assert general liens, such as solicitors, bankers and stockbrokers.  The courts tend to favour particular liens over general liens.


Enforcement of Lien

In the case of a lien arising by operation of law, the only remedies are by way of court-ordered sale or court appointment of a receiver.  In the case of a mortgage by deed, the mortgagee has the power of sale or power to appoint a receiver. However, in the case of a mortgage by deed, the Bill of Sales Act places considerable constraints on the terms and conditions.

Once the goods are redelivered, the pledge or lien generally terminates.  If the goods are returned or transferred, with the intention that they be held as bailee, the pledgee may be entitled to retain its rights.  For example, the pledged goods may be sent for repair.  Lien goods may be sent to repair.  Pledged goods may be assigned or sub-pledged.  The degree of possession required for a pledge is not as much as in the case of a lien.

The owner of goods has an equitable right of redemption similar to that of the mortgagee to reclaim their goods. The lien is lost by extinguished by repayment of the underlying debt.  A breach of the terms of the lien or pledge may terminate the right and re-vest the goods in the debtor.


References and Sources

Irish Texts
Modern law of personal property in England and Ireland 1989  Bell
Consumer Law Rights & Regulation 014       Donnelly & White
Commercial Law White           2012 2nd ed
Commercial & Economic Law in Ireland        2011 White
Commercial Law 2015 Forde 3rd ed
Irish Commercial Precedents (Looseleaf)
Commercial & Consumer Law: Annotated Statutes 2000  O’Reilly
UK Texts
Personal Property Law: Text and Materials  2000  Sarah Worthington
Personal Property Law (Clarendon Law Series) 2015 Michael Bridge
The Law of Personal Property 2017   Professor Michael Bridge and Prof. Louise Gullifer
The Principles of Personal Property Law 2017  Duncan Sheehan
Crossley Vaines on Personal Property 1967 by J C Vaines
The Law of Bills of Sale 2017 James Weir
Palmer on Bailment 2009  Norman Palmer
The Reform of UK Personal Property Security Law: Comparative Perspectives  2012 John de Lacy
The Law of Personal Property Security 2007  Hugh Beale and Michael Bridge