To create a valid lien, it is essential…

To create a valid lien, it is essential…

1.1. INTRODUCTION

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].

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;

 

  1. 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;

 

  1. 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.For additional reading, read the material found on: https://www.deepdyve.com/lp/de-gruyter/a-step-forward-in-the-harmonization-of-european-jurisdiction-Jo5YDwWL1r?articleList=%2Fsearch%3Fquery%3Dbrussels%2BI

 

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:

 

  1. i) The debtor’s liability to pay in conveyance crystallises at completion

 

  1. 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] See Black’s Law Dictionary (8th edition,2004)

[2] See http://en.wikipedia.org/wiki/Lien

[3] See Whytes v. Lee 61 E.R pg 954

[4] In his book, Nigerian Law of Secured Credit, Ecowatch Publishers Ltd, 2001 at pg 37

[5] See The Osborn’s Law Dictionary (9th edition) 2001

[6] See Kettlewell v. Wilson (1884) 26 Ch. D pg 501 @ pg 507

[7] This view was later adopted in the case of Re Birmingham(1959)Ch. 523.

[8] See Barclays Bank Plc v. Estates and Commercial Ltd (1997) 1 WLR pg 415 @ 419.

 

[9] See Snell’s Equity, 30th ed. (2000) Sweet & Maxwell p.529 para 28

[10] See Keeton and Sheridan, Equity, 3rd ed. (1987) Kremer Law Publishers.

[11] Later adopted in Ecclesiastical Commissioners v. Pinney (1899) 2 Ch. P 729 @ 735 and Davies v. Little John (1923) 34 CLR pg 174 @181.

 

[12] See Vendors and Purchasers of Estates 14th ed. 1862 Chap 19 pp. 670-671

[13] See “Conveyancing Liens” (1997) 61 Conv. (Sweet & Maxwell) p. 336 at p. 340

[14] Ibid

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