Lien

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A lien ( /ˈln/ or /ˈlən/ ) [Note 1] 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. The owner of the property, who grants the lien, is referred to as the lienee [3] and the person who has the benefit of the lien is referred to as the lienor [4] or lien holder.

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The etymological root is Anglo-French lien, loyen "bond", "restraint", from Latin ligamen, from ligare "to bind".

In the United States, the term lien generally refers to a wide range of encumbrances and would include other forms of mortgage or charge. In the US, a lien characteristically refers to nonpossessory security interests (see generally: Security interest—categories).

In other common-law countries, the term lien refers to a very specific type of security interest, being a passive right to retain (but not sell) property until the debt or other obligation is discharged. In contrast to the usage of the term in the US, in other countries it refers to a purely possessory form of security interest; indeed, when possession of the property is lost, the lien is released. [5] However, common-law countries also recognize a slightly anomalous form of security interest called an "equitable lien" which arises in certain rare instances.

Despite their differences in terminology and application, there are a number of similarities between liens in the US and elsewhere in the common-law world.

United States

Liens can be consensual or non-consensual (also termed voluntary or involuntary in different states). Consensual liens are imposed by a contract between the creditor and the debtor:

Nonconsensual liens typically arise by statute or by the operation of the common law. Those laws give a creditor the right to impose a lien on an item of real property or a chattel by the existence of the relationship of creditor and debtor. Those liens include

Liens are also "perfected" or "unperfected" (see perfection). Perfected liens are 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.

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.

Equitable lien (U.S.)

In the United States, references to an "equitable lien" is a right, enforceable only in equity, to have a demand satisfied out of a particular fund or specific property without having possession of the fund or property. An equitable lien is actually a legal remedy, rather than a security interest created in contemplation of or in support of a transaction. In U.S. law, such liens characteristically arise in four circumstances: [6]

  1. when an occupant of land, believing in good faith to be the owner of the land, makes improvements, repairs or other expenditure that permanently increases the land's value;
  2. when one of two or more joint owners makes expenditures of the kind described above;
  3. when a tenant for life completes permanent and beneficial improvements to the estate begun earlier by the testator; and
  4. when land or other property is transferred subject to the payment of debts, legacies, portions or annuities to third persons.

Mover's lien

Movers are typically entitled to a mover's lien under UCC § 7-307/308, to withhold a customer's goods to secure payment. This is a possessory lien, and is the non-consensual type of lien (because it exists automatically under a statute instead of being affirmatively agreed upon). However, the concept of a mover's lien is often abused in a moving scam known as a hostage load, whereby the moving company will fraudulently extort money not owed by the customer by refusing to deliver the goods unless the customer pays money inflated beyond the contractual estimate. Because the customer has an interest in obtaining their own goods, they are under duress to pay the ransom. Hostage loads in at least the interstate context are illegal under 49 U.S.C. 13905. The FMCSA regulates the moving industry and sometimes takes enforcement action by fining and/or delicensure of offending moving companies. Moving companies that deliberately engage in hostage-loading may also be considered to be engaging in racketeering in violation of the Racketeer Influenced and Corrupt Organizations Act.

Disputes between legitimate lienholding of chattels vs. hostage-loading can sometimes be averted by the customer including an advanced (before-the-fact) consensual waiver of the mover's right to a lien in the written contract, obligating the moving company to deliver the goods with reasonable dispatch regardless of disputes over payment, and failure to do so would constitute conversion or trespass to chattels. [7] [8] [9]

Other common-law countries

Outside of the US, a common-law lien may be defined in general terms as a passive right to retain a chattel (and, in certain cases, documentary intangibles and papers) conferred by law. Modern law has generally left the legal lien to cases where it has been historically established without any real effort being made to make it applicable to modern conditions. In Tappenden v Artus [1964] 2 QB 185 Diplock LJ referred to a lien as a "self help" remedy, like "other primitive remedies such as abatement of nuisance, self-defence or ejection of trespassers to land". Equitable liens are an unusual species of property right, usually considered sui generis .

Common-law lien

Common-law liens are divided into special liens and general liens. A special lien, the more common kind, requires a close connection between the property and the service rendered. A special lien can only be exercised in respect of fees relating to the instant transaction; the lienor cannot use the property held as security for past debts as well. A general lien affects all of the property of the lienee in the possession of the lienor, and stands as security for all of the debts of the lienee to the lienor. A special lien can be extended to a general lien by contract, and this is commonly done in the case of carriers. [10] A common-law lien only gives a passive right to retain; there is no power of sale which arises at common law, [11] although some statutes have also conferred an additional power of sale, [12] and it is possible to confer a separate power of sale by contract.

The common-law liens are closely aligned to the so-called "common callings", but are not co-extensive with them.

A common-law lien is a very limited type of security interest. Apart from the fact that it only amounts to a passive right to retain, a lien cannot be transferred; [13] it cannot be asserted by a third party to whom possession of the goods is given to perform the same services that the original party should have performed; [14] and if the chattel is surrendered to the lienor, the lien entitlement is lost forever [15] (except for where the parties agree that the lien shall survive a temporary re-possession by the lienor). A lienee who sells the chattel unlawfully may be liable in conversion as well as surrendering the lien. [16]

Equitable lien

In common-law countries, equitable liens give rise to unique and difficult issues. An equitable lien is a nonpossessory 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.

It is a matter of conjecture how far equitable liens extend outside of the unpaid vendor's lien. Equitable liens have been held to exist in a number of cases involving choses in action, but not yet in relation to chattels. [17] The Australian courts have been the most receptive towards equitable liens in relation to personal property (see Hewett v Court (1983) 57 ALJR 211, but a review of the cases still leaves a lack of clarity in relation to the principles upon which an equitable lien will be imposed.

But overall, there is still perceived to be a lack of central nexus. [18]

Statutory liens and contractual liens

Although arguably not liens as such, two other forms of encumbrance are sometimes referred to as liens.

Statutory liens

Certain statutes provide for a passive right to retain property against its owner as security for obligations. For example, section 88 of the Civil Aviation Act 1982 of the United Kingdom permits an airport to detain aircraft for unpaid airport charges and aviation fuel. Although this right has been treated as a lien under UK insolvency law, [19] it has been argued that such statutory rights are not in fact liens, but rights analogous to liens, [20] although an argument may be made that this is a distinction without a difference.

Contractual liens

It has also been argued that an agreement by contract that one party may retain the goods of another party until paid is not a lien, [20] as under the common law, liens could only be non-consensual. However, it appears that under insolvency law, such rights will be treated as liens even if they are not expressed to be liens. [19]

Maritime liens

A maritime lien is a lien on a vessel, given to secure the claim of a creditor who provided maritime services to the vessel or who suffered an injury from the vessel's use. Maritime liens are sometimes referred to as tacit hypothecation. Maritime liens have little in common with other liens under the laws of most jurisdictions.

The maritime lien has been described as "one of the most striking peculiarities of Admiralty law". [21] A maritime lien constitutes a security interest upon ships of a nature otherwise unknown to the common law or equity. It arises purely by operation of law and exists as a claim upon the property concerned, both secret and invisible, often given priority by statute over other forms of registered security interest. [22] Although characteristics vary under the laws of different countries, it can be described as:

  1. a privileged claim,
  2. upon maritime property,
  3. for service to it or damage done by it,
  4. accruing from the moment that the claim attaches,
  5. travelling with the property unconditionally,
  6. enforced by an action in rem . [21]

Nomenclature

Throughout the world, there are a large number of different types and sub-divisions of liens. Not all of the following liens exist in all legal systems that recognise the concept of a lien. The following are descriptions that are not necessarily mutually exclusive. Types of lien include

See also

Notes

  1. The pronunciation /ˈln/ is more common in both UK and US English. [1] [2]

Related Research Articles

A mortgage is a security interest in real property held by a lender as a security for a debt, usually a loan of money. A mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

Hypothecation is the practice where a debtor pledges collateral to secure a debt or as a condition precedent to the debt, or a third party pledges collateral for the debtor. A letter of hypothecation is the usual instrument for carrying out the pledge.

A bill of sale is a document that transfers ownership of goods from one person to another. It is used in situations where the former owner transfers possession of the goods to a new owner. Bills of sale may be used in a wide variety of transactions: people can sell their goods, exchange them, give them as gifts or mortgage them to get a loan. They can only be used:

In the United States, bankruptcy is governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

Hypothec, sometimes tacit hypothec, is a term used in mixed legal systems to refer to an express or implied non-possessory real security over corporeal movable property. At common law it is equivalent to an American non-possessory lien or English legal charge.

Repossession, colloquially repo, is a "self-help" type of action - mainly in the U.S. - in which the party having right of ownership of the property in question takes the property back from the party having right of possession without invoking court proceedings. The property may then be sold by either the financial institution or third party sellers.

A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulatory and shifting nature. Examples of such property are receivables and stocks. The floating charge The floating charge 'floats' or 'hovers' until the point at which it is converted into a fixed charge. Once it becomes a "fixed charge" the charge attaches to the specific assets of the business. This conversion of the floating charge into a fixed charge can trigger common law jurisdictions]] it is an implied term in security documents creating floating charges that a cessation of the company's right to deal with the assets in the ordinary course of business leads to automatic crystallisation. Additionally, security documents will usually include express terms that a default by the person granting the security will trigger crystallisation.

Security interest legal right granted by a debtor to a creditor over the debtors property

A security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment or otherwise performing the secured obligations. One of the most common examples of a security interest is a mortgage: When a person, by the action of an expressed conveyance, pledges by a promise to pay a certain sum of money, with certain conditions, on a said date or dates for a said period, that action on the page with wet ink applied on the part of the one wishing the exchange creates the original funds and negotiable Instrument. That action of pledging conveys a promise binding upon the mortgagee which creates a face value upon the Instrument of the amount of currency being asked for in exchange. It is therein in good faith offered to the Bank in exchange for local currency from the Bank to buy a house. The particular country's Bank Acts usually requires the Banks to deliver such fund bearing negotiable instruments to the Countries Main Bank such as is the case in Canada. This creates a security interest in the land the house sits on for the Bank and they file a caveat at land titles on the house as evidence of that security interest. If the mortgagor fails to pay thereby defaulting in their pledge to repay the exchange, the bank then applies to the court to foreclose on the property to ultimately sell it for profit.

A security agreement, in the law of the United States, is a contract that governs the relationship between the parties to a kind of financial transaction known as a secured transaction. In a secured transaction, the Grantor assigns, grants and pledges to the grantee a security interest in personal property which is referred to as the collateral. Examples of typical collateral are shares of stock, livestock, and vehicles. A security agreement is not used to transfer any interest in real property, only personal property. The document used by lenders to obtain a lien on real property is a mortgage or deed of trust.

Chose is a term used in common law tradition to refer to rights in property, specifically a combined bundle of rights. A chose describes the enforcement right which a party possesses in an object. The use of chose extends from the English use of French within the courts. In English and commonwealth law, all personal things fall into one of two categories, either choses in action or choses in possession. English law uses a chose to refer to a bundle of rights, traditionally relating to property which may be utilised in certain circumstances. Thus, a chose in action refers to a bundle of personal rights which can only be enforced or claimed by a chose-holder bringing an action through the court to enforce the action. In English law, this category is enormously wide. This is contrasted with a chose in possession which represents rights which can be enforced or acquired by taking physical possession of the chose. This may be, for example a legal mortgage. Both choses in possession and choses in action create separate proprietary interests. What differs between each is the method in which each chose may be enforced. This is dependent on the possessory nature of the reference object.

In law, perfection relates to the additional steps required to be taken in relation to a security interest in order to make it effective against third parties or to retain its effectiveness in the event of default by the grantor of the security interest. Generally speaking, once a security interest is effectively created, it gives certain rights to the holder of the security and imposes duties on the party who grants that security. However, in many legal systems, additional steps --- perfection of the security interest --- are required to enforce the security against third parties such as a liquidator.

A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral, and if the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally loaned to the borrower. An example is the foreclosure of a home. From the creditor's perspective, that is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

Generally, a secured transaction is a loan or a credit transaction in which the lender acquires a security interest in collateral owned by the borrower and is entitled to foreclose on or repossess the collateral in the event of the borrower's default. The terms of the relationship are governed by a contract, or security agreement. A common example would be a consumer who purchases a car on credit. If the consumer fails to make the payments on time, the lender will take the car and resell it, applying the proceeds of the sale toward the loan. Mortgages and deeds of trust are another example. In the United States, secured transactions in personal property are governed by Article 9 of the Uniform Commercial Code (U.C.C.).

Creditors' rights are the procedural provisions designed to protect the ability of creditors—persons who are owed money—to collect the money that they are owed. These provisions vary from one jurisdiction to another, and may include the ability of a creditor to put a lien on a debtor's property, to effect a seizure and forced sale of the debtor's property, to effect a garnishment of the debtor's wages, and to have certain purchases or gifts made by the debtor set aside as fraudulent conveyances. The rights of a particular creditor usually depend in part on the reason for which the debt is owed, and the terms of any writing memorializing the debt.

In admiralty law, a maritime lien is a privileged claim upon sea-connected property, such as a ship, for services rendered to, or the injuries caused by that property. In common law, a lien is the right of the creditor to retain the properties of his debtor until the debt is paid.

A pledge is a bailment that conveys possessory title to property owned by a debtor to a creditor to secure repayment for some debt or obligation and to the mutual benefit of both parties. The term is also used to denote the property which constitutes the security. The pledge is a type of security interest.

Subordination in banking and finance refers to the order of priorities in claims for ownership or interest in various assets.

United Kingdom insolvency law

United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986 ), the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.

Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:

Bank of America, N. A. v. Caulkett, 575 U.S. ___, 135 S. Ct. 1995 (2015), is a bankruptcy law case decided by the Supreme Court of the United States on June 1, 2015. In Caulkett, the Court held that 11 U.S.C. § 506(d) does not permit a Chapter 7 debtor to void a junior mortgage on the debtor's property when the amount of the debt secured by the senior mortgage on that property exceeds the property's current market value.

References

  1. "lien - definition of lien in English - Oxford Dictionaries".
  2. Company, Houghton Mifflin Harcourt Publishing. "The American Heritage Dictionary entry: lien".
  3. "Lienee...One whose property is subject to a lien". Black's Law Dictionary, p. 832 (5th ed. 1979).
  4. "Lienor... The person having or owning a lien; one who has a right of lien upon property of another". Black's Law Dictionary, p. 832 (5th ed. 1979).
  5. Hatton v Car Maintenance' [1915] 1 Ch 621
  6. Black's Law Dictionary (8th ed.)
  7. "Holding Freight Hostage: The Legal Wild West Of The Transportation Industry - Transport - United States".
  8. "Regulations".
  9. Staff, LII (20 November 2012). "PART 3. BILLS OF LADING: SPECIAL PROVISIONS".
  10. George Baker Ltd v Eynon [1974] 1 WLR 462
  11. Thames Iron Works v Patent Derrick (1860) 1 J&H 93
  12. In the United Kingdom, see for example, Innkeepers Act 1878
  13. Legg v Evans (1840) 6 M&W 36
  14. Pennington v Reliance Motors Ltd [1923] 1 KB 127
  15. Hatton v Car Maintenance [1915] 1 Ch 621
  16. Mulliner v Florence (1878) 3 QBD 484
  17. Transport and General Credit v Morgan [1939] 2 All ER 17
  18. See Phillips J, "Equitable Liens—A search for a unifying principle" in Palmer & McKendrick, Interests in Goods (2nd ed.)
  19. 1 2 Bristol Airport v Powdrill [1990] Ch 744
  20. 1 2 Michael Bridge, Personal Property Law (2nd ed.)
  21. 1 2 Griffith Price, The Law of Maritime Liens (1940)
  22. Bankers Trust v Todd Shipyards, The Halcyon Isle [1981] AC 221
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  24. Bryan A. Garner (2011). Garner's Dictionary of Legal Usage. Oxford University Press. pp. 155–. ISBN   978-0-19-538420-8.
  25. Brister, Austin. "MINERAL LIENS: COLLECTING UNPAID DEBT FOR OILFIELD SERVICE COMPANIES". OilandGasLawDigest.com. Retrieved 30 January 2014.
  26. M Simkovic (2009). "Secret Liens and the Financial Crisis of 2008". Social Science Research Network (SSRN). SSRN   1323190 .Missing or empty |url= (help)
  27. Bryan A. Garner (25 April 1999). Black's Law Dictionary, 7th Ed. West Group. pp. 936–. ISBN   978-0-314-22864-2.