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Equitable Liens in Commercial Transactions

Published online by Cambridge University Press:  16 January 2009

Sarah Worthington
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Extract

The law describing vendor's and purchaser's liens over personal property can only be described as baffling: there are cases to “prove” and “disprove” almost any proposition. This uncertainty is surprising. A contract of sale is one of the most basic forms of commercial activity, and an equitable lien would convert a vendor or purchaser into a secured creditor by operation of law. The advantages of such a position are self-evident, yet it remains unacceptably difficult to say when such advantages accrue. Fundamental equitable principles seem to support a simple analysis of vendor's and purchaser's liens which might eliminate some of the current uncertainties. This article describes that analysis. It concludes that one party to a sale contract has a lien over identified sale property whenever, and as soon as, all the contractual obligations assumed by that party have been carried out.

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Shorter Articles
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The Cambridge Law Journal , Volume 53 , Issue 2 , July 1994, pp. 263 - 272
Copyright
Copyright © Cambridge Law Journal and Contributors 1994

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References

1 Liens may even arise earlier, after partial performance of the contractual obligations, at least in some cases: see note 18 below.

2 Halsbury's Laws of England, 4th ed., vol. 28, paras. 551, 556Google Scholar.

3 Ibid. It follows that equitable liens may be imposed in a much wider variety of circumstances than considered here: Ibid. at paras. 551–574; Sykes, E.I. and Walker, S., The Law of Securities (5th ed., Sydney 1993), p. 199Google Scholar.

4 Whitbread & Co. Ltd v. Watt [1902] 1 Ch. 835, 840 per Stirling L.J.

5 Halsbury's Laws of England, 4th ed., vol. 28, paras. 542, 551, 576Google Scholar.

6 Ibid. at para. 551.

7 Lysaght v. Edwards (1876) 2 Ch.D. 499, 506–509 per Jessel M.R.

8 See the discussion in Meagher, R.P., Gummow, W.M.C. and Lehane, J.R.F., Equity Doctrines and Remedies (3rd ed., Sydney 1992), para. 609Google Scholar.

9 And to concede that the purchaser's ownership interest is a special limited one only inadequately meets this criticism.

10 The timing is controversial: see Hanbury, H.G. and Maudsley, R.H., Modern Equity (13th ed. by Martin, J.E., London 1989), pp. 304–305Google Scholar.

11 And it is only then that the vendor is considered to be a true trustee. In more complicated contracts of sale, the same analysis is appropriate. For example, the contract may be conditional on some defined event. The purchaser will not obtain an equitable ownership interest (the analysis for liens is different) until the vendor “ought” to transfer the property. This may be only after the independent condition is satisfied (e.g. McWilliam v. McWilliams Wines Pty. Ltd. (1964) 114 C.L.R. 656; Brown v. Heffer (1967) 116 C.L.R. 344), or it may be before, it satisfaction of the condition is an obligation imposed solely on the vendor (e.g. Re Androma Pty. Ltd. [1987] 2 Qd.R. 134).

12 Although the inchoate interests which exist earlier may be protected by injunction or the appointment of a receiver.

13 See Hewett v. Court (1983) 57 A.L.J.R. 211, especially 221–222 per Deane J.

14 Levy v. Stogdon [1898] 1 Ch. 478; Barker v. Cox [1876] 4 Ch.D. 464; Middleton v. Magnay (1864) 2 H. & M. 233; 71 E.R. 452; Whitbread & Co. Ltd. v. Watt [1902] 1 Ch. 835; Hewett v. Court (1983) 57 A.L.J.R. 211.

15 Cf. dicta in Re Bond Worth Ltd. [1980] 1 Ch. 228, 251; London & Cheshire Insurance Co. Ltd. v. Laplagrene Property Co. Ltd. [1971] 1 Ch. 499, 514; Capital Finance Co. Ltd v. Stokes [1969] 1 Ch. 261, 278; Re Beirnstein [1925] 1 Ch. 12, 17; Re Stucley; Stucley v. Kekewich [1906] 1 Ch. 67, 79–80, cf. p. 84Google Scholar.

16 To remain consistent with existing cases, any alternative analysis must view liens as restricted to cases where equity would ordinarily order specific performance but declines to do so because of particular circumstances. This would produce three categories of case: those where damages are inadequate and specific performance is ordered; those where damages are inadequate but specific performance will not be ordered, although a lien will exist; and those where damages are adequate. Equity then has a “remedial” role: the judgment in each case is whether common law remedies are adequate to meet the justice of the case. This will depend upon the particular facts of each case and may vary over time as circumstances change. The uncertainty which would then surround proprietary interests is unwarranted. Equity's principal role is not remedial in this sense. Its principal role is better described as the advancement of the “good man” theory of the law, a theory based firmly on the equitable maxim that what ought to be done is treated as done: see Millett, P., “Bribes and Secret Commissions” [1993] R.L.R. 7, 19–20Google Scholar.

17 This is regardless of any conditions applying to the contract, other than those denying the obligation, because the vendor remains so obliged even if, in the end, the contract is not carried out.

18 See Swainston v. Clay (1863) 3 De G.J. & S. 558; 46 E.R. 752; Hewett v. Court (1983) 57 A.L.J.R. 211. Also see note 16 above.

19 And perhaps any part of the purchase price which has been paid: Hoare v. Dresser (1859) 7 H.L.C. 291, 324–326, 327Google Scholar; 11 E.R. 116, 130, 131 per Lords Wensleydale and Kingsdown respectively.

20 Re Albert Life Assurance Co. (1870) L.R. 11 Eq. 164; Dixon v. Gayfere (1857) 1 De G. & J. 655; 44 E.R. 878.

21 Capital Finance Co. Ltd. v. Stokes [1969] 1 Ch. 261; Burston Finance Ltd. v. Speirway Ltd. (in liq.) [1974] 1 W.L.R. 1648; Orakpo v. Manson Investments Ltd. [1978] A.C. 95; Halsbury's Laws of England, 4th ed., vol. 28, para. 578Google Scholar. Although, since intention is crucial, taking alternative security does not automatically exclude a lien: Mackreth v. Symmons (1808) 15 Ves.Jun. 329, 342; 33 E.R. 778, 783 per Eldon L.C.

22 This is a much greater problem for the purchaser than for the vendor. Only one facet of this issue is dealt with here: see section IIIA.

23 Lawson, F.H. and Rudden, B., The Law of Property (2nd ed., Oxford 1982), p. 199Google Scholar, without citing any authority. Also see dicta in Coburn v. Collins (1887) 35 Ch.D. 373, 381; British Association of Glass Bottle Manufacturers Lim v. Forster & Sons Lim. (1917) 86 L.J.Ch. 489, 498.

24 E.g. Ashburner's Principles of Equity (2nd ed. by Browne, D., London 1933), p. 250Google Scholar.

25 E.g. Sykes, and Walker, , note 3 above, pp. 750–751Google Scholar.

26 Benjamin's Sale of Goods (4th ed., by Guest, A.G., London 1992)Google Scholar, paras. 1–008, 1–009.

27 Courts in Australia and New Zealand have held that, in a similar context, “the common law” includes the rules of equity: Graham v. Freer (1980) 35 S.A.S.R. 424; Thomas Borthwick & Sons (Australasia) Ltd. v. South Otago Freezing Co. Ltd. [1978] 1 N.Z.L.R. 538; Timmerman v. Nervina Industries (International) Pty. Ltd. [1983] Qd.R. 1 (dicta) (cf. earlier cases to the contrary: Watt v. Weslhoven [1933] V.L.R. 458; Riddiford v. Warren (1901) 20 N.Z.L.R. 572).

28 Transport ' General Credit Co. Ltd. v. Morgan [1939] 1 Ch. 531, 546; Re Wait [1927] 1 Ch. 606; 636, 639 per Atkin L.J.; J.F. Keeler, “Some Reflections on Holroyd v. Marshall—II” (1970) 3 Adelaide Law Review 468, 475.

29 [1927] 1 Ch. 606, especially 629–630, 635–636, 639; cf. 655 per Sargant L.J.

30 See Halsbury's Laws of England, 4th ed., vol. 28, paras. 556, 564Google Scholar; Goode, R.M., Commercial Law (London 1985), p. 174Google Scholar; Bell, A.P., Modern Law of Personal Property in England and Ireland (London and Edinburgh 1989), pp. 180–182Google Scholar; Sneils Equity (29th ed., London 1990), p. 464Google Scholar.

31 Pollock, F., “Re Wait—Note” (1927) 43 L.Q.R. 293Google Scholar; Dean, A., “Equitable Assignments of Chattels” (1932) 5 Australian Law Journal 289Google Scholar; Spry, I.C.F., The Principles of Equitable Remedies (4th ed., London 1990), pp. 54, 58–73Google Scholar; Meagher, Gummow, and Lehane, , note 8 above, pp. 192, 196–197Google Scholar; Sykes, and Walker, , note 3 above, pp. 750–751Google Scholar.

32 [1927] 1 Ch. 606.

33 [1939] 1 Ch. 531,546.

34 Sykes, and Walker, , note 3 above, pp. 750–751; King v. Greig [1931] V.L.R. 413, 431 per Cussen A.C.J.Google Scholar

35 Hardingham, I.J., “Equitable Liens for the Recovery of Purchase Money” (1985) 15 Melbourne University Law Review, 65, 69Google Scholar; Re Wait [1927] 1 Ch. 606, 656 per Sargant L.J.; cf. 640 per Atkin L.J.

36 Electrical Enterprises Retail Ply. Ltd. v. Rodgers (1988) 15 N.S.W.L.R. 473, 493 per Kearney J., suggesting that the issue is ripe for review.

37 [1927] 1 Ch. 606.

38 Sky Petroleum Ltd v. VIP Petroleum Ltd. [1974] 1 W.L.R. 576 (where the injunction effectively amounted to specific enforcement).

39 Sale of Goods Act 1979, s. 18.

40 Section 39.

41 But the description of the bulk and the agreement to sell part of it must constitute terms of the contract: see Re Wait [1927] 1 Ch. 606, 641–642 per Sargant L.J.; cf. 621 per Atkin L.J.

42 Law Commission and Scottish Law Commission (Law Com. No. 215/Scot.Law Com. No. 145) Sale of Goods Forming Part of a Bulk (1993).

43 Ibid. at pp. 11–12.

44 Atkin, L.J. reached this same conclusion in Re Wait [1927]Google Scholar 1 Ch. 606, 637, stating that there would be neither an equitable assignment nor a charge or lien on the bulk “to secure the delivery of the part”. Contrast this with a lien securing return of the price.

45 Cf. Re Wait [1927] 1 Ch. 606, 635–636 per Atkin L.J.

46 See the preceding discussion. The Law Commission report (note 42 above), by its silence, denies equity a role.

47 See Hardingham, , note 35 above, p. 69; Pooley v. Budd(1851)Google Scholar 14 Beav. 34; 51 E.R. 200.

48 Cf. contracts for the sale of unidentified property.

49 Re Wait [1927] 1 Ch. 606, 656 per Sargant L.J.; cf. 640 per Atkin L.J.; Hardingham, note 35 above; cf Keeler, note 28 above.

50 Note 42.

51 Where, in any event, a purchaser's lien would be otiose.