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LA300

  Property Law 1 - TOPICS

 

Topic Five

Property Rights:
Ownership and Possession

 

CONTENTS:

Ownership

Possession

Ownership and Land

Ownership, personal property and the Criminal Law

Ownership and Goods: Retention of Title Clauses

False owners: Apparent or Ostensible Ownership

Possession and Legal Standing

Criminal Possession

Finders

Possession by a Mortgagee

Adverse Possession

Bailment and Liens

Liens

Bailment

Note: Readings are being prepared for inclusion online.  Unfortunately most are not available at the moment.  In the meantime, you'll find the readings on reserve in the Library.

Ownership

The recognition of ownership implies the existence of a social order, however small or feebly organized.

Social order is a pre-condition of any society. Legal order represents an aspect of this order (Bhalla R “Legal Analysis of the Right of Property” (1981) 10 Anglo American Law Review 180)

WHAT are the characteristics of ownership?

Ownership rests largely on prohibitions exercised towards others in respect of the thing. An owner has the right to use the thing either generally or for a specific purpose, either for an indefinite period or for a limited time. The right of the owner imposes duties on others. In this sense it is a personal right produced by the regulation of inter-personal relations. If the legal system does not recognise the duties of others not to interfere with the rights of the owner then it cannot be said that a person has the right of ownership. For example, in the case of common land it might be argued that no one person has the right to exclude others from use.

Bhalla (See reference above) states that:

In ownership it is not only the use or possession of a thing that is involved; but it is exclusiveness of use or possession which is the crux of ownership ... Ownership is a right fostered and protected by law for the exclusive use, enjoyment, and disposal of a thing (p. 183)

?? QUESTION ??

Does this definition present difficulties in the legal systems of the USP region?

In some systems ownership may be perceived as being absolute, in others it is not. Even where it appears to be absolute, as in the Civil Law, ownership can be diminished by rights of others, such as land charges or servitudes (lesser real rights) or for policy reasons directed at the public good (such as planning restrictions or laws on nuisance).

In other legal systems, notably that of the Common Law, there are layers of ownership as a result of a number of interests being available in law and equity. This is particularly the case with land, but can also occur with other property. As a result, absolute ownership is unknown in the case of land, although it is common with personal property.

TASK

Check back and make your own notes if you can’t remember the answer to this one

 

Rights of ownership can be divided, either among different persons at the same time, or successively. They can also be suspended while other rights are exercised, for example the reversionary right of a landlord while his property is occupied by a tenant, or the title of an owner while his property is subject to a usufruct.

TASK

 

?? QUESTION ??

How can you recognize Ownership?

We need to be able to recognise those rules which construct rights and duties reflecting ownership.

  1. One way of doing this is to focus attention on the duties of others (non-owners) as regards the “thing” and the remedies afforded to owners when their rights are infringed.
  2. Another approach is to look at the various proprietary rights that exist and examine where they come from. An owner can grant lesser rights to others while retaining ownership. All other right holders are governed by the maxim nemo dat quod non habet – you cannot give what you have not got.

Ownership is therefore the foundation of other rights.

?? QUESTION ??

What is the significance of ownership?

First you need to realise that different consequences of ownership are found in different legal systems.

 For Example...

in one system a consequence of ownership might be freedom to alienate the thing. In another this might not exist. These differences are due to different social structures from which legal structures flow, and also the existence of different values to which the law is directed. This does not mean that ownership does not exist, only that its consequences may be different.

TASK

  1. Consider to what ends property law in the South Pacific is directed?
  2. Are these different from those which might be encountered elsewhere such as the UK or Australia?

 

We shall now look at ownership of certain things

Ownership and Land

Ownership of land vests in the person or persons – including legal persons – who hold title to the land. In common law this is the holder of the freehold – fee simple. Even if there is a lease created over the land, the lease will eventually come to an end because it is a term of years, and the title reverts to the holder of the freehold. This is known as a reversionary interest. Where the land is not held on trust, then the owner has full legal and equitable title or is sometimes referred to as the beneficial owner.

At common law ownership of land brings with it certain other rights. For example, the bed of non-tidal water belongs to the owner of the land adjacent to the water. If there is a river between two plots of land then, unless it is stated otherwise each land owner owns the river bed to the half-way mark. Ownership of non-tidal water confers rights called “riparian rights” on the owner such as the right of navigation of the water going over his land

 

 

 

 

...the right to fish; the right to take water from the land, whether from a river or well; the right to receive unpolluted water flowing from higher riparian land owners and to receive an uninterrupted flow of water.

A landowner may grant these rights to others, such as the right to fish, and may be restricted in the exercise of his or her rights by regulations or statutes or even custom. In exercising these rights the land owner has to consider others who may have similar rights.

 For Example...

Suppose there are a number of owners of land along a river flowing to the sea. A higher riparian owner i.e. one who has land going to the edge of the river, cannot cut off the flow of water to lower owners or those further down stream by building a dam across the river. Similarly misuse of land in some way may lead to an action in tort, such as the torts of nuisance and that established by Rylands v Fletcher which protect the rights of neighbours. Also, increasingly there is legislation directed at protection of the environment and the conservation of natural resources may restrict what a landowner can do on his land, as will planning controls and regulations.

An owner of land also has the right to support of his land underneath and laterally and not have it undermined so it collapses or disappears. . The owner of land does not own the wild animals or birds on his land because they are not capable of being owned but once they are killed they become the owner’s whether they were killed by the owner or not. The owner also has the right to kill them or catch them – unless they are protected.

Where land is bordered by the sea, in common law the owner of the land owns the land down to the average high-water mark. Land between the high and low water marks – the foreshore – belongs to the Crown.

READ: the article by Frank Kabui “Crown Ownership of foreshores and seabed in Solomon Islands” (1997) 21 Journal of Pacific Studies 123-144 (on reserve in the library; online copy in progress)

Under common law the public have a right to navigate and fish over the foreshore and the privilege of recreation.

Crown ownership of the foreshore is still found in some countries of the USP regions. This principle of common law is however, often in conflict with customary rights to reefs and foreshore.

READ:  the cases of: Allardyce Lumber Company v Laore Civil Case No 64, 1989 (on reserve in the library; online copy in progress)

and Combined Fera Group and Others v AG  both of which were Solomon Island cases

?? QUESTION ??

Can anything ever be stronger than the claim of an owner?

Yes, the owner of land may lose title to land or property, either by compulsory purchase or because he or she has failed to protect the interest in some way. For example, a true owner may lose his title to land through adverse possession if he fails to take steps to protect this interest after a period of time – in the U.K. this is twelve years and is established under statute – The Limitations Act 1980. The concept of adverse possession disentitling the original owner is also found in the USP region, see the case of Tufele Liamatua v Mose American Samoa 1988 Pacific Law Materials.

In this case it was held that actual occupation for thirty years did not amount to adverse possession because the defendant had permission to occupy the land. The issue of adverse possession conferring rights after a long passage of time is controversial and very relevant in the USP region. Why?

TASK

Make sure you understand the concept of “adverse possession”. Think of the relevance of either upholding or rejecting the concept of adverse possession in the jurisdiction you are most familiar with.

 

Ownership, personal property and the Criminal Law:
“The Colour of Right”

The idea that a person is asserting their rights to property in the honest, if mistaken belief, that they have a right to do so has given rise to a special defence in the case of theft or larceny of property. This is called a “claim of right” or “the colour of right”. It can be found in the old English law Larceny Acts, such as the Larceny Act of 1916.

Ownership or a belief in ownership confers rights against others to claim property when control or possession of it has been lost or transferred. If an accused can establish a claim of right he may be acquitted. This is an exception to the general rule that ignorance of the law is no excuse.

 For Example...

 In the case of Ilena Bernhard [1938] Court of Criminal Appeal 138. the accused had been charged with demanding money with menaces with the intent to steal under the 1916 Larceny Act. The victim was her ex-lover who had promised to pay her a monthly sum of money for twelve months. Defaulting after the fourth instalment he returned to England. She came in pursuit and threatened to expose him to his wife and the press if he did not keep his word. She claimed that she believed she was entitled to the sums promised. The Court of Criminal Appeal held that “a claim of right” did not have to be founded correctly in law but that:

a person has a claim of right within the meaning of the section if he is honestly asserting what he believes to be a lawful claim, even though it may be unfounded in law or in fact.

A case in which this claim failed was that of R v Turner (No 2) [1971] 2 All ER 441.

Here the accused had taken his car to be repaired and then removed it from the parking area outside the garage at night, using his spare key. He was charged under the 1968 Theft Act (UK). His defence was that he believed he had a right to take his own property, and that the garage was not in possession or control of the car. However the facts established that the car was being purchased under a hire-purchase agreement so the accused was not in fact or law the legal owner of the car. His defence failed and his conviction was upheld.

A regional case in which this defence was raised was that of The Police v Tipi Magasiva Malaitai Samoa – Pacific Law Materials 1994.

In this case the accused was charged with the theft of certain cattle from his employer. He claimed that these cattle were his, and that he had ownership in the beasts which had been taken in exchange for horses given by him to his employer. The court had to decide if the cattle were his or not. If they were then he could not have stolen them. Even if they were not, but he believed that they were, although he might be charges with stealing them he could raise the defence of claim of right. The court found that this common law defence formed part of the law of Western Samoa. Section 9 of the Crimes Ordinance 1960 preserves all rules and principles of the common law which render any circumstances justification or excuse for any offence unless they have been altered or are inconsistent with any enactment.

The court was satisfied that even if property in the beasts had not passed to the accused, his defence of claim of right succeeded.

TASK

Read this case.

 

Provision for the defence of right can be found in some of the Penal Codes of the USP region, for example in Tonga, Cap 18 s. 143Theft is the dishonest taking without any colour of right of anything which by section 144 is declared capable of being stolen.

See also Solomon Islands Penal Code Chp. 26, Fiji (CAP 17) Tuvalu CAP 18 and Kiribati CAP 67.

In other countries, for example Tokelau, there is no colour of right defence in the definition of theft – s. 188 & s.189 Crimes Regulations 1975

Ownership and Goods: Retention of Title Clauses

Where goods are transferred to another, for example, under a contract of sale or hire-purchase, it is possible for the transferor to retain title as owner until the purchase price is fully paid. These are referred to a “Romalpa” clauses in a contract from the case Aluminium IndustrieVaasen B.V. v Romalpa Aluminium Ltd [1976] 1 WLR 676.

 

 

 

 

 

 

 

The effect of such a clause is that if the purchaser/transferee sells the goods to a third party before payment is complete, he is deemed to be acting as agent and bailee for the original seller/supplier, and is therefore in a fiduciary relationship with the supplier and the principles of tracing apply. This means that if the original seller/supplier is not paid in full he can trace the goods into the hands of the third party and claim them. If the third party has lost or destroyed the goods then the original purchaser/transferee can be held liable to account for the loss – and also probably be held liable for breach of contract. The existence of the fiduciary claim will give the seller/supplier priority over other creditors. A retention of title clause will therefore, be particularly important in the case of the transferee’s bankruptcy.

TASK

Read the above paragraph again. Do you understand it? If not, read the case.

 

Because of the possibly radical impact of such clauses there have been some modifications through case law to the initial principle. These are:

. It should be noted that not all jurisdictions favour Romalpa clauses, for example Scotland and the United States.

TASK

What are your views on Romalpa clauses?

THINK of some commercial undertaking where they might be applicable.

 

False owners: Apparent or Ostensible Ownership

What happens if a person appears to be the owner of a thing and deals with it as if he is the owner when he is not by transferring title to a third party? Can the true owner oppose the claim of the third party who is innocent? If the protection of ownership is the paramount concern of the law then the true owner must be favoured.

What if the third party has acquired the thing by way of contract? Security of contractual dealings favours the third party. This would particularly be the case if the owner had allowed another to act as if they were owner – for example an agent.

TASK

Consider the case of McVicar v Herman [1958] 13 DLR 2d 419. In this case the owner permitted an employee to keep possession of the owner’s car long after the contract of employment ceased. The employee renewed the registration of the car in his own name and then traded the car in for a new one. The garage where he traded in the old car checked the registration and found no evidence to suggest that it was not the car of the employee. The true owner then sought to regain possession of his car. In this case the owner’s claim succeeded because the court held that he was not estopped by his conduct from asserting the true legal situation because he had simply permitted the employee to possess the car. Although he had put the employee in a position in which he could deceive others, the actual deceit had been the employee’s not the owner’s.

See also the case of Henderson & Co v Williams [1895] 1 QB 521. In this case a firm of timber merchants had given their employee authority to complete sales with established customers, and they had informed the warehouse where the timber was stored to honour any orders placed for timber by the employee. The employee set up an alias called Brown. The employee placed an order with the warehouse to transfer timber to the name of Brown. Brown sold the timber to the defendant company – Williams. Henderson & Co then sought to recover the timber. They succeeded. The court held that the plaintiff company had not said or done anything amounting to a representation that someone called Brown had authority to transfer timber. The defendant’s reliance on estoppel failed.

 

From these cases it would seem that possession and then misuse of the thing is not sufficient to deprive the true owner of the right to claim ownership. This is of course unfair to the third party purchaser. Consequently in a number of areas the harsh effect of the law has been modified.

 For Example...

 in the case of the sale of goods in an open market, or where there is fraudulent misrepresentation as to title there are remedies available to the third party; through use of the remedy of rescission and through developments in negligence. Legislation has also intervene, for example in the Sale of Goods Act 1979 (UK) and Factors Acts (UK) 1889.

?? QUESTION ??

How can the law protect innocent third parties from those who pretend to be owners when they are not?

Possession

In many cases possession may be more significant than ownership, because the person in possession may have greater control of the property than the actual owner.

As with ownership, possession can also have a number of consequences. In some cases these may be negative.

 For Example...

 the “possession” of prohibited substances or things in the criminal law, in others it may be positive.

Possession and Legal Standing

In many situations, the fact of possession may mean that the possessor has legal standing to bring an action to defend his claim.

 For Example...

 In the case of Allison Benjamin v Kosrae State - 1988 Micronesia – Pacific Law Materials (, the plaintiff’s possessory interest in land was sufficient to confer legal standing to bring an action for damages caused when a road was built across the land. Although the plaintiff could not establish title to the property as owner, the court found that he had – at the very least - a possessory interest. He had not given permission to the State to enter the property to build the road, or to destroy the trees in doing so. He had a viable interest in pursuing a claim for damages.

In the case of Jerry Tada v Siriako Usa – Civil Case No 207 1994, Solomon Islands a claim for trespass and conversion was dependent on the plaintiff establishing a right of ownership and possession, or failing this at least a right to come into possession as a consequence of ownership. However the court was not convinced that the plaintiff had acquired good title in custom to the land in question and therefore had no immediate and exclusive right to possession of the land. You may also like to read the Micronesia case of Oshiro K Billimon v Chuuk State Government Civil Action 106-90, 1991, Pacific Law Materials, in which the State was held to be a trespasser.

In the case of Fifita v Fie’eiki (No. 2) Civil Case 788/95 Tonga Law Reports 1995, p.187 the right to enter into possession, even though not in fact in possession, gave the plaintiff the right to claim compensation for the wrongful interference with possession of land and damages for certain profits, even though there was no actual damage caused by the trespass of the defendant.

Possession may also give rise to an action for trespass, which is: the direct interference with the possession of another’s land without lawful justification. (See Offei S Law of Torts in the South Pacific (1987) p. 216 and cases cited therein). Here, the basis of the action is possession and occupation, not ownership. The burden of proof is with the plaintiff to establish that he has possession, or the right to immediate and exclusive possession of those areas in which the claim of trespass is alleged to have been committed. In the case of Andrew Pwate v Joe Konihakka & Others 1996 Solomon Islands the plaintiff failed to discharge this burden of proof. Indeed ownership is not sufficient to found an action in trespass (7).

Possession may also give rise to a claim in detinue – See Doodeward v Spence (1908) 6 CLR 406; conversion, bailment; and wrongful interference with goods, or, trespass to chattels.

TASK

Make sure you understand these terms:

 

Sometimes possession will not confer any rights at all.

 For Example...

 In the case of Abner et al v Jibke et al Civil Case No. 82-02, 1984 Marshall Islands it was held that although the plaintiffs had made use of the land at times, they had not acquired any rights in the land. Under custom, possession or use of land does not; in itself convey any rights in the land.

This would be the same where a person is merely looking after something for another, or is a trespasser or a bare licensee of land – for example, has given no consideration. Sometimes however, possession over a long period of time may eventually confer rights to a thing or to land. This is the concept of adverse possession, or the idea of acquiring rights against those of the true owner over a period of time which will or may eventually defeat the true owner’s claim.

Criminal Possession

Possession of certain property or the means of acquiring possession may attract criminal liability.

 For Example...

 acquiring possession through fraud, deceit or theft. Where this occurs the possessor may not benefit from the criminal activity, and any property obtained in this way is liable to forfeiture. If however, the charged offender is not convicted, then there may be no provision for forfeiture. The question then arises whether the person in possession may retain possession or exercise possessory rights. In the case of Gordon v Chief Commissioner of Metropolitan Police [1910] 2 KB 1080, the plaintiff was acquitted of charges of running an illegal betting shop, Buckley LJ held that the plaintiff was entitled to succeed in his action to recover money found by him in the house of his employee – who had been convicted – because forfeiture did not apply to him.

Wrongful possession need not mean that the person challenging the possessor has a greater right.

 For Example...

 In the case of Kosrae State v Molid Tolenoa Criminal Case No. 76-89, 1989, Federated States of Micronesia the court held that for the crime of larceny :

Generally, the prosecution need not prove that the victim had an unassailable right to possession in the items stolen, only that the defendant had no greater right to possession of the stolen items.

Finders

Finders Keepers by Patrick O'Keefe

In some cases the person in possession will have to compete with other claimants. One example is the situation where a person “finds” property which is not his own.

Finders cases include: Armory v Delamirie (1722) 1 Stra. 505; Elwes v Brigg Gas Company (1886) 33 Ch. D. 562 – in which a prehistoric boat had been found buried in land; South Staffordshire Water Company v Sharman [1896] 2 QB 44 – in which gold rings were found in the mud of a pond which was being dredged; Corporation of London and Others v Appleyard and Another [1963] 2 All ER 834 – where bank notes were found in a box in a safe in a wall which was being demolished by builders, who were the finders; Parker v British Airways [1982] 2 QB 1004; Tamworth Industries Ltd. v Attorney General (1991) 3 NZLR 616 and Waverley Borough Council v Fletcher [1995] 3 WLR 722.

TASK

Read at least TWO of these cases.

 

In Armory a claim in trover was brought against a goldsmith who removed the jewels from a setting which had been found and brought to the goldsmith by a chimney sweep. The court found in favour of the chimney sweep on the grounds that he had a stronger right, as finder, to the chattel than the goldsmith. Had the true owner come forward then his title would have been stronger. In this case the dispute was not between the owner of the land or premises on which the thing was found. In many cases, however, it is.

The general principle is that the owner of the land owns everything attached to the soil which is deemed to be part of the land. The owner of the land will therefore, enjoy a better title to found property than the finder.

 For Example...

 See the comments of Donaldson LJ in Parker v British Airways “an occupier of land has rights superior to those of a finder over chattels in or attached to that land” (at 1017). However in Parker the Court went on to distinguish between objects found “in” the land i.e. attached to the land and those found “on” the land. In Parker the bracelet had been found on the floor of the executive lounge of British Airways. British Airways were the occupiers of the premises but were unable to assert better title to the bracelet than the finder because they had not exercised sufficient control over the lounge. This case can be contrasted with that of South Staffs Water Co v Sharman where the plaintiffs demanding the handing over of the rings found were the fee simple owners of the land and had de facto control over the pool in which the rings were found. This seems to establish the principle that the landowner does not automatically enjoy possession of property found on the surface merely by virtue of ownership of that surface. The ownership must be manifested by some control or an intention to control the building and the things which may be in or on it. This seems to be the basis of the court’s decision in the case of Bridges v Hawkesworth (1851) 21 LJQB 75, in which a bundle of notes were found on the floor of a shop and the finder was held to have a better title to them than the shopkeeper who never had them in his custody or control despite the find being in his premises.

In the case of Waverley BC v Fletcher [1995] 3 WLR 722, Mr. Fletcher had unearthed a brooch with his metal detector while using his detector in a public park owned by the Council. Clearly he was the finder, but the brooch had been “in” – rather than “on” – the land of the Council. At first instance the court did not approve of this distinction. The Court of Appeal however did make such a conceptual distinction. As a result it held that the owner or lawful possessor of the land – in this case the Council – had a better title to the brooch which had been found in or attached to the land, than the finder did.

The distinction between “in” and “on” the land has also been made in the New Zealand case of Tamworth Industries Ltd. v Attorney General of New Zealand. In this case the found property was cash in a cardboard box which had been hidden beneath the floorboards of a disused building. The police had found this and a large quantity of cannabis. Proceedings for criminal charges were brought against the director – Mr. Dodds -of the company (Tamworth Industries Ltd) which had leased the property for some years. The criminal conviction was set aside on appeal and the director acquitted. The true owner of the money was never found. Some years later Tamworth Industries commenced proceedings claiming the money on the basis of its rights as occupier of the building in which the money had been found. The court held that although the police had the right to take the money and cannabis as a potential exhibit at the time of finding it, they had no greater right than a finder who had taken property into his care and control. The occupier of the building had a superior right to property found in or on that building provided the occupier had manifested an intention to exercise control over the building – and the things in it – prior to the finding. The court was satisfied that Tamworth Industries Ltd. was the occupier of the building because it had continued to pay rent after the expiry of the formal lease, farmed the land at the time of the police raid and had access to the land and buildings. However, as occupier there was no evidence that Tamworth Industries Ltd. had manifested an intention to exercise control over the lost property, a criteria adopted with approval from Donaldson L.J. in Parker.

TASK

Make sure you have read and understood at least two of these cases and can distinguish the legal principles

 

With objects on, as opposed to attached to the land, the occupier must have both de facto and de jure possession to claim against the finder. However, where the finder is trespassing, or damaging the property in some way then whatever the circumstances surrounding the location of the “find” the finder will not have a good title. In all cases the finder’s title will be defeated by the claim of the true owner.

In the South Pacific region finds may be made of ancient artefacts – such as pottery – or from shipwrecks. Note however, that finding is distinguishable from salvage, provision for which will often come under statute, for example Kiribati - 1966 Wreck & Salvage Act;  Tuvalu – Wrecks and Salvage Ordinance 1973 and Tonga Shipping Act 1986 s. 160-162.

It is also important to note that in some jurisdictions there is a statutory obligation to hand in “finds”. For example s.151(1) of Tonga Act:

Every person who takes possession of anything which appears to be of some value and to have been lost by another person shall within 24 hours after taking possession of it deliver it to the owner if he be known and where the owner is unknown the thing so found shall be delivered to the district officer or town officer of the town in which the finder is residing or to the police. Any person failing to obey the provisions of this subsection shall be liable to imprisonment for any period not exceeding 3 months.

And s.122 (3)(a) (iii) Vanuatu Penal Code Cap 135 in which the definition of theft states:

The word “takes” includes obtaining control – (iii) by finding, whether or not at the time of finding the finder believes that the owner can be discovered by taking reasonable steps

Note that certain things are covered by the law relating to treasure trove rather than finders. Under common law treasure trove was money or coin, gold, silver, plate or bullion that has been hidden, as opposed to just lost or mislaid. Where such things are found, there is a presumption that they have been hidden – see AG v Trustee of the British Museum [1903] 2 Ch 598.

Recent legislation, the Treasure Act (UK) 1996 changes the common law position and expands the range of things which may be deemed to be treasure. This now includes any objects over 300 years old, including coins and other things with a minimum gold or silver content of 10%, or objects that the Secretary of State designates as treasure of 200 or more years old, which has outstanding historical, archaeological or cultural importance. Under the statute such things need not be hidden.

?? QUESTION ??

Do the principles of common law raise any problems regarding the rights of finders versus landowners/occupiers in the Pacific Region?

Adverse Possession

Adverse possession is primarily concerned with acquiring rights to land and therefore falls to be considered in more detail in Property 2.

Adverse possession occurs where a person is in possession but is not the owner of the land. In this case the person in possession will be in occupation, having de facto control of the land. Such an occupant may start as a trespasser or “squatter”. However, over a period of time it is possible that greater security and greater rights are acquired. The significance of this form or possession will be considered in more detail when we consider how property interests may be acquired.

Possession by a Mortgagee

A mortgage is a transaction under which land or chattels are given as security for the payment of a debt or other obligations. The borrower is called the mortgagor, the lender the mortgagee. A mortgage of land used to be an outright conveyance with the right to redeem the land once the debt was paid. For this reason a mortgage is regarded for some purposes as having the same effect as a sale as far as the property rights are concerned. Today, in most legal systems of the region, the mortgagor retains ownership of the property but the mortgagee (lender) acquires a legal or equitable interest in it – depending on whether the mortgage is legal or equitable.

 

An important part of the mortgagee’s security is that he had the right to come into possession of the property if the mortgagor defaults on the loan. This right is balanced by the mortgagor’s right to redeem the property free from any claim provided the loan is paid.

The mortgagee’s right of possession arises at the moment the mortgage is agreed. However it may only be exercised in good faith for the purpose of enforcing the security – Quennell v Maltby [1979] 1 WLR 318. Usually such a right can only be exercised as a result of a court order. The mortgagee is only likely to seek possession in order to sell the property, and will only do this if the mortgagor has defaulted. The court may in any case refuse to grant the mortgagee the right to come into possession if it seems possible that an arrangement for payment can be made, or there are other entitled to possession – such as a spouse – or it would be unjust to order possession – see the provisions of the Administration of Justice Act (UK) 1970 s36 and s8(1) of the Administration of Justice Act 1973.

TASK

Check you understand the terms: mortgage, mortgagor, mortgagee, the right to redeem, default, and conveyance.

 

Bailment and Liens

The question of possession is particularly relevant in the case of movable property or chattels, where possession may arise in the form of a lien, pledge or bailment.

Liens

A lien is a right which one person has over the property of another, either to retain that property or to have a charge over it until the claim against the true owner is met.

Liens arise in a number of ways. Liens arise in a number of ways. Liens arise in a number of ways.Liens arise in a number of ways.

At common law a lien was a possessory lien whereby the person who had possession of another person’s property could keep it until a claim was met. Usually the claim was for payment of a debt. If the lienor – the person holding the lien and having possession of the property – also had the right to sell the property then he had an active lien. One without a right to sell was a passive lien. A possessory lien does not automatically confer a right to sell. Indeed to do so without the authority of the court or express provision in an agreement or statute, could amount to the tort of conversion. To exercise such a lien at common law it was necessary that:

Common law recognised both general liens which were over any property to meet general debts, or particular liens.

 Examples...

An example of the former would be the lien of solicitors, bankers, brokers and warehousemen. Examples of the latter would be carriers for goods transported, inn or hotel keepers over the goods of guests, shoe repairers over shoes mended, or a ship owner’s lien for freight etc.

If the lien costs the lienor money to keep it- for example a horse in training, or a dog in a kennel, he cannot charge the extra costs to the lienee. At the same time the lienor must take reasonable care of the property, and may not assign the lien. If the goods are removed from the lienee’s possession by a third party then the lienee may follow them.

Equity also recognised liens. These were different from common law liens in as much as possession was not required. For example, the unpaid vendor of land may exercise an equitable lien and have the land sold to a third party in order to be paid. There are also some special liens for which possession is not required, for example the lien of a partner over partnership assets, or the lien over a ship for damage caused by it

For an equitable lien to be enforced there will have to be recourse to the court for an order of sale. As such an equitable lien might be barred by the doctrine of laches or by limitations. A common law lien confers no right to sell only to possess. It is not therefore a form of action and cannot become time-barred.

It is not unusual for liens to arise under contract, whereby it is agreed that in certain circumstances certain property is to be treated as security for the performance of the obligation.

TASK

Re-read the above and make sure you understand it.

 

A lien is a security for meeting a debt. It is not however a mortgage. Historically a mortgage of land involved the conveyance of the property from the borrower (the mortgagor) to the lender (the mortgagee) with a proviso for re-transfer on repayment of the debt. Similarly with a mortgage over chattels. In the case of mortgage the mortgagor remains in possession.

A number of statutes now create statutory liens, for example the right of the unpaid seller of goods to resell goods in his possession or an airport to detain aircraft for unpaid aviation charges – see for example the Civil Aviation Act (UK) 1982. A lien is a right in rem.

 For Example...

 in the following case money had been lent to finance the purchase of a ship used for diving, the plaintiffs were essentially seeking the court’s help to seize the mortgaged property. The case of Federal Business Development Bank v SS Thorfinn Federated States of Micronesia, Civil Action 1989-1016. Appeal Case No. 72, 1989  raised the question of whether a ship’s mortgage was a maritime lien or not. It used to be the case in common law, that these were not regarded as such, but more recently common law and international law, in particular the International Convention for Unification of Certain Rules Relating to Maritime Liens and Mortgages (1926) had changed the common law position. At first instance, the court in this case, declined to follow these changes and adhered to the rule established in the American case of Bogart v The John Jay 58 US (17 How) 399 (1854) that a ship’s mortgage was not a maritime lien. On appeal this was rejected and it was held that ship’s mortgage could be a maritime lien falling within the admiralty jurisdiction of the court.

In Fiji, there is a special lien called a “Crop Lien”. This is governed by the Crop Liens Act Cap. 226 Under this the lienee has a lien over crops produced by the lienor or on his behalf. The lienee does not obtain any interest in the land on which the crops are grown. A crop lien is not an incorporeal hereditament – such as an easement – or a profit a prendre. However the lien is not extinguished when the land is sold but continues as long as the crops are standing and the loan is unpaid. Crop liens have to be registered, and arise as security for debts or the payment of goods supplied – The Sale of Goods Act (Fiji) Div. 10 & 12 makes statutory provisions relating to liens. A crop lien is a right in rem, in so far as it is binding on a purchaser of the land provided it is properly registered. The lien can only exist over the crops planted by the lienor, so subsequent crops planted by a new owner are not bound by the lien. Such liens are usually for a limited period of time, determined by the nature of the crop.

A similar form of lien is found in Samoa.

Note that a lien may be created over documentary intangibles such as documents of title, share certificates, bank deposits, insurance policies etc, as well as over more tangible property such as cars.

One problem that can arise with liens is where the lienee is not the owner of the property.

 For Example...

In the case of Tappenden v Artus [1964] 2 QB 185, a car was taken for repairs by the prospective purchaser. The repairer did not enquire into the ownership of the car when it was brought to him for repairs. When the owner tracked down the car, the repairs had been done. The repairer claimed a lien over the car until the bill was paid. The owner refused to pay the bill. The court upheld the repairer’s lien on the ground that the repairer’s possession was lawful at the time when the lien arose. The lienee had an implied authority to give possession of the car to the garage to repair it so as to keep it in a roadworthy condition.

Bailment

There are a number of different ways in which bailment can be used. Chattels may be bailed gratuitously for the use of the bailee – a loan. Chattels may be bailed for reward or consideration, for example goods for hire. Chattels may be bailed for safe keeping, either gratuitously or for reward. Chattels may be bailed as security for money advanced by the bailee to the bailor. This type of bailment is very much like pledge or pawn. Chattels may be bailed for a purpose, for example for delivery, or under a contract, for example for repair, or cleaning.

Bailment is a relationship based on possession, whereby the bailor transfers possession of a chattel to the bailee. Bailment may be governed by the law of contract if the relationship of bailment arises from contract or by the law of torts if there is no contract. The property in the chattels bailed remains with the bailor, he has the legal possession. The bailee only has a right to possession and no title to the chattels. The bailee is therefore entrusted to look after the chattels. A typical contract involving bailment is where an owner of goods bails them to the person who hires them under a lease agreement. However bailment can arise where there is no privity of contract.

 For Example...

Bailment will exist where goods are passed from the bailor to the bailee who passes them on to a third party with the consent of the bailor. Here there is a relationship of bailment between the bailor and the third party. The person in possession of the goods must take care of them and compensate the bailor for their loss or damage. This is so even if the bailment is gratuitous. However, in a claim for negligence, under bailment the onus of proof rests on the defendant not the plaintiff. This is the opposite to the usual burden of proof in negligence. If the bailee can establish that the care taken of the goods was reasonable in the circumstances even if they were damaged, this is sufficient. If there is a contract between the parties then the standard of care may be determined by that contract.

Possession is an essential characteristic of bailment, but transfer can be constructive, as when a third person acknowledges that they hold goods on behalf of another.

The bailee must return the goods to the bailor either on demand or at the end of a specified period. If he refuses to do so then he will be liable either in contract or tort. The bailee may raise a defence if the goods have been stolen, lost, destroyed or damaged without any fault on his part. If a third party has wrongfully deprived the bailee of the goods, the bailee, by virtue of his right to possession may bring a claim based on interference with possession, or the right to possession under bailment. At the same time a bailor who has an immediate right to possession may sue in trespass or bring an action for detinue or conversion against the third party.

For the duties of the bailee see the Tonga case of Mataele v Havili (1993) Civil Appeal Case no. 258/94 Tonga Law Reports p. 73 in which it was clearly stated that where the appellant took possession of the respondent’s fine mat and agreed to sell it, there was a duty to preserve the mat. Loss of the mat made the bailee liable to the respondent.

TASK

Check you understand the rights and obligations relating to the property which is the subject matter of:

 

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