Lloyd's Maritime and Commercial Law Quarterly
Mortgages of goods and title disputes
Michael Bridge*
At common law, a mortgage of goods, commonly called a security bill of sale, takes the form of a defeasible sale of the goods to the mortgagee, the sale to be rendered void when a condition subsequent, the redemption of the mortgage on repayment, takes place. It is contended here that a mortgagor, retaining possession of the goods, may therefore be regarded as a seller in possession of the goods so as to pass a title overriding the mortgagee’s interest to a third-party purchaser acting in good faith and without notice of the prior mortgage, by virtue of the Sale of Goods Act 1979, s.24 and/or the Factors Act 1889, s.8.
I. INTRODUCTION
This article is concerned with competing rights to mortgaged goods, where a mortgagor in possession, notwithstanding the security interest of the mortgagee, sells, pledges or otherwise disposes of those goods to a third party acting in good faith. The argument advanced in this article is that a mortgage is a type of sale and the mortgagor, as a seller in possession with the semblance of full ownership, has the power to transfer a good title to a third-party purchaser acting in good faith and without notice of the mortgage. A statutory provision to protect such third-party purchasers was included in the Goods Mortgages Bill proposed by the Law Commission in 2017,1 but the government later withdrew its support for amending bills of sale legislation, citing concerns raised in the consultation, the small and reducing market, and the wider work on high-cost credit.2 Notwithstanding this assessment of a declining market, there has been in recent years a sharp upward trend in the grant of mortgages secured on mortgagors’ existing motor vehicles, a practice that has come to be known as logbook lending. This practice demonstrates a clear need to protect
* KC (Hon), FBA, Cassel Professor of Commercial Law Emeritus, London School of Economics; Professor of Law, National University of Singapore; Senior Research Fellow, Harris Manchester College, University of Oxford. Subject to the usual disclaimers, I wish to thank Professor Hugh Beale KC (Hon), FBA for his comments on a draft of this article.
The following abbreviations are used:
1878 Act: Bills of Sale Act 1878;
1882 Act: Bills of Sale Act (1878) Amendment Act 1882;
Goods Mortgages Bill: LC 376 (2017), Appx 2;LC 369 (2016): Law Commission, Bills of Sale (Law Com No 369, 2016);LC 376 (2017): Law Commission, From Bills of Sale to Goods Mortgages (Law Com No 376, 2017).
1. From Bills of Sale to Goods Mortgages (Law Com No 376, 2017) (hereafter “LC 376 (2017)”).
2. On 14 May 2018.
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