The Bills of Sale Acts 1878 and 1882 have never been popular. They were criticised in 1888 by a member of the House of Lords who said: “the more I have occasion to study the Act, the more convinced I am that it is beset with difficulties which can only be removed by legislation”. Some 128 years later, the Law Commission has finally given hope that this should now happen.
What is a Bill of Sale?
A bill of sale is essentially a mortgage created by an individual or an unincorporated entity over personal chattels (assets owned by individuals). The legislation requires bills of sale to take a particular form and to be registered at the High Court in London within seven days, with registration renewed every five years. They are expensive to put in place and, from the borrower’s point of view, they offer significantly less protection than for regulated hire purchase.
Until recently, bills of sale seemed to be a dying species, used very occasionally when taking security from individuals such as partners in traditional partnerships. This changed dramatically with the growth of the log book loan industry. A recent report by the Law Commission indicates that out of a total of 52,580 bills of sale registered in 2014, 52,223 were registered against vehicles. This has clearly created the impetus for change.
The report recommends that the Bills of Sale Acts should be repealed and replaced with a new Goods Mortgages Act. This will distinguish between goods mortgages (which will apply to goods generally) and vehicle mortgages (which speak for themselves). The proposed contents of goods mortgages are very simple and include just six required items: date, details of the parties, the amount secured, a statement that ownership of the goods is being transferred to the lender, details of the witness and a description of the goods.
It is proposed that there should be separate registration regimes for vehicle mortgages and goods mortgages. Priority of vehicle mortgages will be determined by the date and time that the log book lender sends the details of the mortgage for registration. For goods mortgages, the current High Court register will be retained initially but it is planned that electronic registration will be introduced in future.
Protection of Third Parties
The register is very difficult to search, partly because bills of sale are registered against the individual not against the asset. As a result, the current regime operates very harshly against buyers of vehicles who subsequently discover that the vehicle is subject to a bill of sale. The Commission proposes that a private purchaser who buys in good faith and without actual notice of a goods mortgage should obtain good title to the goods.
The recommendations in the report are well thought out and, in most areas, take into account the views of the majority of the organisations which responded to the Commission’s consultation paper. Legislation will be needed to make these changes and we will report in a future post when it becomes available.
The full version of this article can be found in November’s edition of Leasing Life.
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