Lloyd's Maritime and Commercial Law Quarterly
THE PURCHASE MONEY SECURITY INTEREST: A COMPANY CHARGE CONUNDRUM?
John de Lacy *
This paper considers a form of security interest that has only recently been fully assimilated into English law, that of the purchase money security interest.1 This form of security arises where a chargee provides the finance for the acquisition of property upon the condition that he has a first charge on the property when it is acquired by the company.2
Despite much confusion3 as to the exact nature of this form of security the House of Lords has recently pronounced its efficacy in the case of Abbey National Building Soc. v. Cann,4 Here, there was a priority conflict between the respondent building society, which had provided finance for the purchase of a dwelling house to be secured by a first legal charge, and the appellant Cann,5 who claimed priority on the basis of an equitable interest in the property by virtue of a constructive or resulting trust.6 Cann had argued that her equitable interest in the property took priority over the building society’s legal charge because, in order for the building society’s charge to arise, the purchaser must first have acquired the legal title to the property which was then charged in their favour. However, in between acquiring
* Lecturer in Law, University of Manchester. I am grateful to Professor Roy Goode, Q.C., and Professor Dan Prentice for useful discussion of this work, responsibility for the views expressed remains my own.
1. The term is adapted from Art. 9–107 of the American Uniform Commercial Code (UCC): “A security interest is a Purchase Money Security Interest to the extent that it is:
(a) taken or retained by the seller of the collateral to secure all or part of its price; or
(b) taken by a person who by making advances or incurring an obligation gives value to enable the debtor or acquire rights in or use of collateral if such value is in fact so used.”
For a further treatment of the UCC, see Gilmore Security Interests in Personal Property (1965), Vol. 2, Chap. 29.
2. The UCC would also equate the retention of title type contract within this definition but, as yet, English law does not recognize this type of device as a form of real security; see, e.g., Armour v. Thyssen Edelstahlwerke A.G. [1990] 3 W.L.R. 810, analysed at (1991) 6 J.I.B.L. 201; Clough Mill v. Martin [1985] 1 W.L.R. 111. However, should the goods, which are subject to a retention of title contract, be subsold, then any interest the supplier may have in the proceeds will operate as a purchase money security and be registrable under the Companies Act 1985, discussed infra; Tatung v. Galex Telesure (1989) 5 B.C.C. 325, 337A-C, per Phillips, J., followed by Hoffmann, J., in Re Weldtech [1991] B.C.C. 16, analysed at (1991) 54 M.L.R. 736.
3. Mustill, L.J., has described this area as “perplexing”; Lloyds Bank Plc v. Rosset [1989] Ch. 350, 393C (the decision of the Court of Appeal in this case was overruled on a different point by the House of Lords at [1991] A.C. 107), whereas Phillips, J., recently described the subject as being “difficult”; Tatung Ltd. v. Galex Telesure, supra, fn. 2, at p. 337B. Lord Oliver of Aylmerton was to describe it as a “puzzling problem”: Abbey National Building Soc. v. Cann [1991] A.C. 56, 89G.
4. Ibid.
5. The appellant was in fact the mother of the purchaser, who had the house conveyed to him in his own name. The purchaser never lived in the house, but had informed the building society that the house was for his sole occupation, it being found that the building society had no notice of the appellant’s claim; see p. 89D, per Lord Oliver.
6. This was based on her son’s promise to provide her with accommodation for the rest of her life.
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