Exchange of goods or services in regard of any debt owed by the second party, such right to lien is provided to the person.
A right of lien allows an individual to keep goods and securities belonging to another in his possession until certain legal debts owed to the person retaining the things are satisfied. It does not support a power of sale, but merely the right to keep the property. It merely supports the right to keep the property; it does not support a power of sale. This is distinct from other types of fees because it is not based on an inferred or explicit agreement. But it results from the interactions between the parties and all about the general lien.
Conditions for Exercising Lien
To use this right, three must meet requirements are there-
- The creditor who exercises this privilege must own the items for which it is to be used
- The owner of the goods must owe the person in possession a legitimate debt
- The contract should not contain any clauses.
Types of liens:
There are three different kinds of liens: possession liens, equitable liens, and judgement liens, Maritime Lien.
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Possessory Lien
Only the person in control of the goods may exercise a possessory lien. It is forfeited when one of the following occurs: loss of possession; payment of a debt; substitution of security; or waiver of a lien right.
The possession must be continuous, legal, and not for any special purpose in order to qualify as a possessory lien. Additionally, this can be separated into:
- Specific Lien
- General Lien
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Particular or Specific Lien
A particular lien is one that grants the right to keep a particular good in exchange for the debt. These debts typically result from labour or services rendered, or from spending money to purchase the things on which the right is to be exercised. A particular lien must have the following elements in order to exist:-
(1) A right to keep things until a debt is paid in full; and
(2) No explicit agreement is required
(3) Occurs naturally in the course of business
A possession acquired in the regular course of business and the owner’s legal obligation to pay off the debt are required elements of a possession lien.
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General
A general lien is the right to keep property and securities as payment for a specific obligation, but only for the overall total that is owed by the owner of the property and securities to the person who is in possession of the property.
This may be granted by a written agreement to that effect, through use and tradition, or by a statute’s provisions. The statute specifically grants the right of general lien to bankers, attorneys, brokers, wharfingers, and warehouse owners. Any money owed to a banker includes cash, checks, bills of exchange, securities that are deposited, and any other funds.
The following list contains the components of a general lien:-
- A broad balance of accounts is included
- It is a right of defence rather than an action right
It includes earlier transactions as well.
- It includes assets or securities that a banker has acquired in the regular course of business, such checks placed for collection
- Items kept for a specific purpose, such as securities, are not covered by general.
Banker’s Lien
It is an implied pledge, and in cases when the property is acquired during regular business operations, the banker has the right to sell it after giving sufficient notice. According to a clause of the contract legislation, It may be used if
- The banker has custody of the property
- The banker’s money or products are not being used for any specific purpose that conflicts with the lien
- As a banker, I obtained custody of the instruments lawfully
- There is no unspoken or implicit agreement that conflicts with the lien.
The banker is obligated to sell the items that were pledged in order to pay off his debts and only receives a lien over them for that purpose. Securities deposited with him for a specified purpose that conflicts with the lien will not be covered by a banker’s general lien. It does not apply in the following circumstances.
- It is limited to securities that are owned by the banker’s customers
- The items and valuables that the owner deposits for safekeeping
- The valuables or securities stored in safe deposit boxes
- The deposit of securities for sale, the payment of interest and dividends, etc. He will not be able to use his right of lien on Government shares and promissory notes, but he is still allowed to do so for any interest that is generated
- With the exception of partially paid shares, a banker has no lien on fully paid-up shares
- After the debt is repaid, a banker has no claim to an insurance policy that was given as collateral for a loan
- Any bill discounts that a banker makes do not create a lien on the current account balance
- Title deeds that are left without a memorandum of deposit are subject to this lien, but conveyances of land are not
- Fixed deposits used to collect interest from another bank are exempt from lien rights
- The investments that are made into a specific trust
- Any security that is still in the banker’s possession to pay for an advance that will ultimately be denied
- A banker cannot give up their participation in paying off a shareholder‘s obligation
- A bank has no claim to the credit balance that is present in a customer’s account. In this instance, the banker’s right is a right of “set-off.”
Negative
When making an advance, the banker may request that the borrower sign a statement stating that the assets are unencumbered and free of all debts. The borrower further promises that the assets included in the declaration won’t be sold or encumbered without the bank’s express written consent. The project is referred to as Negative Lien. Typically, the arrangement is written as an agreement. Such assets prevent the banker from directly realising hidden obligations. However, the banker’s interests are somewhat safeguarded.
Equitable
A legal charge on another’s moveable or immovable property is known as an equitable lien, and it exists until certain precise rights have been satisfied. The operation of law results in the creation of an equitable. Below are some examples of equitable.
- If the lender uses a trust receipt to release the pledged items to the borrower, the sale proceeds will be placed into the loan account
- A partner who remits partnership debts on dissolution has an equitable on the property of the partnership
- An unpaid seller of the immovable property has an equitable lien on the property for the whole or part of the purchase money until the actual payment.
Maritime Lien
It is the legal authority to bind a ship, pieces of furniture, equipment, cargo, and freight to the payment of a claim based on maritime law.
Conclusion
General right of lien is basically an interaction between two parties in regard to some debt or legal possession, the other party can keep some securities or the same with it until the debt is cleared. This is bifurcated in various types- possession, equitable, judgement and Maritime Lien. Vakilsearch provides with the assistance of such legal knowledge in-depth.
Frequently Asked Questions
What is the bank's right to lien?
In legal terminology, a lien refers to the rights of a bailee to keep hold of goods and securities, owned by the bailor, until the entire debt owed to them is settled. This grants the bailee or creditor the authority to hold onto the security but not to sell it.
Who can exercise the right of lien?
The legal concept of general lien is specifically granted to bankers, solicitors, brokers, wharfingers, and warehouse-keepers. A banker includes cash, cheques, bills of exchange, and securities deposited with them, or any funds owed to them in their capacity as a banker.
What is the process of lien?
If you take out a loan from a bank to purchase a house, the bank places a lien on the property until you fully repay the mortgage. If you default on the mortgage, the bank has the legal authority to foreclose on your property.
What is an example of a right to lien?
A bank lien is typically established when an individual obtains a loan from a bank to acquire an asset. For example, if you take out a loan from a bank to purchase a car, the loan amount covers the car's price, granting the bank a legal right to place a lien on the vehicle.
What is right to sell in lien?
The right to sell in lien refers to the legal authority granted to a creditor to sell the pledged property if the debtor fails to fulfill their obligations. This ensures the creditor can recover the debt by selling the asset, often through a public auction or private sale.
What are the types of right of lien?
There are two main types of right of lien: possessory and non-possessory. Possessory lien allows a creditor to retain possession of the debtor's property until the debt is paid, common in sectors like mechanics' liens. Non-possessory lien grants a creditor a legal claim over a debtor's property without physical possession, like a mortgage lien on a house.
What is lien and its types?
A lien is a legal right or interest that a creditor has in a debtor's property, serving as security for a debt or obligation. There are several types of liens, including mortgage liens on real estate, judgement liens against personal property, and mechanic's liens on vehicles.
When can the right of lien be exercised?
The right of lien can be exercised when a debtor fails to fulfill their financial obligations, such as repayment of a loan or payment for services rendered. Creditors typically exercise this right by taking legal action to enforce the lien, which may involve seizing and selling the pledged property to satisfy the debt.
What is a general lien?
A general lien grants a creditor the right to retain possession of a debtor's property until all debts, not just those related to the property in question, are paid. This broadens the scope of the creditor's claim beyond a specific debt or obligation to cover all outstanding debts owed by the debtor.
Can lien be refunded?
In some cases, a lien can be refunded if the underlying debt or obligation is satisfied or discharged. Once the debt is repaid, the lienholder may release the lien and return any surplus funds or collateral held as security. However, the process and conditions for refunding a lien can vary depending on the jurisdiction and the terms of the lien agreement.
Is lien a charge?
Yes, a lien is considered a charge against property or assets to secure payment of a debt or obligation. It represents a legal claim or encumbrance that a creditor holds over specific property until the debt is paid off or the obligation is fulfilled.
Where does lien work?
Lien operates across various sectors where financial transactions occur, including banking, real estate, construction, and legal services. It is commonly used by creditors to secure repayment of debts or obligations by placing a claim on the debtor's property or assets.
How many types of liens are there?
There are several types of liens, including mortgage liens, judgment liens, mechanic's liens, and tax liens. Each type serves a specific purpose and is established under different circumstances, such as securing a loan, enforcing a court judgment, or ensuring payment for services or taxes owed.
What is the right of lien of lawyers?
Lawyers have a right of lien over their clients' documents, papers, and money in their possession until the client's legal fees are paid. This gives lawyers the authority to retain possession of these items as security for their unpaid fees, allowing them to enforce payment through legal means if necessary.
