A bill of sale is used as a form of security over personal chattels as it creates a conditional transfer of those chattels as security for debt. The effect of a bill of sale is that it transfers title to the lender for the period that the underlying debt is outstanding, not how long the bill of sale exists.
A bill of sale must be in the prescribed form (as set out in Schedule 1 to the BSA Amendment Act 1882), must state the loan amount and must be signed and attested by one or more credible witnesses who must not be a party to the security bill of sale (with names, addresses and descriptions). The original copy of the bill must be registered at the High Court with a sworn affidavit.
A company cannot create a bill of sale over chattels.
With regards to a bill of sale, the term “Personal chattels” means goods, furniture and other articles capable of complete transfer by delivery.
A bill of sale grants the lender the power to seize property if an event of default has occurred without having to seek a court order. The lender must then wait five days before selling the chattels so that the grantor can apply to court. If the bill is regulated by the Consumer Credit Act 1974, the lender will have to serve a default notice on the grantor before it can be enforced.
“Logbook Loans” are bills of sale used for lending that is regulated by the consumer credit legislation. These incur further costs to the lender as they must register logbook loans at the High Court.
A security bill of sale must be registered within seven clear days after its execution by the person having the benefit of it. However, there is debate as to when the registration process is complete, as “registration” is not defined. A bill is valid during the registration period, even if it has not yet been successfully registered. The fee for registration is £28. Registration must be renewed every five years otherwise, when the five years expires, the bill of sale will be void.
If the application to register the bill is not filed within the seven days, the party must make an application before a Master for late registration. The fee for this is £50. If a bill of sale is not registered in the correct timeframe, it will void the loan and the security to which it relates.
Correction and Discharge
To correct the register, whether the mistake was made on initial registration or renewal, the benefitting party must apply to the court under section 14 of the BSA 1878.
A bill of sale is discharged in the following circumstances:
- It has been redeemed
- It has been cancelled (under another agreement, for example)
- The debt or security has been released
If the bill of sale is satisfied or discharged, the relevant party must apply to have a memorandum of satisfaction written on the registered security bill of sale to the masters of the Queen’s Bench Division of the High Court.
Bills of sale will rank in order of their registration. The grantee can assert their legal title to the property against all third parties as long as the bill has been registered. “Third parties” includes a purchaser even if they are buying the property in good faith and without notice of the grantee’s interest. If the bill is not registered, the effect of the bill is void and the grantee can be estopped from denying a third party purchaser title to the chattels.
The form of a bill of sale has remained unchanged since the 19th Century. Despite this, there has been an increase in the use of bills of sale.
There have been calls to simplify the procedure in recent years. In the Law Commission’s report from September 2016, it was suggested that the Bill of Sale Acts be replaced, as well as the term “bill of sale” be removed. The idea of “Goods Mortgages” has been introduced to replace bills of sale. The Law Commission’s Goods Mortgages Bill looks to:
- Create an electronic register for goods mortgages to save money during registration;
- Eradicate restrictions on secured lending to unincorporated businesses and high net worth individuals;
- Protect borrowers so that property is not so easily seizable; and
- Protect purchasers buying the property in good faith.
A drive to protect consumers may cause reform in this area but the UK government does not have any immediate plans to abolish bills of sale.
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