NATURE AND EXTENT OF LIEN
Persons who have liens
2(1) A person has a lien on goods with respect to which that person has provided services for the purpose of improving, restoring or maintaining the condition or properties of those goods.
(2) A storer has a lien on goods that have been stored.
(3) A common carrier has a lien on goods for carriage charges with respect to which a bill of lading has been issued.
The types of lien covered by the Act are liens that have a commercial base and liens with respect to which the lien claimant can be said to have preserved or enhanced the value of the goods. A lien where a person has provided services for the purpose of improving, restoring or maintaining the condition or properties of goods is self-explanatory.
A storer's or a common carrier's lien also preserves or adds value, but examples are needed to better explain this principle. A storer adds value in the sense that the goods are maintained by storage. Transportation adds value on the assumption goods are transported from one place to another where they are needed or will be capable of being sold or repaired. If not transported, the value of the goods is diminished if they cannot be sold for the best price or cannot be repaired.
Purpose of lien
3(1) A lien secures the amount that the debtor agreed to pay for the services.
(2) If no amount has been agreed on, the lien secures the fair value of the services rendered.
The lien only secures the amount agreed or, if not agreed, the fair value of the services. Thus, these are particular as opposed to general liens.
When lien attaches
4(1) A lien attaches to goods on the commencement of the services giving rise to the lien.
This represents a revision to the common law, which required work to have been completed before a lien would attach.
(2) A lien attaches only to the debtor's interest in the goods or the interest in the goods of a person who has authorized the debtor to obtain the services giving rise to the lien.
(3) For the purposes of subsection (2), a secured party is not considered to be the owner of goods subject to a security interest.
The above two subsections require the owner to have authorized the work before a lien will attach. It changes the law for storers in that, at common law, storers could claim a lien against goods entrusted to the debtor by the owner and for common carriers who were obliged by law to provide services to those willing to pay. For all other liens, the rule is that stated. We can see no justification for a special position for storers and carriers and this section reflects this choice.
When lien enforceable
5(1) Subject to subsection (4), a lien is enforceable against the debtor or a third party only where
(a) the goods are in the possession of the lien claimant; or
(b) the debtor has signed an acknowledgment of an indebtedness, which includes a description of the goods subject to the lien.
This subsection establishes when a lien is enforceable. There is no writing requirement if the goods are in the possession of the lien claimant, but if they are not, there must be a written acknowledgment of indebtedness. The acknowledgment may be obtained at any time, including after the goods are released to the debtor. Failure to obtain an acknowledgment renders the lien unenforceable against both the debtor and third parties.
This is a departure from the policy choice of the PPSA, which provides that a failure to obtain a security agreement signed by the debtor only renders the security agreement unenforceable against third parties. For liens, the acknowledgment fulfils the additional requirement of specifying the required services and the agreed amount in an effort to avoid disputes.
(2) For the purposes of clause (1)(a), a lien claimant is deemed not to have possession of goods that are in the apparent possession or control of the debtor or the debtor's agent.
There is a comparable provision in the PPSA that provides that a secured party is not considered to be in possession of goods that are in the apparent or visible possession of the debtor.
(3) An acknowledgment of an indebtedness pursuant to clause (1)(b) is without prejudice to the right of the debtor or any other person to dispute the amount the lien claimant is owed.
A debtor who signs an acknowledgment of indebtedness should not be prevented from disputing the amount of the lien. It simply reflects the amount due. If it were otherwise, a debtor requiring immediate use might be coerced into signing the acknowledgment to obtain the release of the lien. A dispute mechanism is provided in section 27 of this Act.
(4) If the conditions mentioned in subsection (1) have not been met at the time a third party acquires an interest in the goods, a subsequent acquisition of possession or a signed acknowledgment of indebtedness by the lien claimant does not render the lien enforceable against that third party.
There can be no prejudice from this feature that might be of assistance to lien claimants where periodic repairs are performed.
Demand for information
6(1) The debtor, a creditor, a sheriff or a person with an interest in the goods, by a demand in writing containing an address for reply and delivered to the lien claimant, may require the lien claimant to send to the person making the demand or, if the demand is made by the debtor, to any person at an address specified by the debtor, one or more of the following
(a) a copy of any acknowledgment of indebtedness mentioned in subsection 5(1);
(b) a statement in writing of the amount of the indebtedness;
(c) a written approval or correction of an itemized list of goods attached to the demand indicating which goods are subject to the lien.
(2) The lien claimant shall comply with the demand not later than 10 days after the demand is made, and if the lien claimant fails to do so without reasonable excuse or if the reply is incomplete or incorrect, the person making the demand may apply to the court for an order requiring the lien claimant to comply with the demand.
(3) On application, the court may order the lien claimant to comply with the demand and if the order is not complied with, may
(a) order that the lien is unperfected or extinguished and that any related registration be discharged; and
(b) make any other order it considers necessary to ensure compliance with the demand.
(4) On application by the lien claimant, the court may exempt the lien claimant in whole or in part from complying with subsection (2), or may extend the time for compliance.
Lien may be assigned
7 A lien claimant may, in writing, assign a lien.
At common law a lien could not be assigned. This presented certain difficulties in the sale of a business. In addition, assignability may be useful in the financing of repairs.
Effect of credit and taking of security
8(1) A lien is not extinguished by reason only that the lien claimant has allowed a period of credit for the payment of the debt to which the lien relates.
To permit credit is consistent with the concept of the non-possessory lien.
(2) If a lien claimant takes a security interest in goods subject to a lien in order to secure the amount of the lien, the lien claimant is deemed to have taken the security interest in substitution of the lien.
A lien claimant loses its lien rights when a security interest is taken respecting the goods.
Lien claimant's obligations re care of goods
9(1) A lien claimant shall use reasonable care in the custody and preservation of goods in the lien claimant's possession, unless a higher standard of care is imposed by law.
(2) Unless otherwise agreed, if the goods are in the possession of the lien claimant or a sheriff
(a) reasonable expenses in obtaining, maintaining and preserving the goods are chargeable to the debtor and secured by the lien;
(b) the risk of loss to the extent of any deficiency in any insurance coverage is on the debtor; and
(c) the lien claimant or sheriff shall keep the goods identifiable, except that fungible goods may be commingled.
(3) Subject to subsection (1), a lien claimant may use the goods
(a) in the manner and to the extent provided in any agreement with the debtor;
(b) for the purposes of preserving the goods or their value; or
(c) pursuant to an order of the court.