Special features
In order to be valid and enforceable, a bill of sale must be registered at the High Court in London within seven days of its being made and then re-registered every five years. A copy of the registered document is forwarded to the local county court. Anyone can search, inspect, make extracts from and obtain copies of the register on payment of the prescribed fee (currently £45), by visiting the court office.
The bill of sale must also contain:
•the date of the bill of sale;
•the names and addresses of the parties;
•the amount paid by the creditor to, or on behalf of, the client, not including any item forming part of the total charge for credit in a regulated agreement secured by the bill;
•the client’s acknowledgment that s/he has received the amount paid. This is obligatory, even though the money is not paid to her/him but to a third party – eg, the supplier of the goods;
•a transfer of ownership of the goods to the creditor as security for the debt;
•a description of the goods in a schedule to the bill (not in the main body of the bill);
•a monetary obligation. This can include an obligation to insure the goods or maintain the security;
•a statement of the sum secured, the rate of interest and the instalments by which repayment is to be made. Interest is an essential part of a bill and must be stated as a rate, even if it is also expressed as a lump sum. This is an area where creditors have frequently gone wrong, as it is not just a question of importing figures directly from the credit agreement. If the interest rate under a regulated agreement is not variable, there was no requirement before 31 May 2005 to include it in the agreement, as opposed to the annual percentage rate (APR). In the case of these agreements, if the bill of sale quotes the APR instead of the interest rate, it is not in the statutory form. Nor is the bill in accordance with the statutory form if the sum stated to be secured includes the interest charged under the credit agreement, because this would involve double charging of interest. Arguably, a bill of sale that refers to the credit agreement for the statement of these terms (or any of them) is not in accordance with the statutory form;1Lee v Barnes [1886] 17 QBD 77 •any terms that are agreed for the ‘maintenance’ or ‘defeasance’ of the security. A ‘defeasance’ is a provision in a document which nullifies it if specified acts are performed. For example, when all sums due under the bill are paid, the security is void – ie, in this context, discharged. ’Maintenance of the security’ means the preservation of the whole security given by the bill of sale in as good a condition as when it was made. The following terms are included:2Re Morritt ex parte Official Receiver [1886] 18 QBD 222 ◦to insure the goods and produce receipts for premiums;
◦to repair the goods and replace worn-out goods;
◦to allow entry to inspect the goods;
◦to allow the creditor to enter the premises in which the goods are situated in order to seize them (the bill of sale may even permit forcible entry);
•a proviso limiting the grounds of seizure. The bill of sale is void if it contains a power to seize, except in the case of:3s7 Bills of Sale Act (1878) Amendment Act 1882 ◦default in repayments or in the performance of any terms in the bill of sale necessary to maintain the security;
◦the client’s bankruptcy ;
◦the fraudulent removal of the goods, or allowing them to be removed, from premises. In the case of a vehicle, this might include selling it without the lender’s consent;
◦unreasonably refusing to produce the last receipt for rent, rates or taxes;
◦bailiffs taking control of goods for any debt. See Chapter 14 for more information on this;
•the client’s signature. A bill need not be sealed;4s1(1)(b) Law of Property (Miscellaneous Provisions) Act 1989 •an attestation clause. This is essential and must be meticulously completed. The security is unenforceable unless the client’s signature is witnessed by at least one person who is not a party to the bill;5Although a party may not attest the bill, a party’s agent, manager or employee may do so; Peace v Brookes [1895] 2 QB 451 •the name, address and description of the witness. The name alone without an address (which may be the business address and not necessarily a private address) and description (ie, the profession, trade or vocation of the witness) is insufficient;
•a schedule, referring to the goods included in the bill of sale. Note: if the bill does not have a schedule, it is void.
Clients often present themselves to advisers with either a hire purchase/conditional sale agreement or an unsecured loan. In these circumstances, if the creditor is threatening to repossess the subject of the agreement (eg, the motor vehicle), you should establish whether the debt is, in fact, secured by a bill of sale. If so, check that the credit agreement is properly executed and that the bill of sale has been validly drawn up and registered. The creditor could be asked to supply a copy of the bill of sale showing the court stamp.
If the agreement secured by the bill of sale is a regulated credit agreement, the creditor must serve a default notice before being entitled to repossess the goods on the grounds that the client has defaulted. Also, if the agreement is irredeemably unenforceable, the bill of sale cannot be enforced. If the agreement can only be enforced with a court order, the bill of sale cannot be enforced until the creditor has obtained an enforcement order.6s113 CCA 1974 Seized goods should not be removed from the premises where they were seized until five clear days have expired.7s13 Bills of Sale Act (1878) Amendment Act 1882 During this period, the client could apply for a time order if appropriate (see here). If a bill of sale is believed to be invalid and unenforceable but the creditor does not accept this and threatens to go ahead with repossessing the goods, a rarely used procedure, known as applying to ’expunge’ (ie, remove) the registration of the bill of sale must be used. This is, in effect, a declaration of unenforceability. As bills of sale are registered in the High Court, the application has to be made to the High Court under Part 8 of the Civil Procedure Rules, even though the bill of sale may be securing a regulated credit agreement. Specialist advice is needed.
If the creditor has already repossessed the goods under an invalid or unregistered bill of sale, the creditor should be challenged and, while the client may still owe the balance outstanding under the loan agreement, it may be possible to persuade the creditor to write off the debt. Specialist advice may be needed.
Code of practice
Following concerns about the use of bills of sale secured against vehicles, the industry now operates under a code of practice.8For further discussion of the provisions of the code, see G Skipwith, ‘Bills of Sale: codes of practice’, Adviser 145 This includes the following. •When providing pre-contract information, the client must also be provided with a copy of the Bill of Sale Borrower Information Sheet (available at ccta.co.uk/consumer/codes-of-practice). •Clients in arrears can hand over the vehicle in full settlement of the debt and are not liable for any shortfall between the outstanding debt and the value of the vehicle.
•Consumer loans do not provide for ’balloon payments’ – ie, small, initial interest-only payments, with the capital being repaid in a single, final payment.
•Charges imposed on clients in arrears must be disclosed at the pre-contract stage and must only cover the creditor’s costs.
•If a client gets into difficulty, creditors must consider proposals for alternative payment arrangements and should repossess the vehicle only if attempts to arrange alternative ways of repayment fail.
•Creditors should take all reasonable steps to ensure that repossessed vehicles are sold for the highest obtainable market price.