Undeclared right of lien on a Bentley. Good-faith buyer?
This case concerns a finance company with an undeclared right of lien on a Bentley. The party issuing the pledge did not pay the finance company. Subsequently, the finance company wished to lay its claim on the Bentley pledged to it via an undeclared right of lien. According to the purchaser of the Bentley this approach did not hold water, and he could simply keep the Bentley because he had purchased it in good faith. Dutch insolvency lawyer Hidde Reitsma discusses the meaning of an undeclared right of lien in the Netherlands based on the ruling.
Finance company has an undeclared right of lien
In the practice of financing in the Netherlands, an undeclared right of lien is often used. In the event of an undeclared right of lien, third parties generally cannot know that pledges have been issued on these items, because they are still under the control of the issuer of the pledge. This is different in the case of pawning: in that case, the pawned item is actually brought under the control of the party accepting the pledge and the pledge is therefore also quite evident to the outside world in any case. However, in this case, the finance company had placed an undeclared right of lien on a motor company’s fleet, i.e., including the Bentley in question.
Parties signed a lien agreement
The lien agreement included the fact that the finance company waived its undeclared right of lien on items disposed of in the context of normal business operations. In the case of the Bentley, this meant that – had the Bentley been sold in the customary manner – this would no longer be subject to the finance company’s right of lien.
A case of intent, according to finance company
According to the finance company’s lawyer, intent was involved, and the Bentley wasn’t sold at all. She was therefore of the opinion that the Bentley simply remained subject to her right of lien. Investigation first had to be made into whether the Bentley was actually sold and delivered to the buyer. The buyer was able to produce a purchase agreement, and to submit statements which the court considered sufficiently plausible to demonstrate that the Bentley had indeed been sold. However, the finance company’s lawyer countered this with her presumption that the purchase agreement had been drawn up fictitiously after the fact. Nonetheless, the court found that the finance company had not provided sufficient facts and circumstances to substantiate such a serious accusation, and it set that counterargument aside. According to the buyer, he could also demonstrate that the Bentley had been delivered to him – since his Bible was in the car. The finance company also denied this.
Dutch court: Bentley was sold in good faith
The finance company then also stated that the buyer had not acted in good faith since he must have known that the company from which he purchased the Bentley had not been (entirely) authorised to do so. From this, it should then be presumed that the buyer knew or should have known that the Bentley was encumbered with an undeclared right of lien. Because the finance company also provided insufficient substantiation of facts and circumstances for this allegation, this counterargument was also set aside. The buyer had purchased the Bentley in good faith and could keep it. The finance company could no longer exercise its undeclared right of lien.