Gone in an instant - the demise of 'scintilla temporis' and the growth of a purchase-money security interest in real property law

• Author: John Jeremie
• Position: LL.B.(U .W .L), LL.M .(King's College, London), Lecturer in Law, University of the West Indies, St. Augustine, Trinidad
• Pages: 135-153

GO NE IN A N IN STA NT - TH E DE MISE OF

"SCI NTILL A TE MP O RI S " A ND TH E GRO WTH

OF A PUR CHA SE-M ON EY S EC UR IT Y INT ER EST

IN REA L PRO PERTY LAW*

JOHN JEREMIE”

INTRODUCTION

The purchase-money security interest is that right in rent which

arises in some systems of law in favour of a creditor who advances

sums to fund the acquisition of a particular asset when those sums are

in fact so used. In the United States, the policy of the law for some

considerable time has been to accord such a security interest the status

of a full right in r e m The interest so protected accordingly prevails

over all others in any priority conflict. The policy o f the common law

has always been different. Ever since H olr oyd v. Marshalla was

decided a hundred and thirty years ago, the common law has searched

with little success to develop a consistent policy towards the so-called

purchase-money security interest. Holroy d v. Marshall, of course,

was the case in which the court first affirmed in comprehensive

fashion the right of a suitably armed creditor to acquire a virtual

monopoly over his debtor’s future financing.' The position o f the

English courts after Ma rshall was characterized by the steadfast

observance of this essential principle, so that the creditor who was

powerful enough and w ise enough to exact an assurance of continuing

Thi s pa per treats prim arily with an a nalysis of th e gro wth o f the pur chase

mo ney secu rity i nteres t inso far as rea l (bu t not perso nal) p roper ty is

con cer ned .

~ LL .B.( U.W .L) , LL .M.( King ’s Coll ege, L ondon ), L ectur er in Law,

Un iversi ty o f the We st In dies, St. Aug ustine, Trin idad.

1 See , fo r exa mple, the person al prop erty securit y inter est v\ Ar ticle 9 of the

Uni form Co mmerc ial Code, ss.9 -107.

2 Ho lro yd v. Ma rsh all ( 1862) 10 H .L. C as.19 1.

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136 Caribbean Law Review

debt service in respect o f sums advanced was in a virtually

impregnable position. The potential for conflict between such a

monopoly financier and the creditor lending in respect of purchase-

money finance was always obvious. The courts attempted to resolve

these conflicts, and the priority competitions which inevitably arose,

in diverse ways. Recent developments in the case-law have done

much to place the law on a sure if not entirely logical footing, and it

is perhaps appropriate to review the entire area at this time.

THE PROBLEM

In the most typical case, a creditor ("the monopoly financier")

advances a sum of money which is secured not o nly on the present

assets of the debtor but also on other assets which the debtor may

thereafter acquire. To achieve this result, a loan instrument which

comprises an "after-acquired" property clause (a clause which, as the

name implies, operates according to its terms to charge assets which

become the property of the debtor a fter the relevant clause is

executed) is invariably utilized by the monopoly financier. T he debtor

sometime later purchases an additional asset, the funds to acquire

which are advanced by a different creditor. This creditor himself

typically takes security in the asset which is purchased. Herein lies

the rub. Should the creditor who was first in the field have priority,

or should that positio n be reserved to the creditor without whose

funds the particular asset could not be acquired?

THE POLICY DEBATE

Of course both categories of creditors referred to before have a

legitimate and just expectation. The creditor who has bargained for

and won the inclusion of an "after-acquired" property clause to

enhance the value o f his security ("the monopoly financier")

undoubtedly proceeds, when advancing the relevant sums, on the

expectation that all his debtor’s ener gies,,not to mention resources,

will be directed towards the repayment of those sums. To abort these

expectations by conceding a priority to the purchase-money financier

may be unjust. Yet it is perhaps precisely what is achieved by the

conces sion of such a priority. The issue becomes a great deal more