Consumer Loan And A Pledge Over A Viola – What Happens When The Music Stops?

Kathryn Bassano v Alfred Toft, Peter Biddulph Ltd, Borro Loan Ltd, Borro Loan 2 Ltd is an interesting case as it highlights a number of potential problems for a lender where an individual in financial difficulties took out successive loans on the security of a chattel (in this case a viola) and none of the lenders knew about the other loans.

The first lender was Peter Biddulph. Mrs. Bassano (a professional musician) approached Mr. Biddulph, a dealer in fine musical instruments, for a loan on the security of an antique voila. He lent £50,000 by way of interest free loan to be repaid from the proceeds of sale of the viola. Mr. Biddulph endeavoured to sell the viola and, following a lead provided by Mrs. Bassano, he agreed to the viola being tried out by a professional purchaser in the Far East, but when the purchaser decided not to buy it, it was returned to Mrs. Bassano instead of Mr. Biddulph and Mrs. Bassano refused to return it to him so he was left as an unsecured creditor of Mrs. Bassano.

The second lender was Mr. Toft (also a dealer in fine musical instruments). Mr. Toft agreed to lend Mrs. Bassano a further £100,000 on the security of the viola. The security comprised a chattel mortgage which would been appropriate for a company granting security over the viola, but not an individual. The only way an individual can grant security over a chattel is by way of a bill of sale which has to be in the prescribed form and has to be registered pursuant to the Bills of Sale Act 1882. It was not in prescribed form and was not registered and was therefore void as a matter of law.

The last lender was Borro Loan Limited and Borro Loan 2 Limited ("Borro"). Borro was a pawnbroker and agreed to make two loans totalling over £130,000...