Questions of Priority

If several mortgages have been registered with respect to the same means of transport, an earlier registered mortgage has priority over later registered mortgages, and mortgages registered on the same day have the same priority (Vessel Mortgage Act, Section 30). Of course, a later registered mortgage cannot obtain priority over an earlier registered mortgage on the basis that the creditor applying for registration of the later mortgage had no actual knowledge of the existence of the earlier registered mortgage.

Anyone is entitled to information on registered mortgages from the register authority. To check whether a means of transport has been mortgaged (whether one or more mortgages have been registered with respect to it) one can make a telephone inquiry.[1] For more detailed information, one can order (in writing, for example by fax or e-mail, and subject to a charge) an encumbrance certificate.

While priorities between several registered mortgages are clear, difficult situations may arise from conflicting dispositions made by the owner of a means of transport. As explained below, possession of a bearer bond with mortgage entry often plays a central role in resolving such priority conflicts.

Consider first a situation where owner A, who has one bearer bond with mortgage entry, charges a means of transport in favour of creditor B, and subsequently, before giving the bearer bond to B, charges the same means of transport in favour of creditor C. This priority conflict is resolved according to general principles on negotiable promissory notes, because a bearer bond is a negotiable promissory note.[2] The default norm is that priority belongs to B, the earlier chargee (first in time with respect to the conflicting dispositions). However, under certain conditions, C may achieve priority over B. Priority belongs to C if the bearer bond was in A’s possession, if A then transferred possession of the bearer bond to C, and if C was in “well- founded good faith” at the time of receiving possession. Well-founded good faith means that C did not know, and had no reason to know, about the earlier charge in favour of B. The creditor who loses the priority conflict may still not be left with nothing, but may get a secondary charge. This is a right to satisfaction of the claim to the extent that the amount of the mortgage (the amount of the bearer bond) exceeds what is needed to satisfy the claim secured by the primary charge.[3]

The principles are probably applied similarly if a bearer bond with mortgage entry did not yet exist when A charged the means of transport in favour of B. That is, priority belongs to B unless, after registration of the mortgage, C receives possession of the bearer bond in well-founded good faith.[4]

The scenario changes if A operates with more than one bearer bond. Consider the following situation: A charges a means of transport in favour of B, promising to register a mortgage with respect to bearer bond X, but subsequently charges the same means of transport in favour of C, and creates bearer bond Y. A registers a mortgage with respect to bearer bond Y before registering a mortgage with respect to bearer bond X, and transfers possession of bearer bond Y to C. Now, it is uncertain how this priority conflict is resolved. The prevailing opinion appears to be that in this case the default norm giving priority to the earlier chargee does not apply, and that B can achieve priority over C only on some special grounds. It has been argued that one such ground could be C’s actual knowledge about the earlier charge in favour of B, at the time when charging in favour of C took place.[5]

This would be consistent with a solution that has been proposed for the situation where A, having charged a means of transport in favour of B, and before any bearer bond with mortgage entry exists, transfers ownership of the means of transport to C. Here, too, it has been argued that a default norm giving priority to the earlier disposition (charging in favour of B) would not apply. However, so the argument goes, B’s charge could continue to exist despite the transfer of ownership either if C accepts it or, which is a more uncertain view, if C actually knew about the earlier charging in favour of B at the time of transfer of ownership.[6]

Section 30(3) of the Vessel Mortgage Act, Section 4(2) of the Aircraft Mortgage Act, and Section 5(2) of the Vehicle Mortgage Act concern claims that take priority over claims secured by a charge over a mortgaged means of transport. The Vehicle Mortgage Act and Aircraft Mortgage Act provisions mention claims secured by a right of retention.[7] According to Chapter 3 of the Maritime Act (674/1994), maritime liens and rights of retention rank above a charge over a mortgaged vessel.

  • [1] As for vehicle mortgages, inquiries by text message or via online service are also possible.
  • [2] A central source of these principles is Chapter 2 of the Promissory Notes Act (622/1947).
  • [3] Tepora, Kaisto and Hakkola 2009, 160-162. A secondary charge is made effective against thirdparties by notification addressed to the creditor with the primary charge. See Havansi 1992, 125.
  • [4] Tepora, Kaisto and Hakkola 2009, 164.
  • [5] Ibid., 165.
  • [6] Ibid., 158-159. See Mia Hoffren, 2008, Tieto ja sivullissuoja (Helsinki: SuomalainenLakimiesyhdistys), 33. She observes that willingness to give weight to actual knowledge in resolving priority conflicts has increased in more recent legal literature.
  • [7] The Aircraft Mortgage Act provision does not seem up to date. It also refers to certain claimsrelated to a repealed Aviation Act (595/64).
 
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