Scottish Court of Session Decisions

In 1877 James Roney, a shipbuilder in Arbroath, was engaged in building amongst other vessels a barquentine or three-masted schooner of the burden of 297 tons or thereby. This vessel he entered in his books as No. 2, and for the purpose of survey he entered her at Lloyds'. Her hull with all her internal arrangements were all but completed and ready for launching. In the building of these vessels he had incurred considerable liabilities, and in particular was indebted to Messrs John Wallace & Company, iron merchants, Dundee, in the sum of £800 for iron and other goods.

On 17th and 25th January 1878 he entered into a contract with Wallace & Co. by which he as first party agreed, for the sum of £2500 sterling, to complete and sell to them as second parties the above three-masted schooner as it was on the stocks in his yard at Arbroath, and entered as No. 2 in his books. The third clause of the contract was in the following terms:—“It is hereby agreed and declared that when any sum shall be paid or appropriated by the second parties towards payment of the said price, the said vessel in her present unfinished state, and at the stage of her build at which she has reached, as shewn by the said specification, and all materials and articles of wood or iron or other metals of every description, furnished and unfurnished, and whether made up or not, but intended or destined to be used in the construction, fitting-up, and completion of the said vessel and her appurtenances, which shall be lying or situated in or about the vessel, where she is building, or elsewhere in or near the shipbuilding-yard or other premises occupied by the first party at Arbroath, shall thereupon ipso facto to all intents and purposes become and remain the property of the second parties, although they may be used by the first party as materials for the completion of the vessel or of her appurtenances; and it is further and in like manner agreed that all subsequent additions made to the vessel and her appurtenances as the work proceeds, and all additional materials and articles of any description that shall be brought to or belong or be situated as aforesaid, intended or destined to be used in the construction, fitting up, and completion of the vessel or her appurtenances, shall ipso facto of such intentioned destination or situation become and remain the property of the second parties, although, without prejudice to such right of property, they may be used by the first party as materials for completion of the vessel or her appurtenances as before mentioned; and generally, it is hereby agreed that the said vessel and her appurtenances, or any part thereof, or materials or articles intended or destined for the completion of the same as aforesaid, shall not be or become liable to any debts, contracts, or engagements of the first party, or be otherwise affected by or attachable for his acts or deeds, or be at his order and disposition, but shall, subject to the uses foresaid, be and remain the absolute property of the second parties: Declaring that the instalment of price applicable to the present stage of the vessel's build is agreed to be two thousand pounds sterling, and that the final instalment, of price payable for the vessel and her appurtenances on complete fulfilment of this contract and said specification is five hundred pounds sterling, making together the foresaid price of two thousand five hundred pounds sterling, which respective instalments shall be payable on the completion of the said vessel and its appurtenances to the second parties' satisfaction, and after the vessel has been launched by the first party and full legal possession thereof received by the second parties, and also after delivery by the first party to the second parties in proper order of the certificates of the builder of the Board of Trade, and of Lloyds’ surveyor, and any other documents requisite to instruct that the vessel has been completed in terms of said specification and this contract, and according to the requirements of the Board of Trade and Lloyds’ registry. But it is hereby agreed that if the second parties shall elect to pay or appropriate any sum or sums for settlement of any part of the foresaid instalments sooner than the date fixed for payment thereof, then and in that event the sum or sums that may be so paid or appropriated shall bear interest from the date of advance or settlement at the rate of five pounds per centum, and the advance or advances and interest thereon shall be deducted from the foresaid price at final settlement.” By the fourth clause of the contract it was provided that any extra work not in the original specification ordered by the second parties should be paid for by them over and above the original contract price. By the fifth clause the first party agreed to launch and deliver the vessel in three calendar months and to insure her at his own expense until such delivery. By the sixth clause it was provided as follows:—“In case the first party shall suspend the work on the vessel or her appurtenances, unless compelled to do so from the effects of fire or bad weather, or strike of workmen, to such an extent as to cause a suspension of work, or if he shall refuse or fail to carry out and complete this contract and said relative specification as hereinbefore agreed to, then and in any such case it shall be lawful for the second parties, by themselves or others employed by them, and without any judicial warrant, unless they may consider such expedient, but only after a previous notice to the first party of fourteen days by letter, put prepaid into the post-office at Dundee, to enter into and upon the first party's shipbuilding yard and premises at Arbroath, and take and retain possession thereof, and of the whole materials and articles intended and destined to be used for the purposes of this contract and said specification, and thereafter to sell the said vessel and her appurtenances, and the materials and articles before referred to, or any part thereof, in the condition in which they may then be, at valuations to be put thereon by the arbiter after mentioned, and failing such valuation, then by public sale, on such terms as the second parties may think proper, and to receive and discharge the prices thereof, and apply the free proceeds, after deduction of all

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costs and charges, towards repayment of any instalment or portion of any instalment of the price that may have been advanced or appropriated by the second parties as before mentioned, and any other payments or outlays that they may have made or incurred in the premises, with interest thereon from the date of advance at the rate foresaid; and after full payment and satisfaction to the second parties in the premises, and relief and reimbursement to them of all obligations, payments, and charges of every kind which they may have contracted or incurred in relation to this contract and the consequents thereof, and any other debts or obligations due and owing by the first party to the second parties on any other ground whatever, relating thereto or not, any free balance shall be paid to the first party; or the second parties may, if they see fit, instead of selling the vessel and her appurtenances, and the said materials and articles, or any part thereof as above mentioned, complete the vessel and her appurtenances in terms of the present contract and said relative specification, and for these purposes employ all necessary workmen, and use all the machinery, working tools, implements, stock, and material of every kind necessary for such purposes in and about or near the said premises of the first party situated at Arbroath; and in case the second parties shall expend any sums in so completing the vessel and her appurtenances, over and above the said contract price, the same, with all costs and outlays incurred by them, shall be recoverable by them from said first party.” By the seventh clause it was provided, that in the event of the vessel on delivery being disconform to the stipulations in the contract and specification, the second parties might refuse to take delivery, and recover payment of the sums paid by them and all their outlays in relation to the contract; and further, they were to have a real specific and preferable right of lien, retention, and possession of, in, and over the said vessel and her appurtenances till full payment was made as aforesaid.

On 23d April 1880 a meeting of Roney's creditors took place at Arbroath, his estates were sequestrated, and James Matheson M'Bain, banker in Arbroath, was elected and confirmed his trustee in bankruptcy. Four days afterwards Wallace & Co., founding on the sixth clause of the contract, gave notice to Roney that they intended, in consequence of his having failed to complete the contract, to enter upon and take possession of his shipbuilding yard and premises and the whole materials destined to be used for the purposes of the said contract, and thereafter to sell them at valuation or by public sale, and generally to do everything competent to them in virtue of the contract. The present action was accordingly raised by M'Bain, as Roney's trustee in bankruptcy, for the purpose of interdicting, prohibiting, and discharging Wallace & Co. from so acting.

The complainer averred—That the vessel had not been finished within the stipulated three months, but was still allowed by the respondents to remain on the stocks; that no part of the pretended price had ever been paid, but that the respondents, who had already made advances to Roney, continued from time to time to make advances to him, for which they afterwards drew on him and discounted his acceptances at the Royal Bank in Dundee; and that the reality of the matter was simply, that in respect of certain sums of commission they lent their names to Roney, who obtained the proceeds arising from the discounting of his own acceptances. That the contract was simply entered into as a security for the debt already due by Roney to them, and for these accommodation bills to which they were to become parties for his behoof. That Roney had been left by them in. the uncontrolled possession and ownership of the vessel, no possession, symbolical or otherwise, being taken by them, and that, indeed, he had entered into various negotiations in his own name and at his own expense with a view to her sale, there being no attempt on their part to control him or to indicate that they had any right or interest in law other than a right in security for the accommodation transactions before mentioned.

He pleaded—“(1) The vessel and others not having been sold to the respondents, and no price having been paid for the same, the respondents are not entitled to take possession of them. (2) There having been no delivery to the respondents of the vessel and others in question, interdict should be granted as prayed for. (3) The transaction between the respondents and the bankrupt being one by way of security only, and this fact being instructed in gremio of the contract, the respondents are not entitled, as in a question with the trustee on the bankrupt's sequestrated estate, to insist on delivery of the vessel and others, and for that purpose to take at their own hand possession of the bankrupt's shipbuilding yard, stock, and plant as intimated by them. (6) In any event, the respondents are not entitled to enforce delivery of the vessel and others until they have paid the price.”

The respondents, on the other hand, denied that no part of the price had ever been paid; on the contrary, they averred that sums to the amount of £2250 (being an excess of £50 over the purchase price, to cover any extras) had at different dates been received by the bankrupt to account of the price of the vessel, conform to cheques in his favour granted by the respondents, and relative receipts granted by him. That the accommodation bills had been drawn by them for the purpose of keeping themselves as much as possible out of advance upon the vessel until she could be profitably employed or sold to profit, but that they were never intended to affect the payment of the price of the vessel, which had really been sold to them, according to the terms of the contract. Further, they denied that the contract had been kept latent and that possession was not taken by them. It was well known that the vessel had been acquired by them by contract of sale, and when Mr Roney was endeavouring to sell the vessel he was acting solely for their behoof and interest.

They pleaded—“(2) The contract being a contract of sale and reduced to writing, the allegation that it was truly a security cannot be proved otherwise than by writing. (3) When a ship is purchased on the stocks on the terms that it shall be finished and launched by the builder, and paid for by instalments, the property of the materials as they are put together, at all events after payment of the first instalment, belong to the purchaser, and not to the trustee in the builder's bankruptcy. (4) The right of a trustee

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in a sequestration being tantum et tale as it stood in the person of the bankrupt, and the respondents having bought the vessel and paid the stipulated price, they are entitled to delivery and possession in terms of the contract. (5) Assuming that the transaction amounted to a security only, the transfer being ex facie absolute, the complainer is not entitled to possession except on payment of the sums received and due by the bankrupt to the respondents.”

The Lord Ordinary ( Rutherfurd Clark), after a proof, sustained the reasons of suspension, and interdicted, prohibited, and discharged the respondents in terms of the prayer of the note of suspension and interdict.

The import of the proof appears sufficiently in the opinions of the Judges, and in the following opinion which the Lord Ordinary annexed to his interlocutor:—“The complainer's case is that the ship was his. The answer to this is twofold-that the ship was sold and the property transferred, or at least that they have a security which they are entitled to enforce. There is no doubt that the contract which is founded on is one of sale. I do not doubt that Mr Thomson believed there was no other contract but this one, and I am disposed to assume that was also the idea of Mr Wallace. He seems not to have paid so much attention to the matter as Stewart, between whom and the bankrupt the chief communications were. But though the contract does express a contract of sale, that may not be an expression of the true contract which the parties made with one another, although they may have concealed from the law-agent what was the true contract. But does this writing express the true contract? I do not think it does; and I think I can rely more on the evidence of Roney than Stewart's, because Roney's is consis tent with all that passed subsequently, and Stewart's not at all, while Stewart on pressure told the real truth. The contract is for immediate execution. The ship remains in the hands of the bankrupt. Payments are made and receipts given, but Roney gives hisname to furnish accommodation. The correspondence is, to my mind, in favour of my view. Mr Stewart's evidence also tended to show he did not believe he had bought the vessel, because he said he had a moral obligation to return excess of the price obtained, and he said he would not give Roney a back-letter because he thought it would vitiate the contract. As to the security, I think the constitution of that security must be ascertained. It is hardly contended that any possession was changed; and therefore the security is unavailing by reason of want of possession.”

The respondents reclaimed, and argued-The contract was really one of sale, under which the unqualified and absolute right of property in the ship was transferred to them as purchasers.

Authorities— Simpson v. Duncanson, M. 14,204, and Bell's Com., i. 189: Holderness v. Rankin, Aug. 3, 1860, 29 L.J. Chan. 753; Swainston v. Clay, Jan. 24, 1862, 32 L.J. Chan. 388; Sutherland v. Montrose Shipping Company, &c., Feb. 3, 1860, 22 D. 665; M'Meekin v. Ross, Nov. 22, 1876, 4 R. 154; Orr's Trustees v. Tullis, July 2, 1870, 8 Macph. 936; Scottish Heritable Securities Company v. Allan Campbell & Co., Jan. 14, 1876, 3 R. 333; Hamilton v. Western Bank of Scotland, Dec. 13, 1856, 19 D. 152; National Bank of Scotland v. Forbes, &c., Dec. 3, 1858, 21 D. 79; Miller's Trustee v. Shield, Mar. 19, 1862, 24 D. 821; Union Bank of London v. Lenanton, Feb. 6, 1876, L.R., 3 Cora. Pleas Div. 243; Ward v. Beet, 32 L.J. Com. Pleas, 113; Leckie v. Leckie, Nov. 21, 1854, 17 D. 77.

The complainer argued-(1) In point of law the contract could not be looked on as one of sale, because there had been no delivery of the ship— traditio being as essential in the case of ships as in the case of any other moveable in order to constitute a legal sale. The decision in the case of Duncanson, founded on as establishing a conceded exception in favour of ships from the otherwise requisite traditio, was very doubtful ( vide Brodie's Stair, i. 900), and had not been recognised by subsequent decision (vide Clarke v. Spence, 1836, 2 Adolphus and Ellis 466). The English cases cited did not apply, because in England delivery is not an essential, the property following on the contract. Moreover, to hold the contract one of sale would be to support a fictitious device to cheat the sequestration and enable the respondents to compete with the other creditors on unfair Grounds-Heritable Securities Investment Association (Limited) v. Wingate & Co.'s Trustee, July 8, 1880, 7 R. 1094; Cropper & Co. v. Donaldson, July 8, 1880, 7 R. 1108; ex parte Williams, Nov. 29, 1877, L.R. 7. Chan. Div. 138. (2) In point of fact, the contract was one of security merely, made on the footing of debtor and creditor. This was clearly proved (1st) by the parole evidence of Roney and Stewart; (2d) by the evidence as to the mode of transacting business adopted by the parties; (3d) by the lettters which passed between the parties.