Scottish Court of Session Decisions

In 1894 Alexander Buchanan Hall, engineer, Edinburgh, entered into negotiations with James Carrick & Sons for the purchase of the business of engineers and crane-makers carried on by them at Dairy Iron Works, of which they were proprietors. By offer, dated 30th May 1894, addressed to them, and acceptance by them, dated 4th June 1894, it was agreed that he should purchase from them, at a price to be ascertained by valuation, and to be paid, £300 on 18th June, and the rest by instalments, for which bills were granted, the business carried on by them at Dairy Iron Works, with the goodwill of the business, and the fixed and other plant in the premises, and also that they should grant to him a lease of the premises for ten years at a rent of £100 per annum.

As Hall was unable to meet the payment of £300, he entered into negotiations with Alexander Robertson, who carried on the business of a money-lender in Edinburgh. Robertson agreed to make an advance of £400 on the condition that the subjects should be conveyed to him on a contract of sale, this being the method recommended by the law-agent acting for both parties. On 21st August, Hall having received this sum, paid the instalment of £300 to James Carrick & Sons, and afterwards took possession of the business.

On 29th August, Hall executed in favour of Robertson a disposition in the following terms:—“I, Alexander Buchanan Hall, … in consideration of the sum of £400 sterling, paid to me by Andrew Robertson, … the receipt of which I hereby acknowledge, do hereby sell, assign, convey, dispone, and make over to and in favour of the said Andrew Robertson, his executors or assignees whomsoever, All and Whole the fixed plant and articles enumerated in the inventory and valuation thereof, and situated in Dairy Engine Works, Edinburgh, which, with the receipt thereto annexed for the price of the same, paid by me to Messrs James Carrick & Sons, from whom I have purchased the same, is here referred to, and held as repeated brevitatis causa, and is herewith delivered up and signed by me as relative hereto; surrogating and substituting the said Andrew Robertson and his foresaids in my full right and place in said fixed plant and whole articles, with power to him or his foresaids to take possession thereof at any time he or they may think proper, and that without any warrant or authority other than these presents: Also with power to sell, use, and dispose of said fixed plant and whole articles, in such portions and at such prices as he can procure, and give delivery thereof to the purchaser or purchasers, to receive and discharge the price or prices, with the application whereof the purchasers shall have no concern: And I bind myself during the period I may be permitted to retain possession of said fixed plant and articles, to take proper care thereof in every respect, and on the said Andrew Robertson or his foresaids demanding delivery, I bind myself to give him delivery, otherwise he shall be entitled to take delivery as above stated: And so long as said fixed plant and articles remain in my possession, I hereby recognise and admit that they are the property of the said Andrew Robertson, and that they are in my possession only on loan.” In the inventory and valuation the fixed plant and articles were valued at £2112, 14s. 8 1 2d. Some of the articles included in the inventory were raw material of the nature of fungibles necessarily exhausted by use.

A back-letter, dated 1st September 1894, was granted by Robertson to Hall. Its terms were as follows:—“With reference to the disposition granted by you to me, on the 20th ult., of the fixed plant and articles situated in Dairy Engine Works, Edinburgh, as per inventory and valuation thereof, referred to in and subscribed as relative to said disposition, for the sum of £400 sterling, it is covenanted and agreed on between us as follows:—1st. That I resell you said plant and articles at the price of £400, and I undertake to do so on being paid that sum, and any interest in the way of hire due, at the rate after mentioned. 2nd. That till repaid said sum and interest as hire, you are to retain possession of said plant and articles, but that only on loan. 3rd. That so long as you delay re-purchasing said plant and articles, you are to pay me, by way of hire therefor, interest on said sum, or whatever part thereof may be unpaid, at the rate of £20 per centum per annum. 4th. That you pay me £60 every six months, commencing the first payment on 29th February 1895, and continuing the payments till said £400 be fully paid. 5th. That you shall pay me every six months the hire above stipulated for, calculated on whatever part of the £400 may remain unpaid. 6th. Failure to make said payments shall entitle me to enforce said disposition, and should I have to do so, all payments made shall be forfeited as if they had not been made. 7th. Any sums I may advance you are to be repaid within a month after the advance, otherwise the condition in article 6th hereof shall be enforceable by me.”

Robertson never received actual possession of the subjects. They remained in the

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possession of Hall, who continued to carry on business on the premises under the name of James Carrick & Son, down to 31st November 1895. On that date he became bankrupt, and on 13th December James Walker, C.A., was appointed trustee on his sequestrated estates.

Thereafter Robertson presented a note of suspension and interdict against Walker to have him interdicted from working, selling, or removing the plant and other articles enumerated within the Dairy Engine Works recently occupied by Hall.

He pleaded—“(1) The plant and other articles enumerated in the prayer of the note being the property of the complainer, and the respondent having unwarrantably interfered therewith, and having threatened to dispose thereof, interdict should be granted as craved.”

The respondent pleaded, inter alia—“(5) The transaction between the complainer and the bankrupt not having been a bona fide sale, but a device to create a security over moveables, which remained the property and in the possession of the bankrupt, is ineffectual to create any right in the complainer in competition with the respondent. (6) In respect the complainer never obtained delivery or possession of the machinery and other articles in question, the property thereof remained in the bankrupt, and is now vested in the respondent as trustee on his sequestrated estate.”

After proof the Lord Ordinary ( Kincairney) pronounced the following interlocutor:—“Finds (1) that the fixtures and other plant, the sale of which the complainer seeks to interdict, belonged to the bankrupt at the date of sequestration, and passed to the respondent as trustee on the sequestrated estate; (2) that the complainer's title thereto was a title in security only; (3) that it was not completed by possession, actual or constructive, or by intimation, and is insufficient to exclude the title of the respondent as trustee foresaid: Therefore refuses the prayer of the note, and decerns: Finds the respondent entitled to expenses,” &c.

Opinion.—“This action, involving questions of law which I have found to be of very great difficulty, regards the effect of a transaction consisting of the advance of money by Robertson, complainer, to Hall, now represented by the respondent, his trustee in bankruptcy, and the disposition by Hall to Robertson of fixed and other plant on the premises in which Hall at the date of the bankruptcy carried on the business of an engineer and crane-maker under the name of James Carrick & Son, accompanied by a back-letter by Robertson. It is a case about a security over moveables retenta possessione. I speak throughout, for convenience, of Hall as the bankrupt, it not being material that the business was carried on in the name of Carrick & Son.

The question is raised in the form of a note by Robertson craving interdict against the sale by Hall's trustee of the fixed and other plant of the premises. The crave in the petition has been limited by a minute, and I consider that all the articles against the sale of which interdict is now asked can be identified as having been included in the disposition by Hall to Robertson.

The opinion which I have ultimately formed is in favour of the trustee, although I cannot say that I entertain it with much confidence. Whatever difficulty there may be as to the law, there is little, if there be any, as to the facts, which are as follows:—[ His Lordship here narrated the facts, and the terms of the deeds above quoted].

It is not pretended that Robertson ever took actual physical possession of the articles. These remained in the possession of Hall, and were used by him in his business.

Now, in cases of this kind—and they have been not infrequent—the principal question which has hitherto arisen has been, whether the deed in favour of the lender was a true deed of sale effectual without delivery in respect of the provision of the first section of the Mercantile Law Amendment Act, or only a disposition in security ineffectual without delivery, and to that question a large part of the discussion in this case was directed, although since the repeal of the first section of the Mercantile Law Amendment Act that question has lost much of its importance. But in all, or almost all of the cases of this class, there has been inquiry by parole about the true character of the transaction, as to which the deeds have never been held to be conclusive, and accordingly a proof has been led in this case which leaves very little room for doubt about the facts. The transactions between Hall and Carrick & Son, and Hall and Robertson, may be regarded as really simultaneous, although some time, it is true, elapsed between the dates of the contract with Carrick & Son and of the disposition to Robertson. They were carried out at the same time. There is no doubt that Hall desired to acquire and also to retain the property of the articles. He wished to carry on a business with them and to use them, and in some cases use them up in his business. It is at least difficult to hold that he contemplated the acquisition of them for his business, and the sale of them by simultaneous transactions. His need of a loan initiated the whole affair. Robertson, again, who advanced the money, desired to obtain security for repayment with interest, which, though high, may not have been exorbitant, or otherwise than commensurate with the risk he ran. It was a transaction in the ordinary course of his business as a money-lender. He depones, frankly and honestly, that if he should sell the articles, and obtain more than £400 with the stipulated interest, he would pay the balance to the trustee. He did not admit that he was under any obligation to do this; but I must believe that there was an understanding between the parties to that effect, and I cannot hold that Robertson meant that he would make this payment out of pure charity or good will for Hall. I cannot doubt that the motive and object of the disposition and back-letter were that repayment of the advance should be sufficiently secured to Robertson, while at the same time Hall should retain the

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possession and use of the articles. They were advised by their common agent to carry out the transaction in that fashion. In short, these two deeds constituted a device by which it was thought that Robertson might obtain a security which he could not obtain by a bond with an assignation of the plant without delivery.

When I use the word ‘device,’ I do not use it in any invidious sense. I do not suggest that the transaction was tainted by any fraud, dishonesty, or undue concealment. I see no reason to think that it was. The whole transaction seems to have been quite fair and above-board. Parties endeavoured to get over a difficulty created by the law. What they intended and attempted to effect was that Robertson should be duly secured. There is nothing to be condemned in such an intention and attempt, and I confess that my inclination would be to sustain this transaction according to its true intent if the law would permit that result.

There have been a considerable number of cases of this class, all of them of the nature of attempts to effect a security over moveables without delivery. In some of these cases the attempt has been successful—the legal writs devised having been held sufficient for that effect-among which I may quote as probably the most important cases— M'Bain v. Wallace, 7th January 1881, 8 R. (H.L.) 106; Robertson v. M'Intyre, 17th March 1882, 9 R. 772; Liquidators of West Lothian Oil Coy. v. Mair, 8th November 1892, 20 R. 64; and Liddell's Trs. v. Warr & Co., 18th July 1893, 20 R. 989. In other cases, which may no doubt be distinguished from them, although the distinction is narrow, the attempt has been unsuccessful, and of these The Heritable Securities Coy. v. Wingate, 1880, 7 R. 1094, and Paterson's Trs. v. Liston, 14th June 1893, 20 R. 806, are probably among the most notable recent examples. I am disposed to think that a conveyance of moveables has been sustained, to the effect of constituting a security for an advance where the transaction has been in reality a pure sale, although the whole object of it has been to effect a security, and although there may be an understanding that the ownership shall revert to the borrower when that purpose has been served; and it seems to me that the rule of law that an assignation of moveables without delivery is totally ineffectual has not as yet been relaxed by decisions to any greater extent. That seems to have been the express ground of judgment in M'Bain and in Liddell. It appears to me that Lord Young in several opinions has gone further, and has been disposed to sustain a conveyance of moveables as a security wherever the form adopted has been an absolute disposition or a contract of sale—where the lender, as in one case he expresses it, has received a proprietary title. But I think there is as yet no decision going that length. Following the judgments, as I understand them, I think the question here is, whether there was any true sale in this case, or any true contract of hiring; and I, although with much hesitation, answer that question in the negative. It was argued that Liddell's Trs. was in point, and ruled this case; and I admit the similarity of that case. At the same time the circumstances were different. Counsel for the respondent pressed, inter alia, two distinctions—first, the great discrepancy between the sum advanced and the value—a feature which did not exist in Liddell's case; and secondly, the fact that some of the subjects said to be sold in this case were fungibles to be used in the borrower's business. I am especially impressed by the first of these distinctions, and think it hardly possible that an absolute sale for £400 of subjects valued above £2000—although no doubt not as at a break-up value—was really contemplated; and I think that the evidence of Robertson was almost tantamount to an admission to that effect. I keep in view that the mere circumstance that there was an understanding that any surplus on a sale should be paid to the borrower, although material, cannot be regarded as in itself conclusive, bearing in mind that that specialty, or something like it, occurred in M'Bain v. Wallace. I think the whole history of the transaction is also against the view that there was a real sale, or at rue contract of hiring, and that the provisions of the back-letter to which I have referred can hardly be reconciled with any definite contract of hiring. I think that the whole transaction of the parties was, in truth, a loan, with an ineffectual attempt to create a security over movables without delivery.

As I have indicated, I am not certain that it is of much importance whether the transaction be regarded as importing an absolute conveyance of moveables, or only a disposition in security. It was of vital consequence in the cases referred to. But between their dates and the date of the transaction under consideration, the first section of the Mercantile Law Amendment Act has been repelled by sec. 60 of The Sale of Goods Act 1893 (56 and 57 Vict. cap. 71); and at common law an absolute sale of moveables without delivery is just as ineffectual as a disposition of moveables in security. It is true that under sec. 17 of the Sale of Goods Act delivery is not essential to the passing of property in moveables under a sale in the sense of that Act. But then subsection 4 of section 61 provides that ‘the provisions of this Act relating to contracts of sale do not apply to any transaction in the form of a contract of sale which is intended to operate by way of mortage, pledge, charge, or other security;’ and I cannot doubt the disposition by Hall, if it imports a sale, falls clearly within these words, and therefore was not a sale falling under the Sale of Goods Act.

Be it, then, that this disposition expressed an absolute sale of these moveables, it would be ineffectual unless it could be shown that possession had followed on it. Actual physical possession did not follow. Robertson threatened, indeed, to enter on possession, but admittedly he never did so, unless it could be held that he was constructively in possession, in virtue of the possession of Hall, under the contract of

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hiring said to he expressed in the back-letter.

On this question of constructive possession there are not many authorities; for so long as (in respect of the first section of the Mercantile Law Amendment Act) possession by a buyer was not necessary at all, it was needless to raise the question of constructive possession; and the Court has generally proceeded on the former ground. The leading case on this point is, I think, still Orr's Trustees v. Tullis, July 2, 1870, 8 Macph. 936. It has, however, been followed in Robertson v. M'Intyre, March 17, 1882, 9 R. 772; Darling v. Wilson's Trustees, Dec. 16, 1887, 15 R. 180; and in the recent case of Mitchell's Trustees, February 27, 1894, 21 R. 567. I am of opinion that these cases do not apply. They cannot apply if the true right of Robertson was merely that of a security-holder. In that point of view Hall's possession is to be attributed to his proprietary title, and not to any subordinate title, and his possession must be regarded as his own possession, not Robertson's. But even if Robertson's title were that of owner, I doubt whether these cases could be held applicable. The circumstances in all of them were materially different. When these cases are examined they appear to be special, and to amount to this, that in the particular circumstances the possession of one person was attributed to another who authorised the possession. They were all cases in which it was held that the only intention was to confer a proprietary title, and that all the possession followed which was possible in the circumstances, or at least which could reasonably be expected. The rule has never been applied where the whole object of the transaction was only to secure a loan.” …

The complainer reclaimed, and argued—The plant and articles in the iron works had been validly transferred to him, and were his property. A bona fide sale had been intended by the parties, and a bona fide sale had been completed. The Court were not entitled to consider the primary motive of the transaction if it were proved that the intention of the parties was to carry through a sale, and that the transaction had taken the form of a sale. Here there was a good title, and there had been good constructive delivery. Wherever there was a property title given by one to another, and a subsidiary contract of hire given to the seller by the purchaser, there was good constructive delivery to the purchaser. This principle ran through all the cases— M'Bain v. Wallace & Co., January 7, 1881, 8 R. 360, aff. July 27, 1881, 8 R. (H.L.) 106; Robertson v. M'Intyre, March 17, 1882, 9 R. 772; Allan & Co.'s Trustee v. Gunn & Co., June 20, 1883, 10 R. 997; Darling v Wilson's Trustee, December 16, 1887, 15 R. 180; Liquidator of West Lothian Oil Co., Limited v Mair, November 18, 1892, 20 R. 64; Liddell's Trustee v. Warr & Co., July 18, 1893, 20 R. 989. The case of Pattison's Trustee v. Liston, June 7, 1893, 20 R. 806, was distinguished from the present, because in that case there was an admission in the back-letter that although the sale was ex facie absolute, it was truly in security of an advance. It was argued against him that the price paid was inadequate, but in the first place, as pointed out by Lord Young in M'Bain v. Wallace & Co., supra, 8 R. p. 371, the complainer's title of property in the plant might be available to the extent of the payment of the advance and no more; and in the second place, the break-up value of the plant, &c., was not greater than the £400 advanced. Then it was argued on the other side that the back-letter disclosed that the transaction was a loan, because interest and hire were used as synonymous terms. But if the rate of hire was fixed at so much per cent. on the purchase price, it was natural to speak of it as interest. In the 7th article of the back-letter there was a collateral agreement between the parties that did not affect the sale. He founded strongly on the fact that in the agreement between the parties no option was given to Hall to repurchase. This showed that the transaction was a true sale— Helby v. Matthews [1895], Ap. Cas. 471.

Argued for respondent—The Lord Ordinary's judgment was sound. There had been no bona fide sale to Robertson. The Court was bound to look at the motives of the parties. The parties contemplated a loan from the very beginning. It was not compatible with a proprietary right in Robertson that Hall should be allowed to continue in possession, and use as his own the articles, many of which were fungible.— Sim v. Grant, June 3, 1862, 24 D. 1033. The terms of the documents showed that the parties did not consider Robertson a purchaser. Power of sale was granted to him in the disposition, which under article 6 of the back-letter could only be enforced on Hall's failure to pay interest on the money lent. Clause 7 of the back-letter also conclusively showed that there had been no bona fide sale—that the transaction was one in security. In any event, the fixed plant on the premises did not belong to the complainer, as the sale had never been completed by intimation to the landlord— Millar v. Muirhead, March 10, 1894, 21 R. 658.

At advising—