Scottish Court of Session Decisions

On 13th October 1898 Bisset & Wyllie, wood-turners, Saint Peter Street, Aber deen, entered into an agreement with John Mathieson, Lochwood Park, Drumoak, the landlord of the premises occupied by them in Saint Peter Street. The agreement was in the following terms:—“ First, The second parties (Bisset & Wyllie) hereby acknowledge to have taken on hire from the first party (Mathieson) the gas-engine to be purchased by the first party from Crossley Brothers, engineers, Openshaw, Manchester, and the seven turning-lathes, band-saw, three circular-saws, moulding-machine, boring vertical, shafting, pulleys, and belting, hereinafter called ‘the plant’ purchased by him from them as at the date hereof, the said second parties being bound to pay said first party for the hire and use of said gas-engine and ‘plant’ the sum of £9 per annum in equal parts at the half-yearly terms of Martinmasand Whitsunday, beginning the first term's payment at Martinmas next for the portion due in respect of said hire from the date hereof to said term of Martinmas next. Second, The said second parties shall be bound to take over from the first party the said gas-engine and ‘plant’ at any time when called upon by said first party, paying him therefor the price of £200 sterling, and paying in addition thereto whatever hire may be due at the date of taking over, which hire shall be estimated at the above-mentioned rate of £9 per annum. But, without prejudice always to the said first party's right to exact payment of said purchase price and hire, it shall be in the power of the said second parties to acquire from the said first party at any time the said gas-engine and ‘plant’ on paying the first party the said price of £200 and whatever hire may be due at the time of taking over; Declaring that, whether the said gas-engine and ‘plant’ be taken over by the second parties under the first party's requisition or at their own option, the property of said gas-engine and ‘plant’ shall not pass to the second parties until the whole price of £200 and hire then due shall have been paid to the first party.”

On the same day Bisset & Wyllie granted a receipt in the following terms:—“Received from John Mathieson, Esquire, Lochwood Park, Drumoak, the sum of £79 sterling, being price of seven turning-lathes, band-saw, three circular-saws, moulding-machine, boring vertical, shafting, pulleys, and belting purchased by him from us as at this date, and let on hire by him to us, as per minute of agreement between him and us as at this date.”

The plant referred to in this receipt was the plant which Bisset & Wyllie had been previously using in their business at the premises in St Peter Street, leased by them from Mathieson, and it continued to be used by them in their business there, and it never left the premises.

Mathieson purchased the gas-engine referred to from Crossley Brothers, who delivered it on Mathieson's order at the premises in St Peter Street. Crossley Brothers rendered their account to Mathieson for the price, which was £121, and this sum was paid by him to them

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In June 1900 the firm of Bisset & Wyllie dissolved partnership, and the firm's business was thereafter carried on by James Bisset and Alexander Bisset under the name of Bisset & Son.

On 7th July 1902 Bisset & Son granted a trust-deed in favour of Ernest Rennet, advocate and chartered accountant, Aberdeen, as trustee for their creditors.

The plant referred to in the receipt remained in the possession and use of Bisset & Son after the change in the partnership. They left the premises when they became embarrassed, but the plant remained in the premises, and the keys continued with them until they handed them over to the trustee.

In August 1902 the trustee under the trust deed raised the present action in the Sheriff Court at Aberdeen against John Mathieson for declarator that the whole machinery and plant in the premises occupied by the trusters in St Peter Street, Aberdeen, were his property as trustee, and for interdict against the defender from interfering with him in the possession thereof.

The defender averred that the plant in question other than the gas-engine was purchased by him from Bisset & Wyllie, and delivered to him at the premises belonging to him in Saint Peter Street on 13th October 1898, and was hired by Bisset & Wyllie from him in terms of the agreement quoted above.

The pursuer in answer averred that the transaction between the defender and Bisset & Wyllie was not a genuine sale and letting on hire, but a loan on the security of the machinery, plant, and others, and that the receipt and minute of agreement were an attempt to constitute a security over moveables retenta possessione. He also averred that the loan was made at 4 1 2 per cent. interest, and that interest on the loan was paid to the defender every half-year.

The pursuer pleaded—“The machinery, plant, stock, and fittings in question being the property of the pursuer, and being wrongfully claimed by the defender, pursuer is entitled to decree as craved.”

The defender pleaded—“(1) The engine and plant being the defender's property, and not the property of the pursuer, defender is entitled to absolvitor, with expenses.”

The Sale of Goods Act 1893 (56 and 57 Vict. cap. 71) enacts—(Section 17) (1)—“Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.” Section 61 (4)—“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 mortgage, pledge, charge, or other security.”

A proof was allowed and led. The defender deponed—“When Bisset & Wyllie approached me first they wanted money. (Q) A loan?—(A) Well, of course it was a loan. They mentioned a loan first, but I did not take it as a loan; after I saw my agent it was a hire. ., . (Q) Now, supposing you had sold the machinery and it had realised £300, what would have come of the balance over £200? (A) I don't say that I could have sold the machinery at all. I don't suppose that I would have been entitled to another £100. (Q) Any balance and the interest would have gone to them? (A) 1 don't know about that. I could not say who it would have gone to.

“ By the Court.—The article in the agreement, ‘The said second parties shall be bound to take over from the first parties,’ &c., having been read and being interrogated—Having regard to that article in the agreement, do you not think that the Bissets would have been entitled to any balance over and above £200 and interest? (A) Certainly. I don't think I would have been inclined to ask anything if I had got my own… . The machinery was to be used until it was paid for. I would never have thought of buying the machinery. I had no use for it.”

Pour receipts by the defender for termly payments under the agreement of 13th October 1898 were produced. The receipt dated 11th May 1900 was as follows:—“1900. May 11. Recived from Messrs Bisset and Wyllie the sum of four pounds ten shillings for halfe-year's intrest on lone on two hundred pounds at 4 1 2 p. ct. Paid 2/7/1900.—john mathieson.”

The other three receipts produced, dated respectively November 11th, 1900, May 15th, 1901, and November 11th, 1901, were in terms precisely identical with those of the receipt dated May 11th, 1900.

On 20th November 1902 the Sheriff-Substitute ( Henderson Begg) assoilzied the defender.

On appeal the Sheriff ( Craweord) pronounced the following interlocutor, on 13th December 1902:—“Recalls the interlocutor appealed against: Finds in fact (first) that the pursuer has failed to prove that the Crossley gas-engine mentioned in the record is his property; (second) that he has proved that the whole machinery, plant, stock, and fittings in the St Peter Street turnery, other than the said gas-engine, are his property: Therefore refuses the prayer of the petition in so far as it relates to the said gas engine: Quoad ultra finds and declares in terms of the said prayer, and grants interdict as craved.”

Note.—“It is beyond question that the sole object of the transaction between Bisset & Wyllie and the defender was to enable the former to obtain a loan of £200 from the defender, their landlord, for the purpose of carrying on their business, the loan being secured by a transference ex facie in absolute property of the machinery and plant in the works, including a new gas-engine which was supplied at the defender's expense. The defender's own evidence, which is candid and creditable to him throughout, is clear on this point.

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The object was a legitimate one, but it is always difficult to constitute an effectual security over moveables which remain in the possession of the debtor. In order to effect this purpose the agreement was drawn up by the defender's agents and signed by the parties, and the receipt was granted by Bisset & Wyllie.

The accommodation required by Bisset & Wyllie was granted in two ways. The defender purchased and paid for a new gas-engine, which they required, costing £121, and handed it over to them. The remaining £79 required to make up the £200 is stated in the receipt to be the price of certain articles of machinery and plant therein enumerated, which were Bisset & Wyllie's property, which they were using in their works, and which never left their possession.

With regard to the gas engine, I am of opinion that the contemplated arrangement was valid, and that it never became the property of Bisset & Wyllie. The true legal position of the rest of the machinery included in the receipt is much more difficult. The law now stands upon the Sale of Goods Act 1893, section 17 and section 61 (4), and I have come to be of opinion that this transaction was not a sale but simply an attempt to create a security over moveable property belonging to the debtor and remaining in his possession. The case would have been more clear if there had been more proof of gross discrepancy of value. Mr Bisset's evidence, though not precise, is quite clear on the point, and it is not definitely contradicted by the defender, who really had no occasion to apply his mind to the subject. There is no doubt that all that he looked to was to make sure that there was sufficient to cover the balance of the £200—namely, £79. But the other evidence in the case, such as the receipts for interest in the defender's own hand, appear to me to leave no doubt that the transaction was a loan.

I do not agree with the view that the written agreement is conclusive. It is settled that in similar cases the true nature of the transaction may be investigated by parole proof. If a technical ground were required for that practice, it might be found in this, that the agreement is impugned on grounds which would be relevant for reduction, and those grounds may be pleaded by way of exception in reply to the agreement when produced by the defender. At all events the practice is well settled.

Nor do I think that the pursuer is disqualified from taking action because he has not the power of attacking illegal preferences. This is not an illegal preference. The question is whether there was a sale at all. Accordingly, in my opinion, it makes no difference that the pursuer is acting under a voluntary deed and is not a trustee in bankruptcy. As Mr Munro very properly admitted, if the pursuer has the right to claim this property, the trusters would equally have had that right, and that at any time after the agreement. If that be not so, it would, I think, follow that if the defender had become bankrupt the property of this machinery, however much its value may have exceeded the price, would have belonged to his creditors. Also that he might have sold it, and would not have been obliged to account for any surplus. In bis own evidence he does not take up that position. He does not claim that he would have been entitled to sell it, and he admits that if it was sold the surplus would have gone to Bisset & Wyllie. Yet the power of sale is one of the principal incidents of property, and it was not stipulated that he should let the machinery on hire to Bisset & Wyllie for any definite time.

I am of opinion that the case is ruled by that of Robertson, v. Hall's Trustees, 24 R. 120, which it closely resembles. There no doubt the trustee was a trustee in bankruptcy, but it does not appear that there were any prior creditors, and I have given my reasons for holding that the distinction is not material in the present case.

On the whole, therefore, though not entirely without hesitation, I have come to a different conclusion from the Sheriff-Substitute on this part of the case.”

The defender appealed to the Second Division of the Court of Session.

The Sheriff's judgment with regard to the gas-engine was acquiesced in. With regard to the rest of the plant the appellant argued—Bisset & Son's possession of the plant was as tenants, and no right therein passed to the pursuer, the transaction embodied in the agreement of October 1898 having been a bona fide sale— Robertsons v. M'Intyre, March 17, 1882, 9 R. 772, 19 S.L.R. 536; Duncanson v. Jeffries' Trustee, March 4, 1881, 8 R. 563, 18 S.L.R. 367. The pursuer's authors could not have set aside the agreement by parole evidence, and the pursuer's right under the voluntary trust-deed could be no higher than theirs; the pursuer had no title to set it aside as an illegal preference— Fleming's Trustees v. M'Hardy, March 2, 1892, 19 R. 542, 29 S.L.R. 483. The doctrine of reputed ownership did not aid the pursuer— Marston v. Kerr's Trustee, May 13, 1879, 6 R. 898. The case of Robertson v. Hall's Trustee, November 19, 1896, 24 R. 120, 34 S.L.R. 82, referred to by the Sheriff, was distinguished from the present case; in that case there was no delivery, but the plant herein question was delivered on 13th October 1898, when parties intended it to be—Sale of Goods Act 1893 (56 and 57 Vict. cap. 71), secs. 17 and 18. Apart from the Sale of Goods Act, actual delivery was not necessary, the plant having remained in the sellers' possession under a new title— Liddell's Trustee v. Warr & Company, July 18, 1893, 20 R. 989, 30 S.L.R. 900; this view was supported by contrasting the latter case with Pattison's Trustee v. Liston, June 7, 1893, 20 R. 806, 30 S. L.R. 690. The motive with which the agreement of October 1898 was entered into did not affect the defender's rights— M'Bain v. Wallace & Company, July 27, 1881, 8 R. (H.L.) 106, 18 S.L.R. 734. Even if the defender had only a personal right, he was in as good a position as the pursuer, who

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had failed to prove acquisition of the plant— Clark v. West Calder Oil Company, June 30, 1882, 9 R. 1017, 19 S.L.R. 757.

Argued for the respondent—The transaction entered into in October 1898 was a mere attempt to give the defender a security over undelivered moveables. This view was clearly established by the defender's own evidence, and by the receipts granted by him for termly payments of “interest on loan.” The defender could have no right in security while the plant remained in the possession of his debtors— Jones & Company's Trustee v. Allan, December 20, 1901, 4 F. 374, 39 S.L.R. 263. There could be no true sale when the price was not fixed with reference to the value of the articles sold, and it was not said that it was so fixed in this case. Further, under a contract of sale there could be no right in the buyer to compel the seller to take back the articles sold at his option. The case was governed by Robertson v. Hall's Trustee, cit. sup.

At advising—