Scottish Court of Session Decisions

The International Banking Corporation of, New York, Threadneedle House, London, with certain consents, brought an action in the Sheriff Court at Glasgow against Ferguson, Shaw, & Sons, oil merchants, Glasgow, in which they sought to have the defenders ordained to deliver to them 53 barrels of refined cotton-seed oil belonging to them, and failing delivery, and alternatively, to pay to them the sum, as restricted, of £156, 13s. 2d., the value to the pursuers and in the market of these barrels of oil at the date on which the defenders received delivery thereof.

The pursuers pleaded, inter alia—“(2) The pursuers being the owners of the oil for delivery of which they claim decree, and being also the holders for value of the bills of lading for said oil, they are entitled

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to delivery of the same, and failing delivery to decree for the value thereof. (4) The defenders having acquired the said oil under a pretended sale by the said John M'Nairn & Co., who had no title thereto, were not owners thereof, and did not sell with the authority or consent of the owners thereof or the holders of the title thereto, they obtained no right to said oil, and are bound to make repetition thereof to the first-named pursuers. (5) The defenders having obtained the said oil in virtue of pretended delivery orders granted by John M'Nairn & Company, who were not the owners thereof, and who did not sell said oil, or any of it, under the authority or with the consent of the pursuers, who were, and still are, the owners thereof and holders of the title thereto, the defenders have and can acquire no better title to said oil than said John M'Nairn & Company had.”

The defenders pleaded, inter alia—“(7) The defenders having, without notice of any defect in the title of John M'Nairn & Company, and in bona fide, purchased and paid for the oil in question, and not now being in possession thereof, are entitled to absolvitor, with expenses.”

The facts are given in the findings in fact of the Sheriff-Substitute ( Fyfe), who on 10th August 1908 pronounced this interlocutor—“ Finds in fact … (4) that on or about 21st November 1904, 53 barrels of oil, which form the subject of the present action, were shipped by the Maclay-Prentice Line on board s.s. “Fashoda” at New Orleans by the Union Oil Company, consigned to their order at the port of Glasgow upon bill of lading … (5) that the vessel having arrived at Glasgow on or about 26th December 1901, but the bill of lading not being present ed, the shipowners warehoused the oil in the public store of Hayman & Son at Commerce Street, Glasgow, in terms of powers to that effect contained in the bill of lading, and obtained from the storekeepers a receipt … (6) that the oil had been purchased from the American Cotton Oil Company by John M'Nairn & Company, merchants in Glasgow … (7) that the sellers drew upon the purchasers for the price of the oil; (8) that the sellers sold the draft to the pursuers… . (9) that the bills of lading, endorsed blank, were attached to the bank draft and handed to the pursuers as collateral security for payment of the drafts; (10) that the bank drafts were duly accepted by the purchasers, but were not paid; (11) that in terms of the arrangement the purchasers, M'Nairn & Company, had no proper right in or title to the goods until they had paid the drafts and received delivery from the pursuers of the bills of lading—neither of which events occurred; (12) that nevertheless the said M'Nairn & Company, not as agents for the American Oil Company but as principals, sold the oil to the defenders; (13) that the defenders had no knowledge of the nature of the transactions between the American Oil Company and M'Nairn & Company; (14) that the defenders received from M'Nairn & Company a delivery order upon Hayman & Son, the storekeepers; (15) that, notwithstanding the said delivery order was not granted with the concurrence of the shipowners who had stored the oil, the storekeepers, without any intimation to the defenders as to the circumstances under which it had been stored, honoured the delivery order granted by M'Nairn & Company, and delivered the oil to the defenders; (16) that the oil was removed from store by the defenders early in February 1905; (17) that the defenders used the oil in the ordinary course of their business for the manufacture of a lard compound, the whole of which they had sold and delivered to their customers, in good faith, and before they had any knowledge of any defect in M'Nairn & Company's title to the goods; (18) that the value of the oil at Glasgow in February 1905, when the defenders received it out of the store, was £156, 3s. 2d.; (19) that the profit made by the defenders out of the manufacture of the oil into lard amounted to £6, 4s.; (20) that in this process the defenders have tendered to the pursuers this sum of £6, 4s. with expenses in full satisfaction of pursuers' claim; (21) that pursuers have refused the said tender: Finds in law that in respect the defenders innocently acquired the oil in question by purchase in the ordinary course of business, and converted it in the ordinary course of business, and disposed of the converted article in the ordinary course of business without any notice of defect in their sellers' title, they are not liable to pursuers in restitution or for the value of the oil, but are only liable in indemnification to pursuers to the extent of £6, 4s., being the extent to which they benefited by the conversion of the oil: Therefore decerns against defenders for payment to pursuers of £6, 4s., but in respect this sum was tendered to pursuers, finds defenders entitled to expenses.”

Note.—“This case raises questions of very great importance to banks who honour drafts for the price of goods upon the strength of the shipping documents which are the ostensible title to the goods and are attached to the bank draft. The material facts are now agreed upon, and the issue in the case is reduced to a question of law. In effect that resolves itself into this proposition: Is it the law of Scotland that a person who has innocently acquired by purchase goods in the ordinary course of his business, and who has in the ordinary course of business used these goods in a manufacturing process, and has disposed of the manufactured article before he had any intimation of defect in the title of the seller to him, so that restitution by him of the goods themselves has become impossible, nevertheless liable to pay to the real holder of the title to the goods the full value of the goods as at the date he innocently purchased them; or is it the law of Scotland that the liability of the innocent purchaser and manufacturer to the real title holder is limited to

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accounting for the profit which has accrued to him from the purchase and manufacture of the goods.

There is admittedly in this case no room for any suggestion of fraud or connivance on the part of defenders, who have throughout acted innocently and in good faith.

In my opinion the liability of the defenders to the pursuers does not extend beyond accounting for the profit. The amount of that has been adjusted at £6, 4s. This sum the defenders tendered. They are, therefore, I think, entitled to expenses.

The very interesting argument submitted by Mr Donald, in my opinion rests upon an altogether erroneous view of the law of Scotland as regards the liability of the person who unfortunately comes into possession of stolen property but who has himself acted in perfectly good faith. The underlying principle of the argument was that the real owner of the stolen property is to have no risk of loss in any circumstances, but that, in some shape or other, the law must either restore to him his lost property or find somebody liable to him for its value.

I think that this is an entirely mistaken view, for the legal right of the owner of property which has been appropriated without the owner's consent is not a personal right against anybody, but is a right against the property itself. He may follow it up, and when he has found it he may lift it, but that does not make it illegal for any person into whose hands it has innocently come in the ordinary course of business to deal with it in the ordinary course of his business, so long, of course, as he has no intimation of any defect in the title of the person who passed the property on to him. Accordingly, if a person buys goods in good faith, and also in good faith re-sells them, that person has no liability to the real owner, and no duty towards him beyond telling him where the property went, so that the real owner may continue to follow it up.

The reason for this is just that the real owner has no higher right than to follow the property itself.

Whilst the most common case in which the question arises is that of re-sale, it seems to me that the legal doctrine which absolves an owner who has innocently bought an article and passed it on in the ordinary course of trade, applies also to a person who has bought a thing for manufacture and has manufactured and sold it. In each case the purchaser has dealt with the property in the ordinary course of business, and in my opinion it is a risk which the real owner of the property runs that in the course of its transmission from hand to hand it may cease to exist, in which event the principle of law which entitles the owner of property to follow it ceases to apply, and a new principle of law comes into operation, which is that no person is entitled to make a profit out of the use of another person's property which has come into his hands without the real owner's consent, however much in bona fide he has acted, and that accordingly he must indemnify the real owner to the extent to which he himself has benefited by dealing with the real owner's property. The duty of the manufacturer is, as he cannot restore the property, at all events so far as he can to restore the situation by putting himself back into the position in which he would have been if he had never acquired the property—that is to say, making no loss and making no profit—and by putting the real owner back into the position in which he would have been if the property had never left him, so far as the result of trading with the property will permit.

In my view, a money payment is not in the law of Scotland a competent alternative claim to one for restitution of stolen property, for money is not the equivalent of restitution, nor is the innocent holder liable, as the pursuers here seem to think, in a money penalty for inability to restore the property. The owner of the property has a money claim at all only to the extent of indemnification against anybody who makes a profit out of his property.

Suppose defenders had made a profit of £200 by converting the property, pursuers could not have claimed that £200, but only £150 out of it, for the profit arising from the use of the goods in the defenders' hands does not represent the goods themselves. If it did, the real owner could claim the whole £200 as being the money equivalent of his goods; but he could not do this, for that would be putting him into a better position than he was originally, and he can never claim more than to be indemnified so far as the profit made by the use of the goods will permit.

I had thought it to have been so clearly established that according to the law of Scotland a person who has in good faith passed on stolen property is not at all liable for its restitution, and that a person who has converted it in good faith without fraud (or such gross carelessness as might amount to fraud) is only liable to indemnification to the extent to which he has been benefited, that I should not have referred to the matter at such length but for a decision which has been very earnestly pressed upon my attention, and which, it is urged, I am bound to follow ( Oliver and Boyd v. Marr Typefounding Company, 12th October 1901, 9 S.L.T. 170). I, of course, accord the highest respect to the obiter dicta of any judge of the Supreme Court, but I cannot accept the view that I am bound to surrender my personal opinion to that of any Outer House judgment which was not carried further; for to do that would be to deprive a litigant of his right to have an independent judgment in the Sheriff Court upon a question competently raised in that Court. I do not, therefore, regard that decision as foreclosing the present question, and I am unable to accept the opinion of the Lord Ordinary as ruling the present case.

Between the facts in the present case and the facts in the Typefounding case there is this material difference, that in the present case the defenders had un

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doubtedly parted with the manufactured article long before they heard anything about the defective title of their seller; whilst in the Typefounding case it appears to have been a fact, or at least a probability, that the converted article remained in the converter's possession after he had received intimation of his seller's defective title. I am not able to accept the view that this is an accidental distinction, or that it makes no difference in legal result; for the one important element which frees from liability a person who has come into innocent possession of stolen property is that he has, without notice of fraud, passed it on whether in its original form or in a converted form. If in the present case the defenders had been made aware before they parted with the lard of the facts and circumstances which have been disclosed in this process, I am not sure that their legal position would have been exactly the same as it now is; but upon this I offer no opinion, because it is an admitted fact that they had parted with the lard before they knew anything of these circumstances. Even, however, had the facts in the present case been exactly similar to those in the Typefounding case, I could not accept that case as ruling the present, for I do not think the Scotch authorities cited support that judgment. As regards the English authorities I say nothing, except that the subject of restitution seems to me a branch of the law in which it is peculiarly dangerous to apply English decisions to the elucidation of Scotch legal principles. As regards the Scotch cases, I respectfully hold the opinion that none of them negative, and some of them directly support, the view of the law which I have taken.”

The pursuers appealed to the Sheriff ( Gardner Millar), who on 9th January 1909 pronounced this interlocutor:—“Recals the interlocutor of 10th August last: Finds in terms of the findings in fact therein: Finds in law that the defenders, although innocently. but without title, having converted the oil in question belonging to the pursuers, or to which they had right, into a new species, namely, lard, which they have sold, are liable to the pursuers in compensation for the value thereof: Therefore decerns against the defenders for payment to the pursuers of the sum of £156, 3s. 2d. sterling,” &c.

Note.—“The question that is now raised is as to the obligation of a bona fide purchaser for full value from a seller who had no title to the property to the true owner. The pursuers' agent drew a distinction between property which had originally been stolen and property which had come into possession of the seller without title but not feloniously. So far as the possession of the bona fide purchaser is concerned, I do not think there is any distinction between stolen property and other property. The true owner would have the same claim against the innocent possessor of the property without real title in the one case as in the other. The position is laid down by Lord Stair, Institutes, i, 7, 2—‘Restitution of things belonging to others may seem to be an effect of property, whence cometh the right of vindication or repetition of anything; but, beside the real action the proprietor hath to take or recover what is his own (which doth not directly concern any other person, and so, being no personal right, hath no correspondent obligation), there is an obligation upon the haver of that which is another's to restore it, and thence a personal right; which is a power in the owner to demand it, not only when it is in the possession of the haver, but if he have fraudfully put it away.’ It is admitted in this case that if the oil had still been in the possession of the defenders they would have had no answer to the claim of the owners for restitution. But then it is said that they converted it into lard, and having sold the lard to customers, they are no longer liable in restitution, but are only liable for any profit they may have made upon it. They say the amount of profit they made was £6, 4s., which they tendered to the pursuers. If the oil had remained in the form in which the defenders purchased it, and they had resold it in forma specifica to their customers, I do not think that there would have been any doubt that their position was right. Lord Stair, book i. tit. 7, sec. 11, says—‘In all these the obligation of restitution is formally founded upon the having of the things of others in our power, and therefore, that ceasing, the obligation also ceaseth. As he who bona fide did buy that which did belong to another, if while he hath it it appear to be that other's, he must restore it without expectation of the price he gave for it (but as to that he must take himself to his warrandice expressed or implied by the seller); but if bona fide he have sold it before he be questioned, he is free, and not obliged to restore it; though in so far as he did profit by receiving more for it than he gave, he be liable by the obligation of remuneration or recompense.’ There are several cases where that doctrine has been followed, notably the recent case of Morrison v. Robertson, 45 S.L.R. 264. But I apprehend that Lord Stair is there referring to the re-sale of the article in the same form as the seller purchased it. The reason for the rule seems to be this, that the answer of the innocent purchaser to the true owner is that he has parted with the possession and therefore cannot restore it, but he informs the true owner of the names of the persons to whom he has sold it, leaving him to vindicate his property from them. At the same time he must be prepared to make over to the true owner any profit he had made, because no one can be enriched by the possession without title of the property of another. In the present case, however, the defenders have converted the property of the pursuers into something different from what it originally was. Therefore the true owner could not go against any subsequent purchaser, because their answer would be complete, that what he demanded from them was oil, and what they purchased was lard. As Lord Stair points out, the claim of the owner is a

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right to the thing itself, and if the thing itself has disappeared then his jus ad rem disappears also. It appears, however, in the present case that it was by the action of the defenders that the property of the pursuers ceased to exist in forma specifca and was converted to something else. It is true that their action in doing so was quite innocent and in the ordinary course of their business, but I cannot see why, if it is by their action that the pursuers are deprived of their right to vindicate their property, the pursuers rather than the defenders should bear the loss. The pursuers are entitled to recover the thing, and they have traced it into the possession of the defenders, and it is by the action of the latter that the thing has ceased to be, and thereby the pursuers have lost the power of vindicating it. The defenders therefore, being the last in possession of the thing, and having converted it into something else, seem to me, from that fact, liable to compensate the pursuers for its loss. There are very few cases in our books upon this question, the most recent being the case of Oliver & Boyd v. Marr Typefounding Company, 9 S.L.T. 170. in which Lord Stormonth Darling held that, on the conversion of type which belonged to the pursuers into another shape the pursuers were entitled to decree for the value of the type. I do not say that that case is an authority for the present one, but I think the observations of the Lord Ordinary give a general support to the view I have taken. Certain old cases were referred to, viz., Scott v. Law, 1704, M. 9123; Walker v. Carfrae, 1765, M. 12, 802; and Ferguson v. Forrest, M. 4145. None of these old cases seem to me to have much bearing upon the present case, because in none of them was the question of the conversion of the goods claimed into a totally different species raised. All of them were cases of animals, and either the animals or their carcases were the subject of the claim. There was an observation of the Lord Ordinary in the case of Foulds v. Townsend, 23 D. 437, which points to a different conclusion. Lord Ardmillan there says—‘If the advocator purchased the horse not merely in good faith and without knowledge that it was stolen, but with due care and caution under the circumstances, and then disposed of the horse by slaughtering and using it up, also with the due care and caution which the law requires, then he would only be liable in quantum lucratus, which in this case would be a very small sum, probably not exceeding 8s. or 10s.’ He does not say what the authority is for his opinion, and it is clearly not necessary for the decision of the question before him. Lord Stormonth Darling in the course of his opinion in the case of Oliver & Boyd, above quoted, differs from Lord Ardmillan's opinion, and therefore I do not think it is binding upon me.

It only remains to say that in the English Courts a much stricter view of the liability of the innocent possessor without title of property belonging to another is taken. That, however, turns upon the rule as to conversion. In the case of Hollins v. Fowler, 1872, L.R., 7 Q. B. 616, a number of the cases on this branch of the law are considered by Mr Justice Brett, and it seems to be laid down that if anyone exercises towards the property the rights of an owner he becomes liable to the true owner for the value of it; and the same view was taken in the case of Cundy v. Lindsay, 1878, 3 App. Ca. 459. It appears, therefore, that the English law carries the right of the true owner much further than I think would be admitted in the law of Scotland, but so far as it applies it seems to me to be in favour of the view I have taken.

In the circumstances I think the pursuers are entitled to decree, with expenses.”

The defenders appealed, and argued—So long as the oil remained in the possession of the defenders they would have been bound to restore. Possession of property was lost as soon as it was voluntarily parted with. Accordingly the person having possession, even on an unexceptionable title, was bound to restore, but as soon as he ceased to be possessor of the subject his right of disposal was gone, and with it the obligation to restore—Stair, i, 7, 2; i, 7, 11; Bankton, i, 8, 11; Ersk. Inst., iii, 1, 10; Bell's Principles, sec. 527. Thus there was a duty to restore if there was still possession, but if there had been bona fide divestiture there was no such obligation, and any legal divesting on the part of the possessor, so that the article was no longer in his possession, would exclude the right of the true owner to demand restitution— Scot v. Low, 1704, M. 9123; Walker v. Spence and Carfrae, 1765, M. 12, 802; Faulds v. Townsend, February 5, 1861, 23 D. 437. The latter, however, was entitled to claim the amount by which the possessor had become lucratus. In the present case the oil was no longer in forma specifica, but this made no difficulty as regards the principle to be applied. De facto the original subject had ceased to exist, and restoration by the defenders was impossible. Further, however, even if the defenders had been liable in restitution the oil in the form of lard compound had been sold, and restoration by the defenders was impossible. Oliver & Boyd v. The Marr Typefounding Company, Limited, July 19, 1901, 9 S.L.T. 170, was distinguishable. There Lord Stormonth Darling appeared to hold that the defenders had failed to prove affirmatively that they had parted with the subject, and the change of form was negligible. Fergusson v. Forrest, 1639, M. 4145, therein referred to appeared to have been decided on a specialty. The right of the true owner of stolen goods was a jus in rem, and his proper remedy was an action to vindicate possession against the possessor for the time being, but this right terminated upon that possessor ceasing to possess or upon change of form of the goods, which was equivalent to the destruction of the res. If, however, the possessor alienated frandfully, the true owner had, in addition to his right to vindicate his property, an action of damages—Stair, i, 7, 2. By Scots

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law the vitium attached to the good alone. The law of England was differen in this respect, that by the doctrine o conversion an innocent third party was liable in the value of stolen goods even after he had ceased to possess them—Bullen & Leake's Precedents of Pleading, 6th ed., p. 344; Hollins v. Fowler, 1875, L.R., 7 Eng. & Ir. App., 757. The English law should therefore not be relied on. Scots law followed the Roman law—Justinian Institutes, iv, 1, 19; iv, 6, 14; iv, 6, 18; Digest, vi, 1, 36; xlvii, 2, 46. The present case did not fall under the rules applicable to the Roman doctrine of specificatio, the creation of a new species. It did not apply to stolen goods. The present was rather a case of confusio.

Argued for pursuers and respondents—The defenders, so long as the goods remained in their possession in forma specifica, were bound to restore. But a new question arose in this case. What had taken place was that a new species had been created by the defenders, viz., lard compound. Accordingly the Roman doctrine of specificatio here applied. The question now came to be whether this new species could be reduced to its component parts or not If it could not the defenders were bound to recompense the pursuers. The res had now been changed into something else. As a result the true owner of the oil had now, instead of the vindicatio or real action to recover his property, a conditio or personal action to enforce payment of the value of the material against the possessor of the new species—Justinian, Institutes, ii, 1, 25. This doctrine of the Roman law was found throughout the law of Scotland, and applied wherever the materials had been acquired in bona fide — Stair, ii, 1, 41; Bankton, 1, 9, 43; ii, 1, 12; Bell's Principles, sec. 1298; Wylie & Lochhead v. Mitchell, February 17, 1870, 8 Macph. 552, 7 S.L.R. 310. The defenders' liability was for the value of the pursuers' goods used by them. It made no difference that the new species had been passed on by them, because the action was a personal action for the value of the materials used by the defenders. Oliver & Boyd ( supra) was a direct authority against the defenders, as it was held not to be a good defence that the species was changed. Scot v. Low did not touch the present question. Walker v. Spence & Carfrae ( supra) was also different, as in it there was no creation of a new species. Ferguson v. Forrest ( supra) was certainly in favour of the pursuers if it applied at all, as was also Faulds ( supra). In principle the law of England, apart from the doctrine of conversion, did not differ from that of Scotland and might be referred to. A purchaser took goods subject to any infirmity in their title. A person with no title could not give a better title than his own, and the vitium reale affected stolen goods wherever they went — Morrison v. Robertson, 1908 SC 332, 45 S.L.R. 264; Cundy v. Lindsay, 1878, L.R., 3 App. Cas. 459. It was a sufficient defence in Scotland that goods had been passed on, although not so in England— M'Combie v. Davis, 1805, 6 East. 538; Hollins ( supra). Accordingly in Scotland the true owner must proceed against the person in possession for the time being, while in England he could have proceeded against anyone who had had possession. In effect the systems were the same, because by the Scots law of warrandice ultimate liability rested upon the first seller. The case was really one of specification, but even if confusio the result would be the same—Bell's Prin., sec. 1298.

At advising—