Scottish Court of Session Decisions

On 5th July 1907 John Laird & Son, measurers, Port Glasgow, pursuers and nominal raisers, brought an action of multiplepoinding and exoneration against the Governor and Company of the Bank of Scotland and others for the purpose of determining the right to a cargo of timber then lying in Laird & Sons' timber yard at Port Glasgow. The cargo was claimed by, inter alia, (1) Messrs Price & Pierce, timber merchants, London, the unpaid sellers; (2) Buchanan & French, Limited, timber merchants, Glasgow, the purchasers of the timber, and the liquidators of that company; and (3) in part by the Bank of Scotland and others to whom various delivery orders had from time to time been given by Buchanan & French in return for sums advanced them.

The facts and the nature of the claimants' averments appear from the opinion ( infra) of the Lord Ordinary ( Salvesen), who on 20th July 1909 pronounced this interlocutor—“Finds as regards the claim of Price & Pierce, Limited, that on 2nd November 1906 the said claimants sold to Buchanan & French, Limited, a parcel of fresh pitch pine sawn timber consisting of 2664 logs at the price of £4030, as per memorandum of agreement of said date: Finds that the said contract was induced by false and fraudulent misrepresentations by John Buchanan, the managing director of the said company, and that the claimants are entitled to have the said contract rescinded as in a question with the liquidators of said company: Finds, as regards the claim of G. L. Fraser, that the said claimant on 12th March, in respect of a loan of £3000 paid in cash, obtained a transfer to the bill of lading for the said cargo, and also a delivery order for 1166 logs and 416 logs, and that said delivery order was duly intimated to the holders of the cargo, and the logs therein contained identified and ascertained prior to the date of the notour bankruptcy of the said Buchanan & French, Limited: Finds, as regards the claim of T. & R. Duncanson, that the delivery order for 420 logs, dated 18th March 1907, on which the claimants found, was granted in further security of a prior debt within sixty days of notour bankruptcy of the said Buchanan & French, and was therefore ineffectual as against the liquidators of said company or the unpaid vendors: Finds, as regards the claim of the Bank of Scotland, that they have failed to establish that the goods contained in the delivery order for 200 logs and 100 logs, dated respectively 19th and 22nd March, were ascertained or identified prior to said notour bankruptcy, and that no valid security in their favour was constituted thereby: Therefore (first) ranks and prefers the claimant G. L. Fraser to the proceeds of the said 1166 logs and 416 logs, under deduction of the proportion of the charges of the nominal raisers applicable to said parcel, and of the real raisers' expenses of raising and bringing the action into Court; (second) sustains the claim of the Bank of Scotland in so far as it is a riding claim on that of G. L. Fraser, and ranks the Bank of Scotland to that extent; quoad ultra repels their claim; and (third) ranks and prefers the claimants Price & Pierce, Limited, to the balance of the fund in medio under deduction as aforesaid; repels the claim for T. & R. Duncanson: finds the real raisers entitled to their said expenses of raising and bringing the action into Court,” &c.

Opinion.—“The nominal raisers in this case were at the date of the action holders of a cargo of timber discharged from the screw steamer ‘Ameland’ in March 1907, but which has since been sold and converted into money by agreement. To this fund there are various competing claims.

The cargo in question was on 2nd November 1906 sold by Price & Pierce, Limited, of London, to Buchanan & French, Limited, timber merchants in Glasgow, at the price of £4030, the purchasers paying freight on delivery. The memorandum of agreement embodying the sale provided that payment was to be ‘by approved acceptances to sellers or sellers' agent, draft payable in London at four months at sight of and in exchange for bill of lading and other shipping documents.’ At the time of the sale, and until shortly before they suspended payment in April 1907, Buchanan & French, Limited, were in good credit, and ostensibly carrying on a large business.

The cargo in question was shipped on board the s.s. ‘Ameland,’ and a bill of lading dated 26th January 1907 granted therefor. The goods under this document were deliverable to the order of Price & Pierce, Limited, or their assigns. On receiving the shipping documents Price & Pierce, on 11th February 1907, made out acceptances for the price payable drawn by them upon Buchanan & French, Limited, and these were duly accepted on the 18th. In exchange therefor the purchasers received the shipping documents, including the bill of lading which was blank endorsed.

The cargo arrived at Greenock on 11th March, and the discharge was at once commenced and completed on the 14th. Messrs Laird & Company received delivery subject to the shipowners' claim for freight, which was afterwards settled. On 12th March a delivery order for 1166 logs and 250 loads was granted in favour of G. L. Fraser by Buchanan & French, Limited, and was duly intimated to the nominal raisers. On 18th March a delivery order for 200 logs was granted in favour of the Bank of Scotland, and on same day a delivery order for 420 logs in favour of the claimants Duncanson; and on 21st March a further delivery order for 100 logs was granted in favour of the Bank of Scotland. These delivery orders exhausted the entire cargo with the exception of 102 logs. All the delivery orders were intimated and acknowledged by the holders.

On 11th April 1907 a petition was presented to the Court of Session at the instance of Price & Pierce for the winding up of Buchanan & French, Limited. On 22nd April the company passed a resolution for voluntary winding-up; and the

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Court on the petition already presented afterwards directed the liquidation to proceed under its supervision. Price & Pierce received no payment to account of the purchase price, and if they are to rank simply as creditors in the liquidation they would have to be content with a very small dividend, as the estates of the company were found to be hopelessly insolvent.

The cargo is claimed by Price & Pierce, Limited, in competition with all the other claimants.… [ After rejecting the first contention of these claimants, viz., that the stipulation in the contract that payment was to be made by approved acceptances was suspensive of the sale, that the acceptances received were not of that character, the acceptors being at the time hopelessly insolvent, and consequently that the property of the cargo never passed to the purchasers, his Lordship proceeded]— The second ground on which Price & Pierce maintain as against the liquidators that they are entitled to the fund in medio is that they were induced to enter into the contract of sale by false and fraudulent statements made by Mr Buchanan; and that the liquidators are not entitled to take benefit from his fraud. I agree with Mr Macmillan, who argued the case for the liquidators and the Bank of Scotland, that a mercantile contract of this kind will not be rescinded because of vague and general statements which were made when the contract was concluded, and which proved to have been false to the knowledge of the person making them. It must be clearly shown, in addition, that but for these statements the contract would not have been entered into—in other words, that it was induced by fraud. The onus of proving this lies upon the claimants, and the question for my decision is whether they have satisfied this onus, the legal result, if they have, not being in controversy. The case on this head depends on the evidence of three witnesses—Mr Price senior, Mr Benn, and Mr Keith Price, the two former being directors of the claimants' company, and the latter being the person who actually negotiated the sale in question. The result of the evidence of the two former is that they had some dubiety as to the financial position of Buchanan & French, Limited, and instructed Mr Keith Price not to give them any further credit unless he obtained a satisfactory statement as to their position. Up to that time there had been no very strong reason for distrusting the company's ability to meet its obligations; but several circumstances, small in themselves, as, for instance, that the company had some time previously asked a renewal of one of their trade bills, had aroused suspicion in the minds of the two witnesses in question; and their agent in Glasgow Mr Kyle had also in June previous sounded a note of warning. I do not think that the claimants felt any real alarm on the subject, but they had nevertheless, if they are to be believed (and I think their evidence was perfectly frank and trustworthy), come to the conclusion that it would not be advisable to sell any large lot of goods to Buchanan & French, Limited, without obtaining satisfactory assurances as to their financial stability. Moreover, it is certain that before the cargo in question was sold Mr Keith Price had an interview with Mr Buchanan, an interview at which Mr Kyle was present, although he paid no attention to what actually passed. Mr Keith Price jotted down at the time the statements made to him by Mr Buchanan, and a copy of this jotting is in process. That such a jotting was made at the time is spoken to by the two directors already mentioned, who saw it the morning of Mr Keith Price's return from Glasgow. Mr Buchanan was not a witness, having left the country under a cloud, and the liquidators not thinking it worth their while to guarantee the Crown the expense of bringing him back to this country to answer to a charge of fraud.

The jotting itself contains intrinsic evidence that the materials must have been supplied by Mr Buchanan; and so far as the earlier items in it are concerned they are all accurate with the exception that there is an error in the name of the chairman of the company. The case accordingly turns upon the ‘rough idea of the balancesheet’ which forms the last part of the jotting, and which represents the company as having its capital of £70,000 intact, as well as a reserve of £10,000 to meet any deficiency in stock or running accounts. In addition, Mr Keith Price depones that Buchanan told him ‘that he was doing a very fine business, and was making very large profits … in fact he said he was in a better position by far than he had ever been before.’ A statement of this kind, coupled with the rough estimate of the financial position of the company contained in the jotting, was quite sufficient to induce confidence; and I accept Mr Keith Price's statement that but for what passed at the interview, the substance of which he jotted down, he would not have entered into the transaction at all.

That the statements made by Buchanan were false, I think, is clear from the evidence of both sets of accountants. Within four months Buchanan & French, Limited, had suspended payment, and the statement of affairs made up by Messrs M'Lintock & Company as at 10th April 1907 showed a deficiency of £67,000. Mr M'Lintock admits that the position of the company cannot have been materially better in October 1906 than it was at the finish—and accordingly it must be taken to be a fact in the case that if the company had been wound up on 1st November 1906, when the contract was made, its estates would have proved as insolvent as they actually turned out to be later. There was therefore no spare capital, as the rough balance-sheet represented, nor any reserve, but an indebtedness in excess of the whole assets by over £60,000. Accordingly it is plain that Mr Buchanan must have overestimated the value of his stock and of the running accounts; and still more obvious is it that when he represented the

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company's debts at £34,000 he must have left out of view all his trade obligations, for the debt to the bank at that date amounted to about that sum.

All this, however, perhaps is consistent with Mr Buchanan having an honest belief in the solvency of his company. It frequently happens that business men form an entirely erroneous estimate of the stability of their debtors and of the value of their assets; and what appeared to them as a solvent concern may in a few months turn out to be hopelessly otherwise. There is some evidence that Buchanan believed to the last that his company was solvent; but in his absence I am afraid no importance can be attached to it. Nevertheless the presumption is always against fraud; and the claimants must satisfy the Court that the only reasonable inference to be drawn from the known facts is the inference that the statements of Buchanan were made in the knowledge of their falsity.

In my opinion there is ample material from which this inference can be drawn. The limited company had been floated the previous year, taking over the assets of the former firm of Buchanan & French as from 31st December 1904. Buchanan was the principal promoter of the company; and it is now plain that in order to obtain an accountant's certificate on which he could go to the public he had found it necessary to make a number of fictitious entries in the books to the amount of nearly £10,000 as brought out in Mr M'Lintock's statement. I agree with Mr M'Lintock that John Buchanan was well aware of the effect that these entries would have upon the trading results and the position of the accounts generally; and I think it is obvious that if they had come to the knowledge of the accountant who certified the annual profits no certificate such as he gave would ever have been granted. Accordingly it is apparent that the very formation of the company could not have been carried through but for the fraud of John Buchanan.

Of course it does not follow from this that Buchanan knew that the company was insolvent a year later after £43,000 of fresh capital had been infused into the concern; but at the very date when the interview took place between Mr Keith Price and Mr Buchanan the latter was engaged in a series of frauds of a different nature. A large part of the turnover of his business was done with a number of smaller firms or companies which Mr Buchanan had started in business and had continuously financed. The strain upon his company's resources had by this time become so great that he could not have met it but for an ingenious method which he adopted of obtaining a much larger overdraft from the Bank of Scotland than the head-office had authorised. He was aware that the weekly inspection of customer's accounts took place on Tuesday. Accordingly on every Tuesday he obtained bogus cheques from the various firms that he was financing as well as from a writer in Glasgow who had no business connection with him at all, which were paid in to the credit of his account. These cheques reduced the overdraft below the authorised figure; but on the very next day, when the danger of discovery was over, cheques to an equal amount were passed upon the account; and the money obtained for these was at once utilised in meeting the cheques which had been paid in on the previous day. Thus on 28th August 1906 the amount of Tuesday's cheques received was £14,034, and on the other side the repayments of Tuesday's cheques amounted to £13,863. In this way Mr Buchanan was getting for the company an additional overdraft from the bank beyond what the bank had authorised of £14,000. This system had been going on for a considerable time before, and, as might be expected, the success which attended it led to more and more advantage being taken of the bank until the amount of the cross entries in the month of January 1907 reached the large total of £131,885.

So familiar was Mr Buchanan with the bank's method of doing business, and such elaborate precautions were taken to give the bogus cheques the appearance of payments in the ordinary course of trade, that Mr Robertson, the manager of the bank in Glasgow, did not discover what had been going on until December 1906. The fraud was, moreover, one to which the smaller firms who granted the cheques must have been parties; and it is significant that not one of them has been examined in this case. It was contended for the liquidators that all this was consistent with Mr Buchanan having a genuine belief in the solvency of his company, for if the obligations which these smaller firms had incurred to Buchanan & French, Limited, were good, the company would still have been solvent. I am unable to accept this view. In the first place, Mr Buchanan was practically the parent of all these companies and was intimately acquainted with their business. He must have known that they were not able to meet their obligations, otherwise he would not have continued financing them as he did until the crash came. But further, it is obvious that if he had not succeeded in this way in obtaining an overdraft from the bank far in excess of what had been authorised, the company would have required to suspend its payments long before November 1906. Perhaps Mr Buchanan hoped that if he could only keep these smaller companies afloat he might ultimately be able to pull through; but if so, I am satisfied he had no reasonabie ground for such a hope; and I draw the inference that he concocted and carried through this series of weekly frauds upon the bank for no other purpose than to stave off a declaration of insolvency. I think it was with the same object that he made the statements to Mr Keith Price, for his company could only be kept afloat if he induced others to sell timber to them on credit. It is nothing to the purpose to say that he succeeded in convincing the outside public that his company was doing a prosperous business and that it remained

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in good credit until shortly before it went into liquidation, for this result was achieved only by cheating the bank and so obtaining from it facilities without which he would have been unable to continue the business. I accordingly hold that it has been amply established that Buchanan knew that his company was insolvent on 1st November 1906, and that accordingly the claimants Price & Pierce, Limited, are entitled to have the contract rescinded.

Rescission of the contract, however, cannot prejudice the rights of third parties previously acquired over the cargo in good faith and for value, and all the cargo here except 102 logs is claimed by third parties — the leading claim being by Mr G. L. Fraser for a parcel of 1166 logs and 250 loads. The circumstances out of which this claim arises are briefly as follows:—The freight of the cargo fell to be paid upon delivery, and Buchanan & French, Limited, had not available cash. Mr Buchanan in the first instance approached Mr Robertson for an advance, but by this time the bank had discovered the frauds that had been practised upon them and had instructed that no further advances were to be made. Buchanan thereupon went to the claimant Fraser, having previously arranged with Mr Robertson that the bank would advance the necessary sum to Fraser, and asked him to lend his name for the purpose. Fraser agreed provisionally to carry through the loan if he was sufficiently covered; and his evidence is that having had to leave Glasgow on business he wired his brother to carry through the transaction ‘if the Bank of Scotland were willing to make the advance, and if he got ample security and the bill of lading.’ Mr John Fraser deponed that on 12th March, having received the wire, and having had a call from Mr Buchanan, the latter handed to him the endorsed bill of lading and a delivery order for an amount sufficient to cover the loan, and that they thereupon went to the Bank of Scotland, saw Mr Robertson, and obtained the advance of £3000. From the £3000, commission and interest, which was the consideration that Fraser received, were deducted, and the balance handed over to Buchanan & French's secretary. A delivery order was handed to Mr Robertson at the same time, and the bank are claiming upon this as a rider on Mr Fraser's claim. The delivery order in Fraser's favour was duly intimated and acknowledged by Messrs John Laird & Sons on 13th March.

Price & Pierce dispute the claim of Fraser on various grounds. They set forth certain facts, real or assumed, from which they inferred that Fraser's claim was really a claim by the bank; that he gave no value for the timber conveyed to him, and that the whole transaction on the part of the bank and Fraser was part of a scheme whereby each would receive a benefit at the expense of these claimants. They further say that neither Fraser nor the bank were bona fide indorsees of the bill of lading. In my opinion none of these inferences have been established so far as

Fraser is concerned. The part that he played was really to act as banker for Buchanan & French in the circumstances I have already narrated; he made himself liable to the Bank of Scotland for the advances, and if the security should prove insufficient he must make good the deficiency. I am satisfied that Fraser believed that Buchanan & French were at the time quite solvent, and that he acted in perfect good faith. At the hearing Mr Hunter for Price & Pierce mainly confined his attack on Fraser's claim to two points—(1st) He contended that there was not sufficient evidence that Fraser received the bill of lading, and he founded on various circumstances which he said were real evidence to this effect. These were (1) that there is no mention of the bill of lading in the receipt granted for the money, but only of the delivery order; (2) that the bill of lading was presented not by Fraser but by Buchanan & French to the shipowner; and (3) that the very fact of Fraser taking a delivery order negatives his statement that he already had the bill of lading, as if so a delivery order was entirely unnecessary. In my opinion all these points are satisfactorily explained in the evidence led for Mr Fraser, and I think there is conclusive proof, partly parole and partly documentary, that from 12th March he was in possession of the bill of lading except for two short periods when he lent it to Buchanan & French for a specific purpose. If so, the validity of his claim so far as based on the bill of lading is ruled by the case of Hayman, 1907 SC 936, where the circumstances seem to me to have been substantially the same as those which occurred here. The delivery order was only an additional security which had the effect, as it was intended to have, of limiting Fraser's right to the bill of lading to the specific parcels described. In this view it is unnecessary that I should consider whether the delivery order was insufficient to pass the property, although on this point I am also inclined to be against the claimants Price & Pierce, because I hold it to be established that prior to the liquidation all the logs contained in this delivery order had been duly identified by having the mark 17 F placed upon them as instructed by the letter of 18th March written by Fraser to John Laird & Sons. The fact was that the 1166 logs comprised all the logs of an average measurement of 30 cubic feet with the exception of about 130, and the measurers accordingly had no difficulty in identifying those which were covered by Fraser's delivery order.

In this view it becomes almost unnecessary to consider the averments of fraud against the Bank of Scotland, the relevancy of which I regarded as extremely doubtful at the time that proof was allowed. Nevertheless, as a great deal of evidence has been led on the subject, I think it right to express my opinion upon it. The first attack that is made upon the bank is in respect of their having allowed their name to appear upon the prospectus of the limited company in the knowledge (it is said) that a fraudulent

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system of credit was being carried on by Buchanan & French, and that that system was being used for the purpose of deceiving the trading public. All I need say on the subject is that I think these averments have been wholly disproved, Mr Robertson having entire confidence at the time in the company's business, and being quite unaware either of the fictitious entries or of the bogus cheques. It is true that in the latter half of December 1906 he did become aware of these frauds, and that he did not disclose his knowledge to the bank until February; but even then there is no evidence that Mr Robertson considered the business insolvent, or that the bank, if it acted with discretion, would not be able to recover the whole indebtedness. An entirely different complexion would have been put on the transaction if the bank had derived any benefit from the advance of £3000 which it made to Fraser for behoof of the company; but Mr M'Lintock in his evidence clearly showed that this was not so, and that the bank neither sought to obtain, nor did actually obtain, any reduction of the indebtedness of the company to them by means of this advance. It may well be that Robertson was remiss in not ascertaining sooner how the bank was being taken advantage of by Buchanan, and he had to answer later to his own superiors for his conduct in the matter. But the bank owed no duty to other creditors of Buehanan & French, Limited, and when they found themselves in the position of having made advances far in excess of what they ever intended to give, they were quite within their rights in choosing their own time for enforcing repayment. Mr Robertson is not even asked whether at the date when he carried through the transaction with Fraser he knew the company to be insolvent, or that they had not paid—far less could not pay—for the goods contained in the bill of lading which they were using as a fund of credit.

There remain two other claims—that of T. & R. Duncanson in respect of a delivery order dated 18th March for 420 logs, and that of the Bank of Scotland in respect of two delivery orders for 200 and 100 logs respectively. The former claim is disputed both by the liquidators and by Price & Pierce, the latter only by Price & Pierce. The ground of objection to the former claim is that the delivery order was a voluntary preference granted in security of a prior debt by the limited company within sixty days of notour bankruptcy.

Both partners of T. & R. Duncanson were examined, and they are not quite at one in the evidence they give. Mr Robert Duncanson says that he was called upon by Buchanan on 8th March, and that he then desired an advance of £1000, stating that he had a cargo of pitch pine discharging at Port-Glasgow, and that he would give a delivery order for 500 logs in security of the advance. Both partners say that they consented to the arrangement on this footing; that there and then two bills for £500 and £406, 13s. 5d. were handed to Buchanan; and that in exchange they received from him a delivery order for 500 logs. Mr Robert Duncanson then goes on to say, ‘We went into the quantity roughly, and we felt that there was possibly more than sufficient to cover our advance, and I was to release some of them. He asked me to delay presenting this order until he had fuller specification of the timber, and I agreed to do so. He also said that he would give me an order for the exact amount as soon as he could possibly ascertain the cubical contents of the logs. We endeavoured continuously during the next few days to get this order by telephone. Ten days later, on 19th March, we received a delivery order for 420 logs dated 18th March.’ It was argued for the Duncansons that this passage in Mr Robert Duncanson's evidence was sufficient to prove that the advance was made on the footing that a delivery order for sufficient logs capable of being definitely ascertained was to be made out and handed to them as soon as the logs could be measured. I am unable so to hold. In cross-examination Mr Robert Duncanson says—‘The specific security which I stipulated for was a delivery order for 500 logs.… I stipulated for no other security unless there was the qualification that these 500 logs might be too many, and we were willing to give up some of them, which we did.’ Mr Thomas Duncanson in cross-examination was asked—‘(Q) I take it that when you got the subsequent delivery order of 18th March the first one was superseded?—(A) No, I differ from my brother on that point. My contention is that it was only a portion that was released. (Q) Your contention is that you were getting two delivery orders, one for 500 logs and one for 420, both in security?—(A) No, I said we would release 80 out of the 500.’ And in cross-examination by Mr Hunter the same witness says—‘(Q) At the transaction of 9th March what was the arrangement made as to the specific security?—(A) The 500 logs was the specific security. Nothing more was to be got. Buchanan said the cargo was either then discharging or about to be discharged.’ The evidence of Cockburn, the cashier, who says that at the interviews in question Mr Buchanan said—‘We were not to present the order for 500 logs as he did not know the scantling of the logs, but that he would send a right delivery order in a few days’—does not really assist the claimants. I am unable, therefore, to hold it established that Buchanan at that interview came under an obligation instantly and absolutely enforceable to grant the delivery order for 420 logs which he in fact afterwards granted after an interval of ten days,—and this is the test of whether the security is or is not within the rule of the statute. ( Stiven v. Scott, 9 M. 923 and 932.) If, as both Messrs Duncanson admit in cross-examination, the advance was made against the delivery order for 500 logs, then the subsequent delivery order was in further security of a debt already incurred, and is struck at by the statute. That they realised after the advance had been made

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that their security was not a good one and pressed for a security which would be made real by intimation to the holders of the logs, does not prove that any obligation had been undertaken by Buchanan to grant such a security, and if, as Mr Thomas Duncanson says, the subsequent delivery order was merely evidence of a release of 80 logs out of the original 500, it is plain that the claim must be based upon the first order. The claimants, however, have admitted that the delivery order for 500 logs not having been intimated to the holders of the fund cannot constitute a security in their favour in competition with the liquidators; and accordingly I hold that their claim falls. The more recent cases to which I was referred were those of Gourlay, 2 R. 730; Gourlay, 14 R. 403, and Cowdenbeath Coal Company, 24 R. 682. All these cases are illustrations of the strictness with which the Court construes transactions of this nature in the interests of the general body of creditors. In the first case of Gourlay, the obligation in return for the advance to give within one month delivery orders on stores in Glasgow for wheat, oats, beans, or Indian corn to the full value was held not sufficient to elide the statute. The Lord President said—‘It is only an obligation to deliver goods, but no specific quantity of goods.… Any grain which might be delivered at the option of the seller would be fulfilment of the obligation.… When the security is not specific the right of the creditor who has advanced money is not to demand immediate performance of the obligation.’ Even therefore if I had held that, concurrently with the advance made and in consideration of same, Buchanan had promised to give a delivery order for logs sufficient in value to cover the advance as soon as he got the cargo measured, that obligation might have been fulfilled at his option out of any part of the cargo in question, and it was therefore not a specific obligation capable of instant and immediate enforcement.

There remains only the claim at the instance of the bank in respect of the two delivery orders for 200 and 100 logs respectively. That these delivery orders were granted for full value is apparent from the evidence of Mr M'Lintock. Concurrently with the granting of these orders, the bank released wood which they held in security to an extent in excess of the value of the timber contained in the delivery orders. The orders were at once intimated to Laird & Sons, and acknowledged on 19th and 22nd March. Intimation, however, and acknowledgment combined, are admittedly, under the second part of the case of Hayman, not sufficient to create a real right in the bank. Nor can that be effected by a storekeeper simply transferring the special number of logs in his books to the bank's name, as was undoubtedly done in the present case. The logs required to be specifically marked or otherwise identified so that the exact subject of the security might be ascertained at the time. There is a single passage in the evidence of Mr Campbell which is relied upon as establishing that the goods were identified in such a way that the particular logs belonging to the bank could at any moment be picked out of the ponds and delivered to them. Mr Campbell's evidence is, however, not satisfactory as to the exact date when the initials ‘B of S’ were put opposite the particular logs in the scantling books, and everything depends upon whether this was done before 11th April. Further, it is certain that he was not asked by the bank as he was by Fraser to set aside particular logs in respect of these two delivery orders, nor is there any evidence that he communicated before 11th April what logs he proposed to apply to the orders, or that the bank assented to such proposal. I accordingly reach the conclusion that the logs covered by the two delivery orders were unascertained before the date of liquidation, just as the 500 sacks of flour in the case of Hayman; and that the bank has failed to establish that they ever made their right real.

The result of my judgment on the whole matter is, that I find the claimant Fraser, and the bank as a rider on his claim, entitled to be ranked and preferred to the 1166 logs and 250 loads marked 17 F; and that I find the claimants Price & Pierce entitled to the balance of the cargo. I shall be glad, however, to hear parties on the question of expenses. The claim for the nominal raisers has, I understand, been adjusted between the parties; and I shall expect them also to adjust the figures in view of the logs being no longer in existence but having been converted into money.”

The claimants, Price & Pierce, Limited, and T. & R. Duncanson, reclaimed.

Argued for Price & Pierce, Limited—(1) The contract having been reduced these claimants were now the true owners of the timber, and that being so their right thereto was preferable to all save that of innocent third parties, i.e., holders in good faith and for value. The bank was not in that position, for it had, either actual or inferential, knowledge that Buchanan & French were hopelessly insolvent at the time of the transaction. It was aware of the large overdraft, of credit being kept up by a system of dummy cheques, and of the possibility of the bank's bringing them down at any time. The bank therefore knew — or must be held to have known—that Buchanan & French could not give an absolute title to the timber, and that being so it was not in a position to plead its title against that of the true owner—Benjamin on Sale (5th ed.) 457; Carver's Carriage by Sea (5th ed.) sec. 538; Sale of Goods Act 1893 (56 and 57 Vict. cap. 71), sec. 23; Jones v. Gordon, (1877) L.R. 2 A.C. 616, per Lord Blackburn at pp. 628–9. The endorsement of a bill of lading did not pass the property where, as here, the indorsee knew that the goods had not been paid for and that the consignee was insolvent — Scrutton on Charter-Parties, (5th ed.) p. 166, sec. 74; Carver ( cit, sup.);

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Cuming v. Brown, (1807) 1 Campbell, 104, and 2 Ross' L.C. (Com. Law) 144; Vertue v. Jewell, (1814) 4 Campbell, 31; Earl of Sheffield v. London Joint Stock Bank, (1888) L.R. 13 A.C. 333; London Joint Stock Bank v. Simmons, [1892] AC 201, at 218; National Bank of Australasia v. Morris, [1892] AC 287. (2) The claimant Fraser was merely a nominal transferee, the party really interested was the bank. In any event Fraser had no title to the timber, for there was no proper identification of the 1166 logs and the 250 loads prior to the liquidation. (3) As regards the separate parcels of 200 and 100 logs claimed by the bank, the Lord Ordinary was right, for these logs had never been specifically identified as the property of the bank. There was no evidence as to when these logs had been marked as belonging to the bank. They were therefore unascertained goods, and accordingly no right thereto had ever passed to the bank — Hayman & Son v. M'Lintock, 1907 S C 936, at p. 951, 44 S.L.R. 691. (4) The reclaimer Duncanson had no good title to the 420 logs assigned to him, for no specific security over them had been created in his favour. The delivery order on which he founded did not identify the logs. It was immaterial whether the delivery order for 420 was in addition to, or in substitution of, that for 500, for in neither case were the logs ever specifically identified; that being so, no good security over them had ever been created— Stiven v. Scott & Simson, June 30, 1871, 9 Macph. 923, 8 S.L.R. 605; Gourlay v. Hodge, June 2, 1875, 2 R. 738, 12 S.L.R. 481; Gourlay v. Mackie, January 27, 1887, 14 R. 403, 24 S.L.R. 295.

Argued for Fraser (claimant and respondent)—This claimant had a good title to the logs assigned to him under (1) the bill of lading and (2) the delivery order. The temporary lending of the bill of lading to Buchanan & French did not affect his security under it, for the temporary passing of pledged property to the debtor for a specific purpose did not interfere with the pledgee's right of security— North-Western Bank, Limited v. Poynter, Son, & Macdonalds, November 16, 1894, 22 R. (H.L.) 1, 32 S.L.R. 245.

Argued for T. & R. Duncanson (claimants and reclaimers) — These claimants had a good security for 420 logs. The delivery order for 420 logs was meant to supersede that for 500, under which the reclaimers had also a good security. The advance and the granting of security were part of one and the same transaction—the delivery order being granted unico contextu with the advance. The logs were capable of being immediately identified, and that being so the reclaimers had a good specific security valid against the unpaid vendors and the liquidator — 2 Bell's Com. 211; Cormack v. Anderson, July 8, 1829, 7 S. 868; Cranstoun v. Bontine, February 2, 1830, 8 S. 425, affd. July 6, 1832, 6 W. & S. 79; Gibson v. Forbes, July 9, 1833, 11 S. 916, at pp. 924 and 931; Miller's Trustees v. Shield, March 19, 1862, 24 D. 821; Cowdenbeath Coal Company, Limited v. Clydesdale Bank, Limited, June 15, 1895, 22 R. 682, 32 S.L.R. 549. The case of Stiven ( cit.) was not in point, for in that case there was no proper security. The cases of Gourlay ( cit. sup.) were also distinguishable, for in the former the security subjects were not specific, and in the latter the security was left to the option of the borrower. The substitution of the 420 for the 500 logs was not made “in further security” in the sense of the Act 1696, c. 5, for the mere substitution of a new for an equivalent security granted prior to the sixty days was not reducible— Roy's Trustee v. Colville & Drysdale, March 20, 1903, 5 F. 769, 40 S.L.R. 530.

Argued for the Bank of Scotland (claimants and respondents) — (1) Price & Pierce, Limited, had failed to show that the bank knew of Buchanan & French's insolvency. Esto that the bank knew that the cargo had not been paid for, that did not disentitle it to lend money either to Buchanan & Fraser or to Fraser wherewith to pay for it. The bank had no reason to think the cargo would not be duly paid for, for Buchanan & French were in good commercial credit at the time and able to meet their current obligations. They were commercially solvent, and the bank was therefore entitled to deal with them — Bell's Com. i, 261–8; Goudy on Bankruptcy, 44; Clark & Company v. Miller & Son's Trustee, June 3, 1885, 12 R. 1035, 22 S.L.R. 685. (2) The validity of the bank's claim depended on that of Fraser, who was clearly a holder in good faith and for value, for he had no knowledge that the vendors had not been paid. The case of Cuming ( cit. sup.) was not in point, for that was a case of collusion, and there was no collusion here. Esto that Robertson was negligent, that was not enough, for negligence was not mala fides. The security was validly constituted, for the logs in question were both numbered and marked as the property of Fraser and he therefore had a good specific security. The fact that he temporarily parted with the bill of lading for a specific purpose to Buchanan & French did not affect his security— Barber v. Meyerstein, (1870) L.R., 4 Eng. & Ir. App. 317; North Western Bank, Limited v. Poynter ( cit. sup.); Hayman & Son v. M'Lintock ( cit. sup.), at p. 950. (3) As regards the parcels of logs last referred to by the Lord Ordinary, the bank had a good security, for they were marked as its property prior to 11th April 1907. Esto that Price & Pierce, Limited, were entitled to reduce the contract, they could not both reduce it and claim damages as well. They were bound therefore to account for the freight so far as it had been paid them — Leake on Contracts (5th ed.), 258–9; Sheffield Nickel Company v. Unwin, (1877) L. R., 2 Q.B.D. 214.

At advising—