Security Bills of Sale
Cases
Somers v. James Allen (Ir.) Ltd.
[1985] IR 343
Carroll J.
This case concerns a retention of title clause. The applicant is the receiver appointed by the Agricultural Credit Corporation over the property of Charles Dougherty and Co. Limited (“the company”) which is in the business of the manufacture and sale of animal feeding compounds. The respondent was a supplier to the company of soya bean meal, herring meal and cereal replacement pellets. At the time of the appointment of the applicant as receiver, the respondent had supplied the company with the ingredients mentioned. These goods were identifiable and had not become intermingled with other similar goods or been manufactured into feeding compound. Their value has been agreed. The respondent supplied the goods subject to conditions of sale set out on the back of their invoice. It includes the following clause:
“9. The transfer of title to you of the goods as detailed in this contract shall not occur until the invoice covering same has been paid in full, and accordingly, the goods wherever situated shall be thereupon at your risk.”
It is not denied that the conditions formed part of the contractual relations between the company and the respondent. The applicant has asked for directions on the following questions:
1. What is the effect of Clause 9?
2. What obligations are owed by the applicant to the respondent in the light of the answer to that question?
Mr. Kelly has put forward four propositions on behalf of the applicant.
1. Clause 2 of the contract is relevant to the first submission. It provides:”Goods sold on a delivered basis are subject to increases in handling, haulage, freight charges and any fuel surcharges that may be incurred will be for buyers account. Weights, ex mill, silo, store or ship to be final unless otherwise stated in the contract.”
Mr. Kelly submits that because Clause 2 of the conditions refers to”goods sold on a delivered basis” and Clause 9 provides that transfer of title shall not occur until the invoice is paid in full, there is a conflict between the two clauses which must be construed contra proferentes. Therefore the contract is a “sale” and not “an agreement to sell” within the meaning of s. 1, sub-s. 3, of the Sale of Goods Act, 1893.
2. The second proposition is based on a dictum of Bridge L.J. in Borden (U.K.) Ltd. v. Scottish Timber Products Ltd . [1979] 3 All E.R. 961, at p. 971, to the effect that if a seller of goods to a manufacturer who knows his goods are to be used in the manufacturing process before they are paid for, wishes to reserve to himself an effective security for the payment of the price, he cannot rely on a simple reservation of title clause. Mr. Kelly submits that the reservation of title clause in this case is simple, the goods were intended to be used in a manufacturing process and therefore the clause was ineffectual to reserve a security.
3. Thirdly he submits that the Bills of Sale (Ireland) Act, 1879, applies to the transaction because the contract confers on the company rights to manufacture, to intermix, and to sell, with no requirement to segregate the goods or to keep separate accounts in relation thereto. This effectively conferred equitable ownership on the buyer, leaving legal title only in the seller. The creation of any charge on the equitable ownership is registrable under the Bills of Sale (Ireland) Act, 1879, and as no registration took place, the security fails for lack of registration.
4. If the contract is registrable as a bill of sale it is void under s. 36, sub-s. 1, of the Agricultural Credit Act, 1978. This sub-section provides that: “A bill of sale of stock (whether including or not including any other chattels) made after the commencement of this Act shall, notwithstanding anything contained in the Bills of Sale (Ireland) Acts, 1879 and 1883, be void and be incapable of being registered under those Acts.”
“Stock”, is defined in s. 23, sub-s. 1, as including, inter alia, fish of every kind and the progeny and produce of such fish and also agricultural crops (whether growing on or severed from the land). Therefore, since soya bean meal, herring meal and cereal replacement pellets fall into the definition of”stock”, the bill of sale is void.
Sections 1 and 17, of the Sale of Goods Act, 1893, are relevant. Section 1 provides:
“(1). A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. There may be a contract of sale between one part owner and another.
(2). A contract of sale may be absolute or conditional.
(3). Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale;
but where the transfer of property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell.
(4). An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
Section 17 provides:
“(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.”
I do not accept Mr. Kelly’s first proposition. I agree with Mr. Landy’s submission that the use of the adjectival phrase “sold on a delivered basis” in Clause 2 is a general phrase which may or may not apply to the goods in the invoice, whereas Clause 9 is specific and refers to goods “as detailed in this contract.” I do not see any legal or grammatical contradiction in referring to”goods sold under a contract of sale” or “goods sold under an agreement to sell.” The important distinction is in the type of contract involved, which is to be determined from the terms of the contract as a whole, the conduct of the parties and the circumstances of the case. I do not consider that the type of contract is in any way altered by the phrase “goods sold on a delivered basis”in Clause 2. The type of contract between the company and the respondent is on the face of it an agreement to sell.
The second proposition is based on a misinterpretation of the dictum of Bridge L.J. in the Borden Case [1979] 3 All E.R. 961. The learned judge was referring to an attempt to acquire rights over the manufactured article. He goes on to say in the next sentence (at p. 971):
“If he (i.e., the seller) wishes to acquire rights over the finished product, he can only do so by express contractual stipulation.”
In this case I am not concerned with whether the reservation of title clause was effective to create or reserve an interest in the goods to be manufactured. I am concerned only with goods which still exist in the same state as they were supplied by the respondent. They have not been mixed with similar goods or transmuted into a manufactured product. The question, therefore, is whether a simple reservation of title clause is effective to reserve title in the goods in the same state as they were supplied Ltd.
In Borden (U.K.) Ltd. v. Scottish Timber Products [1979] 3 All E.R. 961, Bridge L.J., was prepared to admit this. At p. 966, while he says that he is attracted by the view that the beneficial interest in the resin passed to the buyers and the sellers retained bare legal title, he goes on to say:
“But I am quite content to assume that this is wrong and to suppose that up to the moment when the resin was used in manufacture it was held by the buyers in trust for the sellers in the same sense in which a bailee or a factor or an agent holds goods in trust for his bailor or his principal. If that was the position, then there is no doubt that as soon as the resin was used in the manufacturing process it ceased to exist as resin, and accordingly the title to the resin simply disappeared.”
In the same case, Templeman L.J. said at p. 973:
“They (the buyers) could not sell and make title to the resin, because the title had been retained by the sellers. But the buyers were free to employ the resin in the manufacture of chipboard.
When the resin was incorporated in the chipboard, the resin ceased to exist, the sellers’ title to the resin became meaningless and the sellers’ security vanished. There was no provision in the contract for the buyers to provide substituted or additional security. The chipboard belonged to the buyers.”
In my opinion, the simplicity of the provision in the contract does not per seprevent its being an effective reservation of title of the goods as supplied to the company and still existing in that state. Prima facie, title is not to be transferred until payment in full. That title has not been extinguished by manufacture. It still exists, and because payment has not been made, that title has not been transferred.
The third proposition is that s. 8 of the Bills of Sale (Ireland) Act, 1883, applies to the contract because an immediate beneficial interest passes to the buyer. The Act applies to bills of sale of personal chattels, whether absolute or subject to a trust, whereby the holder or grantee has power, with or without notice, either immediately or at any future time, to take possession of such chattels. There must be a maker or giver of the bill of sale and a holder or grantee of the bill. The purpose of the Act of 1879 was to prevent the owner of chattels defeating the claims of his creditors by making or giving a bill of sale which would entitle the holder or grantee to seize or take possession of chattels, where those chattels remained in the possession or apparent possession of the giver.
In the case of a contract for sale, the goods belong initially to the seller. If he contracts to sell goods and is paid by the buyer and then becomes insolvent, not having delivered the goods within seven days, the contract for sale, unless registered within seven days under the Bills of Sale Act, is void against the seller’s creditors.
If the goods are delivered to the buyer who has not paid for them, on terms that title remains with the seller until he is paid, the buyer’s creditors cannot seize the goods. Even though the goods are in the apparent possession of the buyer, he is not the maker or giver of the bill of sale. He is the holder or grantee under the bill.
However, if a contract deals with the future title of the buyer in the goods to be manufactured from the goods supplied, then, as regards that future title, the contract would be a bill of sale in which the buyer is the maker or giver and the seller is grantee.
This point also arose in Kruppstahl A. G. v. Quitmann Products Limited [1982] I.L.R.M. 551. That case involved a detailed retention of title clause which dealt with, inter alia, handling, processing, blending and mixing the goods, which were steel. The contract was to be construed according to German law but that does not affect the basic issue at stake here.
Gannon J. held that as between Quitmann (the buyer) and other parties, including a debenture holder or other creditors, the unworked steel in the possession of Quitmann, in respect of which payment was more than one month overdue, was not the property of Quitmann. In considering the position regarding the steel used in the manufacturing process, he held that the interest created was in the nature of a floating charge. The realisation of such security granted by way of charge was not permitted unless the particulars were registered pursuant to s. 100, of the Companies Act, 1963. Therefore any claims by Krupps against Quitmann for overdue payments for any steel used in the manufacturing process were deferred to the claims of the debenture holder and receiver. This case, therefore, illustrates that a seller can make an effective reservation of title to goods prior to manufacture but if he requires security over the manufactured goods the buyer will have to grant him this and this would require registration as a bill of sale.
In this case the clause in question is not complex enough to create a charge over future manufactured goods, the title to which cannot exist at the date of the contract. The contract deals only with the present title to the goods sold and not with future title of goods to be manufactured.
Section 17 of the Sale of Goods Act, 1893, allows the parties to decide when the property in the goods is to be transferred to the buyer. Here the parties have agreed by a simple condition to reserve title and risk to the seller until payment. The goods were to be used in manufacture. It follows, therefore, that the unpaid seller intended to retain title as long as those goods existed, as supplied. When those goods were manufactured into another product, the seller’s title disappeared.
I do not accept Mr. Kelly’s submission that the parties intended to split the legal and equitable title to the goods or that such split occurred as a necessary consequence of their contract. I do not see it as an impossible legal concept that the seller of goods to be used in a manufacturing process can retain title as long as the goods exist in the state they were supplied. Therefore, in my opinion, the clause is an effective reservation of title clause for the goods in that state.
Accordingly, s. 8 of the Bills of Sale (Ireland) Act, 1879, does not apply to this contract.
If the Bills of Sale (Ireland) Acts, 1879 and 1883, do not apply, the fourth proposition does not arise.
The answers to be given to the questions asked by the applicant are as follows:
1. The effect of Clause 9, is to reserve title to the respondent in goods supplied to the company in the state in which they were supplied and identifiable as such.
2. The applicant must account to the respondent for the said goods.
The applicant appealed from the judgment and order of the High Court. The appeal was heard
Henchy J.
I agree with the judgment which McCarthy J. is about to deliver.
Griffin J.
I also agree.
McCarthy J.
This appeal raises a question of the true construction of s. 36 of the Agricultural Credit Act, 1978, which came into force on the 28th February, 1978, and subsequently was brought into operation by ministerial order. Section 36, identified in the marginal note as replacing s. 35, of the Agricultural Credit Act, 1947, reads:
“(1). A bill of sale of stock (whether including or not including any other chattels) made after the commencement of this Act shall, notwithstanding anything contained in the Bills of Sale (Ireland) Acts, 1879 and 1883, be void and be incapable of being registered under those Acts.
(2). For the purposes of subsection (1) and of any enactment repealed by this Act, a floating charge on stock created by a body corporate shall not be, and shall be deemed never to have been, a bill of sale.”
The facts are not in dispute. Charles Dougherty and Company Limited (“the company”) carried on the business of manufacture and sale of animal feeding compounds; the respondent was one of the suppliers to the company of the various components used by the company in the preparation and manufacture of such compounds. These feeding components were supplied on credit – a period of between six weeks and two months credit being generally allowed. Any delivery of goods by the respondent was subject to conditions of sale of which the relevant condition is number 9:
“The transfer of title to you of the goods as detailed in this contract shall not occur until the invoice covering same has been paid in full, and, accordingly, the goods wherever situate shall be thereupon at your sole risk.”
By deed of appointment dated the 2nd June, 1982, the Agricultural Credit Corporation appointed the applicant as receiver and manager over the company. It may be of some interest to note that the deed of debenture of the 20th July, 1972, inter alia, created a charge by the company on “all its property and assets, plant, machinery fixtures, tool implements and agricultural stock both living and dead and both present and future.” The existence of such a debenture would be in the public domain.
It is conceded that the goods supplied by the respondent constitute”stock” within the meaning of s. 23 of the Act of 1978, which section is the first and s. 36 is the last of Part III of the Act dealing with “chattel mortgages”, replacing Part III, ss. 21 to 36 of the Act of 1947.
Whilst the appellant’s claim, that the goods supplied by the respondent are part of the assets of the company, was propounded on several different bases in the High Court, and failed, the argument, on this appeal, has been confined to the contention that clause 9 of the conditions of sale, themselves printed on the various contract notes which passed between the respondent and the company at the time that the goods were ordered, constituted a bill of sale of stock and was, by virtue of s. 36, void; consequently, the appellant claimed the right to dispose of the goods as part of the assets of the company. Initially, the argument ran that this bill of sale was a common law absolute bill of sale, relying upon Allsopp v. Day (1861) 7 H & N 457 and Ramsey v.Magrett (1894) 2 Q.B. 18, but it was subsequently conceded that, if it is a bill of sale, it is one within the meaning of the Bills of Sale (Ireland) Acts 1879 and 1883.
If, pursuant to s. 36, the bill of sale of stock be void what then of the sale – do the goods not revert to the true owner? The answer is that it is only clause 9, the retention of title clause, that is void. In my view, this demonstrates the practical as well as the legal infirmity of the appellant’s argument. In 1978 the retention of title clauses which are, nowadays, a standard feature of commercial contracts for the sale of goods, had made some impact – see Aluminium Industrie Vaassen B.V. v. Rompla Aluminium
Virtually every section of Part III of the Act of 1978, deals with charges on stock created by the owner of the stock in favour of some person or body which advances money to the owner, chattel mortgages of several kinds, but all savouring of the raising of money using goods or chattels as security. Section 3 of the Act of 1879 applies the terms of the Act to every bill of sale”whereby the holder or grantee has power, either with or without notice, and either immediately or at any future time, to seize or take possession of any personal chattels comprised in or made subject to such bill of sale.” If such application of the Act is limited, then what Mr. Blayney, on behalf of the receiver, calls an absolute bill of sale accompanied with delivery, is outside its scope, since the holder or grantee of the bill has possession immediately. In any event, in my view, s. 36, taken in the context of Part III of the Act, as it must be, was intended and could only be intended to apply to a bill of sale given to secure the payment of money. Construing the section accordingly, I would uphold the view of the learned trial judge and dismiss this appeal.
Evans & Anor v Finance-U-Limited
[2013] EWCA Civ 869 (18 July 2013)
Lord Justice Patten :
This is an appeal from an order of HH Judge Chambers QC made in the Cardiff County Court on 28th May 2012. In proceedings brought by the claimants, Mr and Mrs Evans, he made a declaration that the Ford Fiesta Zeta motor car (reg. CF55TXZ) (“the car”) was released and discharged from the bill of sale dated 20th April 2007 which the claimants had executed in favour of the defendant, Finance-U-Limited (“FUL”). He also dismissed the defendant’s counterclaim for an order for delivery up of the car.
In short, the issue between the parties was whether FUL remained able to enforce the bill of sale to recover unpaid arrears in respect of the loan which Mr and Mrs Evans took out in order to purchase the car. The purchase price of the car was £7,290 which the claimants financed by paying a cash deposit of £1,400 and by borrowing the remaining £5,890 from FUL under the terms of a loan agreement dated 20th April 2007. The loan agreement was regulated by the Consumer Credit Act 1974 (“the 1974 Act”) and required the claimants to pay a total of £3,633.81 in respect of interest and other charges on the loan of £5,890, making a total of £10,923.84. This was repayable by a first instalment of £296.33 and subsequent payments of £196.33 per month during the term of the agreement which was 48 months.
……
At the trial the claimants’ solicitor (Mr Murphy) submitted to the judge (as recorded in his skeleton argument) that the effect of the bankruptcies of both Mr and Mrs Evans was to terminate their contractual liability to FUL under the loan agreement and to leave FUL to prove for the debt in the bankruptcies which, in the case of Mr Evans, it did. Although it was entitled to enforce its security under the bill of sale on the basis of the bankruptcy of the debtors, it had not done so. Rather, it had allowed Mr and Mrs Evans to continue to pay the monthly instalments due under the loan agreement and had then relied on a failure to pay as the basis of enforcing its security. Since Mr and Mrs Evans had no continuing liability to pay, a failure to pay could not constitute a breach of the regulated credit agreement and therefore the basis of enforcing the security on those grounds under s.7 of the Bill of Sales Act (1878) Amendment Act 1882.
It was submitted that the notice of default dated 18th February 2010 was not therefore a valid and effective notice for the purpose of enforcing the security contained in the bill of sale and could not be relied on as the basis of an order for delivery up. Mr Murphy accepted in his skeleton argument that FUL could have chosen to base its counterclaim on the claimants’ bankruptcies but that since it had not done so, he proposed to make no submissions about that.
FUL’s counsel submitted to the judge that the provisions of the loan agreement and the bill of sale continued in full force and effect notwithstanding the bankruptcy of the debtors and had to be complied with if the debtors wished to retain possession of the car. The payment obligations contained in the bill of sale could not be separated from those in the regulated loan agreement and FUL was required to comply with the provisions of the 1974 Act if it wished to enforce its security. Although it could have relied on the bankruptcy of the debtors as the basis of a termination notice under s.98 of the 1974 Act, it was also entitled to rely on the debtors’ continued failure to pay the instalments due under the loan agreement for the purpose of serving a s.87 notice and entitling it to enforce its security.
After the hearing but before judgment the judge sent to both sides a list of questions. They included the questions:
“(g) If a sum calculated under clause 4 of the bill of sale became due and owing from both claimants and the defendant proved in the bankruptcy of the first claimant for the whole of that sum less moneys subsequently received, is it alleged that the second claimant continued to be under the obligations set out in the loan agreement and the bill of sale as if the bankruptcy of the first claimant had never occurred?
(h) If it is so alleged, why is that so?
(i) If it is contended that the obligations under the bill of sale were joint and several please state the difference if any that it makes to any of the answers given in respect of questions (c) to (h) with the reasons why.”
FUL responded to the questions as follows:
“(g) If a sum calculated under clause 4 of the bill of sale became due and owing from both claimants and the defendant proved in the bankruptcy of the first claimant for the whole of that sum less moneys subsequently received, is it alleged that the second claimant continued to be under the obligations set out in the loan agreement and the bill of sale as if the bankruptcy of the first claimant had never occurred?
To a point, yes. It is not suggested that the bankruptcy of the first claimant had never occurred, merely that it is not material to the position of the second claimant.
(h) If it is so alleged, why is that so?
For the reasons given earlier.
Claiming in the bankruptcy of the first claimant had no consequence to the ability of the Defendant to claim against the second claimant. If, contrary to the position accepted by the Official Receiver that were not the case then the Defendant would have made an application as identified in paragraph 10 of my earlier submissions.
(i) If it is contended that the obligations under the bill of sale were joint and several please state the difference if any that it makes to any of the answers given in respect of questions (c) to (h) with the reasons why.
As indicated above, the only possible construction of the bill of sale is that the obligations were either joint or joint and several. It makes no difference to the outcome of this case which construction is given, but it is assumed that without evidence to the contrary, the obligations were joint.”
The claimants’ reply to question (i) was that:
“On its face the bill of sale does not specify whether the obligations of the grantor (singular) are joint and several where the grantor is more than one person. The claimants’ position is that liability is joint but not several. It was open to the defendant to draft a bill of sale that created joint and several liability but in the absence of such drafting there is nothing to indicate that the claimants’ liability is anything other than joint. If so, the defendant has only one cause of action. By proving for the whole of the debt in the first claimant’s bankruptcy and receiving a dividend, it was no longer open to the defendant to pursue the same debt against the second claimant.”
The judge construed the bill of sale as making Mr and Mrs Evans jointly, rather than jointly and severally, liable for the debt. From this it followed, he reasoned, that the entire debt became due and payable on Mr Evans’ bankruptcy and that the loan agreement did not continue to bind Mrs Evans particularly after her bankruptcy. Although FUL could have enforced its security in the event of the bankruptcy of Mr Evans, their failure to do so disentitled them thereafter from seeking to enforce it on the basis that the loan agreement continued in force:
“15. The defendant’s case appeared to be that the agreement and liability under the bill of sale continued against the second claimant and that, although her bankruptcy relieved her from the obligation to keep paying the instalments in respect of the car and from the liability to pay any accrued obligations, if she wanted to keep the car, she had to keep the agreement alive and honour the obligations secured by the bill of sale. When she failed to do that there was a default both under the agreement and under the bill of sale and the car became liable to be seized. Damages are recoverable in respect of the period during which the car was wrongfully withheld.
16. During the hearing and afterwards there was much talk of the effect of the law of insolvency but I think that the answer to the case is altogether more basic.
17. The parties are agreed that the claimants jointly entered into the loan agreement and executed the bill of sale.
18. The bill of sale makes no express provision for the position in respect of two or more grantors of the bill. The reference throughout is to “the Grantor”. I find it conceptually impossible to divide the positions of the claimants.
19. It seems to me to be clear that when the first claimant became bankrupt there was a default under the bill of sale and the defendant became entitled to seize the car.
20. I cannot see how it could be argued that, in the event of the defendant seizing the car, the agreement and rights under the bill of sale continued against the second claimant. Furthermore I cannot see how it could be argued that, in the event of the defendant not seizing the car, the agreement and the rights under the bill of sale continued against the second claimant. This is because, when the first claimant became bankrupt, there automatically became due and owing the sums calculated in the way set out in the bill of sale. That was the end of it. Both of the claimants were ‘the grantor’. Both became liable for the sum due on bankruptcy. There could not be a different sum due from one claimant and another from the other. Furthermore, the defendant must have proved in the bankruptcy of the first claimant on the basis set out in the bill of sale (subject to credit for sums received) and it received a corresponding dividend. All this the defendant appears to accept.
21. When the second claimant became bankrupt the debt for which she had been jointly liable could no longer be enforced against her.
22. There can be no good case to the effect that the defendant’s rights under the agreement and the bill of sale continued to subsist against the second claimant who, although free not to do so, chose to continue the payments in order to keep the car and that a right to seize the car arose from her failure to keep up with the instalments, not by reason of her own or the first claimant’s bankruptcy.
23. Although the defendant’s submissions appear now to put the case upon the basis of the debt that undoubtedly became due and owing upon the default occasioned by the bankruptcy of the first claimant the contemporaneous documents do not support that case. There can be no doubt that, as against the second claimant, the defendant treated the loan agreement as continuing in being until she defaulted in paying the instalments. It was in respect of that default that the default notice was served and the claim for the car was made. But, as stated earlier and correctly accepted by counsel for the defendant, the relevant indebtedness was that which had fallen due and owing on the bankruptcy of the first claimant.
24. I see no reason why, in principle, there would not be scope of an arrangement whereby parties faced with similar circumstances to the present ones should not (subject to statutory regulation) agree that possession of a vehicle should continue if payments were made but that would be a new agreement and not a continuation of the old one. It might also be the case that a loan agreement could make special provision for what would happen if one debtor became insolvent but not the other. But that is not the defendant’s case. It was not that there was any agreement between the parties but rather that the defendant was content to let matters rest as long as the second claimant kept making the payments.
25. While it may well be that the defendant did once enjoy a right as against the second claimant to seize the car by reason of her failure to pay the balance of the moneys that fell due and owing under clause 4 of the bill of sale that was never the way in which the defendant treated the matter and I see no reason to suppose that, at this remove, the defendant would now be entitled to put the matter on that basis even if it were to attempt to put its house in order.”
On behalf of FUL, Mr Levy challenges the judgment on three separate grounds. First, he says the judge’s conclusion that FUL is no longer entitled to enforce its security is unreasoned. Second, he says that the judge was wrong to find that the security ceased to be enforceable simply because no attempt was made to enforce it against Mr Evans and (if this is what the judge believed) because FUL had proved for the debt in Mr Evans’ bankruptcy. And, third, he submits that if and so far as the judge relied on the principles of election, waiver or estoppel to defeat the counterclaim, he was wrong to do so.
I propose to concentrate on the second ground of appeal. There is nothing in the judgment to suggest that the judge based his judgment on any election or waiver by FUL of its existing rights whatever they may have been. Some of the difficulty in the case may be due to the fact that the judge appears (from paragraph 5 of his judgment) to have thought that it was common ground that, as a result of having proved in the bankruptcy of Mr Evans for the full amount of the outstanding debt without giving credit for the value of the vehicle, FUL could no longer rely upon the security of the bill of sale as against Mr Evans himself. There is nothing in the submissions which I have seen to indicate that this was conceded by FUL’s counsel at the trial and Mr Levy refutes any such suggestion. Such a concession would also have been wrong.
The effect of Mr Evans’ bankruptcy was that the contractual right of FUL to enforce repayment of the outstanding debt was replaced by a right to prove for the debt in the bankruptcy: see Insolvency Act 1986 s.285(3). The bankrupt’s estate is thereby preserved for the benefit of the whole body of creditors but the bankruptcy order does not affect the right of a secured creditor to enforce his security: see s.285(4). A secured creditor may, however, prove for his debt in accordance with the rules: see s.322(1). Rule 6.98(1)(e) of the Insolvency Rules 1986 requires him to include in his proof particulars of the security held and the value which the creditor puts upon it. The valuation of the security and the amount admitted to proof is then a matter for the trustee.
In this case FUL specified the security but did not put a value on it and the entire debt was admitted to proof. The consequence of the bankruptcy for Mr Evans was undoubtedly that he was released from any personal claim against him by FUL but not that FUL lost its right to enforce the security. In Whitehead v Household Mortgage Corporation plc [2002] EWCA Civ 1657 this court held that the acceptance of a dividend in insolvency arrangements (in that case an IVA) did not amount to an agreement or election by the creditor to treat as unsecured that part of the debt in respect of which the dividend had been paid. Chadwick LJ at paragraph 24 said this:
“I accept, of course, that those provisions of the bankruptcy code have no direct application to the position in a voluntary arrangement. The effect of the arrangement has to be determined by construing its terms in the context of the events which have happened. But those provisions are, I think, helpful in that they show how the problem which arises in the present case is dealt with under the bankruptcy code. The problem arises where a secured creditor who has not realised his security is required to decide whether to participate in a distribution of assets which are available to meet the claims of unsecured creditors. It is plain that, unless he abandons his security, he can only participate in that distribution on the hypothesis (which may turn out to be wrong) that part of his debt is unsecured; and then only by putting a value on his security so as to quantify that part for the purposes of the calculation and payment of dividend. It would be possible, in principle, to require him to make an irrevocable election; to permit him to participate in a distribution of assets available to meet the claims of unsecured creditors only on the basis that he does abandon his security in respect of that part of the debt which is treated, for the purposes of the distribution, as unsecured. But that is not the solution to the problem which has been adopted in bankruptcy. It has been thought more satisfactory to allow the secured creditor whose security may not be sufficient to satisfy the whole of his debt to participate in a distribution of assets available to meet the claims of unsecured creditors on a provisional basis. If it turns out, on a realisation of the security, that he has been paid too much out of the assets available to meet the claims of unsecured creditors, then he must repay the overpayment; but he is allowed to apply the proceeds of realisation in or towards satisfaction of his secured debt. In the absence of an express term in the voluntary arrangement itself – or agreed between the supervisor and the secured creditor at the time when the creditor claims in the arrangement – I think that the court should be slow to imply a term which would lead to a result which differs in so material a respect from that to which the statutory code would have led in the bankruptcy for which the voluntary arrangement was proposed as a substitute.”
FUL was not therefore required to renounce its security as the price of being able to prove for the balance of the debt nor was that the effect of it proving for the entire amount due. It therefore retained its right to enforce the security following Mr Evans’ bankruptcy but did not exercise that right whilst Mrs Evans continued to meet the instalments.
The judge’s reasoning in the paragraphs from his judgment I have quoted earlier seems to proceed on the basis that the satisfaction of her husband’s contractual liability through the payment of a dividend automatically released Mrs Evans (as joint debtor) from any further liability. This is, I think, a misconception. Although Mrs Evans would undoubtedly have been discharged from liability had her husband paid what was due, the effect of s.285(3) of the Insolvency Act is merely to limit the creditor’s right of recovery against the bankrupt debtor to proving in the bankruptcy. Even if that fails to secure a 100% return, the bankrupt remains immune on discharge from further proceedings and is released from the debt (see s.281(1)) but the debt continues as against the joint debtor until extinguished by payment or release by the creditor. This is confirmed by s.281(7) Insolvency Act 1986 which provides that:
“Discharge does not release any person other than the bankrupt from any liability (whether as partner or co-trustee of the bankrupt or otherwise) from which the bankrupt is released by the discharge, or from any liability as surety for the bankrupt or as a person in the nature of such a surety.”
In the present case nothing in fact turns on this point because the effect of Mrs Evans’ own bankruptcy was likewise to protect her from any personal claim by FUL. But the issue for the judge was not whether FUL could still pursue either Mr or Mrs Evans for the money: obviously it could not. The issue was whether, as the judge put it, their bankruptcy was the end of it.
It is, of course, common ground that Mrs Evans was not obliged to continue to make the monthly payments which she did in the sense that any failure to pay could not result in any further liability on her part. But the arrangement which continued de facto between her and FUL was that, so long as the payments were kept up, FUL continued to stay its hand in relation to the enforcement of the security.
The argument which Mr Murphy deployed at the trial was much more limited in scope than that on which the judge seems to have decided the case. As already mentioned, he did not directly address the question whether FUL could still enforce its security based on the bankruptcy of one or other of the claimants by serving an appropriate form of notice. His case was that the debt under the regulated loan agreement had ceased to be payable by Mr and Mrs Evans following their bankruptcy and could not therefore be relied upon to serve a default notice under s.87 of the 1974 Act based on a failure to pay one of the instalments. What FUL should have done was to serve a s.98 (non-default) notice terminating the agreement on grounds other than breach which is a pre-requisite to the enforcement of the creditor’s right to enforce its security during the term of the agreement.
Mr Levy submits that although FUL could undoubtedly have proceeded in February 2010 to enforce its security on the basis of the prior bankruptcy of both debtors, it was entitled to treat both the loan agreement and the bill of sale as continuing for the purpose of defining its rights against Mr and Mrs Evans. Discharge from bankruptcy released both Mr and Mrs Evans from the debt due under the loan agreement but preserved FUL’s right to enforce its security for the payment of the debt. Although the claimants therefore ceased to have any continuing contractual liability for the payment of the instalments, their non-payment can, he submits, be relied upon for the purpose of establishing FUL’s entitlement to realise its security.
I have doubts about this. I think the difficulty with the argument arises when one comes to consider the operation of the 1974 Act. If the loan agreement continues even for the limited purposes relied on by Mr Levy, it must, I think, follow that it continues as a regulated agreement. As of February 2010 this necessitated the service on the claimants of either a s.98 notice or a s.87 default notice which in this case was based on the non-payment of one of the instalments. The default notice therefore had to (and did) specify the nature of the breach relied on and what action was required to remedy it. Section 88(1) of the 1974 Act specifies in terms that:
“The default notice must be in the prescribed form and specify—
(a) the nature of the alleged breach;
(b) if the breach is capable of remedy, what action is required to remedy it and the date before which that action is to be taken;
(c) if the breach is not capable of remedy, the sum (if any) required to be paid as compensation for the breach, and the date before which it is to be paid.”
Since neither Mr nor Mrs Evans had any continuing contractual liability for the payments, a notice based on the non-payment of the January or February 2010 instalment was, in my view, inappropriate. What FUL should have done was to proceed by way of a s.98 notice which is what Mr Murphy suggested in his skeleton argument at trial. Mr Evans (who appeared in person on this appeal) also took the point that he had in fact paid the instalment of £196.33 specified in the notice by 8th March 2010 in compliance with the notice. If this is correct then this might provide another reason why FUL is not entitled to an immediate order for delivery up of the car.
In this case, however, matters are complicated by the fact that the term of the regulated loan agreement was expressed to be 48 months and therefore expired on 20th May 2011 when the last payment fell due. Section 76 of the 1974 Act provides that:
“76 Duty to give notice before taking certain action.
(1) The creditor or owner is not entitled to enforce a term of a regulated agreement by—
(a) demanding earlier payment of any sum, or
(b) recovering possession of any goods or land, or
(c) treating any right conferred on the debtor or hirer by the agreement as terminated, restricted or deferred,
except by or after giving the debtor or hirer not less than seven days’ notice of his intention to do so.
(2) Subsection (1) applies only where—
(a) a period for the duration of the agreement is specified in the agreement, and
(b) that period has not ended when the creditor or owner does an act mentioned in subsection (1),
but so applies notwithstanding that, under the agreement, any party is entitled to terminate it before the end of the period so specified.
……”
Similarly s.98 provides:
“(1) The creditor or owner is not entitled to terminate a regulated agreement except by or after giving the debtor or hirer not less than seven days’ notice of the termination.
(2) Subsection (1) applies only where—
(a) a period for the duration of the agreement is specified in the agreement, and
(b) that period has not ended when the creditor or owner does an act mentioned in subsection (1),
but so applies notwithstanding that, under the agreement, any party is entitled to terminate it before the end of the period so specified.
…”
Because the term had expired by the date of the trial in December 2011, FUL was entitled by then to recover possession of the car free from the statutory requirement to give notice either under s.76 or under s.98. The arguable defects in the form of notice given were not therefore relevant to whether the judge could make an order for delivery-up on the counterclaim. The only issue was whether FUL retained the benefit of the security under the bill of sale and was entitled contractually to enforce its security according to its terms.
Although there is much to be said for the judge’s view that following the claimants’ discharge from bankruptcy FUL could not base its contractual right to enforce the security on a failure to pay one or more of the instalments, the pleaded defence and counterclaim was wide enough, in my view, to support FUL’s reliance on the bankruptcy as an alternative basis for recovering the car which had not been waived by subsequent events. Had FUL’s counsel asked the judge to consider that alternative, the judge would have been bound to make an order for delivery up. It was not necessary for FUL to base its counterclaim on a breach of the agreement so that there could not be any technical objection based on the form of notice following the expiry of the loan agreement. And the judge was wrong to hold (if he did) that FUL’s entitlement to rely on its security had been lost by it proving in Mr Evans’ bankruptcy for the entire debt.
It follows that Mr Levy is entitled to ask this court to set aside the judge’s order and to make an order for delivery up on the basis of one or other of the two bankruptcies. The fact that this was not the ground upon which FUL put its case at the trial goes only to costs.
I would therefore allow FUL’s appeal against the judge’s declaration that Mr and Mrs Evans own the car free from any claims by FUL. The judge was wrong to reach the conclusion that it has lost its rights to enforce the bill of sale based on the claimants’ bankruptcy. I would also make an order for the delivery up of the car.
Lady Justice Black :
I agree.
Lord Justice Mummery :
I also agree.
Online Catering Ltd v Acton & Anor
[2010] EWCA Civ 58 [2010] 3 WLR 928, [2010] 3 All ER 869, [2010] EWCA Civ 58, [2011] 1 QB 204, [2011] QB 204, [2010] Bus LR 1257 Ward LJ
Was this a bill of sale?
Section 4 of the Bills of Sale Act 1878 defines a bill of sale as follows:
“The expression “bill of sale” shall include bills of sale, assignments, transfers, declarations of trusts without transfer, inventories of goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal chattels, and also powers of attorney, authorities, or licenses(sic)to take possession of personal chattels as security for any debt, and also any agreement, whether intended or not to be followed by the execution of any other instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be conferred …” emphasis added by me.
Inasmuch as clause 27 of the agreement gives the garage permission to take possession of personal chattels, which will include motor vehicles, the question arises as to whether they were seized “as security for any debt”. The Recorder was satisfied about the indebtedness and there is no challenge to that finding. The correspondence made plain what can in any event be inferred from the terms of the agreement, namely, that if the debt were to be repaid, the goods would be released. The seizure was unquestionably as security for the debt. So the agreement falls within the ambit of section 4 of the 1878 Act but the much more interesting question is whether the Acts apply at all to companies, this being an agreement made by the claimant, Online Catering Ltd.
There are a number of valuable dicta on the topic going back over a hundred years. In Read v Joannon (1890) 25 Q.B.D. 300 Lord Coleridge C.J. said at p. 303:
“The question is, whether a debenture of an incorporated company requires registration as a bill of sale. I am of the opinion – and I think it right to say that my opinion does not stand alone, but is supported by that of a judge of much greater authority than myself, whom I have had the opportunity of consulting – that such debentures are not bills of sale, and are not struck at by either of these Acts of Parliament – that they were never within the Act of 1878 and are expressly exempted from the operation of the Act of 1882.”
Wills J. said at p. 304:
“I am of the same opinion; and I agree with my Lord, on consideration, that debentures of an incorporated company are not, and were never intended to be within the operation of the Act of 1878.”
A similar question came before the Court of Appeal in In Re: Standard Manufacturing Company [1891] 1 Ch. 627. The court held that the debentures were expressly excepted from the operation of the Bills of Sales Act (1878) Amendment Act 1882 by section 17 of that Act because they were debentures “issued by any mortgage, loan, or other incorporated company”. The court then went on to consider whether the debentures were bills of sale to which the Act of 1878 applied and held that company debentures were not within that Act either. Three reasons were given. First, it was observed that the avowed design of the legislature had been to strike at frauds perpetrated upon creditors by secret bills of sale as the preamble to the Bills of Sale Act 1854 made plain:
“Whereas frauds are frequently committed upon creditors by secret bills of sale of personal chattels, whereby persons are enabled to keep up the appearance of being in good circumstances and possessed of property, and the grantees or holders of such bills of sale have the power of taking possession of the property of such persons, to the exclusion of the rest of their creditors …”
Such corporate bodies as were at that time in existence were not bodies in the habit of committing frauds of that sort. By the time the 1878 Act was passed, the Companies Act of 1862 provided for the registration by companies of the mortgages and charges specifically affecting their property. Accordingly company debentures could hardly be described as “secret documents”. The second reason was that the language employed was “certainly not felicitous language to be applied in the case of corporations” and thus warranted the observation that “debentures of companies were not actively present in the mind of the draughtsmen of the Act.” Thirdly, the court accepted the correctness of the judgments in earlier cases including Read v Jaonnon. So the conclusion was that:
“… mortgages or charges of any incorporated company for the registration of which a statutory provision had already been made by the Companies Clauses Act 1845 or the Companies Act 1862 are not bills of sale within the Bills of Sale Act 1878.”
That case was distinguished by Vaughan Williams J. in Great Northern Railway Company v Cole Co-operative Society [1896] 1 Ch. 187 on the basis that the Court of Appeal was not excluding companies generally from these Acts of Parliament, but excluding only companies for whom provision had been made for the registration of the mortgages. It seemed to him, therefore, that the question whether the Bills of Sale Acts applied to other companies, that is, companies in the case of which no provision has been made for registration, was deliberately left open. He was dealing with a society registered under the Industrial and Provident Societies Acts and he held it was not caught by the Bills of Sale Acts.
In Clark v Balm, Hill & Co [1908] 1 K.B. 667 the case concerned a series of debentures issued by a company incorporated in Guernsey which created a charge on floating real and personal property in England. The question was whether the debentures ought to be deemed to be within the Bills of Sales Acts and so ought to have been registered as bills of sale in circumstances where the company was not obliged by the law of Guernsey to keep a register of charges. Phillimore J. held that Read v Joannon and Standard Manufacturing had decided that all debentures of incorporated bodies were exempt from the Act of 1878. He expressed the view that “there was a little error in the judgment of Vaughan Williams J.” in Great Northern Ry. Co. and he added, “I must say that the reasoning of Wills J. in [Read v Joannon] commends itself to my mind.”
These cases were considered by Lloyd J. in N.V. Slavenburg’s Bank v Intercontinental Natural Resources Ltd [1980] 1 W.L.R. 1076. This case concerned an assignment of stocks as security by a Bermudan company which was not registered since it was not the practice of the Registrar of Companies to accept particulars of charges for registration from an overseas company with a place of business in England. He said of Clark v Balm, Hill & Co that it was for all practical purposes the latest decision in the field:
“It has stood now for 70 years. Even if I thought it wrong (which I do not) I would be most reluctant not to follow it. So far as I know it has never been criticised in any of the standard text books. … I would prefer to put my decision on the broad ground indicated by Phillimore J. namely, that bills of exchange Acts apply to individuals only and not to corporations at all.”
These authorities, as Mr Sinai fully recognised, are powerful support for the conclusion that the Bills of Sale Acts do not apply to companies. Nonetheless he sought to escape that conclusion by this well-presented, ingenious, argument. But for the fact the claimant company, the agreement would be a bill of sale. Registration is necessary to cure the evil of secret bills. The Companies Act provides its own answer by registration of charges. The agreement does not, however, constitute a charge. Therefore there is no need for registration. That creates a lacuna which the legislature could not have intended and so in a case like this, registration under the Bills of Sale Acts is required. That led to interesting arguments about whether or not this agreement did constitute a charge. Mr Mendoza, who now appears for the respondents, submits that it is a floating charge not far from removed from the one considered by the House of Lords in Smith (Administrator of Coslett Contractors) Ltd v Bridgend County Borough Council [2002] 1 AC 336 which concerned a standard condition in an engineering contract which allowed the employer in various situations in default by the contractor to sell his plant and equipment and apply the proceeds in discharge of his obligation. That was held to be a floating charge. On the other hand, a contractual possessory lien, coupled with a right to sell and use the proceeds to discharge the customer’s outstanding indebtedness was not a floating charge because the company did not purport to have any right to exercise any right to take possession as distinct from the right to detain possession: see Trident International Ltd v Barlow [2000] B.C.C. 602. Clause 28(a) did not reserve a right to sell which may be said to be a hallmark of a true charge.
I do not feel inclined to resolve this dispute because, if the contract did create a charge which ought to have been registered, the failure to register may be void under section 395 of the Companies Act 1985 but it is void only against the liquidator or administrator or any creditor of the company. It is not void as between the parties to the contract so the argument gets the appellant nowhere. Even if the agreement does not create a charge and there is a lacuna, I am nonetheless satisfied that the lacuna cannot be filled by treating the agreement as one which is covered by the Bills of Sale Acts because I am satisfied those Acts do not apply to companies.
The three reasons which most impress me and incline me to that conclusion are these. First, the mischief argument: set in Victorian times, the aim is to protect the creditors of individuals and separate provisions were made for companies as they increasingly became a feature of society. Secondly, the language of the Act: although there is a reference in section 7 of the 1878 Act both to “bankruptcy” and “liquidation”, “liquidation” being, at least as the word is today understood, more appropriate to companies than individuals for whom “bankruptcy” is more usual, all other references in the Act suggest that the Act is concerned with individuals. Thus personal chattels are deemed to be in the apparent possession of the person making the bill of sale so long as they remain in premises occupied by him or are used and enjoyed by him. In section 10(2) the mode of registering bills of sales requires a description “of the residence and occupation of the person making or giving the bill of sale”. The form of register specified in section 12 is to like effect. In the 1882 Act an affidavit is required when presenting the bill for registration and that must describe “the residence of the person making” the bill. The schedule to the Act describes the form of a bill of sale under which “he” the grantor of the bill assigns the chattels to the grantee. Thirdly this construction seems to have been acknowledged by the legislature elsewhere. Section 396(1) of the Companies Act 1985 prescribes the charges which have to be registered and include:
“(c) a charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale.”
That seems to me to be an acknowledgement that bills of sale are confined to individuals and companies are bound by the regime of the Companies Act.
In the court below the possible application of the Bills of Sale Acts took Mr Sinai somewhat by surprise and I can readily understand that he had not the time to research the matter as he has been able to do in presenting his arguments to this Court. His written skeleton was prepared in the belief that the respondent would still be in person and, in the best traditions of the Bar, he set out the law with conspicuous fairness even though that was against the interests of his client. Although he made an attempt to repeat and rely on the arguments that had failed in Slavenburg’s Bank, to which he drew the court’s attention, it was an understandably half-hearted attempt to salvage his client’s case. Upon examination, it is clear to me that the recorder was in error in raising this question. This was not a bill of sale to which the Acts applied and it is therefore, strictly speaking, unnecessary to consider the second question raised in this ground of appeal, that is to say, if this is a bill of sale, does the want of registration make it void as against the appellant? On this hypothetical question, I would agree with the recorder that section 8 of the 1878 Act renders an unregistered bill “fraudulent and void”, but only against the limited category of persons there identified, namely, trustees or assignees of the estate, and sheriffs in their offices. An unregistered bill would not be void as against the grantee. The more difficult question is, however, whether the bill is void pursuant to section 8 of the 1882 Act which provides that:
“Every bill of sale shall be duly attested, and shall be registered under the principal Act … otherwise such bill of sale shall be void in respect of the personal chattels comprised therein.”
That would appear to mean that such a bill would be void as against the whole world, including the grantor. So the question is, does the 1882 Act apply? The answer is probably given by the Court of Appeal in Ex parte Parsons, In re: Townsend (1886) 16 QBD 532. There Parsons was to advance money to Townsend and as security for his advance he was to have the right to take immediate possession of the goods and sell them. That was held to be a licence to take possession of goods as between two private individuals and it therefore fell within sections 3 and 4 of the 1878 Act. In answer to the question whether it was a bill of sale within the 1882 Act Lord Esher, M.R., held at p. 544:
“Section 3 [of the 1882 Act] says that the two Acts are to be construed as one, and that the expression “bill of sale” is to have the same meaning in the Act of 1882 as in the Act of 1878, except as to bills of sale given otherwise and by way of security for the payment of money, to which the Act is not to apply. This document, therefore, is a bill of sale within the Act of 1882 because it is a bill of sale within the Act of 1878.”
It was not made in the form required and it was, therefore, void.
Both counsel seem to agree that this would be a security bill within the 1882 Act, if the agreement falls within the purview of the Acts and that the defendants could not rely upon it because it would void. Interesting as these speculations are, they simply do not apply in this case because the Bills of Sale Acts do not apply to companies. That is an end of it.
Since those questions were the only ones for which permission to appeal has been given, that should be the end of the appeal. I would therefore dismiss it. I cannot, however, end without commenting as I began that in a case where so many points have been taken, good, bad or indifferent, with the result that the arguments have ranged so widely in arcane fields outside the expected ken of a County Court judge, no point was ever taken on the merits, or lack of them, that the removal and retention of these vehicles was wrongful because possession was obtained by a trick. The deceit was admitted and although the defendants had a right to take possession, it might be said that they had no right to take the vehicles in the way in which they did. That would have given rise to another interesting argument but I am not going there.
Lady Justice Smith:
I agree with both judgments.
Lord Justice Rimer:
I too would refuse permission to appeal on the additional grounds to which Ward LJ has referred in paragraphs [11] to [13] of his judgment and have nothing to add to his reasons for assessing them to be without substance. I would also dismiss the appeal on the one ground for which the Recorder gave permission. I add short reasons of my own for that conclusion.
The right conferred on Drakeglen Ltd by clause 28(b) of the terms of business is to take possession of goods to the value of sums unpaid by Online Catering Ltd and, I infer, to retain them until payment but no longer. Neither clause 28(b) nor anything else in the terms of business entitles it to sell any goods so taken and counsel did not identify any right under the general law under which it could sell them, or seek an order for sale, so as to enable the proceeds to be applied to the discharge of Online’s debt.
The right is therefore in the nature of a contractual possessory lien. Despite its limited nature, I consider that it can properly be regarded as conferring a right in the nature of a ‘security’. It would, in the language of section 4 of the Bills of Sale Act 1878, have amounted to a licence ‘to take possession of personal chattels as security for any debt’, and would fall within the definition of a bill of sale (cf Ex parte Parsons, in re Townsend (1886) 16 QBD 532). I shall assume, without deciding, that if Online had been an individual, the right would have been void against him for want of compliance with the formalities and registration requirements of the Bills of Sales 1878 and 1882 (see sections 8 and 9 of the 1882 Act).
Online is not, however, an individual but a limited company formed and registered under the Companies Act 1985. Part XII of that Act (the legislation in force at the material time) provided for the registration of ‘charges’ created by companies. If the registration requirements were not complied with, section 395 provided that any security conferred by the charge on the company’s property or undertaking would be void against the liquidator, administrator or any creditor of the company. If the effect of clause 28(b) was to create a ‘charge’ of the sort listed in section 396(1)(a) to (j), then it had to be registered but was not. It is, however, agreed that nothing has happened to render such charge void against Online and so it avails Online nothing to point to the lack of registration under Part XII.
The requirements of Part XII apply, however, only to ‘charges’ created by the company of the types so listed. Since clause 28(b) gives Drakeglen no right to sell, or seek a judicial sale of, the seized goods so as to enable it to apply the proceeds in or towards satisfaction of the unpaid debt, I doubt whether it created a ‘charge’: it is a usual feature of a charge that it appropriates specific property to the discharge of a debt or other obligation (cf Carreras Rothmans v. Freeman Matthews Treasure [1985] Ch 207, at 227C, per Peter Gibson J, as he then was), whereas clause 28(b) did not do that: the retained goods cannot be realised so as to enable the discharge of the debt. Mr Mendoza, for the respondents, submitted that the decision of the House of Lords in Smith (Administrator of Cosslett (Contractors)Ltd) v. Bridgen County Borough Council [2002] 1 AC 336 provided conclusive authority that a ‘charge’ was here created, but I disagree. In that case the relevant provision expressly empowered the council to sell the relevant plant, goods and material and apply the proceeds in or towards satisfaction of the contractor’s debt (see paragraph [10]). Clause 28(b) includes no like right.
Assuming, without deciding, that clause 28(b) did not create a charge, I have said that I consider that it at least created a ‘security’ interest that – if created by an individual – required compliance with the formalities of the Bills of Sales Acts. Whilst Mr Sinai, for Online, did not submit that anything that a company must register under Part XII must also be registered as a bill of sale under the Bills of Sale Acts, he did submit that a company must register as a bill of sale under those Acts those security interests created by it that are not required to be registered under Part XII.
My intuitive response to that submission is unsympathetic, since it would seem to me improbable that Part XII would go to the express lengths it did in relation to the registration by companies of particular types of security whilst leaving the registration requirements of other security interests to be covered by the Bills of Sales Acts. But the submission raised the more general question as to whether the Bills of Sales Acts apply to companies at all. That question has been considered in authorities decided over 100 years ago, but also more recently by Lloyd J (as he then was) in N.V. Slavenburg’s Bank v. Intercontinental Natural Resources Ltd and Others [1980] 1076, at 1093H to 1098H. After a full review of the authorities, he concluded that the Bills of Sales Acts do not apply to companies, thus following the decision of Phillimore J in Clark v. Balm, Hill & Co [1908] 1 KB 667.
The arguments before us did not include an in-depth revisiting of the issues argued before Lloyd J, Mr Sinai’s argument amounting to little more than a re-assertion of the submissions that failed before him. I propose to say no more than that I find Lloyd J’s reasoning and conclusion in Slavensburg wholly convincing and respectfully agree with it. In my judgment the answer to this appeal is that the Bills of Sale Acts apply only to individuals, not to companies.
It follows that I agree that the appeal fails and should be dismissed. I add only that the respondents’ success is not something I view with satisfaction. Drakeglen achieved the recovery of the two vehicles by making a false representation to Online that it was taking them away for repair works. I regard it as unsatisfactory that it should then be entitled to assert its clause 28(b) rights in respect of the vehicles. No point on that was taken before the judge, and I know not whether a good point was there to be taken. But the facts paint Drakeglen in a poor light. Nor, however, does Online emerge from the litigation covered in merit, its managing director having given evidence that in part the Recorder found to be ‘clearly untrue’. Perhaps the parties deserved each other.
Great Eastern Railway Co. v. Lord’s Trustee
[1908] UKHL 1024
Lord Chancellor (Loreburn)—There has been an even division of opinion among the Judges who have heard this case. In my view the judgment of Phillimore, J., ought to be restored. I think that the Railway Company were in possession of this coal. The whole object of the arrangement made between them and Lord was that they should retain a lien and a physical control, secured by retaining the coal within their yard, of which they could lock the gates if Lord was in arrear. It is perfectly consistent with this that Lord also should have the right to remove the coal when the Railway Company opened their gates for him, as they were bound to do when he was not in arrear. I have heard no answer to the observations of Moulton, L.J., when he points out how an innkeeper has an effective lien over the luggage of his guest though the guest is allowed to take out of it or put into it his articles of clothing while in the inn. True, there was a demise to Lord of an allotment in the yard whereon this coal was stacked. That entitled him to occupy the allotment. But did that occupation confer upon him the exclusive possession of everything which he placed on the allotment? I cannot see why it should. An officer may be in possession of goods whether the debtor has a lease or even the freehold of the house in which the goods are placed. I cannot perceive any necessary dependency between the occupation of a piece of land and the exclusive possession of chattels which lie on it. Nor, in my opinion, can it signify for this purpose whether the occupation of the land is under a demise or merely by licence. How can the quality of the tenure of the land determine the possession of the chattels? If this be so, the Bills of Sale Act does not apply. There is here no right in equity, nor charge, nor any licence to take possession of goods. There is already possession and at law. The agreement merely gives a right to retain it. I should have been very sorry had I felt obliged to hold that an arrangement so convenient and so harmless was frustrated by an Act designed to defeat very different transactions.
Lord Macnaghten—Before his bankruptcy Frederick Lord carried on business at Norwich as a coal merchant under the style or firm of Lord Brothers. The supplies of coal required for the purposes of his business came by the Great Eastern Railway under consignment to Lord at Norwich. Everybody knows what the rights of carriers are in the absence of special agreement. On payment of what may be due for freight the carrier is bound to deliver to the consignee. The presumption is that payment and delivery are meant to be concurrent. Unless payment is forthcoming the carrier has a right to withhold delivery and to detain the goods. At the same time, in the case of railway companies and their regular customers, it would be most inconvenient if the carrying company were to stand on its strict rights and insist upon ready money on the delivery of each consignment. It would be inconvenient to the customer and even more so to the company. What was done in this case is, I believe, in accordance with common practice. At Lord’s request the appellants agreed to open a monthly credit account in their ledgers for the carriage of his coal. Among the conditions on which the account was opened were these—The appellants were to have a general lien for the balance of the account, and they were to be at liberty from time to time, and in such manner as they should think fit, to sell the goods subjected to their lien. It was further provided that they might close the account on one day’s notice, and, as part of the same arrangement, but by separate contracts, the appellants agreed to let to Lord certain spaces or allotments within their own yard which were to be used for the purpose only of stacking and dealing with coal and coke passing over their railway. Lord fell into arrear. Over and over again he promised to discharge his liability. He failed to perform his promises. Ultimately the appellants closed the account. They then shut the gates of their yards, and so prevented Lord from removing the coal which happened to be lying on his allotments at the time. Were the appellants within their rights in taking this step? That must depend upon the answer to another question. Was there an absolute and unconditional delivery of the coal, or was it intended that the company should keep a hold over the coal so long as their account remained open, and if so, were sufficient precautions taken to give effect to that purpose if the company chose to exercise the right of stoppage for which they bargained? There is a question of intention and a question of fact. That seems a short and simple point. Now, in the first place, it appears to me absurd to suppose that the parties had in view any equitable right such as a charge on future property to be enforced by proceedings in Chancery. The company, I suppose, wanted some rough-and-ready means of enforcing an undisputed claim, not the protracted pleasure of a Chancery suit. It is, I think, equally absurd to suppose that they would have been content with an agreement plainly illusory. They were business people. They must have known what the effect of unconditional delivery would be. But then it is said, be that as it may, Lord had possession of the coal. So he had in a sense—in the sense in which the owner of dutiable goods has possession of them while they are stored in a bonded warehouse belonging to him as owner or tenant. It is said that Lord not only had possession of the coal, but also an estate in the land on which the coal was deposited. I cannot see what the tenure of the land has to do with the question. If the delivery was absolute and unconditional, it cannot matter where the goods were deposited or what Lord did with them. If the delivery was not unconditional, the question must be, Had the goods passed out of reach, or were they still in the grasp of the company? What was the real meaning of the arrangement between the company and Lord? It seems to me that the thing speaks for itself. The proper inference from the facts and circumstances of the case is, I think, that it was the intention of both parties that the company’s right of detainer should be preserved and, if need be, enforced against the coal subjected to their lien so long as it remained in their yard. It is hardly conceivable that the company would have allowed this ledger account to be opened if Lord’s depot for coal had been outside their precincts. I cannot help thinking that there has been some little confusion between the right of retainer in the case of a person’s own goods sold, but not paid for, and the right of detainer in the case of work and labour bestowed on the goods of another person. The two rights are not perhaps quite the same. At any rate, they arise under different circumstances, and it is not, I think, every observation which you find applied to the one that is applicable to the other. It was argued that the ledger agreement was really a bill of sale, and void because it is not in the form prescribed by the Bills of Sale Act 1882. It can hardly be contended that the agreement is within the mischief at which the Act was aimed; nor is it, I think, within the definition of a bill of sale contained in the Act of 1878 and adopted in the later Act. It did not confer, or purport to confer, a right in equity to any personal chattels or to any charge or security thereon or any equitable interest of any sort. The right which was in the contemplation of the parties was a right to detain goods so long as the power of detention remained. The appellants were, I think, in a position to exercise that right, and they certainly did exercise it effectively. The trustee can have no higher right than Lord himself would have had if he had not become bankrupt. In the face of his agreement, how could he have said to the appellants, “You shall open your gates and let me take my goods away, though I promised that some agreement sanctioning a retaking of possession. It seems to me that that is exactly what happened in this case. As soon as the goods were delivered to Lord on his own allotment, held by him as tenant under a demise, they ceased to be actually or constructively in the possession of the company, and mere juxtaposition, though it might give facilities, could give them no right to resume possession, though they might have, and in fact had, a contractual right to do so under what has been called the ledger agreement. If so, it is not, I think, disputed that they would come within the Bills of Sale Acts. It was, indeed, contended by Mr Scrutton that the document here in discussion was not in fact a bill of sale, and that it stood outside the mischief aimed at by the Legislature in those enactments. But this argument has been frequently adduced and as often overruled before. See the observations of Lord Halsbury, L. C., in Charles-worth v. Mills ( ubi sup.), and of Lord Esher, M.R., in ex parte Hubbard ( ubi sup.), and of Lindley, L. J., in ex parte Parsons ( ubi sup.), where it is pointed out that the different Bills of Sale Acts were passed from quite different standpoints, and that honest transactions are hit by them as well as dishonest. The analogy of the innkeeper’s lien does not seem to me to carry the case any further. It is not suggested that it extends to goods which have ceased to be in possession of the innkeeper, or that the latter by virtue of his lien could retake them when he had caused or suffered them to be passed off his premises on to those of his late guest. His defence to an action for doing so would have to be something outside the innkeeper’s lien amounting at least to leave and licence.
Judgment appealed from reversed.
Halberstam & Anor v Gladstar Ltd
[2015] EWHC 179
Warby J
That is not, however, the end of the question of whether there is a serious issue to be tried. Mr Halberstam has to contend with the defendant’s reliance on the Sale of Goods Act 1979 and the Bills of Sale Act 1878. Mr Bates embarked on submissions as to the former, but for reasons of economy and simplicity I decided to hear argument on the effect of the 1878 Act first. That is because it was placed at the forefront of Mr Scher’s written submissions for the defendant and evidently had the potential, if sound, to make further argument unnecessary.
Mr Scher’s argument starts with the proposition that on the claimants’ own case Mr Stern was at the time of the purported sales to the defendant a seller of the disputed goods, who remained in possession of those goods. He had sold the goods to his father in 1974 but they had remained in his possession ever since. That starting point was not and could not have been disputed by Mr Bates. Mr Scher goes on to submit that a buyer of goods from someone who is in possession of those goods but has in the past sold or transferred them to a third party is protected by s 8 of the 1878 Act.
Section 8 provides as follows (I set it out as did Mr Scher, broken down into paragraphs and with emphasis, neither of which features in the original):
“8 Avoidance of unregistered bills of sale in certain cases
Every bill of sale to which this Act applies shall be duly attested and shall be registered under this Act, within seven days after the making or giving thereof, and shall set forth the consideration for which such bill of sale was given,
otherwise such bill of sale, as against all trustees or assignees of the estate of the person whose chattels, or any of them, are comprised in such bill of sale under the law relating to bankruptcy or liquidation, or under any assignment for the benefit of the creditors of such person, and also as against all sheriffs officers and other persons seizing any chattels comprised in such bill of sale, in the execution of any process of any court authorising the seizure of the chattels of the person by whom or of whose chattels such bill has been made, and also as against every person on whose behalf such process shall have been issued, shall be deemed fraudulent and void so far as regards the property in or right to the possession of any chattels comprised in such bill of sale which, at or after the time of filing the petition for bankruptcy or liquidation, or of the execution of such assignment, or of executing such process (as the case may be), and after the expiration of such seven days
are in the possession or apparent possession of the person making such bill of sale (or of any person against whom the process has issued under or in the execution of which such bill has been made or given, as the case may be).”
The argument is that the agreement of 1974 for the sale of the furniture and paintings by Mr Stern to his father on which the claim depends was a bill of sale within the ordinary meaning of that term, and within the definition in s 4 of the Act, to which I shall come later. Hence, the agreement required to be registered under the Act if it was to take effect against the categories of person protected by s 8. A search of the Bills of Sale Registry by the defendant’s solicitors has established that a bill of sale was, at one stage, registered under the name of one or more of William Stern, Shoshana Stern, Edmond Stern, Alfred Stern, Halberstam, Grangewood and Edmond Sterm Trust. This might have related to the goods in question; it is not possible from the records to ascertain whether it did or not. However the registration, whatever it related to, has lapsed. Section 11 of the 1878 Act requires a registration, once made, to be renewed:
“The registration of a bill of sale, whether executed before or after the commencement of this Act, must be renewed once at least every five years, and if a period of five years elapses from the registration or renewed registration of a bill of sale without a renewal or further renewal (as the case may be), the registration shall become void.”
The registered date of the only bill that appears on the certificate produced by the Registry search is 15 January 2009, which is more than 6 years ago and well over 5 years before the execution of the Writ of Delivery. The defendant’s argument proceeds in this way: the High Court enforcement officers were officers seizing in the execution of the process of the court chattels comprised in the bill of sale; the defendant is a person on whose behalf such process was issued; accordingly, the bill of sale, being unregistered, is deemed fraudulent and void against the enforcement officers and the defendant so far as regards the property in or right to possession of the chattels comprised in it.
Mr Bates’ first point in response was to submit that the provisions of the 1878 Act are complex and their effects to a degree uncertain. A point based on the statute was inherently unsuitable for summary resolution on an application of this kind. There is scant authority relevant to the issue raised by Mr Scher. I accept that the court should not dismiss an application for injunctive relief on the basis that there is no serious issue to be tried unless it is satisfied that the claimant’s case is frivolous or vexatious or for some other reason has no real prospect of success at trial. An application should not be dismissed on the basis that there is an insuperable answer to it, unless the court is satisfied that the claimant has had a reasonable opportunity to meet the point raised, has not offered any reasonable answer to it, and has no realistic chance of doing so in future.
I was therefore hesitant to accept that Mr Scher’s submissions were conclusive against the first claimant. However, Micawberism cannot prevail in this context any more than it should in the context of an application for summary judgment. If a short point of law is raised by a defendant to which, after careful consideration, the court is convinced there is and can be no reasonable or viable answer, it would be a waste of resources to leave the point over for some later date. In this instance Mr Bates has failed to persuade me that there is any basis, legal or factual, on which the first claimant could hope to overcome the defendant’s reliance on the 1878 Act, or any real prospect that such a basis could be found.
The first and main answer offered to Mr Scher’s submissions was that the presumed agreement to sell the chattels to Mr Stern senior was not or might not be a bill of sale within the meaning of the Act. Section 4 defines the meaning of bill of sale. Again I have emphasised key words.
“4. Interpretation of terms.
In this Act the following words and expressions shall have the meanings in this section assigned to them respectively, unless there be something in the subject or context repugnant to such construction; (that is to say), The expression “bill of sale” shall include bills of sale, assignments, transfers, declarations of trust without transfer, inventories of goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal chattels, and also powers of attorney, authorities, or licenses to take possession of personal chattels as security for any debt, and also any agreement, whether intended or not to be followed by the execution of any other instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be conferred, but shall not include the following documents; that is to say, assignments for the benefit of the creditors of the person making or giving the same, marriage Settlements, transfers or assignments of any ship or vessel or any share thereof, transfers of goods in the ordinary course of business of any trade or calling, bills of sale of goods in foreign parts or at sea, bills of lading, India warrants, warehouse-keepers’ certificates, warrants or orders for the delivery of goods, or any other documents used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by indorsement or by delivery, the possessor of such document to transfer or receive goods thereby represented:”
Mr Bates pointed out that for s 8 to bite on the present case the court must be satisfied that the document in question fell within the inclusive definition in the first part of s 4, and outside the excluded categories in the second part. He submitted, first, that in the absence of the document effecting the sale the court could not be satisfied that it was a bill of sale within the meaning of the first part. The transaction had been overseen or checked by Cork Gully and looked at again, it was to be inferred, in 1978 when Mr Stern became bankrupt and in 2002 at the time of Mr Stern’s IVA. It was therefore likely, or at least there was a real prospect, that the document had been formulated in such a way as to escape the provisions of the 1878 Act. That submission seems to me speculative and lacking in focus.
Mr Scher referred to Benjamin’s Sale of Goods 9th edition, which states at para graph 1-016: “A bill of sale is, at common law, a written instrument (whether in the form of a deed or otherwise) effecting a transfer of personal property”. On the face of the claimants’ case and the documentary evidence this transaction was a straightforward sale and purchase, but with possession retained by Mr Stern. The fact that some document or documents clearly was or were registered, and may have been registered in the names of one or more trustees of the Settlement, is against Mr Bates’ submission, as it tends to suggest that the transaction may have been recognised as involving a bill of sale that needed to be registered. That is not conclusive. But it is not apparent how, and Mr Bates did not even attempt to identify any way in which, the transaction relied on could have been formulated or structured so as to fall outside the scope of the first part of s 4.
Alternatively, it was submitted, the sale of the chattels to Mr Stern senior, at a time when William Stern was insolvent and his affairs under the supervision or oversight of Cork Gully, was an “assignment for the benefit of creditors” within the meaning of the second part of s 4. The proceeds went, in the event, to meet the claims of those creditors, said Mr Bates. The only evidence to support that submission came in the form of Mrs Stern’s evidence that the transaction “converted physical assets … into cash for distribution to his creditors”. That is a very slender basis for the submission. I do not however reject the submission for that reason.
In my judgment, Mr Scher was right to submit that the alleged transaction plainly does not fall within the meaning of the words of s 4 which I have emphasised above. It was a sale, not an assignment, and it was made to Mr Stern’s father and not to an insolvency practitioner or trustee, or other person acting for or on behalf of Mr Stern’s creditors. Mr Stern’s affairs were not at that time subject to control by any insolvency practitioner. Even if he was in practice insolvent he was not formally bankrupt. It is not enough that the transaction may have been in fact for the benefit of creditors. An “assignment for the benefit of creditors” is a term of art which covers the assignment by a person to one or more others for distribution to creditors. If the claimants’ interpretation were adopted it would seem to encompass any disposition by a person with debts to others, carried out with the intention of facilitating the discharge of those debts. That would be far too broad an interpretation of the statutory words, and one which Parliament cannot realistically be supposed to have contemplated.
Mr Scher referred to authorities in which the Court had considered the application of the excluded category of “assignment for the benefit of creditors”. The leading case is Hadley & Son v Beedom [1895] QB 646, in which the High Court upheld the validity of a deed by which a debtor assigned all his personal property to trustees for the benefit of his creditors, notwithstanding that the deed was not registered as a bill of sale. The issue arose because the deed contained a proviso that no creditor should be entitled to any benefit under it unless he signified his assent to the deed within three months of its registration. The validity of the deed was contested by creditors who had not assented, but upheld by the court on the basis that all creditors had been equally entitled to participate in the distribution if they signified acceptance, and hence the deed was for the benefit of all.
I agree with Mr Bates that this decision, and the other cases cited which preceded it, do not of themselves foreclose the question of whether a sale such as that which Mr Stern is said to have made to his father in 1974 falls within the statutory wording. The cases do, however, indicate a class of case which Parliament may be considered to have had in mind when exempting that category of transaction from the provisions of the Act. In the end, though, my conclusion rests on the reasoning set out above: it is in my judgment impossible to argue that a sale of goods by A to B ranks as an assignment for the benefit of A’s creditors merely because A has debts and A, or even A and B, intend at the time of the transaction that the proceeds will be used to discharge A’s liabilities. Still less, of course, could such a transaction fall within the exclusionary words merely because that is what occurred after the event.
Mr Bates further submitted that the effect of s 8 of the 1878 Act would have been, if applicable, to vest title in the goods in an insolvency practitioner in 1978, when Mr Stern was made formally bankrupt. That is because the insolvency practitioner would be a person in the first of the protected classes identified in s 8. This of course is contrary to the first claimant’s first argument, that the transaction was approved by the insolvency practitioner. Mr Scher’s answer, which in my judgment is sound, is that if the Act would have made void the disposition to Mr Stern senior the claim by the Settlement against the defendant must fail.
For these reasons I have concluded that the first claimant has not established that there is a serious issue to be tried. The first claimant’s application must be dismissed.
Mrs Stern’s claim
So far as Mrs Stern is concerned Mr Bates was able to submit with some conviction that she has a real prospect of establishing that she is the owner and entitled to possession of the Mane-Katz painting. A press cutting from The Times of 3 May 1967 is in evidence, recording that Mrs Stern bought the painting the previous day at Sothebys for £1,300. Although Mr Stern purported on the face of the documents to be the owner of this painting when dealing with the defendant in 2013, that is not enough to undermine Mrs Stern’s case altogether. Mr Stern was not a seller in possession of this painting so that the Sale of Goods Act and Bills of Sale Act arguments were inapplicable to Mrs Stern’s claim.
I was however spared the need to reach a conclusion on this issue, and on whether any relief should follow, by an agreement reached between the parties after I had announced my conclusion on the first claimant’s claim. The defendant undertook to deliver up the painting to Mrs Stern upon her giving an undertaking in damages and other appropriate undertakings to the court to protect the defendant’s interests.
Chapman (t/a Chapman & Co. Solicitors) v Wilson & Ors
[2010] EWHC 1746
Vos J
The Bills of Sale Acts 1878-1882
One of Mr Chapman’s primary submissions was that the Loan Agreement was wholly void as an unregistered Bill of Sale, and that the Assignments were invalid for a number of reasons under the Bills of Sale Acts 1878-1882. Accordingly, it is important to set out the material provisions of the Acts.
The Bills of Sale Act 1878 provided as follows:-
“3 Application
This Act shall apply to every bill of sale executed on or after the first day of January one thousand eight hundred and seventy-nine (whether the same be absolute, or subject or not subject to any trust) whereby the holder or grantee has power, either with or without notice, and either immediately or at any future time, to seize or take possession of any personal chattels comprised in or made subject to such bill of sale.
4 Interpretation of terms
In this Act the following words and expressions shall have the meanings in this section assigned to them respectively, unless there be something in the subject or context repugnant to such constructions; (that is to say),
The expression “bill of sale” shall include bills of sale, assignments, transfers, declarations of trust without transfer, inventories of goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal chattels, and also powers of attorney, authorities, or licences to take possession of personal chattels as a security for any debt and also any agreement, whether intended or not to be followed by the execution of any other instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be conferred, but shall not include the following documents; that is to say, assignments for the benefit of the creditors of the person making or giving the same marriage settlements, transfers or assignments of any ship or vessel or any share thereof, transfers of goods in the ordinary course of business of any trade or calling bills of sale of goods in foreign parts or at sea, bills of lading, India warrants, warehouse-keepers’ certificates, warrants or orders for the delivery of goods, or any other documents used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by indorsement or by delivery, the possession of such document to transfer or receive goods thereby represented:
The expression “personal chattels” shall mean goods, furniture, and other articles capable of complete transfer by delivery, and (when separately assigned or charged) fixtures and growing crops, but shall not include chattel interests in real estate, nor fixtures (except trade machinery as herein-after defined), when assigned together with a freehold or leasehold interest in any land or building to which they are affixed, not growing crops when assigned together with any interest in the land on which they grow, nor shares or interests in the stock, funds, or securities of any government, or in the capital or property of incorporated or joint stock companies, nor choses in action, nor any stock or produce upon any farm or lands which by virtue of any covenant or agreement or of the custom of the country ought not to be removed from any farm where the same are at the time of making or giving of such bill of sale:
Personal chattels shall be deemed to be in the “apparent possession” of the person making or giving a bill of sale, so long as they remain or are in or upon any house, mill, warehouse, building, works, yard, land or other premises occupied by him, or are used and enjoyed by him in any place whatsoever, notwithstanding that formal possession thereof may have been taken by or given to any other person. …
8 Avoidance of unregistered bills of sale in certain cases
Every bill of sale to which this Act applies shall be duly attested and shall be registered under this Act, within seven days after the making or giving thereof, and shall set forth the consideration for which such bill of sale was given, otherwise such bill of sale, as against all trustees or assignees of the estate of the person whose chattels, or any of them, are comprised in such a bill of sale under the law relating to bankruptcy or liquidation, or under any assignment for the benefit of the creditors of such person, and also as against all sheriffs officers and other persons seizing any chattels comprised in such bill of sale, in the execution of any process of any court authorising the seizure of the chattels of the person by whom or of whose chattels such bill has been made, and also as against every person on whose behalf such process shall have been issued, shall be deemed fraudulent and void so far as regards the property in or right to the possession of any chattels comprised in such bill of sale which, at or after the time of filing the petition for bankruptcy or liquidation, or of the execution of such assignment, or of executing such process (as the case may be), and after the expiration of such seven days are in the possession or apparent possession of the person making such bill of sale (or any person against whom the process has issued under or in the execution of which such bill has been made or given, as the case may be).
10 Mode of registering bills of sale
A bill of sale shall be attested and registered under this Act in the following manner:
(1) The execution of every bill of sale shall be attested by a solicitor of the Supreme Court [Senior Courts], and the attestation shall state that before the execution of the bill of sale the effect thereof has been explained to the grantor by the attesting solicitor”.
The Bills of Sale Act (1878) Amendment Act 1882 provided as follows:-
“4 Bill of sale to have schedule of property attached thereto
Every bill of sale shall have annexed thereto or written thereon a schedule containing an inventory of the personal chattels comprised in the bill of sale; and such bill of sale, save as herein-after mentioned, shall have effect only in respect of the personal chattels specifically described in the said schedule; and shall be void, except as against the grantor, in respect of any personal chattels not so specifically described.
5 Bill of Sale not to affect after acquired property
Save as herein-after mentioned, a bill of sale shall be void, except as against the grantor, in respect of any personal chattels specifically described in the schedule thereto of which the grantor was not the true owner at the time of the execution of the bill of sale.
8 Bill of sale to be void unless attested and registered
Every bill of sale shall be duly attested, and shall be registered under the principal Act within seven clear days after the execution thereof, or if it is executed in any place out of England then within seven clear days after the time at which it would in the ordinary course of post arrive in England if posted immediately after the execution thereof; and shall truly set forth the consideration for which it was given; otherwise such bill of sale shall be void in respect of the personal chattels comprised therein.
9 Form of bill of sale
A bill of sale made or given by way of security for the payment of money by the grantor thereof shall be void unless made in accordance with the form in the schedule to this Act annexed.
10 Attestation
The execution of every bill of sale by the grantor shall be attested by one or more credible witness or witness, not being a party or parties thereto. …
13 Chattels not to be removed or sold
All personal chattels seized or of which possession is taken … under or by virtue of any bill of sale (whether registered before or after the commencement of this Act), shall remain on the premises where they were so seized or so taken possession of, and shall not be removed or sold until after the expiration of five clear days from the day they were so seized or so taken possession of. …
15 Repeal of part of Bills of Sale Act 1878
All … enactments contained in the principal Act which are inconsistent with this Act are repealed …”
SCHEDULE
Form of Bill of Sale
This Indenture made the .. day of .. between A.B. of .. of the one part, and C.D. of .. of the other part, witnesseth that in consideration of the sum of £ now paid to A.B. by C.D., the receipt of which the said A.B. hereby acknowledges (or whatever else the consideration may be), he the said A.B. doth hereby assign unto C.D., his executors, administrators, and assigns, all and singular the several chattels and things specifically described in the schedule hereto annexed by way of security for the payment of the sum of £ and interest thereon at the rate of .per cent per annum (or whatever else may be the rate). And the said A.B. doth further agree and declare that he will duly pay to the said C.D. the principal sum aforesaid, together with the interest then due, by equal payments of £ .. on the .. day of .. (or whatever else may be the stipulated times or time of payment). And the said A.B. doth also agree with the said C.D. that he will (here insert terms as to insurance, payment of rent, or otherwise, which the parties may agree to for the maintenance or defeasance of the security).
Provided always, that the chattels hereby assigned shall not be liable to seizure or to be taken possession of by the said C.D. for any cause other than those specified in section seven of the Bill of Sale Act (1878) Amendment Act 1882.
In Witness, &c”.
Issue 1: The validity of the Loan Agreement
Was the Loan Agreement validly executed by Mr Chapman?
The first question that arises under this issue is as to the execution of the Loan Agreement. As I have already explained, Mr Chapman argues that, because he only executed the signature page, and never printed out the whole Loan Agreement, he is not bound by it. As I have also already indicated, I do not regard this as an attractive argument for a solicitor to be advancing. Mr Chapman negotiated his own funding and security documentation as his own solicitor; he was treated as a solicitor by LawFinance’s solicitors, and was trusted as a solicitor for a counterparty to a transaction would normally have been trusted. The fact that his office was somewhat chaotic, and that he appears not to have had the facilities to process large documents efficiently was unknown by LawFinance’s lawyers, and could not have been expected by them.
Mr Chapman relied on a number of cases concerning the alteration of formal contracts after they had been executed (e.g. Raiffeisen Zentralbank Osterreich A.G. v. Crossseas Shipping Ltd [2000] 1 WLR 1135, Mercury Tax Group Limited v. HM Commissioners of Revenue and Customs [2008] EWHC 2721 (Admin), and Koenigsblatt v. Sweet [1923] 2 Ch. 314). But, in my judgment, none of these cases really assist him. Mr Chapman knew the terms of the Loan Agreement. No substantive changes were made after he signed the signature page on 7th September 2006 in preparation for completion, which eventually took place the following day. Whether or not Mr Chapman printed out the entirety of the Loan Agreement and its schedules and its appendices, he knew precisely what the provisions of all and each of them said. They remained available to him on his computer system in the form of files attached to the emails that Mr Teare and others at Bridgehouse Partners LLP had sent him. The only change made after Mr Chapman signed was the addition of the date by Mr Teare in manuscript. That accords with normal solicitors’ practice as Mr Teare described. The parties executed the documents in escrow to be held until completion was agreed to take place. In this case, completion was agreed in the course of the telephone conversation that took place in the afternoon of 8th September 2006 as Mr Teare said. Mr Teare then duly dated the Loan Agreement to accord with the date on which completion had been agreed. If this process were to be regarded as invalidating a commercial agreement, it would be impossible for solicitors to do business efficiently. Commercial life depends on the trust between professionals, and the ability of commercial counterparties to rely on the word of the solicitor on the other side.
In this case, I have no doubt that Mr Chapman and Mr Teare were entirely of like minds as to the precise content of the Funding Agreement, its schedules and appendices. I accept that it is unlikely that Mr Chapman actually printed out the whole of the Loan Agreement and its schedules and appendices and put all the pages together in a pile in the correct order before executing the signature page witnessed by Mr Nigel James Parker, another solicitor, who then worked as Mr Chapman’s litigation manager. But, when Mr Chapman executed the signature page and subsequently agreed to completion on the telephone, he was signifying his unequivocal agreement to be bound by the terms of the Loan Agreement, its schedules and appendices, as those documents had been exchanged in emails between the parties. There was no doubt, as Mr Chapman suggested there might have been, as to the versions of the documents that were agreed. They were the last versions passing between the parties that were agreed. In the case of the appendices D and E (the business plan and the payment protocol), these had been agreed by Mr Staszkiewicz on behalf of LawFinance with Mr Chapman or Ms Natalie Atkinson, acting on his behalf.
For these reasons, therefore, I find that the Loan Agreement was validly executed.
I should mention that I am fortified in my finding that the Loan Agreement was validly executed by the numerous occasions on which Mr Chapman acknowledged its existence and validity, not least in every Drawdown Request, every Confirmation Notice, and in Mr Chapman’s own first witness statement.
Was the Loan Agreement a bill of sale within section 4 of the 1878 Act?
Mr Chapman does not suggest that every provision of the Loan Agreement is a bill of sale. He does, however, point to clauses 5.5 and 10.3.2 as granting security to LawFinance over chattels, namely files belonging to Mr Chapman, thus rendering the whole agreement a bill of sale. Ms Talbot Rice raises a number of arguments in answer to this contention, submitting that:-
i) The Loan Agreement is not a security document at all, and cannot, therefore, be a bill of sale.
ii) The files are not “personal chattels” within the meaning of the Acts.
iii) The files do not belong to Mr Chapman, but to his clients, so the Loan Agreement cannot be a bill of sale in respect of them.
iv) The files are future property and, therefore, not covered by the Acts.
It is true that the Loan Agreement is primarily just that. But, simply because an agreement constituting a bill of sale effects other transactions as well, that should not, as it seems to me, prevent the document being, or at least including a bill of sale for the purpose of the Acts.
In Davies v Rees (1886) 17 QBD 408, the Court of Appeal held that a covenant to pay contained in a bill of sale that was void under section 9 of the 1882 Act, was also void on the basis that the bill of sale was void “in toto”. But two other cases show that, if part of a bill of sale concerns “personal chattels” outside the scope of the Acts, that part is valid, even if the part concerning chattels included within the Acts is void: see In Re Burdett (1888) 20 QBD 310 at pages 315-6, and In re North Wales Produce and Supply Society Limited [1922] 2 Ch 340. And in Burdett, Fry LJ, giving the judgment of a strong Court of Appeal, said that Davies did not establish the broad proposition that every part of an instrument including a void bill of sale was necessarily void. He said the following at pages 315-6:
“But that decision [the decision appealed from] proceeds, not on principle, but upon the authority of Davies v. Rees (1), which was binding on the Divisional Court, and is binding on this Court. In that case this Court decided that, where a bill of sale contained a covenant to pay, and an assignment of chattels personal, and of no other property, and was bad under the statute as an assignment, the covenant to pay was also avoided by the 9th section of the statute. The Court decided that the whole of the instrument there in question was void; not that the whole of every instrument in which a void bill of sale may be embodied is also necessarily void. The principle of that decision we take to be this, that the 9th section made the whole of a “bill of sale,” as those words were used in the section, and not merely the assignment contained in it, void, as was shewn by a comparison of language of the 8th and 9th sections; that the same 9th section shewed, by its reference to the schedule, what it meant by a “bill of sale;” and that, on reference to the schedule, it appeared that a covenant to pay was an integral part of the scheduled form, and, therefore, of a “bill of sale” within that section. There were three possible areas over which the avoidance might operate, viz. (1) the assignment of chattels only; or (2), everything which appeared as part of a “bill of sale” in the scheduled form; or (3), every part of every instrument in which a “bill of sale” might be contained. The Court rejected the first as too narrow, but did not accept the third, which we think would have been too wide” (emphasis added).
Accordingly, it seems to me that, just because the Loan Agreement contains provisions that go beyond the normal provisions of a bill of sale does not mean that it is not a bill of sale. Conversely, even if it is a bill of sale that falls foul of the Acts, that does not automatically mean that it is wholly void. With that introduction, it is necessary to look at those terms of the Loan Agreement that are said to make it a bill of sale.
The Loan Agreement refers in clause 13 to other documents creating security for the obligations arising from it. Clauses 5.5, 10.3.2 and 19.1 (taken together or separately) are said by Mr Chapman to make the Loan Agreement into a bill of sale within the definition in section 4 of the 1878 Act. Clause 10.3.2 is an agreement by Mr Chapman to deliver up “all papers and items” to LawFinance “in relation to a Qualifying Claim in respect of which any sums are due to LawFinance as and when required to do so by LawFinance”. But, as it seem to me, that agreement is not itself:-
i) An assignment or a transfer;
ii) Another assurance of personal chattels; or
iii) A licence to take possession of personal chattels as a security for any debt; or
iv) An agreement by which a right in equity to any personal chattels is conferred.
The closest that the obligation in clause 10.3.2 comes to the definition of a bill of sale in section 4 is a licence to take possession of personal chattels as a security for a debt. But the obligation is not framed as a security, and it seems to me that Ms Talbot Rice is correct to say that the Loan Agreement grants no security at all. The obligation in clause 10.3.2 is framed as a personal future obligation. The reference in clause 10.3.2 to the debt is simply to identify the cases to which the papers and items relate, namely those “in relation to a Qualifying Claim in respect of which any sums are due to LawFinance”. Nor is this a present right in equity over the chattels. It is a future personal right to require delivery up of possession. It seems to me that the clause grants no right to the title or property in the papers to LawFinance at all. I do not need to decide how long LawFinance would be entitled to retain possession of the papers if this were the only clause it could rely on.
Furthermore, whilst clause 19.1 obliges Mr Chapman to do everything that LawFinance requires to give effect to clause 10.3.2, that is not enough to turn a personal obligation to hand over the papers relating to a claim in respect of which LawFinance has advanced money into an assignment or charge or other like security. As Ms Talbot-Rice submitted, the security for this Loan Agreement is to be found in the other documents.
Moreover, clauses 10.3.2 and 19.1 of the Loan Agreement are not clauses by which LawFinance: “has power, either with or without notice, and either immediately or at any future time, to … take possession of any personal chattels …”, within section 3 of the 1878 Act (even if the files are “personal chattels”, to which point I shall return). There is no power of ‘taking’ granted to Law Finance, simply a personal obligation of delivery up or ‘giving’ by Mr Chapman.
Clause 5.5 does not actually grant security, but does seem to acknowledge that security will be granted over some existing files at the date of the initial advance of £250,000. The grant of that security is, however, effected outside the Loan Agreement as I have already described. For these reasons, therefore, it seems to me that the Loan Agreement does not constitute a bill of sale within the definition in section 4 of the 1878 Act.
I could, therefore, conclude my treatment of issue 1 at this stage. But since the matter has been argued, I will go on to explain my conclusions as briefly as possible on the other points arising.
Are solicitors’ files “personal chattels” within section 4 of the 1878 Act, and if so, who owns them?
The next question, therefore, is whether solicitors’ files are personal chattels. Leaving aside the actual ownership of solicitors’ files, to which I shall turn in a moment, it seems to me that the paper and documents making up a solicitors’ file are capable of constituting “personal chattels” within the meaning of section 4 of the 1878 Act. Papers are ‘goods’, but even if that were wrong, papers are certainly “other articles capable of complete transfer by delivery”. Again, no authority to the contrary has been cited to me, and the argument that used paper is valueless and, therefore, not a chattel, simply cannot be right. It is true that the value in a solicitors’ file lies in the contents of the documents and, even perhaps, in the intellectual property in the contents, not the paper on which those contents are recorded. But value is not the issue here. The question is simply whether the physical documents themselves are covered by the Acts, and it seems to me that they must be in the absence of an appropriate exclusion in the legislation.
The far more difficult question is as to who owns the physical documents in a solicitors’ file. That question is made even more complex by the fact that the files in question were for personal injury cases, in which the client had entered into a CFA, so had never paid a penny to Mr Chapman for his services. Ms Talbot Rice argued that Mr Chapman had adduced no evidence of what was in his files, and since the point was ultimately relevant both to Mr Chapman’s defence under the Acts and to whether or not there had been an unlawful interference with the files, Mr Chapman had to prove they were his property. I think that point is unduly technical. As Mr Chapman submitted, all personal injury files must contain a note of the advice that was given under what used to be regulation 4 of the Conditional Fee Agreements Regulations 2000 (CPR Volume 2 at page 2021). That regulation was repealed on 1st November 2005, but its effect survives in professional conduct rules. Mr Chapman says that this basic funding advice must be given by the solicitor in a CFA case, or he risks not being paid. I cannot resolve the question of whether such advice was given in these cases, but it seems to me that it is inevitable that on many, if not most of Mr Chapman’s files, there will have been some documents, however unimportant, that belonged to him rather than his client. I was shown a number of (somewhat contradictory) authorities and texts that sought to explain how one can decide whether a particular document on a solicitors’ file belongs to the client or the solicitor (see Cordery on Solicitors (February 1999 revision) at pages 4/661-2, Wentworth v. De Montfort (1988) 15 NSWLR 348, and Thomas Braithwaite’s article at (2006) SJ 182). This would not be an appropriate case for me to comment on these materials, since it is obvious to me that some of the documents concerning disbursements made for a client on a CFA would be likely to belong to the solicitor. And even if that were wrong, I propose to assume that some of the documents on the solicitors’ files in question may have belonged to Mr Chapman, as one would normally expect to be the case.
To recap, therefore, it seems to me that clauses 10.3.2 and 19.1 of the Loan Agreement cannot constitute a bill of sale over the parts of Mr Chapman’s files that he owned, because the Loan Agreement, in effect, grants no security over those papers, and is not, therefore, within the definition of a ‘bill of sale’. I note in passing that section 5 of the 1882 Act seems to contemplate the existence of a bill of sale in respect of personal chattels of which the grantor was not the true owner at the time of its execution, since it makes such bills void, except as against the grantor. I shall return to the significance of section 5 in the next section of this judgment.
Can future property fall within the definition of “personal chattels”, and can a security over future property be a bill of sale?
Ms Talbot Rice’s next point relies on a series of authorities that she submits show that a security cannot be a bill of sale insofar as it affects future property: i.e. property that is not in existence at the date of the transaction.
In Reeves v. Barlow (1884) 12 QBD 436, the Court of Appeal considered whether a clause in a building contract that provided that materials brought on site should become the property of the landowner was a bill of sale. It held that it was not, on the primary ground that the right granted was a right in law, not in equity, so that the bill could not fall within the definition in section 4 of the 1878 Act: “any other instrument by which a right in equity to any personal chattels … shall be conferred”. Bowen LJ said at page 441 that “On the part of the respondent it was urged that a right to after-acquired property was not a right to personal chattels within the meaning of the Act of 1878. It is not necessary to pronounce an authoritative decision on this very grave point (as to which, see per Lord Chelmsford, Holroyd v. Marshall 33 L.J. (ch.) 198) …”.
In Thomas v. Kelly and Baker (1888) 13 HL 506, a bill of sale assigned by way of security existing chattels together with future chattels of the mortgagor. The House of Lords held that the bill was void as not being in “accordance with the form of the schedule” as required by section 9 of the 1882 Act. It appears from the report that, unusually, only 3 of their Lordships sat on the hearing of the appeal, namely Lord Halsbury LC, Lord FitzGerald and Lord Macnaghten. Lord Halsbury said at page 512 that:-
“Applying the principles I have suggested, there can be no difficulty in the decision of this case. An essential condition of the deed appears to me to be a present assignment of goods capable of specific description and present assignment (see definition in the Act of 1878). It is obvious that a bill of sale which purports to assign after-acquired property, whether in the form of a covenant (its true legal effect) or as stated specifically in words as part of the security is not in accordance with the “form”, and, therefore, void. I doubt whether the reason why it is void is adequately given when it is said that such property is incapable of specific description. I think it also introduces a covenant not in accordance with the form; and the form is here, in my judgment, intended to be exhaustive of what may or may not be included in such a deed”.
Lord FitzGerald concurred with Lord Halsbury (see page 516), but Lord Macnaghten said the following at pages 518-9:-
“Notwithstanding a remark made by Lord Chelmsford in Holroyd v Marshall (3) which obviously was not required for the decision of the case, I am disposed to think that the expression “capable of complete transfer by delivery” means capable of such transfer at the time when the bill of sale is executed. That was the view of the Divisional Court consisting of Brett and Archibald JJ in Brantom v Griffits (4). Brett J there said (1 CPD at p 354): “The Act [of 1854] only applies to things which at the moment when the bill of sale is given, and the provisions of the Act are to be applied to it, might be delivered to the assignee and are not, but are left in the enjoyment of the assignor.” Archibald J concurred. He said (ibid at p 357): “The application of the statute must be limited to articles of which possession could have been given to the vendee, and which are capable of removal.” I am the more inclined to adopt this view of the meaning of the expression “capable of complete transfer by delivery”, because the decision in Brantom v Griffits (4) was standing unchallenged when the Act of 1878 was passed, and must have engaged the attention of the framers of that Act. The Act repeats with some few alterations the definition of “personal chattels” contained in the Act of 1854. The only alterations are consequent upon the decision in Meux v Jacobs (5) and the decision in this very case of Brantom v Griffits (4).
If this view be correct, the definition of “personal chattels” excludes future or after-acquired chattels, for the simple reason that they are not capable of transfer by delivery”.
It seems to me that the ratio decidendi of Thomas v. Kelly was that the bill of sale was not in the required form, because the after-acquired property was not scheduled to the bill contrary to section 9 of the 1882 Act, not that a security over after-acquired property cannot in any circumstances be a bill of sale.
In Welsh Development Agency v. Export Finance Co Ltd. [1991] BCLC 936, Sir Nicholas Browne-Wilkinson V-C held that a funding transaction that purported to be a sale on behalf of an undisclosed principal was registrable under section 396 of the Companies Act 1985 as a charge over goods, because if it had been entered into by an individual it would have been registrable as a bill of sale. The Vice-Chancellor said this at pages 956-7:-
“Mr Crystal’s submission that the master agreement is not a bill of sale is wholly based on a dictum of Lord Macnaghten in Thomas v Kelly (1888) 13 App Cas 506, [1886–90] All ER Rep 431. In that case it was held that there had been a failure to comply with the statutory requirements of a bill of sale by including an assignment of after acquired property in the body, rather than the schedule, of the deed. Lord Macnaghten, whilst protesting that he must not be understood as expressing an opinion on any matter not directly in question, in fact expressed the view that the definition of ‘personal chattels’ in the 1878 Act (articles ‘capable of complete transfer by delivery’) had the same meaning as in the Bills of Sale Act 1854, ie only such chattels as were capable of complete transfer by delivery at the time the bill of sale was entered into (see (1888) 13 App Cas 506 at 518–519, 521, [1886–90] All ER Rep 431 at 437–438). Therefore, in Lord Macnaghten’s view, a bill of sale of future or after acquired property did not fall within the Act. Lord Macnaghten’s view has been criticised, and not followed, in Australia in King v Greig [1931] VLR 413 at 439 (where the legislation was different in an important respect) and in 4 Halsbury’s Laws (4th edn) para 610.
In my judgment, Lord Macnaghten’s dictum is not correct and, given the firm warning of the weight which he attached to it, I feel no hesitation in not following it. Lord Macnaghten founded himself on the view that since after acquired properties were not ‘personal chattels’ under the 1854 Act they were not included in the 1878 Act. In so doing, he failed to refer to two crucial differences between the two Acts. First, the definition of ‘personal chattels’ in the 1854 Act did not include growing crops whereas the 1878 definition does. That change was directed to counteracting the decision in Brantom v Griffits (1876) 1 CPD 349 which decided that growing crops were not personal chattels because they were incapable of delivery at the date of the bill of sale. The legislature, by including growing crops in the definition of personal chattels in the 1878 Act, showed that personal chattels incapable of delivery at the date of the bill of sale could be within the definition. Second, the definition of ‘bill of sale’ was drastically changed in 1878. Only the two sections which I have numbered 1 and 2 were included in the 1854 Act; by including the section which I have numbered 3 (directed exclusively to cases where equitable rights over chattels are created) the legislature must, in the absence of any other contra indication, have been contemplating equitable rights over future property.
Section 5 of the Bills of Sale Act (1878) Amendment Act 1882, is headed ‘Bill of Sale not to affect after acquired property’ and provides that, save as thereafter provided, a bill of sale is to be void (save as against the grantor) in respect of ‘personal chattels’ of which the grantor was not the true owner at the time of the execution of the bill of sale. The implication is, to my mind, clear. As between the grantor and the grantee a sale of future chattels is a bill of sale of future chattels within the meaning of the Acts. For these reasons, notwithstanding that the master agreement only applied to future goods, in my judgment it would, if made between private individuals, have been a bill of sale and was therefore registrable under s 395. …
Therefore, in my judgment, the charge created by the master agreement would have been registrable as a bill of sale if made by an individual and was accordingly registrable under s 395 of the Companies Act 1985″.
The Court of Appeal allowed an appeal against Sir Nicholas Browne-Wilkinson V-C’s decision, holding that the transaction was a sale, not a loan secured on the goods. Dillon LJ said the following about the bill of sale point:-
“It follows that it is not necessary for this court to decide whether, if the master agreement was not an agreement for sale but an agreement for secured loans, the security ought to have been registered under the Companies Act. This territory is bedevilled by law that is now very out-of-date, involving consideration whether a charge would, if created by an individual, have been registrable as a bill of sale under the Bills of Sale Act (1878) Amendment Act 1882. The Vice-Chancellor considered that the master agreement would itself have been registrable under the Companies Act as a charge, notwithstanding a dictum of Lord Macnaghten in Thomas v Kelly (1888) 13 App Cas 506 at 519, [1886–90] All ER Rep 431 at 438 (supported, so far as I can see, by Lord Halsbury LC: see (1888) 13 App Cas 506 at 512, [1886–90] All ER Rep 431 at 437) that the definition of ‘personal chattels’ in the Bills of Sales Act seemed to exclude future or after-acquired chattels. But the Vice-Chancellor also held that each acceptance by Parrot, under cl 3 of the standing offer created a separate registrable charge on presently ascertained goods, and I have not heard any effective answer to that from Mr Crystal QC”.
These authorities, as it seems to me, have created a confusion between the question of (a) whether a particular document is a bill of sale at all, and (b) whether that bill of sale is valid or void under the Acts. Mr Crystal QC submitted that the agreement in Welsh Development was not a bill of sale at all, based on the House of Lords in Thomas v. Kelly. That was a misunderstanding of the House of Lords’ decision, which did not say that the agreement in that case was not a bill of sale because it charged after-acquired property, but simply that it was void as failing to comply with the Acts. As Lord Halsbury said in the passage cited above: “It is obvious that a bill of sale which purports to assign after-acquired property …is not in accordance with the “form”, and, therefore, void”. He was not doubting that such an instrument was a bill of sale. Lord FitzGerald concurred with Lord Halsbury’s view on this at page 516, where he said: “I concur in the opinion expressed by [Lord Halsbury] … that this bill of sale is not in conformity with the statute and varies from the “form” in material and substantial particulars”. It was only Lord Macnaghten that was expressing the view that the Acts did not apply at all to after-acquired property, because an assignment of such property was not a bill of sale, since it was not an assignment of “personal chattels”, because after-acquired property was not an article “capable of complete transfer by delivery”.
Sir Nicholas Browne-Wilkinson V-C was, therefore, correct to think that he was only disagreeing with Lord Macnaghten, and not with Lord Halsbury (or indeed Lord Fitzgerald), as was suggested in argument before me. Dillon LJ in the Court of Appeal was, however, wrong in my judgment to think that Lord Halsbury had supported Lord Macnaghten’s reasoning.
In the result, it seems to me that both the House of Lords and Sir Nicholas Browne-Wilkinson V-C were right to suppose – for the reasons that they gave – that (a) an assignment of after-acquired property can be a bill of sale (whether as a licence to take possession of personal chattels or as an instrument creating a right in equity to any personal chattels) within the meaning of the Acts, but (b) may well be void for non-compliance with one or more of sections 4, 5, 8 or 9 of the 1882 Act.
In effect, therefore, section 5 of the 1882 Act does not say that a bill of sale cannot exist in respect of after-acquired property. It obviously can. All section 5 says is that such a bill of sale is void “except as against the grantor”. Section 4 of the 1882 Act requires a bill of sale to have a schedule of the personal chattels comprised in it, and, again, makes the bill void “except as against the grantor” in respect of any chattels not so specifically described. Sections 4 and 5 demonstrate that a bill of sale could list chattels to be later acquired and be valid against the grantor, even if it would be void against his trustee in bankruptcy. Section 8 of the 1882 Act makes a bill of sale “void in respect of the personal chattels comprised therein”, if it is not duly attested and registered within 7 clear days. Section 8 does not, again, make the instrument wholly void, but only void in respect of the personal chattels comprised in it. The other parts of such an instrument would be unaffected. Section 9 of the 1882 Act is, however, of the most swingeing effect, providing that a bill of sale is void unless made in accordance with the form in the schedule to the 1882 Act.
What is the effect of non-registration of the Loan Agreement?
I shall consider next the effect of non-compliance with section 8 of the 1882 Act, had the Loan Agreement been a bill of sale.
Since the Loan Agreement was not registered it would, as I have said, have been “void in respect of the personal chattels comprised therein” under section 8 of the 1882 Act. That section would not have made the loan void, since section 8 says expressly that the unregistered bill of sale shall be “void in respect of the personal chattels comprised therein”. The two parts of the agreement would thus have been severable. This conclusion is consistent with both Burdett supra and Davies v. Rees supra (as to which, see Lord Esher MR at page 411).
Was the Loan Agreement in the correct form to comply with section 9 of the 1882 Act?
Mr Chapman also argued that the Loan Agreement was void under section 9 of the 1882 Act as not having been “made in accordance with the form in the schedule to this Act annexed”. In Thomas v. Kelly, the House made it clear that these words did not require absolute adherence to the words in the schedule to the 1882 Act. Instead what was required (as Lord FitzGerald made clear at page 516) was the inclusion of certain essential elements as follows:-
i) A statement of the consideration in money “now paid” to the grantor, the receipt of which the grantor thereby acknowledges;
ii) The assignment is confined to the chattels and things specifically described in the annexed schedule;
iii) The assignment shall be by way of security for the same sum then advanced with interest at a specified rate to be repaid to the grantee, with the interest then due, by equal payments on fixed days;
iv) The terms which the parties have agreed to for the maintenance of the security or its defeasance;
v) The incorporation by reference of the provisions of section 7 of the 1882 Act, which restrict the right of the grantee to take possession.
Whilst item (i) might be said to be satisfied, the remainder of the requirements were not satisfied wholly or at all. Items (iv) and (v) were completely absent. Thus, if it had been a bill of sale, section 9 would have, at least, rendered the bill of sale element of the Loan Agreement completely void and of no effect (see Davies v. Rees supra). I do not need to consider whether the entirety of the Loan Agreement would have been void, or which parts might have survived, since I have already decided that, in fact, the Loan Agreement is not a bill of sale at all.
Issue 2: Was the April 2009 Assignment valid and enforceable?
I come then to the second main issue concerning the validity of the April 2009 Assignment. Ms Talbot Rice submitted that it was not necessary to decide whether the April 2009 Assignment was valid, since the earlier assignments and, in particular, the January 2009 Assignment was acknowledged to have been validly executed and registered as a bill of sale. I do not accept that submission. The schedule attached to the April 2009 Assignment was more up to date than any earlier assignment and the specific files assigned may be relevant to the extent of LawFinance’s security. Despite Ms Talbot Rice’s emphasis on the provisions of the Loan Agreement, it is notable that the letter that LawFinance asked Mr Chapman to sign on 23rd June 2009 confirmed that Mr Chapman’s current cases were caught by the provisions of the April 2009 Assignment, not the Loan Agreement.
Was the April 2009 Assignment validly executed?
I have already dealt with my findings on this issue above. I am satisfied that Mr Chapman did sign a complete copy of the April 2009 Assignment with the schedule attached between the 1st and 3rd April 2009. It was duly witnessed by Mr Ross, and returned to Ms Khaliq as she has said. Ms Khaliq was fully entitled to date the document using the 6th April 2009 (the date on which she received the document back from LawFinance’s signatories) in the way she did. The April 2009 Assignment was, therefore, duly and validly executed.
Was the April 2009 Assignment registrable as a bill of sale?
Ms Talbot Rice argued that none of the Assignments was registrable, since they did not grant any security over Mr Chapman’s files, despite that fact that LawFinance went to much trouble to register them as bills of sale. I shall deal with the matter by reference to the terms of the April 2009 Assignment that I have set out above.
It is true that the main security granted under the April 2009 Assignment is the income flow from the Cases scheduled. Under clause 3.1 of the April 2009 Assignment, Mr Chapman assigned to LawFinance his “whole right, title, interest and benefit in and to the Cases, and [his] Rights associated with the Client Contracts and the Cases”. The Cases are defined as those listed in the schedule “being conducted by [Mr Chapman] for his Clients from time to time pursuant to a Client Contract”. “Client Contracts” are defined as contracts made with a Client to “pursue the relevant Client’s Case”. Thus, that definition only encompasses “Cases”, which are all scheduled to the April 2009 Assignment.
The question for these purposes is, therefore, whether, in addition to the rights to the income stream from the Cases, LawFinance is entitled under the April 2009 Assignment to security over the documents in the client’s files. This question turns on the meaning of “whole right, title, interest, and benefit in and to the Cases”. No authority was cited to me, but I incline to the view that these words must include every document that Mr Chapman owns in connection with his cases. Otherwise, it would imply a limitation which is obviously not intended. A “Case” cannot be conducted without a file, and Mr Chapman’s right, title and interest in a case must include any papers that he owns that allow him to conduct that “Case”. Clause 3.1 effects an assignment. Since the chattels comprising the documents in the scheduled case files belonging to Mr Chapman are part of the property assigned, the Assignments were indeed registrable as bills of sale. The schedule obviously identified the cases, but not the precise documents concerned.
Was the April 2009 Assignment validly registered?
Ms Khaliq sent two copies of the April 2009 Assignment, together with her statement of due execution for registration as a bill of sale at the High Court. The registration was validly effected within the period of 7 clear days laid down by section 8 of the 1882 Act. Moreover, I do not regard the criticisms made of her witness statement of due execution as carrying any weight. There was indeed a minor inaccuracy in the statement in that Ms Khaliq said in paragraph 6 that “Before [Mr Chapman] executed the assignment I fully explained to [Mr Chapman] the nature and effect of it”. Whilst she had tried on previous occasions to explain the nature and effect of the Assignment, she had not tried to do so on this occasion, having been rebuffed by Mr Chapman before. Mr Chapman had previously told her that he was a solicitor and did not require her explanations. This inaccuracy cannot vitiate due attestation under sections 8 and 10 of the 1882 Act. It is perhaps remarkable that the standard form used still seems to be drafted so as to comply with section 10(1) of the 1878 Act, 128 years after the repeal of that section.
Was the April 2009 Assignment in the correct form so as to be valid under the Acts?
I have set out above the requirements of section 9 and the Schedule to the 1882 Act. Again, I do not think the form requirements were satisfied:-
i) Nothing in the Assignments actually sets out in clear terms a statement of the consideration in money “now paid” to Mr Chapman, the receipt of which Mr Chapman acknowledged.
ii) The documents concerned are not, as I have said, specifically mentioned in the schedule. Only the case names are listed.
iii) The assignment is not specifically stated to be by way of security for the same sum then advanced with interest at a specified rate to be repaid to the grantee, with the interest then due, by equal payments on fixed days.
iv) The terms which the parties have agreed to for the maintenance of the security or its defeasance are probably set out.
v) There is no reference to the provisions of section 7 of the 1882 Act, which restrict the right of the grantee to take possession.
The effect of the non-compliance with section 9 of the 1882 Act is, as I have said, to make the bill of sale void.
…..
Conclusions
The twists and turns of the Bills of Sale Acts have already been the subject of much judicial and academic comment (including a recent Law Commission report of July 2005 (number 296) on Company Security Interests). The issues raised in these proceedings have been complicated by their outdated provisions. One cannot help but think that the introduction of a modern system of registration offering protection and clarity to creditors, consumers and chattel-owners alike, is long overdue.
In the result, I have found that the Loan Agreement under which Mr Chapman borrowed large sums from LawFinance was valid and enforceable, but that the form of the Assignments prepared by LawFinance fell foul of the form requirements in section 9 of the 1882 Act.
Mr Chapman’s claim that the Defendants unlawfully removed his case files has, for the reasons I have given, failed.
I will hear the parties on the precise form of the order to be made and on costs.
Ratten & Anor v Ultra Motorhomes International Ltd & Anor
[2006] EWHC 3415 (Ch) Patten J
Title
The Security Agreement is on its face an agreement between UVDL and Behike. Mr Behike’s evidence is that he never appreciated the distinction between IJMIL and UVDL or that they were separate companies. He said that he regarded the business or company run by Dr Helmer simply as “Ultra”. But for the security agreement to have any effect at all it has to have been entered into with either 1.HvIIL or UVDL because they (or rather one or other of them) were the only legal entities able at the time to create any interest in Vehicle 48. No one suggests that the vehicle belonged to Dr Helmers himself.
Behlke’s pleaded case (see para 12 of its Defence) is that at the time of the Security Agreement Vehicle 48 was the property of UMIL and that UVDL andlor Dr Helmers had the actual or ostensible authority of UMIL to act on its behalf in procuring the funds necessary for it to finish Vehicle 47 and to grant security over Vehicle 48 for that purpose.
I shall come shortly to the question of who was the contracting party and the related question of authority, but the first issue to determine has to be which company had title to Vehicle 48 as at the date of the Security Agreement. Although some reservations were originally expressed about this it is now common ground that Vehicle 48 was the property of UMIL in December 2001 and became an asset of that company subject to the trust in favour of the creditors pursuant to ci 6.3 of the CVA proposal. It is also common ground that this trust has survived the liquidation of the company.
The real issues about title stem from the Sale Agreement, The Supervisors take two points: (1) that Vehicle 48 fell within the reference to “any motor vehicles” in ci 2.2.9 of the Sale Agreement and was therefore excluded from the sale of assets to UVDL; and (2) that if included in the sale Vehicle 48 was subject to the retention of title provisions contained in ci 5.1 with the result that title never passed to I.J\TDL. Behlke disputes the first proposition but accepts that ci 5.1 does apply. It differs, however, from the Supervisors in its construction of that clause and contends that the reference to payment in full is a reference to the instalments due under ci 8 of the CVA as amended being up to date as at the relevant date of transfer. I will deal with these two issues in turn,
The Supervisors’ stance on the first issue has changed during the course of these proceedings. As Ms Muth pointed out, Mr Oakley in his second witness statement (made in connection with the preliminary issue on the applicability of German law to the Security Agreement) expressly contended that Vehicle 48 passed to UVDL as “stock” having been completed during 2002. He went on to reject its inclusion as a “motor vehicle” under cl 2.2.9 saying that this was in his experience a standard form provision designed to protect vehicles used by employees of the vendor company from being transferred inadvertently to the purchaser. His contention was that Vehicle 48 was indeed part of the stock of UMIL in December 2002 and was one of the only tangible and valuable assets of the company. The intention must have been to pass it to UVDL so that it could be sold as part of an ongoing business for the benefit of creditors subject of course to the protection afforded by the retention of title cause.
Clearly, Vehicle 48 is a motor vehicle. It was also part of UMIL’s stock in trade. The evidence is that the vehicle was created as a demonstration vehicle but was always available for sale. The real issue therefore is whether the reference to “any motor vehicles” in ci 2.2.9 is wide enough to include any and all motor vehicles or must be given some narrower construction and meaning.
The provisions of cl 2 of the Sale Agreement are on one view ambiguous and must in my judgment be given construction which facilitates rather than impedes the purpose of the revisions to the CVA. This approach to construction was adopted by Blackburne J in the reported case of Re Brelec Installations [2000] – where he said this:
“An arrangement is usually put together in some haste. Mod~flcations to it are frequently made at the statutory meeting of creditors with little time to reflect on how they relate to the other terms of the debtor’s proposal. Quite often, as this case demonstrates, the resulting terms are clumsily worded. The arrangement ought therefore to be construed in a practical fashion. Otherwise there is a risk that careless drafting coupled with a too-literal approach to its construction will serve to frustrate rather than achieve the purpose of the arrangement.”
It is clear that the transfer of assets to UVDL was intended to allow the business formally carried on by T.JMIL to continue in the hands of its new subsidiary which was to obtain the benefit of LTMIL’s existing contracts and the equipment, stock and goodwill of that business. Motor vehicles are also excluded from the definition of “equipment” but that adds nothing to nor does it alter the relevant background to construing the agreement. It seems to me that it would be odd for the draftsman to have included the benefit of contracts for the manufacture and sale of the motor homes (e.g Vehicle 47) but to have excluded title to a similar motor home already completed and available for sale. I am much more impressed by Mr Oakley’s evidence that the exclusion of motor vehicles is a standard type of provision designed to exclude from the sale vehicles supplied for the use of the vendor’s own employees. That construction preserves the apparent commercial thinking behind the sale agreement whilst retaining assets which do not have to pass in order for that to be achieved. In my judgment Vehicle 48 did pass to UVDL as stock subject only to the retention of title clause.
The next issue is how that clause should be construed. It is common ground for the reasons already outlined that there was not payment in full for the respective assets pursuant to ci 4 of the Sale Agreement if that means if all of the instalments of the consideration have to be paid before title can pass. The £54,165 paid by 19 May 2003 meant that each of the monthly instalments of £10,833 up to the end of March 2003 were met but only late. The total amount paid by way of instalments since the commencement of the CVA (f 173,829) was also insufficient to cover the value placed on Vehicle 48 as of March 2003 in these proceedings.
Ms Muth contended that for the revised arrangement to work it could not have been the parties’ intention that title to one of the vehicles manufactured and sold by UVDL should only pass to the purchaser if all of the instalments of consideration came eventually to be paid. This would have the consequence that a purchaser would have to wait for up to two years before his title was confirmed. This lack of certainty would make trade difficult if not impossible.
The scheme of the original CVA clearly envisaged that UMIL would be able to continue to trade and that existing creditors would be provided for and paid off through the monthly instalments of profit paid to the Supervisor by the company out of its receipts. This is confirmed by cis 4.1 and 14.1 of the proposal. The company is required by ci 12.1.6 to conduct trading in accordance with the terms of the arrangement and by ci 8 to remit to the Supervisor the monthly payments of £10,833 and any further share of profits payable under ci 8.3. His functions during the continuation of the arrangement are limited to banking and distributing the funds payable to creditors and supervising the company’s compliance with the terms of the arrangement: see ci 10. Both ci 10.1 and 11.2 give to the Supervisor power to realise the Assets as defined but this power of realisation is directed to the position following a breakdown in the payment schedule when the Supervisor is empowered under ci 4.5 to sell the business as a going concern or to realise the assets.
UMIL therefore remained free to dispose of the vehicles in the ordinary course of its business. The proceeds of sale would be used to meet the costs of the business (see ci 4.1) and the payments due under ci 8. The trust in favour of creditors which attaches to the assets that are subject to the arrangement does not prevent sales of the vehicles in the ordinary course of business but attaches to the proceeds of sale: see ci 6.1.
Under these arrangements there are no provisions for retention of title pending payment. The proceeds of sale of a vehicle once credited to the company are subjected to the trust and the provisions of the CVA which bind and regulate the relationship between UMIL, its Supervisor and its creditors. But the variation to these arrangements was effected by a sale of assets between UMIL and UVDL to which the Supervisor was not a party and which was intended to vest the trading assets in a company that was unaffected by the CVA.
The sale agreement was completed on 20 December 2002 and the consideration was payable on deferred terms to T.JMIL. The obligations of UVDL under the sale agreement were secured not by it entering into any direct contractual relationship with the Supervisor, but by the grant of a debenture over its assets in favour of UMIL. UVDL was therefore never a party to this CVA and was not bound by the terms of the original arrangement. Its title to and right to deal with the assets transferred to it depend exclusively on the terms of the sale agreement and this therefore is the only means of legal control over its use and disposition of the assets which provided the sole means of paying off the pre-arrangement creditors of UMIL.
In these circumstances it is hardly surprising that those responsible for drafting the sale agreement thought it necessary to include the retention of title provisions contained in cl 5.1. They were clearly intended to reinforce payment provisions contained in ci 4. UVDL was given possession of the movable assets on completion of the sale agreement (see ci 4.4) but no right to pass title before “payment in full” for the respective assets was made pursuant to ci 4.
It seems to me that this must mean payment in full of all sums due under ci 4. The sale agreement is drafted as a single sale of au the Assets listed in ci 2.1. The consideration for that sale is a single sum of~E303,324 together with the Earn-Out (as defined) if applicable. Separate values are not attributed to individual assets and the consideration is stated to be payable in accordance with ci 4 which sets out the regime of monthly payments corresponding to those contained in ci 8 of the original arrangement. The reference in ci 5.1 to payment being made in full pursuant to cl 4 must have been intended to mean payment of all sums due under that clause.
I therefore reject Ms Muth’s submission that I should construe the condition in ci 5.1 as satisfied by the payment of the monthly instalments up to the end of March 2003. The effect of ci 5.1 was that UVDL could not pass title to the purchaser of a vehicle prior to all instalments of consideration being paid unless it obtained a consent or release from UMIL which of course remained subject to the Supervisor under the CVA. In this way, UMIL (and through it the Supervisor) could decide whether to grant a release and so exercise a degree of control and supervision over the disposal of UVDL’s assets. This seems to me to be a perfectly reasonable and intelligible system of control and not one which in any way flouts business commonsense or is inconsistent with the overall scheme and purpose of the hive-down arrangements.
The Security Agreement
The consequence of all this is that ci 5.1 applied as of 21 March 2003 so as to prevent TJVDL from passing a good title to Vehicle 48 otherwise than with the consent of UMIL. The Supervisors therefore contend that the Security Agreement was ineffective to pass to Behlke title to Vehicle 48 whether by way of security or otherwise,
This argument has to be broken down into a number of sub-issues:
i) Was the security agreement made with UVDL or UMIL?;
ii) If made with UVDL (which was subject to the reservation of title in favour of UMIL) did it involve some kind of implied waiver or release by T.JMIL of its rights under ci 5.1; and
iii) If there was no release what was the effect (if any) of the security agreement?
The identification of the parties to a written agreement is normally contained in the agreement itself. In this case, the agreement was negotiated between Dr Helmers and Mr Behlke and then committed to writing in the form of a letter in the name of UVDL. The letter contains statements that “we are transferring the ownership of this vehicle to you” and “we expressly confirm that this motor vehicle is our sole property”. In the context of the letter the “we” is obviously a reference to UVDL. Mr Behlke says that he did not pay any real attention to the UVDL name but concentrated on the word Ultra. But that seems to me to be irrelevant. Subject to the cl.5. 1 rights of UMIL, LTVDL was the purchaser of the assets and the company which was to continue to run UMIL’s business. It had acquired under the sale agreement the benefit of the contract for the purchase of Vehicle 47 and the security agreement was designed to provide security for the advance payment of the final instalment due under that contract. There is nothing in the relevant background circumstances to displace the language used in the letter and the identification of UVDL as the contracting party.
The matter is however complicated by the fact that the agreement was signed on behalf of UVDL by Dr Helmers. Dr Heimers was not a director of either UMIL or UVDL but the manager of its business. It is not in dispute that he was responsible for acquiring and negotiating the terms of the orders for vehicles and dealt personally with Mr Behlke in relation to his order for Vehicle 47. He had the technical expertise to deal with the production of the vehicles. Ms Whitter, by contrast, was an accountant and auditor whose principal responsibility was to manage the finances of the two companies and to liaise with the Supervisor in relation to the CVA.
The Supervisors’ position is that in the light of cl 5.1 of the sale agreement they do not need to challenge Dr Heimers’ authority to enter into the security agreement on behalf of UVDL. Even if binding on the company, it is of no effect. Behlke, by contrast, contends not only that Dr Helmers was authorised to enter into the security agreement by UVDL but that he did so with the actual or implied authority of UMIL and that by implication UMIL must be taken to have waived or released their rights over Vehicle 48 under ci 5.1 of the sale agreement.
Mr Behlke accepted that he had never met or had any dealings with Ms Whitter before 24 April 2003. There is therefore no question of Dr Helmers having been held out expressly to Mr Behlke as having the necessary authority to bind either UMIL or UVDL to the security agreement by some representation made to him by Ms Whitter prior to the making of the security agreement. Behlke’s case therefore is that Dr Helmers either had actual authority from Ms Whitter to enter into the agreement or had apparent authority as a result of being allowed by Ms Whitter to act in the conduct of the company’s business so as to appear to have the authority necessary to bind the principal.
In his witness statement Dr Helmers describes himself as the de facto managing director of UMIL and UVDL. He started the business in 1994 and says that following the CVA he continued to be in charge of the business and to be regarded by customers as the person who was running it. Ms Whitter allowed him to do this and to negotiate and finalise contracts with customers which he would sign on the company’s behalf.
Dr Helmers accepts in his witness statement that the contract for Vehicle 47 and the security agreement were entered into by different companies but describes it as a paper exercise. UMIL and UVDL were regarded, he says, as the same entity and the security agreement was intended to be an extension of the sale contract in respect of Vehicle 47. He says that he did not differentiate in his mind between UMIL and UVDL when entering into the security agreement and that he regarded himself as having the full authority of UMIL and UDVL to do so. In terms of actual authority from Ms Whitter he says (in paragraph 26 of his witness statement) that he acted with her full knowledge and authority at all times. He says that prior to entering into the agreement he consulted her and that she confirmed that “bearing in mind the intent of the company (I.JVDL) to provide Behlke with a valid and enforceable security, that UVDL should issue it”.
In his oral evidence he said that she had no objection to the security agreement and told him to go ahead and do it. He was given the keys and log book to Vehicle 48 and therefore had physical control of it.
The Supervisors challenged this evidence but Ms Whitter was not called as a witness and I have no evidence from her to contradict what Dr Helmers has said. I should however make it clear that I have considerable doubts about parts of his evidence in reiation (eg) to whether Mr Behike was aware of the CVA. He was forced to concede that he had written letters at the time which contained statements he knew to be inaccurate or untrue and which contradict the evidence he has given in these proceedings. I therefore approach his evidence with considerable caution, particularly bearing in mind that the Supervisors are not in the position to challenge much of it.
It seems to me that Ms Whitter obviously did allow Dr Heimers to run the technical side of the business and to continue to do so even after the change to UVDL. This appears to have included the making of contracts for the production and sale of vehicles. There is no evidence to suggest that he did not have actual authority to do this or that Ms Whitter was as a matter of practice required to countersign any contract he entered into. His custody of the keys to Vehicle 48 is consistent with this. Everything points to his having actual authority to take the orders and to fulfil them on behalf of the company.
I am however much less convinced that Dr Heimers had actual authority to enter into the security agreement. This was very much a one-off arrangement designed to boost the cash flow position of UVDL in relation to the completion of the contract for Vehicle 47. It is not in any sense a usual type of contract and would not in my judgment fall within the scope of a general authority to enter into contracts for the production and sale of vehicles. Nor would it have been within the scope of his apparent authority based on his role in the management of the business. An agreement to give security for a contract is something which in the context of this business required board approval. I therefore take the view that the security agreement is only binding on UVDL if Dr Helmers was given express authority by Ms Whitter to enter into it on the company’s behalf.
I have considerable misgivings about accepting this evidence. It is unsupported by any evidence from Ms Whitter and is also inconsistent with the way in which one would expect her to act in the circumstances, The giving of security over a valuable asset of the company is something which one would have expected her to refer to the Supervisor. ci 14.3 of the original CVA prohibits the giving of security without the prior written approval of the Supervisor. This was not, of course, a term of the sale agreement and is not contractually binding on UVDL but the grant of security preventing the sale of Vehicle 48 is something which stood outside the normal trading arrangements contemplated by the sale agreement and the absence of any reference to the Supervisor casts considerable doubt in my view on the evidence which Dr Heimers has given about this. On balance I am not persuaded that any such express consent was given.
, But even if I am wrong on the question of whether UVDL authorised Dr Helmers to enter into the agreement and there was either actual or apparent authority for him to do so, I do not accept that this extended to a waiver or release by UMIL of its rights under ci 5.1 of the sale agreement. The security agreement was no different from any sale agreement made foiiowing the hive-down. Both required in my analysis an approach to be made to UMIL for its consent to a release of the reservation of title in its favour. There is nothing in Dr Helmers’ witness statement or his oral evidence to suggest that any request for such a release was ever made to Ms Whitter and paragraph 26 of his witness statement suggests that Ms Whitter dealt only with the position of UVDL.
Ms Muth contends that a release by UMIL should be implied in order to give effect to the terms of the security agreement. But that is the same argument which underlies her approach to the construction of ci 5.1 which I have rejected. The release of the cl 5.1 rights is something which goes to the heart of the CVA and requires a judgment to be made by UMIL in consultation with the Supervisor as to whether the return justifies the release in the interests of the creditors. Quite apart from ci 14.3 itself, I doubt whether UMIL’s power to continue trading enabled it to give security for its obligations. But even if it had power to do so, it was required under cl 12.1.6 to conduct its business in accordance with the terms of the CVA and in a manner likely to enhance its own solvency and to produce the maximum dividend for creditors. These were matters which Ms Whitter would have been required to give specific consideration to before consenting to the security arrangements. There is no evidence that she did so and no consent can in the circumstances be implied. It follows in my judgment that there was no waiver or release of UMIL’s cl 5.1 rights as part of the security agreement entered into by UVDL. In these circumstances it is unnecessary for me to determine the precise scope of ci 14.3 of the CVA or whether Mr Behike had notice of the CVA at the time of the security agreement. The potentially interesting question of whether it would have been in some way ultra vires for UMIL to have entered into the security agreement, or to have authorised Dr Helmers to do so on its behalf do not arise.
That leaves the question of the effectiveness and enforceability of the security agreement itself. These questions are governed by German law. In his report Professor Dr Koch notes that the security agreement describes itself as a Sicherheitsubereignung des Fahrzeugs. A Sicherheitsubereignung des Fahrzeugs is recognised by German law as a special form of transfer of ownership for security purposes which has developed outside the provisions of the Civil Code. It constitutes a full transfer of title without an actual transfer of possession and has wideiy replaced pledges as a form of security for movable property. As a matter of law, it therefore requires the debtor to own or to have a power of disposal over the object at the time of the security transfer. This is dealt with in detail in paragraph 1.3.3 of the expert’s opinion. Lack of ownership or a power of disposal by the grantor of the security renders the transfer ineffective and this can only be overcome by what is described as a bona fide acquisition of title in accordance with paragraphs 932 and 933 BGB. Professor Koch goes on to conclude that this is not relevant to the present case because there was no voluntary handing over of Vehicle 48 in the sense prescribed by 933 BGB and Behike has abandoned its defence based on these provisions of the Civil Code.
Conclusions
In the light of my conclusion that I.JVDL had no title to Vehicle 48 by reason of cl 5.1 of the sale agreement it follows from Professor Koch’s report that the security agreement was ineffective and the Supervisors are therefore entitled to an order for the delivery up of the vehicle and to an assessment of any damages suffered by its removal and retention by Behike. In these circumstances it is unnecessary and I prefer not to express any view about the scope of the security agreement which the expert has expressed no very clear conclusions. I do wish, however, to deal very shortly with the further argument of the Supervisors that the security agreement (even if otherwise valid and enforceable) is void against the liquidators and creditors of UVDL for non-registration under sections 395 and 396 of the Companies Act 1985.
Section 395 makes any charge void against the liquidator and any creditor of the grantor company so far as any security on the company’s property is confirmed by the charge unless it is registered within 21 days of its creation. The charges to which s.395 applies are set out in s.396(1) and include:
“(c) a charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale,”
‘Charge’ includes mortgage: see s.396 (4).
The Supervisors’ contention is that the Security Agreement falls within s.396 (1) (c) because it would (if made by an individual) have constituted a bill of sale of personal chattels registrabie under the Bills of Sale Act 1878. Section 4 of that Act defines a bill of sale as including assignments or transfers of chattels as security for a debt or any instrument by which any charge or security on the chattel is conferred. Ms Muth, I think, accepts that the first part of this is wide enough to include the security agreement in this case but she contends that the agreement did not create a charge over Vehicle 48 and that it was not therefore registrabie under s.396(1)(c): see Stoneleigh Finance Ltd v Philips [1965] 2QB 537.
It is not intended that the form of security created by the Security Agreement does not fall within the definition of a charge in s.396(1) simply because the proper law of the instrument was German law. In Re Weldtech Equipment [1991] BCLC 393 Hoffmann J held that s.395 applies to all charges created by companies registered in England whatever may be the proper law of the instrument creating the charge. The oniy issue therefore is whether the Sicherheitsubereignung des Fahrzeugs created by the security agreement would be recognised as having the essential characteristics of a charge as defined in s.396. The argument that the security agreement did not create a charge within the meaning of s.396 seems to turn on whether it confirmed a right to possession of Vehicle 48. Professor Koch describes the Sicherheitsubereignung des Fahrzeugs as a form of security which transfers title but not possession although the security agreement itself contemplates that possession of Vehicle 48 would be handed over. It is therefore said to differ from a charge which confers neither any property in nor a right to possession of the goods that are charged: see Fisher and Lightwood’s Law of Mortgage (11th edition) paragraph 1.5.
But even if the security agreement did not create a charge properly so called, it did create a security interest equivalent to a mortgage. It purported to confer on B an interest in Vehicle 48 as security and the grant of a right to possession is consistent with that and a feature of many mortgages unless excluded. A mortgage of a chattel such as Vehicle 48 would be registrable as a bill of sale because it confers a right of security in the goods. It is also registrable under s.395 because it fails within the wider definition of a charge as including a mortgage. It is therefore void and unenforceable against the liquidator and creditors of UVDL (or for that matter UMIL) for non-registration even if otherwise a valid and enforceable security.
The Employers’ Liability Assurance Corporation, Ltd. v Melbourne
Circuit Case.
15 March 1901
[1901] 35 I.L.T.R 100
FitzGibbon, L.J.
Interpleader issue as to whether or not the goods, or the proceeds thereof, of Abner Connor, in the custody of Robert Bell, auctioneer, were the property of the plaintiffs. The facts proved were shortly as follows:—On 22nd Nov., 1894, the plaintiffs issued an insurance policy to the Grand Canal Company to guarantee the latter Company to the extent of £300 against loss by embezzlement or fraud on the part of Abner Connor, one of their employers. On the 23rd Nov., 1894, Abner Connor executed an indemnity agreement to the plaintiffs, wherein the said policy of insurance was recited, and whereby (amongst other agreements which are unimportant to the decision in this case) he agreed as follows:—“And the employed ( i.e., Abner Connor) further agrees that in case the Corporation ( i.e., the plaintiffs) shall receive notice in writing of any claim made, or intended to be made, under or by virtue of such guarantee ( i.e., said insurance policy) as aforesaid, it shall be lawful for the Corporation forthwith, or at any time thereafter, and without any previous notice to the employed, in a summary manner by themselves or any of their clerks or officers, or by any other person or persons in their behalf; and the Corporation and their officers are hereby authorised and requested by the employed to take possession of any money, goods, chattels, property, or effects, whether in possession, expectancy or reversion, which the Corporation may find belonging to the employed, and to enter into any house or houses, apartments, rooms, or other premises, to take full and absolute possession of such money, goods, chattels, property, and effects, and either to remain in, and continue such possession on the premises, or to remove the same or any part thereof for safe custody to such place or places as the Corporation shall think fit, and also to receive any debts or moneys due to him from any person whomsoever, and to give full receipts for the same.”
On the 21st Nov., 1900, the Grand Canal Company wrote to the plaintiffs, informing them of a certain deficit in Abner Connor’s accounts, and that they would hold the plaintiffs liable to make the same good. The plaintiffs received this letter on the 22nd Nov., 1900, on which day Abner Connor executed a Bill of Sale to the defendant to secure a loan of £190. On the 26th Nov., 1900, the defendant instructed Robert Bell, an auctioneer, to sell all the property comprised in the Bill of Sale, and Bell at once advertised same for sale on 11th Dec., 1900, On the 29th Nov., 1900, the plaintiffs, by their bailiff, signed all the property comprised in said Bill of Sale, and on the 30th Nov., 1900, were served by the defendant with a notice claiming the property, and calling on them to withdraw their bailiff. This not being done, the defendant on same day forcibly removed their bailiff, and resumed possession of the property, which he continued in possession of till the date of the auction. On the 11th Dec., 1900, Bell, the auctioneer, proceeded to sell the property, and during the auction received a notice from the plaintiffs, in which they claimed the property under the aforesaid indemnity agreement, and cautioning him not to part with the proceeds of the sale of same. Bell, accordingly, declined to give the defendant the proceeds of the sale, and the defendant thereupon commenced an action against him for the recovery of same, with the result that Bell applied to the Court for relief, and the present issue was then directed to be tried.
Molony, K.C. (with him Battersby ), for the defendant.—(1.) The agreement relied on by plaintiffs was a Bill of Sale, as it was a licence to seize as security for a debt, and, therefore, not having been registered according to the provisions of the Bills of Sale Acts, it was of no effect. (2.) The Bill of Sale given by Abner Connor to the defendant operated as a transfer of the property in the goods from Abner Connor to the defendant, and therefore at the time of the plaintiffs’ seizure the goods were not Abner Connor’s property. (3.) In any event the defendant had, in fact, taken possession of the goods under the Bill of Sale previous to the plaintiffs’ seizure.
Wakely, K.C. (with him W. G. Gibson ), for plaintiffs.—(1.) The agreement on which plaintiffs rely was not a Bill of Sale, and did not require to be registered under Bills of Sale Acts, as it was not a security for a debt existing at the date of its execution, and no property passed in the goods at the time of its execution. It was merely an agreement for indemnity—a contract to give possession of property at a future date on a certain event occurring, and when that event happened, and a seizure under the agreement took place, the seizure and the possession of the goods related back to the date of the instrument. (2.) The Bill of Sale relied on by the defendant was merely colourable, and a fraud on creditors, and did not truly state the consideration.
FitzGibbon, L.J.
Each party claims under documents to which the provisions of the Bills of Sale Acts are sought to be applied. It has been contended that the agreement of 23rd Nov., 1894, *100 upon which plaintiffs rest their case, is an instrument within the provisions of the Bills of Sale Acts, and should have been registered thereunder. If it created a charge or effected an assignment it would come within the provisions of the Bills of Sale Acts, but it does not pretend to do that, and, in my opinion, it was an agreement for indemnity— a contract to give the plaintiffs possession of property at some future time on a particular event happening. The question as to who was in possession of the goods turns first on the validity of the Bill of Sale relied upon by defendant. There is no evidence of bankruptcy or insolvency upon which I can hold that it was void, as being intended to defeat creditors. The evidence satisfies me that this Bill of Sale truly stated the consideration, and represented an honest transaction. I hold that the goods, at the time of plaintiffs’ seizure, were in the possession of the defendant, and that plaintiffs were not entitled to descend on them when they did. For these reasons I hold that defendant, who claims under the Bill of Sale, had a preferable claim to the plaintiffs who claim under a contract, and, accordingly, my answer to the issue will be that the plaintiffs are not entitled to the proceeds of the sale of the goods, and that they are the defendant’s property.
Re James Dunlop, a Bankrupt
Local Bankruptcy.
24 February 1890
[1890] 24 I.L.T.R 68
the Recorder of Belfast.
Feb. 24, 1890
The Recorder
(having stated the facts).—It has been contended on behalf of F. H. that this case is governed by In re Stanley, 17 L. R. Ir. 487. In that case the bill of sale provided that the debt was to be paid by instalments, the first of which did not become due until after the adjudication. It was held that the bill of sale was protected by the 7th section of the Act of 1883, which expressly provides that the grantee shall not take possession for any cause but one of those mentioned in the section. No cause had occurred previously to the bankruptcy, and, therefore, the goods were not at the time of the bankruptcy in the possession of the grantor with the consent of the grantee, who had no power to take possession of them until sub-section 2 conferred that right upon him on the grantor becoming bankrupt. The case was decided upon the construction of the bill of sale, and this case must be decided in the same way.
F. H.’s bill of sale is a security for the payment of money, and is therefore governed by the Act of 1883. By it the bankrupt covenants to pay the principal with interest then due on the 30th June then next, and that if the principal or any part thereof shall remain unpaid after that day he will, so long as the same shall remain unpaid, pay interest by half-yearly payments on the 30th December and 30th June. Sub-section 1 of section 7 provides that the grantee may take possession if the grantor shall make default in payment of the sum or sums of money secured at the time therein ( i.e., by the bill of sale) provided for payment. The time provided was the 30th June, on which day F. H. could have taken possession, and after that day the chattels were, with his consent, in the possession of the bankrupt, and so continued until his bankruptcy, which, in my opinion, renders the bill of sale void against the assignee, and I shall so declare. It is not necessary to consider the question of fraudulent preference raised by the charge. The assignee will take his costs out of the estate.
The Irish Civil Service Building Society v Mahony and Others
Court of Queen’s Bench.
2 June 1876
[1876] 10 I.L.T.R 153
O’Brien, Fitzgerald JJ.
O’Brien, J.
This case was argued last term before my brother Fitzgerald and myself. It was an interpleader issue directed by the Court, to try whether the claimants (plaintiffs in the issue) were entitled to any and which of the several articles which had been seized by the sheriff, under an execution which was issued on a judgment obtained by the defendants in this issue against Mr. Charles Copland.
It appears that the premises on which those articles were when they were seized, had been held by Mr. Copland under a lease for 500 years, dated 7th April, 1871; that a mill was erected on the premises; that Mr. Copland was a member of a friendly society which was then called “The Irish Civil Service (and General Permanent Benefit) Building Society;” and that, by deed of mortgage, dated 22nd Aug., 1871, Mr. Copland, in consideration of £250 (then advanced to him by the trustees of said society, out of the funds of the society) assigned to said trustees the premises comprised in that lease, together with “all houses, buildings, erections, fixtures, &c., and appurtenances whatsoever, to said hereditaments, or any of them appertaining,” and all his estate, right, title, and interest therein, to hold same to the trustees, their executors, administrators, and assigns, for the residue unexpired of that term of 500 years, subject to the proviso for redemption therein contained, upon making the several payments and observing the several regulations therein mentioned. This mortgage deed contained a power of sale to which I shall presently refer.
That deed was not registered under the Bills of Sale Act, 1854. Mr. Copland continued to occupy those premises, and carried on the business of milling therein when the articles in question were seized by the sheriff under the execution. The plaintiffs then claimed those several articles, as being fixtures to which they were entitled under the mortgage to their trustees, and this Court directed the present issue to try the right.
At the trial before Mr. Baron Deasy, he directed a verdict for the defendant as to all the articles in question, reserving liberty for the plaintiffs to move to have the verdict entered for them for all or such of those articles as this Court should direct, and the conditional order before us was obtained on that reservation.
One ground relied on by defendants at the trial was that the description of the society in the claim made by them, on which the issue was directed by this Court, differed from the description of the society in the mortgage, by omitting from that description the words “and General Permanent Benefit.” This is a merely technical objection, and we are clearly of opinion that it cannot be sustained. The society continued the same notwithstanding the change of name which was recognised by the certificate of registration. The original claims would, perhaps, have been more regularly made in the names of the trustees than in the name of the society, however described; but the substantial question, for the trial of which the Court directed the issue, was whether or not the parties claiming under the mortgage were entitled to those articles, and for that purpose it was perfectly immaterial by which name the claimants were described. If any such question had been raised in proper time, the Court would, if requisite, have varied the order accordingly, but we should not now, after the substantial issue has been tried, render all the proceedings nugatory by yielding to this objection.1 We do not, therefore, think it requisite to refer to the resolutions and proceedings under which the change in the name of the society was made.
The other ground of objection, relied on by defendants, is that the mortgage was not registered under the Bills of Sale Act. The articles claimed are six in number, and are described in Baron Deasy’s report. The first is a “carding machine;” the second a “billy;” the third a “mule;” the fourth a “tucking machine;” the fifth a “steam engine and fly-wheel;” and the sixth “a steam winch.” It appears by the report that the first five articles had been affixed to the mill building as part of the machinery for working the mill, but that they could be removed, without injury to the building, by unscrewing the bolts and fastenings by which they were so affixed. It further appeared that the first, second, third, and fourth of those articles were not affixed to the building at the time of the mortgage, but were afterwards put up by Mr. Copland in place of others of a similar description, which had been there at the time of the mortgage and had been afterwards burned. The fifth article (the steam engine and fly) had been affixed to the building before the mortgage. The sixth article (the steam winch) had been in the building at the time of the mortgage. It was not, however, actually affixed to the building, but was bolted by six bolts to a large stone, of about a ton weight, which lay on a floor in the building.
Defendants contend that all those six articles should be considered as “personal chattels” within the meaning of the Bills of Sale Act; that the mortgage of 1871 operated as an assignment of them as personal chattels; that, as such mortgage was not registered under that Act, such assignment was void against defendants’ execution; and that, accordingly, they were properly seized by the sheriff under that execution.
We are, however, of opinion that, with respect to the first, second, third, fourth, and fifth of those articles, the mortgage passed to the trustees the property in those articles; that it did not require registration under the Bills of Sale Act to give it effect as to them; and that, accordingly, plaintiffs are entitled to succeed in the issue as to them. With respect, however, to the sixth article (the steam winch), which was not affixed to the building but only fastened to a heavy stone, as already mentioned, we are of opinion that the assignment of it by the mortgage is void against defendants’ claim under their execution.
The case was fully argued before us, and several authorities were cited. It is clear from some of them (and it was not, indeed, controverted in the argument) that, as the first five articles had been actually attached and fastened to the building (as already mentioned), and as the use of them was necessary for the proper working of the mill,2 the fact that they might be unfastened and removed without injury to the building is no ground for holding that they should not be considered as fixtures.
It is equally clear, from the decision of the House of Lords last year in Meux v. Jacobs, L. R. 7 E. & I. App. 481, that, as the mortgage before us purported to grant to the trustees, for the residue of the term, the premises in the lease of April, 1871, together with all houses, buildings, erections, fixtures, &c., &c., therein, it primâ facie passed to the trustees the property in those five articles. In that case, the lessee of a term of 56 years deposited his lease with Meux & Co., and at same time executed a deed declaring the deposit to be by way of equitable mortgage for securing a sum due by him to them; and it was held that such equitable mortgage of the premises passed to Meux & Co. the property in the fixtures and fittings on the premises, even though some of them were not attached by the lessee to the building till after the mortgage. Lord Hatherley, in his judgment (p. 490), stated it was too late to contend that a regularly-executed mortgage of a lease would not carry the fixtures of the property which was in lease, even though (according to the rule adopted for the benefit of trade) the lessee would have had the right to remove them at any time during the lease if he had not mortgaged them. He, also, stated (p. 491) that the same principle would apply in the case of fixtures attached to the premises by the lessee subsequent to the mortgage; and he further stated (p. 492) that the chattels, whether attached before or after the mortgage, would become part of the leasehold interest which the mortgagee had acquired by the mortgage. Lord Selborne concurred in the judgment, and stated (p. 492) that *155 the effect, as to fixtures, of a legal or equitable mortgage of the premises by a lessee for years was precisely the same in favour of the mortgagee as if the mortgagor had been seised in fee and had executed a mortgage in fee.
Defendants’ counsel contend that the actual decision in Meux v. Jacobs does not govern the present case, as the question there arose between an equitable mortgagee and a party claiming under a subsequent bill of sale which was not registered under the Act, whereas in the present case the question arises between the mortgagees claiming under an unregistered assignment and an execution-creditor. They contend that, according to the express provisions of the Act, the mortgage, not being registered as thereby required, is void against the creditor; and they rely on the cases of Hawtrey v. Butlin, L. R. 8 Q. B. 290, and on that of Ex parte Daglish, L. R. 8 Ch. 1072, as showing that, under the circumstances of this case, the principles laid down in Meux v. Jacobs do not sustain the plaintiffs’ claim. It will be found, however, that the facts of those two cases differ essentially from these now before us, and that they were decided upon grounds which do not apply to the present case.
In Hawtrey v. Butlin a lessee for years mortgaged the buildings for the residue of his term less two days, and, in the same deed, by a second operative part, he assigned all the fixtures to the mortgagee, his executors and administrators. It was held that by the deed the fixtures were assigned as personal chattels, and that, as the deed was not registered under the Bills of Sale Act, it was void against a subsequent execution-creditor.
In the case of Ex parte Daglish, L. R. 8 Ch. 1072, which was decided shortly afterwards by the Lords Justices James and Mellish, a lessee for years of premises, on which a mill and other buildings were erected, executed a mortgage, whereby he demised and assigned to Daglish (by the same testatum or operative part) the lands and premises comprised in the lease, together with all steam engines, boilers, mill-gear, &c., &c., fixed and moveable machinery, &c., then or thereafter to be fixed upon or used in or about the mill, buildings, and premises, “to hold the lands and buildings and all such parts of the mill-gear, machinery, and premises thereby demised, as were of the nature of fixtures, unto Daglish, his executors, administrators, and assigns,” for the residue of the lessee’s term, “ except the last day thereof ,” subject to the provisoes for redemption therein contained; and “to hold all such parts of said mill-gear, machinery, and premises as were not of the nature of fixtures,” unto Daglish, his executors, &c., subject to the provisoes for redemption therein contained. By that mortgage a power was given to Daglish “to sell the premises subject to the security, or any part thereof either together or in parts, and (as to the steam-engines, boilers, &c., fixed and movable machinery and other premises of like nature,) to sell them either together with the buildings and land, or separately and detached therefrom, and to make stipulations as to the removal of any property sold separately from the buildings.” That mortgage was not registered under the Bills of Sale Act. A petition for liquidation of the lessee’s affairs was subsequently presented, under which a trustee of his property was appointed; and the Registrar in Bankruptcy held that such of the machinery and other articles on the premises as were tenant’s fixtures became the property of the trustee, as part of the lessee’s estate, notwithstanding the previous mortgage. That decision was confirmed by the Lords Justices.
Those two cases, which were decided in 1873, would, at first view, appear to be authorities in defendants’ favour, but the grounds on which they rested were explained by the same Lords Justices in the subsequent case of Ex parte Barclay, L. R. 9 Ch. App. 576, which was decided by them in the following year. Those grounds do not apply to the case before us; and, in our opinion, the decision in Ex parte Barclay is an express authority in plaintiffs’ favour.
In Ex parte Barclay it appeared that John Joyce, the assignee of a lease for 50 years of a public-house and other premises (on which two cottages were subsequently erected), executed a deed of mortgage to the Messrs. Barclay, whereby he demised to them, by the same testatum or operatire part, the said public-house and premises with the two cottages, including therein all and every the tenants’ fixtures in, upon, or about the premises thereby demised; to hold for the residue of said term of years, except the last three days thereof, subject to the proviso for redemption therein contained, on repayment of £3,000. The mortgage contained a power to the mortgagees (in case of default in repayment of that sum) to sell and absolutely dispose of “the said premises thereby demised or any part thereof,” either for the term thereby granted, or for the whole term granted by the lease, “and either together or in parcels.” Joyce, subsequently, presented a petition for liquidation by arrangement, and a trustee was appointed of his estate by the Court of Bankruptcy. The Registrar held that the case was governed by the decision in Ex parte Daglish, and that the Messrs. Barclay were not entitled to the fixtures, as the mortgage was not registered under the Bills of Sale Act. That ruling of the Registrar was, however, reversed by the Lords Justices on appeal. Lord Justice James stated that there was a thin but substantial distinction between the case of Ex parte Daglish and the case then before them, and it appears from his judgment that he rested his decision, in the latter case of Ex parte Barclay, upon the grounds that under the mortgage there was not any separate sale of the fixtures, or any separate license or authority to sell them; that, under the power of sale, the Messrs. Barclay would not have a right to go in and dismantle the house and take away the fixtures and sever them from the property; that they would only have a right to sell whatever appertained to the term, and that the fixtures passed really to the Messrs. Barclay by the assignment to them of the term. Lord Justice Mellish expressed a similar opinion, and stated that when a lessee is entitled, as regards his landlord, to remove trade fixtures which he had put up, and then mortgages the premises with the fixtures on them, the test, whether the mortgage, so far as regards the fixtures, requires to be registered under the Bills of Sale Act, is whether he gave power to the mortgagee to sever the fixtures from the premises and to deal with them and sell them separately. According to his judgment, the previous case of Ex parte Daglish was decided upon the ground that the mortgage to Daglish enabled him, if he pleased, to sever the fixtures from the premises and sell them separately. There was no such power of severance or separate sale in the mortgage to the Messrs. Barclay, so that the decisions in the two cases are not conflicting.
With respect to the decision in Hawtrey v. Butlin, L. R. 8 Q. B., it does not appear whether there was any power of sale in the mortgage, but Lord Justice Mellish, in his judgment in Ex parte Daglish, L. R. 8 Ch. App., stated (p. 1082) that in Hawtrey v. Butlin, as well as Ex parte Daglish, the mortgagee had the power of selling the premises and fixtures together, and also the power of severing the fixtures and selling them separate; and that would appear from his judgment to be the ground on which he considered that Hawtrey v. Butlin was rightly decided.
In the present case it cannot, in our opinion, be contended that the power of sale in the mortgage of August, 1871, enabled the plaintiffs or their trustees to sever the fixtures from the premises or sell them separately, although it gave power “to sell the premises, or any part thereof, either together or in pacels.” Similar words occurred in the power of sale in the mortgage in Ex parte Barclay, and it was held they had not the effect of enabling the Messrs. Barclay to sell the fixtures separately from the premises. In the present case, it does not appear that the mill buildings covered the entire of the plot of ground granted by the mortgage, and those words may refer to the distinction between the building and the rest of the plot, as was stated by Lord Justice Mellish in Ex parte Barclay with respect to the distinction between the public-house and the two cottages. We think it would require clear words to give the power of severing the fixtures and selling them separately from the premises. The exercise of that power (even supposing the fixtures could be removed without injury to the actual structure) might, in many cases, be most injurious *156 by stopping the milling or other business carried on in the premises.
The observations of Lord Hatherly, to which I have referred, show that this case is not distinguishable from Ex parte Barclay, on the ground that four of the articles in question were affixed to the building after the mortgage of August, 1871; and on the authority of that decision, in which we fully concur, we are of opinion that, pursuant to the liberty reserved at the trial, a verdict should be entered for the plaintiffs as to the first five of the articles in question, although defendants are entitled to a verdict as to the sixth article. The plaintiffs should also have the costs of the issue, including the costs of the trial and of the present motion.
Fitzgerald, J., concurred.
Whelan v Walsh
Exchequer Division.
6 February 1890
[1890] 24 I.L.T.R 75
Dowse B., Andrews J.
Dowse, B.
This is a case stated by Murphy, J., as to the validity of a bill of sale. It is stated that there were money dealings between the plaintiff and defendant, and that he was surety on bills of sale. I am of opinion that the argument of the counsel for the plaintiff is right and must prevail. It is admitted that £10 only was paid in cash: the consideration, therefore, was not truly stated in terms (sec. 8 of Bills of Sale Act, 1883). There is a form of a bill of sale given at the end, and that form was followed too closely by the person who prepared this bill of sale. The consideration here was an antecedent debt. I think that this bill of sale was taken as a further security for the amount due and not in discharge of the antecedent debt. Richardson v. Harris is a distinct authority in favour of the plaintiff. Credit Company v. Pott was decided by the same judges as decided by the former case, and they gave reasons for it. If the facts in the latter case were the same as those in the present case, I would follow it here. In Richardson v. Harris a number of facts were proved which were held to be equivalent to payment. If I were the Judge in that case I could not have come to that conclusion. I think that the consideration should be set forth truly in the words of the Act of Parliament. *75 I think the true distinction between this case and that of the Credit Company v. Pott, is that there are third parties here. The bills of exchange were not handed over, and no exact sum of indebtedness was ascertained. I do not think that the facts here would support the plea of payment if the grantor sued the grantee upon the bills of exchange. The case of Ex p. Nelson is the same as The Credit Company v. Pott. I do not think that in any event the consideration here could be said to be a present advance.
Andrews, J.
This is a case of some importance The Act manifestly appears to have been passed not only for the protection of the parties, but also for the benefit of the public. The cases which appeared to afford some strength to the defendant’s contention were the Credit Company v. Pott and Ex p. Nelson. It is material to have before one’s mind what was really decided in the former case. It is not going too far to say that the decisions on all the Bills of Sale Acts make it exceedingly difficult for any person to advise whether a bill of sale is valid or void. The case of the Credit Company was one in which there was no third party and no outstanding security, and there was an account taken—a complete ascertainment of the liability of the grantor to the grantee. Upon that state of facts the Judges held it impossible to deal with the matter as a valid transaction save as a wiping out of the old debt and substitution of a new advance. Lord Selborne, C., says, in his judgment, “Now, as between the parties to the deed, it appears to me that, as there was no fraud, the deed is conclusive evidence of the previously existing debt being satisfied, as much as if the money for it had been actually handed over: because, when the company treat the £7,350 as a new advance (and no money was in fact advanced, except by treating the previous debt as paid), the company could not then have said to the debtor that he owed the debt which had been previously contracted.” Brett, L.J., says, “The bill of sale here is under seal, and what is stated in it cannot be contradicted by the parties to it, but a third party has a right to show what are the real facts, and if such as relate to the consideration are not described in the bill of sale with substantial accuracy, the bill of sale is ineffectual.” In the case of In re Hockaday there were no third parties concerned in the matter, and the exact sum was ascertained and inserted in the bill of sale. The Judges who decided In re The Credit Company refer in the case of Richardson v. Harris to their previous decision. Lord Esher, M.R., says: “It was there held that it is sufficient if the statement of the consideration is substantially accurate, if its true legal effect or its true business effect is stated.” Bowen, L.J., remarks: “The question is, what is ‘truly’ setting forth the consideration? One cannot get much further on the path of definition, when one is face to face with the question—What is truth? but one may, perhaps, go so far as to say that the truth is stated when the statement is sufficiently accurate to enable those who have to act upon or deal with the bill of sale to arrive at an accurate conclusion as to what really took place.” In the present case no account was taken; we have no evidence that part of the previous debt was wiped out. In that state of things £10 only was paid, but was there anything in relation to the balance of £40 equivalent to payment? No power of suing on the bills was acquired by B. W., for he did not get them. It appears to me, to say the least of it, that it was just as probable as not that the bill of sale was a further security. Who, reading this bill of sale, would, in the event of bankruptcy, interpret any reality in the transaction. Moreover, if anyone should go to register, he could not form the remotest idea of the real state of affairs between the parties. I do not wish to give any definite judgment upon the second question, arising from an imperfection in the proviso. But I do not wish to lay down that we would be forced not to look into the reality of the transaction.