Sect. 61. Sale or security. Law of Scotland un- Sub-section (4), excluding mortgage, pledge, etc., from the operation of the Act, opens up the question of the relation between sale and security. In Scotland, the law on this subject has been unsettled in recent years by the House of Lords judgment in M Bain v. Wallace1 (1881). Previously to that case, it was scarcely disputed that no security over moveables was effectual without possession. The security might belong to one or other of two different categories. It might be an ex-facie absolute transfer of proprietory right, as in Hamilton v. Western Bank2 (1856), in which case it would, on the principle of retention, carry future advances as well as those present and past; or, it might be an ordinary security for a present advance or for a specific existing debt. But in either case, a complete transfer by actual or constructive delivery to the security holder, was essential. The special relaxation where Lord Kyllachy (Ordinary) said: "The error alleged was as to certain qualities of the subject which it is impossible to assert were either expressly or tacitly essential to the bargain" (p. 479). In Edinburgh United Breweries, Ltd. v. Nicholson's Trustee (1893), 20 Ret. 581; Affd. (1894), 21 Ret. H.L. 10, misrepresentation was alleged and founded on, but the question ultimately turned upon the pursuers' title to sue. 18 Ret. 360, Aff. 8 Ret. H. L. 106. 2 19 D. 152. "So far as I am aware, the practice of making advances on the security of a conveyance ex facie absolute qualified by a back letter, is not known in England, although well known in Scotland, and attended, according to the law of Scotland, with certain well-known consequences. On the other hand, the practice of taking an ordinary security title for future advances, as is done in England, cannot effectually be done in Scotland at all." -Per Lord Trayner in National Bank v. Union Bank (1885), 13 Ret. at p. 407. See also opinion of Lord President Inglis (13 Ret. at p. 409), which was afterwards characterised by Lord Halsbury, L. C., in the appeal as "an interesting historical retrospect" (14 Ret. H.L. at p. 1). The doctrine of Hamilton v. Western Bank was much discussed in Alston's Trustees v. Royal Bank (1893), 20 Ret. 887, and was referred to in the recent case of Henderson and Co. v. Stewart and Others (1894), 32 S.L.R. 120. A valuable résumé and criticism of cases affecting retention for debts subsequently contracted, will be found in Professor More's Lectures, vol. i. 405, 410. 3 Heritable Securities Investment Association v. Wingate's Trustee (1880), 7 Ret. 1094. See also Cowan v. Spence (1824), 3 Sh. 28 (N.E. 42); Wight v. Forman (1828), 7 Sh. 177. "The law of Scotland does not recognise such a security as this, and no stipulation or contract between the parties can create such a security in competition with the rights of creditors. The written contract here is a mere device, by means of which it is sought to hide the real nature of the contract, and to change its name without altering its nature."-Per Lord Gifford in Cropper v. Donaldson (1880), 7 Ret. 1108 at p. 1114. This, however, was a case of hire-purchase, where the price was secured by means of a condition suspending the passing of the property, and, in subsequent cases such circumstances were held to amount to actual sale, and not merely to security, e.g. Murdoch and Co. Ltd. v. Greig (1889), 16 Ret. 396. See COM., Sect. 17 ante, p. 83. Mercantile Duncanson's Creditors. House of Case. in favour of sale, introduced by the Scottish Mercantile Law Sect. 61. Amendment Act of 1856, was not supposed to apply to a Effect of transaction which, though in the form of a sale, was really Law Amenda security. Hence, in M'Bain's Case which related to the ment Act. transfer of a ship on the stocks in virtue of agreements which, taken together, amounted to a security, the attention of the Court of Session was exclusively directed to the question of constructive delivery. On the authority of the old case of Simpson v. Duncanson's Creditors2 (1786) the Simpson v. Court found itself in a position to sustain the transaction as one in which the property had passed by means of the only delivery of which the subject was capable. The Mercantile Law Amendment Act was never once referred to, either in argument or in the opinions of the judges. But, Reasoning of in the House of Lords, it was all the other way. The case which had held undisputed sway in Scotland for a century M'Bain's was doubted, and the judgment of the House was founded entirely upon the Mercantile Law Amendment Act. The difficulty as between sale and security was got over by supposing the security to be something collateral to the sale, much in the same way as an English warranty is collateral to the contract while not forming part of it. Lord Selborne Lord Selborne. said: "The statute does not say that, there being a sale, that is to be taken out of the operation of the statute, because the parties may have some further contract, or agreement, or understanding inter se, with regard to the subject of the sale."3 Lord Blackburn doubted if the alleged security had ever been reduced to a contract, or amounted to more than a moral obligation qualifying the absolute character of the sale, but, he said, "Supposing there was a completed collateral contract, . a binding, legal, and enforceable contract that this should be a security, I do not see the slightest ground for saying that that undoes the effect of the Mercantile Law Amendment Act." 4 Lord Black burn. These dicta cannot have been intended to throw doubt Contradictory on the well-established rule of Scots law that possession is utterance in House of Lords in subsequent case. 119 & 20 Vict. c. 60, Sects. 1 to 5. 38 Ret. H. L. at p. 109. 48 Ret. H.L. at p. 114. Sect. 61. In M'Bain's substance of the transaction not regarded. Subsequent Scottish judgments. Allan's necessary to the constitution of real contracts such as pledge or security. On the contrary, a few years later in a similar appeal from Scotland, Lord Blackburn said: "I think the agreement. . . is not an agreement for a sale at all, but an attempt to bargain for a pledge or security. A pledge or security without delivery of possession, is, I think, not good, and though in England a bill of sale under seal having that effect may be made, this is not a bill of sale."1 The disturbing element in M'Bain's Case is that the grounds of judgment suggest that it is not necessary to look to the whole transaction to ascertain whether it is in its essence a security, and that it is sufficient if a form of a sale is adopted, and documents granted which would per se establish a sale if unqualified by "collateral agreements." 2 application of the Mercantile Law Amendment Act to such circumstances, was, in effect, applying to a security a relaxation of the law of possession, which was clearly intended to apply to sale alone. The It is not surprising that this interpretation should have been adopted in Scotland. In Allan and Co.'s Trustee v. Gunn and Co. (1883) the Court of Session held that the Mercantile Law Amendment Act applied to goods bearing to be sold for a certain sum, but under condition that they were to be returned to the seller upon repayment of the amount. The so-called seller in this case retained the goods in his own possession for ten months, and only gave delivery after his sequestration. Lord Rutherfurd Clark expressed doubt as to the judgment, and said: "I fear great danger to the law in cases where parties resort to apparent transactions of sale in order to obtain a security which is not tolerated by the law of Scotland. I do not think, however, after the case of M'Bain v Wallace that I can differ." 5 1 In Seath and Co. v. Moore (1886), 13 Ret. H.L. 57 at p. 61. Again, in 2 "If a party should, under pretence of making a sale, in reality make a loan, it would merely be considered as a loan, although it were made with all the formalities of a sale."-Story on Sale, Sect. 223. 3 10 Ret. 997. A similar instance of pactum de retrovendendo occurred in Latta v. Park and Co. (1865), 3 Macp. 508, but with the very important difference that the goods were delivered to the purchaser at the time of the agreement. 510 Ret. at p. 1000. "3 Wilson's Darling v. Wilson's Trustee1 (1887) the case of M'Bain v. Sect. 61. Wallace was cited as an authority in circumstances which Darling v. did not necessarily involve the Mercantile Law Amendment Act.2 The subject of sale was pipes which passed under a road. "Delivery of them," said Lord Young, "by digging them up, handing them to the purchasers, and then replacing them in the ground, would have been ridiculous,” and therefore the real ground of judgment was that the subject of contract was delivered, so far as from its nature it was capable of delivery. If the delivery was effectual, it was of no consequence whether the contract was one of sale or of security.* It was the ground of judgment in the Court of Session in M'Bain's Case, rather than that in the House of Lords, which formed the ratio decidendi, but it was the authority of the House of Lords which was cited in support. Lord Rutherfurd Clark said: "There is admittedly a judgment of the House of Lords against the reclaimer. That makes a simple ground of judgment. I was the Lord Ordinary in the case of M'Bain, and am bound now to confess that I was wrong in my judgment in it. While, however, I acknowledge my error, I do not perhaps see it so plainly as I should do." 5 In Liquidator of West West Lothian Lothian Oil Co. v. Mair (1892) the question chiefly turned on whether delivery had been actually given. decided that the delivery was effectual, and therefore the judgment did not require to rest on special privilege arising from the transaction being in the form of a sale. But the Mercantile Law Amendment Act was founded on and sustained, as an alternative ground of judgment, and several of the judges were disposed to look upon the transaction as a bond-fide sale, and not in any respect a security. Lord Young, who gave the leading opinion, while agreeing that the circumstances amounted to an out and out sale, 1 15 Ret. 180. It was 2 The report bears no reference to the Mercantile Law Amendment Act, except in the rubric of the reporter. 3 15 Ret. at p. 184. 4There is here no doubt as to what the contract was. The object was to give Wilson a certain sum on security of the pipes, and it was necessary, in order to do that, that there should be an out and out sale" (delivery ?)" of the pipes."-Per Lord Jus. -Clk. Moncreiff, 15 Ret. at p. 183. Oil Co. v. Mair. Sect. 61. Pattison's Trustee v. Liston. combated the view that, even if it had been a security, the lender's preference was invalid. Referring to M'Bain's Case, Lord Young said: "That argument was urged, but it was the opinion of this Court and also of the House of Lords, that where there was a party who was willing to accommodate another by advances of money, and a party desiring to be so accommodated by receiving the advances, there was nothing to prevent them entering into the relation of buyer and seller between themselves by a contract of sale, and that without any inconvenience, notwithstanding what the parties meant. What they did mean was to create the relation of buyer and seller between the borrower and lender, the advances being, by that contract, the price of the goods which the lender paid, and the goods being, by that contract, transferred to him as the buyer. It was held that that was perfectly legitimate-that the views of the parties in entering into the contract . . . did not prejudice the validity and effect of what the parties did. . . . To say that that is a loan transaction in the form of a sale, is language which may be criticised, but is good and convenient enough so long as it is quite understood. It is meant that the parties intended the relation of buyer and seller to be created by that contract of sale, although the seller did not mean to part with all connection with the goods, and the buyer had not the usual intention of keeping them for his own use and enjoyment, or of selling them over again at a profit.1 In two recent cases relating to securities over household furniture, the Second Division gave opposite decisions upon very similar facts. In Pattison's Trustee v. Liston 2 (1893) the transaction was in the form of an absolute sale and assignation, but there was no sufficient legal delivery, and "it was clear beyond dispute that the transaction was one of loan on security." "We are dealing here," said Lord Trayner, "admittedly with a security and not a sale. Now it is quite certain that an effectual security over moveables can only be effected by delivery of the subject of the security. Nothing short of delivery will suffice. . . . The 120 Ret. 64 at pp. 68, 69. 2 20 Ret. 806. |