the principles of mercantile law

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PRINCIPLES OF lEECANTILE LAW.

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PRINCIPLES

MERCANTILE LAW,IN THE SUBJECTS OF

BANKRUPTCY, CAUTIONARY OBLIGATIONS,

SECURITIES OVER MOVEABLES, PRINCIPAL AND AGENT,

PARTNERSHIP, AND THE COMPANIES' ACTS.

RICHARD VARY CAMPBELL, M.A., LL.B.,ADVOCATE.

SECOND EDITION,REVISED AND ENLARGED.

EDINBURGH

.

WILLIAM GREEN & SONS,gate f itbiisherg.

18 90.

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PEEFACE TO THE FIEST EDITION.

These Lectures were delivered some time ago for theInstitute of Bankers in Scotland, and they were takendown in shorthand as they were spoken. In preparingthis volume for publication, I am aware that thereremain many more traces of its origin in spoken speechthan are usual in Law Lectures ; but this I do notaltogether regret. The forms of oral exposition suit thestrictly practical aim which I have throughout had inview, to present the leading principles of some branches

ofmercantile law, with such explanations and illustrationsfrom cases decided by the Courts, as seemed necessary totheir operation being thoroughly understood. To help

in this way towards a firm and intelligent grasp of theseprinciples I have spared no pains ; and I am encouraged

to hope that my work, so far as it goes, may be of somepractical use, not only by the reception accorded to theLectures when they were delivered, but also by the factof the present publication being made in compliance witha request from the CouncU of the Institute of Bankers.

Edinburgh, September, 1881.

PEEFACE TO THE SECOND EDITION.

In preparing this Second Edition I have, withoutattempting to change the original form of the book,added notes of the most important recent cases and ofrecent legislation in mercantile law. The new statutesto which attention is specially directed are those relatingto Factors, Partnership, and Joint-Stock Companies.The Partnership Act of 1890, in particular, is important,not only for itself, but as one of a series of valuablecodifying statutes, which, beginning with the Bills ofExchange Act of 1882, will, when completed, form anauthoritative digest of British Mercantile Law. Thenext subject to be included in this series is, it is under-stood, that of the Sale of Moveablesa subject in whichbut few differences remain between the laws of Englandand Scotland, and these few are capable of adjustmentwithout much difficulty.My friend, Mr. Lawrence T. Napier, Advocate, has

most kindly given me the benefit of his help in revisingand enlarging the book, and in passing this Editionthrough the press.

Edinbuhgh, November, 1890.

CONTENTS.

BANKRUPTCYPAGE

Lecture I.,. .

.

^

Lecture II.,. . 23

CAUTIONARY OBLIGATIONSLecture III.,

. .

. .49Lecture IV., ....

. . 74

SECURITIES OVER MOVEABLESLecture V., .... .95

PRINCIPAL AND AGENTLecture VI., . .

. 125

Lecture VII., . ..

. 149

PARTNERSHIPLecture VIIL, . .

. 173

Lecture IX.,. . 195

THE COMPANIES' ACTSLecture X., ....

. 218

APPENDIX OF STATUTES,. . .247

INDEX TO STATUTES, . 293

GENERAL INDEX, . . 299

INDEX OF CASES CITED.

Aitchison v. Aitchison, 185.Alexander v, Yuille, 27.Anderson v. Buolianan, 102.Anderson v. M'Dowall, 206.Anstruther v. Wilkie, 133.Armstrong v. Stokes, 151.Ashbury v. Watson, 220.Atwool V. Merryweather, 240.Aytoun v. Dundee Banking Com-

pany, 65.

Bagnall v. Carlton, 225.

Bank ofNew Brunswick (see MaoKayV. Commercial Bank of NewBrunswick), 76, 169.

Bank of Scotland {see DominionBank v.), 166.

Bank of Scotland v. Stewart &Boss, 21.

Barwick v. English Joint-Stock, 74,169.

Bell's Trustee v. Bell, 184.

Bentuck v. Penn, 226.Bidoulao v. Sinclair's Trustee, 32.Biggar v. Wright, 82.Bilhorough v. Holmes, 209.Birch V. Cropper, 243.Black V. Cornelius, 128.Blair v. British & Mercantile Insur-

ance Co., 33.

Bower v. Peate, 165.Brightwen & Company v. City ofGlasgow Bank, 242.

British Linen Banking Co. v.Monteith, 70, 85.

British Guarantee Association v.Western Bank, 63, 82.

viii

Broughton v. Stewart, Primrose &Co., 172.

Brown v. Kirkland, 92.Brown v. Marr, Barclay, &c., 97.

Brown v. Sutherland, 161.Buchanan v. Somerville, 209.Butcher v. Stead, 22.

Caledonian Bank v. Kennedy'sTrustees, 71, 91.

Cameron v. Tillyard & Hewlett,141.

Cape Breton Company m re, 226.Carr v. London & North-Western

Railway Co., 196.Cassels v. Stewart, 179.

Church of England Life and EireAssurance Co. v. Wink, 60, 67.

City of Glasgow Bank v. Jackson,71, 124.

City of Glasgow Bank t:. MacKin-non, 238.

Clark V. West Calder Oil Co., 98,234.

Clarke v. Crockatt & Co., 28.Cleland v. Morrison, 134.Clendinnen v. Rodger, 4.Clydesdale Bank v. Beatson, 145.Clydesdale Bank v. Royal Bank, 163.Coleman (see Imperial Mer. Credit

Association, Liquidators of), 238.Colonial Bank v. Cady, &c., 243.Consolidated Copper Co. of Canada

V. Peddie, 232, 239.Cooper V. Bailie, 24.Coutts's Trustee & Doe v. Webster,

18.


Cox V. Hickman, 201, 203.Craw V. Commercial Bank, 169.Cree v. Somervail, 221.Creighton '. Eankin, 88, 91.Cropper v. Donaldson, 104.Croucli V. Credit Eoncier of Eng-

land, 113.

Dalgleish v. Land Feuing Co., 234.Davie v. Buchanan, 176.De Bussclie v. Alt., 130.Delaurier v. Wyllie, 115.Derry v. Peek, 73, 171, 231.Distillers Company v. Dawson

(Russell's Trustee), 109, 148.Dixon V. Bovill, 112.Dominion Bank v. Bank of Scotland,

166.

Dow V. Union Bank, 33.Duncan, Fox & Co. v. North and

South Wales Bank, 93.Duncanson v. Jefferis's Trustee, 104.Dutton V. Marsh, 160.

Eaglesham Co. v. Grant, 202.Edmcnd v. Mowat, 101.Edmunds v. Bushell & Jones, 135.

Falconer v. North of Scotland Bank,63.

Forrest v. Eobertson's Trustee, 8.

Forrester v. Eobson's Trustees, 188.

Forsyth v. Wishart, 90.Foulds V. Thomson, 155.

Gadd V. Houghton, 158, 159.Gibb V. British Linen Bank, 164.Gillies V. M'Lean, 155.

Gilmour v. Bank of Scotland, 70.Glen V. National Bank, 124.Goodwin v. Eobarts, 114.Gourlay v. Hodge, 22.Gourlay v. Mackay, 21.Gow V. Sohulze, 193.Gray's Trustees v. Drummond &

Eeid, 129.

Hamilton v. Western Bank, 121.

Hannan v. Henderson, 191.Harvey's Trustees v. Bank of Scot-

land, 37.

Heddle v. Mortwick, 204.Heggie v. Heggie, 213.Heiman ii. Hardie, 155.Henderson's Trustee v. Auld & Guild,

35.

Heritable Securities Association,

The, V. Wingate & Co.'s Trustee,103.

Holme V. Brunskill, 84.Horsburgh v. Eamsay & Co., 22.Houldsworth v. City of Glasgow

Bank, 170.Houldsworth v. City of GlasgowBank, 230.

Howe, V. City of Glasgow Bank, 232.Huntingdon Copper Co. ;;. Hender-

son, 131.

Hutton V. Bulloch, 154.

In re Imperial Land Co. of Mar-seilles, in re National Bank, 238.

Imperial Mer. Credit Association,

Liquidators of, v. Coleman, 238.

Irvine v. Watson, 152.

Jackson v. M'lver, 53.

Jamieson v. Forrest, 37.Jardine v. Macfarlane, 175.

Joel V. Gill, 24.

Kinnell v. Peebles, 176.Klenck v. East India Co. for Ex-

ploration and Mining, 221.Kirkland v. Kirkland's Trustee, 31.

Labouchere v. Dawson, 183.

Lang V. Brown, 123, 145.Learmonth v. Miller, 7.Louden Brothers v. Eeid & Lauder's

Trustee, 18.

Lumsden v. Buchanan, 177.Lumsden v. Peddie, 178.

M'Adam v. Martin's Trustee, 3Cl, 146.


M'Bain v. Wallace, 97, 104.M'Cowan v. Wright, 6.M'Donald v. City of Glasgow Bank,

232.

M'Dongall & Herbertson v. North-ern Assurance Co., 81.

M'Intosh V. Ainslie, 152, 207.Mackay v. Commercial Bank ofNew Brunswick, 76, 169.

Mackenzie v. Blakeney, 145.M'Kenzie v. British Linen Co., 137.M'Kenzie & Aitken v. Robertson,

155.

M'Laren, &c. v. Pendreigh's Trustee,

40-42.

M'Lean v. Clydesdale Bank, 106.M'Lean v. Eussell, Macnee & Co.,

165.

M'Lean v. Turnbull, 143.M'Meekin v. Ross, 7.M'Niven v. Peffers, 194.M'Pherson v. Watt, 134.Mahony v. E. Holyford Mining Co.,

235.

M'Taggart v. Watson, 83.Maffet V. Stewart, 130, 155.

Main v. Fleming's Trustees, 9.Mann v. Sinclair, 196, 215.Martin v. Scottish Savings Invest-ment and Building Society, 241.

Matthews v. Auld & Guild, 153.Maxton v. Brown, 192.Meier & Co. v. Kuchenmeister,

142.

Merchant Bank of London v. Phoe-nix Bessemer Steel Co., 122.

Metzenberg'y.HighlandEailway,165.Miller v. Mitchell, 154.Miller v. Walker, 192.Mitchell V. Canal Basin Foundry

Co., 212, 213.

Molleson v. Challis, 31.Mollwo V. Court of Wards, 203.Moncreiff v. Hay, 20.More V. Bayley, 234.More v. Giersberg, 31.

Morgan v. Small, 67.Morrison v. Harrison, 118.Morrison v. Miller, 187.Morrison v. Service, 185.Mortimer v. Hamilton, 141.Moss v. Cunliffe & Dunlop, 156.Mowat's Trustee {see Edmond v.

Mowat), 101.Muir V. City of Glasgow Bank, 161,

178.

Muir V. CoUett, 216.Muir V. Crawford, 68.Muir V. Dickson, 206.Murdoch v. Greig, 105.Murray v. Lee, 54.Myles V. City of Glasgow Bank, 232.

National Bank v. Forbes, 122.Neilson v. Mossend Iron Co., 185.Neilson v. WUson, 59, 216.Nelmes v. Montgomery, 204.New Brunswick & Canada Railway

Co. V. Muggeridge, 229.New Sombrero Phosphate Co. v.

Erlanger, 224.

Nicholson v. Burt, 88.North of Scotland Banking Co. v.

Fleming, 54.

Oakbank Oil Co. v. Crum, 221.Ogilvie V. Taylor, 45.

Oliver v. Grieve, 141.Orr's Trustees v. TuUis, 103.

Pagin & Gill's Case, 233.Paice V. Walker, 157, 158.Paterson v. Bonar, 77.

Paterson v. Macfarlane, 243.Patten v. Carruthers, 171.

Pearson v. Pearson, 183.

Pearston v. Wilson & M'Lean, 208.Peddie {see Consolidation Copper Co.

V. Peddie), 239.Pender v. Henderson & Co., 129.Pendreigh's Trustee v. M'Laren cS:

Co., 40, 42.

INDEX OF CASES CITED,

Phillip Petitioner, 28.

Pidcock V. Bishop, 79.Pochin & Eobinow v. Marjoribaiiks,

148.

Pollock & Co. V. Spenoe, 207, 208.Pooley V. Driver, 199, 202, 203.Pringle (see Scottish Provincial As-

surance Co.), 78.

Eaes V. Meek, 143.Ramsay, Bonars & Co. v. Mackersey,

166.

Read v. Anderson, 155.Reddie v. Williamson, 69.Richardson v. Harvey, 88.Risk V. Anld & Guild, 145.Rodocanachi, Sons & Co. v. Millburn

Brothers, 115.

Rolfe and the Bank of Australasia,209.

Ronaldson v. Drummond & Reid,143

Rose V. Falconer, 22.

Rose V. Spaven, 164.

Ross Skolfeld & Co. v. State LineSteamship Co., 143.

Royal Bank v. Christie, 65.Royal Bank v. Ranken, 61.Rumhall v. Metropolitan Bank,

114.

Russell V. Russell, 193.

Scottish Pacific Mining Co. v. Fal-koner, Bell & Co., 226.

Scottish Provincial Assurance Co. v.

Pringle and Others, 78.Scott V. Scott's Trustees, 102.

Sdeuard v. Gardner & Son, 241.Seath & Co. v. Moore, 97,Shaw V. Caledonian Railway, 155.Sheffield, Earl of, v. London Joint-

Stock Bank, 114, 127.Sim V. Grant, 101.Simpson. Her Majesty's Advocate

v., 5.

Simpson v. Fleming, 77.

Sinclair, Moorhead & Co. v. AVallace,127, 143, 168.

Smith V. M'Bride & Smith, 182.Smith V. Bank of Scotland, 80.Smith V. Lascelles, 144.Stagg V. Elliott, 138.

Steel Co. V. Tancred, Arrol & Co.,159.

Stenhouse v. City of Glasgow Bank,232.

Stephen v. Police Commissioners ofThurso, 165.

Steven v. Scott & Simpson, 21.Stevenson v. Adair, 52.

Stewart and Others v. Brown, 89.Stewart v. Kennedy, 171.Stiven v. Watson, 143.Stott V. Fender & Crombie, 202.Swedish Match Co. v. Seivwright,

233.

Swift V. Jewsbury, 72.Sydney & Wigpool Iron Ore Co. v.

Bird, 226.

Taylor v. Farrie, 17, 19.Tennant ex parte, in re Howard, 203.Tennent v. City of Glasgow Bank,

170, 230.

Tbacker v. Hardy, 155.Thomas v. Sandeman, 40.Thomas v. Thomson, 8.Thomson v. Bank of Scotland, 88.Topham ex parte, in re Walker, 22.Trappes v. Meredith, 31.Trevor v. Whitworth, 221.Twycross v. Grant, 226.

Union Bank v. Mackenzie, 102.Union Bank v. National Bank, 119.Union Bank v. Makin & Sons, 139.Union Bank (see Moncriefif v. Hay),

20.

Venezuelan Railway Company v.Kisch, 228, 230.

Viokers v. Hertz, 147.

Xll INDEX OF CASES CITED.

Walker's Trustees v. M'Kinlay, 164.Wame & Co. v. Lillie, 91.Waterhouse v. Jamieson, 234.Webb v. Whiffin, 223.West of England Bank ex parte

Booker, 190.Western Bant v. Baird, 238.White V. Briggs, 29.

White V. Munroe, 156.Whitson V. Caledonian HeritabL

Security Co., 239.Wylie & Lochhead v. Homsby

51.

Young V. Clydesdale Bank, 51.Young V. Dougans, 176.

LECTUEE I.

BANKRUPTCY.

rriHE following lectures are intended to present to you the Bankruptcy-'- leading principles of some branches of mercantile law. ^^^

^'"'

I shall commence with the law of bankruptcy. I shall have,I doubt not, some difficulty in attempting to make a popularstatement of the law in regard to bankruptcy; but I knowthat I am addressing an audience of intelligent men who willtake a little trouble with the subject. It is not a very simplesubject, and it will require a little attention and a littlethought, but these I know you will give. Without furtherpreface I may at once say that the law of bankruptcy has forits aim the systematic regulation of what is to be done inthese very unfortunate circumstances, when a mau's assets arenot equal to his liabilities. At this time of day it seems avery easy thing to notice what are the points that ought to beattended to in any system of bankruptcy law. We shouldsay, in the first i^lace, that the bankrupt is to be preventedfrom putting away his effects, from giving them away tofriends, or ceding or conveying them away to favouritecreditors. That object is attained by the common law ofinsolvency, and also by a series of statutes, mainly passedin the seventeenth century, to which I shall have to ask

your attention. The protection of the estate against theinsolvent is the first object that a bankruptcy law oughtto have. The second object, we may say, is to secure thatthe funds shall be put into neutral hands for impartial

distribution amongst all the creditors, so that individual

creditors may not tear the estate in pieces by diligence.That can be attained at common law by the form oftrust-deeds with which you are familiar ; but it can also be

B

2 BANKRUPTCY.

Bankruptcy attained in a much better way by statutenamely, by seques-system.

tration in bankruptcy. Then there is a third point that we

should think ought to be attained by any system of bankruptcy,

and that is to secure due ranking of creditors upon the estate;

for, of course, one creditor may be privileged, or may have aright to get full payment, while another creditor is only entitled

to ordinary ranking. That object of ra>nking of creditors maybe attained at common law ; but it is generally attained with

more perfection under the system of sequestration now existing.

The fourth object is to secure the discharge of the debtor. Thatwas for long only attained by a private trust or compositionarrangement, or by the common law process of cessio bonorum.The existing statute as to sequestration also makes provision forthat. These are the four heads of results which a completesystem of bankruptcy may attain, and to business men as youare, it seems an obvious thing that all these points should

be attended to ; but it was not by any means so simple to pro-vide for these results, and the history of the law shows theywere only gradually and successively attained in this country.The earliest thing that was done in bankruptcy law was simplyto prevent preferencesto prevent the bankrupt from givingaway his estate to his friends or to favourite creditors. Thatwas done by the Act of 1G21, cap. 18, and by the Act of 1696,cap. 5. But the law at that date seemed to think it had doneenough if it acted as a sort of bottle-holder to the creditors. Itmade no provision for any common process whereby the fundscould be put into the hands of a neutral person to secure eq\ialdistribution; and, accordingly, the whole estate was left opento seizure on the diligence of individual creditors unless theyall concurred in an arrangement by trust-deed. The first of aseries of statutes aiming at a common process began in 1681,with reference to the sale and ranking on landed estates. Themoveable estate remained until 1772 subject to no statutoryprocess whatever for securing the equal distribution of theestate among the creditors. It was in 1772 that the firstsequestration statute was passed. It has been followed byvarious others, which I need not quote. The existing statuteis that of 1856. The earliest sequestration statutes referredonly to moveables ; and, although later sequestration statutesincluded landed estates, their benefits were confined to traders

BANKRUPTCY. 3

exclusively. They did not e?;tend to all debtors, but only to Bankruptcytraders, and it was only after the Act of 1856, 19 & 20 Vict. '^^'^'"cap. 79, that we have the bankruptcy law finally placed on acomplete footing. "We have it extended to all debtors, andincluding all kinds of estates, whether moveable or heritable

heritable being the word used in law for landed estate. Withthis statute and the aid of the old statutes of 1621 and 1696,and the common law, I think that we have now great perfec-tion on the main points, and such a complete system ofbankruptcy as I have already alluded to. You know that oursystem of bankruptcy, as established by the Scotch sequestra-tion statutes, has been the subject of frequent approval byhigh authorities, both here and in England., Indeed ourfriends in the South have done us the honour, in their recentbankruptcy legislation, to copy some of the provisions whichhave long been established and in use in Scotland. In Englandthe law on this subject is now regulated by the BankruptcyAct, 1883 (46 & 47 Vict. c. 52, and 53 & 54 Vict. c. 71).

That will suffice for a general introduction to the subject, Common lawand now I proceed to deal with the purely common law of * "is''l''sp

BANKRUPTCr.

Common law ruptcy, as I shall show you afterwards, is a state dependingof insolvency.

^^^^ ^j^^ application of Certain tests supplied by statute.

It is not merely insolvency ; but insolvency with certain

qualities, which I shall point out afterwards, to be found in

the statutes. We are here, in the present place, dealing withthe common law of insolvency. Now, the first and leadingprinciple to be kept in view in regard to insolvency at common

law is simply this, that from the moment of insolvency thebankrupt becomes, in the eye of the law, a trustee for his'

creditors. I do not say a trustee formally or technically. I

mean by the expression " trustee," that his goods, in the eyeof the law, belong to his creditors, and no longer to himself.He loses that uncontrolled administration of his goods whichhe had before his insolvency, and he holds them really forbehoof of his creditors. That is the principle underlying allthe common law of insolvency. The legal titles to the goodsremain in him, no doubt ; but j'^ou must understand that heholds them for his creditors, and anything he does in prejudiceof his creditors' rights will be struck at by the law. Sostrongly is this the case, that the criminal law will reach theinsolvent for his dealings with his own goods in certain circum-stances. Fraudulent bankruptcy is a well-known point ofdittay in the High Court of Justiciary. If an insolvent per-son has fraudulently away put, secreted, or concealed his effectswith intent to defraud his creditors, that is a point of criminaldittay for which the insolvent may be tried before the HighCourt. Of course, that is the case of a man who is insolvent,knows he is insolvent, and with intent to defraud his creditorsconceals his goods so as to put them absolutely out of thereach of his creditors, and so as to deprive them of the divi-dend to which they are entitled. For such an offence a manmay be tried, and frequently men have been tried, but, per-haps, not so often as they ought to be. I do not know whetheryou are in the habit of referring to the law reports. If youwish to see what the law is in its practical working, I wouldstrongly recommend you to get access to some copy of thereports. In a city like this, where there are so many lawlibraries, you can easily get the books ; and I think it betterto give you a reference to a comparatively recent case

Clen-dinnen, 3 Rettie (Justiciary), page 3, 2nd December, 1875.

BANKRUPTCY. 5

There you will find a most interesting discussion of the com- Common lawmon law of insolvency, as applied in the criminal courts, against ^ "^solvency,

any insolvent who attempts to defraud his creditors. The" Debtors (Scotland) Act of 1880" still further strengthensthe criminal law of bankruptcy. It would be inconvenient togive its provisions here in detail, but I may refer you, as anexample of prosecutions under that Act, to the case of Simpson,10 E. (Just.) 73, where a sentence of eight months' imprison-ment followed a conviction under a charge of the debtor'sfailing to disclose the state of his affairs. But we are mostconcerned with the civil law of bankruptcy, or the principlethat from the moment of insolvency the insolvent's estate belongsto his creditors. Proceeding upon that principle, the commonlaw will set aside any preference he grants to a favouritecreditor, or any donation to a friend, or any act, in short,whereby he takes away his effects from their only lawfuldestination, as dividends to his creditors. In these matterswe have settled in the practice of the Court the question thatis to be raised, the form of the issue, in the challenge of atransaction forbidden by the common law of insolvency ; andit is instructive as showing what the law requires in order tosustain a reduction on the head of insolvency. The questionput in regard to any transaction of the bankrupt struck at bythe common law is this :" Whether the said disposition wasgranted by the said A. B., and taken by the defender fraudu-lently to disappoint the rights of the creditors of the said A. B."

You see that the question which is put to the jury in the caseof a preference at common law is whether the deed or transac-

tion in question, no matter what it isit may be an indorsed billor a delivery order, it may even be a payment of cash out ofthe ordinary course of trade, any extra security, any extra

advantage given to a favourite creditor, will be struck at in an

issue of that naturewhether the deed was granted by theinsolvent and taken by the defender fraudulently to disappointthe rights of creditors of the said insolvent ? That is the ques-

tion which is put. Now I may mention to you that there hasbeen a dispute among lawyers as to whether it is necessary thatthe grantee, the person who receives the benefit, should beaware of the insolvency, and of the fraud on the creditors, or

whether it is sufficient that the insolvent himself knew of his

BANKRUPTCY.

imon law circumstances, and knew that he was putting away his effectsisolvenoy.

fraudulently in favour of one particular individual. A judge ofhigh eminence, the late Lord Justice-Clerk Hope, held in a lead-ing case on the subject (M'Cowan v. Wright, 15 D. 494), thatit was not necessary to prove anything more than that the insol-vent person, knowing his circumstances, knowing that he had notmoney to pay all his creditors, had given advantage fraudulentlyto another person, a favourite creditor. It was not necessary, hesaid, to show that the person who had received the advantageknew that there was insolvency or fraud. I do not know, how-ever, that that can be accepted as an accurate statement of thelaw, except in the case of purely gratuitous alienations. I thinkthe decision of the law in later times is to the effect that if youare to challenge the transaction at common law alone, you mustshow that not only the insolvent but also the grantee, thereceiver, at least if he be a creditor, were both aware of thecircumstances that insolvency existed, and that the man wasunable to pay his creditors in full. If you can show fraud bothin the giver and receiver, or if you can show not only that thedisposition was granted by the insolvent but was taken by thedefender fraudulently to disappoint the creditors, you can setaside any transaction by way of preference to particular creditors.In regard to the nature of the transactions which can be setaside, I shall have occasion to notice that more definitely whenspeaking of the Ac I of 1696, cap. 5, but they are generally allvoluntary alienations or transactions for the satisfaction orfurther security of a creditor out of the way of ordinary pay-ment. The ordinary payment of a debt which is justly dueand justly pa3'-able, will not be struck at either by the commonlaw of insolvency or by the Act of 1 6 9 6. It is the case of a billnot yet payable, and the holder of the bill getting suspiciousand demanding of the debtor a delivery order for goods no1really sold or an assignation of his life policy, or something o:that sort out of the ordinary course of business, that is struclat by statute or by common law. But at common law you musiprove that in granting preferences, the bankrupt was actingfraudulently in the knowledge of his insolvency, and yoimust also show that the receiver knew or had good reason tand effectual. The bank got a cautioner for the debt, and ^''"''^*-

trusting, I suppose, to the cautioner, they never recorded theirbond, never completed it in a proper feudal way. The resultwas, that when they tried to enforce the debt against thecautioner, the cautioner said, " Where is the security yon gotfrom the principal debtor ? You have not completed it ; it isnot worth a farthing, and I am not liable for the debt." Thatplea was sustained. If the creditor forgets or neglects tocomplete a security got from the principal debtor, to theprejudice of the cautioner, the cautioner is free. The samething will occur if the creditor holds securities from the debtor,and wilfully gives them up. If the creditor does anything ofthat sort, in the way of prejudicing the cautioner's right ofgetting relief, or getting reimbursed out of the principaldebtor's estate, the cautioner is at once set free. It may bethat the creditor is able to show that the security lost was oflittle value, but to the extent at least of the value of thesecurity lost the cautioner is discharged. See on this subjectthe case of Duncan, Fox & Co. v. North and, South WalesBank,' G App. Ca. 1, where it was held that an indorser of abill was in reality a surety or cautioner for it, and thereforeentitled, on payment, to obtain the benefit of a certain securitywhich the drawer had deposited with the acceptor.

The only other thing we may notice is the seventh mode of Discharge ofdischarging a cautioner's liabilitv, and that is the discharsre of

*"

one of his co-cautioners without his consent. If, for instance,there is a creditor who has a principal debtor and threeco-cautioners, and if the creditor discharges any one of theseco-cautioners, he thereby in effect discharges all the others,and loses his right as against all the others. That, as hasbeen already noticed, arises from another peculiarity of the lawof cautionry, namely, that the co-cautioner is entitled to, andhas the right of relief or contribution against the others ; andif the creditor, without consulting the other cautioners, dis-charges one of these cautioners, the law says the creditorshould lose his recourse on the bond of caution. That is fixedby section 9 of the Mercantile Law Amendment Act. And itis necessary to keep in view, as a practical suggestion, thatyou are not to imagine that rule applies entirely to people who

94 CAUTIONARy OBLIGATIONS.

Discharge of are bound expressly as cautioners ; it applies to anybody whoco-caiitioner.

. , ,, , ,. ,

,^ ^- o

IS, and IS known by the creditor to be, in the relation oi acautioner, although he is not called so upon the face of thewriting. I only allude again to this matter to remind youof one or two practical rules on the subject. The first is thatconsenting to the discharge of a co-cautioner in sequestration

will not relieve the other co-cautioners ; and, in the second

place, that if you are going to consent to the discharge of acautioner under a private composition arrangement, the safeplan is always to give notice to the other co-cautioners beforedoing so, in order to give them an opportunity of paying upthe debt, and transacting with the insolvent themselves.Always give this notice, and if the other cautioners do notcome forward after getting that notice, then you may concurin a private discharge ; but you must take great care in thedischarge to preserve your rights against all co-obligants. Thedischarge ought to bear that the creditor reserves his rightagainst the co-obligauts. These are the practical rules thatI think it worth while again to bring before you, and withthese 1 think we have completed the subject of cautionaryobligations.

SKCURITIES OVER MOVEABLES. 95

LECTURE V.

SECURITIES OVER MOVEABLES.

rpHE subject with which we are now to deal is that of Constitution.-*- voluntary securities over moveables. I say voluntarysecurities, in order to distinguish the securities of which weare to speak from judicial securities which are obtained insuch ways as by arrestments and forthcoming or sequestrationia enforcement of the landlord's hypothec. The first thing toobserve in treating of such securities is the difference betweencorporeal moveables and incorporeal moveables. By corporealmoveables are meant such articles of moveable property as youcan handle, as furniture or goods of any description ; and, withregard to these, the general rule is that they may be trans-ferred always by parole agreementby word of mouth, followedby delivery. You may buy and sell goods to any extentsimply by word of mouth. But in regard to the other classof moveable rights, namely, incorporeal moveable rights, thesecan only be transferred by writing. By incorporeal moveablerights, which is rather a cumbrous phrase, we mean, in law,such rights as the debts due to a man. For instance, if A isowing a debt to B, B cannot transfer that debt to C, a thirdparty, except by writing. That is an example of incor-poreal moveable right. The same thing applies to sharesin banks. These can only be transferred by writing. Inmany cases there are statutes, as the Company Acts, theRailway, Patent and Copyright Acts, settling the forms oftransfer and registration required to pass the property. Incor-poreal moveable rights such as patents, and copyright in booksor other publications, can only be transferred by assignationregistered as appointed by statute. Now, we deal in the firstplace with ordinary corporeal moveables, that is, goods youcan see and handle, as distinguished from nomina debitorum

96 SECURITIES OVER MOVEABLES.

Constitution.

Reputedownership.

or other incorporeal moveable rights. In regard to thesecorporeal moveables, as T have said, they can be transferredgenerally by mere parole agreement, that is to say, by word ofmouth, followed by delivery. There is one great class of thesecorporeal moveables, namely, ships, which stand in a differentposition. The transfer of ships, whether to vendees or tomortgagees, is regulated by Act of Parliament, and can only beeffected by registered bills of sale or of mortgage. Still thegeneral rule remains, that goods to any extent can be trans-ferred by word of mouth. But when I say transferred, I meanthat the contract in regard to them is good if only constitutedby word of mouth. The actual right of propertyand this iswhat I wish to impress upon youin corporeal moveables onlypasses by delivery or change of possession, from the transferrorto the transferee. If I buy so many bushels of grain, thecontract is good enough if made by word of mouth ; but I onlybecome proprietor of these articles when I attain to possessionof them. And in this matter you must keep in view one or twosettled maxims of the common law, which rule the wholesubject. The first of these is that possession presumes pro-perty. Anybody found in possession of corporeal moveablesis presumed to be proprietor until the contrary is shown.That is a very important doctrine. It is.much more import-ant than it looks, because one consequence is that a reputedownership is apt to be raised, whereby the goods in thepossession of one man, although they really do not belong tohim, yet from the mere fact of his being in possession of them,as if the owner, may in many cases be made the subjectof the diligence of his creditors, and subject to be attachedin his sequestration or bankruptcy. In short, goods foundin the possession of any man, unless there be some titlefor the possession, such as that for a manufacturingpurpose, which his creditors might in ordinary course expect,the law will presume to be' his property, and he will betreated as their reputed owner on bankruptcy. In ques-tions between the true owner and persons deriving right inbond fide, by sale or pledge from the possessor and reputedowner, the latter may be held to have full power of disposal,although the goods do not belong to him. This doctrine ofreputed ownership is of the utmost consequence to be borne

SECURITIES OVER MOVEABLES. 97

in mind. Its technical limits have been restrained by Reputedmodern decisions ; but in cases of fraudulent misappropria- "'"'' 'P'

tion, as of goods on sale and return, the fact that the trueowner has enabled the custodier to act as if he were owner,may raise an equity to prevent the true owner recoveringagainst an onerous and bond fide acquirer, Brown, 7 R. 427.It does not apply when there has been a patent reason inthe ordinary course of business or of human affairs, why aperson other than the true owner should be in possession ofthe goods. Take the case of a ship-builder building a ship onthe order and for behoof of a purchaser with whom he hascontracted. In that case the creditors of the ship-builder arenot entitled to assume that every ship in his yard is neces-sarily his property ; and by the common law, as soon as thepurchaser has paid an instalment of the price as the ship pro-gresses, the part of the ship then built becomes, without actualdelivery, the property of the person who has paid the price.M'Bain v. Wallace, 27th July, 1881, 8 R (H.L.) IOC,may be taken as an example of this rule, though theLords doubt the old Scots case on which the common law hasalways been held to be founded. Although the ship whollyremains in the premises of the ship-builder, there is no reputedownership to enable the creditors of the ship-builders to seizethe ship. In the leading case of Seath & Go. v. Moore, 8thMarch, 1886, 13 R. (H.L.) 57, accordingly, it was not uponreputed ownership that the general creditors succeeded. Hereit was held that unfinished marine engines, which were incourse of being made and fitted for ships, belonged, on thebankruptcy of the engineer, to his trustee, and not to the ship-builder who had ordered the engines, and made large advancesto the engineer. Had there been a precise contract for pay-ment of the price by instalments proportionate to the workdone, and on condition that the work so paid for shouldthenceforth be the property of the purchaser, the decisionwould have been against the trustee. This case not onlybrings the case of engines in course of construction under thesame rule which formerly applied in Scotland to the buildingof ships ; but also places the law as to payments of price byinstalments as the work proceeds on much the same footing inScotland as in England. Precise instalments paid at stipu-

H


Keputeilownership.

Delivery.

lated stages of the work, with the provision or clear intent

that so much of the work as is then completed and paid forshall belong to the purchaser, have the effect of passing the

property in England or in Scotland of giving a jus ad rem tothe unfinished work protected against the creditors of the seller

by the Mercantile Law Amendment Act. But the generalrule remains that the person who is found in possession ofmoveable property is presumed to be the proprietor ; and heis the reputed owner in a question with his creditors and thirdyiarties generally. The doctrine when thoroughly sifted will befound to be based on the equitable principle that the owner has

negligentlyby allowing his goods to remain in the hands ofthe reputed ownerheld out that the latter was" owner, and soenabled him to obtain credit on the faith of his apparent stock.Where this principle fails, as when the true owner had fair andreasonable occasion,in the ordinary course of business, to leave his

goods in the hands of another, there is no reputed ownership.In the second place, the next rule, which really follows from

the first, is, that no security can be obtained over corporealmoveables unless the creditor gets possession of the articles.That is the safe and general rule on the subject, illustratedby the recent case of Clark, 9 R. 1017. If you wish to havea security or other real right in or over goods, you musttake delivery of them. You may get documents to yourheart's content, or assignations as binding as possible, butunless you have actual possession of the articles you have noreal or sufiicient security. In short, the property of corporealmoveables can only be transferred by delivery, and the posses-sion of the transferree which follows delivery. From that I amentitled to make the general

_observation, and to give the

general warning, which I think is safe to be kept in view byall bankers or other persons who are taking securities overmoveablesthat there is no certain means known to the lawwhereby you can make your security effectual over moveableestate, unless you attain actual possession of the goods, eitherby yourself or by somebody holding for you. It is sometimesthe case that a bank, or other creditor lending money over millmachinery, attempts to get a security over that machinery, inso far as it is not heritably fixed to the estate. They have anassignation to such moveable machinery, and they attempt to


make their security complete without any change of possession. Delivery.But there is no means known to the law whereby a security suchas this can be completed unless by possession on the part of theassignee. There is a device attempted by bankers, I believe,and it is this :They get a disposition to the mill itself, with anassignation of the moveable machinery situated within it ; andthey grant a lease to the mill-owner whereby, apparently, heholds the whole subjects heritable and moveable as a tenantfrom them. I have to tell you that, in so far as it affects themoveables, that security is probably not worth the paper it iswritten upon, because there has been no change of. possession.The creditor or the bank lends on a fictitious lease ; they reallynever get possession of the goods ; and the debtorthe mill-ownerwho got the money, has remained from first to last inpossession, and, by law, his possession being unchanged, thesecurity is not worth anything at all. That at all events isthe current doctrine as to such leases granted by securityholders, although there are one or two recent decisions to aneffect more favourable to the creditor. With regard to thisdoctrine of possession being the only way of passing propertyin corporeal moveables, it is necessary to bring under yournotice the changes on the common law, effected by theMercantile Law Amendment Act, 1856. The first section ofthat statute provides :" From and after the passing of thisAct, where goods have been sold, but the same have not beendelivered to the purchaser, and have been allowed to remainin the custody of the seller, it shall not be competent for an 3'

creditor of such seller, after the date of such sale, to attachsuch goods as belonging to the seller by any diligence orprocess of law, including sequestration, to the effect of pre-

venting the purchaser, or others in his right, from enforcingdelivery of the same ; and the right of the purchaser to demanddelivery of such goods shall, from and after the date of suchsale, be attachable to or transferable to the creditors of the pur-chaser." That section was intended to remove one of thegreat hardships of our old common law prior to the year 1856.The hardship was, that suppose I had bought goods from aman, and had actually paid the price, yet, if the goodsremained in his possession, the law said" When the sellerbecame bankrupt you were only a creditor for delivery of these

100 SECURITIES OVKK MOVEABLES.

Delivery. goods ; the Original right of property remains in the seller, andyou cannot get the goods." The general creditors of the seller,on this principle, took possession of the goods, and I had torank for the price I had paid upon his estate. That seemeda gross hardship, and it followed from the doctrine I amtalking of, that without change of possession there can be no

transfer of property, or security in moveables. That sectionalters the law to this extent, that if I have bought the goods,and allow them to remain in the custody of the seller till it isconvenient to take delivery, his creditors cannot attach these

goods, and cannot hold them against me, provided always thatI have paid or offer to pay the price. This statute confers

a privilege on the purchaser in the particular case specified, but

it leaves the property of the goods sold still by law in theseller. Now, it has been thought, under that section, that itwas competent, by straining its provisions, to introduce securi-ties without possession, say over a man's household furniture,transferred in the form of a contract of sale, and left in hispossession and use. It has been frequently attempted by aman who is lending money to another, to put the loan in theform of a sale, and to take an assignation from the borrower ofthe furniture in the man's house. It has been often thoughtthat security will stand by virtue of this statute ; but it willnot. It is not protected by that Act, because the intention ofthis section is to protect only true sales, and not securities inthe form of sales, and to authorise goods remaining merely inthe custody of the seller, in ordinary course of business, tillthey are delivered. If goods, alleged to be sold, have beenleft so that the pretended seller has enjoyed the use of themfor an indefinite period, then the sale or security is worthnothing at all, as not having been followed by any change ofpossession. There is no way in Scotland to obtain securityover a man's furniture, so long as he retains possession. Theonly way it can be done is for the creditor to put a third partyin possession for him, or to have the furniture delivered to astore in the creditor's name, or to the creditor at his ownpremises. The same thing applies to the case of a banl? orother creditor taking a security over moveable machinery.The only way they can make their security effectual is to havethe machinery removed, or go into possession themselves.


There is no other certain way known to the law of doing it. Delivery.It is better to mention one or two examples, to impress thisupon your minds. There is, first, the case of Sim v. Grant,Srd June, 1862, 24! Dunlop, 1033. In that case a man'shorse and cart were being seized by his creditor. A friendcame forward, paid the money, and arranged with the ownerthat, in respect of this payment, he was to be the purchaser ofthe horse and cart ; but he allowed the owner and pretendedseller to retain the horse and cart, and use them in hisbusiness for some months. At the end of that period theunfortunate carter fell into difficulties again, and a new creditorpoinded the horse in his possession as belonging to him. Thefriend who had intervened on the first occasion then cameforward, and said, " The horse was sold to me ; I only left itin the seller's hands, and I claim the property under theMercantile Law Amendment Act." The Court ruled that theAct did not apply for his protection as alleged purchaser. Hehad left the horse and cart with the owner to be used by him,and had never intended to take delivery as in an ordinarysale. The seller had been left not merely in the custody ofthe goods with a view to their delivery, but in their useand enjoyment, and the personal contract of sale was worthnothing at all against the seller's creditors. In the words ofthe Lord-Justice Clerk, " the personal contract of sale was notintended to have immediate effect so as to give the purchaserthe full and complete right which a true contract of saleconfers, because it is inconsistent with the title and risk ofthe buyer that the beneficial use should remain with theseller." The same thing occurred in the bathing machine caseEdmoncl v. Mowat, 4th November, 1868, 7 M'Pherson,p. 59. A person bought the bathing machines, and leftthem with the seller, who was carrying on the business ofa bathing machine keeper. The purchaser never took posses-sion or delivery of them, and when the bathing machinekeeper's creditors came in, he pleaded that he had a securityover them under the Act, because he had bought them someyears before, and had paid the price for them then. But thoCourt again ruled against the purchaser. He had left thegoods not merely in the custody of the seller, but in his actualuse or possession for an indefinite period, and he had no right


Delivery.. to them at all against the seller's creditors. Then there was afurniture case in the year 1848, where a friend had boughtthe household furniture of a seller who was at the time indifficulties ; and he allowed the seller, out of friendship, to have

the use of the furniture for some years. At the end of this

time the friendly purchaser tried to vindicate the furniture to

himself as against a creditor of the possessor ; but he was told

that he had never completed his sale by possession ; that hehad no right at law to the goods at all ; and his claim, incompetition Avith the creditor, was thrown out

Anderson v.Buchanan, 11 D. 270. This case, appears, however, to beoverruled by Scott v. Scott's Trustees, 20th Feb. 1889, 16 R.504. There is one other case, that of the Union Bank, whichI mention to show how narrow such questions become inattempts to constitute securities over moveable machinery. Itis, The Union Bank v. Mackenzie, 27th March, 1865, 3 M.p. 765. The short of the matter came to be that the UnionBank advanced money to enable a person to purchase a mill,with moveable machinery in it ; but they took the title tothe whole concern, heritable as well as moveable, to them-selves. The intended purchaser had no previous right to themill. The Union Bank, retaining the title in their own name,agreed to grant a lease to the intending purchaser, and allowedhim to go into possession with no other title than that of atenant from them of the mill and the moveable machinery.On his becoming bankrupt, his creditors attempted to seizethe moveables ; but the Union Bank were held to have a goodsecurity, because, in that case, their title as the nominal pro-prietors of the mill and machinery, by their contract, wasperfected by possession, following, as in their right, by atenant who had no title except from them. It would havebeen an entirely different matter if this intending purchaserhad been the owner at the outset, and the money had beenadvanced in security to him on a title derived from hira to theBank. Had the Bank thereupon, without change of possession,merely granted a lease fro forma to the real owner, theywould have had no security over the moveables. The Bank'ssecurity was saved because, having a good title from otherparties, they had attained possession through a new tenantand occupier under them of the mill. Another case to be

SECUKITIES OVEK MOVEABLES. 103

noted is that of the Fife Herald, Orr's Trustees v. Tullin, Delivery.2nd July, 1870, 8 M. 936. That was a case where thelandlord of the premises in which the printing of the news-paper was carried on bought from his tenant the machineryand all the printing presses. Thereafter, under a new lease ofboth the premises and the machinery, he allowed the sametenant to carry on the business ofprinting the Fife Herald news-paper with his printing presses. The Court were satisfiedthat there was a real sale and a bond fide lease ; but still Ithink it was a very narrow case in regard to the landlord'sright as purchaser of the moveable machinery, with regard towhich there was never any delivery or change of ostensiblepossession. The Court held that the landlord, as purchaser,had good right to the moveables, because the tenant, whowas the previous owner of the printing presses, held afterthe sale simply under a lease from the proprietor, and hadso in good faith changed the character and title of his pos-session. This decision against the tenant's creditors claimingthe moveables as his is considered doubtful by many lawyers.The important feature of the case was, that the buyer washimself the proprietor of the premises in which the moveableswere situated, and that the change of possession as to themoveables to that of mere hiring, or tenancy, after the sale,was made most distinct, and it continued for some years.The general doctrine of the law remains, however, the same.Notwithstanding this case, the rule is never to rely on asecurity over moveables, unless you have got possession eitherby yourself or by some third party ; and, in particular, not totrust to possession attempted to be obtained by grantingnominal leases to the borrowers, so that they may hold thegoods as hirers or tenants from the lenders. My impressionis, that such leases cannot give you any security, and this isconfirmed by the bad success of the latest attempt to com-plete a security in that form

The Heritable Securities Associa-tion V. Wingate & Go.'s Trustee, 3rd July, 1880, 7 R.1094. The doctrine of the Fife Herald case, that whereverthere is a bona fide sale of moveables, the buyer may at com-mon law complete his right by leaving the seller in possessionon a new title as by a bond fide contract of hiring or loan,cannot yet be regarded as established. The same doctrine

104 SECURITIES OVEK MOVEABLES.

Delivery.

Suspensivesale.

may j'et be extended to moveable securities in the form of sales ;but the only safe course for lenders on such securities is to

keep before them the necessity for dispossessing the borrowerand obtaining delivery to themselves or to their order. In the

case of an unfinished ship, a lender who took his security inthe form of a contract of sale providing for appropriation of the

ship to him on his paying the stipulated instalments has beenheld, by the Second Division and House of Lords, to haveobtained a good security over the ship when the bankruptcy ofthe ship-builder occurred before the ship had been removedfrom the yard

M'Bain v. Wallace, 7th January, 1881, 8 K.360, and (H.L.) 106 ; compare Cropper v. Donaldson, 8thJuly, 1880, 7 R. 1108. It is possible that our older law hasgone too far in refusing to regard the many occasions whichexist in modern business for a man having in his possessionmoveables which either belong to others, or are subject torights honestly acquired by others for full value. Our commonlaw, at all events, affords a clear general rule, known to every-body, requiring possession to perfect a right to moveables ; andif exceptional cases are to be increased, in which, out of regardfor his good faith, a particular claimant to any part of themoveable estate is to prevail over the general creditors, thenit is probable that such exceptions should be accompanied bysome plan of public notice by registration, such as has beenestablished in England for bills of sale. There is now perhapsa tendency to relax the strictness of the common law rule thatthere can be no security over moveable property, withoutpossession; see Buncanson v. Jefferis's Trustee, 8 R. 563. Inthis case the landlord of an hotel undertook to provide furni-ture to the value of 10,000 to help to furnish a large hotelin Glasgow. The furniture so purchased was marked as thelandlord's. The tenant, on the other hand, undertook to payrent for it at the rate of 5 per cent, on its value and to purchaseit by ten yearly payments. After the first payment, the tenantbecame bankrupt, and in a competition between his trustee,who claimed the whole furniture, and the landlord, it was heldthat the furniture purchased by the landlord remained his, andthe tenant merely had possession of it on a contract of hire.

It may, perhaps, also be mentioned here that, althoughpossession of moveables raises a presumption of property, still if


the sale be made under a suspensive condition the property in Suspensivethe thing sold does not pass, until the condition be, as the ^^^^'

law says, purified. This is important for people to know,who sell goods on the hire and purchase system. It enablesthem to give credit, seeing they retain the security of the thingsold and delivered. In such cases the seller can reclaim hisproperty at any time, until the last instalment of the price hasbeen paid, even though the article may have been a long timein the purchaser's possession

Murdoch v. Oreig, 16 R. 396.The next point of the doctrine of corporeal moveables is that Delivery

relating to an important instrument in commerce, namely,the delivery order. The case we have just been consideringwas that of coi'poreal moveables

goods in the possession of

the seller or of the party granting the security ; and we cameto the conclusion that there is no sure way of getting securityover moveables in the debtor's possession, unless the transfereeeffects a change of possession to himself. Delivery orders aregranted in the case where the goods are in the hands of athird partyusually a public storekeeper,upon whom thedelivery order is granted, and to whom it is addressed, in thesame way as a cheque upon a banker. In commercial centressuch as Glasgow or Leith, there are large public stores wheremerchants in the grain or other trades are in the habit ofstoring their goods, as they arrive from the ship's side; andthese storekeepers make a business of keeping goods for others.They keep regular books for the receipt and disposal of goodswarehoused with them ; and warehouse rent and other charges,as for the regular turning of grain, are paid to them upongoods in their hands. Some of these stores are for duty-paidgoods, or for goods free of duty, and these are called free storesto distinguish them from bonded stores, where goods arewarehoused subject to the lien of the Crown for import duties.Goods in stores, free or bonded, can be made the subjects ofsecurity, or transfer on sale, by means of delivery orders. Itis necessary to attend to one or two points in regard to these

delivery orders, which I will now notice to you. A deliveryorder, like a cheque, assumes three partiesthe granter of the

order, who is the owner of the goods, or at least the person inwhose name they are warehoused; the grantee in whosefavour the order is drawn ; and the storekeeper to whom the

106 SECUEITIES OVER MOVEABLES.

Delivery Order is addressed. The usual terms of the order are simple'"'''^'''

enough. It is" Deliver to A.B. or his order, so many goods,identified by marks and numbers, or so many bushels of grainfrom a particular lot lying at present in your store." It is

signed by the owner, and is in favour of the particular party

therein named. That order is not of the least use to the

grantee until he has gone with it' to the storekeeper, and has

got the storekeeper to transfer the goods to the grantee's name.

To obtain an effectual security under that delivery order, the

essential matter is to intimate the order to the storekeeper,

and in order to prevent any questions, to get his consent tohold the goods thereafter for you. The usual form in whichthis consent is witnessed is a letter from the storekeeper to the

grantee, whereby, in respect of such and such a delivery order,he acknowledges that he holds the goods on behalf of thegrantee. That is the proper form of completing the transaction.If you do that, he holds the goods for you as he previously did for

the granter of the delivery order, and the security is complete :you have what the law regards as sufficient possession. Adelivery order very often is transferred from hand to hand.The original grantee indorses it " Deliver to so and so," and itmay be indorsed twice or thrice over, It would be a mistake,however, to imagine that the delivery order, though capable ofindorsation, is a negotiable instrument. It is not such. Bya negotiable instrument, you will understand, an instrumentlike a bill, which, by the law merchant, as by the lawof the land, passes either from hand to hand like cash, orpasses by indorsation and delivery, and which gives the bondfide holder of it for value an absolute right to enforce the

obligation it contains (M'Lean v. Clydesdale Bank, 13 App.Ca. 95). In England, until lately, the general rule was thatno assignee or indorsee to a right of action acquired any rightto sue in his own name ; and it was accordingly a distinguish-ing mark of a negotiable instrument that the indorsee couldsue upon it. In Scotland any right of action or document ofdebt may be assigned so as to give the assignee a right to suein his own name ; and yet many documents, which may beassigned by mere indorsation, are not negotiable instruments.For instance, deposit receipts are not negotiable instruments,and the indorsation of them implies at most a mandate to the


indorsee to uplift the contents, which will not be held, without Deliveryfurther evidence of donation or value given, to vest the right "^'^'

to the receipt or its contents in the indorsee for his ownbehoof. The chief privilege, both in England and in Scotland,of the typical negotiable instrument, the Bill of Exchange, isthat the indorsee or holder for value has no concern with theoriginal contract out of which the bill arose, nor with theliabilities of the prior parties as between one another ; theyare all alike absolutely liable to him according to their placeson the bill, and the indorsee is subject to no exceptions, suchas of no value, which might be pleadable in special circum-stances by the acceptor against the drawer. The bond fideholder for value of any negotiable instrument is entitledabsolutely to implement of its exact terms according to itsprecise tenor. A delivery order is different. If you areindorsee of a delivery order you are not in the position of theholder of a negotiable instrument like a bill ; because, inthe case of the delivery order, you are subject to all theexceptions arising out of the real contract between the originalgrantor and the original grantee. One important consequenceis that the original granter of the delivery order can hold thegoods for the unpaid price, against any^ indorsee whatever, evenagainst a bona fide indorsee for full value given. The onlyway to complete a title under a delivery order, which shallexclude any such retention by the original unpaid seller is, togo to the storekeeper and get him to acknowledge you asowner or transferee of the goods by letter as above mentioned.Before that is done, any time before that is done, the originalgranter of the order, if he be an unpaid seller, is entitled togo to the storekeeper and stop or countermand the order.He is entitled to say to the storekeeper"I have not beenpaid my price, and I require you to retain the goods for me,and to deliver them to nobody whomsoever, neither to theoriginal grantee nor to any subsequent indorsee from him."Thnt, in effect, is provided for by section 2 of the MercantileLaw Amendment Act" Where a purchaser of goods, whohas not obtained delivery thereof, shall, after the passing ofthis Act, sell the same, the purchaser from him, or any othersubsequent purchaser, shall be entitled to demand thatdelivery of the said goods shall be made to him and not to


Delivery the original purchaser ; and the seller, on intimation beingmade to him of such subsequent sale, shall be bound to makesuch delivery on payment of the price of such goods, orperformance of the obligations or conditions of the contract ofsale ; and shall not be entitled, in any question with asubsequent purchaser or others in his right, to retain the saidgoods for any separate debt or obligation alleged to be due tosaid seller by the original purchaser

;provided always that

nothing in this Act contained shall prejudice or affect theright of retention of the seller for payment of the purchaseprice of the goods sold, or such portion thereof as may remainunpaid, or for performance of the obligations or conditions ofthe contract of sale, or any right of retention competent to theseller, except as between him and such subsequent purchaser,or any such right of retention arising from express contractwith the original purchaser." That is a change on our olderlaw. According to the common law the seller of goods, eventhough he had granted a delivery order, and even though hehad been paid the price, was entitled to retain and stopdelivery of the goods, not only for the price, but for any debtwhatsoever that might be owing to him by the original pur-chaser

; and in that way the indorsee of a delivery order, evenlor value, might get delivery stopped against him on debtsof which he had never heard anything. This Act limits theright of retention by the seller to the price of the goods, exceptwhere the seller poinds or arrests in his own hands before thesecond sale is intimated ; but it leaves the grantee of adelivery order, or any indorsee from him, exposed always tothe risk that the seller of the goods may, at anj' time beforethe order is presented for delivery, go to the storekeeper andsay " Do not give delivery of these goods; do not accept anyother person as an owner. I stored the goods, and I insist ontheir being retained until I shall be paid the price." Nowyou see that is just precisely the point where the differencebetween a delivery order and a proper negotiable instrumentcomes in. If I am indorsee of a bill for valne, I am entitledto demand the contents of the bill from the acceptor abso-lutely

;and 1 do not require to inquire whether or not he is

liable to the drawer. A delivery order not being a negotiableinstrument, if you take a delivery order as indorsee, you take


it under risk of the price not having -been paid by the original Deliverygrantee to the granter. If he has not been paid the price, when ^'^^'

you go to the store with your order, you may find that he hasstopped the goods and prevented you getting delivery, and thatalthough you may have already paid the price to the indorser toyou. 9 of the Factors' Act, 1889, now protects the indorsee.

There is a third point to be noticed in regard to thesedelivery orders, and it arises with regard to the case of amerchant who holds goods in his own store, exclusively occu-pied by him, or a merchant who keeps a store, into which hereceives the goods of others as well as his own goods. Adelivery order granted by that merchant on his own store-keeper is of no use at all as an instrument for passing theproperty so long as the goods are allowed to remain in thesame store. If you get a delivery order from such a merchant,and even get his storekeeper to accept liability for the goodsto you as the transferee, that will not transfer the property norcomplete the security. This seems at first a curious result,but it is an almost necessary consequence from the commonlaw on the subject. If the goods are in a man's own store,although he is also a public storekeeper, no purchaser can haveany vested right in the goods unless he takes delivery andattains the actual possession. The storekeeper of the seller isonly a servant of the seller, and any acknowledgment grantedby such storekeeper does not suffice, in law, to pass the rightto the purchaser. That seems rather a hard result, but itsimply flows from the doctrine that, when the goods are in thepossession of the seller himself and not in the hands of anindependent storekeeper, the only way to complete the right ofthe buyer or transferee is to take delivery. As a recent verystriking example of this rule of the common law see TheDistillers Company (Limited) v. Dawson (Russell's Trustee),16 R. 479. In this case some whisky had been sold by aseller, who was also a storekeeper, and intimation of the salewas duly made to his clerk, and marked in his store books.The price also was paid, but the goods were not removed fromthe seller's store. The whisky, was however, sold by thevendee to a sub-vendee and by him to another purchaser.Finally, after several transmissions, it was sold to Mr. Russell,

and on his bankruptcy the first sellers established their right


to retain it in respect of a debt due by Russell, because theseller was still in law the undivested owner entitled to retain

the whisky for the bankrupt's general obligations to him. Thisdecision is probably overruled by the Factors Act of 1890.

These are the principal points about delivery ordersthat

you must have three partiesthe grantor, the grantee, and anindependent storekeeper ; that if the original price is not paid

to the granter of the order, he may retain the goods against thegrantee or indorsee from him ; and that a delivery order grantedby a man upon his own storekeeper, is of no avail unless youget actual delivery. It may, however, be yet found that

sections 4 and 5 of the now repealed Factors Acts, 40 & 41Vict. c. 39, have an important effect towards giving deliveryorders the privileges of negotiable instruments. These sectionsare

" 4. Where any goods have been sold or contracted to besold, and the vendee or any person on his behalf obtains thepossession of the documents of title thereto from the vendor orhis agents, any sale pledge or disposition of such goods ordocuments by any such vendee so in possession, or by any otherperson or agent entrusted by the vendee with the documentswithin the meaning of the principal Acts as amended by thisAct, shall be as valid and effectual as if such vendee orother person were an agent or person entrusted by the vendorwith the documents within the mea.ning of the principal Actsas amended by this Act

;provided the person to whom the

sale pledge or other disposition is made has not notice of anylien or other right of the vendor in respect of the goods.5. Where any document of title to goods has been lawfullyindorsed or otherwise transferred to any person as a vendee orowner of the goods, and such person transfers such documentby indorsement (or by delivery where the document is bycustom, or^ by its express terms transferable by delivery ormakes the goods deliverable to bearer) to a person who takesthe same bond fide, and for valuable consideration, the lastmentioned transfer shall have the same effect for defeating anyvendor's lien or right of stoppage in transitu as the transfer ofa bill of lading has for defeating the right of stoppage in tran-situ." Enactments to similar effects are in the Acts of 1889and 1890 ; and the latter Act introduces for Scotland the noveltyof pledging the documents of title to goods. See Appendix.

SECURITIES OVER MOVEABLES. Ill

There is a delivery order which is in vogue particularly in iron warrants.the west of Scotland, as being the seat of the great ironmarket, and of the principal Scotch iron works. The Bairdsor Dixons, or other great iron-masters, grant warrants somewhatas follows :" I will deliver so many tons of iron of a specifiedbrand, to any person who shall lodge this document with meafter such and such a date." It is a warrant granted in favourof the bearer, although the word " bearer " is not usuallyinserted ; and it is an obligation by the grantor to deliver somany tons of iron to anybody who shall lodge the warrant withhim. These warrants are very much used, particularly inGlasgow, and they pass from hand to hand without indorsa-tion. You buy so many thousand or hundred tons ofiron, and you get one of these warrants for your purchase orsecurity

; and it may pass through fifty hands before it comesto the hands of the man who actually goes to the iron-masterand takes delivery of the iron. These warrants are treated inpractice as if they were negotiable instruments. Now theposition of these warrants in law, according to the older authori-ties, is that they are not negotiable instruments. The lawdoes not, or did not, accept or adopt them as such. The pro-visions of law on the matter, as held some years ago, were that

no private agreement between the parties, no private andrecent usage among merchants will create a negotiable instru-ment, or will make an instrument have the privileges of anegotiable instrument which has not that by the establishedlaw merchant or by statute. It is attempted to make theseiron warrants negotiable by agreeing that anybody who holdsthem for value shall be entitled absolutely to delivery, and thathe shall have no concern with the state of accounts betweenthe iron-master and the original purchaser of the warrant. Thelaw says, or said, that is not to be allowed, and therefore thesewarrants stand, or stood, in ho better position in law than pro-per delivery orders. Indeed it is doubtful if they are not in aworse position, because a proper delivery order is expressed asin favour of a certain named person, while the warrants areblank or to bearer. The old Act of 1696, c. 25, expresslyforbids the issuing of any bonds blank in the name of the credi-tor or without a creditor named. You know that pound notes,payable to the bearer, are issued, which pass from hand to


Iron warrants, hand; but that is by force of special statute, and unless by-

statutory authority these notes to bearer would not be valid.There is, however, no special statute for these iron warrants

;

and the attempt made by persons in the iron market to makesuch warrants pass from hand to hand as a bill was at firstregarded as an illegality. In point of fact they are used, andenormous transactions depend upon their validity by the exist-ing custom among merchants. Iron-masters, for their owninterests, raise no question of their validity, and in that waythese warrants are effectual. The opinion of the House ofLords, however, was that they are not in themselves validdocuments. There was a case that went to the House of Lordsin 1856the case of Dixon v. Bovill, 3 Macq. p. 1, wherethe Dixons, great iron-masters in Glasgow, raised the point thatthese warrants were not good, to prevent retention against thebearer or holder for the price. They said they had not beenpaid by the man to whom they granted the warrant, and hewas bankrupt, and they pleaded against the onerous holderthat the warrant was not of any avail in itself to any effect orat least to the effect of entitling him to delivery while theprice was not paid. The House of Lords laid it down thatthese warrants were not good. The opinion they expressedwas in these words of the Lord Chancellor :" I have nohesitation in saying that, independently of the law merchantand of positive statute, within neither of which classes dothese scrip notes range themselves, the law does not, either inScotland or in England, enable any man by a written engage-ment to give a floating right of action at the suit of any oneinto whose hands the writing may come, and who may thusacquire a right of action better than the right of him underwhom he derives title." The matter stands upon that adverseopinion. It has never been actually decided that thesewarrants are ineffectual ; indeed the opinion of the Court ofSession was the other way ; but this opinion of the highestCourt ought, of course, to carrj^ much weight. In this partic-ular case the holder of the warrant was found entitled to getthe goods without paying the original price; this was not invirtue of the warrant solely, but because the Dixons hadwritten a letter in answer to an inquiry by him, in which theywere held to have promised to deliver the iron. By that

SECtTEITIES OVER MOVEABLES. 113

letter the House of Lords said the Dixons were bound; but Negotiable

they expressly refrained from recognising the validity of the '^*''"'"^'i*-

iron warrant, and they expressly refused to hold that theycould have compelled the Dixons to give delivery in virtue of thewarrant itself. It is a curious state of matters, that warrantson which such enormous sums pass are, or were, of doubtfulvalidity. I suppose in practical business you would take thesewarrants

; but it is right you should know that there is, orwas, grave doubt as to whether they are worth anything at all.

There is another matter that may be noticed in this connec-tion just to illustrate the same view, that it is not ia the poweivof private parties to institute at pleasure a new species of nego-tiable instrument. This has reference to debenture bondsissued by a limited liability company, not by virtue of anystatute, but at their own hands. The Credit Foncier ofEngland, in 1873, issued debenture bonds payable to thebearer

; one of these bonds was stolen from the original holder,and a person in good faith acquired the bond for value fromthe thief. Now, if the debenture bond had been a propernegotiable instrument, anybody innocently acquiring it forvalue would have been entitled to enforce payment against thecompany, and the person who lost the bond must have lost hismoney. That is the law as to bills. If I acquire a bill whichhas been lost or stolen, and if I pay value for it in good faith,I am entitled (subject to section 29 of the Bills of ExchangeAct, 1882) to enforce it against the acceptor and indorsers

;

and the man who has lost the bill has no recourse against me.My right is perfected by bond fide acquisition for value of anegotiable instrument, and I am entitled absolutely to thecontents,that is the very privilege of a negotiable instrument.The Court of Queen's Bench, in the case of Crouch v. CreditFoncier of England, 8 L.R. Q.B. 374, held that these deben-ture bonds were not negotiable instruments, and that, therefore,the person who had paid the value to the thief, or the person whoacquired from the thief in bond fide was not entitled to recoverthe money. Because it was not a proper negotiable instru-

ment it was only the original grantee who could sue, and theassignee from the thief was in no better position than the thief.In that case the Court considered the opinion of the House ofLords about the iron warrants, and laid down expressly the

I


Negotiableinstruments.

Act of 1889and the Act of1890 forScotland.

Bill of lading

startling doctrine that no private parties can, by stipulation or

even by custom, confer the privileges of a negotiable instru-naent on any document not recognised by law as such. Yourequire a statute, as in the case of bank pound notes, or thelaw merchant, as in the case of bills, to confer negotiability.

This decision, however, went too far, and though the law is not

yet on a satisfactory footing, later cases have shown a tendencyin the Courts to accept much more readily, as being negotiable,modern documents which, by their terms or by recent custom,are drawn out to bearer. The result of the matter appears tobe now

(1.) that general and well established usage or custom

among merchants to treat documents such as scrip certificatesor iron warrants as being negotiable by passing from hand tohand will receive effect; (2.) that the granter of a documentlike an iron warrant prestable to bearer will be held personallybarred by his own writ from setting up any claim of retentionor other exception which might interfere with the exact per-formance of his obligation according to its terms ; and that,on the like principle, the owner of scrip issued to bearer will

be barred from preventing it from receiving effect, even if ithas been stolen from him, provided it is in the hands of anonerous bond fide holder ; and (3.) that probably iron warrantsare also protected in the hands of an onerous and hond fideholder by the terms of the Factors Acts above mentioned.See Goodwin, 1 App. Ca. 476 ; and Rumball, L.R. 2 Q.B.Div. 194 ; and Earl of Sheffield v. The London Joint-StockBank, L.R. 13 App. Ca. 333.

There is another instrument we have to deal with, which isto most effects negotiable, and that is a bill of lading. Thatis a document granted by a ship-master in whose ship goodsare placed. It bears that certain goods have been shipped,and by a particular ship, and the ship-master undertakes todeliver the same to the consignor on his order, or to a namedconsignee at the port of discharge. These bills of lading aremuch used in business as good securities for advances, and Ibelieve particularly so by the Indian banks. A merchantshipping goods to India or Australia, goes with the bill oflading for his cargo to the bank, and he is allowed to drawagainst the cargo, and so gets the proceeds of the consignmentat once. The bank retain the bill of lading, and send it out


to their agent abroad who, in virtue of the endorsement of the Bill of lading,bill of lading, gets the goods upon arrival of the ship. Thebanker does not allow the bill of lading or the goods, onarrival, to go out of his control until his advance has beenrepaid or provided for. It depends on the negotiability of thebill of lading that, for the great convenience of trade, the billis as good as the cargo itself to a bond fide indorsee for value.If I get a bill of lading indorsed to me for value I am entitledto delivery of the goods against the unpaid seller. He is notentitled to interpose and stop delivery of the goods against theonerous indorsee. If I have a bill of lading indorsed to mefor value, I am entitled to delivery of the goods just as I amentitled to payment of a bill if I get it for value, withoutinquiry as to the state of accounts between the original partiesto the bill. There is an Act of Parliament, 18 & 19 Vict,e. Ill, which is of consequence in establishing their characteras negotiable instruments ; and these bills of lading are clearlydistinguishable from delivery orders. Such orders, as well asiron scrip warrants and debenture bonds issued by companieswithout authority of an Act of Parliament, may not benegotiable instruments; but a bill of lading is in many wayslike a bill of exchange. If it comes to a holder for value, hehas the right of delivery against everybody, and he is notsubject to the exceptions or equities that could have beenpleaded as between the original parties to the bill, or asbetween the shipowner and charterer (see Rodoeanachi, Sons

116 SECUEITIES OVER MOVEABLES.

Bill of lading, the bill of lading being in most respects a negotiable instru-

ment. The principal effect of the negotiability of aninstrument appears when it reaches the hands of a third party-holding for value. It is good in his hands against any

exception as between the original parties to it.Assignation. The next thing that we are to notice is the manner in

which incorporeal moveables may be transferred. We haveconsidered how incorporeal rights, such as debts, shares, andstocks may be transferred ; and we saw that the proper wayto transfer such rights was by writing. There must be anassignation in some recognised or appointed form, and thatassignation must be followed by intimation to the debtor. Asimple example is where A is creditor of B, and assigns hisdebt to C. C must, in the first place, get a formal writtenassignation to the debt, or a document which the law considersas equivalent to an assignation, and, moreover, C will acquireno right to the debt, and he will have no right valid againstthird parties until he intimates the assignation to B. Theintimation comes in incorporeal rights in the same place asthe possession of corporeal moveables.

Tn regard to the transference of shares in public companies,you know that is provided for generally by statutes, either theCompanies Acts or the Eailway Acts or the special acts underwhich the company is constituted. Shares in banks aretransferred in forms appointed by the statute or charter, andthe transfer must be recorded in the bank books, subject insome banks to the approval of the proposed transferee by thedirectors. In regard to the shares in railways, you must notonly have transfers or assignations, but you must have theseregistered before you have any right to the shares. Butdealing with the common law rules, I say, generally, thatapart from any statute you can acquire no complete right orsecurity in incorporeal moveables unless you have both a validwriting of transference and intimation to the holder of thefunds that you have the right to them. The regular form ofintimation is intimation by a notary public who hands aformal notarial schedule to the debtor, with a copy of the deedof assignment. That can always be done, but that is aformal and expensive way of making intimation. The ordinarybusiness way is that you present the assignation to the debtor.


and get the holder of the assigned funds to write an accept- Assignation,ance of intimation ; and that completes the right of theassignee. There is an Act of Parliament on the subject,not at all well framed, and it has not been much used inbusiness, but it has some important provisions for facilitatingintimations of assignations. It is 25 & 26 Vict. c. 85.Then in regard to life policies, there is an Act of Parliament,30 & 31 Vict. c. 144, compelling insurance companies, ifthey are presented with an assignation, to write an acceptanceof intimation upon the assignation, and hand it back to theassignee. You must understand that intimation in some formor other is always requisite to complete your right andsecurity constituted by assignation. It will do you no goodthough you can say that the debtor knew quite well and hadprivate knowledge that the assignation existed. That is ofdoubtful avail in Scotland, at least wherever the debtor mightreasonably say that though he knew the assignation wasgranted, he did not know that the assignee intended to put itin force. You must have intimation to complete theassignation ; and that is a thing to be kept in view,because you may be mistaken sometimes through what isrepresented to be the law of England. In England anassignation, does not require intimation as a solemnity, thoughit may be needed to prevent the holder of the funds from pay-ing to the cedent ; but in Scotland you must keep in view thatno assignation gives you any right or complete security untilthe assignation has been formally intimated to the debtor, oruntil you get his acceptance of intimation.

Another thing to be noticed is, that the assignee of any in-corporeal moveable right obtains no better right than hiscedent. He is not like the onerous and bond fide indorsee ofa bill or other negotiable instrument who may be entitled toenforce the bill when the indorser could not have enforced it.The bill may have been granted for the drawer's accommoda-tion, and he may have no action against the acceptor; but ifthe drawer has indorsed it for value to a third party, that thirdparty can enforce it against the acceptor. The assignee, onthe other hand, has no greater right than the cedent to the

debt ; and the debtor is entitled to plead against the assigneeall the defences he could have pleaded against the original


Assignation.

Lien.

Ketention.

granter at the date of the assignation. In connection with

these matters I may mention a curious point as to scrip

certificates. When a limited liability company is being started,they often issue scrip showing that a man has subscribed for a

certain amount of shares and has got them allotted to him.

These certificates often pass from hand to hand in the open

market, and the last holder alone registers as a shareholder.

The person who is the original applicant for the shares, andwho got them allotted to him, remains liable although he hassold the scrip, and it is in the hands of a purchaser ; he

remains liable to the company for calls. The only thing thatwill free him is that he should grant a transfer and have theshares registered in name of the purchaser as the shareholder.

The necessity for completing securities over moveables byintimation, registration, or actual delivery, is evinced by thevesting clause in the Bankruptcy Act, which gives the trusteeall the moveables standing in name of the bankrupt to the

same effect as if the trustee had got actual delivery or posses-

sion, or had given intimation as at the date of sequestration.Where registration is required to complete the right, thetrustee will be excluded by registration of the security beforehim even after sequestration {Morrison v. Harrison, 3rdFebruary, 3 R 40(j).

Another matter that we have to take up is that of lien overmoveable property. Now a lien arises when

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