Palette Shoes Pty Ltd (In Liquidation) v Krohn [1937] HCA 37

Palette Shoes Pty Ltd (In Liquidation) v Krohn [1937] HCA 37 - HCA 1937 case summary — Zoe

[17]

The plaintiffs, Herman Hedges Krohn and Charles William Nodrum made an agreement with the defendant, Palette Shoes Pty. Ltd., which was a manufacturer of boots and shoes. In the agreement the plaintiffs were described as " the purchasers " and the defendant was described as "the manufacturer." The agreement provided :

"1. The manufacturer agrees to sell to the purchasers who agree to purchase from time to time all boots and shoes manufactured by the manufacturer. 2. Such boots and shoes shall be manufactured in an efficient manner and of suitable materials. 3. The manufac- turer shall on behalf of the purchasers obtain orders from and sell to the customers of the purchasers the said boots and shoes in compliance with the orders received by it and shall invoice the same to the customers on the invoice (in triplicate) in the form attached hereto and signed for identification and shall deliver one copy of such invoice to the purchasers on demand in writing and another to the customer and shall retain and file the remaining copy. 4. The manufacturer shall at least once in each week render to the purchasers a statement in writing of the value of all boots and shoes supplied by it to the customers of the purchasers during the preceding period. 5. The manufacturer shall also at least once in each week render to the purchasers a statement in writing showing the value of all boots and shoes returned by customers and allowance on invoice prices made to customers and shall in each case credit the purchasers therewith on the statements to be rendered in compliance with clause 4 hereof. 6. The purchasers shall at least once in each week or otherwise on demand by the manufacturer pay to the manufacturer the invoice value of all boots and shoes so delivered and supplied to customers as aforesaid during the preceding period less the amount credited in respect of the items mentioned in clause 5 and less a discount of £5 10s. per cent. 7. The manufacturer shall within forty-eight hours after the receipt thereof pay all moneys received by it on account of such boots and shoes supplied by it as aforesaid to the credit of such account and at such bank as the purchasers may from time to time appoint and shall at least once in each month render to the purchasers a statement in writing showing all moneys received by it as aforesaid during the preceding

[79]

The provisions of the Instruments Act which require the registra- tion of a bill of sale in order to save it from invalidity are to be found in secs. 28 and 30. These sections relate to bills of sale " whereby the grantee or holder has power either with or without notice and either immediately after the making of such bill of sale or at any future time to seize or take possession of any property and effects comprised in or made subject to such bill of sale." These words are quoted from sec. 28. Similar words appear in sec. 30, though they are not verbally identical. In sec. 30 the words " or giving " are inserted after the words " the making," but the addition of these words does not appear to me to make any difference in the meaning of the two sections. Even if a document is a bill of sale so as to fall within the definition of bill of sale contained in sec. 27 of the Act, registration is not required under the Act unless the document gives to the grantee a power to seize the property and effects com- prised in the bill of sale. It is clear, in my opinion, that the document constituting the agreement between the parties in this case does not confer upon the plaintiffs a power, either immediately after the making of the bill of sale, or at any future time, to seize or take possession of any of the boots and shoes manufactured by the defendant company. The express provisions of the agreement negative the existence of any such power. The agreement explicitly provides that the boots and shoes manufactured by the company shall be sold on behalf of the plaintiffs to customers. A seizure of the boots and shoes by the plaintifis would make the performance of such contracts of sale impossible and would be a breach of the agreement. The boots and shoes are to be paid for by the plaintiffs only after they have been actually delivered and supplied to customers. I am unable to think of any state of facts which would, consistently with the terms of the agreement, entitle the plaintiffs at any time to seize any boots and shoes manufactured by the

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his consent. This was something quite distinct from the previous legislation, which dealt only with apparent ownership and registration of the bill of sale for the purpose of making it efficacious in spite of the appearance of ownership. No change in apparent ownership would answer the objection that by Act No. 557 a debtor could not make a valid mortgage of chattels if by caveat a creditor forbad his doing so (per a' Beckett J. in McCarthy v. Nicholls ; Stutt (Claimant) (1) ). Although in the consolidated Instruments Act 1890 the provisions originating in Act No. 141 and in Act No. 557 were not kept separate, it was decided that the distinction between them remained, and those coming from No. 557 operated only upon bills of sale by way of security (Askew v. Danby (2) ). The view that corporations were not affected was first expressed by Madden C.J. in 1896 (In re Chaffey Bros. Ltd. (3) ). The instrument before him had been given by way of security so that the decision, which applied In re Standard Manufacturing Co. (4), extended it to the somewhat different provisions coming from Act No. 557, which, no doubt, inspired the Book Debts Act 1896, the original of Part IX. of the Instruments Act 1928. In the Companies Act 1896 (No. 1482), passed in the same year as the decision, provisions were introduced governing securities given "by companies over their assets. They were modelled on those of Act No. 557. In 1898, in Bank of Victoria Ltd. vy. Langlands Foundry Co. Ltd. (5), Madden C.J., as a member of the Full Court, based his own decision upon the same view, the reasons for which he elaborated. He placed no express reliance upon the enactment in the Companies Act 1896 of provisions similar to those of Act No. 557, although during the argument counsel had done so. But, in 1902, a' Beckett J. in In re Eggleston (6) (s.c. sub nom. In re South Melbourne and Albert Park Coffee Palace Co. Ltd. (7) ) said that he thought that when the Companies Act 1896 stated that "a document which, if executed by an individual, would require registration as a bill of sale" should in the case of a company be registered as that Act prescribed, it amounted to an

[140]

An assignment of future debts obtains its efficacy from the doctrines of equity. In Lailby v. Official Receiver (1) Lord Macnaghten stated the principles, which he described as well known. "It has long been settled," he said, "that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention an assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the conscience of the assignor and so binding on the subject matter of the contract when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified." He expounds, explains and exemplifies this statement in a way that has made his speech the chief source of guidance upon the subject. In a later passage he says: " Long before Holroyd v. Marshall (2) was determined it was well settled that an assignment of future property for value operates in equity by way of agreement, binding the conscience of the assignor, and so binding the property from the moment when the contract becomes capable of being performed, on the principle that equity considers. as done that which ought to be done, and in accordance with the maxim which Lord Thurlow said he took to be universal, ' that whenever persons agree concerning any particular subject, that, in a court of equity, as against the party himself, and any claiming under him, voluntary or with notice, raises a trust': Legard v. Hodges (3)" (4). Again : - " The truth is that cases of equitable assignment or specific lien, where the consideration has passed, depend on the real meaning of the agreement between the parties. The difficulty, generally speaking, is to ascertain the true scope and effect of the agreement. When that is ascertained you have only to apply the principle that equity considers that done which ought to be done if that principle is applicable under the circumstances of the case" (5).

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Care should be taken by a court to avoid the error against which Cussen J. gave a warning in King v. Greig (1) and to guard against being 'led to hold a document, or the assurance contained in it, invalid mainly by reason of the court's thinking that by a clever 'device ' (as it is called, to give it a bad name), a party would get outside the Act unless the court by a liberal construction of the Act or the exercise of the court's ingenuity manages to prevent him." In the present case the provisions of the agreement have been pursued with exactness and there is no ground either for treating it as colourable only or for giving it any effect other than that which is the legal consequence of the conditions it contains. But it remains necessary to examine the true nature of the consequences it produces and to determine whether its legal operation, when properly under- stood, is of that description which falls under the necessity of regis- tration as an assignment or transfer of book debts. When the agreement is considered for this purpose, the feature which is most striking is the evident intention that the company, in selling the shoes it manufactures, should not act as the avowed agent of a named principal. It is true that there is an express provision that the company, called in the agreement the manufacturer, shall on behalf of the respondents, called the purchasers, obtain orders from and sell to the customers, who are always described as the customers of the respondents. There is, too, an express undertaking by the company not to sell shoes otherwise than to or as agent for the respondents ; and in the provision by which the company guarantees, as it does, payment by the customers of their accounts within six months of delivery to them of the goods bought by them, the sales are described as sales on the respondents' behalf and what is guaran- teed is due payment to the respondents; though this may mean no more than payment by the company. But the agreement prescribes a form of invoice for use by the company in dealing with the customers and the form contains in small letters under the name of the company the words

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dealings of the parties is that the company should receive payment from the respondents of the discounted amount of its sales and then should collect the accounts of the customers who buy and should pay the proceeds into the respondents' bank. In practice the company alone dealt with the customers and there can be no doubt that, in accordance with the parties' understanding of the agreement, it incurred as seller a direct responsibility to the customers, who on their part as buyers became liable to the company for the price. This differentiates the case entirely from In re Lovegrove (1). An undisclosed or unnamed principal can, as a rule, step in and enforce an agreement to sell goods, notwithstanding that the authority he has conferred upon the agent was intended to be exercised by making a contract the rights and obligations of which would attach to the agent personally. But, in the present case, the relations between the party that assumed the character of principal and the party that undertook the character of agent were very special. Throughout the agreement it plainly appears that, while the agreement continued, the business of selling the manufactures should be conducted by the company and that this should include the collection of the book debts. I think that it would have been inconsistent with the nature of the arrangement embodied in the agreement, if, without terminating it, the respondents had stepped in and taken the collection of the book debts out of the hands of the company. In fact they never did so. From all these considerations it follows that, in point of law, the book debts were those of the company. This means that the agreement contemplated a course of business between the company and the buyers of its shoes in which the company dealt with the buyers as a principal to whom they might look and to whom they would be responsible and that in fact such a course of business was followed. The description upon the invoice "as agents" would not prevent it. Apart from the smallness of the type and the uncertainty as to the significance of the description, it is quite consistent with the assumption of a personal responsibility. Indeed, in many cases the agreement to sell must have been made before the invoice was sent to the customer.

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and consider upon what grounds its registration could then be necessary and, having done so, to trace the progress of one supposed transaction carried out according to its terms for the purpose of discovering when and by what title the respondents would become entitled to the debt incurred by a customer buying a parcel of shoes, or to the proceeds of that debt. As at the time when the agreement was entered into and before any payment under it was made by the respondents, it was wholly executory. It could not operate to transfer anything or create any present right to any future thing, be it goods or chose in action. It could not do so for the simple reason that so far the respondents had given no value. Registration under Part IX. of the Instruments Act 1928 therefore was not a condition of its validity. When the first out-turn of completed shoes took place after its execution, it may be asked, in whom did they vest ? For the reason I have given I regard the question as of little importance. But I think that, at least until they were boxed, they could not become the property at law of the respondents. The respondents do not, under the agreement, contract to buy every shoe turned out. Defective and rejected shoes and samples are excluded. Moreover, the respondents are to pay only for those sold to customers. The company usually carried a large stock of shoes. If the agreement was brought to an end under the clause providing for its determination, it is scarcely credible that these would be the property of the respondents. I think that, if property passed at all to the respondents, it could not be earlier than an appropriation of the shoes to answer some sale to a customer. It is apparent that whether there was room for property so to pass would depend upon the terms of that sale. For the same appropriation might have the effect of passing the property to the customer. But, whatever may be the fate of the legal property in the shoes, no equitable interest could be acquired at that stage.

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the debt, as undisclosed principals entitled to the benefit of the contract. It may be that if they did so, in spite of the breach of contract with the company that would be involved, the debtor could not overcome the effect of the authority contained in the agreement. But it is clear that up to that stage the beneficial right to the proceeds of the debt would not belong to the respondents. For on the supposition made, so far they had not discounted the debt. Until they paid the discounted amount of the price payable by the customer for the shoes, they would obtain no beneficial interest in the debt. For the same reason the fact that the company accepted the situation of agent, would, up to that stage, place no fiduciary duty upon it. The contract of sale which it had entered into and the shoes which it had supplied in performance of the contract stood at that point solely to the company's charge. It is the next step which produces the change. Immediately the sale is included in a debit note which the company renders to the respondents and they pay the discounted amount to the company, then they become beneficially entitled to the debt owing by the customer. The company becomes a trustee for them of its right to recover the debt and when it receives payment it is bound to pay that specific money to the respondents' credit at their bank. The act of discounting the book debt operates, in virtue of the executory agreement, to effect a transfer of the beneficial interest in the book debt. Why is this not a transfer of a book debt within the meaning of sec. 81 of the Instruments Act 1928? The answer is that it is not a transaction in writing. Sec. 81 speaks of a true copy of the assignment and from this, as well as from the general scope of the Part, it is evident that what is struck at are instruments embodying assignments. No doubt equitable assign- ments even if in writing are generally ineffective unless and until value is given, but, when value is given, the instrument operates to make over the debt.

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by the respondents, were, by force of the agreement, the respondents' property, and had been sold and delivered by the appellant as the respondents' agent. The judgment declares the appellant to be a trustee for the respondents of the proceeds of the sales of the boots and shoes. The contents of the agreement are fully entered into in the statement of the reasons for judgment of other members of the court. The validity of the agreement is questioned on the ground that it is within the scope both of Part VI. and Part IX. of the Instruments Act 1928 of Victoria, and that the provisions of these Parts respectively requiring that bills of sale, and assignments and transfers of trade debts should be registered, have not been complied with. The provisions of Part VI. do not apply to any bill of sale unless the instrument gives power to the grantee or holder to seize or take the goods comprised in it or made subject to its provisions. There is no express power of this nature in the agreement and to imply it would be inconsistent with its provisions. For this reason the agreement is not within the scope of Part VI. of the Instruments Act and its validity is not affected because it has not been filed pursuant to those provisions. If consistently with the terms of the agreement it may be validly assumed that the appellant was the creditor of the customers who bought the boots and shoes, the question arises whether the debts due or to become due in the future to it by the customers were assigned or transferred to the respondents. By the fifth article of the agreement, the respondents promised to pay weekly or otherwise as demanded by the appellant the invoice value of boots and shoes delivered and supplied by it to customers less certain allowances and a discount of 5} per cent. The appellant on its part agreed by art. 7 to pay, within forty-eight hours after receipt, to the credit of the respondents at a bank all moneys received by it on account of such boots and shoes. The latter article does no more than bind the appellant to apply the moneys which it receives, on account of the boots and shoes sold to the buyers, in a particular way. It is insufficient to create an equitable assignment of the debts to become due from the customers, even assuming them to be the debtors of the appellant and not of the respondents. In Palmer y. Carey (1) Lord Wrenbury, speaking for the Judicial

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Judgment (179 paragraphs)

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