Price v Parsons [1936] HCA 5;

Price v Parsons [1936] HCA 5; - HCA 1936 case summary — Zoe

[5]

In January 1934 the appellant learned that the debtor owed a sum of £299 9s. on an account for which the appellant was under a qualified del credere responsibility as agent for the creditor. His responsibility to his principal was limited to half the amount of the debt. In the discussions with the debtor which ensued, a proposal was made that the appellant should find the whole amount of the debt and that the debtor should give him a bill of sale. But the debtor, as the appellant expressed it in his depositions, "was averse to a bill of sale; so," the deposition goes on, "there was only one way in which I could help him out and I proposed to buy portion of his plant and pay him cash for it which would enable him to pay" the "account ... and I did that." Accordingly, on 12th January 1934, the articles were picked out; the appellant made out a cheque in favour of the debtor for £299 9s., the debtor indorsed it and the appellant paid it on his behalf to the creditor. The debtor made out a list of the articles on an account form and the price of each, showing them as debits to the appellant, and receipted it. But the buyer did not take possession of the goods. The deposition proceeds to say that the debtor had to have tools to carry on; that he could not carry on his business without tools, so the appellant rehired them to him, or rather hired them to him. The hire-purchase agreement was executed on 15th January 1934, but on 12th January the debtor paid the appellant a cheque for £5 "as a deposit until he signed the hire-purchase agreement or rather a premium." The hire-purchase agreement was of the ordinary character. It described the appellant as owner of the goods which it enumerated in a schedule. The debtor was described as "the hirer." It provided for payment by the latter of weekly instalments of rent or hire, and on his default, or his bankruptcy, or his assigning his estate, or suffering an execution, it authorized the owner to terminate the hiring and retake possession of the goods. It enabled the hirer to purchase the goods by paying all the instalments of rent or hire, but gave him an option of terminating the hiring by returning the goods to the owner. It provided that, until the hirer should exercise and complete his option of purchase, the goods should remain the property of the owner and the hirer should be a bailee thereof. Finally, it contained a clause excluding the Moratorium Act N.S.W., a clause which it will be necessary to describe more fully. The instalments of hire, £5 a week, were not regularly met, and, by the middle of June, only £45 had been paid. The financial difficulties of the debtor had increased. The appellant consulted his solicitor, who prepared a document in three lines for the debtor's signature, if it could be obtained. It was a request addressed to the appellant to take possession of the goods, stating that it was the debtor's desire to determine the agreement under the clause enabling him to do so. The appellant then discussed with the debtor the state of his affairs and he announced his intention of assigning his estate. On 15th June 1934, a Friday, the debtor signed the request, and, on the following afternoon, three men, who in fact were in his employment, but who acted on the appellant's instructions, took the goods to a place of storage. Before doing so, they arranged with the appellant that they should hire the goods from him and set up in business with a view of obtaining the connection of the debtor upon his giving up his business. This arrangement was completed on Monday, 18th June, by the three men entering into a hire-purchase agreement with the appellant. On the following day, the debtor executed the deed of arrangement. When, on 12th January 1934, the appellant found the £299 9s., he borrowed it from a finance company with which he deposited the debtor's hire-purchase agreement as security. The appellant's deposition is not at all distinct upon the subject, but there is reason to suppose that the second hire-purchase agreement was likewise deposited with the finance company. Under the second agreement, the appellant received payments amounting to £275.

[11]

It is necessary next to consider whether to give such an operation to the State provision involves an inconsistency with the Commonwealth Act. When State legislation invalidates in favour of his creditor a disposition by the bankrupt which, otherwise, would form part of his estate, what it in substance does is to nullify, in the event of bankruptcy, a transaction which depends for its efficacy entirely upon State law. The State legislation, in other words, withdraws from the transaction the support of the law lying within the State legislative power contingently upon an adjudication of bankruptcy. By doing so, it makes way for the vesting provision of the Federal law to operate upon property which, otherwise, would have been alienated by the bankrupt. It thus swells the assets which it is the policy of the bankruptcy law to make available for debts. There is nothing in such an enactment prima facie repugnant to a general law of bankruptcy. In the United States validity is allowed to a law of a State producing this effect (Stellwagen v. Clum[3]; International Shoe Co. v. Pinkus[4]; Moore v. Bay[5]). Unless, therefore, an intention can be found in the Bankruptcy Act 1924-1933 to state exhaustively the antecedent transactions which are to be avoided on bankruptcy, or to prescribe in what circumstances bills of sale are to be invalid against the trustee, or to provide in some other way for the matter dealt with by sec. 5 of the Bills of Sale Act 1898, its application to Federal bankruptcies is not inconsistent with the Federal law. Sec. 91 (e) of the Bankruptcy Act 1924-1933 provides that the property divisible amongst creditors shall not include goods hired under a valid contract for letting and hiring, or chattels in respect of which a valid bill of sale has been filed or registered under any Act or State Act, except as provided in par. iv of the section. That paragraph includes in the property divisible amongst creditors the claim or right of the bankrupt to property under any contract, bill of sale, hire-purchase agreement, and the like. It assumes validity against the trustee but ensures that he succeeds to the rights of the bankrupt under the instrument. These provisions, so far from exhaustively stating what bills of sale, or hire-purchase agreements, shall be valid, appear to us to indicate an intention to allow State law to operate upon that question. The word "valid" means valid according to State law, and we see no reason why it should be confined to absolute validity. It is, at least, consistent with an annihilation by State law confined to the event of bankruptcy.

[16]

The case is one in which parties, in order to avoid the necessity of registering a document as a bill of sale, have thrown the transaction into a form which, otherwise, it would not assume. The change from the original proposal, that the appellant should lend the money on the security of a bill of sale, into a transaction taking the shape of a sale followed by a hiring back with an option of purchase, was probably regarded by both parties as one of form only. But this does not mean that the form was false. A desire to avoid the legal incidents attending the direct and natural way of carrying out the business object which parties have in view may well lead them to a genuine change in the character of the transaction. In the present case, there appears to be no reason to doubt that both the debtor and the appellant intended that their mutual rights and their relative situation should be as described by the hire-purchase agreement. They intended, we should suppose, that the appellant should have the general property in the goods, that he should retain it until he was paid or repaid in full, that the repayment should be by instalments, and that, until default or bankruptcy or the like, the debtor should have possession of the goods. But, at the same time, we think both parties treated the transaction as primarily one of loan and that they regarded the hire-purchase agreement as a means of securing repayment of the money lent. There is no reason to think they meant that the loan should be repayable otherwise than by the instalments prescribed by the agreement, or that it should remain a debt though the goods were all seized or surrendered under the agreement and became the absolute property of the appellant. In other words, the main object of the transaction was an advance of £299 9s. to the debtor and the repayment by him of that sum and interest in sixty-four instalments of £5 each. The means for securing this was the hire-purchase agreement, which there is no reason to regard as not intended by the parties to have effect according to its terms, even although it should mean that the appellant might take the goods in complete satisfaction of the debt, which would, in that event, be discharged. It is unnecessary to consider whether in equity the agreement would be allowed to have effect according to its tenor, or whether an equity of redemption would be preserved to the debtor. For, in any case, we think the rights and remedies given to the appellant by the hire-purchase agreement in relation to the goods may be properly described as a security for a debt. No doubt the obligation of the debtor is reduced by the terms of the hire-purchase agreement to a liability to pay hire unless and until the chattels were seized or surrendered. How far future instalments of hire can be described as debts is considered in Australian Guarantee Corporation Ltd. v. Balding[8] and H. J. Wigmore & Co. Ltd. v. Rundle[9]. It must be remembered, however, that in the present case primarily there is an advance amounting to a loan and that the terms of the hire-purchase agreement operate, not to create a liability otherwise non-existing, but to qualify what would be an absolute and immediate debt independently arising.

[18]

The facts in the present case show that the receipted list and the bill of sale were intended to record the transaction. The list shows nothing except that £299 9s. was paid by the appellant to the debtor in reference to the chattels it enumerates and in itself, probably, it could not amount to an assurance of personal chattels. But the hire-purchase agreement must be read with it, and that agreement contains an express acknowledgment of the appellant's ownership of the goods. The provision that the goods should remain the property of the "owner," which is the description adopted in the agreement to identify the appellant, and that the hirer should be bailee, until he exercises and completes his option of purchase, operates as a contractual allocation between them of the general and special property in the goods. It estops each from denying that the general property is vested in the appellant. "If the effect of the document is that the lender of the money, and supposed lessor of the goods, can make a title to them by means of the document by estoppel or otherwise, then the document will amount to an assurance within the Bills of Sale Act" (per Lindley L.J. in In re Watson[10]). This is precisely what the document does. It enables the appellant to make a title to the goods certainly by estoppel, if not otherwise. Moreover, together with the receipt, it constitutes his title. There was not, in our opinion, any independent antecedent sale by the debtor to the appellant. The transaction between them was entire, and, although it included an intended transfer of ownership, the transfer was attended by all the conditions described in the hire-purchase agreement. We do not think the parties meant on 12th January 1934 that the property in the goods should pass unconditionally to the appellant. If it passed at all then, it did so conditionally subject to the execution later of the proper hire-purchase agreement. But the better analysis of their dealing appears to us to make the passing of the property await the completion of the entire transaction by the execution of the hire-purchase agreement. It is difficult to see how it could be otherwise with the equitable or beneficial ownership. In either event, the hire-purchase agreement becomes the assurance. (See Beckett v. Tower Assets Co., per Fry L.J.[11] and per Bowen L.J.[12].)

[33]

Green had carried on the business of a garage proprietor at Casino in New South Wales, under the name of "Reliance Motors." In January 1934 he was indebted to Westcott Hazell Ltd. in the sum of £299 9s. for goods supplied, and the appellant Price was under liability to the company in respect of half that amount as a del credere agent. The company advised Price of the amount of Green's indebtedness and that he was in default. Price saw Green about the matter. Price deposed: - "He" (Green) "was averse to a bill of sale so there was only one way that I could see in which I could help him out, and I proposed to buy portion of his plant and pay him cash for it." "He picked out the articles he would sell and wrote them down and made the account up and I gave him my cheque for the amount." The account is dated 12th January 1934. It debits to Price the value of particular items of machinery, amounting in the aggregate to £299 9s., and is receipted "Paid, C. Green." This is one of the documents that have been declared invalid. The cheque for £299 9s. found its way to Westcott Hazell & Co. Ltd. Price did not take possession of the goods. After the account was made out, Green suggested that he should hire the goods from Price, otherwise he could not carry on his business. Price agreed, and Green paid him £5 "as a deposit until he signed the hire-purchase agreement, or rather a premium." On 15th January a hire-purchase agreement was executed. It is in the usual form. Price is described as "owner" and Green as "hirer." The owner agrees to let and the hirer to hire the particular items of machinery set forth in the account of 12th January 1934 at a rent of £5 per week for a term of sixty-four weeks. It provides that the hirer may purchase the goods for the total amount of the rent and premium payable under the agreement. It stipulates that until the hirer exercises and completes his option to purchase, the goods shall remain the property of the owner and the hirer shall be a bailee thereof. It enables the owner to retake possession of the goods of the hirer if the hirer make default under it or become bankrupt. It also enables the hirer to determine the hiring by returning the goods to the owner. This is the other document that has been declared invalid.

[34]

It is said, truly enough, that "an ordinary ... hiring agreement, containing a licence on default to retake goods which are not the property of the hirer until all the instalments are paid, is not a bill of sale" (Ex parte Crawcour; In re Robertson[22]; McEntire v. Crossley Brothers Ltd.[23]; Baldwin's Law of Bankruptcy, 10th ed. (1910), p. 402). And further, that "an agreement to hire back with an option of repurchase after a bona fide sale, independently complete apart from any document" does not fall within the Act (Manchester, Sheffield, and Lincolnshire Railway Co. v. North Central Wagon Co.[24]; Baldwin's Law of Bankruptcy, 10th ed. (1910), pp. 402, 403). But the manifest purpose of the parties in the present case was to secure a sum of money. The sale to Price, though in terms absolute, was always subject to the right of Green to hire back the goods with an option to repurchase or perhaps one may say to redeem them. There was never any intention to give Price any right of property in the goods independently of the terms of the hiring agreement. The sale and hiring were all part of one transaction. Still, as Bowen L.J. observed in North Central Wagon Co. v. Manchester, Sheffield, and Lincolnshire Railway Co.[25], the Bills of Sale Act has not struck at transactions but at documents which constitute an assurance of personal chattels. "If a person could make his transaction complete and effective in law or in equity without the document, the Act could do nothing to affect his rights, and did not purport to do anything to affect his rights"[26]. Now it is argued that the documents of 12th and 15th January 1934 do not, nor does either of them, constitute an assurance of personal chattels within the meaning of the Bills of Sale Act. It may be open to question whether the document of 12th January 1934 would itself have required registration as a bill of sale (see and cf. Ex parte Cooper; In re Baum[27]; Woodgate v. Godfrey[28]; Marsden v. Meadows[29]). But the answer to the argument is contained in a judgment of Lindley L.J. in In re Watson; Ex parte Official Receiver in Bankruptcy[30]: - "If the conclusion is arrived at that the hiring agreement was a real letting out of goods by the real owner of them, then it is not a bill of sale; but if, as in this case, the supposed hirer is the real owner of the goods, then it has at least the effect of a licence to seize the goods of the borrower of the money as a security for the loan. If the effect of the document is that the lender of the money, and supposed lessor of the goods, can make a title to them by means of the document by estoppel or otherwise, then the document will amount to an assurance within the Bills of Sale Act. The document either amounts to a licence to seize the goods, or, if the lender can make a title to them by the document, then it is an assurance of goods, so that either way it is a bill of sale within the Act." The receipted account of 12th January 1934 and the hire-purchase agreement of 15th January 1934 record the transaction between the parties, and the only title that Price, the appellant, can make to the goods, is by means of and through these documents. They constitute, for the reasons given by Lindley L.J.[31], an assurance of personal chattels or a bill of sale within the meaning of the Bills of Sale Act. The fifth section of the Act provides that no bill of sale shall have any validity as against the official assignee or trustee of a bankrupt estate unless it is duly registered in accordance with the Act. The documents here were not registered in accordance with the Act. The learned Judge in bankruptcy states that on 19th June 1934 Green executed a deed of arrangement under Part XII. of the Federal Bankruptcy Act 1924-1932, assigning to a trustee his assets for the benefit of his creditors, and that on the 31st October 1934 his estate was sequestrated in bankruptcy under that Act. It was suggested during the argument, though but faintly pressed, that the Bills of Sale Act of New South Wales did not avoid documents that were not registered in accordance with the Act as against an official assignee or trustee appointed under the Federal law. But the words are wide enough to include any assignee or trustee of a bankrupt estate lawfully appointed (see Williams v. Lloyd[32] and the American cases there cited).

[36]

Some other facts, however, require consideration. In June of 1934 the appellant, Price, discussed with Green his financial position. Green's creditors were pressing him. The upshot of the discussion was that Green gave leave to the appellant to take or seize the goods particularized in the documents of 12th and 15th January 1934. On 15th June 1934 Green gave a written authority to the appellant as follows: "I hereby request you to take possession of the goods covered by my hire-purchase agreement with you, it being my desire to determine such agreement under clause 2 (b)." The appellant took possession of the goods accordingly and had them removed to other premises. Employees of Green (who had removed the goods for the appellant) desired however to start on their own account another motor business. They requested the appellant to hire the goods to them, which he agreed to do. The appellant and the employees of Green accordingly executed within a few days a hire and purchase agreement in the ordinary form. According to the appellant, he got the goods and disposed of them. He got £275 for them, besides what Green had paid him on hire, that is £45. The evidence, however, does not make it clear whether the appellant received the £275 from the employees of Green or from some other disposition of the goods. But I take it that the money was paid by the employees of Green. It was argued that in obtaining possession of the goods the appellant acquired a title to them which he could maintain without reliance on the documents of 12th and 15th January 1934. But he acquired such possession under and by virtue of the documents which are avoided: possession so obtained creates no independent source of title (Re Wetherill[33]; In re Catip; Malick v. Lloyd[34]; Kent v. Parer[35]; King v. Greig; Rechner, claimant[36]). Further, Cookson v. Swire[37] was relied on. In that case, the bill of sale contained a power of sale, and the mortgagee sold under the power, whereby the property was transferred free from any equity of redemption. The mortgagees had also taken possession of the goods and delivered them to the purchaser in a manner which, as between those parties, was sufficient to transfer the possession. It was held that the bill of sale was spent and at an end, that the purchaser took a title "not dependent upon the continued subsistence or efficacy of the bill of sale" and "at a time when there was no execution and no bankruptcy in respect of which the title of the person selling to him was liable to be impeached." In the present case, though the sequestration order was made on 31st October 1934 the bankruptcy apparently related back to and commenced on 19th June 1934, when Green executed a deed of arrangement under Part XII. of the Bankruptcy Act (see Act, sec. 90). But, whenever the bankruptcy commenced, the documents of 12th and 15th January 1934 were not spent or exhausted. They constituted the appellant's title to the goods - the operative documents, governing the title so far as they were effective (Ex parte Turquand; In re Parker[38]). The hire-purchase agreement with Green's employees gave them no absolute title to the goods. The goods had been let out on hire to them, and the appellant had agreed that the same should become their property on making a certain number of payments known as instalments. But there is no suggestion in the evidence that these instalments were paid before the commencement of the bankruptcy or before the date of the order of sequestration. Consequently there is nothing in these considerations which destroys the prima facie title of the trustee in bankruptcy to the goods.

At a glance

Court

Decision date

Before

Source

Judgment (62 paragraphs)

Price v Parsons [1936] HCA 5; (1936) 54 CLR 332 (13 February 1936)

Parties

Legislation Cited (3)

Cases Cited (1)