Scottish Court of Session Decisions

William Smart was tenant of the farm of Lauderhaugh from Whitsunday 1878. In June 1879, Smart, who was then in pecuniary embarrassment, applied to the pursuer Andrew Hogarth, engineer and mill-wright in Kelso, to erect for him on his farm a thrashing-mill with a steam-engine and appurtenances. According to the pursuer's allegation at the time when the mill and steam-engine were erected, “a distinct verbal agreement was

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come to between the pursuer and the said William Smart that the said thrashing-mill, steam-engine, &c; should be held by the said William Smart on what is well-known in the engineering trade as the “hire and purchase” system, and that so long as the price of the said thrashing-mill, steam-engine, &c., remained unpaid the pursuer should continue to be proprietor of said machinery, and that during that time the said William Smart should be permitted to use the same, he paying a reasonable sum annually for such use.” The mill and machinery were accordingly erected by the pursuer on the farm. The thrashing-mill and steam-engine, when erected, bore each a plate with the pursuer's name engraved, and a few days after their erection labels were affixed to them with “proprietor” printed on them. In February 1880 William Smart and his father, who was a party to his son's lease, addressed a letter to the pursuer, in which this contract was confirmed, they undertaking to pay the price of the mill by instalments, which was to become theirs on payment of the final instalment, but to remain the property of the pursuer till then. In June following £7, 10s. was paid by Smart to the pursuer for the use of the mill and engine for the past year.

On the 19th of October of the same year Smart executed a trust-deed for behoof of his creditors in favour of the defender Thomas Broomfield. The present action was raised by Hogarth to interdict him from selling the thrashing-mill and engine, as he had intimated his intention of doing, Hogarth pleading that he was proprietor thereof in virtue of the above agreement. The trustee pleaded a purchaser's title in his cedent on a completed contract of sale followed by delivery.

The Sheriff-Substitute ( Dickson) found that under the verbal agreement there was a sale of the mill and engine to Smart, completed by delivery in June 1879; that no change was made in the contract by the letter; and that the defender, as trustee, was in right of the property of the mill and engine, and refused interdict; adding the following note:—“The original verbal agreement is not very clear and definite, for the price was not ascertained, ‘only as cheap as possible;’ the time of payment was to be ‘when the purchaser should be able;’ and while the price remained unpaid an annual sum of unascertained amount was to be paid ‘for the use, or as interest on the money,’ which can only mean interest on so much of the price as remained unpaid. But one thing at least is clear, viz., that this transaction was not one of hire as averred in the condescendence. The word ‘hire’ is never mentioned at all, either at the verbal agreement or in the subsequent letter. It was evidently a transaction of sale and purchase. It was to be made as ‘cheaply as possible’ ‘it would be some time before he could pay for the mill;’ and after Hogarth's failure ‘it would be still longer before he would be able to pay the price.’ When Smart signed a bill for pursuer he was to pay what part of it he could, and he expected pursuer to put such payment ‘towards payment of the price of the mill.’

“There is nothing here about ‘hire and purchase,’ and it appears from the proof that that system of hire and purchase is by no means well known in the trade, and the pursuer had never acted upon it elsewhere. It was nothing more or less than a sale followed by delivery, and the only question is whether the condition of reserving right of property was legal and effectual notwithstanding delivery. For under the letter the transaction still remained a sale; the price was to be paid by instalments. The letter is an undertaking to pay the price by instalments of undefined amount, and at undefined intervals. The words are, ‘We hereby undertake to pay the price.’ The letter was evidently intended as an additional security to the pursuer. But the Sheriff-Substitute holds that he was not entitled in such a manner to retain a security over the mill which he had sold and delivered. The circumstances in this case are much stronger against the right to retain a security than in the recent case of Cropper v. Donaldson, 7 R. 1108, in which the attempt was made to retain such security. In that case there was express hiring of a machine for nine months, ‘with a payment for use by way of rent every three months, and at the end of the nine months, if the payments for use had all been made, the machine was to become the property of the hirer without payment for it. There was also a provision that if default was made by the hirer in any of the three payments the owner should be at liberty to retake possession of the machine.’ Notwithstanding this written agreement for hire, in which the party who furnished and delivered the machine is called ‘the owner’ throughout, and the party to whom it was delivered is called ‘the hirer,’ it was held that the transaction was truly a sale, and that the agreement was an ineffectual attempt to retain security over the machine till the price was paid, and it was ineffectual against a poinding creditor. Lord Young dissented from that judgment, but upon the ground that the contract was clearly and expressly a contract of hire, and not a contract of sale, implying thereby that if it had been a contract of sale (as the Sheriff-Substitute holds to exist unquestionably in the present case), he would not have dissented. There is not even the disguise of hiring in the present case. In consequence of the views now expressed it becomes unnecessary to enter into the question as to the validity of the letter, No 7 of process, as against creditors, and whether that letter was obtained in consequence of the known or suspected insolvency of the pursuer.”

The pursuer appealed to the Sheriff, who found—“that looking at the condition of the original agreement, the possession of the thrashing-machine and steam-engine by Smart, through their having been erected upon his farm, did not pass the property thereof to him, and that the price not having been paid in whole or in part, the same remained the property of the pursuer; that the defender, as a voluntary trust assignee of Smart, had no larger or better right to the thrashing-machine and steam-engine than Smart himself had; and that as the defender had not paid and did not offer to make payment of the price, he was not entitled to the thrashing-mill and engine, or to sell the same.” And by a subsequent interlocutor found the pursuer entitled to uplift the price of the thrashing-mill and engine, which had been sold during the dependence of the action by joint agreement,

He added the following note to his prior finding:—“There can be no doubt that the agreement, both as set forth in the record and as proved by the evidence of both parties, constituted

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substantially a contract of sale, not a contract of hire. The agreement was, that the pursuer should construct and erect upon the farm of William Smart a steam-engine and thrashing-machine as cheaply as the pursuer could, to be paid for by Smart. This, though in some respects an executory contract, was substantially a contract of sale. But then, according to the evidence of both pursuer and Smart, it was a conditional contract. From the first, and before the pursuer proceeded to act under it, it was stipulated by the pursuer and agreed by Smart, that the mill—that is, the steam-engine and thrashing-machine—should remain the property of the pursuer until it was paid for. This was a condition of the pursuer putting up the mill. Smart says that the pursuer ‘consented to erect a mill on condition that I would pay it when I was in a condition to do so.’ He (the pursuer) ‘said it would be on the footing that it would remain his until it was paid. That was distinctly agreed between us before the work was begun.’

This was a perfectly lawful and reasonable condition, and was undoubtedly binding and effectual between the pursuer and Smart. Stair, i.,14, 34, says—‘As to the pactions adjected to sale, sometimes they are so conceived and mean that thereby the bargain is truly conditional and prudent, and so is not a perfect bargain till the conditions be existent: Neither doth the property of the thing sold pass thereby, though possession follow, till it be performed as if the bargain be condititional only upon payment of the price at such a time—till payment the property passeth not to the buyer.' Erskine, iii., 3, 311, is to the same effect. He says—‘If a sale be entered into under condition that the price shall be paid over before a day prefixed, such condition before it be purified is, as Stair justly observes, truely suspensive of the sale, which is not understood to be perfected till the condition exists, insomuch that though the subject should be delivered to the buyer the property continues in the seller till the price be paid.’ This has been followed in various cases, beginning with the case of Young, 9th March 1799, M. 14,191; M'Cartney, 26th November 1797, M. Appendix voce Sale, No. 1, which was a question with creditors. See also Cowan, 21st May 1824, 3 S. (1st ed.) 42; Wight, 10th December 1828, 7 S. 175, both of which cases were also with creditors.

The case referred to by the Sheriff-Substitute in his note is not similar to the present. Nor does it conflict with the above doctrine and decisions. The question there was whether the contract was one of hire or of sale. The Court held that under the disguise of a contract of hire what was there agreed upon was truly a contract of sale attempted to be concealed under a pretence of hiring. The several instalments stipulated to be paid as hire were truly nothing more than the admitted price divided into three portions. The decision went upon the ground that there was nothing but a mere contract of sale, at a price to be paid by three equal instalments, and that as the buyer had paid one-third of the price and granted his bill for the balance, the property paid passed to him by the delivery. There is also this distinction between that case and the present, that this question is not with creditors doing diligence, which that was, but with a mere voluntary trust-disponee, without, so far as appears, any concurrence of creditors to that trust.

The Sheriff does not take any notice of letter dated 27th February 1880. He thinks it necessary to look only at the terms of the original agreement, in pursuance of which the mill and machinery were erected. But that letter does not specify any particular price or term for payments of the instalments thereby undertaken to be paid, and it affirms the original condition, that until all the price shall have been paid the mill and machinery shall continue the property of the pursuer. It could not and was not intended to innovate on the original conditions of the agreement, but only to add an additional obligant for payment of the price. Nothing followed upon it, and it seems to be immaterial to the issue.

There is no question here of preference or of challenge under any of the bankrupt laws. It is simply with the voluntary trustee, who stands in regard to the right to the mill and machinery in the same position as his author.

Neither is there room for any plea of ‘reputed ownership.’ That is competent only to creditors doing diligence, and is not pleadable by a voluntary and gratuitous disponee. Besides, there is no ground for the presumption of ownership in the tenant in the case of a thrashing-machine and steam-engine on a farm which are as commonly the property of the landlord as of the tenant.

As the parties by minute agree that the mill and machinery should be sold and the price consigned in Court to await the decision, the Sheriff cannot pronounce interlocutor disposing of the case under the prayer of the petition until it has been ascertained whether the terms of the minute have been carried into effect.”

The defender appealed to the Court of Session, and argued—The contract from the beginning was an out-and-out sale. The condition in the agreement was ineffectual to prevent the right of property passing by force of law, which will not allow such a suspensive condition as is here alleged to be adjected to the contract. The right of action in a trustee under a trust-deed for behoof of creditors was the same as that of a trustee in sequestration, and not merely that of an ordinary assignee.

The pursuer replied—Assuming there was a contract here, it was under a suspensive condition, the effect of which was to prevent the passing of the property if the seller should insist on the right which the condition gave him. A trustee under a voluntary trust-deed has no higher right than his author, and is in a different position from a trustee in sequestration, who is vested with all the diligence rights of the creditors.

Additional authorities—Bell's Comm. i. 257; ii. 382; More's Notes to Stair, p. lxxxviii.; Globe Insurance Company v. Scott's Trustees, February 16, 1849, 11 D. 618; Marston v. Kerr's Trustee, May 13, 1879, 6 R. 898; ex parte Crawcour, June 27, 1878, 9 Chan. Div. 419; Howes v. Ball, November 21, 1827, 7 Barn. and Cress. 481; Hunter's Roman Law, p. 411; Bell on Sale, p. 110.

At advising—