F.C.

1921

November 2, 4, 7, 8, December 5.

KENT v. PARER.

Instruments-Bill of sale-Conditional—Not registered—Subsequent reduction of part of goods into possession by creditor-Whether good title acquired—Insolvency of grantor-Written arrangement with creditor—Fraudulent preference -Whether valid pledge constituted-Instruments Act 1915 (No. 2672), ss. 127, 128, 129-Insolvency Act 1915 (No. 2671), s. 151.

The grantee of a conditional bill of sale which is void by reason of a failure to comply with Part VI. of the Instruments Act 1915 cannot acquire a good title to the goods the subject of the bill of sale by subsequently reducing them into possession.

A. being indebted to B. gave B. on the 19th August 1920 a document stating "I herewith hand you the key of the Dove Hosiery Stores storeroom. Owing to our financial transactions together, I am passing over the key to give you absolute freedom to have any stock you wish as security for the money invested with me. . . The approximate value of stock therein amounts to 50001. Upon conclusion of financial deals and money being repaid to you the key shall be handed over and your possession of the stock ceases."

The document was never registered as a bill of sale under Part VI. of the Instruments Act 1915.

The primary Judge said that it was doubtful whether the key was in fact handed by A. to B., but that there was no doubt that B. still had access to the storeroom after the 19th August 1920 when he wanted it; but His Honor made no finding on this point.

B. took no further action until the 30th August 1920, when he seized and removed portion of the goods. On the 7th October 1920 A.'s estate was sequestrated.

The trustee in insolvency having claimed the goods removed, and a declaration of his right to the balance of the goods,

Held (1) That on the evidence B. never had possession of the goods in any real sense prior to the 30th August 1920, and that therefore the pledge of the goods to B., if intended, was never perfected.

(2) That the document did not, in fact, authorize the seizure and removal of the goods, but that, even assuming the contrary, it required registration as a bill of sale under Part VI. of the Instruments Act 1915, and was therefore void, and that the subsequent taking of possession of part of the goods gave no right to that part.

(3) That on the evidence A., in giving the document to B., acted with a view to prefer B., who was well aware of this, and that there was therefore a fraudulent preference within sec. 151 of the Insolvency Act 1915.

McCarthy v. Nicholls ([1887] 8 A.L.T. 180) approved.

Cohen v. McGee ([1879] 4 V.L.R. (L.) 543) and Askew v. Danby ([1892] 18 V.L.R. 335) discussed.

APPEAL FROM COURT OF INSOLVENCY.

This was an appeal on the part of the defendant, Stanley Arthur Parer, from a decision of His Honor Judge Moule in proceedings arising out of the insolvency of Robert Walker Peverill Matthews (hereinafter called the insolvent), wherein Percy James

Kent, as trustee of the insolvent estate, applied to the Court for a declaration that certain goods taken or received by the defendant from a room in the basement of the insolvent's premises on the 30th August 1920 and subsequently held by him, and certain other goods which were there on the said date and were now in the possession of the trustee, were part of the insolvent estate, and, further, that the transfer of the goods above mentioned by the insolvent to the defendant was void as against the trustee and or was a fraudulent preference of the defendant to other creditors.

The material facts were as follows:-The insolvent was an inporter and agent carrying on a wholesale business in fancy goods. and hosiery at the Australian Buildings in Flinders-lane, Melbourne, on which premises his goods were stored in a room in the basement. He had obtained loans at high rates of interest, and had induced various persons to invest sums of money with him for the purpose of buying goods, which were to be resold, the whole profit going to the investor. A number of these contracts of resale were fictitious.

The defendant had entered into several transactions of this kind, the money being supplied by the defendant's father, John Parer, who, although the defendant was in fact recognized as the principal, had full power and authority to manage the transactions for the defendant. The insolvent, who was then in financial difficulties, on the 19th August 1920 wrote and handed to John Parer the following letter:

"S. A. Parer, Esq.

"19th August 1920.

"Dear Sir,-I herewith hand you the key of the Dove Hosiery Stores storeroom, situated basement of Australian Buildings, in Flinders-lane, Melbourne. Such stock contained therein is owned solely by the undersigned, R. W. P. Matthews. Owing to our financial transactions together, I am passing over this key to give you absolute freedom to have any stock you wish as security for the money invested with me. The approximate value of stock therein amounts to 5000l. Upon conclusion of financial deals and money being repaid to you the key shall be handed over, and your possession of the stock ceases.

"R. W. P. MATTHEWS."

This document was never registered under the provisions of Part VI. of the Instruments Act 1915.

F.C.

1921

KENT

V.

PARER.

F.C.

1921

KENT

v.

РАКЕК.

The insolvent stated in evidence that he gave the key to John Parer along with the letter, but asked him to let the defendant (who was in the insolvent's employment) always have the key with him, so that the insolvent might enter the basement if necessary; and that the insolvent did go once to the basement, getting the key from the defendant, and ordered goods to be brought from the basement to a shop wherein the insolvent carried on a retail business.

None of the goods stored in the basement were taken from the basement by the defendant until the 30th August 1920, when a portion of them were removed by his direction.

On the 7th October 1920 the estate of the insolvent was sequestrated, Percy James Kent being appointed trustee of the estate.

The learned Judge, in giving judgment for the plaintiff, said that it was doubtful whether the key was in fact handed over, but there was no doubt that at some date another key and lock besides the existing one was put on the basement door, and that the insolvent still had access to the basement after the 19th August when he wanted it, and did show some probable purchasers over the stock in the basement. The insolvent, when he gave the letter of the 19th August to John Parer, was hopelessly insolvent, and knew he was insolvent, and John Parer also knew this when he obtained the so-called security. The insolvent knew he was preferring John Parer, and intended to do so, and knew perfectly well that he could not pay his other creditors, and the substantial object which he desired to achieve was to prefer John Parer to his other creditors. Further, John Parer did not act in good faith, and, except for the renewal of credit, which was practically a forbearance to sue coupled with the hope of thereby getting an additional fancy profit, there was no consideration.

Under those circumstances His Honor held that there was a fraudulent preference, and that the transaction should be set aside. He also held that the seizure of the goods on the 30th August was made under and by virtue of an unregistered bill of sale, and that therefore such seizure was of no avail, and the title to the goods never passed to the defendant, and that as against the trustee the claim to hold by virtue of possession so obtained failed.

From this decision the defendant now appealed, on the following grounds:

1. That there was no evidence, or alternatively no sufficient

evidence, that the insolvent made the conveyance or transfer of the 19th day of August 1920 with a view to giving the defendant. a preference over the other creditors.

2. That the finding of the learned Judge of the Court of Insolvency that the giving of a preference to the defendant was the substantial object which the insolvent desired to achieve, and the several other findings of the learned Judge, were against the evidence and the weight of evidence.

3. That the defendant was an encumbrancer in good faith and for valuable consideration within sec. 151 of the Insolvency Act 1915.

4. That the said conveyance or transfer was a contract or dealing with the insolvent made in good faith and for valuable consideration within sec. 152 of the said Act.

5. That there was no evidence, or alternatively no sufficient evidence, that the defendant did not act in good faith.

6. That the document of the 19th day of August 1920 was not a bill of sale.

7. That the non-registration of the said document under the provisions of the Instruments Act 1915 did not defeat the title of the defendant to the goods therein referred to or any part thereof. 8. That possession of the said goods was obtained by the defendant on the 19th day of August 1920, or alternatively on the 30th day of August 1920.

9. That by reason of such possession the defendant was and is entitled to retain the said goods.

10. That the findings of the learned Judge on the question of possession of the said goods on and after the 19th day of August 1920 were against the evidence and the weight of evidence.

11. That the transaction between the insolvent and the defendant of the 19th day of August 1920 was by way of pledge of the said goods, and was not within the provisions of the Instruments Act 1915.

12. That the said goods were not part of the estate of the insolvent and the trustee of the said estate was not entitled to the said goods or to possession thereof.

13. That there was no evidence, or alternatively no sufficient evidence, to support the said order or any part thereof, and that the whole of the said order was against the evidence and the weight of evidence.

F.C.

1921

KENT

V.

ᏢᎪᎡᎬᎡ.

F.C

1921

KENT

v.

PARER.

14. That the learned Judge should have rejected the said motion for the reasons stated in the notice and grounds of opposition and defence filed upon the hearing of the said motion.

15. That the said order was bad in law and should not have been made.

J. R. Macfarlan, K.C., and Eager for the defendant, appellant-There was no view to prefer within sec. 151 of the Insolvency Act 1915. The onus of proof was on the trustee. The authorities show that the view to prefer must be the operative or dominant view of the insolvent, his state of mind being the paramount consideration: See Halsbury, vol. ii., at pp. 282, 285, 286; Muntz v. Smail (a). Meie pressure by a creditor is not sufficient to take the transaction out of the section if the dominant view is an intention to prefer: Re Cohen (b); but on the evidence there was no such intention. The insolvent should not be presumed to have intended the natural consequences of his act for this purpose, but it is necessary to find out what he really did intend: Sharp v. Jackson (c). The insolvent's object here was to gain time, and he still had the hope of avoiding insolvency: Cox v. Smail (d). As to onus of proof of good faith see Ex parte Tate (e); Re Oliver (f). A past debt may be a valuable consideration within sec. 151: Re McConnell (g). There was sufficient evidence of possession of the goods by the defendant. Although it was open to the trustee to contend that the letter of the 19th August was in itself nothing, the position was otherwise once possession was taken under it, when it was possible to look at the completed transaction and to rely on possession, and even although the document was unregistered: Davidson v. Commercial Bank of Australia (h). The earlier decision of the Full Court in Cohen v. McGee (i) was not a mere case of vendor and purchaser, but of the handing over of something by way of security, with a power to realize. In McCarthy v. Nicholls (k), in which case judgment was not reserved, it was thought unnecessary to examine Cohen v. McGee. But, even assuming that McCarthy v. Nicholls was right, this in