Chapman Bros v Verco Bros Co Ltd
[1933] HCA 23(1933) 49 CLR 306
(Judgment by: Evatt J)
Chapman Bros
vVerco Bros Co Ltd
Judges:
Rich J
Starke J
Dixon J
Evatt JMcTiernan J
Judgment date: 8 May 1933
Judgment by:
Evatt J
An action was brought against the appellants by the present respondent, a limited company which carried on business in South Australia as a wheat merchant and miller. The appellants are wheat farmers in South Australia, who, in the months of December 1931 and January 1932, delivered a large number of bags containing wheat to the respondent company. In all there were twenty occasions on which bags were delivered, and upon each occasion the appellants received written documents which described themselves as "storage warrants." As each parcel was delivered, the respondent company stacked it along with the wheat which had been either purchased outright from other farmers or obtained from other farmers upon "storage warrants" similar to those given to the appellants. The bags of wheat delivered by the appellants were of the same type as was used by all other South Australian farmers, and possessed no mark or symbol capable of any use for identification purposes.
A perusal of the conditions endorsed on the back of the warrant makes it clear that, on or about November 30th, 1932, the contract between the appellants and the company would have been fully carried out. But, in the meantime, on July 11th, 1932, the company went into liquidation, with the result that farmers in like position to that of the appellants are laying claim to a proprietary share in the stacked wheat, and are opposed by the general creditors of the company, who contend that, immediately upon delivery to the company, the farmers' proprietary rights in the wheat disappeared.
A summons for immediate relief was heard in order to see if it was possible to dispose of the action without calling evidence. The only material before the Court, and before us on appeal, consists of the facts set out above, and the terms of the "storage warrants."
Richards J. held that, upon delivery of the bags and wheat, the property therein became vested in the company to the exclusion of the appellants, and from that decision this appeal is brought.
The judgment is based upon the terms of the warrant, and it seems probable that, but for the terms of condition 3, Richards J. would have yielded to the numerous indications in the contract that the appellants' property in the wheat did not, at the time of delivery, become divested from them. He said [F8] : "It may be that, excluding clause 3 of the conditions the whole document savours of a transaction in the nature of a bailment rather than of a sale or other transaction passing the property."
The main terms of condition 3 were:-
The purchasers agree at any time upon request to return to the storer (unless prevented by any government or other legal authority) at any shipping port or ports or at the receiving station at the purchasers option, a quantity of f.a.q. wheat equal to that then remaining unpurchased on storage with the purchasers. The purchasers shall not be required to return the identical wheat.
The phrase "the purchasers" is by condition 1 treated as a short reference to the respondent company.
The terms of the agreement show that, up to November 30th, 1932, the farmer, described throughout as "storer," had the right of exercising an option which would normally result, either in the payment of a purchase price, or in delivery of an equal quantity of f.a.q. wheat by the company to the farmer. The first event was described as "settlement," the second as "delivery." The warrant itself had to be surrendered to the company by the farmer for the fulfilment of either purpose. If, by 30th November, the farmer had not surrendered the warrant, it was provided that the company without further notice should purchase and pay for the balance of the wheat then covered by the warrant (clause 2).
Other features of the contract were:-
(1)
Prominently upon the face of the warrant it was called "storage warrant" and the wheat was described as having been "received for storage." The six conditions set out upon the back of the warrant were also called "Conditions of storage."
(2)
The warrant was not transferable except with the company's approval.
(3)
Condition 1 provided that, in the event of the company's purchasing the wheat, it would "give free storage and insurance."
(4)
In the event of a request by the storer under clause 3, the company's agreement to return, already set out, was subject to the farmer's paying storage charges.
(5)
Provision was made in clause 4 to secure the position of the company in the event of any advances to the farmer approximating too closely to the current market price. If the farmer did not reduce his indebtedness in the prescribed way, the company could "without further notice purchase the wheat" and in the meantime could "keep the wheat or the balance thereof on storage."
In such a dispute as this a search for analogies is unavoidable. And it is not difficult to point to recognized legal relationships which bear some resemblance to the present contract. Both the mutuum and the depositum irregulare of the civil law display this resemblance to it, that the person receiving the res fungibiles assumed an obligation to restore or make over, not the identical things received, but the same amount of the same quality of the class of thing received. Clause 3 of the conditions contains such a stipulation, but it is dangerous to reason that, because the transferee or the depositary in the civil law transactions became owner at the time of delivery, such a conclusion should also be drawn here.
So, too, the application of the sentence taken from Sir William Jones' work on Bailments in South Australian Insurance Co. v. Randell [F9] : "Wherever there is a delivery of property on a contract for an equivalent in money or some other valuable commodity, and not for the return of his identical subject matter in its original or an altered form, this is a transfer of property for value-it is a sale and not a bailment," may lead to misconception. It is not essential to determine whether the description of "sale" or "bailment" or some other description should be applied to the present transaction. The only question is, at what time did the parties to the agreement intend the property to pass. If it be more accurate to describe the dealing as a "sale" than as a "bailment on trust" it is still a question of intention, when did the property pass to the buyer. There is no rule of English law that, whatever the terms of the contract, whenever A delivers goods to B under a stipulation that, at a later time, A shall be paid in cash or in kind, B must be regarded as owner of the goods at the time of the original delivery. For the agreement may sufficiently indicate that, until he furnishes cash or kind to A, B is not to become owner.
Further, it is, I think, erroneous to think that Randell's Case [F10] is at all decisive of the present controversy, and I entirely agree with the statement of the issue by Richards J., as follows:-
For the liquidator, and for unsecured creditors, joined by leave as defendants, reliance was placed, though not solely, on The South Australian Insurance Co. v. Randell [F11] ; but I agree with Mr. Cleland to this extent, that to regard that case as governing the interpretation of the document now under consideration is to beg the question, which, in effect, is whether the transaction, having regard only to the document and the admitted facts, made the wheat, on delivery to the company, part of its consumable stock. That was found to be the position, established by the evidence, in Randell's Case [F12] , and accordingly it was held that the property passed to the miller, on a principle stated by Sir Wm. Jones in his treatise on Bailment , and by Chancellor Kent in his Commentaries . But, in the present case I am called on to interpret a certain document, in the light of certain admitted facts, but without the aid of such evidence as was the basis of the opinion of the Judicial Committee [F13] .
The important distinction is that in Randell's Case [F14] the evidence showed affirmatively that the miller, upon delivery of the grain, could do what he liked with it: "The wheat was ours to do what we thought proper. We might grind or sell" [F15] . That is the very question for decision here, as a question of law, not as a question or inference from fact. And it was expressly said: "There is the power in the miller of doing what he liked with the wheat after it became part of his current stock" [F16] .
There being no such finding of fact in the present case, it is necessary to gather the intention of the parties from the words they have used. For, as Lord Parker of Waddington pointed out, the English Sale of Goods Act , all the relevant provisions of which are contained in the South Australian Statute of 1895, embodies the principle that the question whether a contract for the sale of goods does or does not pass the general property in the goods contracted to be sold must in all cases be determined by the intention of the parties to the contract. The Act codifies the rules by which that intention is to be ascertained, but the inferences based on the rules may always be displaced by the terms of the contract itself or the surrounding circumstances, including the conduct of the parties ( The Parchim [F17] ).
It was the question of insurance that led to the dispute in Randell's Case [F18] , and the Privy Council held that, in the proved circumstances, the miller was not holding the grain "in trust" for the farmers but was the absolute owner.
"Here," said Sir Joseph Napier [F19] "by force of the contract, the miller might use as his own the whole of the wheat that was delivered to him by the farmers. Accordingly, the miller would be responsible to the farmers, notwithstanding the loss of the wheat by the fire, Res suo perit domino."
The only reference to insurance in the present contract is contained in clause 1, by which the company undertook that, if it purchased the wheat, it would "give free ... insurance." Richards J. says of this:-
Returning to clause 1, we find the company was to give free storage and insurance. It may be asked why "the storer" should be concerned with the matter of insurance, unless he retained some interest in the wheat [F20] .
I agree with Richards J. that this is a very pertinent question, but I do not see that any answer to the question has yet been supplied. The provision is a very important one. It implies that the goods will be insured by the company pending the exercise of the farmer's option to sell under clause 2, and, if such option is exercised, insurance will be "free" to him. But, if the farmer acts under clause 3 he may, presumably, be debited with the cost of insurance in respect of the stored wheat, just as he must pay storage charges before he can exercise his option under the same clause. In the event, however, of the farmer's not acting under clause 3, and of his either fixing a time under clause 2, or not electing to sell before November 30th, 1932, the transaction matures into a purchase by the company, and the insurance on the wheat up to that time is not to be debited against the farmer. Such a provision indicates that the goods were to remain at the farmer's risk pending a purchase under clause 2; that if a purchase were not effected but delivery was required, the risk was not assumed in any degree by the miller; and that, if the goods perished by accident before the exercise of any option, the farmer must bear the loss himself.
The importance of insurance provisions, in relation to the question of time at which the property in goods is intended to pass, has frequently been recognized. Thus in Martineau v. Kitching (1872) L.R. 7 Q.B. 436, at p. 454 Blackburn J. pointed out that, if the risk attaches to one person or the other, "it is a very strong argument for showing that the property was meant to be in him."
Lord Parker of Waddington for the Privy Council also emphasized that the incidence of the risk as between buyer and seller is a very strong indication as to which of them owns the property ( The Parchim (1918) A.C. 157).
In American and Canadian cases resembling the present, the question of risk has been regarded as almost decisive of the passing of the property. Thus in Isaac v. Andrews (1877) 28 U.C.C.P. 40, where a farmer on leaving wheat with millers took a storage receipt with the condition "fire excepted," Hagarty C.J. pointed out that if the property passed at once, upon delivery, "there would be no meaning in the exception as to fire" (1877) 28 U.C.C.P., at p. 43.
In Clark v. McClellan (1893) 23 Ont. Rep. 465 Galt C.J. distinguished Randell's Case (1869) L.R. 3 P.C. 101 stating (1893) 23 Ont. Rep., at pp. 470, 71:-
The case relied on by Mr. Myers was South Australian Insurance Company v. Randell (1869) L.R. 3 P.C. 101, 104. That case, however, differs essentially from the present. The action was brought by the respondents to recover under a policy of insurance for a quantity of wheat which was in their mill at the time of the loss, and which had been placed in the mill under circumstances similar to the present, but on the receipt of which no reservation had been made as to risk, consequently the plaintiff might have been held responsible for the loss.
In Ledyard v. Hibbard (1882) 48 Mich. 421; 42 Am. Rep. 474, where the judgment was delivered by a distinguished jurist, Judge Cooley , it appeared by the receipt that the wheat was to remain at the depositor's risk from elements, nothing was charged for storage, the millers used the wheat as they needed it in their manufacture so that its identity was constantly changing in the elevators, and the price stated was "at ten cents less Detroit quotations for same grade when sold to us. Stored for (......) days."
The Court held:-
(1)
In the absence of local usage to the contrary, or of a course of dealing between the parties by which a different effect should be given them, the receipts should be construed as evidence of a bailment instead of a sale.
(2)
Warehouse receipts for grain received in store must be construed by their terms, and by commercial usage. In commerce they should be understood to represent the title to the quantity of grain specified, and changes in bulk caused by delivery and shipments would not affect the title of the holder of receipts, and he could call for his proper quantity so long as so much remained in store. Nor would the consumption of the grain by the warehouse owner make any difference so long as the quantity is kept good.
The action in Ledyard v. Hibbard [F21] was for replevin and was brought after the failure of the millers. With reference to the question of risk, the Court said [F22] :-
"As by the receipt the grain was declared to be at" the depositor's "risk, for the time being, it must have continued to be at his risk until some act was afterward done by one party or the other to convert what at first was manifestly a bailment into a sale."
In the present case, the significance of the insurance arrangement far outweighs any inference in the miller's favour arising from the absence of an obligation to return the identical wheat. The return of the identical wheat was an obvious impossibility since the miller placed all the farmer's wheat in stacks, and no markings were required or used. For all practical purposes the farmer would be placed in as good a position if he received an equivalent quantity of f.a.q. wheat as if he received his own. In all the circumstances clause 3 does not alter the general tenor of the agreement, and should not, of itself, suffice to negative a conclusion that, in the event of the farmer's electing for a "return" under clause 3, the property in the wheat originally stored would vest in the company only upon its delivering an equivalent quantity in pursuance of clause 3.
I conclude that the arrangement between the parties was that the property was to pass to the company upon "settlement" following November 30th, 1932, at the latest, but might pass to it at an earlier date, pursuant to the farmer's exercise of his option. The farmer might act under clause 2 or clause 3, but his election, once taken, was binding and made the company owner of the goods stored as from "settlement" under clause 2 or "delivery" under clause 3. In the former event there was a purchase, in the latter an exchange; in either, if one likes to call it so, a "sale." But there is no reason why one should ignore the numerous indications in the warrant, that, after delivery, the relationship of storer and warehouseman was to subsist in respect of the wheat, until a purchase under clause 2 or an exchange under clause 3 was duly effected.
Much has been made of the necessities of the company's business. But the company was a merchant as well as a miller, and, in its position, it was specially bound to indicate to the farmers, if such was its intention, that it was empowered, without making any payment, or securing it, to dispose of the farmer's wheat as it thought fit, entirely for its own benefit, as part of its consumable stock, and, more plainly, that the farmers' property rights would entirely vanish at the moment of delivery. It not only failed to indicate such an intention, but used words and phrases evincing a very inconsistent intention. In the circumstances, it was entitled to take from the common stock held under like "warrants," only such a quantity as it had acquired from a farmer by payment in cash or in kind. (Cf. discussion in Benjamin on Sale , 6th ed. (1920), pp. 380, 381; Harvard Law Review , vol. 8, p. 432).
Two minor points should be briefly noted. First, this case depends solely upon the terms of the contract and upon the very bare statement of facts I have outlined. Richards J. approached the matter entirely from this point of view as he was, by the terms of his reference, clearly bound to do. There is therefore no evidence whatever of any custom. Secondly, the learned Judge did not, so far as I can see, take judicial notice of any matter which would influence the construction of the written agreement. Nor indeed could his Honor have done so, having regard to the many and varied forms which transactions between millers and farmers appear to have taken in South Australia.
For these reasons I think that the decision in Randell's Case [F23] is not in point and that the general form and tenor of the agreement would be defeated and contradicted unless the farmer retained the general property in the goods until "settlement or delivery."
The appeal should be allowed.