Franov v Deposit & Investment Co Ltd [1962] HCA 45; (1962) 108 CLR 460 (30 August 1962)

HIGH COURT OF AUSTRALIA

FRANOV v. DEPOSIT AND INVESTMENT CO. LTD. [1962] HCA 45; (1962) 108 CLR 460

Bills of Sale (N.S.W.)

High Court of Australia
Dixon C.J.(1), Menzies(2) and Owen(3) JJ.

CATCHWORDS

Bills of Sale (N.S.W.) - Trader's bill of sale - Power in bill to seize or take possession of chattels subject of bill - Filing or recording - Date from &which bill operative and valid - Bills of Sale Act, 1898-1938 (N.S.W.), s. 5C*.

HEARING

Sydney, 1962, May 8; July 30; August 30. 30:8:1962
APPEAL from the Supreme Court of New South Wales.

DECISION

August 30.
The following written judgments were delivered:-
DIXON C.J. This appeal from a decretal order made on an originating summons summons was to obtain an injunction against the enforcement by the defendant Deposit & Investment Company Limited of a trader's bill of sale bearing date 2nd May 1960 given to that company by the defendants Julianna Ramljak and Josip Ramljak, described as sandwich and milk bar proprietors, carrying on business at 468 Pitt Street, Sydney. The plaintiffs Franov and Sarin sued as the present proprietors of the business including the fixtures furniture and chattels covered by the bill of sale. According to an affidavit of the plaintiff Franov he entered into negotiations with the defendant Josip Ramljak to buy from him a half share in the business and fixtures and fittings. He entered into those negotiations on 12th May 1960, that is to say, ten days after the date which the bill of sale bears. He says that an agreement resulted on the following day for him to buy a half share in the business, fixtures and fittings for the sum of 2,000 pounds and to enter into a partnership with the defendant Josip Ramljak on that day and that he then paid it. He says that on 18th May 1960 he entered into a written agreement to carry on the business as a partner with Ramljak, and that he expended 2,500 pounds in renovation and re-equipment of the partnership premises, the defendant Josip Ramljak contributing nothing. The premises were leased by the Railway Commissioner to Ramljak as lessee. He, Franov, then sought to raise money from, as it happened, the defendant company. Then for the first time he learned of the bill of sale given by the defendants Ramljak. In the affidavit Franov says that he immediately saw Ramljak about the bill of sale but the latter said it was none of his business. He told Ramljak to go away and have nothing more to do with the business and he did not see him again for some weeks. The business was in fact closed from 28th January 1961 until 21st June 1961 for lack of funds. But in June the plaintiff Franov brought in Sarin to assist him in re-opening the shop. A man from the defendant company came on 20th June 1961 and told the plaintiffs that no moneys had been paid under the bill of sale and that there was about 700 pounds principal and interest in arrear. The two plaintiffs thereupon paid the company 415 pounds and a fortnight later a further 200 pounds whereupon, the affidavit says, "the company agreed not to take any further action under the trader's bill of sale". Now the bill of sale had been lodged in the Registrar-General's office on the day of its execution, viz. 2nd May 1960, but under s. 5E of the Bills of Sale Act, 1898-1938 (N.S.W.) it could not be filed or recorded before the expiration of fourteen days from the date of lodging the same. Under s. 5F (1) if no caveat is entered against the filing or recording of a trader's bill of sale lodged as required by the Act, such trader's bill of sale should be filed or recorded forthwith upon the expiration of fourteen days from the date of lodging the same. Accordingly, the bill of sale was filed or recorded on 17th May 1960. Section 5C (1) provides that no trader's bill of sale whereby the grantee or holder has power, either with or without notice and either immediately after the making or giving of such trader's bill of sale or at any future time, to seize or take possession of any of the personal chattels comprised in or made subject to such trader's bill of sale, shall be operative or have any validity at law or in equity until the same has been or is filed or recorded in the office of the Registrar-General in accordance with the Act and within the time prescribed by the Act. The plaintiffs' first ground or point in support of their appeal is that in the period beginning on 2nd May and ending on 16th May when the interval of fourteen days expired the bill of sale (which did in fact include a power to seize and take possession) could not be operative or have any validity at law or in equity. Since, according to the plaintiffs, the plaintiff Franov obtained his interest in the partnership and chattels on 12th or 13th May 1960 he, and under him Sarin, take priority over the interest obtained under the bill of sale by the defendant company. The foundation of this point is in sub-s. (1) of s. 5C, particularly the words "shall be operative or have any validity at law or in equity until the same has been or is filed or recorded". Jacobs J. overruled the contention on the simple ground that once an instrument otherwise falling within sub-s. (1) of s. 5C was lawfully filed or recorded it became operative and valid ab initio and not as from the date on which it was filed or recorded. There are many practical advantages in this interpretation of the section but when the words of s. 5C (1) are closely considered and the very strict policy of the plan of protecting existing creditors from the loss of assets on which in a general sense they might rely as a support of a trader's credit is weighed and the means of effecting that purpose are considered, the elements which support the opposite conclusion appear to me too strong. I think that the literal construction of the words already quoted is against the view put by Jacobs J. and on the whole I think the considerations supporting a literal construction outweigh the convenience of the opposite interpretation. It would follow that this particular trader's bill of sale could not become operative and effective until 17th May 1960 and that any legal title to the chattels comprised in the bill of sale obtained before that date might take priority. The chattels contained in the schedule to the bill of sale include refrigerators, a cash register, some Toledo scales, a hot-water service, mixer and other such things and also tables, chairs, lights, crockery and miscellaneous fixtures and fittings, and stock. The bill of sale is expressed as covering all the personal chattels belonging to the debtor then owned or used or intended to be used in the business more particularly described in the schedule and also the goodwill, book debts and other debts. Goodwill and book debts need not be considered. They perhaps stand on another footing. It seems to have been assumed that the plaintiffs' case would be sufficiently made out by establishing upon the construction of the section that the bill of sale could not become operative or effective before 17th May 1960. It is, however, not clear that as between Ramljak and himself the plaintiff Franov obtained even on 18th May 1960, when the partnership agreement was executed in writing, anything more than an equitable interest in the business as a going concern, including the chattels enumerated. If this be right there may be a further question whether on the bill of sale taking effect the company as a bona fide purchaser for value of a purely legal interest might not obtain a superior title to the equitable interest of the plaintiff Franov. That question was not, however, raised. No point was made, either, of the suggestion in the affidavit that the company had agreed not to pursue the bill of sale against the plaintiffs after the payment of the 615 pounds. It must be remembered that the plaintiff Franov and the plaintiff Sarin, claiming under him, appear never to have obtained more than a half interest between them in the business and its assets. The bill of sale of course affects the property in the chattels as an entirety and not as a half share. The problem which this fact raised as to relief by injunction was not developed before us. (at p464)

2. The plaintiffs' second point taken in support of the appeal depended on the Money-lenders and Infants Loans Act, 1941-1948 (N.S.W.), and depended upon s. 22 of that Act. The contention is that the interest rate under the provision contained in s. 22 (2) (c) (i) was wrongly stated. The error if there were one was small. Sub-section (4) of s. 22 provides that the note or memorandum or copy thereof which the section requires shall not be deemed insufficient because of, among other things, such a ground, if the Court before which the enforceability comes in question is satisfied that the omission or incorrect description etc. was accidental or due to inadvertence and was not of such a nature as to be liable to mislead or deceive any person to his prejudice or disadvantage. Jacobs J. applied this provision. His Honour said : "I have reached the conclusion that there is an incorrect statement of the interest rate, and that therefore the provisions of s. 22 might apply, but then I have to consider whether this omission or incorrect description was accidental or due to inadvertence and was not of such a nature as to be liable to mislead or deceive any person to his prejudice or disadvantage. It seems to me that the figures in the form of the incorrect statement which has resulted have every appearance of being accidental. Further, I do not think that any person could be misled or deceived to his prejudice or disadvantage by the small error which has occurred. It is a difference of less than 1% in a rate of interest of approximately 20%, and I cannot see that there would be any prejudice or disadvantage in such a statement (1961) 79 WN (NSW), at p 533 ." This view appears to me entirely sound. Accordingly this point made by the appellants fails. But on the ground first stated I think the appeal succeeds to the extent at least that the order appealed from dismissing the suit by originating summons should be set aside. It is, however, a question what order ought to be made in lieu thereof. It is apparent that there are further questions on which the ultimate success of the plaintiffs must depend. Further, there are questions which arise out of an interlocutory order made by this Court to protect the plaintiffs appellants pending the appeal and that order restrained the defendant company from enforcing the bill of sale pending the appeal but subjected the plaintiffs to specific conditions framed to protect the defendant company in the meantime. In any order we make finally disposing of the appeal it will be necessary to deal with the consequences of that order. It seemed therefore desirable that we should not simply allow the appeal and make some order disposing of the suit without giving the parties an opportunity to agree on some other course. That we have done without result. It now seems that it will be necessary to make an order remitting the suit for further consideration and in the meantime protecting the interests if not of both parties at all events of the defendant company. (at p465)

MENZIES J. I agree with the judgments of the Chief Justice and of Owen J. and would merely add two observations regarding s. 5C of the Bills of Sale Act (N.S.W.). First, the use of the word "unless" in other sections of the Act (e.g. s. 5 (1) ) indicates that, when the word "until" is used in s. 5C (1), it is used with its ordinary meaning to express a different concept from that which would have been expressed by the word "unless". Secondly, the denial that no bill of sale "shall be operative" until filed, as something additional to its having no validity at law or in equity, makes it especially difficult to treat any date earlier than the filing as the date of operation. (at p465)

OWEN J. The appellants, Franov and Sarin, were the plaintiffs in an originating summons in which they sought an injunction to restrain the defendant company, now the respondent, from exercising its rights as mortgagee under a trader's bill of sale dated 2nd May 1960 executed by the defendants Josip and Julianna Ramljak over the goodwill, fixtures, fittings, assets and undertakings of a sandwich and milk bar business carried on by them at 468 Pitt Street, Sydney, under the name and style of "J. & J. Ramljak". The summons was heard by Jacobs J. when two submissions were made on behalf of the plaintiffs in support of their claim for an injunction. The first of these raised a question as to the meaning and effect of s. 5C of the Bills of Sale Act, 1898-1938 ; the second was that the bill of sale was unenforceable because there had been a failure by the defendant company to comply with the provisions of s. 22 of the Money-Lenders and Infants Loans Act in that the written note or memorandum of the contract of loan required by s. 22 (1) (a) stated that the total amount of interest to be paid was 600 pounds and that the rate per centum per annum represented by the interest charged, as calculated in accordance with the Schedule to the Act, was 19.74% per annum whereas the calculation if it had been correctly made would have shown a rate of 19.26% per annum. The learned judge decided both these matters in favour of the defendant company and it followed that, on the facts as then disclosed, the relief sought should not be granted. Having given his reasons, his Honour concluded by saying : "I therefore do not think that the plaintiff has at this stage made out any case for relief. However, the issues in a matter of this kind are such that I think there ought to be pleadings, and I will order pleadings unless I am asked by both parties not to do so, but to treat this now as a final determination of the matter" (1961) 79 WN (NSW) 531, at p 533 . The parties then agreed that, having regard to the conclusions to which his Honour had come on the questions considered by him, the suit should be dismissed and an order to that effect was accordingly made. Before us, counsel agreed that if the appeal is upheld it will be necessary to remit the case to the Supreme Court for hearing - on pleadings or otherwise as that Court may think fit - since a number of other questions will arise which cannot be dealt with by this Court on the appeal. In these circumstances counsel asked that if we are of opinion that the appeal should be allowed, we should announce our decision and allow them the opportunity of considering what order should be made before finally disposing of the appeal. (at p466)

2. The facts on which the arguments before Jacobs J. and before this Court proceeded are as follows : Early in 1960 the two defendants, Ramljak and Mrs. Ramljak (who entered submitting appearances in the suit) were partners in equal shares in a sandwich and milk bar business which they were conducting at 468 Pitt Street, Sydney. On 2nd May 1960 they executed a trader's bill of sale in favour of the defendant company over the assets of the business to secure the repayment of moneys then or thereafter to be advanced by it to the partnership together with interest thereon. The bill of sale authorized the defendant company to seize the assets comprised in it upon default being made. It was lodged at the office of the Registrar-General on the day of its execution and therefore within the period of fifteen days prescribed for lodging such a bill of sale by s. 5C (2) (b) of the Bills of Sale Act. By s. 5E of that Act a trader's bill of sale cannot be filed or recorded before the expiration of fourteen days from the date when it is lodged, the purpose of this provision being to enable any unsecured creditor of the grantor of the bill of sale to lodge a caveat against its filing or recording (s. 5G), in which case the grantor or grantee may institute proceedings in the District Court for the removal of the caveat (s. 5H) and in an appropriate case an order may be made by that Court directing that the bill of sale shall not be filed or recorded until the unsecured creditor's debt is satisfied or the amount of the debt paid into Court to the credit of the caveator (s. 5I). The bill of sale was therefore not filed or recorded until 17th May. In the meantime Ramljak had, on 13th May, entered into an oral agreement with Franov, who had no knowledge of the existence of the bill of sale, whereby the latter agreed to buy from the former an interest in the business for 2,000 pounds and to become Ramljak's partner. Whether Mrs. Ramljak had ceased to be a partner before 13th May so that Franov's purchase was of a one-half interest in the business or whether the effect of the agreement was merely to give Franov one half of Ramljak's interest may, perhaps, be open to question on the evidence as it stands at present but, for present purposes, this is not material. On the day on which the oral agreement was made Franov paid Ramljak the sum of 2,000 pounds and on 18th May a written partnership agreement was entered into between them which provided that the partnership should commence on 13th May. In the result, therefore, Franov, without notice of the existence of the bill of sale and before it had been filed or recorded, had become a partner in the business and acquired an interest in its assets. It should be added that in 1961 the plaintiff Sarin became associated with the conduct of the business, apparently as Franov's partner in place of Ramljak although this does not clearly appear from the appeal book. (at p467)

3. The first question to be decided is whether Franov's interest in the partnership assets was subject to the defendant's interest under the bill of sale or whether he became entitled to an unencumbered interest, and the answer to this depends in turn upon the effect of s. 5C (1) of the Act. The sub-section provides that no trader's bill of sale whereby the grantee or holder has power, either immediately after the making or giving of such bill of sale or at any future time, to seize or take possession of any of the personal chattels comprised in it "shall be operative or have any validity at law or in equity until the same has been or is filed or recorded in the office of the Registrar-General" in accordance with the Act and within the time prescribed by the Act. The question then is whether when a trader's bill of sale is filed or recorded it becomes valid and operative as from the date of filing or recording or whether it becomes valid and operative retrospectively as from the date when, but for the section, it would have become binding upon the parties to it. The use of the word "until" undoubtedly suggests that it is only as and from the time when the document is filed or recorded that it takes effect as a valid and operative document. According to the Shorter Oxford English Dictionary the use of the word "till" after a negative denotes the continuance of the negative condition up to the time indicated (and implies its cessation then). Further support for this view is to be found, I think, in Armstrong v. Wilkins [1940] HCA 18; (1940) 63 CLR 489 , a case in which s. 193 of the Bankruptcy Act was considered. That section provided (inter alia) that a deed of arrangement should be void unless registered within twenty-eight days and a question arose as to its validity before registration. In the course of the joint judgment of Rich and Dixon JJ., their Honours said : "The prima facie meaning of this language is that invalidity shall ensue from non-compliance, not that before compliance there shall be no validity ; that is to say 'unless' is equivalent to 'if not'." (1940) 63 CLR, at p 495 . It is difficult to resist the conclusion that, if the word "until" had been used in s. 193 and not the word "unless", it would have been held that during the period before registration the deed was void and inoperative and that registration would not have had a retrospective effect. The contrary view, for which counsel for the defendant company contended in the present case, is that although a trader's bill of sale does not become operative or valid until it is filed or recorded, when that condition is complied with it then operates according to its full tenor and becomes operative and valid as from the date of its execution. In support of this contention counsel pointed out that if a caveat against the filing or recording of a trader's bill of sale is lodged and proceedings to remove the caveat are instituted, a lengthy period of time may elapse before it can be filed or recorded with the result that during this period the rights of the parties to it and of third parties who may have acquired an interest in the goods comprised in it are left uncertain. On the other hand, if retrospective effect is to be given to the docment when it is filed or recorded, and during the interregnum between execution and filing or recording the grantee has seized the mortgaged chattels, his act which would have been unlawful when committed could, when the bill of sale was later filed or recorded, be justified under it, and it seems improbable that the draftsman should have intended the possibility of such a state of affairs arising. Jacobs J. was of opinion that the mention in the sub-section of a power to seize the mortgaged chattels either immediately after the making of the bill of sale or at some future time afforded an indication that the Legislature had envisaged "some validity in the bill during this period of postponement, provided always that ultimately the bill is duly filed and recorded" (1961) 79 WN (NSW), at p 533 . But, with all respect to his Honour, I think that little weight can be attached to the provision to which he referred. It is, in my opinion, merely descriptive of the kind of trader's bill of sale with which the section is designed to deal. It must be one which contains a provision for the seizure of the mortgaged chattels whether the power to seize would, but for the sub-section, be exercisable immediately or at some future time and whether exercisable with or without notice. On the whole I think the sub-section should be given what seems to me to be its prima facie meaning, and that the effect of filing or recording is not to give the bill of sale a retrospective operation. (at p469)

4. The other question which was decided by Jacobs. J. related to the statement in the memorandum of the contract of loan of the rate per centum per annum of the interest charged. The memorandum stated the interest to be paid as being 600 pounds and that the amount of the loan and interest was to be repayable by seventy-eight fortnightly payments of 33 pounds 6s. 8d., the first of such payments to be made on 30th May 1960. It seems that in calculating the interest rate per centum per annum and arriving at the rate of 19.74% stated in the memorandum, it was mistakenly assumed that the first fortnightly repayment of 33 pounds 6s. 8d. was to be made at the end of a fortnight from the date of the loan, that date being stated to be 2nd May 1960. In fact the first repayment was not to be made until 30th May 1960 and if calculated on that basis the correct rate of interest would apparently be 19.26%. In these circumstances, however, his Honour, while inclining to the view that the only persons who would be entitled to take advantage of the defect in the memorandum would be the borrowers and that the plaintiffs, who were not parties to the contract of loan, could not rely upon the defect, held that the misdescription of the interest rate was accidental or due to inadvertence and was not of such a nature as to be liable to mislead or deceive any person to his prejudice or disadvantage. According he applied s. 22 (4) of the Money-Lenders and Infants Loans Act and held that the contract of loan was not rendered unenforceable by the mistake in the statement of the rate of interest payable. On the facts before his Honour I can see no reason to think that he fell into error in so deciding. (at p469)

5. On the first matter which was argued, however, I think the appeal should be allowed with costs and the order dismissing the suit should be set aside. (at p470)

ORDER

Appeal allowed. Decree or order of the Supreme Court discharged. In lieu thereof declare that the bill of sale herein did not have any validity at law or in equity until 17th May 1960 and then did not become retrospectively valid or operative. Order that the cause be remitted to the Supreme Court to be dealt with consistently with the foregoing declaration according to law. Continue the interlocutory order made by this Court to protect the plaintiffs' claim pending the appeal and to restrain the defendant company from enforcing the bill of sale pending the appeal until the further order of this Court or of a judge thereof. Reserve all questions of costs in this Court to be dealt with by this Court on application by either party.