A. E. Covbney v H. S. Persse, Ltd, and Sir Robert Gardner

• Jurisdiction: Ireland
• Judge: Barton, J.
• Judgment Date: 29 November 1909
• Court: Court of Appeal (Ireland)
• Docket Number: (1907. No. 885.)
• Date: 29 November 1909

A. E. Coveney

and

H. S. Persse, Limited

and

Sir Robert Gardner.

Barton, J.

Appeal.

(1907. No. 885.)

CASES

DETERMINED BY

THE CHANCERY DIVISION

OF

THE HIGH COURT OF JUSTICE IN IRELAND,

AND BY

THE IRISH LAND COMMISSION,

AND ON APPEAL THEREFROM IN

THE COURT OF APPEAL.

1910.

Limited Company — Debentures — Clauses restricting pledges and mortgages — Sale or pledge — Notice — Ordinary course of business.

1. P. & Co., Limited, pot-still whiskey distillers, issued debentures secured by a trust deed which contained a clause making the debentures a floating charge on the assets and undertaking of the Company, and providing that they should not hinder or prevent the Company from selling, alienating, mortgaging, charging, leasing, paying dividends out of profits, or otherwise disposing of or dealing with such assets in the ordinary course of business, and for the purpose of carrying on the same, but that the Company should not create any mortgage or charge ranking in priority to or pari passu with the debenture stock. From time to time the Company disposed of raw pot-still whiskey to one C. The transactions, of which there were six prior to March, 1906, were treated as sales in the Company's books, and C. paid to the Company the full market price for the whiskey. In the case of each lot of whiskey, the Company gave to C. a collateral guarantee in the form of a deed poll, in which the whiskey was referred to as “assigned or pledged,” the Company undertaking the burden of custody, storage, and insurance, and the whiskey remaining in the Company's bonded warehouse; but being transferred in the Excise books into C.'s name. The guarantee contained the following words: “we may or will redeem or repurchase the said whiskey in four years at a profit to you of 10 per cent., simple interest on the price paid” It was proved that this pot-still whiskey took four years to mature, and appreciated during the four years 15 per cent. per annum. The Company went into liquidation, and the debenture-holders obtained the appointment of a receiver, who was also appointed liquidator. C. brought an action against the Company and against the receiver and liquidator claiming delivery of the six lots of whiskey which remained in the Company's bonded warehouse, and in the alternative, claiming a declaration that he was entitled to a good and valid pledge, lien, or charge, upon the said whiskey in priority to any claims of the debenture-holders. It was proved at the trial that prior to March, 1906, C. had no notice, actual or constructive, of the debentures, or of the contents of the trust deed.

Held, that the six whiskey transactions were not sales but pledges or mortgages, but that C. being a pledgee or mortgagee for value without notice, was entitled to the declaration which he claimed.

2. In March, 1906, C. received notice of the debentures and of the restrictive clause in the trust deed. Legal advice was taken, and, in view of the doubts which were raised as to the effect of the six previous transactions, an agreement was drawn up in which the Company agreed, inter alia, to relinquish their right to redeem the six lots of whiskey.

Held, that whatever the effect of this agreement might be as regards the right of redemption, it did not deprive C. of any rights which he had acquired as against the debenture-holders, by reason of the previous transactions having been for value and without notice.

3. After March, 1906, the Company disposed of two other lots of whiskey to C., accompanied by a new form of guarantee agreement in which the references to pledge and redemption were struck out, and it was made clear that the whiskey was to be the property of C., and that the Company could not insist on a repurchase, but that C. had an option to require the Company to repurchase after the expiration of four years. The agreements were framed under legal advice so as to constitute sales, and transfer the property in the whiskey to C.

Held, that the transactions were not pledges, nor mortgages in disguise; but were sales.

Yorkshire Railway Wagon Co. v. Maclure (21 Ch. D. 309) applied.

Held, also, that they were transactions “in the ordinary course of the Company's business” within the meaning of the restrictive clause in the debenture trust deed.

Trial of Action.

The statement of claim averred:—

(1) That the plaintiff, on 10th December, 1903, purchased from the defendant Company twenty-nine butts of whiskey, numbered respectively 1778 to 1806, then in the bonded warehouse at Earl's Island, Galway, for the sum of £549 10s., less discount for cash, which amounted to £52 6s. 8d., making a net cash price of £497 3s. 4d., which was paid by the plaintiff to the defendant Company. Immediately after such purchase the said twenty-nine butts were duly transferred into the plaintiff's name in the said bonded warehouse. One of the said butts was subsequently delivered to the plaintiff, and the remainder are still in bond in the plaintiffs name at Galway.

(2) In the month of January, 1904, the plaintiff purchased from the defendant Company for the sum of £435 1s. 2d., which was paid by the plaintiff to the said Company, fifty hogsheads of whiskey, numbered 2032 to 2081, then in bond at Galway. Immediately after such purchase the said fifty hogsheads were duly transferred into the plaintiff's name in the said bonded warehouse. One of the said hogsheads was subsequently delivered to the plaintiff, and the remainder are still in bond in the plaintiff's name in Galway.

(3) In the month of March, 1904, the plaintiff purchased from the defendant company for the sum of £433 15s., which was paid by the plaintiff to the said Company, twenty-five butts of whiskey, numbered respectively 193 to 217, then in bond in Galway. Immediately after such purchase the said twenty-five butts were duly transferred into the plaintiff's name in the said bonded warehouse. One of the said butts was subsequently delivered to the plaintiff, and the remainder are still in bond in the plaintiff's name at Galway.

(4) In the month of December, 1904, the plaintiff purchased from the defendant Company, for the sum of £998 18s. 6d., which was paid by the plaintiff to the said Company, fifty-eight butts of whiskey, numbered respectively 608 to 665, then in bond at Galway. Immediately after such purchase the said fifty-eight butts were duly transferred into the plaintiff's name in the said bonded warehouse. One of the said butts was subsequently delivered to the plaintiff, and the remainder are still in bond in the plaintiff's name at Galway.

(5) In the month of May, 1905, the plaintiff purchased from the defendant Company, for the sum of £390 3s. 1d., which was paid by the plaintiff to the said Company, fifty hogsheads of whiskey, numbered respectively 780 to 829, then in bond at Galway. Immediately after such purchase the said fifty hogsheads were duly transferred into the plaintiff's name in the said bonded warehouse. One of the said hogsheads has since been delivered to the plaintiff, and the remainder are still in bond in the said plaintiff's name at Galway.

(6) In the month of December, 1905, the plaintiff purchased from the defendant Company, for the sum of £2387 14s. 8d., which was paid by the plaintiffs to the said Company, 227 hogsheads and 14 butts of whiskey, numbered respectively 62 to 139, 140 to 160,189 to 197, 415 to 429,433 to 453, 497 to 502, 504 to 547, 579 to 592, and 690 to 723, then in bond at Galway. Immediately after such purchase the said 227 hogsheads and 14 butts were duly transferred into the plaintiff's name in the said bonded warehouse. Of these, thirty-two hogsheads have since been delivered to the plaintiff or to his order, and the remainder are still in bond in the plaintiff's name at Galway.

(7) On the 7th July, 1906, the plaintiff purchased from the defendant Company, for the sum of £1296 13s. 11d., which was paid by the plaintiff to the said Company, eighty-two butts and six hogsheads of whiskey, numbered respectively 752 to 772, 849 to 867, 869 to 903, 954 to 959, and 960 to 966, then in bond at Galway. Immediately after such purchase the said eighty-two butts and six hogsheads were duly transferred into the plaintiff's name in the said bonded warehouse. Of these, two butts and one hogshead were delivered to the plaintiff, and the remainder are still in bond in the plaintiff's name at Galway.

(8) On the 7th July, 1906, the plaintiff purchased from the defendant Company, for the sum of £1203 18s., which was paid by the plaintiff to the said Company, 158 hogsheads of whiskey, numbered respectively 939 to 964, 119 to 237, 293 to 305, then in bond at Galway. Immediately after such purchase the said 158 hogsheads were duly transferred into the plaintiff's name in the said bonded warehouse. Of these, three hogsheads have been delivered to the plaintiff, and the remainder are still in bond in the plaintiff's name at Galway.

(9) In the month of October, 1906, the plaintiff purchased from the defendant company for the sum of £386 17s. 11d. (which has not yet been paid by the plaintiff to the said company) sixty hogsheads of whiskey numbered respectively 904 to 953, and 1013 to 1052 then in bond at Galway. Immediately after such purchase the said sixty hogsheads were duly transferred into the plaintiff's name in the said bonded warehouse. None of the said hogsheads have been delivered to the plaintiff, and all of them are still in bond in the plaintiff's name at Galway.

(10) By an order of Mr. Justice Barton, dated the 21st November, 1906, made in an action in which Wilfred Fitzgerald is plaintiff and the defendant company is defendant, being an action on behalf of certain mortgage debenture-holders on the property of the defendant company, the defendant Sir Robert Gardner was appointed receiver over and manager of the property and assets of the defendant company, and by an order of Mr. Justice Barton, dated the 21st November, 1906, and made on the petition of...