Edward Dohertt v Frederick H. Kennedy, William Findlater, and The Dublin City Distillery Company, Ltd

• Jurisdiction: Ireland
• Judge: Barton, J.
• Judgment Date: 17 May 1912
• Court: Court of Appeal (Ireland)
• Docket Number: (1909. No. 1145.)
• Date: 17 May 1912

Edward Doherty

and

Frederick H. Kennedy, William Findlater, and the Dublin City Distillery Company, Limited.

Barton, J.

Appeal.

(1909. No. 1145.)

CASES

DETERMINITD 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.

1912.

Company — Debentures — Pledge — Priority — Validity of pledge — Constructive delivery — Warrant — Bill of sale — Registration — Companies Act, 1900, sect. 14 — Bills of Sale (Ireland) Act, 1879, sect. 4.

A distillery company, with power to create debentures and to borrow on mortgage, having issued a first series of debentures, proceeded to issue a second series of debentures, which provided that, although nothing therein contained should be taken to authorize the creation of any mortgage or charge on the property of the company in priority to such debentures, the company might by delivery warrants or other means pledge to their bankers or others their manufactured whiskey, to secure advances for the purposes of the company's business. The piaintiff advanced moneys to the company on the security of their manufactured whiskey lying in the bonded warehouse of the company as follows:—On the occasion of each advance the name of the plaintiff was entered in the company's stock-book opposite the particulars of whiskey intended to be pledged, and a delivery warrant and invoice, each containing particulars of such whiskey, were delivered to the plaintiff. The assets of the company, including the whiskey pledged to the plaintiff, were realized by the receiver appointed in an action brought on behalf of the first debenture-holders of the company, and proved insufficient to pay the plaintiff's claim and those of the second debenture-holders in full. In an action brought by the plaintiff against the trustees for the second debenture-holders, and the company:

Held, by the Court of Appeal (the Lord Chancellor and Holmes, L.J., affirming Barton, J.; Cherry, L.J., dissenting), (1) that the agreement to pledge, followed by the transfer of specific whiskey into the plaintiff's name in the books of the company, effected a valid pledge of the whiskey so transferred, independently of the warrants; and that the plaintiff was entitled to the security so obtained in priority to the second debenture-holders; (2) that the warrants delivered to the plaintiff did not require registration as bills of sale under section 14 (c) of the Companies Act, 1900, and s. 4 of the Bills of Sale (Ireland) Act, 1879. Per Holmes, L.J., that the warrants came within the class of documents excluded from section 4 of the Bills of Sale (Ireland) Act, 1879, as being “documents used in the ordinary course of business as proof of the possession or control of goods.” Held, by Cherry, L.J., that the transactions between the plaintiff and the company amounted to mortgages of the whiskey, and not pledges; that there was no constructive delivery of possession of the whiskey to the plaintiff; and that the warrants required registration as bills of sale.

This action (omitting certain claims not material for the purposes of this report) was brought by the plaintiff, seeking a declaration that he had become entitled to a good and valid pledge on certain whiskies which had been sold in the course of the liquidation of the defendant company, in priority to the holders of the second debentures of the company, and for consequential relief.

The company was incorporated in the year 1890 under the Companies Acts, 1862 to 1886, for the purpose of carrying on the business of whiskey distillers at Dublin and elsewhere; and by its memorandum of association it was empowered to borrow money secured by mortgage or debentures charged on all or any of the property of the company. In September, 1890, the company raised the sum of £35,000 by the issue of a first series of 350 debentures (1). In November, 1895, the company raised a further sum of £25,000, by a second series of debentures, which were subject (inter alia) to the following conditions:—“Nothing herein contained shall be taken to authorize the creation of any mortgage or charge on the property for the time being of the company in priority to the charge hereby created, with this exception, that the company may, from time to time, pledge to their bankers, or others, by delivery warrants or other means, their manufactured whiskey, and the barrels and vessels containing the same, to secure an advance or advances for the purposes of the company's business.”

In the course of its business the company borrowed from its bankers considerable sums of money, portion of which, amounting to

£2000, was secured to the bank by the joint and several guarantee of the plaintiff (who was a director of the company) and others; and the plaintiff was compelled to pay on foot of his guarantee, and otherwise advanced to the company, in the years 1905–1908 sums amounting to upwards of £2550, which advances were secured in the following way:—The company held a large stock of manufactured whiskey in numbered casks in its Dublin bonded warehouse, one keg of which was in the custody of the Excise authorities. A record of this whiskey was kept in the company's stock-book, containing particulars of the whiskey, the number of the warrant, the number of the cask, and the amount of the whiskey, &c. On the occasion of each advance made by the plaintiff, the company purported to pledge certain casks of whiskey as a security for the advance by entering the name of the pledgee in pencil in the stock-book, opposite the particulars of the whiskey pledged; the transaction was further recorded in a second book called “the register of mortgages,” in which particulars of the pledged whiskey were set out, with the names of the pledgees.

At the same time a delivery warrant was handed to the pledgee, which was in the following form:—

“

Warrant for Butts and Hhds. D. C. D. Pot Still Whiskey, bonded May, 1901, and March, 1903, as per particulars underneath. Deliverable to Edward Doherty, Esq., Dublin, or assigns by endorsement hereon, on payment of rent from, and all other charges from date hereof.

Free storage.

(Then followed full particulars of the whiskey pledged.)

The Dublin City Distillery, Ltd.

(Great Brunswick Street, Dublin).

Entered

A. B., ler. A. J. W. Horns, Secretary.”

An ordinary trade invoice, containing full particulars of the, whiskey being dealt with, was also delivered to the pledgee, and, nothing further was done by way of physical delivery of possession of the whiskey. No intimation of the pledges was given to the Excise authorities, and a certain delivery order on a yellow form, which, in the routine of the Customs Office, it was usual to fill up, on removal of whiskey from the bonded warehouse after payment of duty, was never used on the occasion of these pledges.

On the occasion of actual sales of the pledged whiskey by the company, the warrants held by the plaintiff, and affecting the whiskey sold, were delivered up to be cancelled, and thereupon new whiskey was pledged to the plaintiff in the same manner as before, a new warrant and invoice being delivered to him.

On the 15th July, 1905, the defendant company passed a resolution to wind up, and the assets of the company were realized by the receiver in the action of Cox v. Dublin City Distillery Company (1), to whom the plaintiff had handed the warrants of the whiskies pledged to him without prejudice to his own rights. The assets proved more than sufficient to satisfy the claims of the first debenture-holders and of the plaintiff, but were insufficient (after payment of the first debenture-holders) to pay the claims of the plaintiff and of the second debenture-holders and other creditors of the company. The present action was brought by the plaintiff on the 6th day of December, 1909, against the two first-named defendants as trustees for the second debenture-holders in the company, and the liquidator of the company, who defended in the company's name.

The defendants pleaded that the transactions between the plaintiff and the company did not constitute a good and valid pledge or charge of the whiskey of the company, inasmuch as they did not contain the essentials of a common law pledge; that they did not constitute a charge at all, and that if such transactions amounted to a charge or pledge they were rendered void by

reason of not having been registered pursuant to the Companies Act, 1900(1).

The action was tried before Mr. Justice Barton, who gave judgment on the 29th March, 1911.

The arguments were substantially the same as in the Court of Appeal.

(1) Section 14 of the Companies Act, 1900, is as follows:—

Every mortgage or charge created by a company after the commencement of this Act and being either—

(a) A mortgage or charge for the purpose of securing any issue of debentures; or

(b) A mortgage or charge on uncalled capital of the company; or

(c) A mortgage or charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale; or

(d) A floating charge on the undertaking or property of the company,

shall, so far as any security on the company's property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company, unless filed with the registrar for registration in manner required by this Act within twenty-one days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured.

Section 4 of the Bills of Sale Act, 1878 (to which section 4 of the Bills of Sale (Ireland) Act, 1879, corresponds), is as follows:—

The expression “bill of sale” shall include bills of sale, assignments, transfers, declarations of trust without transfer, inventories of goods with receipt thereto attached, or receipts for purchase-moneys of goods and other assurances of personal chattels, and also powers of attorney, authorities, or...