Franov v Deposit & Investment Co Ltd [1962] HCA 45

High Court of Australia Dixon C.J. Menzies and Owen JJ. Franov v Deposit & Investment Co Ltd [1962] HCA 45

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.

Cur. adv. vult.

The following written judgments were delivered:—

Aug. 30 Dixon C.J.

This appeal from a decretal order made on an originating summons by Jacobs J. was argued upon two grounds. The purpose of the originating 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 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 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 principal and interest in arrear. The two plaintiffs thereupon paid the company £415 and a fortnight later a further £200 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 hotwater 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. 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.