Gamer's Motor Centre (Newcastle) Pty Ltd v. Natwest Wholesale Australia Pty Ltd

163 CLR 236
72 ALR 321

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(Judgment by: Dawson J)

Between: Gamer's Motor Centre (Newcastle) Pty Ltd
And: Natwest Wholesale Australia Pty Ltd

Court:

Judges: Mason CJ
Brennan J

Dawson JToohey J
Gaudron J

Subject References:
Sale of Goods

Hearing date: 3 March 1987
Judgment date: 24 July 1987

Sydney (heard in Canberra)

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Judgment by:
Dawson J

Gamer's Motor Centre (Newcastle) Pty. Ltd. ("Gamer") is a motor vehicle wholesaler and Evans & Rose Motors Pty. Limited ("the Dealer") is a dealer in motor vehicles selling to the public.  Natwest Wholesale Australia Pty. Ltd.  ("Natwest"), formerly called Lombank Finance Pty. Limited, is a finance company which had a floor plan agreement with the Dealer to finance the purchase of stock by the latter.

Gamer sold eight motor vehicles to the Dealer which took possession of them, although under the terms of sale property was not to pass until payment was made in full. Gamer gave the Dealer seven days to pay.  After the sale of the vehicles to the Dealer, but before the seven days were up and before payment, the Dealer purported to resell them to Natwest under the floor plan agreement. The Dealer did not part with possession of the vehicles but each sale was evidenced by a document headed "Delivery Receipt for Trade-in or Used Vehicles". Each such receipt was issued by Natwest and was signed by a representative of the Dealer. Natwest paid to the Dealer ninety per cent of the agreed price of each vehicle pursuant to the terms of the floor plan agreement.  Under that agreement property in the vehicles was to pass to Natwest upon that payment being made and the Dealer was to take the vehicles on hire and keep them in its own possession as bailee for Natwest for display purposes.  The Dealer was to seek offers (but not as agent for Natwest) to purchase the vehicles or to take them on hire-purchase and upon being advised by the Dealer of an offer in respect of a vehicle, Natwest might sell the vehicle to the Dealer.  The bailment would then end in respect of that vehicle but it would also end under the terms of the agreement by Natwest's taking or demanding possession of the vehicle and in various other ways.

The Dealer failed to pay Gamer for the vehicles and Gamer seized them. Natwest sued Gamer in detinue and conversion for the return of the vehicles or, alternatively, their value.  The trial judge found in favour of Natwest upon the basis that there had been a variation of the agreement between Gamer and the Dealer authorizing the Dealer to sell the vehicles.  That finding was not upheld upon appeal by Gamer to the New South Wales Court of Appeal and need no longer concern us.  Natwest also succeeded in the Court of Appeal, but this time upon the basis that s 28(2) of the Sale of Goods Act 1923 (NSW) applied. Section 28 provides: 

"(1)

  Where a person having sold goods continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.

(2)

  Where a person having bought or agreed to buy goods obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have the same effect as if the person making the delivery or transfer were a mercantile agent intrusted by the owner with the goods or documents of title.

(3)

  In this section the term 'mercantile agent' means a mercantile agent having in the customary course of his business as such agent authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods."

That section must be read with s 5(1) of the Factors (Mercantile Agents) Act 1923 (NSW) which provides: 

"Where a mercantile agent is entrusted as such with the possession of any goods or the documents of title to goods, any sale pledge or other disposition of the goods made by him in the ordinary course of business of a mercantile agent shall, subject to the provisions of this Act, be as valid as if he were expressly authorised by the owner of the goods to make the same:

Provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition notice that the person making the disposition has not authority to make the same."

The Dealer was a buyer in possession within the meaning of s 28(2) pursuant to the sale of the vehicles to it by Gamer.  However, it was submitted by the appellant that the sub-section had no application because there was no delivery of the vehicles by the Dealer to Natwest and since the sub-section operates upon delivery, rather than the preceding sale (see Cahn v. Pockett's Bristol Channel Steam Packet Company [1899] 1 QB 643 ), property did not pass under it to Natwest.

In putting the submission that way, it is assumed that the sub-section, if it applied, operated to pass property in the goods to Natwest.  In fact the sub-section says that the disposition "shall have the same effect as if the person making the delivery or transfer were a mercantile agent intrusted by the owner with the goods".  That carries one to s 5(1) of the Factors (Mercantile Agents) Act to discover what the effect of delivery by a mercantile agent would be and the answer is that a mercantile agent could pass property in goods which he did not own and was not authorized to sell providing he was acting in the ordinary course of business of a mercantile agent.  Since delivery by a buyer in possession who is not a mercantile agent (and s 28(2) is predicated upon that situation) will not be in the ordinary course of business of a mercantile agent, a literal reading of s 28(2) of the Sale of Goods Act and s 5(1) of the Factors (Mercantile Agents) Act would defeat the evident intent of the legislation. There is no such difficulty with s 28(1) which gives the disposition the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same.  Notwithstanding the difference in wording between s 28(1) and s 28(2), the better view upon the authorities seems to be that s 28(2) and s 5(1) should be read together to achieve much the same effect as s 28(1). That was the view adopted of the equivalent South Australian provisions in Langmead v. Thyer Rubber Co. Limited (1947) SASR 29, where Reed J. said at p 39: 

"Section 25(2) of the Sale of Goods Act contains no stipulation that any sale etc. under which goods are delivered or transferred must, in order to be effective, be made in any particular manner, such as in the course of the business of a mercantile agent.  The meaning of s 25(2) appears to be that where, for example, a sale by a person who has bought or agreed to buy goods has taken place, if the conditions therein stated are satisfied, the delivery or transfer of the goods is to have the same effect as if a sale of the goods had been legally effected by a mercantile agent, i.e., made by him when acting in the ordinary course of business as a mercantile agent."

The same construction of the equivalent provisions was adopted in Lee v. Butler [1893] 2 QB 318 and by the New Zealand Court of Appeal in Jeffcott v. Andrew Motors Ltd. (1960) NZLR 721, at p 729.  See also Atiyah, The Sale of Goods, 7th ed. (1985), pp 301-302; Dean, Hire-Purchase Law in Australia, 2nd ed. (1938), pp.54-56; Else-Mitchell and Parsons, Hire-Purchase Law, 4th ed. (1968), pp.211-214.

However in Newtons of Wembley Ltd. v. Williams [1965] 1 QB 560 the English Court of Appeal thought that, in order to give some effect to the difference in wording between the two parallel provisions, the buyer in possession must somehow be treated as a notional mercantile agent so that the question is whether the sale would have been in the ordinary course of business if he had been a mercantile agent.  In that case the buyer satisfied that test as would the Dealer in this case were the more restrictive approach to be adopted.  It may be added that no question was raised concerning the bona fides of Natwest or that notice of the Dealer's lack of authority had been given.

The transaction between the Dealer and Natwest involved no change in the physical possession, or actual custody, of the vehicles and it is upon that basis that the appellant submitted that there was no delivery of them to Natwest within the meaning of s 28(2).  "Delivery" is defined in s 5(1) of the Sale of Goods Act to mean "voluntary transfer of possession from one person to another" and if "possession" were to be read to mean "physical possession", then the appellants would succeed.  But possession, or at all events the transfer of possession, has never been regarded by the law as confined to physical possession and it is expressly provided by s 4(2) of the Sale of Goods Act that the rules of the common law, save in so far as they are inconsistent with the express provisions of the Act, shall continue to apply to contracts for the sale of goods. This indicates, in a general if not specific sense, that the words of the Act should, where they have a legal signification, be given their accepted meaning.

It is true that in Pacific Motor Auctions Pty Ltd v Motor Credits (Hire Finance) Ltd. [1965] AC 867 , the Privy Council, in determining when a seller continues or is in possession of goods for the purpose of s 28(1), read the sub-section as being inapplicable in cases where there had been a break in the continuity of physical possession. There could be no difference in this respect between s 28(1) and s 28(2).  However, that construction, whilst supported by the history of the legislation, was based upon the object of the section which is to protect innocent purchasers from being deceived by the appearance of ownership which goes with uninterrupted possession.  That same object could not be assisted by requiring a transfer of physical possession in order to effect delivery.  In any event, there could be no warrant for construing the word "possession" in the definition of "delivery" in s 5(1) by reference to the word "possession" in s 28, having regard to the quite different context in which it appears.

In Pollock and Wright, Possession in the Common Law, (1888), Ch.II, Part 7 (written by Sir Frederick Pollock), it is pointed out that the authorities upon acceptance and receipt within the Statute of Frauds show that there are several ways in which a change of possession may take place without any change in actual custody.  Such a change of possession, it is said, is commonly spoken of as constructive delivery.  Section 17 of the Statute of Frauds (1677), which is now to be found in s 9 of the New South Wales Sale of Goods Act, dispenses with the requirement of a written contract where the buyer accepts part of the goods sold and actually receives the same, but the cases dealing with acceptance and receipt are not merely concerned with the construction of those words in their statutory context.  They have a wider significance which extends to the whole question of the manner in which possession in goods may be transferred, receipt and possession being entwined concepts.

The first of the three examples given by Sir Frederick Pollock is where a seller in possession assents to hold the thing sold on account of the buyer: Pollock and Wright, op. cit., pp 72-73.  This, he says, has the same effect as physical delivery to the buyer.  By way of illustration two cases are cited. In Elmore v. Stone (1809) 1 Taunt 458 (127 ER 912) the defendant bought two horses from the plaintiff, who kept a livery stable, and required the plaintiff to keep them at livery for him.  The plaintiff then put the horses in another stable kept for other people's horses and for which a charge was made.  The plaintiff sued for the price of the horses.  Lord Mansfield at p 460 (E.R. at p 913) observed that it was a case of constructive delivery: from the time the plaintiff accepted the defendant's order, he possessed the horses, not as owner, "but as any other livery stable keeper might have them to keep".  They were in effect in the defendant's possession.  In Marvin v. Wallace (1856) 6 El & Bl 726 (119 ER 1035), the second illustration given, the plaintiff sued for the price of a horse which he had sold to the defendant. The bargain was for immediate delivery but the defendant lent the horse to the plaintiff until he got another. It was held that there was acceptance and receipt by the defendant.  Elmore v. Stone was applied, Coleridge J. regarding it as a case in which apparent possession remained unchanged but in which the character of the possession was altered.

The second example of constructive delivery given by Sir Frederick Pollock is where goods are in the custody of a third person and the seller and buyer agree, with the assent of that person, that they shall be held in the name or on account of the buyer:  Pollock and Wright, op. cit., pp 73-74. This he describes as an agreement of attornment. Delivery by attornment is recognized in the rules as to delivery in the New South Wales Sale of Goods Act. Section 32(3) of that Act provides that where "the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf ...".  This provision, when read in conjunction with the definition of "delivery" in s 5(1) further indicates that the term "possession" in that definition is to be given its full legal significance.

The third example of constructive delivery given by Sir Frederick Pollock is where the buyer is in possession of the goods as the seller's bailee: Pollock and Wright, op. cit., pp 74-75.  In that case there may be a sufficient acceptance and receipt of the goods by the change in the character of possession notwithstanding that there is no change in physical possession.

In Dublin City Distillery, Limited v. Doherty [1914] AC 823 Lord Atkinson reviewed the cases on constructive delivery and reaffirmed the authority of Elmore v. Stone. Cf. Proctor v. Jones (1826) 2 Car & P 532 (172 ER 241). The principle extracted by Lord Atkinson was that "if a vendor who has sold goods should, after the sale has been completed, agree with the vendee to retain the physical possession of the goods, but on such terms that the nature and character of his former possession is changed from that of owner to that of bailee for the purchaser, that transaction will amount to an acceptance and actual receipt of the goods within the 17th section of the Statute of Frauds, and necessarily to a good constructive delivery sufficient to create a pledge": p 844.  See also Lord Parker at p 852.  In Minister for Supply and Development v. Servicemen's Co-operative Joinery Manufacturers Ltd. (1951) 82 CLR 621 , at p 641, Williams J. repeated an observation made earlier by himself and Kitto J. in Akron Tyre Co. Pty. Ltd. v. Kittson (1951) 82 CLR 477 , at p 494 relying upon the authorities already mentioned above: 

"It is well established that constructive delivery sufficient to pass the title in chattels may be effected by a change in the character of an uninterrupted custody."

See also Minister for Supply and Development v. Servicemen's Co-operative Joinery Manufacturers Ltd. at pp 635, 643; Mills v. Charlesworth (1890) 25 QBD 421 , at p 425.

Delivery is sometimes said to be constructive where it is symbolic as, for example, where the keys to goods kept under lock and key are handed over. Sir Frederick Pollock doubted that in such circumstances, at least where control of the goods went with the key, there was a mere symbolic transfer of possession: see Pollock and Wright, op. cit., p 61.  He preferred the view that there was a transfer of control in fact which constituted a change in possession. For it is control which is central to the notion that possession in law may consist of something other than physical or actual possession.

In the present case, the Dealer was not only a buyer in possession pursuant to the sale of the vehicles to it by Gamer, but also a bailee of the vehicles from Gamer, property not having passed.  An obligation to redeliver the goods to the bailor at the conclusion of the bailment is no longer a necessary feature of bailment:  Motor Mart Ltd. v. Webb (1958) NZLR 773.  This is exemplified by the modern hire-purchase agreement under which the hirer is a bailee, but is under no obligation to return the goods if he exercises the option to purchase: Karflex, Ltd. v. Poole [1933] 2 KB 251 , at pp 263-264. The fact that the Dealer was the buyer of the vehicles was, therefore, no impediment to his being also a bailee of them until such time as property passed to him or the bailment was otherwise determined.  See the discussion in Palmer, Bailment, (1979), pp.4-5. The classification of the Dealer's right to possession is, however, less important than the fact, for that right carried with it the capacity to pass control in such a way as to amount to a constructive delivery of the goods.  The Dealer might have physically delivered the vehicles to Natwest pursuant to the sale by it to Natwest. There would then have been a delivery for the purposes of s 28(2).  In fact it sold the vehicles to Natwest and agreed at the same time to take them on hire from Natwest, thus creating a bailment.

That bailment was not created by way of attornment nor was it a sub-bailment.  But it is important to recognize that just as with attornment or sub-bailment delivery may be effected constructively by an alteration in control without any change in physical possession, so in this case the simultaneous sale by the Dealer to Natwest and the acknowledgment by the Dealer of the passing of control to Natwest was sufficient to constitute a constructive delivery of the vehicles by the Dealer to Natwest.  The character of the possession of the vehicles by the Dealer was altered. The same would have been so had there been an attornment or sub-bailment, but in this case, upon delivery, property simultaneously passed under s 28(2) from Gamer through the Dealer to Natwest, and any bailment of the vehicles by Gamer to the Dealer came to an end at the same time as the bailment by Natwest to the Dealer came into existence.  The bailment of the vehicles by Natwest to the Dealer was a fresh bailment which was neither in substitution for any bailment between Gamer and the Dealer nor a sub-bailment.

The argument put by the appellant, as I understand it, went further than to contend that, merely as a matter of construction, the delivery of goods referred to in s 28(2) must be confined to a physical delivery.  It was submitted that even if the creation of a bailment between Natwest and the Dealer could amount to a constructive delivery, the Dealer was, without the aid of s 28(2), unable to pass property in the vehicles to Natwest and it was only if it could do that that the latter could make the Dealer its bailee.

That argument, however, fails to recognize that the Dealer, being in possession of the vehicles, was capable not only of effecting a physical delivery of them to Natwest, but was also capable of altering the character of its possession of the vehicles in such a manner as to amount to a constructive delivery of them.  Constructive delivery is not dependent upon the deliveror having, or being able to pass, property in the goods delivered.  Of course, the possessory rights conferred would, save for some such provision as s 28, be liable to be defeated by the true owner.  But property or title is something different from possession and a person in actual possession, being able to deliver goods by physically handing them over to another, must be in a position to effect constructive delivery by acknowledging control of the goods in that other without an alteration in physical possession.  If it were otherwise a mere token handing over of possession and an immediate handing back would suffice to effect delivery whereas an express agreement for the transfer of control would not. That would be quite artificial.

Thus constructive delivery by the Dealer was not dependent upon the application of s 28(2), although at the same time as constructive delivery took place, the sub-section applied to pass property in the goods.  Such a result is entirely consistent with the underlying policy of the sub-section which is to afford protection to an innocent purchaser relying upon the apparent ownership of a vendor who is a buyer in possession under a previous sale.

It remains only to deal with two authorities which the appellant submitted were concluded in his favour.  The first was Nicholson v. Harper (1895) 2 Ch 415 in which a merchant sold wine stored in the cellars of a warehouseman and afterwards pledged the wine to the warehouseman for advances made in good faith without notice of the sale.  It was held that the pledge conferred no title to the wine.  In that case, however, it was held that there had been no transfer of possession, constructive or otherwise, since the custody of the wine remained with the warehouseman from beginning to end.  The warehouseman was not informed of the sale of the wine and did not attorn to the purchaser.  He continued to hold the wine for the merchant and in designating the wine as security for the loan by the warehouseman to the merchant, the latter neither handed over the wine physically nor effectuated a change in the character of the warehouseman's possession which could amount to a constructive delivery to him.  There was no attornment by the warehouseman, which is hardly surprising since the warehouseman would be both attornor and attornee.  The case is not, in my view, authority for the proposition that actual delivery is required for the application of a provision such as s 28(2).  Even if upon a contrary view the character of the warehouseman's possession of the wine changed by his becoming pledgee rather than bailee, there was no consideration of the question of constructive delivery nor, apparently, was it thought to be necessary. Cf. Sutton, Sales and Consumer Law in Australia and New Zealand (1983), p 336.

The second case is Bank of New South Wales v. Palmer (1970) 2 NSWR 532. In that case a boat-builder gave to the plaintiff bank a bill of sale over a boat which he was building for the defendant under an agreement which provided that the property in the boat was to pass to the defendant from the commencement of construction.  The boat-builder remained in possession of the boat throughout. The bank, relying on s 28(1) of the Sale of Goods Act, sought to take possession of the boat upon the bankruptcy of the boat-builder and to sell it.  Helsham J. held that s 28(1) had no application and expressed the view that "the words of the section must be read in a way that restricts their operation to cases in which ... a change in physical possession of goods or title deeds occurs":  see p 536.  For the reasons which I have already given I cannot accept that view, but it must be said that it does not appear whether any attornment clause was contained in the bill of sale or whether the question of constructive delivery was argued at all.

I would dismiss the appeal.