Bankruptcy-Fraudulent preference-Chattel subject to creditor's mortgage re-
maining in debtor's possession

Legal Circulars-Authority as law

By a document executed before the Mamur in 1927, the respondent
purported to mortgage his ship to secure repayment of a debt owing by him
to the appellant. The respondent remained in possession of the ship until
his death in 1929. His estate was then insolvent and the appellant claimed
to enforce the charge.

The District Judge held that the appellant was not a secured creditor
and that the mortgage was invalid against other creditors who had no no-
tice thereof until after the respondent's death. The Court of Appeal held
that an agreement enabling one creditor to seize a chattel remaining in the
debtor's possession must have the effect of prejudicing the rights of other
credito~ who have been reasonably misled to believe that the debtor's pas-
sessioii was evidence of absolute ownership, and therefore the document of
1927 cannot have priority against creditors having no notice of i:t.

/Mansour El Shouchi and Others v. Abu' Fatma Sharif A~-APP-3~1920;
1 S.L.R. 147.

• Court: Owen C.J., Halford and Gorman JJ.

Manchester Railway Co. v. North Central Wagon Co. (1888) 13 App. Cas.

554.

Charlesworth v. Mills [1892] A.C. 231.
Civil Justice Ordinance 1929, s. 9.
English Bill of Sales Act 1882, s. 8.

Land Settlement and Registration Ordinance 1928.

Appeal

December 8, 1930. Owen C.J.: On January 22, 1927, there
was executed before the Mamur, Suakin, a document which purported
to secure the repayment of the sum of £E.100 then due and owing
by the respondent to the appellant by the mortgage of the farmer's
ship or sambook, "Marzouka," to the appellant for a period of two
months. At the expiry of that period, if the. sum so secured were not
paid in full, the appellant could seize and sell the sambook by auction,
and reimburse himself from the proceeds accordingly. The sambook
remained in the possession of respondent until his death in 1929,
when the amount of the debt had fallen to £E.78.940 m/ms, His
estate is now being administered, and it is found to be insolvent. The
District Judge has held that the appellant is not a secured creditor;
that the vessel having remained in the apparent possession of the
mortgagor, the- mortgage should not be considered valid as against
those creditors who had no notice until after the respondent's death.
From that decision the appellant has appealed.

The document upon which he relies to support his claim was
given by way of security for the payment of the money. It gave to
the creditor a right at some future time to seize the chattel to which
it related. That right did not arise until the happening. of a certain
event, and until seizure took place the chattel remained, and was
intended to remain, in the possession of the debtor. It was, in effect,
a bill of sale given for the purpose of securing the repayment of the
SUTtl of £E.100, or whatever sum was due at the expiry of ~o
months from the date of execution.

The question is whether or. not this document, upon which the
appellant must rely in order to prove his right, is valid as against
the other creditors of the estate who have had no notice of it. I
agree with the learned Judge in thinking that it is invalid. If it is
to be valid, it can only become so against those who know of it and
give credit in that knowledge. And this is so even where there is
no mala fides.

It is true that the appellant took the document and had it executed
before the Mamur, and by doing so may have thought that he was
securing as much publicity to the transaction as was reasonably
possible. But it is not enough. The law looks with disfavour upon
all assurances of personal chattels which involve changes in the rights
of ownership without corresponding change of possession or other
evidence of the transaction. A secret agreement enabling one creditor
to seize a chattel remaining in the debtor's possession must have the
effect of prejudicing the rights of others, who have been reasonably
misled to believe that the debtor's possession was evidence of absolute
ownership. W~re the law otherwise, grave mischief might be done
by such secret assurances and mortgages.

In England necessary notice is effected by registration of these
bills of sale. It is a matter for the legislature to consider the necessity
of providing similar safeguards in this country. I am not called upon
to express an opinion on the subject generally, but I believe that
registration of such documents as that now under review might easily
be effected and all rights reasonably secured by providing for registra-
tion of mortgages of sambooks in the register already existing for the
registration of their ownership.

For the above reasons I am of opinion the appeal should be
dismissed with costs. .

Halford J: I agree with extreme reluctance that the appeal must
be dismissed. In my opinion, on the meagre evidence before us, the
appellant took sue. 1 steps as he knew of to warn subsequent creditors
of the respondent that the latter had hypothecated his principal asset
to secure repayment of the debt. It is difficult to regard a sambook
in the light of a movable chattel, and in civilised countries ships can
be mortgaged effectively.

The very name of the respondent's family reeks of the s~a. A
Gabtan (Captain) is the owner of a sambook, and that sambook is
his house and home, an asset on which money can be raised when
times are bad, an asset to the seafarer as immovable as bricks and
mortar (or their local equivalent) to the landsman. The natives of
this country may plead ignorance of the forms required by law to
cloak certain transactions, but one and all know that a wasiga of
mortgage unregistered is a valueless security against the registered
wasiga of a subsequent mortgagee; and that, if they take J;l0 steps
to effect registration before the proper authority, they risk the loss of

475

THE SUDAN LAW REPORTS

their security. And yet, to' evade payment of fees, it is rare that the
illiterate and lower classes proceed to register dispositions of their
immovables.

But the appellant, in his ignorance, throught that he had complied
with the requirements of the law. In his petition to the District
Judge of May 3, 1930 and in his evidence, he alleged that "the
mortgage was duly registered at Suakin Merkaz," and I have no
reason to doubt that this is what in fact he thought he had done.
Did the Mamur explain to him the difference in effect between the
simple attestation of a document and the registration of a charge?
I doubt it; yet it was his duty to do so if the appellant had applied
for registration. What would have been the result of an application
to the official in Port Sudan responsible for keeping the .sambook
register? I assume that the appellant would have been informed
that no machinery exists for the registration of charges, and, in this

. event, would he have given credit to the respondent? .

In the absence of what is, in my opinion, necessary legislation
enabling charges such as these to be registered, and thereby confer-
ring shnilar rights on the beneficiaries as are provided by the Land
Settlement and Registration Ordinance, the document on which the
appellant relies is' obviously valueless to secure a preference in his .

          favour against the respondent's creditors.               .                                              .

Gorman J.: The facts in this case are not in dispute . and as
they .have been set forth in detail in the judgement of the Chief
Justice I need not repeat them. The question at issue is purely one
of law.

The document on which the appellant relies is one purporting to
mortgage to him a chattel of his debtor, and to permit him in default
of payment, to seize' and sell it, and pay himself out of the proceeds.
Though expressed to be a mortgage, this is not strictly speaking a
mortgage, as the property has not passed; aL~ it has the effect of
a licence to seize, and in equity it would confer an equitable charge.
Does the law of the Sudan perinit such a transaction _as this document
evidences, and under what conditions and with what effect"

There is no ordinance dealing with the validity of equitable
charges on chattels, and so far as I know there is no ,case in our
courts decided on such a point. The learned District Judge iri giving
judgement against the appellant based his decision on Legal Circular
No. 18. 'But that circular has been repealed, and in any case what-

ever form such circulars may have when used as vehicles of adminis-
trative instruction, and however weighty the private advice and sug-
gestion they may contain, they have no legislative validity, and they
could never have been intended to serve as authoritive enunciations
of principles binding on the courts.

Section 9 of the Civil Justice Ordinance is what binds us. We
have to decide in a case like this in accordance with the principles of
justice, equity and good conscience, and in this regard it was laid
down by the Court of Appeal in 1920 in Mansour El Shouchi and
Others v. Abu Fatma Sharif, AC-App-3-1920, and doubtless was
acted upon long before that, that "in the absence of Sudan legislation
or a previous decision of this court, we should, especially in purely
commercial matters, be guided mainly by the legal principles with
which we are familiar : . . not as a rule applying the principles of
any other law except English Law, unless the result of applying Eng-
lish Law would be repugnant to justice, equity and good conscience."
What are the rules - of English Law as to licenses to seize, and
equitable charges on chattels, by which we are to be guided? This
brings us face to face with the one difficulty of this case: for English
Law today in regard to these matters makes use of certain machinery
that does not exist in the Sudan. The question therefore arises how
far can we in such circumstances apply these rules to the Sudan?
Let us take the matter by stages.

There was a time when English Law put no obstacle in the way
of a debtor who wished, by contract, to confer on a creditor a license
to seize the chattels of the debtor and hold them as a security for
the debt: in the event of bankruptcy, such a licence would be of
little value, unless exercised before the bankruptcy, but there was
nothing invalid about the licence itself; similarly, subject to its own
peculiar rules in favour of purchasers for value without notice, equity
permitted with equal freedom the creation of mortgages and equitable
charges on chattels. But under a system of law, which, like English
Law, does not make possession of movables proof of title, the pos-
sibilities of collusion and fraud in allowing freedom to charge mov-
ables otherwise than by pledge are so great that since 1854 English
Law has steadily set its face, except in very special circumstances,
against permitting the creditor to acquire rights by way of security
over chattels remaining in the possession of the debtor, except under
the most stringent conditions as to form of charge and registration.
As Lord Herschel said in Manchester Railway Co. v. North Central

Wagon Co. (1888) 13 App. Cas. 554, 560, The 1854 and the 1878
Acts "were designed for the protection of creditors, and to prevent--
their rights being affected by secret assurances of chattels which were
permitted to remain in the ostensible possession of a person who had
parted with his property in them." The bills of sale were therefore
made void only as against creditors or their representatives. The
1882 Act went further and, being designed for the protection of the
debtor too, made unregistered bills, or bills not in statutory form
wholly void even as between debtor and creditor, if given by way of
security for the payment of money. O. also per Lord Halsbury in
Charlesworth v. Mills [1892] A.C. 231.

It is now provided in the Bills of Sales Act 1882, section 8, that
"Every bill of sale shall be duly attested and shall be registered. . .
otherwise such bill of sale shall be void in respect of the personal
chattels comprised therein." The expression bill of sale in this regard
is defined by section 4 of the 1878 Act, as read with section 3 of the
1882 Act, to include

" . . . licences to take possession of personal chattels as security
for any debt and also any agreement by which a right in equity to
any personal chattels or to any charge or security thereon shall be
conferred. "

It is clear then that English Law has found it necessary to
declare void instruments such as the one we have to consider,
unless they are attested and registered in a public registry, open to
the scrutiny of intending creditors, and unless they are made in a
particular form, for the greater protection of ,the debtor.

Now in the Sudan such a public register does not exist. In
default of such register, are we to apply the English Law as it existed
before the machinery of registration was created by the Bills of
Sale Acts, or are we to apply the law as it stands now, and say that,
in as much as no register exists, such a document as we are now
considering is perforce void? The answer to my mind must depend
on whether the 'mischief of the statute' is one that exists in the Sudan.
In taking the view that in this case the document is void, I am not
unmindful of the fact that the parties in the present transaction did
what they could to get official standing for their transaction, and that
no suggestion of collusion or other mala fides has been made; but the
fact remains that the unofficial formalities in which the parties sought
to clothe their transaction did not succeed in eliminating one of the