[COURT OF APPEAL]

ROLLS RAZOR LTD. v. COX

[Plaint No. Ra. X 18]

Bankruptcy - Set-off - Mutual dealings - Salesman for company remunerated on commission basis - Company retaining part of commission against possible default - Retained moneys repayable by instalments on termination of agreement - Insolvency of company - Moneys for goods sold and goods for sale and use in possession of salesman at date of insolvency - Whether salesman entitled to set off moneys against moneys owed to him by company in liquidation - Whether entitled to set off value of goods for sale and use - Agreement expressly excluding general lien in salesman - Whether salesman a factor - Whether right to statutory set-off on insolvency excluded by agreement - Bankruptcy Act, 1914 (4 & 5 Geo. 5, c. 59), s. 31.

The plaintiff company carried on business by appointing salesmen to sell washing machines direct to the public by door-to-door calls. They appointed the defendant as a salesman on the terms of a printed agreement which provided that the company should supply the salesman with machines and a van for their transport and that he should be remunerated by commission. He was required each week to pay over all the money received by him in the preceding week without deduction of commission. By clause 8 the company, when paying him the commission earned, was to retain a percentage in a "retention fund" up to a total of £250 against possible default, negligence or fraud by a salesman, the clause providing that the salesman "shall not utilise his retention fund to offset any moneys collected by him on behalf of the company." Moneys in the retention fund were repayable only on determination of the agreement, in three instalments over a period of nine months. It was declared and agreed that for insurance and tax purposes the salesman was "self-employed." Clause 13 provided that on determination of the agreement the salesman should forthwith deliver to the company all the goods entrusted to him by the company and account for the value of goods not so returned.

On July 17, 1964, the company's board announced publicly that the company was insolvent. On that date the company held on behalf of the defendant salesman in the retention fund and for commission on the previous week's sales a total of about £246, while the salesman held £106, the proceeds of sales in the previous week, and also goods, namely, a table-top entrusted to him for sale at £3 3s., and seven tap-adapters, not for sale, which he used when demonstrating the washing machines. The salesman claimed a lien on the cash and goods in his hands. The

company, while denying the lien, stated that they would take no immediate steps to claim payment of the moneys held by salesmen "up to but not exceeding the amount" due to them by the company, but warned the salesmen not to dispose of any of the company's property in their hands. On August 27, 1964, the company resolved on a voluntary winding-up, and there was a prospect of only a nominal dividend for creditors.

The liquidator claimed the return of the moneys and goods held by the salesman, and contended that his only recourse was to prove in the liquidation for the amount owed to him by the company, and also that the agreement by the express terms of clause 8 excluded the right to a set-off under section 31 of the Bankruptcy Act, 1914.¹ The salesman claimed a set-off under section 31, both in respect of the moneys and of the value of the goods in his possession; alternatively, that he was a factor and had a general lien in respect of the moneys owed to him by the company:-

Held, (1) that the salesman was entitled to the statutory set-off provided by section 31 of the Bankruptcy Act, 1914, in respect of the moneys owed to him by the company, for there had on the facts been mutual dealings within the meaning of the section between the company and the salesman, and the operation of the statutory set-off could not be excluded by agreement between the parties (post, pp. 569D - 570B, 573A-B, 576A-B).

(2) (Winn L.J. dissenting) That the salesman could also set off against the moneys owed him by the company the value of the goods entrusted to him for future sale to the public, for they formed part of the "mutual dealings" between the parties within section 31; and the value of those goods was to be taken as the price at which they were to have been sold to the public (post, pp. 571C-F, 573D-G).

Per Winn L.J. No set-off arises in relation to goods in the hands of the salesman at the determination of the agreement, nor for their monetary value, because when they were delivered to him it was not then certain that they would be turned into money under the contract: a fortiori, there could be no set-off in respect of the proceeds of goods sold by any agent after his contract had been determined (post, p. 578A-B).

(3) (Per Lord Denning M.R. and Winn L.J.) That there could be no set-off in respect of the value of goods entrusted to the salesman for use and not for sale, and those goods or their value must be returned to the company (post, pp. 571F, 578A-B).

1 Bankruptcy Act, 1914, s. 31: "Where there have been mutual credits mutual debts or other mutual dealings, between a debtor against whom a receiving order shall be made under this Act and any other person proving or claiming to prove a debt under the receiving order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account and no more, shall be claimed or paid on either side respectively; ..."

(4) That the salesman did not have a general lien on the moneys and goods, for he was not a factor either at common law or under the Factors' Act, 1889, but merely an agent of the company; and in any event the express terms of clause 13 of the agreement excluded any lien (post, pp. 568E-G, 572E, 578C-G).

Decision of Judge Block reversed.

APPEAL from Judge Block, sitting in the Mayor's and City of London Court.

The plaintiffs, Rolls Razor Ltd., a company in voluntary liquidation, brought an action against the defendant, Herbert Francis Cox, to recover goods and money alleged to have been wrongfully detained by the defendant. By their statement of claim they claimed that at all material times the defendant acted as a salesman for the company; that from time to time the company entrusted goods to him so that he might sell them in accordance with the company's instructions and account for the proceeds of sale to the company; and that the defendant held all goods not so sold and accounted for to the company's order. They claimed further that they had entrusted to the defendant, and he had not sold and accounted for, goods to the value of £111 17s. 6d., namely, one Concorde de luxe washing machine; two table-tops; 11 muffs; seven tap-adapters; and one trolley.

It was claimed further that the company had required the defendant to deliver up to them the goods but that he had wrongfully refused or failed to deliver them and had wrongfully converted them to his own use; further, that he had received £106 1s. for and on behalf of the company, but in spite of demands had not paid the company that sum or any part thereof; and the company claimed return of the goods or their value in money, £106 1s.; damages; and costs.

By his defence the defendant admitted that he had been a salesman for the company and that from time to time before the commencement of the winding up of the company he had had in his possession goods of the company. He denied the other allegations in the statement of claim and stated that he had not had in his possession any of the company's goods at any time since the winding up had begun and denied also that he had received the sum of £106 1s. or any sum for or on behalf of the company or at all.

In the alternative, the defendant claimed by way of set-off against the company's claim a like sum for the moneys due and

payable by the company to him, namely, £204 2s. 11d. or a sum in excess thereof, for retentions of his commission held by the company, and also a sum of £57 15s. due and payable by the company to him for commission.

After various amendments to the figures pleaded, the action was heard by Judge Block as a test action to determine the position of a number of sales representatives of the plaintiff company in liquidation. On June 13, 1966, he gave judgment for the company for £106 1s. and ordered the return of one table-top or 12s. its then value, and seven tap-adapters or 10s. 6d., their value.

The defendant appealed, the grounds being (1) that the judge was wrong in law in holding that the sum in excess of £106 1s. due from the company to the defendant could not be set off; (2) that he misdirected himself as to the effect of or misconstrued the provisions of section 31 of the Act of 1914 as applied by section 317 of the Companies Act, 1948; (3) that he misdirected himself as to the effect in law of the contract between the defendant and the company; (4) that his judgment was based on the misconception that the defendant's employment terminated in May, 1964, whereas it continued thereafter; (5) that he was wrong in law in holding that the mutual dealings, if any, between the parties ceased when the defendant's employment terminated and accordingly that there could be no set-off; (6) that he was wrong in law in holding (if he did so hold) that the defendant was in breach of contract and that that prevented the application of the provisions as to set-off in section 31 of the Act of 1914; (7) that he was wrong in law in holding that the defendant was not a factor; (8) that he was wrong in holding that the defendant had no lien on the sum of £106 1s.; (9) that he was wrong in law in holding that the defendant could not set off the sum due to him from the company against the value of goods for which he was accountable; and (10) that he was wrong in law in holding that the defendant did not have a lien on goods in his hands for moneys due to him.

By a respondent's cross-notice, the company sought to contend that the judgment should be affirmed on grounds other than those relied on by the judge, namely, (1) that, if and in so far as the judge did not find that the defendant's contract of agency continued after May 25, 1964, he should have found that it did so continue until it was terminated on or about July 17, 1964, or alternatively by the liquidation on August 27, 1964, and that the judge should

have based his judgment on those findings; (2) that if and in so far as the judge held that the defendant had sold two of the company's washing machines, the proceeds whereof, viz., £106 1s., were the subject of the company's claim, after the termination of his contract, the finding was contrary to the agreed facts and the judge should have held that the machines were sold prior to the termination of the contract so that the sum of £106 1s. was money which the defendant was obliged to deliver up to the company; (3) that in so far as the judge did not so hold, he should have held that the defendant was in breach of his contract by failing to pay over the £106 1s., (4) that the provisions of section 31 of the Act of 1914 as applied to the insolvent winding up of the company by section 317 of the Act of 1948 did not apply to any dealings between the company and the defendant pursuant to the terms and conditions prescribed by the contract between them; (5) that the rights as to set-off as between a company in insolvent winding up and persons proving or claiming to prove in a winding up were not equitable but statutory, being regulated by the terms of the Acts and not otherwise; and (6) that even if the defendant was entitled to set off the sums due to him from the company against the sum of £106 1s., he could not, and was not entitled to, set off the sum against goods which were the property of the company and held by him or against the value of goods which were the company's property and for which he had not accounted to them.

The facts are stated in the judgment of Lord Denning M.R.

T. P. E. Curry Q.C. and A. L. Figgis for the salesman. Three questions arise for determination: (1) was the salesman entitled on the winding up of the company to set off, under section 31 of the Bankruptcy Act, 1914, and section 317 of the Companies Act, 1948, the company's moneys held by him for sales against moneys owed to him by the company for commission and in the retention fund? (2) did the right to set off extend to the goods being the property of the company handed to him for sale and not accounted for, or the value of those goods? and (3) were the salesmen factors, thereby having a general lien on the goods and the money in their possession?

First, on the facts, section 31 applies because there were mutual credits and mutual debts between the parties. Clause 8 of the printed agreement is said by the liquidator to exclude the operation of the section, but it does nothing of the kind, for it was concerned with the day-to-day running of a going concern, and when the parties signed this agreement they were not contemplating a

liquidation. The right to set-off is not affected by the fact that under the agreement the retention moneys are not due for repayment until nine months after the determination of the agreement: they still represent a giving of credit by the salesman; and when the winding up occurred and the agreement was automatically determined, the right arose to have the retention moneys repaid.

Secondly, in the case of the goods in the salesman's hands, there are two separate possibilities: (1) either he had a right under the agreement to account if he could not return them, and by that he was given the mutual credit; or (2) so long as the power to sell was not revoked he could exercise it.

[LORD DENNING M.R. The difficulty is that we do not know when the authority to sell was revoked because the letter purporting to revoke it is undated. You would concede that if the salesman had any property in his hands it would be covered by this circular letter and from that moment such property could not be the subject of a mutual credit?]

The letter did not terminate the agreement, and therefore the warning in it was ineffective. To show that the salesman was not entitled to have mutual credits for the goods there would have to be evidence on whether they were in fact converted into cash; and there is no such evidence. The date of termination of the agreement must be taken to be the date of liquidation - August 27. It is agreed that the value of the goods is the price charged to the customer less the commission; and the salesman can be quit of liability by accounting for that value. [Reference was made to Williams' Law and Practice in Bankruptcy, 17th ed. (1958), pp. 192-194; Halsbury's Laws of England, 3rd ed., Vol. 2 (1953), pp. 480-482 on set-off; Rose v. Hart, per Gibbs C.J.²; Ex parte Deeze³; French v. Fenn⁴; Young v. Bank of Bengal⁵; Naoroji v. Chartered Bank of India⁶; Astley v. Gurney⁷; Palmer v. Day, per Lord Russell⁸; and Eberle's Hotels & Restaurant Co. Ltd. v. Jonas, per Lord Esher M.R.⁹]

Section 31 provides for the way in which accounting is to be done where there are mutual dealings, namely, there is to be a setoff and no more than the balance claimed in the bankruptcy. [Reference was also made to Ex parte Fletcher, In re Vaugham¹⁰;

2 (1818) 8 Taunt. 499, 503.

3 (1748) 1 Atk. 228.

4 (1783) 3 Doug.K.B. 257.

5 (1836) 1 Moo.P.C.C. 150.

6 (1868) L.R. 3 C.P. 444.

7 (1869) L.R. 4 C.P. 714.

8 [1895] 2 Q.B. 618, 620; 11 T.L.R. 565.

9 (1887) 18 Q.B.D. 459, 464; 3 T.L.R. 421, C.A.

10 (1877) 6 Ch.D. 350, C.A.

In re Milan Tramways Co., Ex parte Theys¹¹; and In re Taylor, Ex parte Norvell per Buckley L.J.¹²] The section cannot be excluded by agreement: see per Pollock M.R. in In re City Life Assurance Co. Ltd.,¹³ that the section is not merely permissive. In Victoria Products Ltd. v. Tosh & Co. Ltd.¹⁴ the section was there much debated. The case was there decided on its facts; but earlier editions of Williams and Halsbury were referred to which said that one cannot contract out. The question has not hitherto been decided.

Thirdly, the salesman had a general lien over the goods in his possession and the proceeds of sale of goods because he was a factor: see Halsbury's Laws of England, 3rd ed., Vol. 1 (1952), on "Agency," p. 146, para. 351, and p. 205, para. 466, on "Lien." This salesman was a mercantile agent in that in the customary course of his business as an agent he had authority to sell the goods. He was clearly not a servant of the company; and the agreement did not prevent him from carrying on another business so long as it did not compete with the company's business: see the Factors Act, 1889, s. 1, defining "mercantile agent," though in tautologous terms.

[WINN L.J. You have to look further to see whether that definition is an intended tautology or a limitation.]

To be a factor a man must carry on business as a mercantile agent and not merely as a merchant; but it is sufficient if only one transaction and only one principal are involved. What these salesmen did was to go round with a travelling shop, and the general lien that distinguishes the factor came into existence in relation to the goods received in the course of that business.

[Reference was made to Weiner v. Harris¹⁵; Lowther v. Harris¹⁶; Walker v. Birch¹⁷; Hammonds v. Barclay¹⁸; and Newtons of Wembley Ltd. v. Williams.¹⁹]

It is the common law rather than the statutory duty definition which provides the test of what a factor is; and the common law test, that a factor is a man dealing with the goods of another and selling them on behalf of that other as a matter of business, is satisfied by what these salesmen did. Though they had to account for the goods and proceeds periodically, that did not override the

11 (1884) 25 Ch.D. 587.

12 [1910] 1 K.B. 562, 580, 26 T.L.R. 270.

13 [1926] 1 Ch. 191; 42 T.L.R. 45, C.A.

14 (1940) 165 L.T. 78, 79.

15 [1910] 1 K.B. 285; 26 T.L.R. 96, C.A.

16 [1927] 1 K.B. 393; 43 T.L.R. 24, C.A.

17 (1795) 6 Term.Rep. 258.

18 (1802) 2 East 227.

19 [1965] 1 Q.B. 561; [1964] 3 W.L.R. 888; [1964] 3 All E.R. 532, C.A.

general implication of the law that if they were factors they had a general lien and could pass a good title. The lien was in existence during the currency of the agreement and therefore was in existence during the relevant period in this case. When the agreement was determined and clause 13 came into operation there would be an obligation, either express or implied by law, that the salesman had to hand back the goods or their value to the company; but that did not affect his status as a factor and not a mere hawker.

Muir Hunter Q.C. and Christopher Bathurst for the company in liquidation. In considering whether a person is a factor - a conception deriving from our very ancient law merchant and codified in the Act of 1889 - it is necessary to consider the quality of the business carried on and the particular evidence tendered. The evidence in relation to this particular salesman was documentary only, and no attempt was made before the judge to lead evidence from which his capacity as factor or mercantile agent could derive. In Newtons of Wembley Ltd. v. Williams¹⁹ this court took judicial notice of what went on in Warren Street; but it can only take judicial notice of the business of selling washing machines from door to door where there has been cogent evidence to prove that the salesman carried on a business recognised by the modern law merchant as having a degree of solidarity such as to show a custom of the trade. The court would not be justified in accepting a new kind of factor in our society without such evidence. In this case the salesman's position was defined by an agreement in standard form drawn with some care, because the salesmen were to be entrusted with expensive apparatus and remunerated by commission only. The plain intention was that the company should at all times remain the owner of the goods. It is conceded that it is possible to have a mercantile agent or factor with only one principal. But on the normal definition, both at common law and under the Act, a factor is a person who does different things for a number of persons; he factors things. To create a new kind of factor having not only power to pass title but also a general lien, in the person of the man who takes round in his van the goods of one company to sell direct to the public would have far-reaching effects. The court does not add to the common law without strong evidence from the person who seeks to create the new species. In any event clause 13 of the agreement, which requires the salesman to hand over the goods on determination of the agreement excludes the conception of the salesman as

19 [1965] 1 Q.B. 561.

a factor with a general lien. [Reference was made to Boustead on Agency, 12th ed. (1959), Art. 72, and Illustration 12 on p. 163.]

On set-off, the doctrine, which goes back to the reign of Queen Anne, was intended to do justice between parties who had been in financial relations with each other, one of whom became insolvent. In their original form the words "mutual credits and mutual debts" referred to sums of money or transactions capable of being represented as sums of money. Set-off is a shield to defend a credit overlap, and not a sword. What the court is commanded to do is to take an account of what is due from one party to the other. But all the matters to be dealt with must have or be capable of having a price label put on them. The word "dealings" cannot be extended to include the machine in the salesman's boxes on the company's van. "Dealing" means a business transaction; and the entrusting of a machine to a salesman for the purpose of selling it on behalf of his principals, he not being entitled to hold it as against his principals or keep the money received in respect of its sale, is outside any normal construction of the words "mutual dealings" in section 31.

On the question of set-off in respect of goods, no such set-off is conceivable if the property has not passed. Set-off as against goods can only mean a lien. A lien is a charge on a payment arising from possession. It can be created in three ways: (a) where a person holds a chattel in a way recognised by the common law as creating a lien; (b) by statute; or (c) by agreement. Those are passive liens. To make a lien effective in mercantile relations the holder must either have an irrevocable authority to sell or be able by statute to enforce it; or it must be enforceable by an order for sale obtained from the court. If there is a lien with authority to sell, it takes precedence over any set-off. When a lien is enforced, it is enforced against the pledge; the holder realises the pledge and is accountable for the balance in money. But the possession of such a lien does not ipso facto confer on the holder the right to retain the liened goods or their proceeds beyond the amount secured by the lien. He has no right of property in the goods, but only a passive right derived from the lien. He cannot convert that right into property in his own favour as purchaser of the goods and then say: "I will treat myself as having pro tanto reduced the debt."

On the facts of this case, the notice of the meeting on August 27 amounted to a suspension of payments, and the rights of execution creditors became fixed under the Companies Act, 1948: see

In re Caribbean Products (Yam Importers) Ltd.²⁰; and In re Eros Films Ltd.²¹ The contract with the salesmen came to an end at the latest on August 27; but all that is relevant had happened by July 17, because this salesman had sold the second machine on July 15 and the book was ruled off. Any operations by the salesman to improve his position thereafter would be caught by the proviso to section 31. Thus in the absence of a general lien on the goods he could not rely on his lien for his general balance.

There are three possible situations where a person having goods gives them to a person like a mercantile agent. He may say: (a) "Turn these into money and send it to me"; or (b) "Put them to my general account"; or (c) "Turn these into money and pay yourself out of it." Position (c) plainly contemplates a set-off; position (b) contemplates an account and therefore a general set-off within section 31. But if the position is as at (a), the recipient does not acquire any right in the goods save as a bare bailee for sale. Position (a) is this case. The machines handed to the salesman were branded with the company's name; the company laid down the terms on which they were sold to the public, and might not have been willing to say: "You can keep the machines if you pay for them." They might in the case of a branded object be entitled to insist on the machines being handed back to them. There is therefore no support in principle, let alone in authority, for the view that he is entitled to treat the goods in his possession as money.

No question arises here as to the value of the machines, but if they had not been converted into money they would up to July 17 have been worth what they were actually being sold at. After July 17 they might become less valuable. Does the salesman thereupon have an implied term under this contract by which if he retains the company's property for long enough he will be able to take it to himself at a nominal price? That cannot be right. Set-off is not permissible where a party has expressly contracted not to set-off, as was the case here by clause 8 of the agreement. There is no foundation for the view that set-off under section 31 cannot be excluded by agreement. [Reference was made to Young v. Bank of Bengal²² and French v. Fenn.²³]

The position on July 30 when the company issued the notice under section 293 of the Companies Act, 1948, was that the salesmen

20 [1966] Ch. 331; [1966] 2 W.L.R. 153; [1966] 1 All E.R. 181, C.A.

21 [1963] Ch. 565; [1963] 2 W.L.R. 496; [1963] 1 All E.R. 383.

22 (1836) 1 Moo.P.C.C. 150.

23 (1783) 3 Doug. K.B. 257.

were holding on to money and goods which under their contracts they should have delivered up on July 20. The board having set the company on the road to liquidation were in duty bound to collect and safeguard the assets of the company and for that reason they issued the circular letter. It is quite anomalous that a document in these terms, issued in that state of affairs, should be relied on by the salesman to create substantive rights in his favour by way of lien or set-off which he does not possess under the contract. That would result in preferring the claims of the salesman to the detriment of the company's preferential creditors. This letter, far from assisting the salesman, shows that the company was saying no more than that he could retain the moneys in his hand until it had been decided whether or not he had a claim.

On lien, first, there may be an active lien, that is, a lien which contains an inherent power to sell and entitles the holder to treat goods as money. Such a lien may arise from the common law because of what the individual does, or under an express contract. All commercial liens of factors are of this kind; and the holder can bring the proceeds of sale into his account, before or after bankruptcy, as a mortgagee's debt. Such an active lien may also be a particular lien, over goods on which a person has done work; and other forms of active lien are those for general balances as in the case of a banker. But such a lien will not be implied.

Secondly, there is the passive lien - the right to retain goods unsold in your hands or goods processed by you and not paid for, until you are paid. But in the absence of a power to sell conferred by the common law, or by contract, or by statute, you have no power to sell, and in those circumstances there can be no question of treating goods as money. The lien-holder may be confined to delivery up of the goods against payment of a sum specifically chargeable. There can be no question of bringing them into account against general balances.

Thirdly, there is the unrestricted set-off of moneys provided for by section 31 of the Act of 1914, extending to cash in hand or in an account: that is a chose in action, either in a regular doubleentry account or by way of informal mutual transactions not written down in the books.

Fourthly, there may be a restricted set-off by virtue of a trust, or money entrusted for a specific purpose. In respect of such moneys there can be no set-off beyond the fulfilment of the specific purpose.

Fifthly, there may be a set-off excluded in advance by agreement where there is a recognised category of money entrusted for

a specific purpose. That is in substance the same as category (4) above.

Sixthly, there may be an agreement excluding in advance any set-off of moneys entrusted for a specific purpose save where one party goes into bankruptcy. That is what the appellant claims in this case; but it cannot be sustained on the facts. The specific purpose here is to collect the money realised from the sale of the company's machines and hand it over to the company every Monday. If a person contracts on the basis that he is to hand over the money in its entirety, there is no injustice in insisting that he hand it over intact. To decide otherwise is to rewrite the contract so that it says: "Although as between solvent parties you must hand it over every Monday, you shall have an escape clause if the company is about to go bankrupt." There is no such express escape clause and such an escape clause is not to be implied. [Reference was made to City Equitable Fire Insurance Co.²⁴ and In re Johns, Worrell v. Johns.²⁵] Though the court's sympathy for the salesman is understandable, there can be few cases where a person who has the money of an insolvent in his hands has not got a case for arguing that he can retain it by way of general balance: but the line of cases summarised by Tomlin J. in In re Johns,²⁵ has decided that that cannot be done, because any restriction placed on the money for a special purpose takes it out of the mutuality with which alone section 31 is dealing. If by writing this circular letter the company gave to their salesman money and goods which ought to be preserved for their creditors, they did so per incuriam and the court should treat it as a piece of temporary imprudence. A very heavy burden of proof is assumed by a person who, being one creditor of an insolvent company and having in his possession by contract a quantity of money and goods, refuses to hand it over to the liquidator for payment to the general body of creditors. The cases cited were all cases where there had been mutual dealings between the parties with, superimposed on them, a special arrangement which could be distinguished from the general mutual dealings.

This case may create a seventh category where, if there was a basis of mutuality, it consisted in a sequence of special transactions, in relation to each of which the officious bystander was saying: "Remember, no retention of money" so that mutuality never developed, though the seed of it was there.

24 [1930] 2 Ch. 293, C.A.

25 [1928] 1 Ch. 737.

The liquidator's cross-notice claims that the doctrine of set-off is statutory and not equitable; but that was merely an attempt to correct the judge, who had introduced the conception of equity coming to the court with clean hands. Nevertheless, one who seeks to use a statute enacted for general purposes for his particular purpose in breach of his own contract has a heavy burden to discharge if he is to show that that was the intention of the section from its introduction. Where there is an actual contract excluding any lien in the salesman the court will not remodel it to include a lien. [Reference was made to In re a Debtor (No. 66 of 1955). Ex parte The Debtor v. The Trustee of the Property of Waite (A Bankrupt.²⁶] It is not possible to contend that set-off extends to clothe this salesman with the right to retain money which he had received for selling the company's goods before the liquidation; nor can he exercise such set-off as may have been conceded to him against the goods.

Finally, on the submission that the salesman had a right to account under the contract, the right to account must be regarded as a sword rather than a shield. In this case it would amount to a compulsory right to buy in the goods, thereby defying their owner. Such a right of compulsory retention would require to be founded in words far wider than those of an obligation to account for what the salesman has not brought back and cannot bring back; and that is all that clause 13 of the agreement provides for. In this context "accountable for" their value merely provides a basis for damages for non-delivery up. Nothing can be founded on those words.

Figgis in reply. On the three examples given for the liquidator of set-off, it is agreed that "Turn these goods into money and pay yourself out of it" would not, prior to the statutes on set-off, have given any right to a cross-action at all. It would under the old law have supported a plea of payment rather than set-off. If moneys are paid over for a specific purpose the courts have held that in relation to the repayment of such moneys and an obligation to pay moneys on the other side there is no "mutual dealing"; and that is when it is said that section 31 may be excluded. But it is not correct that the section is dealing with the position of the debtor on one side and the creditor on the other. It deals with the position as between creditors in a bankruptcy; and that is why it has been said on a number of occasions that the section operates automatically. It is for the legislature to say what is to

26 [1956] 1 W.L.R. 1226; [1956] 3 All E.R. 225, C.A.

be the position between creditors in a bankruptcy or a winding up and not for the debtor and one particular creditor to alter that by agreement. The principle that a man may not by stipulation with a creditor provide for a distribution of his effects in bankruptcy different from that which the law provides applies to section 31 as it applies to other sections on the distribution of effects in a bankruptcy. Even if it were possible to alter the application of the section by agreement, such agreement must be in clear terms stating that in the event of bankruptcy or winding up the rules provided by section 31 shall not apply. Clause 8 does nothing of the kind. In all cases under section 31 the question is: in respect of what were these parties mutually accountable? In this case the mutual obligations arose out of the salesman acting for the company, in which relationship there arose on the one side an obligation to repay the proceeds of sale, etc., and on the other an obligation to pay commission and the retention fund deductions in due course by a process of deferred payment. That the obligations were mutual is borne out by clause 8 (b) which permits the company to use the retention fund against any obligation of the salesman to pay over his moneys.

In re Johns²⁷ was cited to support the proposition that if an action had been brought by the company for the £106 at the end of July there would have been no defence to it; but that is not so, for at that date there would have been a set-off for the commission due. The old statutes of set-off were passed to prevent a debtor being put into prison by his creditor. A set-off would have been allowed in such an action, notwithstanding the agreement that the £106 should be paid over in July. The object of set-off is to ensure that judgment is entered for the true balance due between the parties and not in the form of "for the debtor" against his creditor.

On the set-off of the goods and of the table-top in particular, this was not a straight case of money against goods. The only liability of the salesman under the agreement was to account for the goods. It is not correct to say that that would give him a right to buy them in. If the salesman loses a table-top he is not in breach of contract so long as he accounts for it: see clause 13. On that basis the claim for the value of the table-top may fall into a different category from that of the tap-adapters: the tabletop is money against money; the tap-adapters are goods held by him for use against money.

27 [1928] 1 Ch. 737.

On the question whether the salesman is a factor, the court knows what this particular salesman did, and if what he did brings him within the definition of a factor he is a factor, and no evidence is required from the trade community. There are business agents who in the ordinary course of their business sell the goods of others. If the company says: "We are not going to make you servants of the company but independent persons," the company may have made them factors without knowing it.

December 8, 1966. The following judgments were read:

LORD DENNING M.R. This case, as the judge said, arises out of the decline and fall of the Bloom Empire. Rolls Razor Ltd. was one of Bloom's companies. It sold washing machines and other domestic appliances. Its method of business was to appoint salesmen to go round to people's houses. It supplied each salesman with a stock of the company's machines: or, if he had no room to stock them, he would get machines out of a pool. It supplied each salesman with a van. (The company had got these vans on hire purchase.) Each salesman loaded up the van with the machines. He called on people in their houses and induced them, if he could, to buy the machines, either for cash or on hire-purchase terms. Every week the salesman had to pay over to the company all the cash which he had received. He was not allowed to deduct his commission from the cash. The company paid him each week the commission which he had earned in the preceding week: but they deducted a percentage of 2s. or 1s. in the pound so as to form a "retention fund." This was to be available in case of the salesman defaulting on cash or machines. It was repayable to the salesman only after the determination of the agreement. The salesmen were not servants of the company, but independent contractors. They paid National Insurance contributions on the footing that they were "self-employed" persons. The terms of appointment were contained in a printed agreement, which is too long for me to record in full but I will refer to relevant portions when necessary.

In the middle of July, 1964, ominous rumblings were heard. Big cracks appeared in the Bloom edifice. The salesmen were anxious about their commission which the company had retained in the "retention fund." They tried to save it from being lost. Some of them held on to cash in their hands or stock still unsold.

The question is whether they have any right to do so. The case of Mr. Cox has been taken as a test case. He had been engaged in the work for two or three years, and although he had been given notice of termination in May, 1964, that had been waived and he had continued in the engagement right up to the events hereinafter mentioned.

On July 16, 1964, the board of directors of Rolls Razor were advised that the company was insolvent. On July 17, 1964, they resolved that the company and its subsidiaries be voluntarily wound up. They issued a statement to the Press. The banks refused to honour the company's cheques. Everyone knew that the company was "on the rocks." The position of Mr. Cox on that day was as follows:

    The company held in the "retention fund" 
       on his behalf ... ... ... ... ... ...       £188    4s.  11d. 
    The company owed him commission on sales 
       during the previous week (£57 15s.) for 
       which it issued cheques on July 16 and 
       17, but these were dishonoured ... ...       £57   15s.   0d. 
                                                  -------------------- 
                                                   £245   19s.  11d. 
                                                  -------------------- 
    On the other hand, Mr. Cox had sold in the 
       previous week two machines at prices of 
       £40 19s. and £65 2s., for which he had 
       received cash £106 1s. (on which he was 
       entitled to commission of £5 10s.)... ...   £106    1s.   0d. 
                                                  -------------------- 
   In addition he had in his possession a tabletop 
       for sale at a price of £3 3s. He also 
       had seven tap-adapters (not for sale) 
       which he used when fitting the machines. 

After July 17, 1964, Mr. Cox, like the other salesmen, claimed a lien on the cash and goods in his hands. The board of directors did not insist on his handing them over. In the last days of July, 1964, they sent a circular to all the salesmen in these terms:

"The board has given anxious consideration to the position of the sales representatives.

"In the present circumstances it is the directors' duty to collect and safeguard the assets of the company pending its liquidation. Accordingly, whilst the board is not in a position to admit the validity of any lien which sales representatives may claim over goods and/or cash now in their hands, but must reserve all the company's legal rights, the board intends to take no immediate steps to claim payment to the company of any moneys belonging to the company held by sales representatives up to, but not exceeding, the amount claimed to be

due to sales representatives in respect of retention moneys and commission already earned, provided that all vehicles machines, equipment and cash in excess of the abovementioned amount and unpaid cheques in respect of commission are delivered with all possible speed" to the company. "Sales representatives are particularly warned not to dispose of any property of the company in their hands."

Mr. Cox acted on that circular. He sent in his account to the company showing what was due to him.

On July 30, 1964, pursuant to section 293 of the Companies Act, the company gave notice of a meeting of creditors for August 27, 1964. On August 27, 1964, an extraordinary general meeting was held at which an extraordinary resolution was passed that the company be wound up voluntarily. No notice of termination was given to Mr. Cox, but no doubt all parties treated the agreement as determined from that time.

The liquidator now claims that Mr. Cox must pay over to him the £106 1s. in full and also hand over the table-top and tap adapters which he has in his possession; and that Mr. Cox cannot set off the £245 19s. 11d. which the company owes to him. The liquidator says that Mr. Cox must prove in the liquidation for the £245 19d. 11d. That would produce very little. The dividend may not be as much as 6d. in the pound.

1. Lien

The first point is whether the salesman has any lien on the money or goods in his hands. It was argued that the salesman was a factor at common law and as such entitled to a general lien in respect of all lawful claims against his principal. Now I am quite clear that these salesmen were not factors. The usual characteristics of a factor are these: He is an agent entrusted with the possession of goods of several principals, or sometimes only one principal, for the purpose of sale in his own name without disclosing the name of his principal, and he is remunerated by a commission: see Baring v. Corrie,¹ by Abbott C.J.; Stevens v. Biller,² by Cotton L.J. These salesmen lacked one of these characteristics. They did not sell in their own names, but in the name and on behalf of their principals, Rolls Razor Ltd. They were agents pure and simple, and not factors. Even if they were factors, however, there is a written agreement which is inconsistent with any lien. It expressly provides that, on the determination of the agreement, "the agent shall forthwith deliver to the company all the goods ... and shall account for the value of any goods not so returned."

1 (1818) 2 B. & Al. 137, 143.

2 (1883) 25 Ch.D. 31, C.A.

2. Set-off

The second point is whether there were mutual dealings such as to give the salesman a right to set-off. In this winding up the law of bankruptcy applies: see section 317 of the Companies Act, 1948. So we have to apply section 31 of the Bankruptcy Act, 1914, which says:

"Where there have been mutual credits, mutual debts or other mutual dealings, between a debtor against whom a receiving order shall be made under this Act and any other person proving or claiming to prove a debt under the receiving order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively. ..."

In this case the money claims on each side seem to me to come clearly within the section. On the one hand, the salesman owed the company £106 1s., the proceeds of goods sold on their behalf. On the other hand, the company owed the salesman £245 19s. 11d. for commission, being as to £57 15s. for commission now due, and as to £188 4s. 11d. for commission retained in the "retention fund." The "retention fund" was not payable at once. It was payable after the determination of the agreement - one-third after three months; one-third after six months; and the remaining third after nine months. But this future payment makes no difference. It is well settled that debts due in the future can be set off against debts due at the present 'time: see Young v. Bank of Bengal,³ by Lord Brougham; and In re Daintrey.⁴

Mr. Muir Hunter argued that the salesman received the moneys for a specific purpose, namely, to pay over to the company; and that moneys so received could not be set off. I cannot accept this contention. When moneys are received for the very purpose of being handed over to the other party, they are properly the subject of set-off under the statute, so long as the dealings are mutual. Such was the case in Naoroji v. Chartered Bank of India.⁵ It is only when the dealings are not mutual that there is no set-off, as in In re Mid-Kent Fruit Factory⁶ and In re City Equitable Fire Insurance Co. Ltd.⁷ Here the dealings were clearly mutual.

Mr. Muir Hunter also argued that the agreement expressly provided that there was to be no set-off. The agent was "to pay

3 (1831) 1 Moo.P.C.C. 150, 164, 165.

4 [1900] 1 Q.B. 546, D.C.

5 (1868) L.R. 3 C.P. 444.

6 [1896] 1 Ch. 567.

7 [1930] 2 Ch. 293, C.A.

over all moneys received by him" on Monday of each week; his commission "shall in no case be deductible by the agent from moneys received by him"; and "the agent shall not utilise his retention fund to offset any moneys collected by him." I cannot accept this contention either, for the simple reason that the parties cannot contract out of the statute. Where there are mutual dealings, the statute says that "the balance of the account and no more shall be claimed or paid on either side." That is an absolute statutory rule which must be observed: see Ex parte Barnett,⁸ by Lord Selborne L.C. I hold, therefore, that there is a set-off in respect of the money claims.

I turn to the question of the goods. And here I must draw a distinction between goods held by the salesman to be sold by him (such as the table-top) and goods held by him to be used or worked on by him (such as the tap-adapters). For this is a distinction established by the cases. It goes back to 1818 when the leading case of Rose v. Hart⁹ was decided. Speaking of mutual credits, Gibbs C.J. then said:

"The legislature meant such credits only as must in their nature terminate in debts, as where a debt is due from one party, and credit given by him on the other for a sum of money payable at a future day, and which will then become a debt, or where there is a debt on one side, and a delivery of property with directions to turn it into money or on the other; in such case the credit given by the delivery of the property must in its nature terminate in a debt, the balance will be taken on the two debts, and the words of the statute will in all respects be complied with: but when there is a mere deposit of property, without any authority to turn it into money, no debt can ever arise out of it, and, therefore, it is not a credit within the meaning of the statute."

This distinction is illustrated by the decided cases. In French v. Fenn¹⁰ (quoted in Rose v. Hart¹¹ Cox entrusted Fenn with a string of pearls for sale and to pay over the proceeds. Cox then became bankrupt, owing Fenn money. After the bankruptcy Fenn sold the pearls. Cox's assignees claimed that the proceeds should be paid to them in full. It was held that Fenn could keep the proceeds as a set-off against the debt owing to him by Cox. The reason was because these were mutual credits. Cox was in credit with Fenn for the sum receivable on sale of the pearls. Fenn was in credit with Cox for the money owing to him by Cox. In Rose v. Hart¹¹ itself, Smart sent some cloth to Hart, a fuller, for

8 (1874) 9 Ch.App. 293.

9 (1818) 8 Taunt. 499, 506.

10 (1783) 3 Doug. K.B. 257.

11 8 Taunt. 499.

the purpose of being dressed. Smart already owed money to Hart on another account. Smart went bankrupt. After the bankruptcy, Smart's assignees demanded the cloth from Hart. Hart claimed to set off the sums due to him from Smart on other accounts. He was not allowed to do so. He had to pay over the full value of the cloth, and only prove in the bankruptcy for the money owing to him. The reason was because there were no mutual credits. The cloth was entrusted to Hart for the purpose of being dressed, and not for turning into money. There are many other illustrations in the books.

On which side of the line does this case fall? Take the tabletop. Rolls Razor Ltd. entrusted it to the salesman for sale, with authority to receive the proceeds and pay over the proceeds to them. That was clearly a giving of credit similar to that given in French v. Fenn¹² (quoted above) and Palmer v. Day & Sons.¹³ It was a giving of credit for the expected proceeds of sale. There were thus mutual credits: on the one hand, the company gave credit to the salesman for the expected proceeds of sale; on the other hand, the salesman gave credit to the company for the retention fund. Those mutual credits gave rise to a right of set-off on insolvency. And this right could not be taken away by the insolvent person at the last moment revoking the power of sale. The statute says: "Where there have been mutual credits," an account shall be taken. That means when the mutual dealings have been such as to give rise to mutual credits, there is a right of set-off. The insolvent person cannot, by a last-minute revocation, take away that right. In this case, therefore, the circular of July 24, 1964, did not take away the right of set-off. In any case it permitted him to retain cash and goods up to the amount of retention fund and commission, and so extended the credit up to that amount. I hold, therefore, that Mr. Cox had a right of set-off in respect of proceeds of sale of the table-top (sold at the authorised cash price) or, if it was not sold, for the value of it, taken at the authorised sale price.

Take last the tap-adapters. These were never entrusted to the salesman for sale or to be turned into money. There can be no set-off in such circumstances: see Eberle's Hotels and Restaurant Co. Ltd. v. Jonas.¹⁴

I would, therefore, uphold the order of the judge in respect of the seven tap-adapters. The salesman ought to return these or pay their value in full. But I would reverse his order as to the

12 3 Doug. K.B. 257.

13 [1895] 2 Q.B. 618; 11 T.L.R. 565.

14 (1887) 18 Q.B.D. 459; 3 T.L.R. 421, C.A.

£106 1s. and the table-top which should be valued at £3 3s. (the authorised cash price). In my opinion the salesman is entitled to retain these as a set-off against the £245 19s. 11d. which the company owes to him. I would allow the appeal accordingly.

DANCKWERTS L.J. Rolls Razor Ltd. went into liquidation on August 27, 1964, with the prospect of a very small dividend for the creditors. Cox was one of the company's salesmen. These salesmen were not servants or employees of the company and do not rank as preferential creditors in the company's winding up. He was supplied with a car or van and stock (washing machines) to sell. By the terms of his agreement with the company he had to account for moneys received and have his stock checked every Monday.

He was engaged on a standard form of agreement. The company has in the possession of the liquidator moneys owing to Cox which represent commission and a retention fund under the terms of the agreement. Cox has in his hands moneys, which he has not yet handed over to the company, representing sales, and a table-top worth 12s. This, however, is said to be a test case, and other salesmen are said to have much larger amounts of the company's goods, as well as moneys, in their possession.

Judge Block decided against Cox, but he was under a misapprehension as to some of the facts, it seems.

For the appellant Cox, the case has been put in three ways: (1) It is said that Cox had a lien on the moneys and goods in his hands. There was discussion about whether he was a factor for the purposes of the Factors Act, 1889, but whether he was a factor or not, this ground in my view must fail, because the terms of the agreement are inconsistent with and exclude any lien for the benefit of the salesman.

(2) The second ground depends upon a right of set-off under section 31 of the Bankruptcy Act, 1914, which is applied to companies in winding-up by section 317 of the Companies Act, 1948. Section 31 of ¢he Bankruptcy Act provides that when there have been mutual credits, mutual debts or other mutual dealings between a debtor (namely, the company) and any other person proving or claiming to prove a debt, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account and no more shall be claimed or paid on either side respectively.

In the present case, in my view, the provisions of that section plainly apply between Cox and the company in winding up. There have been mutual dealings between Cox and the company which have resulted in the company owing money to Cox and Cox owing to the company. A question was raised whether the statutory set-off could be excluded by the terms of the agreement between the parties. The authorities are meagre on this point and not very clear, but in my opinion the statutory set-off being a matter of statute, cannot be excluded. Accordingly, in my view Cox is entitled to the benefit of the set-off so far as moneys owed by him to the company are concerned.

(3) The third point raised was whether such a set-off could be applied to goods in the hands of the salesman or the proceeds of such goods when they had not been sold in the ordinary course of the operations of a salesman on behalf of the company. Though trivial in Cox's case, the point may well be of importance in the cases of other salesmen.

The position in respect of the goods has caused me more difficulty, but in the end I find myself in agreement with Lord Denning M.R. on this point. It is true, of course, that an agent cannot sell his principal's goods to himself, but in the present case the agent was entrusted with the goods for sale to the public, and if he sells the goods to the public he is debited with the price of the goods in the course of the mutual dealings between the company and the agent, i.e., the result is a sum of money.

Clause 13 of the agreement appears to recognise that on the determination of the agreement, the salesman may not return all the goods entrusted to him for sale and is to account for the value of any goods not so returned. The salesman cannot appropriate the goods to himself, but if he sells them to the public and accounts for the value to the company, the company suffers no loss and gets the full value on the accounting. I cannot see why this is not justified by clause 13. The fact that it may give the salesman the advantage of a set-off in the winding up of the company is not inconsistent. It is a statutory result imposed on the mutual dealings between the company and the salesman.

The table-top now worth 12s. is, of course, a trivial matter, but on the figures mentioned to us, the question raised in respect of the goods appears to be important to other salesmen.

As regards the tap-adapters, apparently the value is so trivial that I am not prepared to express an opinion in respect of them, and I am not clear about the facts. Presumably they were intended

to enable a sale of a washing machine to be effected, and so incidental to the selling of washing machines to the public. Accordingly, I would allow the appeal.

WINN L.J. Section 31 of the Bankruptcy Act, 1914, which provides for mutual credit and set-off in a bankruptcy and is applied by section 317 of the Companies Act, 1948, to company liquidations, relates in terms to a situation "where there have been mutual credits, mutual debts or other mutual dealings ..." It provides that in such a situation "an account shall be taken of what is due from the one party to the other in respect of such mutual dealings. ..." and that only the balance due on the taking of such an account shall be claimed.

Notwithstanding the relative order in which the section refers first to "credits," then to "debts," and thirdly to "dealings," I am of the opinion that the proper construction of the section and the true guide to its applicability to any particular set of circumstances involves placing emphasis primarily upon the concept of mutual dealings and consequentially regarding the debts and credits referred to as such mutual debts and mutual credits as arise from mutual dealings: by the triple use of the word "mutual," Parliament seems to me subtly to have indicated that mutuality is the dominant characteristic of the matters in respect of which it enacted this section.

What dealings are "mutual" within the meaning of the section appears to me to be determined by the intention of the parties to those dealings, expressed to each other or to be inferred from the character of the dealings. Thus, the relationship of banker and customer upon a current account implies from its very nature an intention on the part of both parties that debits and credits arising between them shall be brought into a running account upon which, by reason of the customary method of keeping such account, there will at any given moment be an outstanding debit or credit balance. Similarly, producers of such commodities as fruit and vegetables, who market them through selling agents in, for example, Covent Garden, normally, if not necessarily, deal with those selling agents upon a running account in which credits in their favour will arise in respect of proceeds of sales received by the agents, with related debits for commissions and sale expenses incurred by the agents in disposing of the goods or making allowances for quality deficiencies. These are only examples which could be almost indefinitely multiplied by taking into consideration such other relationships as those of a landlord and his rent

collectors, or transactions of collection of outstanding debts. The common and essential characteristic of all such dealings, which I regard as the type of mutual dealings contemplated by the section, although many others less comprehensive and of shorter continuity would also be included, is that by the intention of the parties expressed or implied, they each extend to the other credit in respect of individual sums of money until such time as such sums are brought into account and in the account set off against other sums, in totality, in respect of which the other party has given credit; to be contrasted are dealings of a kind which may occur either in isolation or within the complex of a continuous run of dealings, which are themselves mutual, of such a kind that it is clear from their character that the parties intend that the monetary outcome of them shall be separately settled between the parties and not treated as a mere item on one side or the other of a running account.

It does not seem in any way inconsistent with such a relationship upon mutual running account that in some cases the parties should provide that moneys accruing due from the one to the other should become payable at different dates from the dates upon which the contra items should become payable. For example, it is usual for bankers to bring in overdraft interest which has accrued upon current account only at intervals of six months. It occurs to me that in some cases suppliers of commodities may require to have their revolving capital replenished by the proceeds of sales of their commodities made through their agents at shorter intervals than those acceptable to the agents for having their commission and other trading expenses paid. Therefore, for my part, I do not think that a contractual provision requiring one party to a running series of dealings to pay over moneys which come into his hands on behalf of the other party so soon as or within a limited time after they are received is inconsistent with, though undoubtedly to some extent it militates against a view that the dealings between them are mutual dealings within the meaning of the section; nor would I regard such a state of mutual dealings as negatived by further provisions (a) that the party so bound to pay over moneys received must pay them over in full without deducting commission earned in the transaction from which those moneys were derived, or (b) that some period of credit is given in respect of payment of commission so earned plus a right of retention, by way of security for general performance of obligations, in respect of part of the commission so earned.

It is in the light of these observations that, after close consideration of the written contract made between the parties to this appeal, and in particular of clauses 3 (iv), 4, 7 (i), (iii) and (iv), 8 (a) and (b), 12 and 13, I have formed the opinion that the dealings between the parties pursuant to that contract were mutual dealings and gave rise to mutual debts and credits such as are required by section 31 of the Act to be set off, with the result required by the provisions of the section. It is, of course, plain that by force of clause 8 (c), the debt of the respondents for moneys retained by them as a retention fund out of commission earned is a debt solvendum in futuro, but this does not exclude set-off: compare In re Daintrey.¹⁵

The court has had the great advantage of careful and lucid submissions from both the leading counsel who have appeared in this appeal. I trust that neither of them will think that I am unappreciative of their arguments or of the thorough analyses which they have made of the numerous authorities to which they referred the court if I say that I have not found any of those decisions inconsistent with the view which I have ventured to express of the essential character of mutual dealings and of the distinction between general and specific accountability. I have endeavoured to distinguish obligations to pay over specifically moneys derived from isolated special transactions, on the one hand, and obligations generally to meet running balances, on the other.

In my judgment it is clear that there can be no right of set-off where the claim on one side is for the return of goods in specie and on the other side to pay moneys, since there is no recognition in our law of a concept of credit, properly so called, in respect of delivery of goods: compare Eberle's Hotels and Restaurant Co. Ltd. v. Jonas.¹⁶ On the other hand, such a right does exist where there is a debt on one side and a delivery of property with directions to turn it into money, on the other: compare Naoroji v. Chartered Bank of India¹⁷; this latter right in my opinion can exist only where the conversion of the goods into money has been effected before the authority to make it has been withdrawn.

In the instant case the respondents employed the appellant and a number of other men - perhaps some 400 or more in all - as salesmen of their washing machines and other domestic utilities on terms, broadly speaking, that the employers would provide each of the agents with a stock of goods for sale and a vehicle in which they could be taken from house to house and demonstrated and

15 [1900] 1 Q.B. 546.

16 18 Q.B.D. 459.

17 (1868) L.R. 3 C.P. 444.

offered either for cash or on hire-purchase terms. When hirepurchase transactions were entered into, the employers would, of course, deal with all resulting monetary arrangements direct with the finance company. But where sales were effected for cash, paid wholly or in part to the agent, he was obliged by the contract of employment to pay over all moneys received on the Monday of the following week without deducting commission, but was entitled to be paid his commission once a week subject to the provision for retention already mentioned which is provided for in clause 8 of the agreement. All goods in hand had to be produced for inspection and checking at a branch office once a week, and it was expressly provided by clause 13 that on the determination of the agreement, the agent should forthwith deliver to the company all goods still in his hands. The last-mentioned clause was worded, so far as relevant, as follows: "On the determination of this agreement the agent shall forthwith deliver to the company all the goods ... entrusted to him by the company and shall account for the value of any goods not so returned."

It was submitted by Mr. Curry that the words quoted afforded the agent an option to retain goods on accounting for their value; for my part I am quite unable to accept this submission as a matter of construction of the words, since it seems to me they are quite incapable of conveying the meaning that he should be entitled to buy for himself goods which he had undertaken by clause 3 (ii) of the contract to sell "only to members of the public." It would be unusual, and in my opinion in the absence of express provision inadmissible, that an agent should buy his principals' goods for his own purposes.

Prior to the determination of the agreement between the respondents and the appellant, which occurred upon a date not very precisely ascertainable within the period between July 20 and 30, 1964, the appellant had sold two washing machines to customers for which he had received a total of £106 1s. If he had complied strictly with the contract, he should have paid over this sum by July 20; in fact he has never paid it over, nor did he return a tabletop worth some 12s. and half-a-dozen tap-adapters of negligible value; at the determination of the contract the appellant was entitled to commission on the two sales mentioned of £5 10s. and to other unpaid commission, in total £63 5s.

Applying the observations made earlier in this judgment to those circumstances, I am of the opinion that the sum of £106 1s. mentioned falls to be set off against the total amount due, or falling due within the period of nine months following the determination

of the contract, from the respondents to the appellant in respect of commission earned whether or not retained, pursuant to clause 8 of the contract: I do not think that any set-off arises in relation to goods in the hands of the appellant at the determination of the contract or their monetary value because when they were delivered to him it was not then certain that they would be turned into money in accordance with the contract; a fortiori there could be no set-off in respect of the proceeds of goods sold by any agent after the determination of the contract of that agent. These are the answers which I give to the second and third of the three questions posed by Mr. Curry on this appeal.

Mr. Curry also raised a question whether the agents who were selling on behalf of the respondents in the manner described were factors possessing a factor's lien over goods the property of the respondents which came into their hands with authority to sell them or over the proceeds of sales made with the authority of the respondents. He referred the court to the provisions of the Factors Act, 1889, but for my part I am unable to see that this Act has any relevance whatsoever in the present case. The Act does not define factors, nor mercantile agents, but upon its true construction refers to and gives statutory effect to dealings of a certain category of persons who ex hypothesi are mercantile agents. Whether or not a trader or dealer is a mercantile agent, or being a mercantile agent also a factor, is in my opinion, as was submitted by Mr. Muir Hunter, to be determined by that part of the common law which is properly to be called the law merchant. It is by custom of the business or mercantile world established in any given case by evidence that a court has to be informed whether a particular class of trader or dealer is a factor: there was no such evidence given in this case and there is, therefore, no support for a proposition, which in any case I should have found most surprising. that travelling salesmen are, by reason of their possession of goods belonging to their employers, factors, with all the special characteristics, derived from status, not from contract, which appertain to a class of dealers to which it is relatively unlikely in modern times that there will be any additions.

Finally, I would say that even if it had been established that the appellant was a factor, a factor's lien can be negatived by contract, and I am of the opinion that the provisions of the contract in the instant case would have excluded any such lien.

For these reasons it is my view that this appeal should be allowed in part, that is to say, with respect only to the sum of

money held by the appellant at the time of the determination of the contract.

Solicitors: Peacock & Goddard for Willmot & East, Poole; Ashurst, Morris, Crisp & Co.

M. M. H.