The rule on payment of the price in Scots law

In his Institutions (the first edition of which was published in 1681) Stair recognises that the Civil law implies a term of payment of the price, but states firmly that no such rule applies in Scots law.

Sale being perfected, and the thing delivered, the property thereof becomes the buyer’s, if it was the seller’s, and there is no dependence of it, till the price be paid or secured, as was in the civil law, neither hypothecation of it for the price, Hope, de empto, Parker contra Law^[371]

It seems that two points are being made in this passage.

The Lords fand in venditions that venditor, postquam convenit de pretio, might not claym his goods albeit the pryce was not payed to him; and sic lyke that there wes no necessity of delivery where the goods wer els in the buyer’s possessione: 26 Jun. 1621, Park contra Findlay.^[373]

Few facts are given, but it appears that the seller has made delivery of the goods to the buyer and that the buyer has failed to pay the price; the reference to agreement on the price is no doubt to indicate that the contract has been perfected.^[374] Presumably the question raised in the case was whether the seller was entitled to vindicatio of the goods (property remaining in the seller) or to an actio ex vendito (property having passed to the buyer, and the seller therefore relying on his contractual right).

It is worth examining Stair’s second proposition more closely. There is, says Stair, no hypothecation of the thing sold for the price. Stair’s first proposition simply stated that property does in fact pass on delivery independently of any requirement that the price be paid. The second proposition, however, seems to presuppose that property has passed to the buyer. It then appears to go on to say that the seller also retains no real right of the nature of a hypothec against the object of sale until the price has been paid. At first sight, this is odd. The natural way to analyse this situation, one might think, is to ask whether property has passed or not. It is a secondary question, which arises only if it is found that it has, whether the seller retains any real right in the goods less than ownership. The difference, then, between Stair’s two propositions - although it is not brought out by Stair himself - is this: under the first (non-Scots) propo­sition, property cannot pass to the buyer until the condition (payment) is satisfied; whereas under the second, for a hypothec to operate, property must have passed to the buyer in order that the goods can be hypo­thecated to the seller.¹⁶ What is intriguing about Stair’s account is that these propositions are dealt with as if they are merely variations on the same principle.

There are indications in the cases that this view had a certain currency in the late seventeenth century; and that it was also believed that, while Roman law did indeed recognise a seller’s hypothec over the goods against payment of the price, Scots law did not.

Similarly, in Cushney v. Chrystie'⁹ there was competition for the owner­ship of certain goods in the hands of the factor of a deceased merchant, George Angus. The first claimant, Chrystie, had been the deceased’s business partner; with him he had bought goods in Danzig. The goods had been sent back to Aberdeen in separate consignments, under separate names and marks. After Angus died, however, Chrystie had been served with a summons in Danzig by the sellers, and had been compelled to pay the whole price (rather than his share of it). The basis of his claim was that he had a hypothec over the goods until payment. The second claimant was the deceased’s executor-creditor, who had arrested the goods in the hands of the factor. The basis of his claim was that the arrestment had attached a real right in the goods. The court held that there had been traditio of the goods to the deceased’s agent, inasmuch as they had been separately consigned; that with traditio ownership passed; and that there was no hypothecation of goods for the price.

¹⁶       It is, of course, possible for a hypothec to be created over goods which have yet to come into the debtor’s possession; but the hypothec has no effect over them until they have done so: cf. D.20.6.14 (Labeo, 5 posteriorum a lavoleno epitomatorum).

¹⁷       24 February 1680, M.4932.           ¹⁸ M.4932, 4934.            ¹⁹ 14 June 1676, M.6237.

²⁰        The grounds for the decision in this case are as set out above. It is to be noted, however, that this does not appear to be an ordinary contract of sale: the claim by Chrystie is a

This case is reported both by Stair and by Gosford. There is some reason to think that both may have sat as judges in it.²¹ In his report, Lord Gosford notes that the decision ‘seems hard, and to which I did not agree’. He gives various reasons, but in particular makes the interesting observation that this ‘could not be very destructive to all foreign trade, which must be ruled by the laws of the place where the traffic is to be used’. Such policy reasons against recognition of hypothecs crop up fre­quently in Scots authority. But the reason why he expressed himself in such a way may not be far to seek, if indeed Stair was on the other side, in the majority. Only a few years later Stair was to publish these words in his Institutions:²²

Impignoration is either express by the explicit consent of parties, or implicit, which is introduced by law, without consent of parties; of which tacit hypothe­cations, there have been many in the civil law; as in the ware, for the price...

It may well be, then, that the references to hypothecs over goods against payment of the price are to be traced back to a single source, namely Stair, whether acting as judge or institutional writer. And it may be that they are all motivated by the same concern for commerce and for foreign trade. Yet Stair and the cases purport to find such a rule in Roman law. Whether, in speaking of it, Stair had anything more in mind than the implied term that title did not pass without payment of the price is unclear. But, before arriving at that conclusion, it is proper to see if such a rule is to be found in the Corpus luris Civilis. It is very difficult to know on what passages Stair and the other sources rely when asserting that there is such a hypothec in Roman law; no references are given. The passages in the Digest, however, which come closest to suggesting that the seller retains a right of security over the goods are the following, although

claim not by the seller of the goods but by a person who has paid the price and who was a partner of the deceased; it ought in principle therefore to be a claim on the contract of partnership rather than that of sale.

²¹       Unfortunately none of the reports states who the judges in this case or in Prince v. Pallat were, and the Advocates Library does not have Session Papers for the years before 1711.

²²        Stair, Institutions, 1.13.14.

(as will appear) they are in fact concerned with a very different situation.^{style='font-size:10.0pt;font-family: "Times New Roman",serif;color:black'>[375]}

The first is a passage of Ulpian. The context is his discussion of the actio ex empto, and in particular the heads of damage recoverable in that action.

The price must be offered by the buyer when he sues on sale, and even if he offers part of the price he still has no action on sale: for the seller can retain the thing sold as if a pledge.^[376]

This appears to be no more than a statement of a rule of mutuality of contract.^[377] Although Ulpian does not actually say that the object is held as a pledge, there is some oddity here. The goods are in the seller’s possession, so (presumably)^[378] traditio has not been made. It follows that the seller remains owner. If that is so, it is odd to say even that he retains the object as a sort of pledge, since the fact that he is the owner removes one of the characteristics essential to any kind of pledge. The same, however, is found in another passage of Ulpian, dealing with the question whether one of two joint purchasers can compel delivery of half the goods on payment of half the price (the answer is ‘no’): ‘for the seller retains what he has sold, by way of pledge, until such time as the buyer gives security’ (‘nam venditor pignoris loco quod vendidit retinet, quoad emptor satisfaciat’).^{[379] [380]} This remark too is made in the context of a discussion about when the buyer can bring the actio ex empto. From that context, it seems reasonably clear that little more is intended than to assert that the seller is entitled to retain the goods until the buyer tenders the price; the pseudo-pledge mentioned is merely a right to refuse delivery until payment is offered; it is what in later law became the exceptio non adimpleti contractus.²*

In any event, it is quite clear that these passages have nothing to do with a hypothec over the goods for payment of the price, for the very simple reason that the goods are in the possession of the seller. That is quite a different position from what is found in the Scottish cases, where the issue was whether the unpaid seller could assert his hypothec over goods in the possession of a third party.

So far we have established that Stair denied the existence in Scots law both of an implied term on payment of the price and of a tacit hypothec over the price; that he ascribed the doctrine of hypothec to Roman law; that in fact it is hard to find any trace of it there; and that accordingly one must wonder whether he was not simply referring in another way to the rule on payment of the price. But first it may be appropriate to consider the other authorities.

The Roman rule on payment of price was adopted in both France and the Netherlands, two countries whose authorities, in particular Pothier and Voet, were often followed by the (later) institutional writers.^[381] In Scotland itself, the later institutional writers did not follow Stair as a matter of course, but any resistance to his exposition made little impact on the law. Bankton, in his Institute, followed the Roman rule: ‘if the price is paid, or trust given for it, delivery of the goods will transfer the property that was in the seller; but otherwise the property is pendent, even after delivery, which is taken to be conditional’. He goes on to note that ‘by our law no hypothec is granted upon the goods for the price’.^[382] Erskine too seems to have been much less clear that Scots and Roman law did in fact differ on this point: ‘By the Roman law the property was not transferred till the price was also paid, or the seller satisfied with the security he had got for it. But whether this would be held for the law of Scotland remains a doubt.’^[383]

Such doubts, however, seem soon to have been overcome. Erskine’s editor was unable to understand why he should have had them;^[384] and Bell discussed the rules in much the same way as had Stair:

The Scottish law rejects hypothecs of moveables as destructive to commerce, except in a few special and well-ascertained cases, to be afterwards discussed. It gives no sanction to the idea that a seller continues proprietor of a subject which he has delivered over to the buyer on the title of sale.

Bell then quotes Stair.^{New Roman",serif;color:black'>[385]} In spite of dissenting voices, the orthodoxy appears therefore to have been established by Stair; and to have been consolidated by Bell, who did little more than follow Stair.

To revert to Stair. What seems to have happened is that he associated the Roman implied term, that property will not pass until payment is made, with a rule about an implied hypothec over the goods until payment of the price.^[386] It may be noted that, against the background of a legal system such as Roman law which recognised an implied term that property will not pass until payment is made, an implied hypothec over the goods until payment seems relatively improbable. At least in Justi­nian’s day, a hypothec was unnecessary. Unnecessary, if the buyer did pay the price, since he was no longer indebted to the seller; unnecessary, if he did not pay the price, since he did not become owner; unnecessary, if he arranged security or was given credit, since he became owner, but only on the basis that he gave the seller security (whether personal or real)^[387] for payment of the price. The security he gave for payment of the price of the goods was, of course, not a hypothec over those very goods. For the purpose, surely, in allowing the buyer to give security was to allow him to take an unencumbered title to the goods sold.

It has already been noted that, from the standpoint of where title to the goods resides, the rules of payment and of hypothec are concep­tually quite different. The similarity between them appears to be only this: that an object is in the hands of one person (the buyer) and yet subject to a right in rem vested in another person, whether that right is ownership or a security right. But it makes little sense to subject these to the same analysis: the second may be a security without possession; but the first is not a security at all (as appears when one asks what it is a security over).

While the payment of price rule and the hypothec rule are conceptually different, the idea that a condition that title does not pass until payment is a type of security continues to exercise some attraction.^[388] In the recent case of Armour v. Thyssen Edelstahlwerke A.G., the following was said:

Despite the generality of that rule of common law [that security over moveables retenta possessione is of no effect], the law does recognise the right of a seller to stipulate that title will be retained until the price has been paid. In a sense, the seller is thus obtaining security without possession.^[389]

Reasoning of this sort is possible only if the question who has title to the goods is postponed to the question what the purpose of a contractual term is. It is possible to suppose that, viewed in isolation, a rule which stipulates that property in goods shall not pass until payment is a sort of security, since it gives the seller a right to the goods which he would otherwise not have. Yet this kind of approach makes sense only if one subscribes to the (now largely ignored)^[390] doctrine of reputed ownership; only then can it seem at all troubling that there should be property in the hands of one person which in fact belongs to another.

Treatment of the payment of price rule as equivalent to, or even alongside, hypothec for the price was sufficient to taint the Roman rule with guilt by association. The very word ‘hypothec’, as appears from Bell’s writings, was enough to strike terror into the heart of the Scots commercial lawyer, and to conjure up images of the sterilisation of trade and the destruction of commerce.^[391] It was a basic rule of Scots law that, apart from an accepted list of hypothecs such as that of the landlord, there could not be security over moveables without possession. That rule is found in early times; it can be observed in Balfour’s Practicks, as well as in early cases.^[392] It may be regarded as settled law even in Stair’s day. It was therefore plain that a seller could not have security over the object sold once he had delivered it to the buyer. And if the implied term on payment of the price was regarded as such a security, neither could that term be part of Scots law.

This is not the place to investigate the origins of the rule in Scots law requiring possession of moveables to constitute security over them. None the less, there may be some reason to associate it with the maxim traditionibus et usucapionibus dominia rerum non nudis pactis transferun­tur.^[393] It is plain enough that this maxim, read literally, is a rule about the transfer of dominium and says nothing about the transfer of rights in rem less than ownership. Equally, it is a rule about delivery, rather than about possession. But various Scottish authorities appear to construe it more broadly. Thus Stair says:

But, for utility’s sake, not only the Romans, but almost all nations require some kind of possession, to accomplish real rights, that thereby the will of the owner may sensibly touch the thing disponed, and thereby be more manifest and sure; so the law saith, Traditionibus et usucapionibus, non nudis pactis, dominia rerum transferuntur, with which our custom accordeth.^[394]

And the modern Scottish textbook on rights in security says:

The brocard traditionibus non nudis pactis dominia rerum transferuntur implies that a mere contract to transfer corporeal moveable property, though made for valuable consideration, and though that consideration be duly given, will not vest a real right in the subject transferred, nor entitle the transferee to vindicate it in the hands of a third party or on the bankruptcy of the transferor, unless it has been delivered into his possession.^[395]

It is perhaps little more than a speculation to suggest that this maxim lay behind the requirement of Scots law that moveables be delivered to the security creditor; and that a maxim which once applied only to the trans­fer of dominium came to be treated as applying to the transfer of any right in rem. But what is clear is this: once the payment of price rule had become associated with the notion of an implied hypothec over the goods, it was only a short step to the rejection of the rule as part of the law of Scotland.