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Sec. 86.

CHAPTER XVI.

WAREHOUSE RECEIPTS, ETC., AS COLLATERAL SECURITY.

Review of earlier legislation.

Prior to 1859 the rights of banks in the late province of (P. 167.) Canada to acquire bills of lading and warehouse receipts as securities for advances depended upon the general law affecting private individuals and upon the provisions of the charter of each bank.

Receipt by warehouse

man, etc.

An Act of 1859 entitled an Act Granting Additional Facilities in Commercial Transactions (consolidated as Chapter 54 of C.S.C., 1859), contemplated the giving of a bill of lading, specification of timber or receipt by a warehouseman, miller, wharfinger, master of a vessel, or carrier, for cereal grains, goods, wares or merchandise, stored or deposited, or to be stored or deposited, in any warehouse, mill-cove (sic), or other place in the province, or shipped in any vessel, or delivered to any carrier for carriage, and provided that such receipt, etc., when endorsed to a bank by the owner or person entitled to receive such cereal grains, etc., as collateral security for the due payment of any bill of exchange or note discounted by such bank in the regular course of its business, should vest in the bank all the right and title of the endorser, subject to the right of the endorser to have the receipt re-transferred to him if such bill, note or debt were paid when due.

Under this statute, it was held that the warehouseman, etc., giving the receipt must be a person occupying the position of bailee of the goods of which he was not himself the owner.

In 1861 the consolidated statute was amended so as to permit a warehouseman, etc., who was at the same time the owner of, (or entitled otherwise than as warehouseman, etc., to receive), cereal grains, etc., to give a receipt for the same and endorse the receipt, such receipt to be as valid and effectual for the purpose of the Act as if the person giving and endorsing the receipt were not one and the same person.

The effect of the amendment was to introduce, for the first time, the principle that the owner of goods might practically

Sec. 86.

(P. 167.)

Review of

give the bank a mortgage upon his goods in the form of a warehouse receipt. The persons entitled to do this, however, were confined to the five classes mentioned in the Act of 1859 above earlier cited, and the receipt must have been given in the capacity of legislation. warehouseman, etc., otherwise it was of no value as a transfer

of property. (Royal Canadian Bank v. Ross, 1877, 40 U.C.R. at p. 473.)

owner.

In 1865 the class of persons who might endorse a warehouse Receipt by receipt was extended so as to allow of its being given by the agent of attorney or agent of the owner. This provision was, however, subsequently limited by the Act of 1871, which enacted that the receipt, etc., endorsed to the bank should vest in the bank "all the right and title of the last previous holder thereof, and if such holder be the agent of the owner within the meaning of the fiftyninth chapter of the Consolidated Statutes of the late Province of Canada, then all the right and title of the owner thereof."

In 1880 the language of the previous Act was considerably changed. Warehouse receipt was defined to mean any receipt given by any person for any goods, wares and merchandise in his actual visible and continued possession, as bailee, in good faith, and not as of his own property, and also to include a receipt given by the keeper of any harbour, cove, pond, wharf, yard, warehouse, shed, storehouse, tannery, mill or other place in Canada, for goods, wares and merchandise, being in the place or in one or more of the places so kept by him, whether such person is engaged in other business or not, and to include specifications of timber. Bill of lading was declared to comprise all receipts for goods, wares and merchandise, accompanied by an obligation to transport the same from the place where they were received to some other place, whether by land or water, or partly by land or partly by water, and by any mode of carriage whatever.

The Act contained provisions similar to those of 1859, as amended in 1871, vesting in the bank upon endorsement of such warehouse receipt or bill of lading, all the right and title of the previous holder or owner (including the case where the previous holder is the owner's agent), and also, in amendment of the previous statutes, provided for the vesting in the bank of all the right and title of the person from whom the goods, etc., were received or acquired by the bank, if the receipt or bill of lading is made

Sec. 86. (P. 167.) Review of earlier legislation.

Security in form of Schedule C.

directly in favour of the bank, instead of to the previous holder or owner.

The Act of 1880 likewise enumerated the privileged classes of occupations, in which, if a person were engaged, as his ostensible business, he might grant a receipt or a bill of lading directly to the bank upon his own goods, such receipt to have the same effect as if the owner or the person giving the receipt or bill of lading, were different persons.

We have seen that this privileged group of persons was first created in 1861. The list of such persons was gradually extended in 1865, 1871, 1872, 1880 and 1888, by the addition in each of the years mentioned of persons engaged in certain named occupations.

The power thus given to certain classes of persons in effect to give a mortgage upon their goods direct to the bank, was authorized by the legislature by means of a fiction: namely, by permitting such persons, as warehousemen, to issue receipts to themselves as owners, acknowledging that they had certain goods in their possession to their own order, and then, as owners, to endorse such receipts to a bank-a fiction that was only slightly disguised when the transaction took the form of a receipt from the owner direct to the bank.

In 1890 the law was greatly changed in form, though not in substance. The bank was still authorized to acquire and hold a warehouse receipt or bill of lading as collateral security, provided the goods mentioned in such receipt or bill of lading were in the possession of the person giving it as bailee in good faith and not as of his own property. But the right of the owners of goods to use the fiction of a warehouse receipt or bill of lading as a means of obtaining advances upon such goods was abolished, this right having been considerably abused (see Royal Canadian Bank v. Ross, supra).

Instead, a new form of security was authorized by sec. 74 of the Act of 1890 (now sec. 88). The privilege of pledging the pledger's own goods for advances was no longer limited to certain named classes, but any person engaged in business as a wholesale manufacturer of goods, wares and merchandise, and any wholesale purchaser or shipper of products of agriculture, the forest and mine, or the sea, lake and rivers, and any wholesale purchaser or shipper of live stock or dead stock and the products thereof, was authorized to give to the bank security as mentioned in the Act.

In regard to the purpose for which a bank might take a ware- Purpose for house receipt or bill of lading, the Act of 1871 enabled the bank which receipt may be to acquire and hold such documents not only for the due pay- taken. ment of any bill or note discounted by the bank in the regular course of its banking business, (as provided in the Act of 1859), but also "for any debt which might become due to the bank under any credit opened or liability incurred by the bank for or on behalf of the holder or owner of such bill of lading, etc., or for any other debt to become due to the bank." In 1880, however, the right of the bank was confined to holding these documents as "collateral security for the payment of any debt incurred in its favour in the course of its banking business."

This provision was carried into the Bank Act of 1890 and remained unchanged until 1900, when the words "or as security for any liability incurred by it for any person" were added.

86. The bank may acquire and hold any warehouse receipt Warehouse or bill of lading as collateral security for the payment of any bills of receipts and debt incurred in its favour, or as security for any liability in- lading. curred by it for any person, in the course of its banking busi

ness.

2. Any warehouse receipt or bill of lading so acquired shall Effect of taking. vest in the bank, from the date of the acquisition thereof,—

(a) all the right and title to such warehouse receipt or bill of lading and to the goods covered thereby of the previous holder or owner thereof; or,

(b) all the right and title to the goods, wares and merchandise mentioned therein of the person from whom the same were received or acquired by the bank, if the warehouse receipt or bill of lading is made directly in favour of the bank, instead of to the previous holder or owner of such goods, wares and merchandise. 53 V., c. 31, s. 73; 63-64 V., c. 26, s. 15.

This section prior to 1906 constituted one section with sec. 87. It was divided into its present sub-sections in that year.

This section and sec. 88 must be read subject to the provisions of sec. 90. They are both important exceptions to the pro

Sec. 86.

visions of sec. 76, which forbid a bank to lend money or make advances upon the security of any goods, wares and merchandise.

The bank may acquire.

The method of acquiring is not prescribed. A warehouse receipt or bill of lading may be transferred either by delivery, after endorsement in blank (Bank of Hamilton v. Noye, 1885, 9 O.R. 631), or by special endorsement to the bank. If the document at the time of delivery to the bank has not been endorsed by the person in whose favour it is, the omission could doubtless be supplied subsequently. Sec. 87 speaks of such a document being transferred either by endorsement or by delivery.

But the absence of the endorsement puts the bank upon enquiry, and the mere delivery of the document to the bank by the person who has possession of it will not by itself affect the outstanding interest of the person in whose favour the document is made out. (Gosselin v. Ontario Bank, 1905, 36 S.C.R. 407.)

Legislative power.

The question of legislative power in regard to warehouse receipts is discussed in the notes to sec. 88.

Warehouse receipt.

Warehouse receipt as used in this Act is defined by sec. 2(g). A statement of the place where the goods are stored is not essential to the bank's security.

Inasmuch as the present Act, (unlike the Acts in force prior to 1890), does not provide for a warehouseman, etc., who is also the owner of goods giving a receipt to the bank upon such goods, it would seem to follow that if a person, though apparently a warehouseman, were really the owner of the goods mentioned in the receipt issued by him, such receipt would not afford to the bank any security as against execution creditors or others not claiming through the owner. A banker, before making an advance upon the security of a warehouse receipt, ought to satisfy himself that the receipt has been issued by a person whose possession is actual, visible and continuous, and who is himself a bailee in good faith.

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