The respondents supplied a company with leather for the manufacture of handbags. The conditions of sale provided that property in the leather remained with the suppliers until payment was received in full and that the suppliers had the right to resell the leather when payment became overdue. Payment was due immediately on delivery. The conditions of sale also provided that pending payment in full the suppliers had property in any products made from the leather until they were sold by the company and that a fiduciary relationship existed between the suppliers and the company which entitled the suppliers to trace the proceeds of sale of the handbags. The company got into financial difficulties and a receiver was appointed by a debenture holder. On a summons by the receiver to determine the priority of creditors' claims the unpaid sellers claimed priority ahead of the debenture holder, preferential creditors and unsecured creditors in respect of the unused leather, completed and partly completed handbags, and amounts due from sales made before the receiver's appointment, because by the terms of the conditions of sale the suppliers remained bailors and the company merely the bailee of the leather until payment was made. The debenture holder and preferential creditors conceded that the suppliers had property in the unused leather but contended that at best the suppliers had a charge over the book debts and the completed or partly completed handbags which was void for non registration in accordance with s.95 of the Companies Act 1948.
Held On the true construction of the conditions of sale the parties were to be presumed to have intended that once the company appropriated a piece of leather to the manufacture of a handbag and began work on it the leather ceased to be the exclusive property of the suppliers, whether as bailors or as unpaid vendors, but that instead the suppliers had a charge on handbags, both in the course of manufacture and when completed, which could shift to the proceeds of sale. However, since the charge had not been registered it was void pursuant to s.95 of the 1948 Act and the suppliers therefore ranked only as unsecured creditors.