Very soon however the Court of Appeal began to make inroads upon this rule. In Molsons Bank v. Halter (x), they held that the words "or which has such effect" were limited to the case of a preference and that although a transaction might have the effect of defeating, delaying, or prejudicing creditors, it was not for that reason alone rendered void, and security given by a defaulting trustee to his co-trustee-who was held not to be a creditor-was successfully supported. Then in Gibbons v. Wilson (y), a mortgage to secure a present advance was upheld although the moneys advanced were used to pay off a creditor and the loan had been in fact, though without the knowledge of the mortgagee, effected to enable this payment to be made, Stoddart v. Wilson (2), being doubted. Shortly afterwards, in Johnson v. Hope (a), the Court upheld a mortgage made to secure an actual advance, where the moneys, with the mortgagee's knowledge, were at once handed over to a creditor, the mortgagee not having any notice or knowledge of the mortgagor's insolvent condition, very strong language being used as to the validity of all transactions entered into in good faith, the Statute, in the opinion of Maclennan, J.A., who delivered the judgment of the Court, not being intended to make void transactions entered into in good faith and without knowledge or notice of the insolvent condition of the other party to the transaction, merely because the effect of the transaction might be to work a preference in favour of the creditor. "A person who deals. bona fide with an embarrassed debtor, and who at the time of the dealing has no knowledge or notice of his embarrassed condition, is safe from all the consequences enacted by the Statute," and this interpretation was followed in subsequent cases (b).

In Ashley v. Brown (c), a security taken for a pre-existing

(x) 16 A. R. 323.

(y) 17 O. R. 296; 17 A. R. 1.

(2) 16 O. R. 17.

(a) 17 A. R. 10.

(b) Lamb v. Young, 19 O. R. 104; Gibbons v. McDonald, 19 O. R. 290. (c) 17 A. R. 500.

debt was upheld where there was no knowledge or notice of the insolvent condition of the debtor, but the person who attacked the transaction was in that case not a creditor at the time the transaction was entered into. On the argument before the Court of Appeal in Gibbons v. McDonald (d), a case in which in the Court below Johnson v. Hope (e), had been followed and the transaction upheld on the ground that no notice or knowledge of insolvency had been shown, the appellant attempted to distinguish Johnson v. Hope, on the ground that in that case an actual advance had been made, and Ashley v. Brown, on the ground that the plaintiff there was not a creditor at the time the transaction was entered into, and Hagarty, C.J.O., in his judgment adopts this as the correct interpretation of the two cases referred to. While, however, the case of Gibbons v. McDonald, was standing for judgment, the Supreme Court decided Molsons Bank v. Halter, and by the effect that the Court of Appeal have given to their decision-a decision sufficiently startling to call forth the remarks cited at the beginning of this article-an entire revolution in the state of the law has been worked.

Strong, J., in that case says:-"In the first place I entirely agree with the majority of the Court of Appeal in attributing the words or which has such effect' to the case of preferences exclusively. I am of opinion that we must refer the words' such effect' to the next antecedent of preference over his other creditors' a construction which is in keeping not only with the literal and grammatical meaning but which is also consistent with reason, good sense and legal convenience, and which does not conflict with any contrary intent of the Legislature disclosed by the context.

"If on the other hand we were to apply these referential words to the first part of the section, and hold that a conveyance tending to prejudice creditors, though made with the most honest and praiseworthy intentions, was void,

(d) 19 O. R. 290; 18 A. R.

(e) 17 A. R. 10.

and that too even as regards bona fide purchasers such as a creditor innocently taking a conveyance in satisfaction of his debt, or parties claiming under an ante-nuptial settlement made and accepted in good faith and without notice of any fraudulent intent, we should, I think, be attributing to the statute an operation which would not merely be novel and startling but which would be positively unjust.

"On another ground I come to the same conclusion. As laid down in Butcher v. Stead (f), the word 'preference' imports a voluntary preference, that is to say, a spontaneous act of the debtor, and this security cannot be said, in view of the liability of the defaulting trustee to be criminally prosecuted, to have been given voluntarily. It is held. that a mere demand is sufficient pressure by a creditor to take away from a conveyance, transfer, or mortgage, the character of an unjust preference. Much more then the pressure caused by the consciousness of the trustee that he is liable to penal consequences.

"Although in the view which I take it is not material that I should be able to assign any particular meaning to the words 'or which has such effect,' I may add that I should find no difficulty in doing so. It appears to me that they have a perfectly plain and obvious meaning. They are in my opinion redundant words inserted by the draughtsman ex abundanti cautela to show that not merely direct preferences, such as would result where an impeached deed or conveyance was made directly by the debtor to the creditor, they being the only and immediate parties to the transaction, were intended to be prohibited, but that preferences which would be the consequences of indirect and circuitous forms which might be given to a transfer of property made through persons interposed between the debtor and creditor were also intended to be included."

Gwynne, J., points out that it is necessary to keep in view the original provision of the law, saying that the Act 48 Vict. cap. 26, sec. 2, was passed by way of substitution for the second section of R. S. O. cap. 118, and was therefore a (f) L. R. 7 H. L. 839.

clear enunciation by the Legislature of their intention to provide against persons in insolvent circumstances transferring any property for the purpose of defrauding their creditors or giving to any of their creditors a fraudulent preference over any other creditor. He then adds: "What the draughtsman of this section intended by the words 'or which has such effect' I do not think was very clear to his own mind. I must say that they do not appear to have the effect of changing the nature of the enquiry which would have been necessary, or of extending the operation of the section beyond what it would have effected if these words had been omitted. The whole question is still as before involved in an enquiry into the precise character of the consideration upon and for which the deed was in truth executed. Every deed executed by an insolvent purely voluntarily and without consideration is regarded in law as well as in fact as having the effect of defeating, delaying and prejudicing the creditors of the insolvent grantor. The only deed therefore executed by an insolvent not having such effect must be a deed executed bona fide for valuable consideration, and neither justice nor common sense in my opinion justify the contention that the Legislature by the language used contemplated declaring void and fraudulent, as against the grantor's creditors, a deed executed by him bona fide for valuable consideration proceeding from the person to whom or in whose favour and for whose benefit the deed was executed. A preference of one creditor over others consisted, and in my opinion still consists, in a voluntary disposition by the insolvent of some portion of his property so as to confer greater benefit upon one or more of his creditors than upon others when unable to pay all in full. To constitute a preference it must have been given by the insolvent of his own mere motion and as a favour or bounty proceeding voluntarily from himself." Taschereau, J., concurred with Strong, J.

Patterson, J., dissented, holding that it was only necessary to consider the effect or the intent, and that if there was an intent to prefer, the transaction was void, though no creditor should actually be defeated or delayed,

while on the other hand, even though there was no intent to prefer still if there was in fact a preference the transaction was equally void.

Fournier, J., concurred with Patterson, J.

The remarks of Strong, and Gwynne, JJ., while very clear and forcible, are obiter dicta and by no means commit the Supreme Court to a recognition of the doctrines of pressure and intent, though the decision places beyond attack the construction of the section adopted by the Court of Appeal when the case was before them. In Gibbons v. McDonald (g), however, without necessity for so holding, the case being one where knowledge of insolvency was not shown, Hagarty, C.J.O., and Osler, J.A., interpret Molsons Bank v. Halter, as laying down that those doctrines are still applicable, and Burton, J.A., adopts it as confirming the opinion to that effect expressed by him in Kennedy v. Freeman (h). And in Robertson v. Bristol, argued on the 26th of January, 1891, before the Court of Appeal, they definitely held, in answer to the argument that the remarks in Molsons Bank v. Halter were obiter dicta, and the obedience given them in Gibbons v. McDonald uncalled for, that they were concluded by Molsons Bank v. Halter, and intimated that in their view the section must now be construed in the same manner as section 2 of R. S. O.

cap. 118. Truly, then, is the result of all the efforts of the Legislature nil.

Assuming, however, that the doctrine of pressure does exist, there is not now any necessity for carrying it to the same extreme as formerly, for, no longer will there be the objection to contend with, that to upset an attacked transaction would be merely substituting for the debtor's honest preference a preference not more honest of some fortunate execution creditor.

With great interest, by the profession and the mercantile community, will be watched the Legislature's next effort, if any, to place creditors on (in what would be in many cases a very unfair) equality. R. S. CASSELS.

(g) 18 A. R.

(h) 15 A. R. 216.