Burns v McFarlane

The case of *Burns v McFarlane* concerned an appeal from the Federal Court of Bankruptcy. The dispute arose from a bill of sale granted by a debtor, Woon, to his landlord, McFarlane, as security for an advance. The official receiver, Burns, sought to have the bill of sale declared void, arguing it was invalid under the *Bills of Sale Act 1886-1935* (S.A.) and constituted an unfair preference under the *Bankruptcy Act 1924-1933*.

The High Court was required to determine two primary legal issues. Firstly, whether the bill of sale was void for material omission or misstatement of its consideration, specifically concerning the repayment of rent arrears. Secondly, whether the transaction constituted a preference, priority, or advantage to McFarlane over other creditors, rendering it void under the *Bankruptcy Act*.

The Court reasoned that the debt for rent was discharged by payment through the mechanism of the bill of sale transaction. Applying established legal principles, particularly from English authorities on bills of sale, the Court held that where a portion of a stated advance is applied to satisfy a presently payable debt owed by the grantor to the grantee, this constitutes a true statement of consideration as a contemporaneous advance. The Court found that the transaction, being entered into in good faith, for valuable consideration, and in the ordinary course of business, was protected by section 95 of the *Bankruptcy Act*. This protection was afforded because the transaction aimed to place Woon's business finances on a sounder footing, and McFarlane had no knowledge or reason to suspect Woon's insolvency at the time.

The High Court affirmed the decision of the Federal Court of Bankruptcy, dismissing the appeal. The bill of sale was held to be valid, and the payment of rent and subsequent repayment of the advance were also upheld.