(1785) 3 Paton 32
CASES DECIDED IN THE HOUSE OF LORDS, UPON APPEAL FROM THE COURTS OF SCOTLAND.
House of Lords,
Subject_Bankruptcy — Ranking of Creditors — Landlord and Tenant — Retention of Rent. —
A tenant had a lease of the estate
of Kilsyth for 99 years, at a rent of £500 per annum. The tenant afterwards became creditor of the landlord to a large amount, £7282 of his debt being heritably secured over the estate on bond, which bore an express clause entitling the tenant to retain the tack duty. The other debts were secured by adjudication; and he contended, on the bankruptcy of the landlord, that he was entitled to retain the rent, in the first place, to pay the interest of his whole debts, and then to extinguish the principal. Held in the Court of Session, that he was entitled to retain the rents for the payment of the interest and principal of the £7282 heritable bond, but not for the other debts. Reversed in the House of Lords; and held that the tenant was entitled to retain and impute the rents, in the first place to pay the interest, and in the second place, the principal of the whole debts due to the appellant as are preferable to the debts due to such creditors.
The York Buildings Company, who had acquired all the forfeited estates in Scotland, granted to the appellant's grandfather, David Campbell, Esq. of Shawfield, a lease of the estate of Kilsyth for 99 years, for a tack duty of £500 per annum.
Soon thereafter David Campbell became a creditor of the York Buildings Company in several sums of money advanced by him to them, amounting in all to a sum of £10,000. In particular, £7282 of this sum was secured by heritable bond, of this date, over the estate of Kilsyth. The bond having this clause, “that he and his foresaids shall be allowed, and are hereby allowed, to retain the said tack duty in their own hands from Whitsunday 1732, or in all time coming, during the not payment, in payment, protanto of the sums of money, principal, annual rents, and necessary expenses.” Besides this heritable bond, Mr. Campbell was obliged, as security for the Company, to pay a bank debt of £1500, accumulated with interest to £1900, on which he raised adjudication in the following year. He had also to interpose to pay a debt against the Company, due to Lady Bute, on which adjudication was led in 1735, whereupon he obtained assignation to that adjudication. He likewise acquired right from John Sommerville to an adjudication which had been taken by him against the Company in November 1733, for the sum of £552.
The Company never paid any part of these debts, principal or interest, to Mr. Campbell or his representatives. On the other hand, they had been paid no rent for the lease of the estate of Kilsyth, but had allowed Campbell to retain
The Company being engaged in extensive schemes, found occasion for large supplies of money; and having obtained an Act of Parliament, impowering them to sell and grant annuities or rent charges by way of lottery, they issued transferable annuity bonds to the amount of £10,403. 11s. upon the security of their estates, and, to render such security effectual, they granted a disposition in Oct. 1727 in favour of trustees for said annuitants. This was the first real security granted over their estates.
Upon the disposition to the estates, of date October 1727, the annuity creditors were only infeft 14th March 1729, so that the infeftment was subsequent to that of Mr. Campbell.
In 1737, the annuity creditors brought an action to set aside the above lease, which was afterwards dropped; and it was alleged, in this and other proceedings in the Court among the creditors, that Mr. Campbell did not claim a preference beyond his bond debt, and did not seek a right to retain the rents except for it.
Of the same date, 1728, with the heritable bond of £7282, the Company granted to Sir John Meres, an heritable bond over their whole estates, including Kilsyth, for a debt due to him upon which he was infeft, but subsequent to Mr. Campbell's infeftment.
The Company, having occasion to borrow more money, granted in 1731 a trust disposition, conveying their whole estates to trustees, in security of £100,000, for behoof of their creditors; and infeftment followed thereon on various dates, from 4th November 1732 to January 1735. These were called the trustees for the bond creditors.
Nov. 10, 1732.
The Duke of Norfolk adjudged the whole estates in Scotland on 10th November 1732, for payment of an arrear of tack duty of £2025, on a security of a yearly tack duty of £3600 per annum.
Nov. 7, 1733.
The Duke of Norfolk's adjudication was thus first led, but
Mr. Campbell's claims against the Company thus exceeded £10,000, and, consequently, the annual interest due him was above £500, being the yearly rent paid by him. The appellant therefore claimed right to retain the tack duty or rent of £500 per annum, in the first place, towards extinction of the interest of this whole debt, and, in the next place, towards extinction of the principal sums.
It thus appeared, with regard to Mr. Campbell's bank debt, on which adjudication was only obtained in 1773, that the following creditors were preferable, 1st, The Trustees for the Annuitants; 2d, Sir John Meres; 3d, The Duke of Norfolk and Partners; and 4th, The Trustees for the Bond Creditors. It was also alleged, that certain other creditors were likewise preferable, in consequence of their adjudications, inhibitions, and other diligence, viz. Bertram of Nisbet, whose inhibition was recorded 18th August 1721; Rowland Ainsworth, by inhibition, recorded 2 February 1727. And there were four creditors whose adjudications were within a year and a day of Shawfield's first adjudication, and entitled to come in pari passu with him.
Before the present question was raised, Sir John Mere's debt was paid; so was the Duke of Norfolk's debt. The trust-deed creditors were also paid; and the annuity creditors were otherwise provided for. The question lay therefore between the appellant and what were called the postponed creditors of the Company.
It seemed admitted by the creditors, that the heritable bond for £7282 was a preferable debt; but in regard to the three adjudication debts, they contended that these were not preferable, and therefore he was bound to apply the rents exclusively to that bond debt, to the extinction of interest and principal, leaving the principal and interest of his other debts to stand over.
Dec. 7, 1780.
Feb. 4, 1785.
The Court pronounced this interlocutor, “Find, That in
Against this interlocutor the present appeal was brought, in so far as it did not allow him also to retain the rents or tack duty, against the other debt of £3000 secured preferably, in so far as the present postponed creditors were concerned.
Pleaded for the Appellant.—It seems admitted that this is a question between the postponed creditors of the Company, (that is, creditors not equal in time or rank with the appellant,) and the appellant, and there is no pretence that postponed creditors can maintain any plea against the appellant, that it could not be competent for the Company itself to maintain. Thus then, for the engagements which Campbell came under for the Company,—which he soon thereafter had to pay for the Company, and upon which he was secured by adjudication, as well as for the £7284 heritable bond, he is entitled to retain his rents, and to set them off against the interest of the whole debts due to him. There was no covenant in the lease to pay interest for the rents after the periodical terms of payment, and the process which the law permitted to found a demand of interest, was never followed. The appellant might therefore maintain, that he is entitled to charge against the Company the whole debts in his person, with interest, and to give allowance only for the rents, without interest, at the commencement of this action. But as the rents were not demanded, or were allowed to remain in his hands, he admits that they must in equity be stated against him annually, if applied to the whole debts, but, upon the principles of law and justice, he submits, that the respondents cannot be heard to insist that the rents shall be applied to one debt, so as gradually to extinguish it, principal and interest, while the other debts remain entire, and the growing interest on them is dead stock, when all the debts arc precisely on the same footing as between the appellant
Pleaded for the Respondents.—The mode of accounting for the rents of Kilsyth, as fixed by the Court below, is not only just, but agreeable to the understanding and covenant of the parties. It has been proved, that the appellant's ancestor agreed with Sir John Meres and the Company, to take an assignment of a preferable debt, for the purpose of being let in to the possession of the rents of the estate. That Sir John Meres, to accommodate him, was induced to give up the hold he had of this estate. That Shawfield could otherwise have had no title to the possession. That he succeeded likewise in getting the Company's corroborative or collateral security, giving special power to retain the rents, to be applied towards extinction of principal and interest of this debt. That Shawfield had no other debts in his person at the time. That the retention, therefore, could apply solely to this debt, and he was bound to apply the whole rents accordingly. That the other creditors so understood the matter, and, for 30 years, allowed him to apply the rents accordingly. And in a former suit, it was not only admitted, but settled, that the retention applied to the heritable bond
After hearing counsel,
“ My Lords,
This is an appeal from certain interlocutors of the Court of Session, (stated the interlocutors of 7th December 1780 and 4th February 1785). And the appellant's complaint is, that these interlocutors have laid down an improper rule of accounting.
To avoid the mentioning fractions of sums and circumstances, which have no influence on the question, I shall suppose the following case:—A person possessed of an estate under lease to a tenant for £500 rent, owes, 1st, to the tenant A. £2000; 2d, to B., a stranger, £2000; 3d, to the said A., the tenant, another £2000; and that these debts are, by the diligence of the respective creditors, preferable in the above order. The tenant A. is entitled to retain his rent, and apply it to payment of his first debt £2000 and interest. In something less than five years the debt will be discharged. The stranger B. is then entitled to have the rents paid over to him, his debt then amounting, with interest, to £2500. It will take more than five years of the rents to discharge this debt. When it is fully paid, the tenant comes again to hold the rents. The tenant says to the landlord, ‘It is true, in competition with the stranger B., I could only found upon my first debt, and in accounting that way it was exhausted, but in competition with you, I will state myself as creditor for both my debts, and I will impute the rents first to pay the interest of both, before encroaching upon the principal of either. The landlord says, you did in fact hold only for your first debt,—it is paid, and you are now to go upon your second. The question is, What ought to be the rule?
In the cases, a great deal is said with respect to the creditors who were preferable or pari passu with Shawfield; but it is unnecessary, because it is confessed in the minute, and was at the bar, that the postponed creditors are the only parties. 2d, No doubt the counsel for respondents does not admit this, and it shall be guarded. But at present, the appellant may be stated as preferable to all the other creditors not paid. And the question is, Mr. Campbell being allowed
There arises two questions—
1. What is the general rule of law?
2. Whether there was any agreement, or were any circumstances to take this case out of the general rule?
On the 1st,—It is plain that Shawfield, as tenant, was not obliged to pay any rent to the Company, while he was creditor of the Company. The rents were just equivalent to pay the interest of those debts, and consequently were sunk, and he is creditor still for his principal.
On the 2d,—First as to circumstances. It is contended that the annuitants were preferable to Shawfield's adjudications; and in a process in which they were the parties, it was said that Shawfield stood first only for his heritable debt, and that the annuitants were next entitled to the rent when that debt was paid. It is of no consequence in the present case, what was said in that process, because it only went to rule in competition with creditors entitled to a priority.
In the proceedings on the bill of suspension 1761, the heritable debt was declared extinguished, that expression is not to be understood literally or generally, but secundum subjectam materiam. It was a question with the annuitants,—they are out of the field or paid,—and notwithstanding that decree, Mr. Campbell continued to retain, as against the Company and its postponed creditors. Can a concession of the party, or a declaration of the Court in that cause, operate in favour of persons who were not parties? It was declared in the process of reduction, that they could not, by finding the annuitants only entitled to plead the res judicata.
No case and no principle of law has been stated to show that the postponed creditors, claiming under the Company, can have a right to plead against Shawfield, what the Company itself could not plead. On the contrary, and in competition with them as in a question with the Company, Shawfield is entitled, in point of law, to bring all his debts to set off against the rents.
The clause in the heritable bond was an unnecessary one. It professed only to do what the law would have done without declaration. The respondents want to make it an obligation upon Shawfield, to apply the rents to payment of the heritable debt singly or preferably. Consequently, to let all his other debts lie over with interest unpaid. It is impossible to imply an obligation in this way; it would have required other and more express words than are here to make out such an obligation.
No consent of Shawfield's, to impute in the way the respondents contend, is to be found in the proceedings. On the contrary, he claimed, and was allowed to retain, for other debts than the heritable bond.
I therefore move to reverse the interlocutors, and declare that Shawfield is entitled to retain the tack duty, and impute the same; 1st, In payment of the interest of all his debts; and then, in payment of the principal thereof in competition with creditors not preferable to any of the said debts.”
It was ordered and adjudged that the interlocutors of 7th December 1780, and 4th February 1785 complained of in the appeal, be reversed. And it is further ordered and adjudged that the appellant, in account with the York Buildings Co. and their postponed creditors, has a liberty to retain and impute the tack duty of £500, in the first place to pay the interest, and, in the second place, the principal of all such debts due to the appellant as are preferable to the debts due to such creditors.
Counsel: For Appellant,
For Respondents, Ar. Macdonald, Alex, Wight.
Note.—Unreported in Court of Session.