Scottish Court of Session Decisions

Subject_1 BANKRUPT.
Subject_2 DIVISION III.

Decisions upon the act 5th Parliament 1696, declaring Notour Bankrupts.
Subject_3 SECT. I.

Circumstances which infer Notour Bankruptcy.

Cochran and Others, Personal Creditors of Sir William Forbes of Monimusk,
v.
His Real Creditors

Date: 5 January 1712
Case No. No 170.

Found that the computation, to determine whether a party had been solvent, in order to quarrel his deeds, must be made as at the time of retiring, incarceration, &c. If, at that period, his funds exceeded his debts; infeftments, &c. granted by him within 60 days would stand good, although ex post facto, his estate might come to be overburdened. Principal sums, annualrents, and penalties, then incurred, might be taken into computation; not accumulations, or penalties incurred afterwards.

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Monimusk having broke in December 1707, his creditors affected his estate by adjudications and other diligences, and a ranking being raised with a sale, a competition arose, wherein the personal creditors repeated a reduction of the infefter's rights, on this ground, that, by the 5th act of Parliament 1696, all voluntary rights granted by debtors within 60 days of their breaking are declared void and null; that being an unlawful gratification whereby he prefers one creditor and omits to secure others whose debts are as just and onerous as these he partially gratifies: But so it is, your heritable bonds, or at least your sasines taken thereon are within the 60 days of December 1707, at which time it is proves he was under caption and absconded, and so in the sense of the act of Parliament was bankrupt. Answered, That statute 1696 has very wisely fixed and determined the marks and characteristics of a notour bankrupt, they being, before that, very uncertain and much in arbitrio judicis; and the periods are horning and caption, imprisonment, retiring to the Abbey, Cunzie house, of any other sanctuary, flying, and absconding, or forcible defending and resisting, &c. but with these the act requires to be conjoined insolvency. So all the former though concurring together will not make him bankrupt, without insolvency at the same time of the diligence be likewise proven: Now the personal creditors cannot subsume that Monimusk in December 1707 was insolvent, in so far as his estate is now in the roup proven to be worth L. 125,000 at 19 or 20 years purchase, and his debt then was not above L. 95,000, so his estate then exceeded his debt in L. 30,000 Scots; and where a man has effects and means, either personal or real, to pay all his debts, and an excresce over and above, that man can never be declared a bankrupt by the Lords; and so Monimusk not being insolvent absolutely at the time he granted our heritable bonds and infeftments, though he for securing his person fled and absconded within the 60 days of these sasines, (which many sufficient men at some pinch are forced to do) he cannot be reputed insolvent; and our securities stand good; and a posterior insolvency ex post facto, by running on of annualrents, penalties, and accumulations in adjudications can never enter in computo to make him bankrupt the time of granting their rights, or in the 60 days after. Replied, The real creditors do violence to the act of Parliament, by which it is evident, the period for calculating the bankrupt's insolvency is not his condition at the time of his absconding or flying, but as it stands at the time, the Lords find and declare him bankrupt. Now, in this view, it is uncontestable that Monimusk's debt does far exceed the value of his estate: For esto, it is worth L. 125,000, and his debt at his retiring was only L. 95,000, yet since by the annualrents fallen due, the penalties of his bonds now incurred, and the other accumulations with his mother's and lady's liferents valued at 6 or 7 years purchase, the debt will be now more than L. 145,000, and so be L. 20,000 above the value of the estate. It is true his mother is a very old woman, and so her liferent cannot be estimate so high as 6 or 7 years. And his lady's was not existing the time of his breaking, he having lived a year or two after, and so being only an uncertain conditional debt, it could not be repute as actually existing: Yet the hazard brings it in computo, and de facto it has eventually existed. So considering the present condition of the estate by a retrospect to his first absconding, he was certainly insolvent when he gave them these heritable bonds and infeftments; especially seeing the annualrents and penalties now computed are not new contracted debts, (which is acknowledged would not enter in computation to make him a bankrupt, so as to quarrel their rights by these new contracted debts), but are native consequences resulting from the original bonds, due long before his breaking. Neither is that so firm a principle, that he is only to be repute a bankrupt who has more debt than estate: But it is sufficient where his estate is so incumbered that none will buy it safely, unless the whole be sold together; and that he cannot satisfy his creditors without selling the whole, though he may have a reversion coming into him after the debt is paid: But here we need not recur to these speculations, when the penalties in the anterior bonds and the liferents exceed his fortune; and so he was incapable to give these infeftments. Duplied, This arguing comes from a wrong application of the word ‘afterwards’ in the clause of the act cited; as if it were to be referred to the word insolvent, whereas in true grammatical construction it connect with the word sentence, and runs thus, ‘And afterwards found by sentence of the Lords to be insolvent:’ So that the insolvency must be at the time of the absconding and other requisite qualifications set down in the act.—The Lords proceeded the more deliberately, that it was the interpretation of a new act, and the fixing a period when he is to be repute insolvent, in order to quarrel his voluntary infeftments; whether at the time of the granting, ‘or as his estate is burdened by increasing annualrents, penalties, and accumulations, at the time he is declared by the Lords’ decreet to be bankrupt; and they found the computation must be as the state of his debt and fortune was at his retiring, incarceration, &c. and if his effects and estate were better than his debt at that period, then the infeftments he had given within the 60 days could not be reduced and annulled, though ex post facto his estate come to be overburdened with diligences; and in the computation no more was to be reckoned but the principal sums and annualrents then owing, with such penalties then incurred; but annualrents falling due after, or penalties incurred, by hornings posterior, and accumulations arising from diligences led after it, none of these were to enter into the computation quoad hunc offectum to annul the heritable securities he gave at the time of his breaking, so as to make him insolvent at that period; and neither the actio pauliana in the Roman law, nor our act against bankrupts in 1621, go any farther, and never made him bankrupt who had sufficiency of means at the time to pay all his debt, though afterwards by heaping up of diligences, the debt came to exceed his estate: But at his absconding it was not so, but occasioned by a supervenient insolvency, not in being when he granted these rights.

The supervening insolvency is sufficient in law to expose the lands to sale for paying the bankrupt's debts; but the debate here to fix the commencement of the insolvency was to determine whether the voluntary rights he gave within the 60 days before his absconding were legal and valid rights, or void and null by the foresaid new law? and the Lords found them in this case good; which I have set down more largely, because it is the first decision on this point since the act, and is to be the rule when it occurs in time coming.

Fol. Dic. v. 1. p. 82. Fountainhall, v. 2. p. 698. *** Forbes reports the same case:

In the reduction and declarator at the instance of Sir William Forbes's personal creditors, for reducing upon the act 5th, sess. 6. Parl. K. W. such real rights as had been granted to their prejudice, at, after, or sixty days before his becoming bankrupt:—The pursuers alleged, That the common debtor's insolvency, one of the requisite overt acts of notour bankrupt in the statute, is not to be calculated at the time of the concurrence of these requisites. For though a debtor is construed to be bankrupt from that time, his insolvency is to be considered with respect to his after eventual condition, when his creditors come to affect his estate for debts contracted before his imprisonment, retiring, absconding, flying, or forcibly defending himself, as is clear from the words of the act, “If any debtor under diligence by horning, &c. be either imprisoned or retire, &c. and be afterwards found by sentence of the Lords to be insolvent, shall be holden and repute,” &c. So that penalties and accumulations must be reckoned as much a part of the bankrupt's debt, as if they had been actually constituted before his imprisonment, retiring, &c. For these do not arise from, any new deed or obligement of the debtor, but are a necessary consequences of the original debt, and when fallen due; become fictione juris, as much a part thereof, as if they had been added thereto at the beginning. Can therefore any thing appear more absurd, than to suppose that a man's being bankrupt should not be reckoned from the extent of his debt, but depend upon the accident of the creditors charging or not charging him? Though a bankrupt (according to the import of the word) be one who hath more debt than gear, the Lords understand a man to be bankrupt in a process of sale, who (though his debts exceed not the value of his estate) is yet so incumbered, that he cannot satisfy his creditors without selling his whole estate together. And in Moncrieff against Creditors of Langtoun, No 9. p. 884. & No 146. p. 1054. one was found bankrupt, who was only obæratus, burdened with great debts, and beginning to be distressed by several diligences: Albeit he did not at the time appear, or prove in the event, to be altogether insolvent. Seeing the circumstances of the common debtor's incarceration, retiring, &c. (which the creditors could not forsee) do but alarm and push them on to do diligence for their security: At which time, if his estate sufficeth not to pay his debt, he is insolvent in the sense of law, which establisheth the presumption, that anterior voluntary rights granted by him to some of his creditors, within sixty days of his foresaid imprisonment, absconding, &c. are fraudulent in prejudice of others.

Answered the real creditors:—The act 1696, in so far as it contains a retrospect, or looks back to deeds within sixty days, and brings them to the date of the infeftments, is new and correctory, and to be strictly interpreted. Now, the word afterwards refers not (as the pursuers would have it) to the word insolvent, but to the sentence of the Lords of Session, which must find, That the debtor was insolvent at the time of some one or other of the circumstances of imprisonment, retiring, &c. required by the act. So in the civil law, actio pauliana, rescinds what is done in prejudice of creditors by one insolvent at the time of the deed, or who thereby became insolvent. And if it were otherwise, no creditor could ever be in any manner of security: Seeing the debtor, though solvent at the time of his borrowing the money, might, by granting gratuitous deeds or securities within sixty days, or granting bonds for debt contracted any time before declarator of bankrupt, turn insolvent; and thereby overturn heritable debts contracted while he was solvent. At which rate, the statute designed for a further security to the lieges against the fraud of bankrupts, would turn to their prejudice, and a door be cast open to all imaginable fraud: It being always in the power of a common debtor, to evacuate the most onerous and best secured debt, by after contracting.

The Lords found, That Monimusk's insolvency, he being under diligence by horning and caption, joined with any of the alternatives of imprisonment or retiring, or flying or absconding, or forcibly defending, in order to make him notour bankrupt, in the terms of the act of Parliament 1696, must be reckoned at the time of the concurrence of the above qualifications of bankrupt, in the terms of the said act of Parliament, and not at the time of pursuing the declarator of bankrupt. And found, That in proving the insolvency, there must be only brought in computo, the principal sums, annualrents due and resting thereupon, penalties incurred, and accumulations established the time foresaid of the concurrence of the above, qualifications of bankrupt.

Forbes, p. 570.