Scottish Court of Session Decisions

Subject_1 BANKRUPT.
Subject_2 DIVISION V.

Decisions upon the clause of the Act of 1696, declaring Heritable Bonds, &c. to be held as granted of the dates of the Sasines taken upon them.

The Trustees for the Creditors of John Lowis of Merchiston,
v.
Colonel Francis Charteris of Amisfield

Date: 19 June 1731
Case No. No 261.

A debtor granted an heritable bond, bearing to be for money instantly advanced. The creditor did not take infeftment till several years after the date of the bond, by which time, the debtor had become bankrupt. Although it was contended this was a novum debitum, not security for a prior debt, yet the act of 1696 was found to apply, and the security held to be of the date of the sasine, consequently reducible.

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John Lowis, while apparent heir of the estate of Merchiston, had had some transaction with Colonel Charteris of an extraordinary nature. Soon after succeeding to the estate, Mr Lowis became bankrupt, and executed a trust-disposition omnium bonorum in favour of Mr Archibald Murray, advocate, and others, for behoof of his creditors.

Colonel Charteris claimed as a creditor upon two heritable bonds, one for L. 3743:4:4 Sterling, the other for L. 1000. The first was dated in 1718, the other in 1721. No infeftment was taken on either till after Mr Lowis's bankruptcy in 1727.

The creditors pursued different actions against the Colonel relative to these claims. One on the statute of 12th of Q. Anne, and other acts for preventing usury; and one on the act of 1696, relative to bankruptcy.

It was alleged that the Colonel had never actually lent Mr Lowis one farthing. But that, about 1707 or 1708, Lowis had lost at play, to a Count Nicola and an other gambler, about L. 400, for which he had granted bills; of which L. 190 had been conveyed to the Colonel; and that, from this small beginning, by accumulating interest, premiums, forbearance-money, hush money, &c.; for which new bonds were periodically taken, the sum had at last swelled to the enormous amount claimed. During the course of these transactions, Mr Lowis had made payments in cash to the Colonel, to a large amount.

In as far as the bonds bore to be in corroboration of former bonds, the Colonel claimed no preference; but each of them bore that besides certain sums had been instantly advanced. To this extent he claimed preference, and insisted, that the narratives of the bonds were probatio probata of the fact. While, on the other side, it was contended, that there were such pregnant circumstances of suspicion attending the transactions, that the Colonel must enter into a full explanation. He was ordered to condescend. His condescendence was found not sufficiently satisfactory. The creditors, on their part, stated circumstances of suspicion and fraud. The Court “found the narratives of the bonds in question did sufficiently astruct their onerous cause.” The creditors appealed; and the House of Lords adjudged that the bonds did not sufficiently astruct their onerous cause, “without some further proofs thereof from circumstances or otherwise”. The cause accordingly returned to the Court of Session, where the Colonel brought forward the circumstances he founded on, which the creditors attempted to obviate. The Court of Session found the bonds void and null. Colonel Charteris appealed. The House of Lords varied the interlocutor so far as to find the bonds not null, but paid.

On the branch of the cause which depended on the act 1696, the Lord New-hall, Ordinary, had pronounced this interlocutor:

“Finds that the evidences adduced by the Creditors against the Colonel, that the bond in 1718, in so far as concerns the sum of L. 1707,” (said to have been instantly advanced) “were not sufficient to document that the said sum was ab ante contracted before the date of the said bond”, (repeated the same interlocutor as to the bond granted in 1721), “but found that both the said bonds, bearing date so many years before Merchiston's bankruptcy, fell under the act of Parliament 1696, in regard the infeftments thereupon were not taken by the Colonel till within the 60 days of Merchiston's becoming bankrupt, according to the disposition of the said act; and that the clause of the said act, making the securities to be considered as of the date of the infeftment, was noways introduced in favour of the creditor infeft, to give him the privilege of a new debt then contracted, of the date of the infeftment, but was introduced allenarly in favour of the co-creditors, and in pænam of the creditor infeft, who had kept up his precept of sasine latent; and therefore, that both the first bond as to its whole sums, and the second bond, fall under the act of Parliament 1696, and are reducible upon the said act.”

Colonel Charteris, in a petition against this interlocutor, repeated the arguments which had been used in former cases, particularly Chalmers against Creditors of Riccarton, No 260. p. 1231. in order to show that nova debita do not fall under the act 1696.

The Creditors answered, That it may be a doubtful question, and has been variously decided, whether nova debita, strictly so called, fall under the act 1696 or not; but the present question does not depend on that.

The Colonel alleges he lent his money in 1718 and 1721; and then received bonds. When the bankruptcy happened in 1727, and not till then, he took infeftment. The Lord Ordinary has found the bonds reducible; 1st, Because the money was not borrowed at the time of the infeftment, which is the legal date of the security, but was borrowed long before: 2dly, Because, in the construction of law, and in the express words of the act of Parliament, the date of the security is not the date of the bond, but the date of the sasine. Therefore the debts must be considered as contracted in 1718 and 1721; but, according to the appointment of the statute, the heritable security is to be considered as granted in 1727, falling within the period of the bankruptcy. It follows that the bonds are reducible, in the same manner, as if either a different bond, or no bond at all, had been granted in 1718 and 1721; and the bonds in question had not been granted till the date of infeftment in 1727: There can be no doubt, that security given in 1727, for a debt contracted in 1718, would be null, in the event of bankruptcy within 60 days.

The matter may be considered in another light. Since, by the act, the bonds are to be considered as dated in 1727, the case is the same as if a bond had been granted in 1727, bearing in its narrative, that it was for money lent in 1718 and 1721; and the infeftment taken in 1727. There can be no doubt this security would be void upon the statute.

If this be not the meaning of the act of Parliament, it seems to have none; for the act does not allow the date of the bond, as actually written, to be considered,but fictione juris makes it the date of the sasine, and so only it must be considered. But the law does not say, that when the debt is contracted several years before, the money shall fictione juris be understood to have been lent at the date of the sasine, and thereby place it in the situation of a novum debitum. By no means. The time of the contraction must remain as it de facto happened; only the date of the sasine is to be reckoned the date of the security.

If an inhibition had been used against Lowis in 1722; these bonds would not have fallen under that inhibition, because the debt was contracted before. But, in this question of bankruptcy, the bonds are held as dated in 1727. So the point which the Lord Ordinary has determined is this; that the heritable bonds being, in law, granted in 1727, after the bankruptcy, for debts contracted in 1718 and 1721, the securities are void by the statute. Accordingly, it is explained by the words of the interlocutor, that the making the security to be considered as of the date of the infeftment, was not introduced in favour of the creditor infeft, to give him the privilege of a new debt, then contracted, of the date of the infeftment, but was introduced in favour of the co-creditors, and in pænam of the creditor infeft, who had deceived others, by keeping his precept of sasine latent.

The grand object of the act of Parliament is to prevent persons, in collusion with their debtor, from taking rights upon which infeftment may follow, and keeping them up latent till other persons be induced to lend money, perhaps to the extent of the estate; and then, in collusion still with the debtor, step forward and take infeftment, to the disappointment of all others. If the act does not prevent this, it does little; for, otherwise, any one may lend a person money to the extent of his estate, take heritable security, keep it up till contractions of the like value be made, and then effectually take infeftment. It is precisely to prevent this, that, at whatever time the contraction is made, the law makes the security of the date of the sasine; and presumes a fraud from the keeping the precept latent. By this means creditors have an opportunity to bring their debtor under the state of bankruptcy, when they see an infeftment taken. A creditor, therefore, who means to rely on his infeftment, is under the just necessity, either of completing it instantly, or losing the benefit of it.

It follows, then, that as the words of the act must be taken as consistent with themselves, and as they are plainly conceived, so, if an heritable bond, in the case of bankruptcy, is to be held to be of the date of the sasine, Charteris’ bonds are to be considered as dated in 1727, while he admits the debts were contracted long before; therefore the securities are securities for anterior debts.

The Lords adhered to the interlocutor of the Lord Ordinary, finding the bonds reducible upon the act 1696.

Colonel Charteris presented a second petition; upon advising which, with answers, their Lordships still adhered.

This branch of the cause was not brought under appeal. By the fate of the bonds, on account of usury and extinction by payment, above-mentioned, it became unnecessary to resist the decision, in so far as founded on the act 1696.

Lord Ordinary, Newhall. For the Creditors, Arch. Murray, Ro. Dundas. For Colonel Charteris, Jas. Graham, Jo. Forbes, Dun. Forbes. In the House of Lords, For the Creditors, Ro. Dundas, J. Strange, A. Hume Campbell, Wm. Hamilton. For Colonel Charteris, Dun. Forbes, Wm. Murray, Fol. Dic. v. 1. p. 86. Session Papers and Appealed Cases in Advocates’ Library.

*** This case is referred to in the Note under the report of No 214. p. 1158. Creditors of Stein against Newnham, Everet, and Co.

In that report it is mentioned, that the Lord President had alluded to the judgment of the House of Lords, in an Appeal which took place in 1734. No names of parties are mentioned in the report. The Editor examined the Appealed Cases for that year, and found, that of Merchiston to be the only one which had any analogy to the case of Newnham, Everet, and Co.; but he has now, from the Honourable Judge mentioned, more accurate information on the subject of that case, than the report itself affords.

His Lordship's opinion was, That the evil meant to be remedied by the clause of the act of 1696, which relates to securities for future debts, was the granting of securities without value, actually existing at the time, but upon the expectation or chance of value to exist afterwards. This had sometimes been practised, and had always been liable to be used as a cover for island, by enabling the common debtor to decive fair creditors, and collude with confidential friends; by excluding some, and assuming others, and so ranking and peforming them at pleasure.

The words of the statute are clear and explicit. There is no evidence that it was occasioned by the case of Langton, No 146. p. 1054. as has been supposed. In that case the debt was indefinite as well as future. However, the enactment is certainly not confined to that particular case. It is broad and general, and it marks the furtur by as the proraiment criterion.

The circumstance of a deed being indefinite as to the sum, is not at all mentioned in the act. Perhaps it was thought there was the less reason to provide a remedy for that case; as an uncertain and unknown incumbrance, could not be sustained even at common law, being inconsistent with feudal principles, and with the security of the records. This, however, was for some time a disputed point, as appears from a case in July 1730, Creditors of Calderwood, observed by Lord Kames in his Dictionary, v. 2. p. 67. (see Personal and Real;) where his Lordship mentions, that it was debated, but not determined, whether clauses burdening the subject disponed with the granter's debts in general, without mentioning any particular debt, rendered these debts real or not. “But, thereafter, it having been found, in an appeal to the House of Lords, that such general clauses create no real burden, The Lords, ever since, have been in use to determine according to the judgment of the higher Court.” The cases here alluded to by Lord Kames, are discovered from b. 2. tit. 3. § 50. of Erskine, where the following passage appears:

“A clause, charging the lands contained in the grant with the disponer's debts in general terms, without mentioning the names of the creditors, was, by repealed decisions, in the cases of the Creditors of Lovat, Coxton, and Kersland, (See Personal and Real), adjudged to constitute a real burden on the lands disponed, in consequence of the right competent to all proprietors, of disposing of their property under such conditions and limitations as they shall judge proper. But two of those judgments having been reversed in the House of Lords, the Court of Session did, in July 1734, Creditors of M'Lellan, (See Personal and Real), and by several later decisions, alter their former rule; upon this principle, that no perpetual unknown incumbrance ought to be created on land; because the purchaser cannot, by the strictest enquiry, know who the creditors in that burden are, so as, by a proper process, to force the production of their grounds of debt, in order to clear them off.”

The act 1696, then, was made not for cases of uncertainty, but for cases of futurity; and as to this last, it could make no difference with regard to the principle of the act, and the possible mischief meant to be provided against, whether the precise sum, which was to be the ne plus ultra of the contraction, was fixt or not. Suppose, for instance, a man has an estate worth L. 20,000, and this is the extent of his whole fortune; although he specify this sum in a deed, there is as much room for abuse, as if no sum had been named. He might have named L. 100,000; but ought this to be considered in the light of a definite obligation?

It is not necessary to subsume fraud. The sole question under the act is, whether the security is for a debt already existing, or for a debt to be contracted. The case of Dempster against Kinloch, (Rem. Dec. v. 2. p. 233. voce Right in Security), which has been mentioned, was attended with great, difficulty, on account of the obligation which Dempster had undertaken, to advance the balance at any term, upon requifition of 40 days. Lord Elchies argued, with some force, that this was equal to an actual advance; but Lord Arniston, and others of the Judges, observed, that the other party was not bound, therefore no debt was actually contracted. The present case is attended with much lefs difficulty. Neither party is bound. For a cash credit may be withdrawn at any time.

In the case of Niblie, No 211. p. 1154. there was an absolute conveyance; and it was thought the receiver could not be bound to denude, till completely indemnified. The case of Bank of England against Bank of Scotland, 1st March 1781, Fac. Col. No 41. p. 72. (voce Right in Security,) more applicable. The case of Pickering, No 212. p. 1155. is in point.

There is a peculiarity in the present case. The security to Newnham, Everet, and Co. is indisputably indefinite. The original security by Robert Stein to James was indeed definite, it was for L. 12,000. But the estate vested by that security in James, was by him conveyed indefinitely without any mention of the extent of the cash credit.

It appears that in fact L. 16,000 has been advanced. Newnham, Everet, and Co. therefore, if the security be good, must rank for L. 16,000, to the effect of drawing in proportion to that sum, and not in proportion to L. 12,000. This must form an insuperable objection to the security.

The report, No 214. p. 1158. is likewise inaccurate with regard to the nature of a security for the faithful discharge of an office. Such a security would fall under the fanction of the act 1696, as much as the security in question. The case of real warrandice, is of a nature entirely different; it is a conditional sale, and no money transaction.