Scottish Court of Session Decisions

Subject_1 BANKRUPT.
Subject_2 DIVISION IV.

Disposition by a Bankrupt in favour of his whole Creditors.

John Forbes-Leith, and Others, Creditors of William Mowat and Company,
v.
Alexander Livingston, and Others, Trustees for the Creditors of the said William Mowat and Company

Date: 25 July 1759
Case No. No 249.

Found to be no sufficient objection, to the proceeding of an adjudication against a debtor's estate, that he had previously granted a disposition omnium bonorum, in favour of a trustee, for his whole creditors.

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William Mowat and Company became bankrupt. In December 1756 they called a meeting of their creditors, at which John Forbes-Leith was present; at this meeting they made a full discovery of the whole state of their affairs and funds; and agreed, at the desire of the creditors, to make a general surrender of their whole effects to certain trustees named and chosen by the creditors themselves.

In consequence of this agreement, proper deeds of conveyance were executed by the Company; and infeftment was taken in name of the trustees, for completing their right to such of the Company's subjects as were heritable. A back-bond or declaration of trust was executed by the trustees, and recorded at Aberdeen, declaring, That the produce of the funds was to be divided among the whole creditors proportionally.

John Forbes-Leith, and some others of the creditors, brought actions of adjudication for attaching the heritable subjects of the bankrupts.

The trustees named by the creditors opposed these adjudications; for that, 1mo, These diligences were intended to create an unequal preference in favour of particular creditors, contrary to the equitable intention of the trust-right; and that, besides, the adjudgers could not even attain their own end; for that all the other creditors, by adjudging within year and day, would be entitled to an equal preference with them; so that the only effect of carrying on this sort of diligence would be, to involve every creditor in a great unnecessary expence, so as to increase the loss by this bankruptcy.

2do, That, in point of law, the subjects could not be adjudged as the property of Mowat and Company, after the Company was divested of them by the deed in favour of the trustees, completed by infeftment: That these deeds being granted for a fair and equitable purpose, and for the behoof of the whole creditors, equally and proportionally, could not be set aside by any particular creditor, but must effectually put a stop to the attachment intended by the processes of adjudication. At any rate, the right of the trustees must be effectual till set aside by a proper process of reduction.

Answered, 1mo, By the law of Scotland, a certain form of legal execution is established, by which a creditor can attach the effects of his debtor. This form he is entitled to follow, and cannot be obstructed, either by the debtor himself, or by other creditors, unless payment be offered. He is not obliged to explain his motives for following such a course; nor ought the courts of law to listen to averments, that he is acting against his real interest; for he is entitled to judge for himself. In this case, the creditors who have brought actions of adjudication, think they have good reasons for disapproving of the execution of the trust-right in question; and they have therefore chosen to follow the legal method of attaching their debtor's effects.

2do, A bankrupt cannot, by the law of this country, execute any deed after his insolvency, by which the rights of his creditors can be affected, or any restraint put upon them as to the form of attaching his effects. Dispositions by bankrupts in favour of their whole creditors are authorised by no statute; and if they were to be supported by the courts of law, it would give a power to bankrupts which might be attended with very bad consequences: For these trustees might connive with the bankrupt, and spin out the execution of the trust for ages. Nor is any form of process to be found in our law-books, for compelling such trustees to an immediate execution, or for removing them if they act improperly. Nor is the legal method of attaching the heritable subjects of a bankrupt either unequal or grievous: The law has taken sufficient care, that no creditor can obtain a partial preference by adjudication, since all who adjudge within year and day of the first effectual adjudication have an equal right. The expence of carrying on such judicial proceedings against the estate of a bankrupt, is no doubt considerable; but the execution of a trust-right is also very expensive; and if there be a difference of expence, which often is not the case, that difference is fully compensated by the advantage of having every thing conducted under the immediate inspection of the supreme court; and by the advantage which the creditors have, of bringing matters, if they incline, to a more certain, immediate, and fair execution. The right in question, in favour of the trustees, is void and null, and may be set aside exception of reply, without the necessity of a reduction.

‘The Lords decerned in the adjudication; and remitted to the several Lord Ordinaries before whom other adjudications against the same defenders were depending, to decern therein.’ See No 12. p. 92.

Act. Rae, Miller. Alt. Lockbart. Clerk, Justice. Fol. Dic. v. 3. p. 64. Fac. Col. 193. p. 345.