Disposition by a Bankrupt in favour of his whole Creditors.
Andrew Hutchison, v. The Creditors of James Gibson
Date: 8 December 1791 Case No. No 256.
A disposition omnium bonorum by a person insolvent, but not under the description of the act 1696, to a trustee for behoof of his creditors, named by a majority of themselves, found to be valid and effectual.
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Gibson, who had become insolvent, but was not bankrupt according to the terms of the statute of 1696, offered to make over his funds to his creditors in a body. This offer they having accepted at a regular meeting, he granted to two of their number, named by them as trustees for the whole, a disposition of all his effects, which were chiefly household-furniture, and in value much inferior to the amount of the debts.
The trustees received the possession of the goods, and had just completed a sale of them by public auction, when Hutchison, a creditor who dissented from the rest, used arrestment in the hands of the purchasers at the roup, and of the auctioneer. In a competition which afterwards took place between him and the trustees, he disputed the validity of this trust-deed, as being a disposition omnium bonorum by an insolvent debtor. In support of the objection, it was
Pleaded: No man is entitled to usurp a power over another's rights. Hence, whenever a man knows himself to be irretrievably insolvent, it becomes unlawful for him to exercise a single act of property, by which the situation of any one of his creditors may be altered in the least; because, by so doing, he necessarily infringes rights with which he ought not to interfere. Among these, one is the right of any creditor to obtain a preference, by a vigilant use of the legal means; and therefore a debtor, in such a situation, cannot lawfully, by a disposition omnium bonorum, or any other act, deprive the creditor of this advantage; which, it may be remarked, is signified by the appropriate expression, vigilantibus jur a subveniunt.
This principle is evinced by the statute of 1696, which defines the circumstances of that insolvency, which justice must ever render a bar to the disposal of property. But it does not itself create that bar; otherwise it would enact that which is positively unjust.
Nor can the concurrence of any majority of creditors give validity to an act of the insolvent debtor, tending to alter the relative situation of any individual without his consent; for creditors are regarded as independent of each other and not as a collective body or society.
It follows then, from the general principles of law, that the disposition in question was ultra vires of the granter, and consequently null and void.
In the case of Snee and Company contra Trustees of Anderson, 12th July 1734, No 242. p. 1206. the Court found, “that no disposition by a bankrupt debtor could disable creditors from doing diligence.” The terms bankrupt debtor seem here to be synonymous with those of insolvent debtor, though the debtor was likewise bankrupt according to the statute of 1696.
Similar judgments were pronounced in the cases of Mansfield contra Brown and Stobo, 28th January 1735, No 243. p. 1207.; of Earl of Aberdeen contra Creditors of Blair, 3d Feb. 1736, No 244. p. 1208.; of Forbes-Leith contra Livingstone, 25th July 1759, No 249. p. 1212.; of Mudio contra Dickson, 14th November 1764, No 252. p. 1217.; of Peters contra Dunlop's Trustee, 27th January 1767, No 253 p. 1218.; of Johnston contra Fairholm's Trustees in 1770*; of Scott contra Trustee of Hogg and Son in 1770†; of Fraser contra Mònro, 5th July 1774, No 183. p. 1109.; of Walpole and Ellison contra Alexander's Trustee, in 1778, Fac. Col. No 104. p. 198. voce Tack; and in various later instances.
A distinction has been sometimes supposed, as to the effect of trust-deeds, between those bankrupts who had fallen under the statutory description and those who had not. But it is plainly ill-founded; for the statute being directed against ‘fraudful alienations’ creating preferences, cannot refer to a general trust for behoof of creditors, which is not a fraudful alienation.
Answered: By that argument it is plain, all bankrupt laws must be accounted unjust. But the reasoning is fallacious.
If the law will not permit one person to usurp the rights of another, it is because it holds sacred those of every man. The right of property being one of the most sacred, is even protected in an use that is immoral and unjustifiable; since an insolvent debtor, when not precluded by diligence under the statute of 1621, or placed within the description of that of 1696, is entitled in law to convey his effects for the payment of any particular creditor, to the prejudice of the rest, though equally onerous; Erskine, b. 4. tit. 1. § 41.
Thus it appears how very far mere insolvency is, from inferring any forfeiture of the right of property. For it would be extraordinary indeed, were the law to sanction it in its unjust exercise alone, with holding all countenance from that equitable and rateable distribution which is so obviously the demand of justice. No such doctrine, it is certain, can be learned from any of the decisions of the Court; with regard to which, however, two distinctions are to be received.
In the first place, from the way in which the statute of 1696 is expressed, its terms, in their literal import, seem to comprehend every deed of the debtor, by which even the power of obtaining, by the diligence of the law, a partial preference, is precluded; and thus affords to creditors an obvious plea, however ungracious, against the most equitable conveyances by the bankrupt debtor. The
*† Not yet reported. See Appendix. See General List of Names.
phrase ‘vigilantibus,’ &c. is really not so much an expression of approbation, as a sort of notice of a degree of evil that is unavoidable, for the sake of a more extensive benefit.
In the second place, When trust-rights are granted for behoof of creditors, it is to be considered, whether it be to the trustee of the creditors, or of the debtor; for it is only in the former case that the debtor can be divested of the property, and while it remains with him, it must necessarily be subject to the diligence of any of his creditors.
Now, in all cases, without any exception, where the granter had not fallen under the precise statutory description of bankruptcy, so as to authorise a challenge on that ground, and where the grantee was not the trustee of the debtor himself, general conveyances for the behoof of creditors have been uniformly sustained.
Thus, 13th November 1744, Snodgrass contra Creditors of Beat, No 245. p. 1209.; 5th June 1747, Grant contra Cuningham, No 246. p. 1210.; 23d January 1756, Souper contra Creditors of Smith, No 76. p. 744.; 30th July 1766, Mackell contra Trustees of Maclurg, No 21. p. 894.; 24th February 1769, Watson contra On, No 254. p. 1220.; 15th June 1773, Ramsay contra Creditors of Ramsay.*
Even where the challenge has been laid on the statute, such dispositions have been often supported; for example, 3d July 1724, Creditors of Watson, No 237. p. 1199.; 16th November 1757, Sym contra Simson, No 248. p. 1212.; 18th February 1762, Baillie contra Macvicar, No 250. p. 1214.
Of the cases quoted on the other side, there is not one which did not relate to bankruptcies, according to the terms of the statute, excepting that of Walpole and Ellison alone; in which not only was the trust-deed granted to the private mandatary of the party, but it was besides of an actually fraudulent nature. As to the case of Snee, it seems incongruous to admit, that it related to the statutory bankruptcy, and yet, without any authority, to deny to influence of this circumstance.
Two other topics were introduced by the trustees: 1mo, That at any rate they were entitled to retention of the proceeds of the roup; and 2do, That the arrester, after availing himself by his diligence of proceedings founded on the conveyance, was personali exceptione barred from objecting to it.
The question at first came before the Court in a reclaiming petition and answers. But considering the point to be of importance as a precedent, their Lordships ordered memorials, for the purpose of presenting a full view of former decisions.
On advising these, some of the Judges paid attention to the considerations last mentioned. But the Court were unanimously of opinion, that the conveyance in question was valid and effectual; and therefore
* Not reported. See General List of Names.
The Lords dismissed the claim of the arresting creditor, and found him liable in expences.
Lord Ordinary, Hailes.For Hutchison, Maconochie, Wauchope.Alt. Steuart.Clerk, Colquboun.
Fol. Dic. v. 3. p. 66. Fac. Col. No 193. p. 401.
