Decisions upon the act 5th Parliament 1696, declaring Notour Bankrupts.
Subject_3 SECT. V.
Of Securities for Debts to be Contracted.
The Trustees for the Creditors of John Brough, v. Alexander Duncan and James Jollie
Date: 5 June 1793 Case No. No 216.
An heritable bond of relief granted to cautioners more than seven weeks after the date of the original obligation, and upon which infeftment had not been taken till within sixty days of bankruptcy, found to fall under the statute 1696.
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On the 23d March 1784, John Brough obtained a cash-credit for L. 500 from the Royal Bank, upon the security of a bond granted by himself, Alexander Duncan, and James Jollie; and on the 18th May thereafter, he granted to Messrs Duncan and Jollie an heritable bond of relief. This bond remained a latent personal deed, till the 20th November 1787, when infeftment was taken upon it. The sasine was recorded on the 23d of the same month.
Mr Brough's affairs having gone into disorder, a meeting of his creditors was held on the 17th January 1788. At this meeting, Mr Jollie, for Mr Duncan, and himself, agreed, in order to save expence and trouble, that all objections to their security should be reserved to the creditors at large, as fully as if Mr Brough had been of that date rendered bankrupt in terms of the act 1696.
Brough's estate having afterwards been sequestrated, the trustee for his creditors contended, that the heritable bond granted to Messrs, Duncan and Jollie was reducible, in terms of the act 1696, because, although granted in May 1784, no infeftment had been taken on it till the 20th November 1787, that is only fifty-eight days before the 17th January 1788, when they agreed, that Mr Brough should be held to be bankrupt.
The defenders stated, that, although by accident, the heritable bond was not executed for more than seven weeks after the date of the original obligation, it was, ob initio, stipulated for, as the condition of their entering into it; a fact which they offered to prove, and which they alleged it was competent for them to establish by the oath of the bankrupt, Kilkerran, p. 441. 7th February 1741, Pringle against Biggar; 9th July 1745, Blair against Balfour, Kilkerran, p. 444.; 7th November 1749, Sinclair against Johnston, Kilkerran, p. 446. (all voce Proof); and that both the bond of relief, and instrument of sasine, were extended so early as the 31st March 1784, as appears from the books of the person by whom they were drawn. In these circumstances, they
Pleaded, The bond of relief must be considered as of the same date, and as pars ejusdem negotii with the principal obligation, as a novum debitum, and not a farther security for a debt already contracted. Indeed, if Brough's credit had been suspected, which could be the only reason for demanding an additional security, infefment would certainly have been taken the moment the bond was granted. Now, the act 1696 strikes only at securities for prior debts. It was intended to remedy the defects of the act 1621, and prevent all partial preferences of creditors; but not to deprive a person, on the eve of bankruptcy, of the free administration of his affairs. A person, the day before his failure, may sell his property for an adequate price, may borrow money, and grant heritable securities; and surely therefore there can be no objection to the validity of a security granted many years before, though infeftment has not been taken till within sixty days of bankruptcy.
The clause in the statute, declaring, that heritable rights shall be held as granted of the date of the sasine taken an them, does not apply to nova debita; for if it did, this preposterous consequence would follow, that a security obtained for such a debt on the sixty-first day before bankruptcy, and sasine taken on it upon the fifty-ninth, would be null, while a bond and sasine both within sixty days would be sustained.
The defenders admit, that an explanation different from that which they have now given, was put on the act 1696, in the case of Grant against Duncan, infra h. t.; and in that of Merchiston's Creditors in 1731, infra h. t.; but the doctrine now contended for was established 19th January 1726, Chalmers against the Creditors of Riccarton, infra h. t.; 29th January 1751, Johnston against Burnet and Home, No 200. p. 1130. See also 20th February 1772, Houston and Company against Stewarts, No 220. p. 1170.; 19th November 1783, Spottiswoode against Robertson Barclay, No 221.
Answered, The objecting creditors have no occasion to dispute, that the act 1696 has been found not to apply to nova debita properly so called. But the bond of relief to Messrs Duncan and Jollie, granted several weeks after the date of the original obligation, falls not under this description. It is, in the strictest sense, a further security for the debt which the bankrupt owed them from the moment they became his cautioners.
But further, the security in question would have been reducible, although it had been granted of the same date with the obligation to the bank; because infeftment was not taken upon it for three years after, and not till within sixty days of the bankruptcy of the debtor. The danger of supporting such transactions is evident. By means of them, a tradesman, after burdening his heritable property to its utmost value, may carry on extensive dealings, and maintain his credit, on the supposition that it is quite clear of incumbrances, till at last he becomes completely ruined, when, and within sixty days of his bankruptcy, sasines are taken upon latent bonds, which entirely exhaust the subject, 19th June 1731, Creditors of Merchiston against Charteris, infra h. t.; 25th November 1735, Trustees of Mathieson's Creditors against Smith, infra h. t. See also 29th November 1783, Robertson Barclay against Lennox, No 209. p. 1151.
Replied, The other creditors suffered nothing from the delay in taking infeftment. Brough was an upholsterer and builder. His debts were contracted in the way of his profession, and his creditors relying upon his apparently prosperous situation, never thought of consulting the records, as to the state of his heritable property.
The Lord Ordinary at first repelled the objection; but afterwards took it to report on informations.
Observed on the Bench, It is perhaps to be regretted, that the later decisions of the Court have gone contrary to that of Merchiston's Creditors. For although the aft 1696 was not intended to apply to nova debita in the proper sense of that term, it is a very different question, whether it ought not to strike at new obligations, where infeftment has been unnecessarily delayed. Such infeftments may give rife to innumerable frauds in bankrupts and their confederates, which it was the express design of the statute to prevent. But it is too late to go back upon the question of their validity, which was thoroughly considered in the case of Johnston against Home, a decision which has been uniformly followed since that time.
The present case, however, is attended with no difficulty whatever. The debt to the bank was contracted in March, and the heritable bond was not granted till May. During this interval, Messrs Jollie and Duncan had only a personal claim of relief against Brough; the heritable bond, therefore, being clearly a further security, falls under the act 1696.
The Lords unanimously sustained the objection.
A reclaiming petition was refused, without answers, on 2d July 1793.
At advising this cause, it was also observed, that if a statute was to be made explanatory of the act 1696, it should fix the interval of time within which infeftment must follow on a novum debitum, in order to place it beyond the reach of the statute, as it would be very disagreeable for Judges, even if they were not tied down by the decisions of the Court, that every question of mora should be left arbitrary to their decision; and that it would also be an improvement on the act, if the sixty days were only to run from the registration, and not from the date of the sasine.
Lord Ordinary, Dreghorn.For the Personal Creditors, Solicitor-General, Patison.For Messrs Duncan and Jollie, Dean of Faculty, Cullen.Clerk, Mitchelson.
Fol. Dic. v. 3. p. 60. Fac. Col. No 56. p. 123.
