Scottish Court of Session Decisions

Subject_1 RANKING and SALE.
Subject_2 SECT. VII.

Purchasers must find caution for the price. - Purchasers' right to the rents. - Effect of a judicial sale as to payment of the price. - Is the purchaser obliged to pay before a scheme of division is made?

John Murray, and Other preferable Creditors on the Estate of John Rae,
v.
David Blair, and others, his postponed Creditors

Date: 27 November 1793
Case No. No 37.

If in consequence of the bankruptcy of purchasers or otherwise, after the subjects are sold, and the scheme of division is made up, but before the price is divided, the fund of payment be diminished, the loss falls entirely upon the postponed creditors.

Click here to view a pdf copy of this documet : PDF Copy

The heritable property of John Rae was sold by judicial sale to two purchasers.

One of them and his cautioner afterward became bankrupt; and being unable to fulfil the terms of the purchase, the lands were again sold, but at a reduced price.

The judicial factor on the estate also died bankrupt, with a considerable balance in his hands.

Previously to these occurrences, a scheme of division had been made up, upon the supposition that the whole funds would be forthcoming.

When the defalcations were discovered, the postponed creditors contended, that in the division of the remainder, the deficiency should affect all the creditors proportionally, according to what they would have been entitled to draw by the original scheme. The preferable creditors, on the other hand, maintained, that they had still a right to full payment of their debts; and

Pleaded; By the act 1681, c. 17. judical sales are only declared effectual on payment of the price, which is to be divided among the creditors, according to their preferences. Till the price is paid, the rights of the creditors continue a burden upon the estate; and if the purchaser become bankrupt, they remain a legal ground for bringing it again to sale. The creditors, therefore, who were preferable on the price at the first judicial sale, will also be preferable at the second; and if a smaller price is got, the loss must fall upon the postponed creditors.

Answered; If it could be precisely known previously to the judicial sale, what part of the price each creditor was to draw, the purchaser would immediately either pay to each creditor the specific sum he was entitled to, or grant him a bond for it. But as the sale must be over before each creditor's interest in the price can be ascertained, this plan cannot be followed. The purchaser, however, does what is equivalent. He grants a single bond, obliging himself to pay the price to the creditors respectively, as they shall be preferred by the decree of ranking. As soon therefore as each creditor's debt or dividend is ascertained, a proportional part of the bond becomes his absolute property; and if it should afterward be lost, it must perish suo domino. 17th November 1792, Brown against York-Buildings Company, supra.

Further, by 1690, c. 20. it is declared, that if there shall be no purchasers, the Court may divide the land among the creditors. Now, although the share of a preferable creditor were to be destroyed by an earthquake, he could not have recourse on the portions of the postponed creditors. And the same rule must hold where each creditor, in place of becoming proprietor of part of the estate, becomes proprietor of part of the price.

Replied; The bond granted by a purchaser, whether it is considered as an obligation in favour of the creditors pro indiviso, or as divided among them in certain proportions, is merely corroborative of the securities held by them before the sale.

The distribution of the land among the creditors is not similar to the present case, because that is equivalent to an actual payment and division of the price.

The Lord Ordinary reported the cause on informations.

Observed on Bench; The estate does not effectually belong to the purchaser till he pay the price. Till then the securities of the creditors remain entire, and of consequence the subject continues pledged to the preferable creditors, to the full amount of their debts. This is not inconsistent with what was found in the case of Brown against the York-Buildings Company.

The Court unanimously found, “That the creditors who stand preferably ranked upon the different funds, as established by the decree of ranking, are now entitled to draw their payment in suo ordine out of these funds; and that any loss which has arisen thereupon since the original sale of Mr Rae's estate in 1771, falls upon the postponed creditors.”

Lord Ordinary, Craig. For the preferable Creditors, Maconochie. Alt. Hay. Clerk, Mitchelson. Fol. Dic. v. 4. p. 214. Fac. Col. No 77. p. 170.