Scottish Court of Session Decisions

Subject_1 BANKRUPT.
Subject_2 DIVISION III.

Decisions upon the act 5th Parliament 1696, declaring Notour Bankrupts.
Subject_3 SECT. II.

What sort of Alienation falls under the sanction of the act 1696.

The Trustee on the Sequestrated Estate of David Marshall,
v.
James Provan and Company, and Others

Date: 21 January 1794
Case No. No 205.

A person purchased goods within sixty days of the seller's bankruptcy. Afterwards the purchaser procured bills granted by the seller to others, to be indorsed to himself, for the purpose of compensating the price with them. Found to be a transaction, falling under the act 1696.

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

David Marshall sold Provan and Company goods to the amount of L. 253: 6: 9 Sterling, for which they agreed to grant him bills payable six months after date. Provan and Company alleged this happened on the 10th January 1792; while Marshall contended, that it did not take place till the 24th of that month.

In the year 1791, Hamilton and Company had sold Marshall goods to a considerable amount, and in part payment had received two bills, accepted by Marshall, amounting together to L. 237: 13s.

On the 21st January 1792, Hamilton and Company indorsed these two bills to Provan and Company, who, in return, granted their own bill to Hamilton and Company for their amount.

David Marshall having soon after demanded from Provan and Company bills, in terms of their agreement, for the price of the goods which he had sold them, they pleaded compensation to the extent of the bills which they had thus got indorsed to them, and offered him cash for the balance.

Marshall's estate was sequestrated upon the 3d February 1792, and on the 20th he was rendered bankrupt, in terms of the act 1696.

The trustee on his sequestrated estate brought an action, in which he called both Provan and Company, and Hamilton and Company, concluding for payment of the price of the goods furnished by Marshall to Provan and Company; and

Pleaded: It is admitted that Provan and Company got Marshall's bills indorsed to them on the 21st of January. If, therefore, the sale of the goods by Marshall to them took place on the 24th of that month, (a fact of which proof is offered,) the transaction falls directly under the act 1696; the delivery of the goods being clearly an alienation by Marshall, within sixty days of his bankruptcy, in satisfaction of a prior debt.

But even if the sale had been made on the 10th January, as the transaction between Hamilton and Company and Provan and Company gives an improper and dangerous preference to the former, over the other creditors of the bankrupt, it is void, both on the spirit of the act 1696, and at common law; 9th March 1781, Blaickie against Robertson, No 12. p. 887.; Cauvin against Robertson, 18th June 1783, Fac. Col. No 107. p. 170. voce Compensation, Retention.

Answered: When Hamilton and Company sold Marshall's bills to Provan and Company, they had no apprehension of Marshall's bankruptcy. Their having occasion to remit money to Manchester, where they knew that a bill granted by Provan and Company would be more readily received than one granted by Marshall, was their sole motive in making the exchange which took place without his knowledge. Although, therefore, the sale by him to Provan and Company had not taken place before the 21st January, the date of the indorsation of the bills, the whole transaction would have been fair and valid, as the act 1696 relates solely to alienations, &c. by the bankrupt himself, and was not intended to strike at transactions in which he had no concern, although they should be attended with a consequential benefit to some of the creditors. So far indeed from extending the statute this length, the Court have refused to set aside deeds even of the bankrupt himself, where they did not fall under the precise description of ‘alienations;’ February 1728, Creditors of Gratney, No 195. p. 1127.; 31st July 1724, Creditors of Watson against Cramond, infra h. t.

But the averment of the defenders is, that the sale by Marshall to Provan and Company took place on the 10th January, when this Company were in no shape creditors to Marshall. So that, in reality, the present question has no connection with the act 1696; and, at common law, a fair transaction in the course of trade cannot be reduced, merely because one of the parties has thereby escaped a loss which the supervening bankruptcy of a third party would have otherways brought upon him.

The Lord Ordinary ‘decerned conform to the conclusions of the libel.’

The Court refused a reclaiming petition. The defenders presented a second, which was appointed to be answered.

At advising the cause, one Judge thought that its merits depended entirely on the fact, whether the sale by Marshall to Provan and Company happened before or after the 2lst January. If before the indorsation of the bills by Hamilton and Company to Provan and Company, (he observed) it was to be considered as a fair transaction; if after, although no fraud might be intended, it fell under the express words of the act 1696. The question therefore came simply to be cui incumbit probatio.

All the other Judges agreed with his Lordship, that if the sale took place after the date of the indorsations, the transaction fell under the act 1696; but they differed from him in thinking it valid, if the sale by Marshall took place on the 10th January. The act 1696, (it was observed) being made to repress fraud, and as every possible device would be fallen upon to evade it, the most liberal interpretation should be given to it. The presumption of law arising from it, is, that a person forsees his bankruptcy sixty days before it occurs; and therefore all securities granted by him for prior debts, within that period, are annulled. But if the transaction in question were sustained, a person, even within a few days of insolvency, might defeat this salutary regulation, merely by informing a favourite creditor of his situation, and desiring him to assign his debt to some friend, to whom he had sold goods equal to its amount, for the price of which he would be entitled to plead compensation upon the debt thus assigned. Although, therefore, in the present case, there was no evidence of the bankrupt's being privy to the transaction between the two defenders, yet it was too dangerous, in point of precedent, to be supported. Indeed, independent of the badness of its general tendency, it is clear, from the whole circumstances attending this transaction, that the indorsation of the bills arose from an apprehension of Marshall's bankruptcy; and on that account it was an improper accommodation by Provan and Company to Hamilton and Company; especially as the former had previously entered into an agreement with Marshall, to grant him their own bills for his goods, from which they were not entitled to depart.

The Court ‘adhered.’

Lord Ordinary, Henderland. Act. Cullen. Alt. Corbet. Clerk, Sinclair. Fol. Dic. v. 3. p. 56. Fac. Col. No 95. p. 212.