Decisions upon the act 5th Parliament 1696, declaring Notour Bankrupts.
Subject_3 SECT. V.
Of Securities for Debts to be Contracted.
William Keith, Trustee for the Creditors of John Syme, v. John Maxwell
Date: 8 July 1795 Case No. No 217.
A debtor disponed his estate absolutely, under a back-bond to redispone, upon payment of the debt. The extent of the debt came to be notour, by means of an action in Court regarding it. Being rendered bankrupt; found he could not discharge the back-bond, so as to diminish the reversion, to the prejudice of his creditors.
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On a settlement of accounts between Mr Constable and the late John Syme, writer to the signet, his agent, there was a balance of L. 6000 against the latter, for which it was concerted, that he should grant a bond to John Maxwell, one of Mr Constable's commissioners, which he accordingly did, on the 3d December 1779.
Maxwell, a few days after, granted a back-bond to Mr Constable, declaring, that the bond, though ex facie simply in his favour, was truly granted to him in trust for Mr Constable.
And on the same 3d December 1779, Syme likewise granted an absolute and irredeemable disposition of the lands of Barncailzie, and others, to Maxwell; who, on the other hand, on the 6th of that month, granted a back-bond to Syme, declaring, that the disposition was granted only in security of the bond for L. 6000; and therefore he obliged himself, whenever it was paid, to redispone the lands to Syme.
Maxwell was infeft on the disposition, 17th February 1781; and his sasine recorded 17th April thereafter. But Syme, till his death, remained in possession of the house and parks of Barncailzie.
Soon after this transaction, Sym'es affairs sell into disorder; and on 12th June 1781, he was obliged to retire to the sanctuary.
Upon this, one of his creditors brought a reduction of the disposition and infeftment in favour of Maxwell; and in this process, in which the pursuers ultimately failed, the back-bond, granted by Maxwell was produced, and the whole transaction laid open.
The whole debts on which the diligence against Syme had proceeded, were afterwards paid, and he continued till his death to do business on a narrow scale, but he was never again solvent.
Maxwell having, on 31st December 1788, become cautioner for Syme in a cash-account for L. 500, the latter, of the same date, executed in his favour a bond of relief, in which he narrated the disposition granted by him to Maxwell, and the back-bond he had received from him; and declared, that the said disposition should subsist not only in security to Mr Constable, of his debt of L. 6000, but also in security to Maxwell himself, for the consequences of his cautionary obligation; and to that extent, he discharged the back-bond.
Maxwell having, after Syme's death, paid a large balance due on the cash-account, he claimed a preference for it over the subjects contained in Syme's disposition, in virtue of the restriction of his own back-bond.
The trustee for Syme's creditors brought a reduction of his security on the act 1696, c. 5.; 1st, Because the restriction of the back-bond was obtained several years after Syme had been rendered bankrupt: 2dly, Because it was granted in security of a future debt.
In defence, Maxwell
Pleaded: Syme's bond of relief being of the same date with the bond of credit, the defender's debt is a novum debitum, to which the act 1696 does not apply.
Neither does his security fall under that statute, as being for a debt to be contracted in future. It arises from an absolute disposition, qualified by a back-bond; and securities, although for future debts, when taken in that shape, are not affected by it; 16th February 1782, Riddel against Creditors of Niblie, No 211. p. 1154.
Besides, it is not the disposition and infeftment which is now sought to be reduced, but the restriction of the defender's back-bond, which being a personal deed, in no shape falls under the act 1696, the enactments of which are directed only against infeftments in security of future debts.
Answered: An absolute disposition, qualified by a back-bond, is supported; because, ex facie of the records, the disponer is wholly divested of the property, and no creditor will contract with him on the faith of it. But this will not hold in the present case, where Syme was not only allowed to remain in the house of Barncailzie, but where the back-bond, before the defender obtained the restriction of it, had been judicially produced, which made it publicly known that the lands were held in security only for a specific debt of L. 6000, and that the reversionary value still belonging to Syme himself, was consequently a fund on which his creditors might rely for payment.
Besides, as the defender originally held the infeftment solely in trust for Mr Constable, he could not invert the nature of his right, so as to make it a security for a private debt of his own, to the prejudice of Syme's other creditors, especially after his bankruptcy, as from that time he was not entitled to give partial preferences.
Replied: As the disposition and infeftment were sustained in the process where the restriction of the back-bond was produced, the defender, so far from conceiving himself to be put in mala fide by it, was confirmed in the belief that he was safe in accepting the security which that right afforded. If Syme's other creditors discovered his reversionary interest by means of that action, they ought, if they counted upon it, to have immediately secured it, by inhibiting Syme, or adjudging the back bond.
Neither will it avail the pursuer, that the infeftment was originally granted only in security of a debt due to Mr Constable. The defender, from the beginning, had an unqualified feudal right to the lands in his person. Mr Constable's interest was secured by a separate back-bond from him, which he might have destroyed without the consent of Syme or his creditors. Syme might have sold the lands to the defender; and if he had done so, the sale would have been completed by a simple discharge of the back-bond. And if a total discharge of it would have effectually vested him with the full property, the discharge which he obtained, must give him an effectual right, corresponding to its extent.
The Lord Ordinary, ‘in respect that the bond of relief 1788, discharging, pro tanto, the former back-bond, was granted unico contextu with the bond of credit for L. 500 to Sir William Forbes and Company, found, That the foresaid deed is not struck at by the first clause in the statute 1696; and in respect that the deed 3d December 1779, is, ex facie, an absolute and irredeemable disposition of the lands, but qualified by a relative back-bond, found, That that disposition and infeftment does not fall under the second clause of the statute 1696, but must submit in favour of Mr Maxwell, until he is relieved of his engagements for Mr Syme, whether prior or posterior to the date of the infeftment; and, therefore, upon the whole, assoilzied Mr Maxwell from the reduction.’
On considering a reclaiming petition and answers, the Court, thinking the case attended the difficulty, ordered memorials.
When the cause came to be advised, it was
Observed on the Bench: After the judicial production of the back-bond, it was just as well known to Syme's other creditors, that the disposition was granted solely for the purpose of securing Mr Constable's debt, as if a clause to the purpose had appeared in gremio of it. From there forward, therefore, the disposition is to be considered in no other light than as security; and, consequently, Mr Constable himself could not have covered, by means of it, any future advances he might have made to Syme, and far less could the defender, whose only interest in the disposition was in the character of Mr Constable's trustee. The restriction of the back-bond, therefore, falls to be reduced, and that without at all infringing on the doctrine fixed by the case of Riddel against Nibblie.
The Court, accordingly, by a considerable majority, ‘reduced, decerned, and declared in terms of the libel, in so far as respects the security therein-mentioned, granted in favour of John Maxwell.’
And on advising a reclaiming petition and answers, they unanimously, ‘adhered.’
Lord Ordinary, Justice-Clerk.Act. Rolland, Hay, Morison.Alt. Geo Fergusson, Mat. Ross.Clerk, Pringle.
Fol. Dic. v. 3. p. 58. Fac. Col. No 182. p. 431.
