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Page: 893↓

Gibson-Craig

v.

Gardner's Trustee No. 276.

Court of Session

2d Division

June 10 1835

Ld. Moncreiff. F.

Sir James Gibson-Craig, Baronet, W.S., and James Gibson-Craig, W.S., Pursuers.— Rutherfurd— Ivory. Francis Burke (Gardner's Trustee), Defender.— D. F, Hope— Graham Bell.

Subject_Right in Security — Bankruptcy — Implied Assignation — Trust. —

A party granted a feu-disposition, containing a reserved burden in security for payment of advances, and of the Same date, granted to the disponees a separate acknowledgment that the sum secured included certain bills, then current, drawn by him upon the disponees, and accepted by them, and which he was bound to retire; and the disponer subsequently become bankrupt—held, in a question with the trustee for the general creditors, that parties who had discounted some of those bills for the acceptors, and had not received payment, had no right to the proceeds of a sum recovered in virtue of the security.

In January, 1825, Mr William Gardner, W.S., feued to Brown and Craig, builders in Edinburgh, certain building areas in Romilly Place. Missives of feu were exchanged, in which it was agreed that Brown and Craig were to erect tenements on the areas, and Gardner was to advance towards the erection, tire sum of £5000, he not granting in the meantime any feu-disposition. Messrs James Dawson, stone-agent, and John Barker, surgeon, became soon after connected with Brown and Craig in this building speculation.

Gardner supplied the advances contemplated in the missives to the amount of £4100, partly in sums of money, partly by means of bills. Among others, a bill for £850, dated 16th September, 1825, and payable 20th June, 1826, was drawn by Gardner upon, and accepted by, Brown and Craig. On the day of its date, it was, on Gardner's indorsation, discounted with Messrs Gibson-Craigsand Wardlaw, W.S. Another bill, dated 31st December, 1825, and payable 2d April, 1826, for £330, was, in like manner, drawn by Gardner upon Brown and Craig, and accepted by them, and discounted with Gibson-Craigs and Wardlaw. The proceeds were applied to the erection of the tenements building by Brown and Craig. When the £330 bill fell due, it remained unretired. When the £850 bill, fell due, on 20th June, 1826, it also was not retired; but the acceptors granted, of date the 22d June, 1826, two other bills for £425 and £435 respectively, the one payable on the 22d September, the other on the 22d October following.

On the 8th September, 1826, while the last-mentioned bills were still current, Gardner granted a feu-disposition of the areas in favour of Brown, Craig, Dawson, and Barker, in which it was declared that the subjects were “disponed under the express burden of £4100, advanced by the said William Gardner to the said Robert Brown and Thomas Craig, to assist them in erecting the buildings on the said areas, and interest of the said sum from the 1st July, 1826, till paid.”

This sum of £4100, with interest, was specially declared to be a real and preferable burden affecting the subjects disponed, which burden was appointed to be engrossed in the infeftment to follow on the disposition, and in all future investitures, so long as it remained undischarged. The deed reserved to Gardner a power of sale for payment of this money. Of the same date with the feu-contract, a back-letter was addressed and delivered by Gardner to Messrs Brown, Craig, Dawson, and Barker, containing, inter alia, the following declaration:—“I also acknowledge and declare, that the sum of £4100, mentioned in the said feu-contract, as the amount of advances made by me, and which is declared a real burden on the conveyance, includes bills to the amount of £2836, drawn by me, upon and accepted by you, Messrs Robert Brown and Thomas Craig, and which bills I become bound to retire and relieve you thereof, it being understood, however, that you, Messrs Brown and Craig, shall grant me renewals thereof, if required, until the said debt of £4100 shall be paid, which bills fall due of the dates, and are for the sums following, viz.—

1826. Sept. 25	£430	0	0
“	195	0	0
“Oct. 15	130	0	0
“ 25	440	0	0
“”	36	11	5
“ 27	105	6	2
“Nov. 10	185	0	0
“”	1315	0	0
	£2836	17	7 ”

It will be observed, that the first and fourth items of this list apply respectively to bills due at the same date, and, with a difference of £5, of similar amount, with two of the bills already mentioned as discounted with Gibson-Craigs and Wardlaw.

Infeftment was immediately taken in favour of Brown, &c., under the feu-disposition, the reserved burden being specially engrossed in the instrument of sasine. In 1827, Brown and Craig became bankrupt, and their estates were sequestrated. Gardner's affairs became likewise involved, and his estate was sequestrated in September of the same year. Prior to the sequestration, he had advanced to Brown and Craig £1510 in part liquidation of the bills enumerated in his letter of 8th September, 1826. The defender, Burke, trustee on Gardner's sequestrated estate, obtained a special adjudication of his whole heritable property, including the right to the real burden above mentioned; and made up a complete title in his person. He entered into possession of the subjects, over which the real security extended, uplifted the rents, and latterly, in virtue of the reserved power in the feu-disposition, sold for a price of £1500 the whole property contained therein. This sum, along with a balance of rents, amounting to £123, was all that the trustee obained under the security.

In the course of the early proceedings in the sequestration, Messrs Gibson-Craigs, who had never received payment of the bills which they had discounted, became aware of the existence of Gardner's letter of the 8th September, 1820. Founding upon this letter, they, as discounters of the bills already mentioned, ^* raised an action against these several parties, viz. Gardner's trustee, Brown and Craig's trustee, Barker, and the representatives of Dawson, who had died, containing the following conclusions:—“1st, That it should be found and declared that the said Robert Brown, Thomas Craig, James Dawson, and John Barker, were each and all partners in the joint building speculation foresaid, and as such are liable for all advances made for their behoof or on behalf of their said joint speculation: And this being so found and declared, then the said several partners, and the representatives of the said James Dawson, ought and should be decerned and ordained, by decree of the Lords of our Council and Session, conjunctly and severally, to make payment to the pursuers of the foresaid advances by them, and contained in the said three bills of £330, £425, and £435, with interest on the said several sums from the periods the said bills respectively fell due and till paid. And, 2d, That it should, separatim, be found and declared that, as the foresaid advances were included in and founded a part of the sum of £4100, declared a real burden in manner foresaid, that the pursuers had an interest in the same to the extent of their said advances; and that the said Francis Burke could only take up the said real burden, tantum et tale, as it stood in the person of the said William Gardner, the bankrupt, subject to the trust of paying the pursuers their advances out of the real burden foresaid.”

Brown and Craig's trustee and Dawson's representatives made no appearance. The defence of Barker against the first conclusion of the summons resolved into a question of fact as to the existence of a copartnership between Brown and Craig and himself. The defence of Gardner's trustee had reference to the second conclusion, and raised a question of law as to the right of the pursuers under the back-letter, upon which the Lord Ordinary ordered cases.

For the pursuers, it was pleaded, that the real security held by Gardner was for repayment of advances, which included the bills sued for, and, as it was only by retiring those bills that Gardner could take the benefit of the security, he was thus, in reality, in the situation of a party holding as trustee for the discounters of the bills; that the latent equity in this case ought to be given effect to; and the general creditors of Gardner, adjudging through their trustee, ought to take the right of the bankrupt tantum et tale, as it stood in his person, ¹ and that, although only about £1600 had been recovered under the security, it must be primarily applied to the extinction of Gardner's obligation to retire the bills, and to relieve Brown and Craig thereof.

The defender, on the other hand, maintained;—

_________________ Footnote _________________

^* It was assumed in the pleadings for the pursuers, and, to all appearance, it was not seriously contested by the defenders, that the bills for £425 and £435 were renewals of the £850 bill, and identical with the bills for £430 and £440, mentioned in the list quoted in the letter; the pursuer alleging that the discrepancy in the amount arose either from mistake, or from £5 having been added to each, to meet the discount of renewals. As to the bill for £330, the pursuers allowed that, although it was comprehended in the general description of bills mentioned in the letter, yet it had no representative in the relative list.

1. The pursuers had no right or title to any share of Mr Gardner's real security, they having got no conveyance to it, and the documents founded on not conferring any jus quæsitum upon them. ²

2. The real burden constituted by the feu-contract having become vested in the defender by force of the statutory adjudication and unqualified feudal title completed in his favour, his right and title cannot be affected by any separate declaration or personal obligation not appearing ex facie of the deeds creating the burden, and not entering the record. ³

3. There are no relevant grounds libelled, either to instruct that Gardner held the above security in trust for payment of the bills claimed on by the pursuers, or for declaring a right or preference in the proceeds of the security in their favour to any extent.

4. Even if Gardner could have been viewed as holding the security in trust, he would have been entitled to apply the whole recoveries under it primarily in payment to Brown and Craig of his actual advances, and the same right is now competent to the defender as Gardner's trustee.

5. At least, the whole sum recovered under the security must be applied equally and proportionally in extinction of Mr Gardner's own advances, and the whole of the bills or debts enumerated in his obligations, without any preference in favour of the pursuers.

The Lord Ordinary pronounced the following interlocutor, adding the note subjoined: ^*—“Decerns in absence, in terms of the libel against Robert Brown and Thomas Craig, and John Wilkie, their trustee, and against Margaret Wilson or Dawson, Agnes Dawson, James Dawson, and Thomas Wilson Dawson; finds that the pursuers and the defender, John Barker, are at direct variance in their statements on the record, with regard to the essential facts on which the first conclusion of the summons depends; and therefore, before answer as to that conclusion, appoints the cause to be enrolled, in order that it may be put into proper shape, for the trial of the question or questions of fact which arise between these parties; finds, with reference to the second conclusion of the summons, that in so far as the sums expressed in the three bills for £330, £425, and £435, mentioned in the summons, or any of them, can be shown to have been comprehended in the sum of £2836, 17s. 7d., consisting of bills, as set forth in the letter quoted in the 23d article of the condescendence, whether the same were original bills, existing at the date of the said letter, or renewals of such bills, in terms of the stipulation therein expressed, and in so far as the said bills had been duly preserved as legal grounds of debt, the defender, Mr Burke, as in right of Mr Gardner and his creditors, must hold the security by real burden, reserved in the contract of feu produced, and the subject thereof, or its price or produce, subject to a trust for payment to the pursuers of the sums in the said bills, or any of them, shown to be so situated, so far as the proceeds of the said security may be sufficient for the payment of the whole sum of £4100 covered by it; or otherwise, for payment to the pursuers of a rateable part or proportion of the said proceeds, corresponding to the amount of such bills, in relation to any other advances which the defender can show to have been made by Mr Gardner to Brown and Craig under his obligation, referred to in the said feu-contract and letter, and to have been comprehended in the said sum of £4100, but no farther; and before farther answer, appoints the cause to be enrolled, and in the mean time, reserves all questions of expenses.”

_________________ Footnote _________________

¹ Redfearn, June 1,1813 (1 Dow, 50); Gordon, Feb. 5, 1824 (F. C.); Mooney, Dec. 3, 1736 (12471); Elchies on Stair, p. 69.

² Wood v. James (2 Shaw, App. 219); Siffkin v. Walker (2 Campbell, 308); ex parte, Blackburne (10 Vesey, jun. 206).

³ 1 Bell, 26, 280, 282; Wylie v. Duncan, Dec. 8, 1803 (F. C); Sir R. Preston, March 6, 1805 (F. C.)

^* “The caae between the pursuers and Mr Barker appears to the Lord Ordinary not to admit of any judgment, without trial of the disputed facts. The averments in the pursuer's condescendence, in articles 3, 4, and 5, and particularly 6 and 13, are distinct and pointed, that Mr Barker and Mr Dawson entered into a partnership with Brown and Craig, with a full participation of profit and loss, and that the business of the partnership was mainly conducted under a partnership firm of Brown and Craig. Two of the bills sued on, viz. £435 and £425, are expressly accepted by that firm of Brown and Craig. Assuming this as the state of the case, surely Mr Barker does not expect to convince the Court, that even an ordinary action will not lie upon a bill accepted by a company firm against a partner of that company, merely because his name is not in the firm.—See Thomson on Bills, p. 266, and the cases there quoted. If such a point could be maintained, the well-known case of M'Nair v. Fleming would have been simple indeed. There must, therefore, be a fallacy in regard to the cases quoted in Mr Barker's revised case, which were not alluded to in the debate, and appear to have been put in after the revisal of the pursuer's case, as they are not mentioned in it. One thing is evident, that in both the cases quoted, the recourse sought was against parties said to be liable as drawers of the bills, where they did not at all appear in that character, and there was no partnership firm adhibited. But it is unnecessary to consider any point which can be made on them till the facts are ascertained. The Lord Ordinary would be indeed astonished, if it were held that a Sleeping partner is not liable by any form of action for payment of a bill accepted by the firm of his company, and in the business of that company. For there is also a pointed averment in the record, that the bills were accepted in the business of the company, and were applied for its behoof.

“The question between the pursuers and Mr Burke may also, to some extent, depend on matters of fact. It must be made out, that the bills sued on, or some of them, are the bills referred to in Mr Gardner's letter, or renewals of those bills, and it must be made out that they were duly protested. But the facts necessary for the decision of the question of law, argued in these papers, seem to be sufficiently fixed. The question itself is of some difficulty.

“When Gardner made his transaction with Brown and Craig, he became bound to make advances to them for completing the buildings, but retained the title to the property for his security. When he came to grant the feu-contract, it was made as a conveyance to Brown, Craig, Dawson, and Barker, and the survivor, and their heirs, as trustees, in the terms set forth, the pursuers assuming that, before this time, Dawson and Barker had become partners in the concern. The conveyance is made under the real burden of £4100, stated to have been advanced by Gardner to Brown and Craig, ‘to assist them in erecting the buildings in the said areas, &c., and with a power of sale, in the event of that sum not being repaid. Then there is a back-letter by Gardner (art. 23, cond.), which bears, that that real burden included bills to the amount of £2836 accepted by Robert Brown and Thomas Craig, which bills Gardner becomes bound to retire, under a stipulation that Brown and Craig shall grant renewals, if required, until the whole sum of £4100 shall be repaid. And then the particular bills, as they then stood, are enumerated.

“Assuming that the bills sued on, or some of them, are renewals of some of the bills in the list, there can be no question that they are bills under which Brown and Craig had received the advances for the particular buildings in the conveyance, and that they are included in the £4100 constituting the real burden. Supposing, therefore, that Gardner had paid the bills, he could certainly have made the real burden effectual, so far as the subject would go for that advance, as well as for his other advances.

“On the other hand, if Gardner did not pay these bills, and if Brown and Craig, the acceptors, had paid them, the real burden to that extent must have become ineffectual, because the advances which formed the value or consideration of it had not been made.

“The actual case is, that Gardner has not paid the bills, and Brown and Craig have not yet paid them; but the advance has been made, in the first instance, to Brown and Craig, by Gardner, with the funds of the pursuers obtained upon these bills. Both the parties are liable to the pursuers by the bills themselves; and Gardner is primarily liable, in regard to Brown and Craig, by his obligation in the letter. And the question is, whether the pursuers, holding these bills, which are expressly comprehended in the real burden, are, or are not entitled, as against Gardner's trustee, either to be preferred in toto on the produce of that security, or to participate in the benefit of it, pro rata, with the creditors for Gardner's other advances.

“The Lord Ordinary can see no room for doubt that Gardner's letter must be taken as a substantive part of the contract, by which the real burden was constituted. It is not a subsequent personal qualification or engagement It was made unico contextu with the feu-contract; and it is at any rate legal proof, that, without taking in the bills to be retired, there was to that extent no real burden, because the advance had not been made. Mr Burke seems to lose sight of this in his argument.

“Gardner, then holding the real burden to the full amount of £4100, could only hold it for the amount of the bills, while they remained unretired, as a trust It was a trust, in the first instance, for Brown and Craig for their relief of the bills accepted by them; and if Gardner, using the power of sale, thereby made the real burden effectual, he must surely be liable to Brown and Craig under his obligation to make it effectual for their relief of the bills. But, as Gardner was the party who was bound to pay the bills, trusting to his real burden, it is thought that while they remained unpaid, he must be considered as holding the security in trust for the pursuers, by means of whose money under these bills he made the advances to Brown and Craig.

“But if Gardner held the real burden in trust for the pursuers, could his trustee or creditors operate upon it by selling the subject, and refuse to impart the benefit of it to the pursuers? The Lord Ordinary is of opinion that they could not. It does not appear to him that any of the peculiarities with regard to real estates are involved. For the real burden, as held by Gardner, depends for its substance upon the advances made. And, as the proceeds of the bills form a part of those advances, the question seems to depend on the common principles of trust in a bankrupt. If the simple case be taken of a disposition, apparently absolute, with a back bond declaring it to be a trust, though a purchaser, ignorant of the trust, might be safe, at least if the bond was not registered, there cannot, it is thought, be any doubt, that creditors adjudgers could only take the title subject to the trust. The Lord Ordinary cannot admit the doctrine of Wylie v. Duncan (which, indeed, the defender's counsel seemed to give up in the debate) in the face of the cases of Redfearn and Gordon v. Cheyne, which he thinks directly applicable. But the case here is not so favourable for the creditors as that above supposed. For the title, namely, the reserved real burden, shows on the face of it that it was only in security of money advanced; and the letter, taken along with it, shows that the unpaid bills were included in that money. And, consequently, if that state of the bills did constitute a trust, it was involved in the very nature of the title itself.

“It is said that the pursuers, in transacting with Gardner, trusted to his personal security and did not look to the real burden. There is a pointed averment of the reverse in the record. See answer to Burke's statement, art. 9; and Mr Gardner's declaration seems to confirm it. But, at any rate, when the bills were first discounted, Gardner held the absolute title to the property in the register; and although he was under an obligation to grant the feu-right, that was under the qualification of his right to reserve a real security for his advances. The pursuers were entitled to look to that security; and as the original bill for £850 bore expressly to be for value in advances to Brown and Craig ‘on account of the tenements erecting on the areas feued by me to you, it must be presumed that they did look to it. Besides, it is a very possible case for a party to have, indirectly through the persons with whom he deals, a right to the benefit of a security, though it may be unknown to him at the time, or subsequently acquired; as he may also have a good claim against a partner of a company, though he did not know he was a partner when he transacted.

“But although the Lord Ordinary thinks that the case of the pursuers is made out in principle, he is of opinion that it can go no farther than to entitle them to a rateable proportion of the produce of the real security, along with the creditors claiming for the other advances, making up the £4100. For though Mr Gardner held the security in trust for the bills, it was only a trust for a proportional benefit in its value, while, quoad ultra, it was held for his other advances, and must be so held by Mr Burke.”

The defender reclaimed.

Lord Glenlee.—I find great difficulty in this case in getting hold of the right end of the string. The argument from the bar seems to me to have been applied to a case different from the present. Had Gardner been endeavouring to keep the whole £4100 the pursuers would have had a good deal to say. The back-letter is, to a certain extent, evidence, non numeratæ pecuniæ, and there is no occasion to go into the doctrine of tantum et tale. I think Burke, Gardner's trustee, could not hold the whole £4100, as the guarantee was for the benefit of Brown and Craig. True, the pursuers say to him, you hold for the benefit of all the creditors, and as you are bound to relieve Brown and Craig of these bills, yon must relieve us the holders of these bills. But whatever might have been the case on that supposition it cannot apply to the case of Burke, who has not drawn more than what is equivalent to the actual advances on the bills enumerated in the back-letter. The pursuers cannot say that Burke must claim for the whole bills. The trust only began when the bills were paid. But though I incline to think the Lord Ordinary's interlocutor might apply to the case of the whole £4100 being drawn, I differ from him, if I understand his interlocutor to be that the pursuers are to share in the £1500, which is all that has been recovered. There is no excrescent produce of the real burden which could be applied in liquidation of the outstanding bills.

Lord Medwyn.—This is an important and a new case. It would be of great consequence to bankers if they could follow securities in the way the interlocutor sanctions. But I differ from the Lord Ordinary in his finding that the pursuers are entitled to share in the £1500 recovered. Gardner was bound in the missives of sale to advance £5000, but I do not think that alters the case. At the date of the feu-contract he had made advances by assistance from the pursuers and others who had discounted bills. It is quite clear that those bills were discounted by the pursuers on the faith of the names appearing on them, and with no view to any ultimate real security, as appears from the affidavits and correspondence of Sir J. G. Craig. The back-letter, which is an alleged qualification of the reserved burden, is in favour of Brown and Craig, but contains no stipulation in favour of third parties. If it had been thought available the pursuers should have got an assignation to it. The case of Wylie v. Duncan was not similar to this, as in it there was a distinct obligation applicable to the subject. The back-letter showed pecunia non numerata; but but security it provided for the payment of the hills could not be available beyond the bills which Gardner had drawn, nor while the bills were still in the circle. The discounting did not relieve Brown and Craig, it only transferred the obligation on the bills to the pursuers. If the money had been advanced on a promissory-note to Gardner, even then the holder of the note could not have claimed upon the real security, for still an assignation would have been requisite. I do not see how this back-letter could constitute a trust except in favour of Brown and Craig, for how could it be a trust in favour of the discounters or of bankers ? Supposing Gardner had been unable to pay, and had gone to a bank and got the £3000 and paid the bills, he could have assigned the security to the bank. But in the case of Sir W, Forbes v. Macnab, ¹ great difficulty was felt in holding that there was an implied assignation by delivering the guarantee along with the bill. I cannot hesitate in rejecting this implied trust after the pursuers have taken decree against Brown and Craig's estate.

_________________ Footnote _________________

¹ May 29, 1816 (F. C.)

Lord Meadowbank.—I concur.

Lord Justice-Clerk.—I concur in the opinion given by Lord Medwyn, Assuming that there was a trust, it was one created for the benefit of Brown and Craig, and not of third parties. Is this benefit then, which was neither directly nor indirectly conveyed to the pursuers, to be available to them? If there be a trust, according to the Lord Ordinary's view, it is established in a very anomalous manner; but a trust must be established by clear evidence. It is difficult to see how the pursuers can come against Gardner's trustee on the one hand, and take decree against Brown and Craig on the other. It would be carrying the doctrine of tantum et tale too far, were we to allow that by the back-letter such a labes has been attached to the feu-contract as to make the right of the defender by his adjudication, led in virtue of the reserved burden in the disposition, yield to the claim of the pursuers.

The Court accordingly altered, and assoilzied with expenses.

Solicitors: Gibson-Craigs, Wardlaw, and Dalzilel, W,S.— John Forrester W.S.—Agents,

SS 13 SS 893 1835