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Cite as: [1838] CS 16_549

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SCOTTISH_Court_of_Session_Shaw

Page: 549↓

016SS0549

Reid

v.

Buchanan
No. 130

Court of Session

2d Division

Feb. 15 1838

Lord Cuninghame. T, Lord Justice-Clerk, Lord Meadowbank, Lord Medwyn, Lord Glenlee.

Reid, Irving, and Company, Pursuers.— Counsel:
D. F. Hope— Brodie. James Buchanan, Defender.— Counsel:
Ivory— Neaves.

Subject_Bankruptcy—Sequestration—Discharge—Res Judicata.— Headnote:

In a reduction of a discharge granted under the bankrupt statute on the application of the bankrupt with the concurrence of the trustee and the requisite number of creditors,—Held that an extrajudicial recal by a principal creditor of his consent to the application, by letter to the trustee prior to the decree of discharge, but upon which no steps followed, was not a relevant ground of reduction of the discharge.

Facts:

The estate of the defender Buchanan was sequestrated under the bankrupt act in 1826. After the sequestration had depended for some time, Buchanan presented to the Court a petition for his discharge, “with concurrence of the trustee and of upwards of four-fifths of his creditors in number and value.” Among the creditors so concurring was the firm of M'Queen, M'Kay, and Company, ranking for the sum of £40,000, who, after several intimated changes of purpose, at last formally adhibited their consent to that effect. This firm merged in that of M'Queen, M'Donnell, and Company, of whom the pursuers Reid, Irving, and Company subsequently became the assignees, and stood in their right. The application was opposed by certain creditors of the bankrupt, who had not ranked in the sequestration, but this opposition was subsequently withdrawn. On 20th December, 1831, the following letter was addressed by the firm of M'Queen, M'Donnell, and Company, to the trustee in the sequestration;—“Henry Paul, Esq., trustee on the sequestrated estate of James Buchanan. As trustee on the sequestrated estate of James Buchanan, Esq., junior of Ardenconnel, we hereby intimate unto you, that, for ourselves, and for M'Queen, M'Kay, and Company, we withdraw our assent to Mr Buchanan's discharge until we are satisfied. Of this you will please take notice, and act accordingly.” The trustee received this letter but did not act upon it. On 6th December, 1832, the Court “having resumed consideration of the petition, with the petitioner's oath given in terms of the statute, found him finally discharged of all debts contracted prior to 27th April, 1826, and decerned and declared accordingly.” All the steps in this proceeding were regular and in terms of the statute.

Three years after the discharge had thus been granted, Reid, Irving, and Company, as assignees and standing in right of M'Queen, M'Kay, and Company, and of M'Queen, M'Donnell, and Company, raised action against Buchanan to have the decree of discharge reduced, substantially on the ground that the defender did not ultimately possess the statutory concurrence to his discharge, the consent of M'Queen, M'Kay, and Company, which was necessary to that concurrence, having been recalled by the letter of 20th December, 1831, before the discharge was granted.

In support of this reason of reduction, the pursuers, in their condescendence, made certain vague allegations of misrepresentation on the part of the defender, as inductive of the recal by their authors of their consent to the discharge.

In defence against the action it was pleaded;—

1. The decree of discharge in the defender's favour, having been formally obtained under an application regularly presented and regularly conducted, in terms of the statute, is res judicata against all the creditors ranked in the sequestration, and in particular against the pursuers, whose authors gave their concurrence to the application, and is not subject to reduction.

2. The defender's application for discharge having been undeniably presented with the statutory concurrence of four-fifths of his creditors, it was incompetent afterwards for a concurring creditor to object, or to withdraw his concurrence, except judicially, and on sufficient cause shown to the Court.

3. The attempt by M'Queen, M'Donnell, and Company, to withdraw, by an extrajudicial communication, the recorded consent of M'Queen, M'Kay, and Company, already given and acted upon, was irregular and inept.

4. At all events such withdrawal or proposed withdrawal of the consent previously given by M'Queen, M'Kay, and Company was virtually retracted or never acted on, and the discharge was truly carried through with the complete concurrence of the requisite creditors.

The Lord Ordinary having reported the cause on cases, it was contended in support of the action;—

1. If it can be shown that the consent to the discharge in question was obtained by misrepresentation or concealment of the truth, this, as in a question of relevancy, is a valid ground of reduction, even had the discharge been unrecalled; ¹ and on the same hypothesis M'Queen, M'Donnell, and Company were entitled to recal the consent which their authors, M'Queen, M'Kay, and Company had given. ² The consent having been timeously and legally retracted by parties in right so to do, on the principle assignatus utitur jure auctoris, and the decree of discharge being thus rendered impeachable, the pursuers are entitled to follow out by the present proceeding an intention which must be held to have been entertained by their proper authors.

_________________ Footnote _________________

¹ Baillie v. Young, March 23, 1837 (ante, XV. 893).

² Megget v. Spence, July 10, 1830 (ante, VIII. 1063).

2. The concurrence of the retracting creditor being taken to be indispensable, his retractation, if competently made, ought in law to have put a stop to farther procedure under the application, and the discharge was consequently illegally granted. Now the consent was duly recalled by the letter to the trustee in December, 1831. The creditor had given his consent to the application extrajudicially, leaving it to the trustee, qua judicial functionary, to report it to the Court along with his own concurrence; and the retractation was sufficiently accomplished through the same medium. If the trustee failed to act upon such retractation, the pursuers ought not to be sufferers.

3. As the consent of the pursuers' authors was erroneously reported to have been given, and as the Court must be held to have awarded the discharge on a full consideration of all the circumstances laid before them, including this concurrence, the decree of discharge did not correspond with its grounds, and thus laboured under a radical defect which made it liable to reduction.

The defender on his part contended;

1. The decree of discharge forms res judicata against the pursuers, both as their authors were creditors ranked in the sequestration, and as they were creditors specially concurring in the defender's petition for discharge. The application for the discharge was an incidental proceeding in the leading and original process of sequestration depending in the Court of Session, to which the pursuers' authors were parties; the decree must be held therefore to have been pronounced in this process, and, being so pronounced, was a decree in foro as to all persons who were parties to the process of sequestration. Even if the application for discharge should be considered as a separate and insulated process, M'Queen, M'Kay, and Company, in whose right the pursuers stand, were by their concurrence proper parties to that special proceeding and to the decree which was pronounced in it. A decree in foro of this description cannot be set aside on the grounds of reduction libelled, it being altogether irrelevant to raise any question as to its merits, or the grounds in fact or in law on which it was pronounced. ¹

_________________ Footnote _________________

¹ Buchanan v. Dunlop, December 8, 1829 (ante, VIII. 201).

2. Should the pursuers attempt to cut down the original consent of their authors, as having been obtained by misrepresentation, there are no termini habiles for such a course in this action, the summons not calling for or seeking to reduce the original consent, which was unreservedly given and acted upon by M'Queen, M'Kay, and Company. A creditor may withhold his consent to a bankrupt's discharge; but if that consent be once given, and still more if it be acted upon by a judicial application to the Court, both justice and legal principle forbid that it should be capriciously retracted. The language and provisions of the bankrupt act (§ 61) also favour the idea of a creditor's consent being binding and irrevocable. ² And the present is peculiarly a case in which this view ought to be applied, since neither at the time of the alleged retractation nor in this action, have any special grounds been stated for such a proceeding. Besides the manner of the alleged recal of consent by letter to the trustee, in a process the different steps in which are made under the eye of the Court, and must receive its sanction, was inept; the pursuers’ authors having made no judicial retractation, and never having been judicially allowed to make a retractation of what, with the authority of their authors, had been judicially stated. Even in a question with the trustee, the letter of M'Queen, M'Donnell, and Company imposed upon him no obligation to do any thing upon it; and was entitled to little attention, whether looking to the style of the intimation or the parties from whom it proceeded, who had not been ranked in the sequestration. At all events the defender is not answerable for any thing which the trustee did or omitted to do, after the proceedings were regularly and competently in Court.

_________________ Footnote _________________

² See also 2 Bell, 445, and Dunlop, July 5, 1803, there reported; Sheriff v. Steel, Nov. 23, 1809 (F.C).

Lord Justice-Clerk.—Sequestration is a judicial process, and those who are parties in a sequestration stand in the same position as the parties in any other process, and incur similar liabilities. In this case all the proceedings as to the discharge were done rite et solenniter. The petition for discharge was duly intimated and authority granted to the Lord Ordinary. It was presented in July, 1829, and was opposed by Findlay, Bannatyne, and Company. It was not till November, 1832, that this opposition was withdrawn, and a discharge granted. In 1835, the present reduction was raised, simply on the ground that on 20th December, 1831, a company intimated by a letter that they had withdrawn their concurrence. This recal was transmitted extrajudicially, and there is no proof that the letter was ever seen by Mr Buchanan. It is a material fact that there is an admission on the record that the concurrence was first of all given unequivocally, then qualified, and then granted again. Thereafter no step was taken judicially to withdraw this concurrence. M'Queen, M'Donnell, and Company were aware that there was a depending application and were bound to have come forward in Court and stated their objections to the granting the discharge; but they did nothing, and allowed every thing to go on and decree to pass, and it is not till three years after, that the proceedings are challenged. As they were parties in the process they were fully cognizant of all the proceedings, and having failed at the proper time to come forward and put the Court in possession of the facts on which they opposed the discharge, they are not now entitled to reduce it. We are not now called on to say if their consent could be retracted. On cause shown, no doubt a power of recal is competent, but I agree with Lord Gillies, in Buchanan v. Dunlop, that parties cannot capriciously recal their consent. The ground of recal must be solid and sufficient. When we see how parties are worked upon in such matters, it would be very dangerous to sanction an opposite doctrine. Again when there is a recal of concurrence, it must always be done judicially. In Megget's case, the parties come forward openly in Court, but in the present case the proceeding was apart from the Court altogether, and there was nothing but the transmission of a letter to the trustee. Unless we are prepared to depart from the principles sanctioned in Sheriff v. Steel, and Buchanan v. Dunlop, we cannot allow the ground of reduction now brought forward. The plea of competent and omitted was held applicable in Buchanan's case and applies to the present. We have been told that there is a difference between a decree of discharge under a composition contract, which was the proceeding in Buchanan's case, and under the usual statutory proceedings; but there is no room for distinction between the cases, though, if there were any, the distinction would be unfavourable to the pursuers, as in the latter proceeding; the bankrupt makes a surrender of his whole estate, while under the composition contract he gets the estate, and after paying the composition, may have a surplus remaining. On the authority of these cases, and on the principles of law, and of common fairness, I think the objectors were bound to have come forward judicially at the time, but having failed to do this, and having kept back and out of sight, the present pursuers have no right now to come forward, and I am clear for repelling the reasons of reduction and sustaining the discharge.

Lord Meadowbank.—I entirely coincide with your Lordship. The statute provides that after a certain period has elapsed, the bankrupt, with concurrence of a certain number of the creditors and the trustee, may apply for a discharge; and any subsequent rankings upon the estate cannot affect the validity of the previous proceedings. Whether a party may resile judicially or not, without stating his grounds of withdrawal, need not here be inquired into. There is no doubt that when a party has given his consent to a discharge, he is not absolutely barred from opposing that very petition to which he has consented, on good and sufficient grounds. But the application cannot be affected by any change in the mind of the creditor. He cannot withdraw so as to render the application invalid, but he may state his objections to the Court. He may state that he was deceived in supposing the requisites of the statute to have been complied with, and if this turned out to be the case, he might be found entitled by the Court to withdraw; but that is by no means the shape of the present case. The pursuers here claim reduction of the decree (1), because from subsequent information they would have been entitled to have withdrawn their concurrence; and (2), because a debt was given up as part of the assets which has not been forthcoming. The pursuers ought to have attended to their own interest; these objections now fall under the plea of competent and omitted, and as they did not object when they had it in their power, they are now barred from doing so.

Lord Medwyn.—I entirely concur. In regard to the letter, I think we must lay out of view any intimation of it to the bankrupt, which is not proved, and hold that it was merely intimated to the trustee. The question now is, whether this recal is sufficient to warrant the present action. There are two modes by which a sequestration may be ended,—by a composition contract, or by a surrender to creditors under the statute. There is no difference as to the withdrawal of a consent to discharge in either case, but I think there is a material distinction in regard to the petition for discharge. In the former case it is the trustee who applies to the Court, but in the other case, when the trustee has done every thing, it is the bankrupt who applies for discharge; certainly with the concurrence of the trustee, but still it is the bankrupt who applies. The trustee is in a different situation from the creditors; he is in the situation of a judge, and if he refused to consent to the petition for discharge, he must state his reasons for doing so. It is the duty of the bankrupt petitioner and not of the trustee to state to the Court that the requisite amount of creditors have consented. The duty of the trustee is simply to give in his report, and to certify that every thing has been regularly and fairly done. A creditor, before the trustee has given in his report, might withdraw his concurrence, but after this judicial step has been taken, he cannot do so without showing sufficient cause to the Court, and his withdrawal of concurrence must be intimated not alone by intimation to the trustee, but by his taking some judicial step. I do not think that the trustee was in the present case bound to attend to the letter in question. The policy of the bankrupt statute is that after the bankrupt has done every thing in his power, he should be placed in a situation again to resume his efforts for the benefit of his family and himself, and again to enjoy the benefits of a free trade. This is not a case of res noviter veniens ad notitiam, and it would be dangerous to allow discharges to be opened up as is here attempted.

Lord Glenlee was absent.

The Court accordingly repelled the reasons of reduction, and assoilzied the defenders, with expenses.

Solicitors: W. A. G. and R. Ellis, W.S.— Gibson-Craigs, Wardlaw, and Dalziell, W.S.—Agents.

SS 16 SS 549 1838