Page: 549↓
Subject_Bankruptcy—Sequestration—Discharge—Res Judicata.—
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.
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by certain creditors of the bankrupt, who had not ranked in the sequestration, but this opposition was subsequently withdrawn.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.
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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
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
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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
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2 See also 2 Bell, 445, and Dunlop, July 5, 1803, there reported; Sheriff v. Steel, Nov. 23, 1809 (F.C).
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.