Scottish Court of Session Decisions

The petitioner, Gibb, and the firm of Buchanan and Young of Glasgow, had transactions together in the way both of cash-advances and of acceptances for mutual accommodation. In June, 1835, Buchanan and Young became bankrupts; and their estates were sequestrated under the bankrupt act, the respondent Brock being appointed trustee. About the same time Gibb also became bankrupt, but he soon after effected an extrajudicial settlement with his creditors on payment of a composition of 5s. in the pound. On the respective bankruptcy of the parties, there were mutual accommodation-bills in the circle to the extent in all of £9686. Of these, about £6886 had been accepted by Gibb for the accommodation of Buchanan and Young, and the proceeds had been received by them; the remainder, amounting to about £2800, having been accepted for the accommodation of Gibb, and the proceeds in like manner received by him. Upon the balance of their cash transactions Gibb was creditor of Buchanan and Young in the sum of £1530.

Thereafter, in the sequestration, Gibb claimed to be ranked for this sum of £1530, the holders of all the bills having ranked in common form upon both estates. The trustee rejected this claim, “because the estate of Buchanan and Young has been ranked upon for bills to the extent of £2800, granted by them for the accommodation of the claimant, Gibb, and for which they received no value; and until these bills are retired by the claimant, and the estate thus relieved of the extra ranking occasioned by his inability to retire his own obligations, no ranking can be admitted at his instance.” Gibb had previously obtained a discharge from his own creditors, on payment of the composition above-mentioned.

This deliverance of the trustee was brought under review by petition and complaint at the instance of Gibb, and the Lord Ordinary on the bills having made avizandum with the matter to the Court, it was maintained by the petitioner:—

The judgment is founded merely on the assumption that the debt claimed in compensated by counter-claims competent to Buchanan and Young against Gibb; and the petitioner's case is made out, unless these counter-claims are established, the onus thereof lying entirely with the trustee. But there is no foundation for the alleged counter-claim. Upon the bill-transactions between the parties the balance of obligation and liability was largely in favour of Gibb, and against Buchanan and Young. And, moreover, under the circumstances of the double bankruptcy, there is no mutual claim of relief as regards these transactions. Both sets of bills have been ranked by the holders on both estates, and no farther claim can be maintained on either side, without substantially giving rise to a double ranking. ¹ If, then, the bill account on either side is extinct, Gibb remains entitled to rank for his cash balance. ²

It was answered by the trustee:—

This is not to be viewed as a case of cross-ranking between two bankrupt estates, although even upon that view the petitioner's claim is untenable; but it is the case of a claim by a solvent individual against a bankrupt estate, and to be governed by the ordinary principles of law, without reference to the peculiar rules applicable to cross-ranking. Admitting Gibb to have a claim for a cash-advance against the estate of Buchanan and Young, he is in the situation of a party against whom, on the other hand, these bankrupts claim relief for cautionary obligations undertaken on his behalf, to the extent of £2800, and on account of which they are themselves distressed and their estate ranked on. Until Gibb relieves their estate of these obligations, by taking the bills for £2800, in which he was the primary obligant, entirely out of the way, he is not entitled to claim against them for the amount of his cash-advance. And this is no more than the ordinary operation of the principle which gives a cautioner a right to resist a demand made by any party, until he is fully relieved of all the obligations undertaken on that party's behalf. Nor can Gibb advance any claim upon his acceptances for the accommodation of Buchanan and Young, these not being in his own hands, but in the hands of third parties who stand ranked for their full amount on the sequestrated estate.