Scottish Court of Session Decisions

This is a very remarkable case. The party alleged to have got the fraudulent deeds under reduction was not an ordinary creditor of Robertson. He was cautioner for him under-a building contract at the time when he took the securities for debts due or to become due with reference to that contract. His obligation is in these terms—” And moreover I, William Thomson, clothier in Dundee, do hereby bind and oblige myself, my heirs, executors, and successors, as cautioners, sureties, and full debtors for and with the said David Robertson and his foresaids, that he and they shall well and truly do, execute, and perform, or cause to be done, executed, or performed, the various matters and things incumbent on him and them by these presents, and shall pay, or cause to be paid, any sum and all sums of money that may become payable by him or them in virtue thereof.” That is a very absolute obligation for fulfilment of the contract. In January 1854, the state of accounts brought out a debt due by Robertson to Thomson to a large extent-to the extent, as stated by Thomson, of £2075. But in April, the date of infeftment on the dispositions, it is recorded in Robertson's cash book by Thomson himself, that Robertson had fallen into utter insolvency; for I find a docquet in these terms under date 22d April 1854—“The contractor was so completely prostrated at the period of the last entry as above (having had to part with all his heritable property, worth £100 a year, and his trade, worth £2200 more), that the building had to be carried on and finished by his cautioner. The cautioner can give any additional information that may be required. (Initialed) W. T.” Therefore, under the hand of the defender, we are certiorated that Robertson was utterly insolvent when the securities were completed. I have no wish to press against Thomson anything not in evidence, and I don't think the two deeds were granted for prior debt. They were rather granted for the current account between Thomson and Robertson, and I give Thomson the benefit of the future advances. But what strikes me is this. Thomson as cautioner was bound with Robertson as principal to complete the contract. He was bound for performance and responsible for payment of debt to arise in consequence of non-completion. Were the dispositions not securities to Thomson to cover this debt and protect himself, and so secure an advantage he would not otherwise have got? Down to 1856 the pursuer continues to supply lime, while Robertson's whole property has been taken possession of by Thomson. It was in security of debt due or to become due under the contract to which Thomson was bound that the dispositions were taken. As to Thomson's knowledge of Robertson's insolvency, the docquet I have read is conclusive. When a creditor takes securities for prior obligations with his eyes open, and knowing the state of his debtor's affairs, he does what in the eye of the law is a fraud, and to the prejudice of other creditors.

These grounds do not lead me to the same conclusion as to the issues under the statute. It is not established that the deeds were granted without a just, true, and necessary cause, and therefore the statute does not apply. But though they are not securities for a prior debt, they are for a current contract, and I therefore think that though not reducible under the statute, they are reducible at common law.

Lord Benholme—I concur. The issues at common law present a difficult case, and the difficulty arises because the transaction turns out to be a security in the form of an absolute conveyance, and my doubt is whether it should not be held to be a security for subsequent advances. The ground on which my doubt is rested is this. Thomson entered into a cautionary obligation of an important kind, exposing him to a risk of very heavy loss without obtaining any security. Matters proceeded on this footing, and in the very midst, after Thomson had made large advances, and when he knew that Robertson was insolvent, and had no hope of completing the contract without failing, these dispositions were taken to secure Thomson. The future advances were part of the same system of liability as the prior ones, with this difference only-he had less hope of being reimbursed, because insolvency then stared Robertson in the face, and Thomson knew of this. I think he cannot be held to have been in the position of a third party making advances on faith of security. On the whole, I think the view of the jury is a just one. It is quite plain, in consequence of Robertson's insolvency and his inability to make advances for the Infirmary, that the cautioner had to carry on the contract. He had to make advances for himself, and the question is, arc these advances to be considered as nova debita? I think not. Thomson was bound to make them in justice to himself, whether the securities were granted or not. This is not the case of a man who, on good security being given, makes large advances, and I therefore think that on the 3d and 5th issues the jury have taken the right view.

Lord Neaves—I am of the same opinion. As to the issues founded on the statute, I think the circumstances are not those to which the first part of the Act 1621 is applicable. That part of the Act is intended to reach pretended alienations to a person who is truly a trustee to hold the property conveyed for behoof of the bankrupt, and not dispositions to a creditor, whether his debt be of smaller amount than the property conveyed or not. What is included in the category of fraud at common law is very plain. When a man is insolvent, and knows it, he is barred by the first principles of justice from giving any preference to one of his creditors over another. That this is also the law is stated by Lord Corehouse in the case of M'Ewan and Miller v. Doig, where his Lordship observed, “It is the duty of a person notoriously insolvent to abstain from every act which can affect the preferences of his creditors.” (6 S. 889.) There is no doubt that Robertson was prostrate, and the only nicety in this case is that Thomson began without security, and undertook the whole obligations in the contract without stipulating for any. If it had been a pecuniary bond with Thomson as cautioner, and Robertson had drawn the whole amount, and if Thomson had given Robertson money to fulfil his obligation to the bank, this would not be a novum debitum, but only a security for relief. There might be cases where it would be better for the cautioner to allow the matter to go by the board, but behind the back of every one Thomson takes security for all liabilities past

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