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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Rose v. Falconer [1868] ScotLR 5_617 (26 June 1868)
URL: http://www.bailii.org/scot/cases/ScotCS/1868/05SLR0617.html
Cite as: [1868] ScotLR 5_617, [1868] SLR 5_617
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SCOTTISH_SLR_Court_of_Session
Page: 617↓
Court of Session Inner House Second Division.
v.
Facts:
Circumstances in which held that a payment was voluntary in the sense of the Act 1696, and therefore voidable.
This was an advocation from the Sheriff-court of Inverness. The object of the original action— which was at the instance of Mr George Rose, corn merchant, Inverness, as trustee on the sequestrated estate of John Williams, baker, Inverness—was the reduction of a payment of £60 which the bankrupt had made to the defender within sixty days of bankruptcy. It appeared from the proof led before the Sheriff-substitute that on 1st November 1866 the bankrupt applied to the defender for a loan of £60, and that the defender accordingly drew a bill for that sum at three months’ date, which was accepted by the bankrupt, and discounted by him. It further appeared that at the same time the bankrupt verbally promised to the defender that he would pay the £60 as soon as he was able, without reference to the time when the bill fell due, and said that very probably he would be in funds to enable him to do so within a month. Accordingly, in December 1866, the bankrupt paid to the defender £60 to enable him to retire the bill; and thereafter, on 8th January 1867, his estates were sequestrated.
In these circumstances the trustee on the sequestrated estate brought the present action to have the transaction reduced as illegal and prejudicial to the other creditors both at common law and under the Statute 1696.
The Sheriff-substitute ( W. H. Thomson) gave effect to the pursuer's pleas, and reduced the transaction as illegal under the Act 1696. His Lordship was of opinion that, as no collusion had been proved to exist between the bankrupt and the defender, and no intention on the part of either of them to defraud the creditors, the pursuer had no case at common law. The promise to pay within the month was so vague and conditional that it did not come up to an obligation so to pay; and. consequently, the transaction itself must be considered voluntary on the part of the bankrupt, and as such was struck at by the Act. Nor could it be said to be of the character of a payment of a debt by cash in the ordinary course of business; the money was paid as a provision or security.
The defender appealed to the Sheriff-depute ( Ivory), who altered the interlocutor of his Substitute, and found in point of law that the payment of the £60, having been made in implement of the obligation undertaken by him at the date of the original transaction, was not voidable under the Act 1696, c. 5, or at common law, but was a legal and valid payment.
His Lordship was of opinion,—on the authority of Taylor v. Farrie, 8th March 1855; The Bank of Scotland v. Ross, and Lindsay and Shield, 19th March 1862.—
Page: 618↓
that a payment made by a bankrupt within sixty days of bankruptcy, in specific implement of an obligation undertaken beyond that period, was not struck at by the Act 1696. The truster advocated.
Young and Macintosh for him.
Clark and Asher in answer.
At Advising—
Lord Justice-Clerk—In this case the advocator, who is trustee on the sequestated estate of John Williams, seeks to set aside a payment of £60 made by the bankrupt to the respondent Falconer within sixty days of bankruptcy. It appears that the respondent had become drawer and indorser for the accommodation of the bankrupt of a bill for £60, dated on the 1st November 1866, and payable on the 1st February thereafter. While this bill was current, and on or about the 10th December, the sum of £60 was paid by the bankrupt to the respondent, while the bill was current. The bill had been discounted at its date, and was then held by the Bank of Scotland. The object of the bankrupt was to put his creditor in the obligation of relief in possession of a fund securing the payment of the bill when it should fall due. It was so used by the respondent. The trustee's challenge of this transaction was laid on the ground of the payment being a fraud against the bankrupt's creditors at common law, as well as being done in violation of the Act 1696. The first ground of challenge admittedly fails; the question is, whether the challenge under the Act 1696 is good. The Sheriff of Inverness, altering the judgment of his Substitute, repels this ground of challenge.
The bankrupt gave to the respondent a portion of his estate to the extent of the sum paid to secure him against the consequences of his obligation in relief contracted by the drawing and indorsing of the £60 bill. The circumstances, so far as regards the facts founded on by the trustee, clearly bring the case under the authority of Speir v. Dunlop. Accordingly, it is not disputed that, but for a special ground of defence taken by the respondent, the transaction must be set aside.
That special ground is, that the payment made was not a voluntary payment made by the bankrupt in the sense of the Act 1696, but a payment under the compulsion of positive obligation—that obligation having, it is said, been contracted at the time of the transaction under which the respondent agreed to accommodate the bankrupt, and having formed a consideration relied on at the time. It is therefore contended that the payment, as being merely an implement of a special engagement — part of the transaction — is saved from challenge under the doctrine given effect to in the case of the Bank of Scotland v. Smart and Ross, February 1811, and which case is recognised as a good decision in the recent case of Taylor and Farrie.
The advocator also disputes the doctrine that acts done by the bankrupt during the period of constructive bankruptcy can be protected by reference to antecedent obligation; and, on the authority of the case of Inglis v. Mansfield, maintains that the only protection given is to securities so far completed before the sixty days of constructive bankruptcy as to admit of being completed without the act or intervention of the bankrupt. And he denies also that there is any ground in fact for applying the doctrine here, even if it is held to be sound.
It appears to me that the latter contention of the advocator is well founded, and, therefore, that it is not necessary for the determination of this case to enter upon the question so largely and ably argued before us, as to what the state of the law might have been had it been true that the transaction here truly proceeded upon a state of the fact raising the question. It would require very serious consideration before coming to a conclusion, that the approval of that judgment in the opinion of the judges in Taylor and Farrie, and the principle on which it rested, was erroneous; but the question does not arise here. As I regard the facts of the case there is no room for the application of the principle at all.
In the case of the Bank of Scotland, an advance was proved to have been made on the faith of a security, the property of the borrower. The title-deeds were handed over at the time of the loan in order to the completion of the security. The execution of the deed effectuating the security was delayed, and the completion came to be within the period of constructive bankruptcy. The security was supported because there was a clear positive obligation in the very contracting of the obligation to grant it. The security was exigible instantly, was definite, and it was a right over a specific subject. The bankrupt was under an obligation enforcible by action. Immediate decree fell to be pronounced against him, and he was liable to imprisonment on the decree—to be obtained on delay or failure to implement the decree when obtained. It required no previous investigation to ascertain if the obligation was or was not prestable under the circumstance in which the supposed action would be brought. It required the occurrence of not any event, even of such act as a demand for the security, to render it a duty to grant it. The security was definite and precise. The circumstances of the present case disclose a condition of the facts wholly different.
The security, as it must be called, was the deposit of a sum of money in order to meet a current bill due about two months after security was given. I see no evidence which can warrant our coming to the conclusion that there was any engagement for constituting a security at all by way of depositing a sum of moneyin the hands of the respondent. From the evidence of the respondent himself, it appears that, it having been proposed by the bankrupt to him to lend him £60 in cash, he offered his name to a bill at a month, and that in reply the bankrupt said “Make it three, in case I shall not have money in a month, but as soon as I have money I shall pay it.” That is what passed in words. We have a statement of the respondent's understanding that the whole matter as constituting the arrangement is this—that if the three months bill is signed, it, that is the bill, will be paid as soon as the bankrupt might have money to pay it. This is not a provision by way of deposit, but a payment of the bill, which confessedly was not paid, nor meant to be paid, till February. Nor is this of the nature of an obligation instantly and unconditionally enforceable. Suppose an action, by the respondent on the date of payment against the bankrupt for obtaining a security for the bill due two months after the execution of the act by a deposit of £60 in his hands to await the maturing of the bill—the ground of action that when the pursuer gave his name to accommodate the defender by drawing a three month's bill, he told him that he would pay the bill as soon as he had money to pay it. How could such a conclusion be extracted from the statement of such premises? How could
Page: 619↓
The respondent speaks as to the understanding. He says that the understanding was that he should pay the bill whenever money came into his hands. Understanding and obligation are by no means the same. An expression of intention on the part of the bankrupt would create an understanding, but would fail to create an obligation enforceable at law; and an understanding, or even an obligation to pay when one shall have money to pay, is one which could not form the basis of an action. What kind of decree would it be to decern a debtor to pay when he could.
The statement of the respondent is enough, as it appears to me, for the disposal of the case against him. As might be expected when the constitution of the supposed obligation is only verbal, the import of the conversation between the parties at the time slightly differs. He says that the arrangement was not to pay it, that is, the bill, but to pay him, that is, the respondent, the £60, but after that he says that “he was to pay the money so soon as I should have it.” “I told him,” he subsequently says, “that I would pay him as soon as I could.” It seems to me to require a great deal of ingenuity to extract an obligation to any effect out of such an assurance. It is certain that no obligation was come under of a tangible description, or one clear or fixed as to period or in any way within the reach of legal compass. It would certainly appear to be a strange reading of the Act of 1696 to hold that an assurance given that something would be done, and when the debtor should be in a position to do it, should constitute an obligation, and take the act done out of the operation of the Statute. Loose understandings proved by conversations would form a very easy method of dispensing with the operation of the Act. So little faith can be put in such ‘understanding’ that we have here the fact that the two parties flatly contradicted each other as to a similar ‘understanding’ existing in respect of a whole class of other bills. Surely something of a very different character must be proved before supporting an appropriation to one creditor of a portion of the estate in security of an obligation not then pushed.
Such an assurance as this seems to have been here practically and substantially leaves the alleged obligant to do the act or not to do it just as he pleased. He is in no way bound or fettered. There was, at the date of its constitution, no pressure from any definite, precise, or tangible obligation, and therefore the payment must, I think, be viewed as voluntary and so made in violation of the Act 1696.
The other judges concurred.
Solicitors: Agents for Advocator— Gibson-Craig, Dalziel & Brodies, W.S.
Agents for Respondent— Murdoch, Boyd & Co., W.S.