Scottish Court of Session Decisions

Wilson in this action sued Ironside for the sum contained in a bill granted by the latter in favour of the former, before the Sheriff of Aberdeen. The facts, as ascertained by proof, sufficiently appear from the interlocutor of the Sheriff-Substitute (Comrie Thomson), as follows:—“Finds, as matter of fact that the defender on 14th October 1867 executed a trust-disposition for behoof of his creditors, and subsequently offered a composition of 10s. per pound, payable by three instalments, of which the last fell due on 1st January 1869; that said offer was accepted, inter alios, by the pursuer; that at or about the time when the pursuer agreed to accept the said composition the defender said to him that he might get something from him in the future that at or about the 12th December 1867 the pursuer reminded the defender of the said promise, and received from him the bill libelled; that the same was granted by the defender when an undischarged insolvent, to the pursuer, one of his creditors, without the knowledge of the rest of his creditors: Finds, as matter of law, that the said bill constituted an illegal preference in favour of the pursuer over the other creditors of the defender; that the pursuer was not entitled to accept of the preference so constituted, and cannot now enforce the same; assoilzies the defender from the conclusions of the libel, and decerns.

“Note.—The Sheriff-Substitute feels this case to be one of considerable difficulty. It has not been clearly established that the bill libelled was granted to the pursuer with the view of inducing him to accept, still less as a condition of his accepting, the composition offered by the defender. That being so, it seems inequitable that the defender should now turn round and refuse payment on the ground that, although the bill was not intended to create a preference, it did in point of fact operate as such. On the other hand, the defender was not a free man, and the transaction with his creditors was not completed until he had got his discharge. So long as he was undischarged, the bill did, on its face, whatever may have been the intention of parties, operate as an illegal preference; and it is contrary to the policy of the law to sanction anything which disturbs the perfect equality among creditors, which is an essential element of a settlement by composition. The doubts which the Sheriff-Substitute was disposed to entertain are considerably modified by the opinions of the majority of the Judges in the case of the Bank of Scotland v. Faulds, July 8, 1870, 42 Scot. Jurist. 557. Looking to the import of the judgment in that case, the Sheriff-Substitute finds himself unable to decide the present case otherwise than he has done.

On appeal the Sheriff ( Guthrie Smith) reversed this judgment in an interlocutor in which he found “it proved that on 14th October 1867 the defender, being insolvent, granted a trust-deed for behoof of his creditors, and on 13th November made offer of composition of 10s. per pound, which was accepted by his creditors, and for which bills were granted, falling due on 1st January 1868, 1st July 1868, and 1st January 1869: Finds that, in terms of said arrangement, the pursuer, being a creditor of the defender, received from him a bill for £54, 1s. 9d., dated the 13th November 1867, and payable in three instalments as aforesaid, and that thereafter defender granted him another bill for £25, dated the 12th day of December 1867, payable five months after date, being the bill now sued for: Finds that the defender has failed to prove that said bill was granted as an accommodation bill, and that, on the contrary, it was granted to account of pursuer's debt over and above the said composition; and in respect there is no evidence that it was either stipulated for by the pursuer as a condition of his accepting said composition, or was granted by the defender as an inducement to him to accede to said composition arrangement, finds that the pursuer is entitled to recover payment of the said bill: Therefore repels the defences; decerns in terms of the conclusions of the summons.”

He observed in his note—“It is plain that the bill in question was not granted in payment of goods or for any present pecuniary value. The defender says it was an accommodation bill, of which the pursuer obtained the defender's acceptance's by taking undue advantage of the defender's circumstances at the time.’ The proper way of proving a defence of this kind to a bill of exchange is writ or oath. But, with the acquiescence of the pursuer, the Sheriff-Substitute allowed a proof at large. There is no evidence of the defender's statement of the cause of granting beyond his own testimony. It is not shown that the bill was used by the pursuer as an accommodation bill, and the defender's statement is contradicted by both the pursuer and his shopman. The defence therefore fails.

The only other explanation of how the bill came to be granted is that which is given by the pursuer—namely, that it was granted to account of full payment of the defender's debt to him over and above the composition, the defender having previously promised that he would do so. This, it has been lately decided, is a sufficient consideration to support a bill, because every man is morally bound to pay his lawful debts in full— Clark v. Clark, Jan. 5, 1869, 7 Macph. p. 335. ‘It is perfectly competent.,’ said Lord Neaves, ‘for a bankrupt to pay all or any of his creditors in full after his discharge, provided there has been no antecedent stipulation to that effect.’

If the defender had been able to show that when the pursuer agreed to the composition arrangement there was an understanding between them that he was to receive something more than the other creditors, the transaction would have been clearly illegal, and the consideration could not have been supported. But the defender carefully abstains from making any averment to this effect. Indeed he expressly denies it when examined on oath. His whole case is that the bill had nothing whatever to do with the composition arrangement, and the pursuer is no less emphatic in his statement that it was not a condition of his taking the composition that he should get the bill libelled. Considering the relation which subsisted between the parties at the time, slight evidence might have been sufficient to impeach the transaction, but here there is no evidence at all, and therefore decree falls to be pronounced in terms of the conclusions of the summons.”

The defender appealed.

M'Laren for him.

Fraser and Strachan in answer.