Scottish Court of Session Decisions

In September 1870 the estates of Mr James Henderson junior, accountant, Dundee, were sequestrated; and Mr David Myles, accountant, Dundee, was elected and confirmed trustee in the sequestration. In September 1871 the said David Myles presented a petition to the Sheriff of Glasgow, setting forth that Messrs Auld & Guild, accountants there, had claimed in the sequestration upon a debt due to them by the bankrupt, amounting to £3169,16s. 4d., but that, in respect of their holding sixty £10 ordinary shares of the Caledonian Railway Company, belonging to the sequestrated estate, in security of their debt, they valued the security at £147, and after deducting that sum, claimed to be ranked in order to draw a dividend for the balance of their debt—viz., £3022,16s. 4d., and were duly ranked as creditors for that sum. That the trustee subsequently called upon Messrs Auld & Guild to grant a conveyance or assignation of the security above mentioned, but that they declined to do so; and the trustee therefore craved the Sheriff to ordain them to do so, and that at the expense of the estate, in terms of the 65th section of the Bankruptcy Act.

The defence for Messrs Auld & Guild was:—“At and prior to the sequestration of James Henderson, the defenders had acted as his stockbrokers in Glasgow; and, as they were largely in advance for some weeks before his stoppage, they, for their own protection, and according to the practice of the Glasgow Stock Exchange, when a party is unable to pay for and take up shares, got the sixty £10 shares of the Caledonian Railway now in dispute transferred to their own (defenders’) name. Being in their name, the defenders were entitled, according to the rules of the said Exchange, to sell and transfer them, and were liable for all calls made thereon.

The valuation of said shares made in the claim at £2, 9s. was at that date their bona fide market value, but they slowly improved, and have done so ever since. A call was made of £1, 8s. in November 1870, which the defenders were not disposed to pay, and so add to their loss or advances on Henderson's transactions; and accordingly the defenders sold them in the market on 14th November 1870 at £2,18s. (the purchaser to pay the call), the security having thus realised £174 instead of £147, the amount at which it was valued in the claim.

The pursuer, as trustee, did not demand an assignation until he found the security was increasing in value, nor did he offer to relieve the defenders of the calls. The price now proposed to be paid is not a payment out of the first of the common fund of the estate, nor have the creditors in this instance been ranked in order to draw a dividend, as it is well known to the pursuer that no dividend can or will be paid out of the estate.

The defenders are and have all along been willing to credit the estate with the difference between £174 and £147, being the increased value got out of the security, and even assuming that the pursuer was entitled to make the demand for an assignation in February last, not having timeously followed it up, he could only now claim the value as at 4th February (£250), and not a transfer of the shares, which at their current market price are now worth £327.”

The Sheriff-Substitute ( Galbraith) assoilzied the defenders from the conclusions of the summons, and annexed the following Note to his interlocutor;—

“ Note.—There can be no doubt that the statement of law set forth in the petition is a correct statement, and that had the petitioner timeously made the demand now made, he might have succeeded. But to give effect to the prayer of the petition now would amount substantially to this, that when a creditor valued his security, the trustee was entitled to hold off and play fast and loose, selecting his own time for requiring an assignation of the security, or when the subjects happened to be of greater value in the market. It is very plain that the defenders, Messrs Auld & Guild, who are largely creditors of the bankrupt, were entitled, apart altogether from any rule of the Stock Exchange, but according to the rules of common fair dealing, to protect themselves by realising these shares, if realised in a fair market, and there is no suggestion or statement on the other side that they were not so sold. That being so, it follows that they are entitled to debit themselves, as against their credit on the estate, with the difference between £174 and £147. It would be to the

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Sheriff-Substitute's mind an abuse of the bankruptcy statutes to hold that a trustee was entitled at his own will to select the time at which he would call upon the creditors for the assignation of their securities. The right time to ask such assignation is when the claim is lodged, or as soon thereafter as the trustee has to deal with it in ranking; and the fairness of that is very plain, for if the pursuer's contention were a correct one, the trustee would have, during the whole currency of the sequestration, a right to require an assignation, and the creditors who held the securities would have no right, if the contention in this case is sound, to make them in any way available. The Sheriff-Substitute is therefore clearly of opinion that the defenders acted fairly and within the spirit of the statute in dealing with these stocks, and that the petitioner, whether by oversight or other cause, has precluded himself from interfering with the defender's dealing.”

The pursuer appealed to the Sheriff.

The Sheriff (H. G. Bell) adhered, and in his interlocutor pronounced, inter alia, the following findings:—“Finds that no dividend has been declared to be payable by the bankrupt estate; and it is on the contrary instructed by the state of affairs, No. 5/4, and the minutes in the Sederunt Book, that the whole assets will be greatly more than absorbed by certain preferable creditors: Finds that the pursuer did not follow up his requisition on the defenders by the present judicial procedure, to compel compliance with it, till upwards of seven months, his petition not having been presented till 25th August 1871, by which time the Caledonian Railway £610 shares had so advanced in value that sixty were worth £337: Finds that it is enacted by section 62 of the Bankruptcy Act 1856, that ‘it shall be competent to the trustee, with consent of the Commissioners, within two months after an oath specifying the value of a security or obligation or claim has been made use of in voting at any meeting…. to require from the creditor making such oath a conveyance or assignation in favour of the trustee of such security, obligation, or claim, on payment of the specified value, with 20 per cent. in addition to such value;’ and it is also enacted by section 65, being the first section under the statutory heading of ‘ Special rules as to ranking for payment of dividend,’ that ‘the trustee, with consent of the commissioner, shall be entitled to a conveyance or assignation of such security’ (that is the security on which the creditor has put a specified value), ‘at the expense of the estate on payment of the value so specified out of the first of the common fund:’ Finds that no requisition having been made by the pursuer under section 62, it seems extremely doubtful whether the provisions of section 65, which contemplate payment of the value of the specified security ‘out of the first of the common fund,’ can be held to come into operation until such fund has been ascertained and set apart for a division by the commissioners, in terms of the 125th section; and in the present case no dividend had been declared at the date of the requisition, nor has even yet been declared, the whole available assets being apparently swallowed up by certain preferable creditors: But, however this may be, Finds that there is nothing in the statute to prevent a creditor, who has in his affidavit valued a security held by him, from afterwards realising said security before the trustee has required an assignation to it, and in point of fact, the defenders did realise the security before any such requisition was made, and have offered to deduct from their claim, in addition to the deduction already made, the surplus value obtained: Finds that this is all they are bound to do, and it is a sufficient answer to the pursuer that what he now asks is factum impraestabile, he having no right to claim anything but the security itself, and not its proceeds, and having himself to blame for not having availed himself of his opportunity sooner: Therefore adheres to the interlocutor appealed against, dismisses the appeal, and decerns.”

The pursuer reclaimed.

Watson and Balfour, for him, founded upon the 62d and 65th sections of the Bankruptcy Act.

The Solicitor-General for the defenders.

At advising—