Scottish Court of Session Decisions

This was a competition arising out of a multiple-poinding about which there had previously been a great deal of litigation. The facts of the case are briefly these:—Miss Ritchie was found entitled by interlocutor of the Second Division of the Court of Session, dated 20th July 1865, to the sum of £3000, but subject to her mother's liferent of £1000 thereof. The £3000 was settled upon Miss Ritchie in liferent, and upon her children in fee. She was further found entitled to the sum of £500 in fee, with interest at the rate of 4 per cent. from the term of Martinmas 1860. Miss Ritchie was married in July 1867 to Mr John Mackay, writer, Edinburgh. In April 1868 Mr and Mrs Mackay borrowed a sum of £500 from the City of Glasgow Life Assurance Company, and granted a bond and assignation in security, whereby they assigned (1) a policy of insurance on the life of Mrs Mackay in favour of John Mackay for £550; (2) the beneficial right and interest of Mrs Mackay in the £3000; and (3) the husband's whole right in the sum of £500. On 27th October 1869 Mackay's estates were sequestrated, and Mr Molleson, C.A., Edinburgh, was elected trustee on the same. On 23d June 1871 the General Life and Fire Assurance Company advanced a sum of £700 to Mackay in ignorance of his bankruptcy, £500 of which was applied in paying off the loan by the City of Glasgow Life Assurance Company. The General Assurance Company took a new bond from the bankrupt and his wife for repayment of the loan, obtained a discharge of the security by the City of Glasgow Company, and had assigned to them the same securities as were held by the City of Glasgow Company. In these circumstances, Mr Molleson came forward and claimed the £500, which, with interest, had increased to £740, on the ground that that sum was vested in him as trustee on the bankrupt's estate on the burden in favour of the City of Glasgow Company being discharged. The General Assurance Company also claimed the £500, on the ground that they had advanced the £700 in ignorance of the bankruptcy. The arrangement was, they averred, that they were to receive the whole rights and securities held by the City of Glasgow Company, and contended that their money having been taken to pay off the loan to that company, they were entitled to be preferred.

The Lord Ordinary pronounced the following interlocutor:—

“ Edinburgh, 27th January 1873.—The Lord Ordinary having considered the cause, sists the said James Alexander Molleson, and the said Thomas Challis and others, trustees of the said General Fire and Life Assurance Company, as parties to the action, in terms of their minutes and claims Nos. 204 and 208 of process, and in the competition between these parties, repels the claim of the said James Alexander Molleson, and ranks and prefers the said Thomas Challis and others, trustees of the said General Fire and Life Assurance Company, as representing the said Euphemia Ritchie, now Mackay, and John Mackay, her husband, for his interest, to the said sum of £500, and interest thereon, to which the said Euphemia Ritchie, now Mackay, was ranked and preferred by the preceding interlocutor of 20th July 1865: Finds the said Thomas Challis and others, trustees foresaid, entitled to the expenses incurred by them in the competition with the said James Alexander Molleson; allows an account thereof to be given in, and remits the same, when lodged, to the Auditor to tax and to report.

Note.—By interlocutor of 20th July 1865, in this case, the Court ranked and preferred the claimant Miss Euphemia Ritchie to the sum of £500, with interest from Martinmas 1860. In July 1867, Miss Ritchie married Mr John Mackay, now residing at Inverleith Row.

Mr and Mrs Mackay, in April 1868, borrowed a sum of £500 from the City of Glasgow Life Assurance Company, and on the 27th of that month granted a bond and assignation in security, being No. 212 of process, by which, after acknowledging receipt of the amount of the loan, and binding themselves for repayment in the terms in which such obligations are usually granted by married persons, they assigned in security of repayment the beneficial right and interest of every description of Mrs Mackay, and of her husband through her, in the trust-estate and effects of the late Andrew Sceales, being a liferent right in a sum of £3000, which she then held, and now holds, exclusive of the jus mariti of her husband, and her right to the said sum of £500, over which her husband's jus mariti extended.

In November 1869, the estates of Mr Mackay were sequestrated under the bankrupt statutes, and the claimant Mr Molleson, C.A., was elected and confirmed trustee in the sequestration.

The security in favour of the City of Glasgow Assurance Company continued to subsist until 23d June 1871. On that date a sum of £700 was advanced by the claimants, the General Life and Fire Assurance Company, £500 of which was applied in paying off the loan by the City of Glasgow Company, and the balance paid to Mr and Mrs Mackay. In place of taking an assignation to the subsisting security, the claimants, the General Assurance Company, obtained a discharge of the security by the City of Glasgow Company, and a new bond and assignation in security by Mr and Mrs Mackay, in their own favour, for the full sum of £700, and by this deed in security of the personal obligations by the granters for repayment of the money there was assigned to the lenders inter alia the same beneficial right and interest of Mrs Mackay, and her husband through her, in the trust-estate and effects of Mrs Sceales, in the same terms as these rights had been assigned to the City of Glasgow Company.

Page: 316↓

In this state of the facts, Mr Molleson, the trustee on Mr Mackay's estate, has come forward, and by minute and claim, lodged on 18th October last, he asks decree in his favour for the sum of £500 above mentioned, with the interest which has accrued on it. The argument for the trustee in support of his claim is shortly this, that at the date of the sequestration Mr Mackay's right through his wife to the sum of £500 became vested in the trustee in his sequestration for behoof of his creditors, subject only to the burden of the assignation in security which had been granted to the City of Glasgow Company, and that although this security subsisted to the exclusion of any benefit or advantage to the creditors down to 23d June 1871, yet on that date, by the discharge of the security granted by that company, the only burden which affected the right was extinguished, while an absolute right to the money remained in the trustee. It is maintained that the new assignation in security then granted in favour of the other claimants, the General Assurance Company, is ineffectual, because Mr Mackay, having been divested of his estates, had no power thereafter to grant a valid assignation to the sum of £500.

The other claimants, the General Assurance Company, maintain that by the transaction entered into by them, as now explained, and the relative deeds, they have acquired right to the money, and that the trustee in the sequestration cannot effectually found upon that transaction as having enlarged the bankrupt's estate for division among his creditors. The Lord Ordinary is of opinion that the Assurance Company are right in their contention. It may be assumed that if Mr Mackay, from funds to which he had acquired right by succession or otherwise, or even which he had borrowed without coming under an obligation to give the lender the benefit of the subsisting security in favour of the City of Glasgow Company, had paid off the loan to that company and taken a discharge of it, and had some days thereafter borrowed the amount which he had obtained from the General Assurance Company, any assignation of the fund now in dispute would have been worthless, because the absolute right to the fund, discharged of the security which had subsisted over it, would in the interval have vested in the trustee in the sequestration.

But the case which has occurred, and in fact raised the present question, is, in the opinion of the Lord Ordinary, essentially different from this.

The creation of the new loan took place simultaneously with the settlement with the former lenders. The claimants, the General Assurance Company, in their negotiations with Mr and Mrs Mackay agreed to lend the sum of £700 only on condition that the money advanced by them should to the extent necessary be applied in payment of the debt to the City of Glasgow Company, with a view to their own security, and that they should get the benefit of the securities which that company held. In virtue of this agreement, it is not disputed that, on paying the debt due to the City of Glasgow Company, they were entitled to the benefit of the securities which that company held. If they had thought fit, they might have taken an assignation to these securities, in which case the trustee could have had no possible claim; but it is said that by the form in which they carried through the transaction, taking a discharge of the old security, the trustee's right has emerged. The Lord Ordinary cannot adopt the view that the form of the transaction, rather than its substance, is to determine the rights of the parties, or hold that, because the new lender, through ignorance or want of care, completed the transaction in the particular way in which he did, when an assignation would have secured him, the trustee—who had no personal concern with the transaction—is to reap the large benefit claimed, to the detriment of the creditors advancing the money. The case is not like that of a creditor who has per incurium failed to complete a security by registration or otherwise before bankruptcy. In such a case the trustee founds merely on the omission of the creditor to do an act necessary to complete his own right, while here the trustee further claims the entire benefit of a payment made by the creditor with his own funds.

Accordingly, even in the form in which the transaction was carried through, the Lord Ordinary is of opinion that the trustee's claim is excluded. It is not said that in the transaction the bankrupt, Mr Mackay, intervened in any way. On the contrary, the claimants, the General Assurance Company with their own funds paid the City of Glasgow Company directly, and took the discharge from them, with which they have never parted, but which they obtained as their writ or voucher for the payment, and still hold. Having made this payment, the balance of the loan only was handed over to the borrowers, Mr and Mrs Mackay. This state of the facts is not disputed, but if any question on the subject had arisen, then it would have been competent to ascertain the actual circumstances by proof prout de jure. See Fairbairn, 6 Macph. 640.

Can the trustee, in the circumstances now stated, plead on the discharge as conferring a benefit on him? The Lord Ordinary is of opinion that he cannot. The new transaction was conditional on the creditor getting the benefit of the old security. The discharge was not delivered to the bankrupt, and if several days had elapsed after the date of the discharge, and before the completion of the transaction, Mr Mackay could not, in the meantime, have insisted on delivery of the discharge, or taken the benefit of it to the effect of obtaining payment of the money from Mrs Sceales' trust. He was equally precluded from taking such benefit when the transaction was completed, and the Lord Ordinary is of opinion that, in the circumstances, the trustee is in no better a position.”

The trustee reclaimed.

At advising—