Scottish Court of Session Decisions

This was a petition presented by Thomas Jackson, the trustee on the sequestrated estate of Archibald M'Kechnie, who was sequestrated in 1870, when the petitioner was appointed trustee. After realising the estate the petitioner was discharged from the office of trustee in 1873. In 1875 the bankrupt, who had not obtained his discharge, raised an action of damages for slander against W. & J. Mutter, former employers of his, and on 18th March of that year he obtained a verdict of a jury awarding damages to the amount of £400. M'Kechnie's creditors thereupon presented a petition for the appointment of a new trustee, and the petitioner was re-elected on 15th June 1875.

This petition was accordingly brought to have it declared, that the £400 of damages obtained by M'Kechnie was transferred to and vested in the petitioner as trustee foresaid. The trustee's claim was opposed by M'Kechnie.

The Lord Ordinary pronounced the following interlocutor:—

“9 th July 1875.—The Lord Ordinary having heard the counsel for the petitioner and for the bankrupt Archibald M'Kechnie, and considered the petition and whole proceedings, declares all right and interest in the sum of £400 sterling or thereby mentioned in the petition, to which the said Archibald M'Kechnie has become entitled under the verdict of a jury, returned and applied as set forth in the petition, to be vested in the petitioner as trustee on the sequestrated estate of the said Archibald M'Kechnie, as at the date when the said verdict was applied, in terms of the ‘Bankruptcy (Scotland) Act, 1856,’ and decerns. Finds no expenses due to or by either party.

Note.—The estates of Archibald M'Kechnie were sequestrated in terms of the ‘Bankruptcy (Scotland) Act, 1856,’ on 17th December 1870, and the petitioner was elected and confirmed trustee on said sequestrated estates on 29th December 1870. The bankrupt has never been discharged, and the sequestration still subsists.

It appears that the petitioner, as trustee, realised the bankrupt's estates so far as then known to him, and was discharged from the office of trustee on 2d May 1873. Certain of the creditors, however, having recently discovered the existence of funds which they believed to be available to the bankrupt's creditors, they, on 12th May 1875, presented a petition to the Court for the appointment of a new trustee, and, after opposition by the bankrupt and sundry procedure, the petitioner was, on 15th June 1875, re-elected to the office of trustee, and he was on the following day duly confirmed by the Sheriff of Lanarkshire.

The funds which the creditors conceived to be available for the purposes of the sequestration consist mainly, if not entirely, of the sum of £400, which was awarded to the bankrupt by the verdict of a jury returned on 18th March 1875, in an action of damages for slander at his instance against Messrs W. & J. Mutter, distillers at Bowmore, in the Island of Isla, and in Glasgow. The verdict was applied by the Court on 2d June 1875, and the sum of £400 then became due and payable to the bankrupt.

The petitioner, as trustee, has now applied, under the 103d section of the ‘Bankruptcy (Scotland) Act, 1856,’ for a vesting order as regards that sum. By that section of the Act—which is quoted at length in the petition—it is, inter alia, enacted, ‘that if any estate, wherever situated, shall, after the date of the sequestration, and before the bankrupt has obtained his discharge, be acquired by him, or descend or revert or come to him, the same shall, ipso jure, fall under the sequestration, and the full right and interest accruing thereon to the bankrupt shall be held as transferred to and vested in the trustee as at the date of the acquisition thereof or succession for the purposes of this Act.’

The petitioner claims the money as being estate acquired or coming to the bankrupt after the date of the sequestration, and before his discharge. The bankrupt, on the other hand, maintains that as the money has been awarded to him as solatium for defamation, his claim therefor against the defenders of the action was so entirely personal to himself as to exclude all claim upon the fund at the instance of the creditors of the bankrupt. And he relies in support of his contention partly upon a passing observation regarding actions of damages for defamation at the instance of a bankrupt under sequestration, made by the Lord Justice-Clerk (Hope) in deciding the case of Thom v. Bridges and M'Queen, 19 D. 721, but chiefly upon certain English cases, in which it seems to have been held that the assignee in bankruptcy is not entitled to institute in his own name an action for recovery of damages for injury to the character of the bankrupt.—See Beckham v. Gray, 26th July 1847, 2 Clark and Finally, p. 579, and Roger v. Spens, 15 L. J. Exch. p. 69. The principle, however, upon which all these cases was decided appears to be this, that as personal actions of the kind in question frequently involve matters of great delicacy, affecting the feelings, comfort, and reputation, not only of the bankrupt, but of his relatives and connections, it should be left very much to the bankrupt's own discretion whether any action should be raised for the vindication of his character. But that reason ceases to operate as soon as the bankrupt exercises that discretion by voluntarily raising the action, and still more, where, by insisting in the action until he obtains a verdict for damages, he shows his determination to make the whole matter public. It appears to me that a bankrupt who raises such an action before obtaining his discharge does so in the knowledge, if not with the expectation, that in the event of his obtaining a verdict clearing his character and awarding substantial damages, the pecuniary part of the award would be claimed by his creditors. I am unable to see on what intelligible principle money which has been awarded to a bankrupt by the verdict of a jury—no matter on what grounds—and for which he is in a position to charge the defenders against whom he has obtained the verdict to make immediate payment, should not be regarded as estate acquired by or coming to him within the sense and meaning of the statute.

It was indeed admitted at the Bar by the counsel for the bankrupt that the money in the present case must be regarded as if it had been already actually paid to the bankrupt, and had been deposited in bank. But while making that admission, he maintained that the Court is entitled and bound to inquire from what source the money has come, and to refuse to make the vesting

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order if, as in the present case, the money is ascertained to have been acquired as solatium for an injury so purely personal to the bankrupt as defamation. I can see no ground whatever for affirming that contention. The statute declares that the whole estate acquired by the bankrupt before his discharge shall be transferred to and vested in the trustee as at the date of acquisition. No part of the estate acquired is excepted, and acquisition by the bankrupt is declared to be acquisition for his creditors; and on that principle the case of Thom v. Bridges and Macqueen was decided. And farther, even assuming that the judgments in the English cases referred to would be followed as precedents in precisely similar cases in this country, I am of opinion, for the reasons already stated, that they are not applicable to cases in which an illiquid personal claim of damages, depending for its enforcement upon the bankrupt's voluntary exercise of a discretionary power, has been liquidated and converted into money, and recovered by the bankrupt in an action voluntarily raised by himself in the exercise of his discretion. In all such cases the money which he recovers must be regarded as estate acquired by or coming to him within the meaning of the statute. It may be his misfortune that he has not obtained his discharge, either in consequence of his own tardiness in applying for it, or from his inability to comply with the statutory requisites, but the facts that he is still an undischarged bankrupt, and that he has since his sequestration acquired the sum of £400, appear to me to make the claim of the petitioner for a transference of that sum to himself as trustee irresistible. I am therefore of opinion that the prayer of the petition should be granted. I do not think that this is a case for awarding expenses against the bankrupt.”

The respondent M'Kechnie reclaimed, and argued—This was a claim to attach damages obtained in an action for slander raised by an undischarged bankrupt. The fact that he was undischarged made no difference, because if the slander had taken place before bankruptcy it might have injured the estate of the bankrupt and diminished the fund available for the creditors, for one ground of damages in such actions was always the injury done to the slandered person's estate. An illustration might be taken from injury to the person. A man might be able during his sequestration to support his wife and family, but if he met with an accident, could it be held that the trustee could take the sum he got in compensation and let him go to the poorhouse? The right of action was personal to the person injured. In this case he had prosecuted his claim without the aid either of trustee or creditors, and the proceeds of the claim when realised stood in its place, and were equally personal to the bankrupt. The trustee had no title to sue, the claim being personal. It had indeed been held ( Milne v. Gould) that the husband had the sole right to sue in questions affecting his wife's character, but the trustee had not the same interest in the character of a bankrupt ( Neilson v. Rodger). It was difficult to hold that if the trustee was not entitled to enforce the claim he was entitled to take the money. Assuming, however, that the trustee had a claim to this fund, it could only be on the condition of his indemnifying the bankrupt for any liabilities or expenses he might have incurred.

Argued for the respondents—(1) The question of whether the money passed to the trustee was apart from that of whether the trustee had a title to sue. The £400 was clearly “estate” within the meaning of the Act. Suppose the bankrupt had been slandered, and recovered this fund before sequestration, there could be no doubt that the money would have been vested in the trustee.

(2) The claim was one which the trustee could himself have insisted in. Under our law the person slandered had two courses open to him—1. To call for retractation; 2. To demand damages. The first might be personal, the second was not ( Auld v. Shairp). The title to sue was not unalterably attached to the person, and might pass to the trustee under the provisions of the Bankruptcy Act. In England it was settled that the right to sue actions for bodily injury did pass.

Authorities cited— Milne v. Gould, Jan. 14, 1841, 3 D. 345; Neilson v. Rodger, Dec. 24, 1853, 16 D. 325; Smith v. Stoddart, July 5, 1850, 12 D. 1185; Thoms v. Bridges, Mar. 11, 1857, 19 D. 721; Bankruptcy (Scotland) Act, 1856; Auld v. Shairp, Dec. 16, 1874, 2 R. 191.

At advising—