Scottish Court of Session Decisions

This was a suspension brought by Robert Thornton Shiells, architect, Edinburgh, of a charge against him at the instance of Messrs Ferguson, Davidson, & Co., merchants in Leith, to make payment of the sum of £500, with interest at 5 per cent. from 2d October 1874, and of the sum of £19, 11s. 4d., being the taxed amount of expenses of an action in the Court of Session, in the following circumstances:—

The Imperial Building Association was an association with unlimited liability, formed for the purpose of acquiring building-ground, erecting houses thereon, and then selling them. There were seventeen members; and it was intended by the Association that the tenements should be completed by the members of the Association, who were almost all concerned in some department of the building trade; that each of the members so employed in building for the Association should be entitled to receive payment by instalments for the work done by him, upon presenting a certificate from the architect (Mr Shiells the complainer) of the amount done; and that the tenements when completed should then be sold for the benefit of the Association.

Mr Brodie, a builder in Edinburgh, one of the members of this Association, got an extensive contract from the Association. He received payment of various instalments as his work proceeded, and in October 1874 assigned to the chargers a certificate for work executed by him to the amount of £500, granted to him by the complainer on 15th September. This assignation was intimated formally to Mr Garson, the agent of the Association, on 5th November. In the course of a correspondence passing between the agent of the Association and the chargers, assurances were given by the Association's agent that there were ample funds to meet all claims if no obstacle were presented to injure the credit of the parties. But on 28th January 1875 the chargers raised an action against the Association, and against certain individual members or partners of said Association, including the present complainer, for the sum of £500. No defences were lodged, decree was given, and on 16th June 1875 the complainer, who was a member of the Association, was served with a charge for the amount. The estates of the Association had been sequestrated on 11th March 1875.

The complainer alleged that “The said Association is not due the sum sued for, or any sum, to the said William Brodie, or to any person in his right. The said William Brodie was, and is himself, a partner of the said Association. The affairs of the said Association are in an embarrassed condition, and its assets are not sufficient to meet its liabilities. With the exception, moreover, of the present complainer, and one or two others, the whole individual members of the Association are insolvent. The share of the deficit in the funds of the said Association falling to be paid by the said William Brodie, and due by him to the said Association and to the present complainer, is largely in excess of the sum charged for.”

He pleaded—“1. The said Association not being due any sum to the said William Brodie, but being on the contrary his creditors to a large amount, the complainer is not liable as a member of said Association in the sum charged for. 2. More particularly, the complainer is not liable for said instalment, in respect (1) that the said William Brodie failed to complete his contract, and (2) that he is due to the Association, as a partner thereof, a sum in excess of the sum sued for.”

The chargers, in answer, referred to the condescendence annexed to the summons in the action raised by them, which substantially was a narrative of the facts as given above, and pleaded—“1. The said Association being indebted to the said William Brodie at the date of said certificate in the sum charged for, the complainer, as a partner of said Association, was and is liable for said amount. 2. The respondents being now in the right of said sum of £500, and the same being still resting-owing and due as aforesaid, the respondents are entitled to decree therefor against the complainer.”

The Lord Ordinary pronounced the following interlocutor:—

“ Edinburgh, 18 th January 1876—The Lord Ordinary having heard parties' procurators on the closed record, productions, and proof, and having considered the debate and whole process,……Finds as matter of fact (1) that the said William Brodie, the granter of the said draft, order, or mandate, was a partner of the Imperial Building Association, to which that document was addressed; (2) that the £500 covered by the said draft, order, or mandate, was due by said Association for work done for them by the said William Brodie; (3) that before said draft, order, or mandate was intimated—that is to say, before the 15th of October 1874—the affairs of the said Association had become embarrassed, and the said Association, for want of funds had become unable to meet their obligations, as these ought to have been discharged; (4) that in March 1875 the affairs of the Company were placed in the hands of Peter Couper, accountant in Edinburgh, as judicial factor appointed by the Court for the purpose of liquidation; (5) that according to the estimate of the value of the assets of the Association, made by the judicial factor for the purposes of this action, as contrasted with the debts of the Association, calls or contributions from the partners will be required, that funds with which their obligations can be discharged may be provided; and (6) that it has not been shewn, and is at present uncertain, whether the calls or contributions leviable from the said William Brodie will exceed or fall short of the sum due to him for work done for the Association: And, in the fourth place, finds as matter of law (1) that calls or contributions leviable by the said Association from the

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said William Brodie, for the discharge of the debts of the Association, may be set off against the debt due to him by the Association, and consequently against the £500 covered by the said draft, order, or mandate, of which the chargers are now in right; and (2) that as the affairs of the Company are only now in course of liquidation, and it is uncertain whether there is any sum which the chargers, as in right of the said William Brodie, are entitled to recover from the said Association, and from the suspender as one of the partners, all the questions on which parties have joined issue in this suspension cannot at present be determined: Therefore sists the process hoc statu, reserving, however, leave to the suspender, as well as to the chargers, to move that this sist shall be recalled when the mutual liabilities of the said William Brodie and the said Association shall have been or can be definitely ascertained: Finds no expenses of process hitherto incurred to be due either to or by either the suspender or the chargers, and decerns.

Note.—William Brodie, a builder, was a partner of the Imperial Building Association, and he was also a creditor for work done in the erection of three tenements in Prince Regent Street, Leith, which are now the larger part of its property. In September 1874 he received from the architect a certificate to the effect that an instalment of £500 was due under his contract, and the debt thus established he transferred to Messrs Ferguson, Davidson, & Co., the chargers, by the draft, order, or mandate in process. The chargers failed to obtain payment in consequence of the embarrassed state of the affairs of the Association, and, as things went on from bad to worse, these affairs in March 1875 were placed in the hands of a judicial factor for liquidation. The suspender is a partner of the Association, and liable consequently for its debt. He, as well as the other partners, were sued upon the draft, and decree in absence passed against all; but the present suspension was subsequently presented by the suspender, and the same pleas as would have been available had defences been lodged have now been stated as reasons for which the decree so pronounced ought, so far as he is concerned, to be suspended.

The second, and here the most important, of the pleas of the suspender, is to the effect that Brodie is due to the Association as a partner a sum larger than the £500 claimed by the chargers. Brodie was a partner, and, as the Lord Ordinary thinks, there is no doubt that against this debt, which originally was due to Brodie, there might be set off whatever was due by Brodie to the Association. But it unfortunately happens that the mutual liability of Brodie and the Association have not yet been ascertained. The affairs of the Association are only in course of liquidation, and in the meantime it is impossible to say, unless conjecturally, whether there is or there is not due by Brodie, as a partner of the Association, a sum as large as that which is due to him as a creditor of the Association. In this predicament the Lord Ordinary considers that it would be unsafe to give judgment at present upon the plea in question, and therefore the cause has for the present been sisted. This, as he thinks, is the only course by which possible, or rather probable, injustice will be prevented.”

The chargers reclaimed, and argued—If any right of retention is competent to the suspender it must be that which was competent in October 1874; but it was the suspender himself who then certified that £500 was due to Brodie by the Association. There was no notice then given of insolvency.; the Association had not then become Brodie's creditor. The debtor is barred from afterwards stating objections to such a debt if he admits his liability when the assignation is intimated to him; much more is he barred from stating objections that are founded on facts that emerge after the date of the assignation. Esto that the Association had claims against Brodie; these were illiquid and unascertained, and cannot therefore found a plea of compensation. The chargers were also led to believe that the Association was solvent.

Authorities— Parter v. Mackintosh, March 20, 1802, 24 D. 925, opinion of Lord Justice-Clerk; Bedford v. Brutton, Nov. 25, 1834, 1 Bingham, 399.

Argued for the suspender—This is a question really between partners. Shiells and Brodie were both members of the Association, and one is perfectly entitled to say to the other, “We must settle our respective rights by an accounting.” The Association was bankrupt in October, as Brodie, a partner, must be held to have known, and the rights of partners could not be ascertained without an accounting. The assignation could not prejudice the right of the debtor, and as against Brodie he had the rights of one partner in an insolvent company against another.

Authorities—Bell's Com. ii. 131 (M'Laren's ed); Prin. see. 1468; Caven v. Mackie, May 18, 1832, 10 S. 550; Malcolm v. West Lothian Ry. Coy., June 10, 1835, 13 S. 887.

At this stage of the case the Court appointed the suspender to amend his 6th reason of suspension, so that the state of liabilities as between Brodie and the Association, and the financial position of the Association itself, might be clearly ascertained, and appointed answers in four days thereafter.

The suspender put in a minute and a state of accounts, and added to the 6th reason of suspension a statement based on that state of accounts, from which it appeared that on 2d October 1875 there was a deficiency of £3635, 2s. 9d. in the affairs of the Society. The proportion of liability attaching to each share in the hands of solvent members of the Society was £201, 19s. Brodie held three shares; his liability was therefore £605, 17s.

The chargers admitted the correctness of the state, but answered that at the date of 2d October 1875, Brodie, being creditor to the amount of £700, there was a balance of £94, 3s. due to him; and that, besides, the claim of the Association was illiquid and inconsistent at that date, and was not in any way made known to them.

At advising—