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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Royal Bank v. Purdom [1877] ScotLR 15_13 (26 October 1877)
URL: http://www.bailii.org/scot/cases/ScotCS/1877/15SLR0013.html
Cite as: [1877] SLR 15_13, [1877] ScotLR 15_13
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SCOTTISH_SLR_Court_of_Session
Page: 13↓
Court of Session Outer House.
[Bill Chamber,
v.
Facts:
A bank granted a cash-credit to a firm, for which it held, inter alia, in security, a disposition of certain subjects belonging ex facie of the titles and of the bond to A, one of the partners. When the firm was subsequently sequestrated, the trustee deducted the value of the subjects
_________________ Footnote _________________
* Decided June 16.
Page: 14↓
This was an appeal by the Royal Bank of Scotland against a deliverance of Robert Purdom, the trustee on the sequestrated estates of A. J. & H. Donaldson, oil extractors in Hawick, and Archibald Johnston Donaldson and Henry Donaldson, the individual partners of the company.
The Royal Bank claimed to be ranked in order to draw a dividend on the company estate of Messrs A. J. & H. Donaldson for £16, 795, 14s. 9d. The trustee, by his deliverance, dated 6th December 1875, admitted the claim, but only to the extent of £7650, 19s. 8d., the amount of the sum claimed after deducting (1) £9000, the value of certain heritable subjects in Hawick which were disponed to the appellants by A. J. Donaldson in a bond and assignation and disposition in security, dated 25th December 1874; and (2) certain other sums which it is needless to particularise. The ground upon which the trustee proceeded was that the subjects which were held in security by the Bank were the property of the company, and not of the individual partner A. J. Donaldson.
Ex facie of the titles, A. J. Donaldson was proprietor of the subjects, which consisted of two lots of buildings in Hawick, both of which were occupied by the company for the purpose of their works. He held the first under a disposition by the trustees of the Hawick Gas Light Company in his favour dated the 6th and recorded the 10th October 1871. He held the second under a disposition by the trustees of the late William Lindsay Watson, with consent therein mentioned in his favour, dated the 14th, 21st, and 26th February and recorded 4th March 1872. There was nothing in the dispositions to show that A. J. Donaldson held the subjects in trust for the company. In 1874 the Royal Bank agreed to grant a cash-credit to the company for advances to the extent of £13, 000. By the cash-credit bond, which was dated 5th December 1874, A. J. Donaldson and Henry Donaldson, the individual partners of the company, obliged themselves, both as partners of the company and as individuals, to pay to the appellants the sum which might be due to them under the cash-credit, and in security thereof they severally conveyed to the appellants certain policies of insurance effected by them on their respective lives; and in further security, A. J. Donaldson, with consent and concurrence of the copartnery and partners for all or any right or interest they might have in the heritable subjects, disponed to the appellants heritably but redeemably, but irredeemably in the event of a sale, the said subjects above mentioned.
A record was made up in the Bill Chamber and in the condescendence for the appellants it was, inter alia, stated that “The said Archibald Johnston Donaldson was, at the date when the security to the bank was granted, proprietor of the said heritable subjects whose value is estimated at £9000, and they were by the said bond and assignation and disposition in security conveyed to the bank as belonging to his individual estate and not to the estate of the company of A. J. & H. Donaldson. The respondent has erroneously rejected the claim of the appellants on the estate of the said company, in so far as they have not deducted the value of the said heritable subjects in making their claim of ranking for a dividend.”
The respondent averred that it was only for convenience that the title to the property in question was taken in name of the senior partner A. J. Donaldson, and that it truly belonged to the firm, and had been paid for from the funds of the firm, or raised by its acceptances. The firm had further spent upwards of £10, 000 upon it in new plant and buildings, no part of which was paid from the separate estate of the partners. The property was invariably treated as the firm's property in their books, balance-sheets, &c. The interest on the heritable debt was paid by the firm, and the rents received from tenants of the property were credited to the firm. In the proposal and acceptance for the cash-credit the said works were stated to be the property of the said firm, and were known to be and dealt with by the bank as such.
It was pleaded, inter alia, for the appellants—“(2) The respondent's statements are not relevant or sufficient to be admitted to probation. (3) The respondent's allegation that the said heritable subjects were held by the said Archibald Johnston Donaldson as trustee for the company of A. J. & H. Donaldson, can only be proved by the writ of the alleged trustee. (4) In any view, the respondent is not entitled to a proof at large, but only to a proof by writ or oath.”
The Lord Ordinary on the Bills ( Rutherfurd Clark), by interlocutor dated 26th February 1876, allowed the respondent a proof of his averment that when the bond and disposition in security was granted the subjects in question belonged to the company, but limited such proof to the writ of A. J. Donaldson, and quoad ultra allowed both parties a proof of their averments.
The purport of the proof appears from the note of the Lord Ordinary ( Adam), appended to an interlocutor by which his Lordship sustained the appeal, recalled the deliverance appealed from, and found the appellants entitled to be ranked and draw a dividend without deducting the value of the subjects named above, “but reserving all questions which may be raised as to the claims of Messrs A. J. & H. Donaldson for meliorations, as well as to any right they may have to remove the plant erected by them in connection with the said heritable property.”
The following was the Lord Ordinary's note:—
“ Note.—…The question in this case is whether, in terms of the 65th section of the Bankruptcy Act, the appellants are bound to deduct the value of their security over these subjects from the amount of their claim as being a security held over a part of the estate of the bankrupts.
Two questions of fact were argued to the Lord Ordinary. First, whether it was proved by competent evidence that the subjects of the security were at the date of the cash-credit bond not the property of A. J. Donaldson, but were held in trust by him for the company: and second.
Page: 15↓
The Lord Ordinary thinks that the only documents which have been produced which can be competently founded on as the writ of A. J. Donaldson are the books of the company and the letter of 16th October 1874, addressed by him to Messrs Robertson.
The Lord Ordinary does not think that under the allowance of proof in this case, bills and other documents which no doubt are the writ of A. J. Donaldson, but which bear nothing on their face to show that they have any connection with the subjects in question, or with the terms on which they are held, can be competently proved by parole to have been in point of fact granted in payment of the subjects or of work and material supplied to the works carried on therein, and so made available for the purpose of proving the alleged trust. Bryson v. Crawford, November 14, 1833, 12 S. 39; Johnston v. Scott, January 18, 1860, 22 D. 393; Evans v. Craig, June 6, 1871, 9 Macph. 801; Thomson v. Lindsay, October 28, 1873, 1 Rettie 65.
The books, however, of the company show that the subjects were treated therein as being the property of the company, and in particular the plant account in the ledger commences with the following entry, of date “1873, June 30, To value of plant at Damside and Teviotside, including all buildings, stills, presses, engines, boilers, refrigerators, tanks, and everything not included in stock of grease and oil as per valuation of this date, £16, 025, “thereby clearly showing that the buildings as well as the machinery, &c., were treated as the property of the company.
The letter of 16th October 1874, addressed to Messrs Robertson, of Glasgow, which is signed by A. J. Donaldson, is written to them for the purpose of showing the solvency of the company, and with that view bears to set forth the amount of the company's assets. The first asset specified is the “value of our two works at Hawick, including plant at lowest working estimate, £16, 000, ” and the letter throughout clearly represents these works as being the property of the company. It is true that the letter falsely understates to a large amount the debt for which the works were liable, but the Lord Ordinary thinks that the letter may be taken as evidence against the writer that the works were the property of the company, and not his own. It is true that the effect of the evidence thus afforded by the statements and entries in the letter and books might have been removed by contrary evidence, but there is no such evidence, and the Lord Ordinary therefore thinks that it is sufficiently proved that at the date of the cash-credit bond the subjects in question were the property of the company, and were held by A. J. Donaldson in trust for them.
As regards the question whether the appellants knew at the date of granting the cash-credit bond that the subjects were not the property of A. J. Donaldson, but were held in trust for the firm, the evidence shows, as regards the directors of the Bank, that they did not concern themselves at all as to who were the proprietors of the subjects, all that they looked to was that they should obtain a valid security over the subjects. As regards their agents, Messrs Dundas & Wilson, it appears that they had no knowledge except what they derived from the titles, and that they prepared the cash-credit bond on the footing that A. J. Donaldson was, as he appeared there from to be, the owner of the property.
As regards their local agent, Mr Hadden, it appears that while he frequently spoke and wrote of the subjects as belonging to the company, he had no actual knowledge as to the proprietorship of the subjects, and that from and after the time when the titles were sent to him to prepare the cash-credit bond, and he saw that A. J. Donaldson was feudal proprietor of the subjects, he believed him to be the real owner. The Lord Ordinary is therefore of opinion that the respondents have failed to prove that the appellants knew that the subjects were held in trust for the company.
The Lord Ordinary, however, is disposed to think that it is not material for the decision of this case whether the appellants knew or did not know the fact, because he thinks that the rights of parties must be determined by the terms of the cash-credit bond, which specifies the particular security which the appellants agreed to take, and received.
By that bond A. J. Donaldson dispones the subjects in security as absolute proprietor of them, his right and title being unqualified by any trust. Assuming that, nevertheless, the subjects were truly held by him in trust, but that the appellants did not know it, then the Lord Ordinary is of opinion that their rights as creditors can not be controlled by any latent trust existing in favour of the company. Redfearn v. Sommervail, 5 Paton's App. Cases, p. 707.
But if the subjects were the property of the company to the knowledge of the appellants, still A. J. Donaldson, as ex facie absolute proprietor of them, was in the position of being able to grant a valid security over them for his own individual debts, and as the company consented to the subjects being so disponed in security, they, or the respondent as representing their sequestrated estate, cannot now object to its receiving effect. A security given over the estate of the individual partner is of different value from that given over the estate of the company, because in the event of the sequestration of the company the creditor is not bound to value and deduct the security in ranking on the estate of the company. But what the respondent now proposes to do is to alter the right of the security holders competently granted to them by A. J. Donaldson as an individual, to one granted by the company. That it now appears that the security to which the company consented is prejudicial to the interests of the creditors of the company seems to be no sufficient ground for doing this. The subjects in question were not at the date of the sequestration, in the sense of the 65th section of the Bankruptcy Act, any part of the estate of the bankrupts. They were then vested in A. J. Donaldson, and the right of the respondent was to demand from him a conveyance of the subjects vested in him, but subject only to all rights and burdens validly constituted upon them, of which the security in question is one. M'Lelland v. The Bank of Scotland, February 27, 1857, 19. D. 574.
The recent case of the British Linen Company v. Gourlay, March 13, 1877, 14 Scot. Law Rep. 416, is an authority to the effect that the security having been obtained from A. J Donaldson, who
Page: 16↓
This interlocutor was acquiesced in.
Counsel for Royal Bank (Appellants)— Mackay. Agents— Dundas & Wilson, C.S.
Counsel for Trustee (Respondent)— Maclean—A. J. Young. Agents— Fyfe, Miller, Fyfe, & Ireland, S.S.C.