Scottish Court of Session Decisions

The estates of Edwin Kelly, spirit-dealer, Glasgow, were sequestrated on the 19th December 1876, and the respondent W. T. Duncan, C.A., Glasgow, was elected trustee. The appellants John Aitchison & Company, brewers, Edinburgh, lodged a claim for £224, 6s., being the alleged balance of an account for ale and beer sold by them to the bankrupt. The trustee pronounced the following deliverance—“The trustee admits the claim, subject to deduction of the customary trade discount, in terms of section 52 of the Bankruptcy (Scotland) Act 1856.” The rate of the deduction was afterwards stated to be 30 per cent.

The 52d section of the Bankruptcy Act 1856 was as follows ( reads as in rubric).

The corresponding section of the Act of 1839 (2 and 3 Vict. c. 41), viz. sec. 32, is—“If a creditor claim for a debt with bygone interest, he may in his oath accumulate the interest as at the date of the sequestration, and he shall specify the amount of the interest, and also of the accumulated sum, but he shall not be entitled to claim

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* Decided January 28,1879

Page: 414↓

on the estate for interest either on the principal debt or on such accumulated sum after the date of the sequestration; and if a creditor claim for a debt which is not payable till after the date of the sequestration, he shall in his oath deduct the legal interest thereon from the date of the sequestration to the time of payment, and specify the balance, and if he claim for a debt which by usage of trade is liable to a discount of more than legal interest, he shall in his oath state the amount of such discount, and deduct it from the debt and specify the balance, “&c.

Messrs Aitchison appealed.

The Sheriff-Substitute ( Erskine Murray), after a proof, recalled the deliverance of the trustee, and ranked the appellants to the full amount of their claim. The nature of the proof appears sufficiently from the following note which the Sheriff added to his interlocutor, and also from the opinion of the Lord President infra.

“ Note.—The appellants John Aitchison & Company, brewers, Edinburgh, for several years sold goods to the bankrupt Edwin Hugh Kelly on the footing of 30 per cent, discount on payment in three or four months. From the previous dealings the practice appears to have sometimes varied by a longer period of payment in regard to earlier items being balanced by a shorter in regard to later items, which is usually called a six months' (or four or three months, as the case may be) running account. Several accounts were paid by Kelly to appellants. Ultimately Kelly became bankrupt, and appellants claim on his estate for a balance of £224, 6s. 1d. on an account beginning in June 1875 and ending in October 1876. The respondent W. T. Duncan, the trustee, has refused to rank the appellants in full, and only consented to admit the claim ‘subject to the usual trade discount.’

Two questions arise under the appeal—first, the relations of parties irrespective of section 52 of the Bankruptcy Act; and, secondly, whether the result is modified by the provision contained in that clause. It is impossible to separate entirely the consideration of these two points.

It is clear from the evidence that the discount between the parties was not, properly speaking, an ordinary discount at all. It was not a concession given in respect of money being paid at an earlier date than it would otherwise have been paid. But neither, on the other hand, was it an absolute fixing of the real price at a lower rate than the apparent price, which is the meaning of a trade discount, as in the case of wholesale buyers. It was a bargain between seller and buyer, by which the seller, in order to secure the buyer's custom, agreed that if the buyer paid the price within a stipulated time he should have the right of demanding that a certain deduction should be made. Besides, while the amount of the deduction in this case was 30 per cent., the evidence shows that different brewers vary greatly in their terms, and each brewer varies the terms given by him to different customers, according to their position, circumstances, and characters. Thus there is no fixed rate of such discount, the amount of deduction varying with the eligibility of the customer, and the profitableness of his custom to the seller. The bargain goes no further; it does not bind the seller to make the deduction although the stipulated time be past. The buyer's absolute right to the deduction ceases at the expiration of the term fixed. No doubt the seller may, and as a matter of fact generally does, still make the deduction after the stipulated time is past, if there is anything to be gained by it, but he is under no obligations to do so. He does so for his own advantage, with a view to further orders, for the same reason that he gave the original concession. But after the expiry of the term bargained for he is free to act as his own interests may suggest, and if further business is hopeless or unlikely he refuses to allow some or all of the lapsed discount. Such circumstances arise in other cases besides those of bankruptcy, and therefore it cannot be said that this is simply an attempt to rear up an unlawful preference by making that due in case of bankruptcy which would otherwise not be due at all.

As regards the second question, section 52 of the Bankruptcy Act provides that every claim shall ‘be liable to deduction of any discount beyond legal interest to which his claim is liable by the usage of trade applicable to it.’ Now, as has been noticed above, there is here no special trade discount—one brewer gives 30, another 15, and so on, and the dates of payment within which the discount is demandable are as various as the amount per cent. Instead of a regular trade discount all is a matter of separate arrangement between individual sellers and individual buyers. And further, as also above seen, the contract is distinguishable from a trade discount exigible in all circumstances by being subject to the condition that after the expiration of a fixed period the buyer loses entirely his right to demand the reduction, and the seller is entitled to act as his interests direct. The Sheriff-Substitute cannot hold that a contract of such a nature, where the terms are entirely variable and matters of individual discretion, and where such a condition forms part of the contract, falls under the 52d section of the Act. To bring it under that section different and much more stringent and special words would have been required.”

The trustee appealed, and argued—A usage of trade had been proved to exist, and the case was therefore within section 52 of the Act. [ Lord President—Does section 52 apply to debts payable before the date of sequestration? Look also at the Act of 1839.] It might be that the Act did not apply, but at common law the result was the same— Pigou, 3 Maddock's Cases in Chancery, 139.

Argued for the respondents— Pigou was overruled by Worthington, L.R., 3 Chanc. Div. 803; and the Bankruptcy Act did not apply. In any case, no usage of trade had been proved to exist. There was no fixed usage, one brewer having one practice and another following a different practice.

At advising—