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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Morton v. The National Bank of Scotland, Ltd [1882] ScotLR 19_611 (19 May 1882)
URL: http://www.bailii.org/scot/cases/ScotCS/1882/19SLR0611.html
Cite as: [1882] ScotLR 19_611, [1882] SLR 19_611
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SCOTTISH_SLR_Court_of_Session
Page: 611↓
Court of Session Inner House Second Division.
[
(Before the
v.
Facts:
In a deed of arrangement between a sequestrated bankrupt and his creditors, the bankrupt agreed to pay a certain composition, and renounced all objections to claims lodged by the creditors in the sequestration, under reservation, in the case of current or past-due bills, of his right to credit for any sums that might be recovered by the holders from acceptors or prior obligants; the creditors reserved any claims that any of them might have against collateral securities or co-obligants in any securities they might hold; one of the creditors, a bank, besides other claims, held bills endorsed to them by the bankrupt which they had discounted. Held that they were not bound to impute sums recovered from other obligants in such bills towards payment of the composition due to them for their claim in respect of these bills and for their other claims, but were entitled to apply them towards payment of the bills until they should operate full payment thereof, on the ground that the bills were the property of the bank, and the reservation by the deed of arrangement was inapplicable to the payments received from co-obligants therein.
The facts out of which this case arose are stated in the note to the Lord Ordinary's interlocutor as follows:—“On the 18th June 1879 the firm of Kimball & Morton, of which the pursuer John Morton was the sole partner, was sequestrated.
The sequestration was superseded by a deed of arrangement which was entered into between the pursuer and his creditors, dated 27th August 1879.
By this deed the pursuer bound himself to pay to the creditors of John Morton and Kimball & Morton 9s. per pound of the debts for which he or they were liable at the date of sequestration, and that by instalments, the first of 7s. 6d. per pound in cash seven days after the deed of arrangement was approved of and the sequestration declared at an end, and 6d. per pound at six months, 6d. per pound at twelve months, and 6d. per pound at eighteen months after said date, with interest from and after the respective terms of payment. The pursuer and his cautioner renounced all objections to claims which had been lodged by creditors, or entered in the bankrupt's state of affairs, under reservation, in the case of current or past-due bills, of their right to credit for any sums that might be recovered by the holders from acceptors or prior obligants thereon.
On the other hand, the creditors exonered and discharged Kimball & Morton and John Morton of all debts and obligations contracted by them or him, or for which they were liable at the date of the sequestration, but under reservation of the claims of the creditors for the composition, and also under reservation to such of them as held collateral securities or obligations for the debts owing by Kimball & Morton and John Morton, of their claims against such collateral securities or obligants.
“At the date of the sequestration the defenders, the National Bank, were creditors of the pursuer on an account-current to the amount of over £12,551, 4s. 2d. They also held bills endorsed to them by the pursuer for value to the amount of £6839, 4s. 5d. The net amount of the defenders' claim appears to have been adjusted at £18,333, 9s. 4d.”
It was also stipulated in the deed of arrangement that bills receivable belonging to the estate, and not discounted by the bank, were to remain in the hands of the judicial factor on the sequestrated estate until maturity, the proceeds to be applied in implement of the bankrupt's obligations in the deed of arrangement.
The pursuer pleaded, inter alia, that he was entitled, in terms of the deed of arrangement, to credit in account with the defenders for all sums received by them from acceptors or prior obligants.
The defenders pleaded in answer that they were entitled to rank for the full amount of the debt in each bill, until they should operate full payment, and until they should have done so they were not bound to allow sums recovered from other obligants to be deducted from the composition payable by the pursuer.
The Lord Ordinary at the first hearing of the cause sustained the above plea for the defenders, appointed further procedure, and on a re-hearing assoilzied the defenders.
Page: 612↓
The remainder of his note, in addition to the narrative quoted above, was as follows:—“The only question argued to me was, whether under the agreement the defenders were bound to impute all sums which they might recover from the obligants in the bills held by them as aforesaid towards payment of the composition due to them by the pursuer upon their debt?
“I am of opinion that they are not so bound. The defenders and the other creditors only discharged the pursuer of their claims under reservation to such of them as held collateral securities or obligations for the debts owing by Kimball & Morton, or John Morton, of their claims against such collateral securities or obligants. I think, therefore, that the defenders are entitled to apply such sums as they may recover from other obligants in the bills in question towards payment of the amount of the bills until they operate full payment, and that it is only any surplus that may remain after that that they are bound to apply towards payment of the composition. To put the construction on the agreement contended for by the pursuer would be to put secured and unsecured creditors on the same footing, denying the former any benefit from their securities. The pursuer founded on the clause in the agreement by which he reserved, in the case of current or past-due bills, his right to credit for any sums that might be recovered by the holders from acceptors or prior obligants thereon. It appears to me that what is here reserved is the pursuer's right to credit for any sums that may be recovered, exceeding, with the composition, 20s. per pound on the defenders' debt.”
The pursuer reclaimed, and after some argument confined to the above pleas, the Court being of opinion that the case was primarily one of liability to account, and that the procedure thitherto had been informal, recalled both interlocutors and ordained the defenders to lodge their accounts, and accounts were lodged by them accordingly. The pursuer also lodged an abstract of accounts, in which he claimed a balance due to him of £191, 18s. 10d. When the case was again heard the pursuer argued that bills discounted by a bank did not become the property of the bank, as by sale, but were merely assigned to it in security of the advance made by the bank, and remained the property of the drawer subject to the bank's security. The bills on which the bank claimed here were therefore part of the bankrupt estate, and were to be imputed to composition. Should he fail in this argument he was entitled to his claim in respect of contract under the deed of arrangement—at all events, to a particular sum of £272, received on bills which fell due after the data of the sequestration, and had not been discounted by the bank, and which he maintained were specifically appropriated to composition by said deed.
Authority— Black v. Melrose, Feb. 29, 1840, 2 D. 706.
The defender argued—The pursuer's contention that the bills are only a security in the hands of the bank raises a question under sec. 65 of the Bankruptcy Act, and apart from contract, and at common law, his claim is untenable according to the common law rules as to securities over a bankrupt estate formulated by the Lord President in the recent case of Stewart v. Ferguson, Feb. 10, 1882, 19 Scot. Law Rep. 429. It is settled law that a bill discounted by a bank becomes the bank's property—(Bell's Com. i. 290, Prin. 1415). The agreement in the deed of arrangement is expressly made not to apply to bills discounted by the bank.
At advising—
On the first question we have listened to an able argument on the part of the reclaimer's counsel, in support of a proposition as untenable as any I ever heard at the bar, because it has been settled law for more than a century that a bill discounted by the bank is substantially the property of the bank; in the words of the English lawyers, “a banker discounting a bill is the purchaser of it.” The doctrine came from England in this shape. That will be found laid down in the clearest terms in Thomson's work, at p. 548 of the last edition, and a reference is there made to Lord Ellenborough's opinion, who was the real author of the doctrine under that name, in the case of Giles v. Perkins, followed by that of Carstairs v. Bates. The last edition of Mr Thomson's work contains this note:—“The circumstances and the decision, as well as the ground of judgment, were as stated in the text in Carstairs v. Bates, 3 Camp. 301, per Lord Ellenborough. His Lordship referred to the doctrine which he had laid down in the preceding case of Giles v. Perkins, that a banker discounting a bill was the purchaser of it.” There can be no doubt of that now. The bank is endorsee for value. If that be the case, it is in vain to say that these bills were part of the assets of the bankrupt, and that the bank were merely security-holders. That being the state of the matter, it is surely quite settled that where a creditor is the holder of the bill and proprietor of it, although there be several obligants on it, he is entitled to rank on the estate for the full sum. And that disposes satisfactorily and conclusively of the argument we heard on that general question.
In regard to the second point—the plea founded on the reservation in the deed of arrangement—I am of opinion that it must be read according to its terms, and being read according to its terms I think the meaning to be attached to it is quite plain. It is a reservation introdueed for the benefit, no doubt, of the bankrupt, to make certain claims and demands, and also to make objections to the claims lodged by creditors. But having made that objection, the reservation may be said to be purified. Besides, although he has made an objection here, his objection is not good, and I do not think he can press the reservation to the effect of not only reserving his right to object at any time, but making it imperative on us to sustain his objection.
Page: 613↓
In regard to the third point, I was at first inclined to think there was something in it, but on looking more closely into it, it is clear that the bills were not bills in the hands of the National Bank, to which that provision applied, but were in the hands of Mr Gourlay, which he would have to collect.
On these three matters, for the reasons I have now shortly stated, I am of opinion that nothing has been put before us to induce us to alter the Lord Ordinary's interlocutor.
The Lords of new assoilzied the defenders.
Counsel for Pursuer (Appellant;— Trayner—J. A. Reid. Agent— J. Smith Clark, S.S.C.
Counsel for Defenders (Respondents)— Robertson—Pearson. Agents— Dove & Lockhart, S. S. C.