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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Henderson v. M'Lintock [1882] ScotLR 20_143 (22 November 1882)
URL: http://www.bailii.org/scot/cases/ScotCS/1882/20SLR0143.html
Cite as: [1882] ScotLR 20_143, [1882] SLR 20_143
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SCOTTISH_SLR_Court_of_Session
Page: 143↓
Court of Session Inner House Second Division.
[Sheriff of Dumfries and Galloway.
v.
Facts:
A person who was insolvent granted a voluntary trust for creditors, trustees under which realised the estate. The deed contained a condition for the discharge of the truster on the realisation and distribution of his estate among his creditors. More than sixty days after the date of the trust a creditor used arrestments in the hands of the trustees, and thereafter the debtor was made bankrupt. In his sequestration the arresting creditor claimed a preference by virtue of the arrestment. Held (1) that the trust-deed was not rendered invalid by the provision in it for the debtor's discharge, and (2) that having stood for sixty days it was effectual to exclude the preference by arrestment claimed by the arresting creditor.
On the 28th July 1879 the firm of J. M. Henderson & Co., manufacturers in Dumfries, and John M'Ewen Henderson, sole partner thereof, as such partner and as an individual, granted a trust-deed for behoof of their creditors in favour of John Johnstone, joint-agent at Dumfries of the Clydesdale Banking Company, and Walter Mercer, varn-spinner, Stow. The trust — deed contained the following clause:—“Declaring always, as it is hereby specially provided and declared, that this trust-disposition is granted on the condition that the creditors who accede hereto, and who draw dividends out of the said estates, shall discharge the said firm of J. M. Henderson & Company, and me as the sole partner thereof, and as an individual, of the whole debts due by us respectively to them, in the same manner and on the like conditions as creditors ranking under a sequestration awarded by the Court of Session or otherwise in virtue of the Bankrupt Statutes, and that acceptance of payment of a dividend by any of said creditors acceding as aforesaid shall import a discharge by them to the said trustees of their intromissions with the funds of the estates hereby conveyed.” In virtue of this deed the trustees entered into and realised Mr Henderson's whole estate.
Mrs Phœbe Milligan or Henderson, wife of John M'Ewan Henderson, was a creditor of her husband, but did not accede to the trust-deed, and the trustees having refused to recognise her claim, she on 10th November 1880 raised an action against her husband in the Sheriff Court of the county of Dumfries concluding for a decree against him for the sum of £1550, with interest at the rate of five per cent., and expenses. Appearance was not entered in this action for J. M. Henderson, but Johnstone and Mercer as his trust-assignees entered appearance, and were sisted as defenders, and after a record was made up and proof led decree was pronounced by the Sheriff-Substitute ( Boyle Hope) decerning against the defender J. M. Henderson in terms of the prayer of the petition, and finding the other defenders Henderson's trustees liable in expenses. This interlocutor was adhered to by the Sheriff on appeal on 6th August 1881. On the dependence of the action Mrs Henderson used certain arrestments against her husband, including arrestments in the hands of the trustees under the voluntary trust of moneys alleged to be addebted to him. She claimed to have thereby attached considerable funds which were then still in their hands undisposed of by division among the acceding creditors.
On 9th January 1881 J. M. Henderson was made notour bankrupt by means of diligence done by one of his creditors, and his estates were sequestrated on 2d November 1881, Thomson M'Lintock, chartered accountant in Glasgow, being appointed trustee on his sequestrated estate. By assignation dated 6th September 1881 Mrs Henderson assigned to her daughter (the appellant) Miss Jane Henderson, and to Miss Elizabeth M. Henderson, and Miss Anne Alexander Henderson, her other daughters, equally among them, the foresaid decree at her instance against her husband, and all arrestments and other diligence executed by her upon the dependence of her action against him.
In virtue of this assignation, they claimed on their father's sequestration to be ranked preferably, on the ground that a preference had been acquired by the arrestment used by Mrs Henderson, in respect that the debtor was not rendered notour bankrupt within sixty days after the arrestments were used. The trustee rejected the claim to a preference, but ranked it along with the other creditor's claims, on, inter alia, the following grounds:—“The arrestments in the hands of the trustees under Henderson's trust-deed were ineffectual, because (1) the trust-funds were not arrestable. The trustees did not represent the debtor, but held for the creditors in their just proportions. The debtor was not rendered notour bankrupt within sixty days of the trust-deed. The funds were reduced into possession of the trustees before the date of the arrestments, and were specially appropriated for payment of an equal dividend to all the truster's creditors. (2) The claimant's author recognised, ratified, and rebus et factis acceded to the trust. She was barred by personal exception from taking separate measures by arrestment.
Miss Jane Henderson appealed against this deliverance to the Sheriff-Substitute (Boyle Hope) of Dumfries and Galloway. On 21st June 1882 the Sheriff-Substitute sustained a plea for the trustee to the effect that it was res judicata by certain previous proceedings that the claimant's author had truly acceded to the voluntary trust for her husband's creditors to the effect of disentitling her to any preference over the other creditors of Henderson. This plea not having been insisted in on appeal, neither it nor the proceedings in the Sheriff Court on which it was founded need be further referred to.
Miss Jane Henderson appealed to the Second Division, and the plea of res judicata having been abandoned at the bar it was argued for her—The question came to be one as to the validity of the trust assignation in favour of the voluntary trustees. If this was a good conveyance, then possibly the appellant's claim might fall to be disregarded. But as matter of law the deed was bad, inasmuch
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as it contained a clause providing for the discharge of the trustee on the distribution and realisation of the estate among his creditors, which the truster could not impose on his creditors. That being so, the appellant who (1) was a creditor who had not acceded to the voluntary trust-deed, and who (2) had used arrestments sixty days before the truster's bankruptcy, was entitled to a preference in virtue of those arrestments. Authorities—Bell's Comm. ii. 383 (7th ed.); Sutherland and Others v. The Creditors of Watson, July 3, 1724, M. 1199; Grant v. Cunning-hame, June 5, 1747, M. 1210; Athya v. Clydesdale Bank, January 29, 1881, 18 Scot. Law Rep. 287.
Argued for the respondent—The appellant's claim was justly repelled. In virtue of the trust-assignation the voluntary trustees were vested with her father's whole interest and estate, which they held, not for his behoof, but for that of all his creditors. This deed was perfectly good, and contained no extraordinary clause sufficient to break it down. It was to no one's prejudice, and had been acted on by the trustees at the dates of the appellant's arrestments with a view to the fair division of the truster's estate among his creditors. Non-acceding creditors like the appellant had it in their power, if they were dissatisfied with the private trust, to resort to sequestration.
Authorities— Marianski v. Wiseman, March 10, 1877, 9 Macph. 673; Nicolson v. Johnstone and Wright, December 6, 1872, 11 Macph. 179.
At advising—
The appellants used arrestments in the hands of the trustees in November 1880. They did not accede to the trust, and in the sequestration they claim a preference by virtue of their arrestments.
The trustee disallowed the claim to a preference, and an appeal was taken to the Sheriff Court against his deliverance. In this appeal the respondent stated a plea of res judicata, which was sustained by the Sheriff-Substitute, and on that ground he refused the appeal. In these circumstances an appeal has been taken to this Court.
When the case came before us the respondent did not insist in his plea of res judicata. The question came to be whether the arrestments were effectual. The appellants contended that they were, on the ground that the trust-deed was invalid. They admitted that they were invalid, and could confer no preference if the trust-deed was valid.
The ground on which the appellants impeached the trust-deed is this—They said that it was not a simple trust-deed for creditors, but that it contained a condition for the discharge of the truster on the realisation and division of his estate among his creditors. Such a condition it was beyond the power of the truster to impose, and they argued that this condition invalidated the deed. It is certain that the condition is of usual occurrence in a deed of this kind. But it is equally certain that the truster was not entitled to impose it on non-acceding creditors.
The question which is thus raised is treated by Professor Bell in his Commentaries (ii. 384) as an open question. He says—“It becomes an open question whether such conditions destroy the whole trust, or whether it may not stand to the effect of a simple conveyance, and a bar to the diligence and preference, while the conditions are held pro non scriptis.” He adds—“It can only be when the granter of the trust-deed is willing to dispense with the conditions that the trust-deed can be thus supported as a simple conveyance of the estate.” This seems to me to be unsatisfactory, as it makes the validity of diligence to depend on the will of the truster, and as it does not indicate whether the expression of his will must precede or may follow the use of diligence.
In the case of Nicolson v. Johnstone and Wright, December 6, 1872, 11 Macph. 178, Lord Deas considers the question whether any available arrestment can be used in the hands of a trustee who has reduced the funds into possession under a voluntary trust-deed. He says—“That is a subject upon which we have in the books a long series of varying decisions, all of which I have carefully gone over, although I do not think it necessary here to resume them. The result I take to be that a voluntary trust-deed granted by a party insolvent but not bankrupt for behoof of all his creditors equally, and containing no extraordinary clauses, will be irrevocable by the granter, and good and available to bind nonacceding creditors as well as acceding creditors if the estate be reduced into possession by the trustee, and the debtor is not rendered bankrupt within sixty days. The trustee in such cases does not represent the debtor. He represents the creditors in their just proportions, and all preferences by arrestment are excluded. A stipulation for a discharge, however, on a full surrender being made, although it will not void the deed, is, I think, a final step to be considered only at the close, and in which non-acceding creditors may or may not then hold to be binding on them at pleasure. The management of the trustee may be superseded by sequestration under the Bankrupt Statute although more than sixty days have elapsed without the debtor having in the meantime been made bankrupt, and in that case the management of the trustee in the sequestration will supersede from its date the management of the voluntary trustee.”
I do not find that the other Judges concurred in this opinion. But they say nothing to the contrary. Lord Deas does not specify the nature of these extraordinary conditions which will vitiate the whole deed. But it may be inferred from his opinion that they relate to something else than the discharge of the debtor, or, in other words, to something else than the conditions which occur in the trust-deed which we have before us.
The opinion of Lord Deas is in conformity with the decision of the Court in the case of Wilson v. M'Vicar, February 18, 1762, M. 1214. There a disposition in trust for creditors, though containing extraordinary powers and conditions, was held to exclude the diligence in the hands of the trustee. Unfortunately we have no report of the opinions of the Judges. But the successful argument proceeded on the principle that the disposition
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I cannot find any later case which is contrary to that which I have cited, and though it may go further than the opinion of Lord Deas in sustaining as effectual to exclude arrestment a trust-deed with extraordinary powers, I am disposed to adopt that opinion. It sustains the trust-conveyance to the effect of securing a fair division of the estate to the exclusion of preferences, and a sequestration affords an easy remedy for avoiding any conditions with which non-acceding creditors are dissatisfied.
The Court refused the appeal.
Counsel for Appellant— J. Burnet— Wallace. Agent— Knight Watson, Solicitor.
Counsel for Respondent— Trayner— W. Campbell. Agents— J. & J. Galletly, S.S.C.