Scottish Court of Session Decisions

The estates of the deceased John Speedie of East-bank, Kirkcaldy, and bleacher at Lochty Bleach-field, Kirkcaldy, carrying on business under the firm-name of John Speedie & Company, of which firm he was sole partner, were sequestrated in 1884, and James Lockhart was appointed trustee thereon. At the time of the bankruptcy the bankrupt was indebted to the Commercial Bank in sums amounting in cumulo to £25,779, 16s. 8d. The bank held a security over the bankrupt's works known as the Lochty Bleachfield Works.

On 5th April 1884 the bank lodged an affidavit and claim with the trustee, wherein they valued their security at £5000, and claimed for the balance of their debt. This claim was admitted, and the bank received a first dividend of 5s. per pound on amount of said claim on 6th June 1884.

On 17th April 1885 the bank, on the ground that they had overvalued their security, lodged a new affidavit and claim, valuing their security at £4000, and therefore claiming for a debt of £21,779, 16s. 8d. In the present process, however, it was admitted that in the claim the dividend paid had been omitted to be deducted, and fell to be deducted from the debt.

On 18th May 1885 the trustee pronounced a deliverance rejecting this second claim, on the ground that it was res judicata by his previous deliverance.

The bank appealed to the Lord Ordinary on the Bills, and maintained that they were entitled to re-value the security-subjects, and that the trustee should be instructed to rank the bank as creditors in terms of the claim, and pay their dividend thereafter accordingly.

They pleaded that “the appellants being entitled to amend their claim to the effect of substituting the true value of the security-subjects, the appeal should be sustained, and the trustee instructed to admit the appellants' new claim” (subject to the correction above mentioned

The trustee, besides narrating the prior claim and ranking thereon and dividend paid, and pleading res judicata, made the following explanation:—“(Ans. 2).. . Explained further, that the value of said security-subjects at the first ranking was at least £5000, and if there is a decrease in value now, which the respondent denies, this is owing to the appellants' mode of and delay in realising said security-subjects. The said security-subjects consist of Lochty Bleachfield and machinery therein. After it had been settled by arbitration what portion of the machinery, as being moveable, fell under the sequestration, the trustee put himself in communication with the appellants with the view of getting them to purchase the machinery, plant, and utensils belonging to the estate, and made offer of them at the price of £1000, but they declined to acquire them. The trustee was therefore obliged to sell the articles in lots by public roup, which he did on 28th January 1885, and as these formed the newest and best and most indispensable portions of the machinery, plant, and utensils, the utility of the works as a going concern was greatly impaired, and the works have been left in an almost wrecked

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state. … It was after the works were displenished by the removal of the machinery belonging to the trustee that the appellants made a re-valuation of the security, and from no fault on the part of the trustee, the selling value of the security-subject may have been considerably depreciated.”

He also pleaded—“Under the Bankruptcy Statutes the appellants are not entitled to put a new valuation on a security after having lodged a claim for ranking with a different valuation of the same security, and after having been found entitled to and drawn a dividend on such a claim after a deliverance by the respondent.”

The Lord Ordinary ( Trayner) pronounced the following interlocutor:—“Recalls the deliverance appealed against: Finds that the appellants were and are entitled to re-value the security held by them over the estate of the bankrupt, and to be ranked for the balance of their debt after deduction of such re-valuation, and subject to the various corrections specified in the trustee's deliverance upon the appellants' first claim in the sequestration: Further, finds that the appellants have already been paid a first dividend on their claim, and are not entitled to any equalising dividend: Remits to the trustee, with instructions to rank the appellants accordingly: Finds the appellants entitled to expenses, &c.

“ Opinion.—The circumstances out of which the present appeal arises are correctly stated by the respondent in the deliverance appealed against. But I am of opinion that that deliverance is erroneous in law, and ought to be recalled.

The appellants base their right to reduce the value originally put by them on their security on the last clause of the 62d section of the Bankruptcy Act of 1856 [quoted infra]. The respondent argues that the section referred to relates to questions of voting, and not of ranking or claiming dividends. It is quite true that the earlier part of the 62d section, as well as section 61, refer to valuations by the creditor for the purpose of voting, and to the right of the trustee or creditors to take over the security at the value put upon it, with the addition of 20 per cent. But the part of section 62 on which the appellants rely does not limit the right of a creditor to re-value merely for the purposes of voting. It provides that a creditor ‘may at any time before he has been required to convey or assign’ his security correct his valuation ‘by a new oath, and deduct such new value from his debt.’ The appellants have not been asked to assign their security, and they are therefore, so far as time is concerned, entitled to re-value their security. The purpose or effect of such re-valuation is not a matter with which the section in question deals in express terms, but when it authorises the creditor to deduct the new valuation from his debt it appears to me to authorise the creditor to all the rights, whether of voting or ranking, to which in respect of the debt so ascertained he is by law entitled. One of the legal rights is to draw a dividend in respect of his debt, and I think the appellants are entitled accordingly to draw a dividend on the debt ascertained after deduction of the new valuation.

The respondent maintains that it gives the appellants an unfair advantage to allow them to draw a dividend on the basis of one valuation of their security, and thereafter draw another dividend on a lower valuation. This is no argument if the statute allows it. But apart from that, the body of the creditors can protect themselves, if they think the valuation too low, by calling upon the appellants to assign their security at the value put upon it.

There are some other points of difference between the parties in reference to the affidavit in question, but these, I was informed, would be arranged.”

The trustee reclaimed, and argued—The 62d section of the Bankruptcy Statute of 1856 [ vide infra] applied to claims for voting purposes only. The 65th section contained no such privilege of re-valuation, and therefore it must be read as impliedly withholding any right to re-value after a claim was once made. The trustee suffered prejudice because he could not now take up the security. If there was a doubt as to the construction of the statute, the interpretation should be adopted which tended to a fair distribution of the estate among all the creditors. Assuming the re-valuation otherwise competent, it was not in this case the right of the appellants, because the decrease in value was due to their fault.

Authorities—Bell's Comm. (5th ed.) ii. 718 and 736 (dealing with the corresponding sections of the Act 54 Geo. III. cap. 137, viz., secs. 24 and 50); Monkhouse v. M'Kinnon, January 28, 1881, 8 R. 454.

Replied for the bank—Re-valuation was a right secured by the 62d section. If not, then it was to be implied from the 65th section [quoted infra in opinion of Lord President], as it was a right which must be expressly excluded if it were meant to be so, on the principle that a creditor was free except where the Act imposed restrictions. Res judicata could not be pleaded against the bank, because the statute regarded the payment of each dividend as a separate transaction. Therefore even if sections 62 and 65 did not apply, the creditor had a right to re-value as regarded subsequent dividends. Decrease in value of security was not due to fault of bank.

Authorities— Henderson's Truttees v. Auld & Guild, 1872, 10 Macph. 946; Bell's Comm. (5th ed.) ii. 426; Stewart v. Ferguson, 1882, 19 S.L.R. 429; sections 123, 126, 127, 130, 132, and 133 of Bankruptcy Act 1856.

Section 62 of the Bankruptcy (Scotland) Act 1856 provides—“It shall be competent to the trustee, with consent of the commissioners, within two months after an oath specifying the value of a security or obligation or claim in the several cases before mentioned has been made use of in voting at any meeting, or in assenting to or dissenting from the bankrupt's composition or discharge; and it shall also be competent to the majority of the creditors (excluding the creditor making such oath) assembled at any meeting, and during such meeting—to require from the creditor making such oath a conveyance or assignation in favour of the trustee of such security, obligation, or claim, on payment of the specified value, with twenty per centum in addition to such value; and the creditor shall be bound to grant such conveyance or assignation at the expense of the estate: Provided that where a creditor has put a value on such security or obligation, he may, at any time before he has been required to convey and assign as aforesaid, correct suoh valuation by a new oath, and deduct suoh new value from his debt.”

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