Scottish Court of Session Decisions

In 1877 James Goodwillie, builder, Edinburgh, obtained from the Edinburgh Heritable Security Company a loan of £3700 over certain heritable subjects, 13, 14, and 15 Rosehall Terrace, Dalkeith Road, Edinburgh, which he had begun to erect. The loan was granted by means of a cash-credit bond granted by the company and a disposition in security by Goodwillie.

Thomas Stevenson, joiner, Annandale Street, Leith Walk, was contractor for the joiner work in these tenements. Goodwillie's affairs became embarrassed, and he executed in April 1878 a disposition of them in Stevenson's favour for a price set forth in the deed. The Heritable Company's bond, with its personal obligation, was by agreement taken over in gremio of the conveyance under the 47th section of the Conveyancing Act of 1874. At the date of this disposition in May 1878 £3300 had been advanced by the company, and the balance of £400 was subsequently paid over to Stevenson. He completed the buildings, 13, 14, and 15 Rosehall Terrace. He was sequestrated on 16th November 1878, and Hugh Miller, C.A., was appointed trustee in his sequestration.

Stevenson was proprietor of other heritable subjects, over which also there were securities. Miller, as trastee, did not interfere with certain of these, and allowed the bondholders to take their course, but determined, after some communings with regard to (1st) a tenement in Granton Road, (2) 13, 14, and 15 Kosehall Terrace above mentioned, and (3) 19, 20, and 21 Rosehall Terrace, over all which the company held bonds, to make the offer contained in the following letter of 20th December 1878, addressed by him to the agents for the company:—

“ T. Stevenson's Sequestration.

Dear Sirs,—Having now examined and advised with the commissioners as to the following properties belonging to this estate, over which the Edinburgh Heritable Security Company (Limited) hold securities for advances, viz.—

1. 1. Subjects in Granton Road;

2. 2. Tenements No. 13, 14, and 15 Rosehall Terrace; and

3. 3. Tenements Nos. 19, 20, and 21 Rosehall Terrace—

I am prepared to ask the creditors for authority to adopt these subjects as assets in this sequestration, provided your company advance the balance of the loan on the Granton Road property, that these may be finished, and that the loans on all the properties are not called up earlier than at Whitsunday 1880—it being a part of course of this arrangement that all arrears of interest or of instalments past due on advances are to be paid; and it may be further understood that I shall in the meantime endeavour to secure the money, or as much of it as possible, at lower rates from private parties, so as to benefit the estate to the extent of the difference of interest on these loans. It is believed that if these properties are held over for a time, till the present depression in trade has passed, considerable reversions will accrue to this estate by so holding. I shall therefore hope that the proposal now made will be favourably considered by your directors,” &c. They, in reply, intimated that on payment of arrears, and on the Granton Road property being finished by a certain date—31st March 1879—the balance of the loan on it would be paid.

Miller then sent the amount of arrears, and undertook to finish the Granton Road property by the date named. He finished that property and received the balance of the loans over it from the company. It was further agreed that the loans should remain undisturbed till Whitsunday 1880. From Whitsunday 1879 to Martinmas 1883 he collected the rents of the property 13, 14, and 15 Rosehall Terrace properties, and paid them to the company in payment of the interest on the bond, but the rents were insufficient to meet the interest. After that term they declined to receive them, and he consigned them in bank.

In this action the company, on the ground that Mr Miller had adopted liability for the property by his letter of 20th December 1878 above quoted, and also by acting as proprietor thereof since its date, sought declarator that he as trustee was proprietor of the subjects 13, 14, and 15 Rosehall Terrace, and was as trustee and as an individual liable in all the obligations of the cash-credit bond and the disposition in security granted by Goodwillie and taken over by Stevenson; and further, they concluded for decree against him for £4127, 6s. 4d., the alleged amount due to the pursuers as bondholders, with interest at 6 per cent, the rate in the bond.

They pleaded—“(1) The defender having adopted said subjects as his property, is bound to implement the terms of said bond and disposition in security thereon. (2) The pursuers are entitled to decree in terms of the conclusions of the summons, in respect the defender has adopted said subjects, and is proprietor and owner thereof, and is liable as such under the provisions of the foresaid bond and disposition in security.”

The defender averred that the arrangement of 1878 was only one by which, in the interest of all parties, the pursuers undertook not to exercise their powers of sale on certain conditions, and not one by which he undertook any liability as trustee or as an individual for payment of the heritably secured debt, the sole debtor on which was Stevenson, and the sole security the heritable property over which they were secured. The object was, he alleged, to postpone, for the sake of all parties, to a more favourable time a sale of the properties.

He pleaded—“(1) The action is irrelevant. (2) The defender not having, either as trustee or as an individual, become obligant for payment of the sums sued for, he is entitled to absolvitor.”

The Lord Ordinary ( M'Laren) sustained the defences and assoilzied the defender.

“ Opinion.—In this case the pursuers, who are heritable creditors holding securities over subjects described in the condescendence, sue the trustee on the sequestrated estate of the last registered

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proprietor for payment of the principal and interest secured over those subjects by a cash-credit bond.

The ground of action is that the trustee has ‘adopted’ the subjects as his property (condescendence and pleas). I am not sure that I understand exactly what is meant by this expression. It is a metaphorical expression borrowed from a different department of the law; and after hearing argument I am still unable clearly to represent to myself what is the legal obligation whereby the defender is supposed to have rendered himself responsible for the payment of the heritable debt.

There are, as I conceive, three passive titles under which such a responsibility might possibly be incurred—(1) By acquisition of the subject of the security; (2) by becoming a party to the debtor's obligation; and (3) by granting an independent obligation for the repayment of the borrowed money.

(1) The defender doubtless acquired the property as trustee under the vesting clause of the Bankruptcy (Scotland) Act 1856, subject to the heritable securities affecting it, and the heritable creditors' preferable diligence. But it is not, and cannot be, maintained that this acquisition made the defender the debtor of the heritable creditor.

(2) Under the common law applicable to heritable securities a purchaser or disponee did not become responsible for heritable debt unless he granted a bond of corroboration.. Under the statutory law now in force a purchaser or disponee will become bound for the debt if the deed of conveyance contains an agreement to that effect. But neither is this ground of liability applicable to the acquisition of estate by a trustee in bankruptcy, because such trustees do not take the estate by purchase or gift, but in the character of adjudgers.

(3) I presume, therefore, that the defender is only responsible if he has granted a corroborative or independent obligation to pay the heritable debt or to see it paid. I find no evidence of the existence of such an obligation. I may here mention that neither party moved for a proof or diligence, and as all the documents are admitted, there is really no matter of fact to which, in my opinion, a proof would be usefully directed. What the trustee did was to write a letter proposing to take over certain subjects as part of the sequestrated estate, and to pay up the arrears of interest affecting those subjects, on condition that the heritable creditor should not in the meantime exercise his power of sale. It is admitted that the defender paid the arrears of interest, but the property is not expected to produce a reversion, and the trustee is now willing that the heritable creditors should take their course. Now all that the trustee could possibly gain by his agreement with the heritable creditors was a postponement of the sale. He was already reversionary proprietor in virtue of the Bankruptcy Act, and he did not need the consent of the heritable creditors to the assertion of his proprietary interest. But his proprietary interest was liable to be rendered valueless in case of a forced sale, and he could only avoid such a sale by offering to pay the arrears of interest. Having done so, he was in the same position as any other proprietor who has accepted a conveyance of an encumbered estate without granting a corroborative security. Such an estate may be worth very little to the nominal owner, but it does not expose him to loss other than the loss of the estate. I think it would not be fair construction of the trustee's letter to hold it equivalent to a bond of corroboration. I am convinced that such a bond, if asked at the time, would not have been granted by the defender; and that the pursuers did not understand that they had obtained such an obligation.

Authorities were referred to in which trustees engaging in trade or entering into litigation were held to be responsible as contracting parties, but these authorities appear to have no application to a case where the liability, if it exists, must be constituted by an obligation in writing.”

The pursuers reclaimed, and argued—The true construction of the agreement between them and the trustee, constituted by the letter above quoted and what followed on it, was, that he took over the bankrupt's whole obligations. By paying interest on the bond he became the obligant of the principal, and was therefore personally liable.

Authorities— Torbet v. Borthwick, 1849, 11 D. 694; 2 Bell's Comm. 320; Balfour v. Cook, Hume's Decisions, 771; Kirkland v. Gibson, May 17, 1831, 9 S. 596.

Counsel for the defender were not called upon.