Scottish Court of Session Decisions

On 11th March 1885 John Johnson, tailor, sole partner of the firm of Buchanan & Johnson, Glasgow, executed a trust-deed for behoof of his creditors. By this trust he conveyed to James Taylor, C.A., Glasgow, as trustee, “for behoof of my whole lawful creditors at the date hereof, and who shall accede hereto,” his whole estate, heritable and moveable, with the exception of his household furniture, “with the same powers as belong to a trustee under the Bankruptcy Statutes.” The trust purposes were—“In the first place, in payment of the expenses hereof.… in the second place, I appoint the said trustee to apply the proceeds that shall remain of the said estate and effects in satisfying and paying the whole debts due by me to my creditors acceding hereto, rateably and proportionally, according to their respective debts, which debts, preferable or ordinary, shall be ranked according to the principles of the Bankruptcy Statutes as if my estate had been sequestrated, or otherwise as the trustee may consider expedient for the estate, and that at such times and by such dividends as the said trustee shall judge proper.” The trust-deed contained this clause—“Declaring always, as it is hereby specially provided and declared, that this trust-disposition is granted by me on the condition that the creditors who

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accede hereto or who shall take a dividend out of my said estate shall be held to have thereby discharged me of the whole debts due by me to them, without the necessity of any formal deed of accession or discharge being granted; declaring that the acceptance by any creditor of a first dividend from this trust-estate shall import a discharge to the trustee.”

Messrs Thomas Ogilvie & Son, merchants, Aberdeen, were creditors to the extent of £273, 5s. The trustee on the insolvent estate made a deliverance which showed that the estate was able to pay a dividend of 5s. 6d. per pound. Messrs Ogilvie did not accede to the trust-deed. They applied, however, for payment of the sum of £75, 1s. 6d., which was the dividend upon their debt, being, as they stated in this action, “willing to accept payment of said dividend towards their debt, and to grant the trustee a simple receipt therefor.” The trustee declined to pay it over to them unless they granted a discharge of the debt in terms of the trust-deed, the ground of refusal, as explained by him, being that he was trustee under a trust granted for acceding creditors only, which they were not, and he could only pay a dividend to them subject to the conditions of the trust, which conditions they declined to accept.

Messrs Ogilvie then raised this action in the Sheriff Court of Lanarkshire, concluding against the trustee, as such and as an individual, for £75, 1s. 6d.

The defender pleaded—“(2) The pursuers having declined to accede to said trust-deed, they are not entitled to any benefit therefrom. (3) The defender having all along been willing to pay pursuers' said dividend, subject to said condition, he should be assoilzied with expenses.”

On 4th August 1886 the Sheriff-Substitute ( Erskine Murray) issued an interlocutor in which he found in law (1) that “the condition as to discharge is one which could not legally in the circumstances be enforced, and must be held pro non scripto, (2) that therefore pursuers are entitled to receive a dividend on the debt due to them by Buchanan & Johnson without granting to the latter a full discharge.” He therefore decerned in terms of the petition, and found neither party entitled to expenses.

“ Note.—In the case of Long v. Wilson, decided by the present Sheriff-Substitute in 1878, and adhered to by the Sheriff-Principal on appeal, it was held that where in a trust-deed for creditors a clause for discharge to the debtor was inserted, that clause though it did not void the trust-deed, must be considered pro non scripto, and that the trustee was not entitled to insist on such a discharge being granted as the condition of giving a dividend. That judgment was based on the views laid down by Professor Bell, vol. ii. pp. 1172 and 1173, Shaw's edition, and the opinion of Lord Deas in the case of Nicholson, 6th December 1872, 11 Macph. 179. The same point came up before the same Sheriff-Substitute in the recent small-debt case of Travers v. Bird in December 1885, which, with the judgment of Long v. Wilson which it followed, was reported in the Sheriff Court reports of the Scottish Law Review for January 1886, p. 3. The same point has been again raised in the present action. It is argued, however, on behalf of the defender, Buchanan & Johnson's trustee, that since the case of Long v. Wilson was decided the point has been decided differently by the Court of Session in Henderson v. Henderson's Trustee, Nov. 22, 1882 [ 10 R. 185]. On a careful examination of that case, however, the point is there seen to be different. The question there was whether a non-acceding creditor could by the use of arrestments secure a preference over the creditors who acceded to the deed. It was held she could not. But that is very different from the circumstances in Long v. Wilson and the present case, where no preference is sought, and the creditors simply ask a fair share. They have no preference even by getting their share, without giving a discharge, as the same course is open to every creditor. It is true that another mode which the pursuers might have adopted would have been to sequestrate Buchanan & Johnson's estate. But this would have swept away the remaining assets, the sequestration being practically at pursuers' expense. The Sheriff-Substitute does not think they were necessarily obliged to adopt this course. The question, no doubt, arises, how can they take benefit under the trust if they do not comply with all its conditions, including that of discharge? But the answer is that, in the words of Professor Bell, that condition must be held pro non scripto. And this seems the only equitable course. Besides, as the Courts now hold that such a trust-deed is binding on non-acceding creditors as well as acceding creditors, non-acceding as well as acceding creditors are entitled to their fair share of the funds.”

The defenders appealed to the Court of Session, and argued—The question was whether a creditor was entitled to take the benefit of getting a dividend declared by the trustee under the trust-deed without complying with the conditions of the trust-deed. If the deed were admitted to be good, then the clause could not be held pro non scripto. The cases cited by Bell applied only to the state of the law prior to 1814, when sequestration took the place of the other remedies open to creditors—Bell's Comm. (2d. ed.) ii. 382–4,(Shaw's ed.) 1172–73; Henderson v. Henderson's Trustee, Nov. 22, 1882, 10 R. 185; Wilson v. M'Vicar, February 18, 1762, M. 1214. The creditors could not have an action against the trustee— Kyd v. Waterson, &c., June 5, 1880, 7 R. 844; Robb's Trustees v. Robb, July 3, 1880, 7 R. 1049. The creditors of the insolvent debtor were not bound by the terms of the trust-deed, but they could not approbate and reprobate. They must either take payment of the dividend under the trust deed, and on condition of complying with its terms, or else they must sequestrate the debtor.

The respondent argued—The fundamental principle of such a trust-deed was, that the property of the debtor became the property of the creditors to be distributed by the trustee to them, and the debtor could not lay down conditions under which their own property was to be given to them— Lamb's Trustees v. Reid, November 9, 1883, 11 R. 76 ( per Lord Fraser's note, p. 79). This was not a case of approbate and reprobate; the creditor here was willing to take payment of the dividend as repayment of his debt as far as it went, and sequestration was not the only proper remedy for him to use— Nicolson v. Johnstone & Wright, December 6, 1872, 11 Macph. 179. The deed might be quite good although some of its

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provisions need not be carried out— M'Kell, M. 894; Wilson v. M'Vicar ( quoted supra).

At advising—