Scottish Court of Session Decisions

The Mercantile Law (Scotland) Amendment Act 1856 (19 and 20 Vict. c. 60) provides by section 1 that “From and after the passing of this Act, where goods have been sold, but the same have not been delivered to the purchaser, and have been allowed to remain in the custody of the seller, it shall not be competent for any creditor of such seller, after the date of such sale, to attach such goods as belonging to the seller by any diligence or process of law, including sequestration, to the effect of preventing the purchaser or others in his right from enforcing delivery of the same; and the right of the purchaser to demand delivery of such goods shall from and after the date of such sale be attachable by or transferable to the creditors of the purchaser.”

The affairs of William Begg Scott, now butcher, Bervie, became embarrassed in 1885. At that time he was a baker and grocer in Montrose, and consulted Mr Ramsay, agent for the Bank of Scotland there with a view of coming to an arrangement with his creditors.

The following circular, unsigned but drawn up by Mr Ramsay, was issued:—

“ Bank of Scotland, Montrose, 11 th February 1885. “Dear Sir,—Mr W. B. Scott, baker and grocer, Ferry Street, Montrose, has put his affairs into my hands, with a view to an arrangement with his creditors. He has made an agreement with a baker in town to take over the whole stock, plant, &c., at valuation in May next. When he advertised the business he was under the impression that with some help from his friends he would be able to pay 20s. per £ to all his creditors. But I have gone thoroughly into his affairs, and I find he is hopelessly insolvent. There is such a large deficiency that his friends cannot undertake any responsibility connected with it.

The following is an abstract of the assets and liabilities:—

Assets.

Bakehouse plant and utensils (Estimate by Mr M'Queen, baker)	£104	14	9
Stock of baking and grocery goods, with shop-fittings, &c.	146	14	5
Book debts, £68 (of which doubtful, £15), say	60	0	0
Life Policy p. £200 (dated 1879)	20	0	0
Household furniture	70	0	0
	£401	9	2
Less preferable debts—rents	38	10	0
	£362	19	2

Liabilities.

Trade debts	£408	13	3
Accommodation from bank and relatives	688	0	0
	£1096	13	3
Showing a deficiency of and a dividend of 6s. 7 1 2d. per £.	£733	14	1

With assistance Mr Scott proposes to pay 7s. per £ on promissory-note, payable 3 months hence—the bill to be countersigned by his brother Mr George Scott, cattle-salesman, and to be met out of the proceeds of the purchase price of the stock from the new tenant. There cannot be a doubt that this proposal is as favourable as the creditors need expect. If it is not agreed to it will be necessary to take out sequestration, I fear, to prevent preferences being forced. I may say that Mr Scott will not make any higher bid to avoid the unpleasantness and publicity of sequestration. I may add that in making the offer of 7s. he is doing more than the state of his affairs prudently warrants; because I have little hope that the stock will come up to the valuation put on it when it comes to be taken over.

Trusting you will agree to the proposal for settlement—I am, yours faithfully,

P. S.—Under sequestration the yield will be very much less of course. The furniture will not produce nearly £70 if brought to the hammer.”

Scott afterwards settled with most of his creditors by paying them 8s. in the £. Among these creditors was his mother-in-law Mrs Gouk, who had a preferential claim for the rent of a house, amounting to £25, and a claim to rank pari passu with other creditors for a loan of £100. In reduction of these claims she bought his furniture

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for £50, 7s. 6d., valued by a licensed appraiser as shown in the following note of settlement, No. 15 of process:—

“Half-year's rent of shop, house, bakehouse, &c., due at Whitsunday 1885 to Mrs Gouk	£25	0	0
Composition of 8s. per £ on Mrs Gouk's claim of £100	40	0	0
	£65	0	0
Deduct value of Mr Scott'e household furniture purchased by Mrs Gouk	50	0	0
	£14	12	6

Montrose, 1 st June 1885.—Received payment of the above sum of fourteen pounds 12/6, by the hands of Alex. Ramsay, Esq., banker, Montrose.

And. Greig,

Agent for Mrs Gouk.

1/6/85.”

The Bank of Scotland received nothing towards the reduction of their claim amounting to £288. Mrs Gouk allowed the furniture to remain in Mr Scott's house on loan for the use of her daughter Mrs Scott and her husband, and by them it was removed to Bervie when they went to reside there in 1887.

Mrs Gouk died on 17th December 1885, leaving a settlement by which she directed her furniture to be, divided between her two daughters Mrs Scott and Mrs Maconochie in certain proportions.

Scott remained insolvent from 1885 to 1888, when his estates were sequestrated. Mr H. M. Horsbrugh, C.A., Edinburgh, was appointed trustee on his sequestrated estate on 17th June 1888. Upon the said trustee proposing to sell the furniture in the bankrupt's dwelling-house in Bervie Mrs Scott and Mrs Maconochie raised an action of interdict against him in the Sheriff Court at Stonehaven in November 1887. Interim interdict was granted, and a record made up.

The pursuers pleaded—“(1) The female pursuers being the true owners of the furniture and other effects as condescended on, are entitled to obtain interdict against the defender selling the same.”

The defender pleaded—“(2) The pretended sale having been entered into by the bankrupt when in insolvent circumstances with his mother-in-law, who was a conjunct and confident person with him, without a just price being paid, and with a view to defraud his just and lawful prior creditors, is null and void and of no avail at common law. (3) Mrs Gouk being a conjunct and confident person with the bankrupt, the presumption is that the alleged purchase was entered into without a true, just, or necessary cause, and without a just price being paid, and with a view to defraud his just and lawful prior creditors, it is therefore null and void and of no effect. (4) The furniture in question not having been sold, and having remained in the undisturbed possession and occupation of the bankrupt, and immixed with his effects at the date of sequestration, the female pursuers have no right or title to the same, and their claim ought to be repelled.”

A proof was taken upon 6th June 1888 before the Sheriff-Substitute ( Brown). The circular issued to creditors, the note of settlement (both quoted above), and the following receipt—

“ Current Account Receipt.

Bank of Scotland Branch, “£150. Montrose, 12 th February 1885.

Received from Mr George Scott, cattle-dealer, Montrose, the sum of one hundred and fifty pounds sterling, which is placed to the credit of Mr Wm. B. Scott.

For the Governor and Company of the Bank of Scotland.

Entd. J. S. Alex. Ramsay, Agent.

No. 12/2/85.”

were, inter alia, produced in evidence.

Alexander Lyell deponed—“I am a solicitor in Montrose, and the agent for the British Linen Bank there. On 17th February 1885 Mr Ramsay, agent for the Bank of Scotland, came to my office and told me that the bankrupt was in difficulties. He asked me to take charge of the matter, and suggested that I should endeavour to negotiate a settlement of his affairs with the creditors, as they would have nothing to do with him seeing he was a creditor. He placed a statement in my hands dated 11th February 1885. It was sent to all the creditors. … I paid a dividend of 8s. per pound in terms of the last meeting of creditors, except to George Scott, cattle dealer (£300), Alexander Ramsay, agent for Bank of Scotland (£288), and Mrs Ann Gouk (£100). I understand the 8s. in the pound was paid to Mrs Gouk through Mr Greig, who got it from Mr Ramsay. Mr Greig handed me the document (No. 15 of process). … I do not know anything about the purchase by Mrs Gouk of the furniture. … In the summer of 1885 Mrs Gouk called upon me once, and I think twice, but I am not sure of that, with reference to the furniture. I was then acting on behalf of the bankrupt. She said that she wanted to make sure that the furniture which she had bought from the bankrupt was made sure to her, and that Mr Scott's creditors could not touch it. She said she wanted it made sure to her daughters. I advised her to consult her agent Mr Greig, who was then acting for her. I understood that Mrs Gouk referred specially to the furniture, which she said she had purchased from Mr Scott. Mr Ramsay said he was willing to take the composition of 8s.”

Andrew Greig deponed—“I was agent for the late Mrs Gouk, who was the mother of the female pursuer Mrs Scott. I was consulted by her with reference to the preparation of her settlement. I am now shown the settlement I prepared for her. It is dated 11th September 1885. I continued to be agent for Mrs Gouk until her death. Mrs Gouk spoke to me several times about the furniture in question after the preparation of the deed, expressing the hope that it was perfectly safe as belonging to her. That had reference to the composition settlement by her son-in-law Mr W. B. Scott. Mr Scott became bankrupt in March 1885. Mrs Gouk had a claim upon his estate of £125, £25 of that being preferable for rent. Mr Scott offered a composition of 8s. in the pound, which reduced Mrs

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Gouk's claim to £100. She subsequently told me that she was willing to buy Scott's furniture upon her own account. I intimated that to Mr Ramsay, agent for the Bank of Scotland in Montrose, who was acting for the bankrupt. Mr Ramsay came to settle with me. I prepared the document. The receipt in that document is in my handwriting. I received the balance of £14, 12s. 6d. from Mr Ramsay. After I received that balance Mrs Gouk spoke to me about the furniture. She expressed the hope that the thing was secure to her. The doubt that was distressing her was that the furniture was in the possession of her son-in-law, to whom she had given the use of it. … I think that Mr Ramsay, banker, took the initiative in advising the bankrupt, but afterwards Mr Alexander Lyell, solicitor, did so. I think Mr Ramsay called the first meeting. The receipt was delivered to Mr Ramsay. … I looked upon Mrs Gouk as a creditor, and she got the same dividend as the others. The settlement was a private one. I understood that all the creditors agreed except Mr Ramsay.”

Alexander Ramsay deponed—“I have been for many years agent for the Bank of Scotland at Montrose, and I have just resigned that agency. William Begg Scott, the bankrupt, was a baker in Montrose for some years before 1885, and was a customer of the bank. In 1885 he got into embarrassed circumstances, and thereupon effected private arrangement with some of his creditors, having promised them a dividend of 8s. per pound. At that time he was due the bank an unsecured debt of fully £300. I did not obtain payment of any dividend on behalf of the bank; I tried to get it but failed. The bankrupt was unable to pay it, and accordingly no settlement was made with him by me on behalf of the bank…. No public sale of his effects took place at that time. … I cashed one or two cheques which I knew were payments of dividends to his creditors, and in particular there was one of £14, 12s. 6d. which I cashed to Mr Andrew Greig, solicitor, Montrose, in the ordinary course of business; I received no acknowledgment for the money, so far as I remember, beyond delivery of the cheque. Shown No. 15 process, a receipt dated 1st June 1885, by Mr Greig for £14, 12s. 6d.—Depones—“I have no recollection of having seen it before until recently; I would not have taken such a document as the receipt for the money…. The bankrupt continued insolvent from 1885 to the date of sequestration. I gave him credit on the faith of his business, his furniture, and his right of succession to Mr and Mrs Gouk's estates.”

The Sheriff-Substitute on 16th August 1888 pronounced this interlocutor:—“Finds that the pursuers have failed to prove that the household furniture and effects in question belong to them, or that they have any title to retain possession of them; therefore recals the interim interdict granted on the 25th day of November 1887, assoilzies the defender from the conclusions of the action, finds the defender entitled to expenses,” &c.

The pursuers appealed to the Sheriff ( Guthrie Smith), who on 31st October 1888 dismissed the appeal, and affirmed the interlocutor appealed against with expenses.

“ Note.—The furniture in question was originally the property of Scott the bankrupt, and it was in his apparent possession at the date of his sequestration, which is enough to entitle the trustee to dispose of it for the benefit of his creditors unless the pursuers can show some right to it. Their allegation is, that becoming insolvent in 1885, when he was in business in Montrose, he compounded with some of his creditors—one of whom was his mother-in-law, the late Mrs Gouk—and it was then agreed that she should take the furniture at the valuation put upon it (£50, 7s. 6d.) in payment of her claim, and accept cash for the balance, £14, 12s. 6d., which it is proved was paid. Without inquiring too minutely into how Mrs Gouk's claim arose, I am willing to accept the note of settlement produced in process as reasonable evidence of the alleged sale, and I shall assume that this note would have entitled Mrs Gouk at any time before sequestration to have claimed delivery of the furniture from the bankrupt. But unfortunately for the pursuers she did nothing of the kind. It was left in Scott's possession, and with the buyer's consent was carried by him from Montrose to Bervie. It is now said that this was done on the understanding that it was lent by Mrs Gouk to her daughter Mrs Scott. But this, if proved, is too thin a quality to distinguish the case from Anderson v. Buchanan, 11 D. 270, and others of that class, which decide that a sale by an insolvent of his household furniture retenta possessione confers no right on the purchaser in competition with creditors. On this ground the judgment of the Sheriff-Substitute appears to me to be right.”

The pursuers appealed to the Court of Session, and argued—There had been a bona fide sale. It did not suit Mrs Gouk's purpose to remove the furniture from Mr Scott's house. This was not the case of the purchase of a bankrupt's furniture for himself. She had got delivery, and had a jus in re in the furniture, or alternatively she, and accordingly her representatives, were entitled to delivery now under section 1 of the Mercantile Law Amendment Act 1856 (19 and 20 Vict. c. 60)— Orr's Trustee v. Tullis, July 2, 1870, 8 Macph. 936; M'Bain v. Wallace & Company, January 7, 1881, 8 R. 360, and July 27, 1881, 8 R. (H. of L.) 106; Duncanson v. Jefferis' Trustee, March 4, 1881, 8 R. 563; Robertsons v. M'Intyre, March 17, 1882, 9 R. 772; Anderson v. Buchanan, December 22, 1848, 11 D. 278 ( per Lord Moncreiff diss.); The Heritable Securities Investment Association (Limited) v. Wingate & Company's Trustee, July 8, 1880, 7 R. 1104 ( per Lord Young diss.); Cropper & Company v. Donaldson, July 8, 1880, 7 R. 1115 ( per Lord Young diss.)

Argued for respondent—The Sheriff-Substitute had taken the correct view here. The onus of proving the furniture to be theirs lay on the appellants. They had not discharged that onus. Possession by the bankrupt was presumption of ownership. There was no evidence here either of a debt due to Mrs Gouk or of a bona fide sale. The furniture remained just where it was, and was removed by the bankrupt among his effects to Bervie. There had been no actual delivery, or anything equivalent to it. There was no possession by the bankrupt on any other title than property, whereas to transfer a jus in re to the

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purchaser where the furniture remains with the seller there must be possession by the seller upon a fresh contract— Wingate ( supra). There was no jus ad rem under the Mercantile Law Amend-ment Act— M'Bain v. Wallace ( supra). Lord Blackburn's opinion relied upon by the appellants was to this effect, that where the purchaser allows the seller to keep possession of the goods in a way quite inconsistent with his jus ad rem, the property is attachable by the seller's trustee in bankruptcy, and the Mercantile Law Amendment Act does not apply— Sim v. Grant, June 3, 1862, 24 D. 1033 ( per L.J.-C. Inglis; Robertsons v. M'lntyre ( supra) was not in point. This alleged transaction was struck at by the Act 1621—Goudy on Bankruptcy, p. 56.

At advising—