Scottish Court of Session Decisions

Messrs Martin, Turner, & Company were a firm of merchants and mercantile commission agents in Glasgow. The partners of this firm also carried on business under the separate name of Martin, Dyce, & Company in Batavia, Sourabaya, Singapore, Manila, and Ilo Ilo. The Glasgow house was the principal house, the other houses being branches. One contract of copartnery embraced all. The copartnery suspended payment on 29th February 1884, and placed their affairs in the hands of William Anderson, C.A., Glasgow. Shortly before that date Messrs William Gardner & Company and Messrs William Galloway & Company, both of Glasgow, had consigned to the bankrupts, as agents, a quantity of goods for sale abroad, and against these goods Martin, Turner, & Company had made advances in the shape of acceptances to the consignors, which had been discounted by the latter with the Clydesdale Bank (Limited). Upon certain of the goods shipped by William Galloway & Company Martin, Turner, & Company had made cash advances.

After the suspension William Galloway & Company and William Gardner & Company and the Clydesdale Bank applied to Mr Anderson, who represented the bankrupts and certain of their creditors, for the goods consigned, as already mentioned, and after some negotiations an agreement was arrived at, which was embodied in certain letters.

With reference to the consignment by William Gardner & Company, the agreement was contained in the following letter written by Mr Cunninghame, the manager of the bank, on March 5th, to Martin, Turner, & Company:—“Gentlemen,—By request of Messrs William Gardner & Company, wholesale umbrella manufacturers, Glasgow, we beg to state that, upon condition of your transferring to them or their order the goods consigned by them through you, so far as unsold, and the proceeds of goods sold but not remitted for, we shall not claim against you upon the bills drawn against these consignments as enumerated in the subjoined list, except to the effect of recovering the remittances already in your hands, or in transit.” The list referred to contained 28 bills, together amounting to £7964.

With regard to William Galloway & Company, the agreement was expressed in the two following letters written by the manager of the bank on March 6th to Martin, Turner, & Company. The first was in these terms Gentlemen,—By request of Messrs William Galloway & Company, manufacturers, Glasgow, to whom we discounted the under-mentioned bills accepted by you, we beg to state that, on condition of your handing over to the said William Galloway & Company, or their order, the goods, so far as unsold, consigned through you to Martin, Dyce, & Company, and against which these bills were drawn, and the proceeds, whether in cash or promissory-notes, of such consignments as have been sold but not remitted for, we shall not claim against you for the bills referred to, except to the effect of recovering the remittances already received by you, or which are in course of transit to you.” The bills referred to were ten in number, and together amounted to £3740.

The second letter was in these terms:—“Gentlemen,—With reference to goods shipped through you by Messrs William Galloway & Company, and upon which you have yourselves given them cash advances, we hereby undertake to account to you for such proceeds of these goods as may reach us through the hands of Messrs Ker, Bolton, & Company, or whoever may transmit the same to us. You will understand, however, that this undertaking does not in any way apply to goods or proceeds thereof applicable to bills current between you and Messrs William Galloway & Company discounted by us. P.S.—The goods against which you have made cash advances are described by you as follows”—[Here followed a list of shipments, the total values set against which were £614].

On 7th March the estates of Martin, Turner, & Company and Martin, Dyce, & Company were sequestrated by the Sheriff of Lanarkshire, and on 19th March Mr Anderson was appointed trustee on the sequestrated estates.

The trustee Mr Anderson obtained possession of the bankrupts' assets in this country, Singapore, Batavia, and Sourabaya, but was unable to obtain possession of the assets so far as situated in Manila and Ilo Ilo, as the creditors in these places appointed local liquidators and took possession of the assets, which they refused to give up.

After the sequestration the goods consigned, so far as unsold, in the possession of any of the foreign branches, were transferred by Martin, Dyce, & Company to Messrs Ker, Bolton, & Company, a firm which had been chosen to act as agents for the consignors abroad, and the proceeds of these goods, as they were realised, were transmitted by this latter firm to the bank. The amount of remittances in transit at the date of suspension, and dealers' bills received specially in payment of goods, were also transferred to the consignors, and received by the bank. On the other hand, the proceeds of the consigned goods which had been sold prior to the suspension of payment were not handed over to the bank, as these were found to be mixed with the general funds of the bankrupts either at home or abroad, viz., to the extent of £1562,

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9s. 6d. with the funds of Martin, Turner, & Company at home, and £967, 19s. 2d. with the funds of Martin, Dyce, & Company at Singapore and Batavia.

Messrs Gardner & Company and Messrs Galloway & Company claimed in the liquidation carried on in Manila and Ilo Ilo, and were allowed to rank for the amount of the roceeds of goods consigned to Martin, Dyce, & Company at Manila and Ilo Ilo, and sold but not remitted for at the date of suspension of payment. Upon these rankings dividends of 40 per cent. were paid, which, after deduction of Messrs Ker & Company's commission, yielded to Messrs Gardner & Company £1015, Is. 6d., and to Messrs Galloway & Company £738, 2s. 4d., and were handed by them to the Clydesdale Bank.

The Clydesdale Bank lodged claims in the sequestration carried on at home for £4792, 4s. 10d. and £1982, 3s. 11d., being the entire amount of the bills discounted by them, less the value of the unsold goods handed over, and any cash or bills received from the trustee or the consignors, with the exception of the dividends received by the latter in Manila and handed to the bank, but these claims were rejected by the trustee in toto, in respect of the agreement embodied in the letters above quoted.

The Clydesdale Bank then appealed to the Sheriff against the deliverance of the trustee. The bank referred to the letters of 5th and 6th March above quoted, and averred—“The proceeds of goods sold but not remitted for, and the remittances in the hands of the bankrupts or in transit at the date of the said letters, were never paid over to the appellants, and the present claim is made to the effect of recovering the amount of these preferably out of the sequestrated estates.”

The trustee also founded on these letters as containing an agreement on the part of the bank not to seek a ranking on the bankrupts' estates, and he further founded on the fact that the bank had received the amount of the dividends obtained by Messrs Galloway & Company and Gardner & Company from the Manila liquidation.

The bank pleaded—“(2) The remittances in the hands of the bankrupts or in transit, and the proceeds of goods sold but not remitted for at the date of the letters founded upon, not having been recovered by the appellants, the respondents' deliverances are not well founded, and ought to be recalled. (3) The appellants being willing to account for proceeds of goods on which the bankrupts had made cash advances, the present appeal ought to be allowed with expenses.

The trustee pleaded—“(2) The appellants having received delivery of the unsold goods, and also payment of the proceeds of goods sold obtained by the respondent, all in terms of the agreement expressed in said letters, are not entitled to be ranked for the advance bills founded on. (3) Separatim — The appellants having illegally obtained payments or preferences abroad, after the date of the sequestration, out of the bankrupts' estate or effects, which were carried by the respondent's act and warrant, are bound to communicate and assign to the trustee such payments or preferences, obtained or to be obtained, before they can be ranked to any extent or draw any dividend out of the funds in the trustee's hands. (4) In any case, the appellants were not entitled to be ranked for more than the proceeds of sold goods not handed over to the consignors or the appellants; and as the amount already received by the appellants out of the Manila portion of the estate exceeds the dividends which they would have obtained if ranked in the sequestration, they are not entitled to be ranked thereon, at least until the other ordinary creditors draw an equal amount from the sequestration funds.”

From the proof in the action, in addition to the facts already stated, the following facts appeared—For a number of years the firms of William Galloway & Company and William Gardner & Company had been in the custom of sending through Martin, Turner, & Company goods to Martin, Dyce, & Company for sale abroad, Martin, Turner, & Company and Martin, Dyce, & Company guaranteeing the solvency of purchasers. In some cases Martin, Turner, & Company made cash advances on the goods, but usually bills were drawn by the consigning firms on Martin, Turner, & Company for a considerable proportion of the value of the goods consigned, and discounted with the Clydesdale Bank. With regard to remittances, the practice was for Martin, Dyce, & Company to make telegraphic transfers to Martin, Turner, & Company of slump amounts and follow them up by letters giving details of the remittances for the purpose of division among the various parties on behalf of whom the remittances were made. But even when these arrived the funds in question were not at once distributed. Whenever the telegraphic transfers were made, the funds were paid into Martin, Turner, & Company's bank account and mixed with their general funds; and in many cases they were not paid over on the arrival of the letters, as they were retained to meet the bills drawn against them. Any surplus remaining after the bills had been paid was handed over to the consignors. In Manila the liquidators, while allowing Gardner & Company and Galloway & Company the ranking already mentioned, refused to sustain any claim in respect of remittances sent by Martin, Dyce, & Company to Martin, Turner, & Company. On certain of the goods, for the value of which Gardner & Company and Galloway & Company were ranked in Manila, Martin, Turner, & Company had made cash advances to the extent of £234.

The Manila liquidation having only paid a portion of their claims, Messrs Gardner & Company and Messrs Galloway & Company claimed in the sequestration carried on at home, but their claims were rejected by the trustee, because they refused to give up to him the dividends obtained by them in Manila.

On 11th May 1889 the Sheriff-Substitute

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( Erskine Murray) pronounced the following interlocutor:—“For the reasons assigned in the note annexed hereto, recals the deliverance of the respondent Anderson, Martin, Turner, & Company's trustee, in so far as it absolutely rejects the claim of the appellants the Clydesdale Bank; but sustains the same in so far as it is to the effect that the proper basis of settlement between the parties was, and still is, the agreement embodied in the letters of 5th and 6th March 1884 (quoted in his minute), however it may have been affected by the disturbing action of third parties; and that the object should be, in dealing with such matters as have been so affected, to bring about a result as nearly as may be the same as would have existed had such action never taken place: Finds (1) the appellants entitled to a ranking under their bills to the extent of the remittances received by the bankrupts on behalf of Messrs Galloway & Company and Gardner & Company, and not accounted for by them or the respondent to Messrs Galloway and Messrs Gardner or the Clydesdale Bank, being £1562, 9s. 6d., plus a ranking for £967,19s. 2d., being a sum held for Gardner & Company and Galloway & Company by Martin, Turner, and Company's Singapore and Batavia branches, all whose assets were subsequently received by respondent, and which must therefore be held to be in the same position as the previous remittances: Finds (2) that in settlement the respondent will be entitled to set against any dividend to be paid by him under the above ranking the dividends received by the bank in respect of claims made by Gardner & Company and Galloway & Company at Manila, for the prices received for goods on which Martin, Turner, & Company had themselves made the £234 of advances referred to in the second letter of 9th March 1884: Finds (3) that the respondent is not in the circumstances entitled to demand that the appellants shall give up to him as a condition of a ranking the other dividends received by Gardner & Company and Galloway & Company out of the Manila estate in respect of claims which only referred to the Manila estate: Finds no expenses due to or by either party, and decerns.

“ Note.— A number of questions are thus raised:—

1. What was the position of parties, apart from bankruptcy and the agreements at all? As to this, it is clear that Martin, Turner, & Company, being simply del credere agents, were bound to pay over to Gardner & Galloway the prices received for their goods, and not to mix them up with their own funds at all. Any such mixing was an improper act on their part, though as long as they remained solvent it was a matter of no importance. But they were not purchasers from Gardner or Galloway at all. When they received the prices they received them at the hands of Gardner & Company and Galloway & Company.

2. What was the effect of bankruptcy apart from the agreements? As to this, it is also clear that the bank, as holders of the bills, were entitled to claim for them both on the estates of Gardner & Company and Galloway & Company, and those of Martin, Turner, & Company, till they had got twenty shillings in the pound. But practically they might have had much difficulty in getting possession of the unsold goods, &c., unless their way had been made easy by means of the agreement. And further, the bankruptcy undoubtedly made those funds of Gardner & Company and Galloway & Company, which Martin, Turner, & Company and Martin, Dyce, & Company had so mixed with their own funds as to be no longer distinguishable assets of the general estate, and not preferentially claimable by Gardner & Company and Galloway & Company. Whatever faults Martin, Turner, & Company and Martin, Dyce, & Company may have committed in mixing them up, the fact remains that they are mixed, and therefore all creditors alike had an equal claim on them along with the other assets.

3. What would have been the result under the agreement, had the Manila complication not taken place? What was the result, in fact, that was contemplated at the time of the agreement? The bank would have got, whether from the East or from the trustee, the proceeds of the goods against which the bills discounted by them had been granted, whether sold or unsold at the date of sequestration, except in so far as these proceeds had been already remitted and were mixed up with the funds of Martin, Turner, & Company; while a difficulty, hardly contemplated under the agreement, would have arisen as regards funds mixed up in the colonies with Martin, Dyce, & Company's other funds, The reason of this not being contemplated was possibly, in part, the fact that though the agreement contained in the letters was made on the very eve of sequestration, sequestration had not yet taken place, and therefore Martin, Turner, & Company's obligation as yet remained intact, not merely to pay over moneys which had been kept apart but to separate those that had been mixed. The Sheriff-Substitute considers that as the trustee would have been unable to give up funds which had been mixed up with Martin, Turner, & Company's and Martin, Dyce, and Company's funds, whether at home or abroad, these funds, when so mixed abroad, would have fallen to be dealt with, under the letters, in precisely the same way as they would have fallen to be dealt with had they been mixed up after remittance home; that is, the bank would be entitled to claim for them (under the bills) in the same way as it would be entitled to claim for the remittances mixed up at home.

The point arises whether under the agreement the bank's claim upon the bills would have been (1) a preferential one for the whole amount of the remittances and mixed funds; or (2) a claim for a ranking to the extent of the remittances and mixed funds; or (3) a claim for the total amount of the bills, on which however, they could not recover more than the total amount of the remittances and mixed funds, The second view, on the whole, seems preferable. It must be remembered that at the date of the agreements, as above remarked, though

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Martin, Turner, & Company were on the eve of sequestration, they were not sequestrated; and so the agreements must be read on that footing. A claim on a firm for a certain amount does not necessarily imply more than a claim to rank for that amount if the firm is thereafter sequestrated. If the firm had been already sequestrated, the word might be interpreted to mean a claim in bankruptcy; but that was not the case. The only exception to this would have been the case of remittances in transit. These, as not mixed with Martin, Turner, & Company's funds were separable, and might be the subject of a preferential claim. As a matter of fact the trustee has acknowledged this by paying them over in full to the bank under the agreement.

As regards the effect of the second letter granted by the bank's manager on 6th March, by which the bank agreed to account to Martin, Turner, & Company for the proceeds of goods shipped by Galloway & Company on which Martin, Turner, & Company themselves had made advances, which proceeds might reach them through Ker, Bolton, & Company, one or other of two results might have occurred had the Manila complication not taken place. Either the said proceeds, if not mixed with Martin, Dyce, & Company's other assets, would have been sent by Ker, Bolton, & Company to the bank, which would then have been accountable for them to the trustee under this letter; or, if mixed already, they would not have been paid to the bank, nor would the bank have been accountable for them, as the trustee would have got them along with Martin, Dyce, & Company's other assets.

4. What was the necessary difference owing to the Manila complication between the condition of things in consequence arising, and that which would have existed had it been possible to carry out entirely the original agreement?

It will be observed that by what happened at Manila the trustee was rendered unable to fulfil his engagements that the proceeds of goods sold but not remitted should be handed over to Galloway & Company and Gardner & Company, so far as regarded Manila and Ilo Ilo. No doubt it is true that nearly the same result, irrespective of the Manila complication, would have been brought about by the discovery that the Manila and Ilo Ilo funds were, as a rule, mixed in the same way as they had been mixed at home, and were therefore not transferable in toto. On the other hand, the bank was rendered unable to hand over to the trustee the proceeds of any of the goods on which the £234 had been advanced by Martin, Turner, & Company.

5. In what way has the now existing condition of things been varied by the subsequent actings of parties?

When the trustee proved unable to get hold of the Manila assets he not only sanctioned but encouraged claims being made at Manila by Gardner & Company and Galloway & Company, very properly, because such claims would necessarily relieve the creditors at home. These claims were sustained by the Manila liquidators to the goods unsold (preferentially), and for the value of the goods sold in the Spanish Colonies, of which the price had not been remitted as an ordinary claim. But these claims so sustained did not include any goods, or the price of any goods, either at home or in any other place than in Manila and Ilo Ilo. So they were by no means coextensive with the bills held by the bank, but only affected goods over which a portion of the bills had been granted. On the other hand, Gardner & Company and Galloway & Company claimed at Manila and drew dividends (which were handed over through Ker & Company to the bank), in respect of goods over which Martin, Turner, & Company had made the advances referred to in the second letter of 6th March.

In other respects the agreement under the letters has been carried out by both sides. The goods unsold were transferred to Ker & Company or another firm on behalf of Gardner & Company and Galloway & Company, sold on their behalf, and the proceeds transferred to the bank. Dealers' bills that had been sent home in payment of goods sold were also handed over to the bank. Even remittances in transit were handed over to the bank by the trustee.

Practically the result has been that what would naturally have formed one estate has been dealt with as two—the estate of Martin, Dyce, & Company in the Spanish Colonies, on the one hand, and the estate of Martin, Turner, & Company at home, and that of Martin, Dyce, & Company other than in the Spanish Colonies, on the other hand. On the former estate, Gardner & Company and Galloway & Company have claimed in respect of goods sold but not remitted, and the dividends got on their claims have been handed over to the bank. On the latter estate under the agreement, if it is still binding, the bank are only entitled to claim in respect of the remittances made to the home firm and funds mixed abroad which are exactly in the same position. Thus it will be seen that if the bank are allowed to claim to the above extent, they will not be as the creditors would have been in the cases of Stewart v. Auld, or the Banco de Portugal, ranked twice in respect of the same debt, or getting any funds whatever from two sources connected with the estate in respect of the same debt. They will have got Gardner & Company and Galloway & Company's dividend drawn out of the Manila portion of the estate in respect of part of the debt, the unremitted moneys, and will have ranked at Glasgow in respect of remitted moneys and funds mixed elsewhere than at Manila, besides getting all unsold goods and identifiable payments, such as dealers' bills or in transit.

6. Thus it seems that the effect of the Manila complication has been that while in all other matters the agreement contained in the letters has been carried out, it has been found impossible to carry it out in its entirety as regards the Spanish Colonies, owing to circumstances over which neither

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party had control. Does this, then, break down the agreement altogether, and nullify it? On the whole, the Sheriff-Substitute is unable to come to this conclusion. The parties acted on it as far as they could, and seem to have recognised it as binding, in spite of what was done at Manila. If, then, it is still binding, all that can be done is, as near as may be, to bring out the same results. It seems to the Sheriff-Substitute that the bank by accepting through Gardner and Galloway the dividends received by these firms from the Manila estate, are precluded from claiming on the home estate in respect of the same debt for which Gardners and Galloways claimed at Manila. They try to make out that these are entirely different funds belonging to Gardners and Galloways. But if the agreement is still binding, it seems to the Sheriff-Substitute that their acceptance of these funds seems to be equal to a renunciation in favour of the estate of any further claim in respect of the goods and moneys on which these dividends were given. On the other hand, it is contended by the trustee in debate (though the contention is inconsistent with his own deliverance), that the acceptance by the bank of these sums received by Gardner and Galloway bars the bank from their claim in toto, or at least renders it necessary that as a condition of ranking at home they should give up or credit Gardner and Galloway's Manila dividends. The point is one of considerable difficulty. In the case of Stewart v. Auld, July 10, 1851, 13 D. 1337, where concurrent bankruptcy proceedings relative to the same estate took place in Australia and Scotland, creditors who had ranked in Australia for their whole debt, and drawn dividends thereon, were not allowed to rank again and get another dividend for the same debt in the Scottish proceedings. In the English case of the Banco de Portugal v. Waddell, 16th March 1880, L.R., 5 App. cases, 161, creditors who had claimed and drawn dividends on a foreign bankruptcy of traders who had carried on business at home and abroad, were held bound, before receiving any dividend when they claimed at home in respect of the same debt, to deduct the dividends received abroad. Manifestly such a rule is the only right and fair one for the interest of the creditors as a whole. But between these cases and the present there is, in the first place, the distinction that whereas in them the creditors had already been ranked for the whole debt abroad, in the present case the bank has only come into possession of dividends which were paid on part of the debt, which does not in equity exclude the idea of a ranking here for the rest of the debt. In the second place, it must be remembered that the bank cannot be considered to have ranked directly on any part of the bankrupt estate. No doubt the bank got from Gardner & Company and Galloway & Company the dividends which these firms had got out of the Manila part of the estate; but there is only an indirect and rather equitable than legal claim against the bank (as distinguished from Gardner and Galloway), for the refunding of these sums. If it be held that the bank got these dividends under the agreement, then it follows that they got them just in place of the full prices of goods which they were to have got under the agreement. On the other hand, it must be remembered than in equity Gardner & Galloway, and the bank through them, had a right not merely to demand all these dividends, but the whole proceeds of the goods in full, as Martin, Turner, & Company, who were only their agents, had no right to a single penny of them; and the other creditors, in getting dividends out of any of these proceeds, are really getting payment of debts due them by Martin, Turner, & Company out of funds which ought to have been, and really were (had they been distinguishable), funds of Gardner & Company's and Galloway & Company's, and not Martin, Turner, & Company's at all. The equity, therefore, against the bank's having to give up the sums which the two firms received as dividends seems, therefore, to balance entirely the equity in favour of the bank's having to give them up before getting a ranking for the remainder of the debt, the portion contemplated by the agreement as still claimable under the bills. But in the third place, it must be remembered that the trustee's deliverance is on the footing that the agreement is still good and binding. He cannot take up the opposite ground that it is null and ineffectual, and that parties must be held to their strict rights under the bankruptcy law, and that therefore, as in the case of Stewart, the bank's claim falls to be repelled in consequence of the previous ranking. This would be practically not to sustain but to upset his own judgment. On the other hand, to admit the claim to the extent contemplated in the agreement, subject, however, to the condition that the bank should first deduct all dividends received by Gardner & Company and Galloway & Company at Manila, would, it seems to the Sheriff-Substitute, be also contrary to the spirit of the agreement on which the trustee founds. For were those dividends to be deducted the bank would not under the agreement be getting anything in respect of what may be called the Spanish part of the debt at all. On the whole, therefore, for the above three reasons, the Sheriff-Substitute considers that he cannot compel the bank to throw into the general fund the sums received by them from Gardner & Company and Galloway & Company which these firms drew as dividends at Manila.

An exception of course falls to be made in respect of the sums received by the bank out of the dividends drawn by Gardner & Company and Galloway & Company at Manila in respect of goods on which Martin, Turner, & Company themselves had made the £234 of advances. Under the spirit of the agreement they were bound to hand over these sums to the trustee, and there is no counterbalancing equity to justify them in retaining them.

It seems therefore to the Sheriff-Substitute that on the above footing the agreement is still standing. The trustee is bound

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to rank the bank as on an ordinary claim under their bills for the amount of the remittances, being £1562, 9s. 6d., plus the proceeds of goods falling under the bank's bills mixed up with Martin, Dyce, & Company's funds, other than those at Manila and Ilo Ilo, amounting to £967, 19s. 2d., as stated in the joint minute.

On the other hand, the trustee will be entitled to credit, as against any dividend due under the above ranking, for the dividends received by Gardner & Company and Galloway & Company, and transferred by them to the bank, on the goods for whicn Martin, Turner, & Company's advances of £234 were made.

In the divided result which has been arrived at neither party seems to be entitled to expenses.”

Both parties appealed to the Court of Session.

Thereafter the bank amended their record and claim as follows—(1) They claimed not an ordinary but a preferable ranking for the amount of the claim as lodged. (2) They lodged a new affidavit and claim for the whole amount of the bills without deducting the proceeds of the goods sold which were received by them.

The trustee in answer denied the right of the bank to the preferable ranking claimed, but in the event of it being held that he had failed to implement the conditions specified in the letters quoted above, he offered to give the bank an ordinary ranking for the balance still due under the bills, only, however, on condition that they paid over to him the dividends they received from Manila.

Argued for the Clydesdale Bank—The bank were clearly entitled on the letters to the preferential ranking claimed. At the date of the letters neither Mr Anderson nor the bank could tell how the realisation of the goods sold abroad would turn out, and this introduced an element of transaction or compromise, and thus the preference conferred could not be termed an illegal preference. The agreement, looking to the time at which it was written, was neither ultra vires of a solvent firm to enter into nor ultra vires of the trustee to implement. The trustee recognised the letters, his deliverance being on the footing that they were binding. It was no good answer, if the agreement stood, to say that the proceeds of goods sold prior to the date of the letters had been mixed with the bankrupts' general bank account, for that general account showed a balance. Further, the moneys could be distinguished— Macadam v. Martin's Trustee, November 5, 1872, 11 Macph. 32. With regard to the Manila liquidation, what was recovered there was only the goods unsold, and a ranking on the proceeds of the goods sold, which distinguished the present from the case of Stewart v. Auld, July 10, 1851, 13 D. 1337. Besides, the bank recovered no dividend directly in Manila. What was there recovered was recovered by Gardner & Company and Galloway & Company. The bank was therefore under no obligation to hand over these dividends to the trustee. If the letters were set aside, the bank were entitled at common law to a ranking for the full amount of the bills, without any deduction in respect of securities or part payments elsewhere, provided they got no more than 20s. in the pound. The bank was not bound to hand over the Manila dividends— Gibbs v. British Linen Company, June 23, 1875, 4 R. 630.

Argued for the trustee—The bank's construction of the letters was erroneous. “Proceeds of goods” meant extant prices, not prices of goods sold, whether mixed with the general funds of Martin, Turner, & Company and Martin, Dyce, & Company or not. When an agent mixed up the prices of his principal's goods with his own assets, the principal could only rank after bankruptcy if the money was earmarked, and the Court could not unmix the funds unless (1) it was shown to have been the agent's duty to keep the funds separate, as in Macadam's case, (2). it was de facto possible. Neither of these conditions was present here—Bell's Comm. i. 284, 285 (7th ed.). The letters did not supersede the ordinary methods of bankruptcy law; all that they did was to facilitate those methods, and the trustee's construction has the advantage of agreeing with the common law rules for ranking creditors. If, however, the bank's construction were sound, the effect was to give the bank an illegal preference. Such an agreement could not bind the trustee, and the bank must fall back on its common law rights. But for the events which had occurred in Manila the bank would have been entitled to rank for the full amount of the bills. These events, however, made all the difference. The real claimants in Manila were the bank, who made use of the names of the consignors of the goods as the only way of obtaining the proceeds of goods in Manila, for the trustee's liep precluded independent action by the holders of the bills. For the dividends so obtained the bank must account before claiming in the sequestration. The fact that the bank's claim in Manila was only for a part of their debt did not take the case out of the rule of international law, that if a creditor got into his hands funds of the bankrupt in a foreign country he could not take advantage of a home sequestration unless he brought in the funds so obtained — Bell's Comm. ii. 376 (7th ed.); Westlake's Priv. Inter. Law, pp. 147–151; Banco de Portugal v. Waddell, March 16, 1880, L.R., 5 App. Cas. 161; Wilson, April 18, 1872, L.R., 7 Chan. App. 490. As the bank had obtained in Manila more than if they had been ranked for their whole debt at home, they were entitled to nothing more.

At advising—