Scottish Court of Session Decisions

Upon 18th March 1889 Charles Reynolds & Company, warehousemen, London, brought an action in the Sheriff Court at Aberdeen against John Grieve & Company, auctioneers there, for the sum of £79,16s. 2d., being the balance of a mercantile account, and upon 20th April 1889 used an arrestment on the dependence of the action in the hands of the Town and County Bank, Limited, Aberdeen, to the extent of £100.

Upon 27th April 1889 Messrs Grieve & Company entered into an arrangement with

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Messrs Reynolds & Company, under which they placed £100 in the hands of David Littlejohn, Sheriff-Clerk, Aberdeen, and got the arrestment withdrawn. The agents for Messrs Reynolds & Company wrote to the bank that this had been done “in respect that the amount arrested has been consigned in the hands of the Sheriff-Clerk,” and the sum was entered in the consignation-book belonging to the Sheriff Court in ordinary form. No receipt was given, as receipts for money consigned were not usual, but to please the agent for Messrs Grieve & Company the consignation was entered by the Sheriff-Clerk-Depute upon the principal interlocutor-sheet of the process in the depending action.

The estates of the said Messrs Grieve & Company were sequestrated upon 19th June 1889. William Stiven, accountant, Dundee, was appointed trustee, and to him the dependence of the above action was duly intimated. He, however, did not sist himself, and upon Messrs Grieve & Company failing to find caution for expenses, decree went out against them by default, with expenses.

Messrs Reynolds & Company thereupon demanded payment of the said sum of £79, 16s. 2d. and expenses out of the £100 in the hands of the Sheriff-Clerk, who, upon the trustee in bankruptcy claiming right to the whole £100, raised an action of multiple-poinding, with the said £100 as the fund in medio.

The claimants Messrs Reynolds & Company pleaded—“(1) The fund in medio was judicially consigned in the said action at the claimants' instance against the said John Grieve & Company in the hands of the pursuer as the Clerk of Court, in security and for payment to the claimants of such sums — principal, interest, and expenses—as might be decerned for in their favour. (5) Extrajudicial consignation, all parties concurring, is quite as good and effectual for the aforesaid purposes as judicial consignation. (7) The said consignation, whether judicial or extrajudicial, is not a voluntary preference to the prejudice of the said John Grieve & Company's other creditors, struck at by the Act 1696, c. 5, or reducible at common law, or in respect of the sequestration. (8) The claimants having obtained decree in the said action for the amount sued for with interest and ex-penses, the right of the claimants to the free fund in medio, whether the same was judicially consigned as aforesaid or only extrajudicially consigned as aforesaid, or to so much of the said fund as is necessary to satisfy their claims, is preferable to that of the said William Stiven, as trustee for the creditors of the said John Grieve & Company, and the claimants are therefore entitled to be ranked primo loco on the free fund in medio in terms of their claim.”

The claimant William Stiven, the trustee in bankruptcy, pleaded—“(1) The arrest—ment by the defenders, the said Charles Reynolds & Company, having been used within sixty days of the bankruptcy of the said John Grieve & Company, the same became inept, and the arrested money became the property of the creditors of the said John Grieve & Company, and is now claimable by the defender, the said William Stiven, as trustee foresaid. (2) There could be no judicial consignation of the said sum of £100 without the sanction or interposition of the Court, and the alleged entry in the consignation-book and marking on the interlocutor sheet by the Sheriff-Clerk were not judicial acts affecting the legal rights of parties or constituting judicial consignation. The Sheriff-Clerk can only perform a judicial act under the authority of the Court. (3) The deposit of the said sum of £100 cannot in the circumstances give the defenders, the said Charles Reynolds & Company, a higher right than they held under their said arrestment, and that arrestment having been cut down by the sequestration, the present claimant is entitled to be preferred to the fund in medio. (4) The bankrupts, the said John Grieve & Company, having been in a state of hopeless bankruptcy at the time when the said deposit was made, were not entitled to do anything to change the condition of matters under which a preference would be given to any creditor, and especially to a creditor whose debt was bona fide disputed to the prejudice of the general body of creditors. (5) In the whole circumstances the present claimant is entitled, as trustee foresaid, to be ranked preferably on the fund in medio as claimed, and the opposing claimants ought to be found liable in expenses.”

The Sheriff-Substitute ( Brown) allowed the claimants a proof, which brought out the facts given above, and thereafter pronounced the following interlocutor—“Finds in law …( b) that consignation of the sum in question was duly made in the hands of the Sheriff-Clerk; (c) that said consignation is not struck at by the Act 1696: Therefore repels the claim for the said William Stiven, as trustee on the sequestrated estate of the said John Grieve & Company: Sustains the claim for the said Charles Reynolds & Company, and ranks and prefers them on the fund in medio in terms thereof, &c.

“ Note.—… The first point in the case raises the legal effect of placing the money in the hands of the Sheriff-Clerk. There seems to me to be no room for doubt as to what was the intention of the pursuers at least, for they had arrested the bankrupt's funds, and persistently declined to recal the arrestment until, as they believed, consignation had been made. I think it is very clear that the defenders in the original action were not in any way improving their position by the course to which they acceded, but the Sheriff-Clerk made it perfectly plain that consignation was the result of the negotiations about which he was consulted, and apart from that, the money having been lodged on the demand of the pursuers, who so intended, I think the trustee cannot now be heard to plead an understanding to the contrary, more especially as the agent who represented the bankrupt does not say that consignation was not mentioned. Indeed, I do not understand what deposit in the hands

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of the Sheriff-Clerk means. He was not the medium through which such a private arrangement as the trustee contends for fell to be effectual, and I cannot doubt that he received the money only on the condition that it should be subject to the orders of Court, and would have declined to have anything to do with it on any other footing, and, as I have already said, he made that quite plain. Still, the trustee urges that neither the intention of parties, nor a reasonable inference from their negotiations, nor an entry by the Sheriff-Clerk in the register of consigned moneys, nor a marking to that effect in the interlocutor-sheet, has the effect of judicial consignation until the Sheriff makes an order. In practice, so far as my experience goes, consignation is not determined by any rigid rule, consigned money being dealt with as subject to the orders of Court just as commonly when it has been voluntarily as formally made. The question really is one of mere definition, for in several cases the Court have recognised consignation by arrangement as carrying the same efficacy as when made judicially— Gordon v. Brock, November 13, 1838, 1 D. 1: Pollock v. Scott, July 16, 1844, 6 D. 1297; Campbell, December 2, 1858, 21 D. 63.

“But the trustee says, in the second place, that assuming effective consignation to have been made, the transaction is struck at by the Act 1696… . My opinion is that the challenge under the statute is not well founded. In the first place, I think the point is concluded by authority, for in Gordon v. Brock it was held that the trustee of a bankrupt had no claim on money consigned by him, Lord Gillies remarking, ‘To say that this is defeated by the bankruptcy would just be to make every consignation a mere mockery.’ The ratio of the principle there applied apparently is that consignation operates as a cash payment through the medium of the Court, the consigned money indeed being subject to arrestment to the extent of any balance after the orders of Court are satisfied, but otherwise being not only earmarked, but placed by the bankrupt beyond his control, and specifically appropriated. No doubt the consignation was conditional on the issue of the action, and if the defence had been successful it would have reverted to the bankrupt, and as a consequence fallen to his trustee, but Reynolds & Company having prevailed, the decree of the Court in their favour, operating retro, practically puts the consigned money in the position of a cash payment.

“The trustee has founded on a number of other considerations. He represents, for example, that when consignation was made on 27th April the bankrupt was in desperate circumstances within the knowledge of Reynolds & Company, and indeed that they are jointly with the bankrupt concerned in obtaining a preference over the other creditors. That the transaction of 27th April could in any sense be regarded as collusive is clearly out of the question, because the parties met with very diverse views, and it was only after much insistence that Reynolds & Company got their terms, it being obviously of much importance to John Grieve & Company that their credit should be restored by recal of the arrestment. But I do not see a particle of evidence from which it can be inferred that Reynolds & Company had any knowledge whatever of the affairs of John Grieve & Company, and in converting a mere security into a fund specially dedicated for their behoof they were only pursuing their lawful rights, it appearing to the bankrupt, on the other hand, that it would be for his benefit in the ordinary course of business that they should have this advantage.”

The trustee appealed to the Sheriff ( Guthrie Smith), who affirmed the Sheriff-Substitute's interlocutor.

“ Note.—It is well settled that money consigned in a depending process ceases to be part of the bankrupt's estate of the person consigning it. The Sheriff-Clerk becomes custodier or trustee for the party in whose favour the process may ultimately be decided. If the defender succeeds, he will get it back; if he fails, the other party will be entitled to it. It is in fact conditional payment, the condition being that the creditor who has brought the action will succeed in making the claim good to meet which the consignation has been made. I agree with the Sheriff-Substitute that there is no difference between consignation judicially ordered and consignation arranged by the parties, for in either case the money through the medium of the Clerk of Court is placed in manibus curice. This being the nature of the transaction, I do not see how the trustee can re-claim the fund whether the bankrupt succeeds or no, for, as Lord Gillies puts it in the case of Gordon v. Brock, 1 D. 1, what is the meaning of consignation if it is not ‘to provide against the risk of the debtor's bankruptcy.’ It is evidently one of those cases in which the trustee, on the principle of tantum et tale, is bound by the act of the bankrupt just the same as if he had withdrawn his defence and made payment of the debt. Arrestment is a different matter. That is a diligence done by the creditor for his own protection, and requires to be cut down when executed within the period of constructive bankruptcy with a view to the equal distribution of the estate. But I cannot accede to the view of the trustee, that because the bankrupt in this case was forced to make consignation in order to get rid of the arrestment of his bank account, it is to be treated as the substitution of one form of security for another, and that both are equally challengeable in the interests of the general body of creditors. The argument probably would have prevailed if the depositary chosen had been a private party, but the moment the money was placed sub judice, the matter was ended as far as the bankrupt was concerned if the case ended against him.”

The trustee appealed to the Court of Session, and argued—There was no payment here, nor even judicial consignation, but only a private arrangement under which

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by means of a deposit another and better security was attempted to be surrogated for that obtained by the arrestment itself used within sixty days of bankruptcy. This attempted preference fell to be reduced under the Bankruptcy Act of 1856, section 12, as a surrogatum for the arrestment, or under the Act 1696, cap. 5, as a further security granted within sixty days. Convenience, not necessity, led to this security being given. In the case of Gordon, relied upon, the money admittedly did not belong to the bankrupt, whoever had a right to it, and there was there complete divestiture and payment in favour of some one not the bankrupt. Here the debt was disputed and the subject of litigation. It was secured, not paid. Observations by Judges upon consignation equivalent to payment had no bearing upon consignation in security.

Argued for real raiser—There was consignation here in ordinary form, which was equivalent to payment in course of trade, and therefore not struck at by the Act 1696. The consignation was not voluntary, but necessitated by the arrestment. That the payment was conditional upon the creditors making good their claim made no difference. If they succeeded, the money became theirs as from the date of consignation. Extra-judicial consignation had the same effect as judicial— Lockwood, July 4, 1738, Elch. Notes 37; Spier v. Dunlop, May 30, 1827, 5 Sh. 729; Pollock v. Scott, July 16, 1844, 6 D. 1297; and especially Gordon v. Brock, November 13, 1838, 1 D. 1.

At advising—