Scottish Court of Session Decisions

Upon February 18th 1893 the estates of Hugh Adair, writer, Stranraer, were sequestrated. Among his assets was found a bond and disposition in security for £400 by the firm of Adair & Thorburn (of which he was a partner), and the individual partners thereof, over certain heritable subjects in Stranraer, dated 13th and recorded 14th December 1877. William Gibson Belford, writer, Stranraer, as his trustee, made up a title to this bond. The subjects were burdened by a prior bond and disposition in security for £1000 dated 28th and recorded 29th June 1877, granted by the firm in favour of the trustees of the late John Kerr, and afterwards

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acquired by John Marquis Rankin, solicitor, Stranraer, as judicial factor on the estate of Mr and Mrs John Adair, both now deceased.

On 10th August 1894, after the usual statutory premonition and advertisement, Belford, Adair's trustee, exposed the property for sale by public roup under the powers of sale contained in the bond. It was sold for £1172.

Upon the same date Belford gave notarial premonition (which bore to be granted with consent of the firm of Adair & Thorburn, and the individual partners thereof) to Rankin that payment would be made at Martinmas 1894 to him as judicial factor of the sum of £1000, the whole sum contained in the bond and disposition in security held by him, and that in ease of his absence or refusal the sum would be consigned in bank in terms of section 119 of the Titles to Land Consolidation (Scotland) Act 1868.

In October 1894 Rankin intimated his refusal to take payment of the amount due under his bond at Martinmas, or to give any account of his intromissions with the rents of the subjects which he had been collecting since February 1893.

In December 1894 thereafter Belford raised an action against Rankin in which he concluded, inter alia (second) for declarator that the notarial premonition given by the pursuer with consent of the said Adair & Thorburn and Alexander Adair and James Thorburn to the defender was valid and effectual, and that the defender was bound to have accepted payment of the said bond at the said term; and further that the defender, as judicial factor foresaid, was now bound to accept immediate payment of the amount remaining due under the said bond and disposition in security as at the term of Martinmas 1894, with interest on the principal sum at 2 per cent., or at bank deposit rate, from the said term until payment; (third), that on payment or consignation being made, the defender should be ordained to execute and deliver a valid discharge of the bond and disposition in security. The price of the property under deduction of expenses was consigned in bank in names of the purchaser and of Belford.

The defenders averred— “(Ans. 6) The premonition is referred to. Explained that it is not signed by Adair & Thorburn, nor any of the partners of that firm, nor does it bear to be signed by anyone on their behalf. At the date of said premonition the pursuer had divested himself of his rights under his bond by selling the subjects, and the purchaser, who thus became proprietor, was no party to the premonition.”

The defender pleaded— “(1) No title to sue. (2) The pursuer's averments are irrelevant. (3) The necessary statutory notice of payment not having been served upon the defender, et separatim, the defender not being bound to accept intimation from the pursuer as sufficient, he is entitled to absolvitor. (4) The pursuer having no right or title to insist upon the defender accepting payment of the amount of his bond, the defender is entitled to absolvitor with expenses.”

Upon April 23rd 1895 the Lord Ordinary ( Stormonth Darling) sustained the fourth plea-in-law for the defender, and assoilzied him from the conclusions of the summons.

“ Opinion. —Messrs Adair & Thorburn, wood merchants, Stranraer, were proprietors of certain heritable subjects in that town, over which they granted (1) a bond and disposition in security for £1000, dated 28th and recorded 29th June 1877, and now held by the defender; (2) a bond and disposition in security for £400, dated 13th and recorded 14th December 1877, and now held by the pursuer; and (3) a further bond of which the particulars are not given. The firm of Adair & Thorburn and the individual partners thereof were sequestrated in August 1885, but the trustee in the sequestration did not take up the property, as there was no prospect of any reversion after meeting the bonds. The pursuer as second bondholder gave the usual statutory premonition, and on 10th August 1894 exposed the property to sale by public roup under the powers contained in his bond. The property was sold for £1172. On the same day he made premonition to the defender as first bondholder that payment would be made to him of the sum of £1000 with interest at Martinmas 1894. The defender refused to take payment of the amount due under his bond, and the present action has been brought to compel him to take payment and to discharge the bond. The summons also contains conclusions calling upon the defender to account for his intromissions with the rents of the property since he entered into possession under an action of maills and duties, but these conclusions are merely for the purpose of ascertaining the sum due to the pursuer under his bond, and are purely ancillary to the main conclusion. The real question therefore is, whether the pursuer as second bondholder can compel the first bondholder to discharge his bond?

I am of opinion that he cannot. It may be difficult to see what the defender's precise interest is to resist this demand, because most bondholders would probably be quite satisfied to receive payment in full where the margin is so small as it is here. The defender says that he is satisfied with his investment, and does not wish it disturbed, but whatever be his motive he demands a judgment on the legal question, and I think he is entitled to it.

Section 123 of the Titles to Land Act 1868 provides that, upon a sale being carried through in terms of the Act, and upon consignation of the surplus of the price, if any (in terms of section 122), ‘the disposition by the creditor to the purchaser shall have the effect of completely disencumbering the lands and others sold of all securities and diligences posterior to the security of such creditor as well as of the security and diligence of such creditor himself.’ It will be observed that this section says nothing of any security prior to the security of the selling creditor. It is true that section 48

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of the Conveyancing Act of 1874, which provides for the case of there being no surplus, does provide that the disposition by the creditor to the purchaser shall, when recorded along with a notarial certificate of there being no surplus, have the effect of completely disencumbering the lands of all securities and diligences prior and posterior to the security of such creditor as well as of the security and diligence of such creditor himself. But it cannot have been intended to make the right to pay off a prior bondholder dependent on the mere accident of there being no surplus. It is also true that section 122 of the Titles Act, in defining the surplus which is to be consigned in bank, uses the words ‘after paying all previous encumbrances, and the expense of discharging the same.’ But this, I think, only amounts to an assertion that there can be no surplus until previous encumbrances are provided for. It implies that previous encumbrancers are willing to discharge their bonds; it does not enact that they can be compelled to do so.

The question, however, seems to me to be concluded by the opinions expressed in the case of Nicholson's Trustees v. M'Laughlin, 19 R. 49, which decided that, where there are two pari passu bondholders, either might bring the security-subjects to sale without consent of the other, but the security of the other would remain unaffected thereby. Lord M'Laren, in particular, assimilates the case of a pari passu bondholder to that of a prior bondholder. His Lordship says—‘I cannot see that either the debtor or the pari passu creditor has an interest to prevent the other pari passu creditor exercising his power of sale. The debtor has to pay up the debt. The other creditor can have no interest, because the effect of a sale is only to disencumber the lands of postponed securities. The security of a pari passu creditor is in no way affected by the sale, because his right does not fall within the description of a security posterior to that of the seller. In this respect there is no difference between the position of a creditor who ranks pari passu and that of a preferable creditor. Their securities are unaffected by a sale under the power. The true answer to the argument of the pursuer is, that he has an effectual power of sale, but that he can only sell subject to the right of the defender. The pursuer, therefore, may either arrange with the defender to pay off his bond, or he may sell the lands subject to the defender's security.’ Lord Kinnear says of the selling bondholders—‘They cannot compel the defender to realise her security,’ and if that be true of a pari passu creditor, much more must it apply to a prior one.

The recent Heritable Securities Act (57 and 58 Vict. c. 44), sec. 11, contains a provision (no doubt with the case of Nicholson in view) that any pari passu bondholder, who is unable to obtain the consent of another creditor in the same position, may apply to the sheriff for warrant to sell, and the sheriff may authorise both or either of the parties to carry through the sale, and to convey and to disencumber the lands of both securities as fully as if the creditors were carrying through the sale by agreement. But this section does not mention and cannot affect the case of a prior bondholder.

I was referred to a series of cases (of which Cunningham's Trustees v. Hutton, 10 D. 307, is an example) in which it has been held that a postponed heritable creditor is entitled, on payment by him of a first heritable debt, to demand an assignation thereto, if he can show that such assignation is necessary to enable him to recover his own debt. But these were all cases in which the prior creditor had consented to be paid off, and was willing to grant a discharge, the only question being, whether he was not bound to grant something more, viz., an assignation. They cannot therefore affect the question whether he can be compelled to grant a discharge at the instance of a postponed bondholder. My opinion is that he cannot be compelled to do so, either at common law or under the statutes, at the instance of anyone but the debtor in the bond. It is said that here the debtors concur, but the debtors have now no interest in the subjects, and one of them at least is still under sequestration. Even if this were not so, I do not think that mere concurrence would supply the want of title in the pursuer, and my view is that the pursuer has no title to make the demand which he does. I shall therefore sustain the fourth plea-in-law for the defender, and assoilzie him with expenses.”

The pursuer reclaimed—The premonition was given upon 10th August 1894; that was sufficient intimation to the prior bondholder, and gave him time to find a new investment by Martinmas. It was given with consent of the debtors in the security, both as a firm and as individuals, and, under the Titles to Land Act, 1868, if the value of the prior bond was paid or consigned in bank, the bondholder was bound to give a discharge, so as to enable the seller to give a clear title to his purchaser, which he was bound to do— Cunningham's Trustees and Others v. Hutton, 18th December 1847, 10 D. 307.

The respondent argued—The premonition was net given by the debtor in the bond, but by some one who had no title to sue; the concurrence of the debtor could not give him a title. The defender was not bound to give a discharge if he was not willing. The Titles to Lands Act, 1868, by section 123, only provided that a sale by a creditor should have the effect of disenencumbering the lands of posterior securities, and the Heritable Securities (Scotland) Act, 1894, only provided that the sheriff should grant warrant to sell the lands which were the subject of the security, and upon payment or consignation of the price of a pari passu security should give a title to the lands, but that did not apply to the case of a prior bondholder.— Nicholson's Trustees v. M'Laughlin, November 4, 1891, 19 R. 49; Park v. Alliance Heritable Security Company, January 24, 1880, 7 R. 547.

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At advising—