Scottish Court of Session Decisions

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Thomas Aitken Gray, tanner and currier, Maybole, died on 16th April 1894. He left a trust-disposition and settlement, by which he assigned his whole estate to certain trustees and executors named, and granted them power to carry on his business in Maybole with the object of selling it as a going concern to the best advantage. The trustees were duly confirmed as executors. At the date of his death Mr Gray was indebted to the Royal Bank of Scotland in the sum of £5217, 17s. 7d. It proved impossible to dispose of the business as a going concern, and the estate proved ultimately to be insolvent, and was sequestrated on 22nd November 1894. Prior to this date, on 27th April, the testamentary trustees had opened two current accounts in their names as trustees and executors with the bank at the May bole branch, on one of which, at the date of sequestration, there was a credit balance of £465, 8s. 5d., and on the other a credit balance of £537, 18s. 7d. James Gibson, solicitor, Maybole, the law-agent of the trustees, who was himself a trustee, had also deposited with the bank four sums, amounting in all to the sum of £4119, 6s., and the deposit-receipts were taken in the name of “James Gibson, solicitor, Maybole, for himself and others, trustees and executors of the late Mr T. A. Gray.”

The testamentary trustees (with the concurrence of the trustee in the sequestration) raised an action against the bank for payment of the balance upon the current accounts above set forth, and Mr Gibson (with the concurrence of the testamentary trustees, and of the trustee in the sequestration) raised a second action for payment of the deposit-receipts.

The defenders pleaded in both actions—“(3) The defenders being justly entitled to retain the sums contained in the said deposit-receipts against, and apply them towards, satisfaction of the debt due to them by the late Mr Gray and his estate, decree of absolvitor should be pronounced with expenses.”

The two actions were heard together both in the Outer and in the Inner House.

Upon 5th July 1895 the Lord Ordinary ( Stormonth Darling) pronounced this interlocutor—“Sustains the third plea-in-law for the defenders, and in respect thereof assoilzies the defenders from the conclusions of the summons.”

Note.—[After stating the facts]—“The answer which the pursuers make to the defenders’ third plea is that compensation (or retention) can only be pleaded where the debts are mutual, and that in the words of Professor Bell (Com. ii. 124) ‘to constitute this mutuality of debt and credit the sums reciprocally due must be owing to the parties in their own right respectively.’ Here the pursuers say there is no mutuality, because the debt due to the bank was a debt due by the deceased, and the debt due by the bank was a debt due to the trustees in the one case, and to Mr Gibson, as representing the trustees, in the other.

The fallacy of this argument is that the debt due to the bank, though originally due by Mr Gray himself, became on his death a debt due by the trustees as his representatives. It was a debt limited no doubt by the amount of the estate in their hands, but that affects merely the extent and not the quality of the obligation. The mutuality of the debts is completely satisfied by the one being due by and the other to the trust-estate. Accordingly, Erskine (Inst. iii. 4, 13), after stating the rule that each of the two parties must be both debtor and creditor in his own right, adds—‘An executor confirmed is in this question accounted the same person with the deceased, for by the confirmation he becomes debtor to the creditors of the deceased, and creditor to his debtors.’

The only case which the pursuers were able to adduce in their favour was an English one in 1855— Bees v. Watts, 11 H. & G. 410. But that was a case which turned on the wording of the English statute of set off, and cannot be an authority on a rule like retention, which is founded on the common law of Scotland.

Further, I think the bank is entitled to absolvitor de plano, for the figures are admitted, and none of the relevant facts are in dispute. In Gibson's action there is an averment that he placed the money on deposit-receipt for ‘safe custody.’ I take it that this is nothing more than a statement of the purpose which everybody has in depositing money with a bank. But in a case— Robertson's Trustees v. Royal Bank, 18 R. 12, in which the words ‘for safe keeping on your account, and subject to your order,’ appeared in the receipt which a bank granted for certain bonds deposited by a customer, the Court held that these words did not constitute a specific appropriation of the securities, and the late Lord President said—‘The presumption is that custody gives a right of retention, and I think that that presumption cannot be rebutted without something express and distinct.

Again, in both actions there is an averment that after the death of Mr Gray it was found to be doubtful whether his estate would prove solvent, and that this fact was well known to the bank. Also it is said that the bank is now trying to take advantage of the trustees having selected it as their bankers to the effect of obtaining an unfair and illegal preference over the other creditors of the deceased. But it is not said that the bank used any unfair means to obtain possession of the money, and it would be exacting rather too high a standard of virtue from a commercial company to expect them to say, when money is offered to them in the ordinary course of business, ‘Don't you think you had better take the money to some other bank in case it may turn out that the estate is not worth twenty shillings in the pound?’ The pursuers say that the trustee in the sequestration holds them personally liable for the money. That may be hard for them, but the considerations which would establish their liability are not before me, and the mere threat of the trustee cannot affect the decision of the present question.”

The pursuers reclaimed, and argued—(1) The bank had no claim for compensation against the debt they owed to the

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trustees in this case. The money was lodged in the bank by the trustees and executors of Thomas Gray, and was due to them as individuals; the debt which was due to the bank was the debt of the deceased, hence there was no mutual debt; and each of the parties was not debtor and creditor in his own right—Erskine, III. iv. 13; Rees v. Watts, June 30, 1855, 11 H. and G. 410. It was true that the pursuers were the trustees and executors on Gray's estate, but it was only against executors who had a beneficial interest under the deceased's settlement that compensation could be pleaded as regarded a debt due by the deceased—Stair, i. 18, 6; Williamson v. Tweedie, November 12, 1628, M. 2613; Children of Monswell v. Lawrie, February 14, 1662, M. 2614; Heritable Securities, &c. v. Miller's Trustees, March 18, 1893, 20 R. 675. (2) The bank was not entitled to claim compensation because this was practically a trust for creditors. It was admitted that if this had been purely and solely a trust for creditors the bank would not have been entitled to seize any moneys deposited therein by the trustees for safe custody, and pay a debt due by the truster to itself in full, thereby obtaining an illegal preference. In this case the bank knew that if Gray's business in Maybole could not be sold as a going business that the trust-estate was insolvent. They also knew that the business could not be sold as a going concern, and in these circumstances they were bound to look upon this trust as a trust for creditors, and act accordingly.

The respondent argued—This was truly a case of retention, not depending upon the technical rules applicable to compensation, and the question was whether there was such a mutuality of debts that the bank could retain funds lodged by the trustees, because if there was this mutuality then without a special agreement (and none such was averred) the bank was entitled to set off the one debt against the other— Robertson's Trustee v. Royal Bank of Scotland, October 24, 1890, 18 R. 12. It was plain there was this mutuality, and there was no specific appropriation of the sum lodged, because while the debt was due by the deceased to the bank before he died, the money now claimed by the bank had been lodged there by the deceased's representatives, who took up his whole estate and came in his place. The only authority that was cited against that view was the case of Rees v. Watts (cited supra), but that case did not apply, because it was decided upon the particular terms of the English Statute “2 Geo. II. cap. 22,” which could not be accepted in Scotland, as it really took its rise from an attempt to simplify the complicated English system of pleading of that day. This was a testamentary trust, and did not partake of the nature of a trust for creditors, and there was neither an averment or plea of mala fides on the part of the bank in receiving this money, which was paid into the bank in the ordinary course of business.

At advising—