Scottish Court of Session Decisions

In October 1899 John Hurst, an undischarged bankrupt, presented a petition to the Sheriff of the Lothians praying the Court to pronounce a deliverance finding the petitioner entitled to his discharge, and on again considering this petition, with the declaration or oath made by the petitioner, in terms of the 146th section of the said Bankruptcy (Scotland) Act 1856, and on being satisfied with said oath or declaration, to pronounce a deliverance discharging the petitioner of all debts and obligations contracted by him, or for which he was liable at the date of the sequestration, and thereafter to recal the deliverance, dated 19th August 1896, under which the Commissioners of Her Majesty's Customs, London, consented to payment being made to the trustee on the petitioner's estate of a sum of £120 per annum out of the pension payable to petitioner.

The facts of the case were set forth as follows in the report of James Craig, C.A., Edinburgh, trustee on the sequestrated estate of the bankrupt, which was produced and referred to in the petition:—“The estates were sequestrated in the Sheriff Court of the Sheriffdom of the Lothians and Peebles at Edinburgh on the bankrupt's own petition on 27th May 1896. The estates disclosed consisted of a small quantity of furniture which had previously been removed from bankrupt's house to an auction sale-room for disposal by public roup. This furniture was subject to a claim at the instance of the landlord for rent, and the expenses of a sequestration for rent. The bankrupt disclosed an income of £266 per year of pension from Her Majesty's Board of Customs, and liabilities were stated at £543, 7s. 1d. The liabilities consisted of claims for money lent and household accounts, and the trustee feels that as the bankrupt had for a considerable time prior to his sequestration been earning a good income, his financial embarrassments were caused by extravagance. By agreement with the trustee the bankrupt assigned £120 per annum out of his stipend or salary, and the trustee, with the concurrence of the bankrupt, presented a petition in the Sheriff Court at Edinburgh, in terms of section 149 of the Bankruptcy (Scotland) Act 1856, that part of the said pension be paid to the trustee for behoof of the creditors, and a deliverance was pronounced appointing the petition and interlocutor to be laid before the Commissioners of Her Majesty's Customs in order that they might give their consent in writing to the sum of £120, or such other sum as the said Commissioners might consider reasonable, to be paid to the trustee, in order that the same might be applied in payment of the debts of the bankrupt. After consideration the Commissioners of Customs consented to the same being paid to the trustee, and the trustee has regularly each month received £10 from the Commissioners. The trustee has already divided in all amongst the creditors dividends equal to 7s. 4d. per £ on the claims as lodged, and has declared a further dividend of 2s. 6d. per £ payable on 27th September current.”

In terms of section 146 of the Bankruptcy (Scotland) Act 1856, the trustee reported “that the aforesaid John Hurst has complied with all the provisions of the statute; that he has made a fair discovery and surrender of his estate; that he has attended the diet for his examination; and that his bankruptcy has arisen

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from excessive expenditure. Further, that the bankrupt has not been guilty of collusion, and that, save in so far as the bankrupt was extravagant in his expenditure, the bankruptcy has arisen from innocent misfortune, and not from culpable and undue conduct. … The trustee reports that if the bankrupt will agree that his being discharged will not affect the payment to his creditors of the sum set aside from his pension, he should be discharged from the bankruptcy process; but if, on the other hand, his discharge is to reinstate him so that he may draw his full pension, the trustee would respectfully submit that the discharge should be refused in view of the circumstances attending the bankruptcy and the nature of the liabilities.”

The petition was opposed by Robert Beveridge and other creditors of the bankrupt.

On 11th December 1899 the interim Sheriff-Substitute ( Harvey) refused in hoc statu the prayer of the petition.

Note.—“The petitioner's estates were sequestrated in May 1896. His chief asset was a life pension of £266 from the Board of Customs, and of this £120 a-year was, with the consent of the Commissioners, assigned to the trustee for payment of the petitioner's debts. He has now paid a dividend of 10s. in the £ to his creditors, and he asks for discharge with a view to having the assignation of his pension recalled under section 149 of the Bankruptcy Act 1856. His petition is opposed by certain of his creditors. The matter is therefore one for the discretion of the Court, and the rule to be applied seems to me to be, that to entitle a bankrupt to discharge he must show that he has made a full surrender of all his available funds to his creditors for payment of his debts. Upon this principle a discharge was refused in a case closely resembling the present ( Learmonth v. Paterson, 1858, 20 D. 418), and I can find nothing in the Bankruptcy Acts of 1860 and 1881 to modify this decision. These Acts, as regards the question of discharge, are primarily intended to meet the case where the bankrupt's creditors do not oppose the application, and are meant to prevent its being granted even then as a matter of course. Nor is there anything in the subsequent cases to impugn the authority of the case of Learmonth. In the cases of Kirkland v. Kirkland's Trustees, 1886, 13 R. 798, 806; and Reid v. Morrison, 1893, 20 R. 510, 516, it was pointed out that it might be a sufficient ground for refusing a discharge that the bankrupt refused to assign for the benefit of his creditors future or expectant rights which did not fall within the vesting clauses of the Act. Where the expectancy is immediate, and, a fortiori, where the right is a certain future right, the observations of Lord President Inglis seem clearly to imply that assignation should be a condition of discharge (13 R. 806).

Apart from authority there seems to be no sufficient reason why a difference should be made between a debtor who has a certain future income, more than sufficient for his subsistence, and vested in him at the time of his bankruptcy, and a debtor who has capital invested but no future income. The latter is bound, if he contracts debts, to pay them in full, although this should exhaust his whole means and leave him dependent on his personal exertions for his livelihood, and he is thus in a worse position than a debtor who is allowed to retain sufficient for subsistence from a pension or other fixed income. It seems absurd to say that the latter should also have the advantage of obtaining reinstatement in his surplus income whenever he has paid 10s. or 5s. in the £. That is the contention of the present applicant, and I am unable to accede to it.”

The petitioner reclaimed, and argued—Under the 146th section of the Bankruptcy Act 1856, if a bankrupt, after two years had expired from the date of his sequestration, presented an application for his discharge, and if the Court were satisfied from the report of the trustee that the bankrupt had acted honestly and made a fair surrender of his estate, and that his bankruptcy arose from innocent misfortunes, then they had no discretion but were bound to grant his discharge in the event of no creditors appearing to oppose it. If creditors did oppose the petition, then the judge was to consider the objections, and either grant or refuse the petition. In the present case some of the creditors opposed the petition, but their objections were not based on the conduct of the petitioner—his having concealed part of his estate, or otherwise acted in bad faith. They desired that he should pay them from estate which was not in his hands at present, but which was in the same position as income to be earned in the future. In such circumstances the Court should not give effect to these objections.

Counsel for the respondents were not called upon.