Scottish Court of Session Decisions

In July 1899 Messrs F. W. & O. Brickmann distillers, Leith, applied to the Commercia Bank to discount certain bills of exchange amounting to £5347, 9s. 7d. drawn by them upon Mr Peter Dawson, distiller in Glasgow, and accepted by him payable in London or at six months' date. At the same time Messrs Brickmann wrote the following letter to the bank:—“Dear Sir,—We beg to enclose herewith bills drawn by us on Mr Peter Dawson, Glasgow, for £5347, 9s. 7d., and due 13th January 1900. These bills cover goods held by Mr Dawson and ourselves on joint-account. We wish these bills discounted, and we enclose herewith a note of the whiskies held with delivery-orders in the bank's favour against the discount. As we have said, the whisky is held on joint-account, and the delivery-orders will therefore be held by the bank as a security for this specific transaction only, and be transferred or returned to the party taking up the bills.” The Commercial Bank discounted the bills, which were duly indorsed and handed to them by Messrs Brickmann.

The delivery-orders referred to in the above letter, which were signed by Messrs Brickmann & Dawson, and related to various parcels of whisky belonging to Messrs Brickmann & Dawson, and held by them on joint account, were duly sent, and were intimated by the bank to the custodiers of the whisky, and warrants therefor in the bank's name were obtained.

On 5th October 1899 the estates of Messrs Brickmann, and of the individual partners of that firm, were sequestrated and Mr J. A. Robertson Durham, C.A., was appointed trustee.

The Commercial Bank claimed to be ranked in the sequestration as holders of the bills above-mentioned for the sum of £5287, being the amount of the said bills after deduction of interest.

The trustee rejected this claim to the extent of £4535, 13s. 5d., being the value of the whisky for which the bank held delivery-orders. To his deliverance he appended the following note The three bills dated 10th July 1899 at six months' date, due 13th January 1900, drawn by the bankrupts upon and accepted by Peter Dawson, 82 Great Clyde Street, Glasgow, for £2000, £2000, and £1347, 9s. 7d., together £5347, 9s. 7d. are, as is well-known to the claimants, bills drawn in connection with a speculation in whisky which the bankrupts and Peter Dawson had purchased with the view of selling at a profit. The bank, in security of the bills which they discounted, insisted upon getting delivery of the whisky to which they relate, and at the date of Messrs Brickmann's sequestration the bank held the whisky in security of the bills. The whisky in question belonged to the estate of the bankrupts, being held by them on joint-account along with Peter Dawson, and the claimants were therefore bound to value and deduct. Alternatively, the joint-adventure was a partnership, and by the 66th section of the Bankruptcy Act, when a creditor claims upon the estate of a partner of a company in respect of a debt due by such company, the trustee on the estate of such partner shall, before ranking such creditor, put a valuation on the estate of the company, and deduct from the claim of such creditor such estimated value, and rank and pay to him a dividend only on the balance. Under that section the trustee puts the value of £4509, 6s. 11d. upon the whisky held in security, and rejects the claim to that extent.”

Against this deliverance the Commercial Bank appealed.

They pleaded, inter alia—“(1) The appellants not having received any securities belonging to the said firm of F. W. & O. Brickmann, they are entitled to rank on the estates of the said firm and individual partners thereof in terms of their claim. (2) The securities held by the appellants againsts advance to the said firm of F. W. & O. Brickmann, not having been the property of the said firm at the date of sequestration, the appellants are entitled to rank for the full amount of those advances. (3) The appellants being creditors of the said firm of F. W. & O. Brickmann in the amount claimed for, and the whole amount thereof having been due at the date of sequestration, they are entitled to be ranked in terms of their claim. (4) In any event, the appellants are only bound to value one-half of the said securities, and to deduct the value thereof from their claim.”

The trustee pleaded, inter alia—“(5) The appellants' claim being a claim on the estate of one partner of a joint-adventure in respect of a joint-adventure debt, the respondent is entitled to value and deduct the estate of the joint-adventure before ranking them, and the appeal should he dismissed with expenses. (6) Alternatively, the securities held by the appellants being securities over part of the estate of the bankrupts, the appellants were bound to value and deduct the same before ranking, and as they refused to do so their appeal should be dismissed with expenses.”

On 7th May 1901 the Sheriff-Substitute ( Henderson) pronounced the following interlocutor:—“The Sheriff-Substitute having heard the agent for the appellants and counsel for the trustee, and having considered the note of appeal, the minutes for the parties respectively, productions, and whole proceedings, Sustains the appeal: Finds that the appellants are entitled to he ranked as creditors in terms of their claim without valuing and deducting the

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price of the whisky in question: Ordains the trustee to rank them accordingly: Finds the appellants entitled to the expenses of the appeal,” &c.

Note.—“I have come to be of opinion that the decisions in the cases of British Linen Co. v. Gourlay, March 13, 1877, 4 R. 651; and Royal Bank v. Millar & Company's Trustee, February 28, 1882, 9 R. 679, which were relied on by the agent for the appellants, rule this case, and that the price of the whisky, the delivery-orders for which are in favour of the appellants, is not held by them as a security over any part of the estate of the bankrupts.

Looking to the terms of the decisions to which I have referred, it seems to me that the fact that the bankrupts may have a possible interest in whatever surplus might arise out of the transactions does not make the adventure on joint-account with a wholly independent third party (Mr Dawson) a part of their estates as provided by section 65 of the Bankruptcy Act 1856.

It cannot on the face even of the trustee's own statement be maintained that the whisky was in the actual possession or under the undivided control of the bankrupts, and therefore it is much in the position of the goods and securities dealt with in the cited cases.”

The Bankruptcy (Scotland) Act 1856 enacts, section 65—“To entitle any creditor who holds a security over any part of the estate of the bankrupt to be ranked in order to draw a dividend, he shall on oath put a specified value on such security, and deduct such value from his debt and specify the balance.” Section 66—“When a creditor claims on the estate of the partner of a company in respect of a debt due by such company, the trustee on the estate of such partner shall, before ranking such creditor, put a valuation on the estate of the company, and deduct from the claim of such creditor such estimated value, and rank and pay to him a dividend on the balance.”

Brickmanns' trustee appealed to the Court of Session.

Argued for the appellant—Admitting that the Sheriff-Substitute was right in so far as he held that the whisky was not part of the estate of the bankrupt, and therefore that the bank was not bound to value and deduct their security under the provisions of section 65 of the Bankruptcy Act 1856 ( quoted supra), the trustee's deliverance was justified under the provisions of section 66 ( quoted supra). The whisky was the property of a joint adventure, and the obligation on the bill was a debt for which that joint adventure was liable, and the bank was therefore in the position of a creditor claiming on the estate of the partner of a company for a company debt. The trustee was therefore entitled to deduct the value of the estate of the joint adventure before ranking the creditor on the estate of one of the partners to it. There was no valid distinction between a partnership and a joint adventure in such questions—Bell Comm. (M'L. ed.) ii. 539; British Linen Company v. Gourlay, March 13, 1877, 4 R. 651. Alternatively, at common law the trustee in bankruptcy, as coming in place of the bankrupt, was entitled to offer to the bank only the balance of the debt under deduction of the value of the security. There could be no doubt that Brickmanns would have been entitled to insist on the security being realised and the transaction closed on payment of any balance that might remain, and the trustee had the same right.

Argued for the respondent—If there was a joint adventure in this case it was not a “company” within the meaning of section 66 of the Bankruptcy Act. The sections relating to valuation and deduction of securities were strictly construed— British Linen Company v. Gourlay, ut supra; University of Glasgow v. Yuill's Trustees, February 10, 1882, 9 R. 643; Royal Bank v. Purdom, October 26, 1877, 15 S.L.R. 13; Royal Bank v. Millar & Company's Trustee, February 28. 1882, 9 R. 679. But this was not a case of a joint adventure, but the ordinary case of the joint liability of the drawer and acceptor to the holder of a bill. To such a case section 66 of the Bankruptcy Act had no application, and the holder was entitled to rank for the full amount of the bill on the estate of either or both obligants, subject to the limitation that he could not obtain by any ranking more than 20s. in the £. The argument on common law was based on a fallacy. It was not disputed that Brickmanns could have satisfied the bank's claim by arranging for the realisation of the whisky and payment of any balance. So could the trustee. But the trustee did not propose to do so, he only offered a dividend on the balance, which was a very different matter.