Scottish Court of Session Decisions

Robert Reid, C. A., Glasgow, trustee on the sequestrated estates of Robert Struthers Angus, produce merchant, Glasgow, as real raiser, brought an action of multiplepoinding in the name of the Commercial Bank of Scotland, Limited, as pursuers and nominal raisers, in order to decide competing claims to a sum of £2300 lying in the bank on deposit-receipts in the names of James Angus and James Macmillan, both merchants in Glasgow, as trustees under the antenuptial contract of Mr and Mrs Robert S. Angus.

Claims to be ranked and preferred to the whole sum were lodged (1) by Robert Reid, trustee on the sequestrated estates of Angus Brothers, produce merchants, Glasgow, as a company, and Robert Struthers Angus and James Angus the sole partners of said firm, as such partners and as individuals; and (2) by James Angus as trustee under the antenuptial settlement of Mr and Mrs Robert Struthers Angus, Mrs Jessie Muir Reid or Angus, with consent of her husband Robert Struthers Angus, and Robert Struthers Angus as tutor and administrator-in-law to his pupil child Christian Lilian Struthers Angus, the only child of the marriage between Mr and Mrs Angus.

Robert Reid, as trustee foresaid, pleaded—“(1) The funds contained in the deposit-receipts in question having been the property of the firm of Angus Brothers, form part of the sequestrated estates on which this claimant is trustee, and fall to be made over to him; (2) The said funds not having been validly paid over or transferred to the persons named as trustees in the said marriage-contract, belong to this claimant, who is entitled to be ranked and preferred accordingly. (3) The deposit of said funds in bank in the names of said marriage-contract trustees being an illegal preference under the Act 1696, cap. 5, or otherwise being fraudulent and collusive, and inept and invalid at common law, this claimant is entitled to be ranked and preferred in terms of his claim.”

James Angus and others pleaded—“(2) The payments in question having been made in specific implement of the onerous obligations undertaken by the said Robert Struthers Angus in the marriage settlement condescended on, are not challengeable either under the Act 1696, cap. 5, or at common law. (4) In the circumstances condescended on, the payments in question being valid and effectual and not open to challenge either under the bankruptcy statutes or at common law, these claimants are entitled to the ranking and preference claimed by them.”

Proof was led, the import of which sufficiently appears from the following extract taken from the opinion of the Lord Ordinary (Stormonth Darling)—“Mr Robert Struthers Angus, senior partner of the firm of Angus Brothers, produce merchants, Glasgow, in 1884 entered into an antenuptial marriage-contract whereby he, inter alia, bound himself within five years from the date thereof to pay to three trustees the sum of £5000, or to make over to them property or investments of a like value. The income of this sum was to be paid to Mrs Angus during her life, both during the subsistence of the marriage and after the death of the said Robert Angus, and in the event of her predecease, to himself as a liferent alimentary provision not assignable nor attachable by his creditors. The capital was to be paid subject to a power of appointment to and among such of the children of the marriage as should survive the longest liver of the spouses. There is at present one child of the marriage.

“For sixteen years this obligation on the part of Robert Angus remained unfulfilled; and there being no other provision in the contract requiring the trust to be set up during the life of the spouses, the deed lay inoperative in the hands of the law-agent who had drawn it and his successors in business. In 1895, on the joint requisition of husband and wife, the deed was handed over to Mr Macdonald, the husband's law-agent, with a view of his advising them as to a provision relating to furniture. Mr Macdonald says, that after reading the deed he called the attention of Robert Angus to his obligation with regard to the sum of £5000, and urged him to fulfil it. He adds that he several times recurred to the subject. There is also evidence, which I see no reason to doubt, that Robert Angus' brother and partner, James, once or twice in casual conversation referred to the obligation in the same sense. But it remained unfulfilled till the events which I am about to notice, and no steps were

Page: 121↓

taken to set up the trust. The three persons named as trustees (of whom James Angus was one) were never even asked to accept office.

On 16th June 1900 Robert Angus appeared at his agent's office and asked whether anything required to be done by the trustees if he began to pay the money up. Macdonald very properly advised him that the regular course would be to call a meeting of trustees and have a written acceptance from each of them. But Robert Angus seemed to be ‘in a great hurry'—these are Mr Macdonald's words—and insisted on knowing whether that was absolutely necessary. Macdonald replied that he might, if he chose, make the payment at once, and that the money could be placed in bank in the names of the trustees. Angus then handed to Macdonald a sum of £500 in bank notes, and the money was forthwith sent to the Commercial Bank and placed on deposit-receipt in the names of James Angus and James Macmillan and the survivor of them, as trustees under the marriage-contract. Subsequent sums were paid by Robert Angus to Macdonald and placed by the latter on deposit-receipt in identical terms on 19th, 23rd, 24th, and 25th July 1900, the whole sums so dealt with amounting to £2300, and the deposit-receipts themselves being retained in the hands of Macdonald. The name of Mr Macmillan was used in the receipts without his knowledge or consent. Macmillan says (and I believe him) that on 25th or 26th July, after all the money had been deposited, he had a meeting with Robert Angus, by desire of the latter, at which Angus said that he was in financial trouble, that there was some money on deposit-receipt which would have to be invested under his marriage-contract, and that Macmillan would shortly be called upon as a trustee to take part in investing it. Macmillan says that he had never heard of the subject since 1884, when Angus had casually informed him that he proposed to name him as one of his marriage-contract trustees, and that he closed the conversation by saying that he would be glad to be of any service to Angus ‘provided everything was right.’ Shortly afterwards Macmillan was asked by Angus to go to Macdonald's office and sign some claim on behalf of the marriage-contract trustees, about which he had not been consulted. Instead of going to Macdonald's office he consulted his own agent, who wrote on 18th August 1900 that Macmillan declined to accept office as a trustee. To this position he adhered when asked in September to attend a meeting of trustees, and as he declined even to endorse the deposit-receipts with a view to their being transferred to James Angus alone, it became necessary to bring this action of multiplepoinding in name of the Commercial Bank.

The other facts which must be taken along with those which I have mentioned are these:—Early in June 1900 the firm of Angus Brothers was pressed for payment by Mr Johnstone, a creditor in the sum of £1547. Some small payments were made to account, bringing the debt a little below £1300, and on 14th June, two days before the date of the first deposit-receipt, the firm made an arrangement in writing with Johnstone for the gradual liquidation of this debt by bills. In the month of May the Bank of Scotland, which had for a long time been bolstering up the firm by discounting bills and allowing large overdrafts, became urgent that matters should be put on a more satisfactory footing. The bank's representative, Mr M'Glashan, insisted on the production of some kind of balance-sheet, and the result was the letter of 17th May, written by Robert Angus, in which he represented the firm as having an excess of assets over liabilities to the extent of £27,839. It now appears that he had made this balance-sheet entirely out of his own head, without reference to his books, which contained nothing at all resembling it. Encouraged by this the bank went on as before, but in July they again became dissatisfied, and on the 20th of that month they refused to pay a cheque by the firm for £1900. Robert Angus was sent for, and he said (for there I accept the evidence of Mr M'Glashan) that if the cheque was not paid he would require to stop. Next day he sent to the bank a paper showing how the money was to be disposed of in paying bills and pressing obligations, and Mr M'Glashan, with the alleged surplus of £27,000 still in his mind, paid the cheque.

I hold it proved that to the extent of £787 this money was not used as Angus had promised, but was pocketed by Angus himself. He was also about this time laying his hands upon all the ready money his clerks could collect, with the result that between 14th June and 28th July he drew out of the firm's coffers a sum of £2757, including the sum of £2300 which is here in question. He directed his bookkeeper M'Call not to enter these drawings in the books until further orders, but M'Call did enter them in pencil. On 27th July the firm called in Messrs Reid & Mair as accountants to examine their books. Reid & Mair on 31st July issued the circular, No. 54 of process, intimating that Angus Brothers had been compelled to suspend payment, and the state of affairs prepared by the accountants as at that date showed liabilities £24,134 and assets £4387, thus bringing out a deficiency of £19,747. Sequestration followed on the debtors' own petition on 7th August, and the only dividends paid have been 2s. on the firm's estate and 1s. on the estate of Robert Angus. Any further dividend the trustee says will depend upon the result of this action.”

On 1st June 1901 the Lord Ordinary repelled the claim of James Angus and others, and ranked and preferred the claimant Robert Reid to the whole fund in medio in terms of his claim.

Note.—“I am of opinion that the claimant Robert Reid has made out his case, both under the Act of 1696, cap. 5, and at common law.”

[ His Lordship then stated the facts as set forth supra.]

“In these circumstances I have no doubt that the Act 1696, cap. 5, applies. The object

Page: 122↓

of that Act, as stated by Lord Wynford in Cranstoun v. Bontine, 6 W. and S. at pp. 94–5, was ‘to prevent the bankrupt's estate being disposed of to favourite creditors to the prejudice of others,’ and this transaction was eminently of that character. It is true that any transaction to be struck at must be of the nature of a voluntary deed for the satisfaction or further security of the favoured creditor. But ‘deed is a wide word,’ as Lord Mackenzie observed in Mitchell v. Rodger, 12 S., at p. 809; and it has been interpreted by the decisions on the Act as covering such alienations as the delivery of moveables. It is also true that a favourite creditor receives a preference over the rest more effectually by payment of his debt in cash than in any other way, and yet that cash payments have always been treated as unaffected by the Act. But then I think it is the result of the decisions that in order to give a so-called cash payment the benefit of exemption from the Act, it must be made in the ordinary course of business. It may be made either in coin of the realm or by cheque on the debtor's bank account, because these are the ordinary ways of paying debts. But it must not be made by endorsing the cheque of a third party, or by endorsing bills (except in the case of a creditor living at a distance) or by setting aside money which remains under the debtor's control, because none of these are ordinary methods of paying debts. The principle is thus expressed by Mr Bell (Com. ii. 201)—‘It is not sufficient to characterise a transaction as a payment that money or cash has been paid to one who is a creditor, unless he be a creditor entitled at that time to demand payment or who may be supposed bona fide to receive it in extinction of his debt, as in the ordinary course of dealings.’”

Applying these principles to the transactions here, it is impossible to say that the payment in bank notes by Robert Angus to Macdonald was a cash payment to the creditor. Macdonald received the money in no other character than that of the bankrupt's agent, and he would have had no answer in law to a demand by the bankrupt for its return. The creditors in the obligation were the marriage—contract trustees, and Macdonald had received no authority to represent them, for the sufficient reason that none of them had accepted or acted. Nor do I think it possible to say that the act of Macdonald as the bankrupt's agent in placing the money on deposit-receipt was a cash payment to the creditor. Lodging money on deposit-receipt may be the equivalent of a cash payment, but it is not a cash payment in ordinary course. I do not suggest that it might not have been a sufficient way of fulfilling the bankrupt's obligation under the contract if the trustees had been in office and had consented to accept that mode of fulfilment as a temporary investment. But the circumstance that at the moment of the alienation there was no creditor in titulo to grant a discharge is that which takes the transaction out of the category of ordinary business. The debt was due, and had been due for many years, but there was no creditor in a position to demand payment, and it was plainly for that reason that the bankrupt, disregarding the advice of his agent as to the regular way of going about it, insisted on the transaction taking this altogether unusual shape. He was, I think, ‘in a great hurry,’ for more reasons than one.

The case for the claimant Reid at common law differs from his case under the Act only in this respect, that at common law it must be shown that the bankrupt was conscious of his insolvency. A good deal was said both in evidence and in argument about the business of Angus Brothers having been an old and at one time a prosperous one. At one time perhaps it was. But for some time it had been subsisting on accommodation both by bills and overdrafts, and if the partners were ignorant of the true state of their affairs, they were, in my opinion, wilfully ignorant. For ten years they had not attempted to bring their books to a balance; they had recklessly supplied the bank with false information; they had pleaded for time to a creditor whose debt amounted to far less than the total sum in the deposit-receipts; and within a couple of days of the last deposit-receipt they showed their consciousness that something was wrong by calling in the accountants, for I do not believe the suggestion that this was done merely in order to satisfy their new bank. Both to M'Glashan and Macmillan Robert Angus used expressions which indicated, to say the least of it, such suspicion of his own solvency as to be quite inconsistent with an honest alienation of any material part of his assets. But, in truth, it seems to me that the circumstances in which the alienation was made are themselves conclusive of its character as an attempt on the part of the bankrupt to favour his family and himself at the expense of the general body of his creditors.”

The claimants James Angus and others reclaimed, and argued—This was a good payment in implement of an obligation to a creditor entitled to receive it. A cash payment by an insolvent debtor to a creditor was effectual even if the debtor and creditor were both aware that the debtor was insolvent at the time, unless fraud was made out— Coutt's Trustee v. Webster, July 8, 1886, 13 R. 1112, 23 S.L.R. 810. And payment was held to be in cash if the debtor had authorised a person holding money due to him to pay the debt due by him, and that person had undertaken to do so—opinion of Lord Cotten ham in Macintosh v. Brierley, February 19, 1846, 5 Bell's App. 11. In the present case the creditor was the marriage—contract trust. James Angus acted as trustee under it, but the true creditor was the trust only. Macdonald in taking the money and putting it in the bank acted as agent on behalf of the marriage-contract trust. The payment to Macdonald was a payment to the marriage-contract trust, and it was a cash payment. It did not matter that Macdonald was also agent for R. S. Angus. Where an agent acted both for a creditor and a debtor it must be presumed

Page: 123↓

that he received the money in his capacity of agent for the creditor— Maule v. Ramsay, March 25, 1830, 4 W. & S. 58, opinion of Lord Wynford, 73; M'Creath v. Borland, July 20, 1860, 22 D. 1551, opinion of Lord Benholme, 1556. And although they contended that James Angus had accepted office and represented the trust, it did not matter if the Court were of opinion that he had not. The marriage-contract trust was the true creditor, and it always had existed. Persons to represent it could be appointed at any time when that became necessary— Tovey v. Tennent, March 11, 1854, 16 D. 866; Newlands v. Miller, July 14, 1882, 9 R. 1104, 19 S.L.R. 819. The present was an eminently onerous transaction.

Argued for the real raiser, claimant, and respondent Robert Reid—There had been no payment at all. The bankrupt had never been divested. None of the trustees had ever accepted office. Until they did so there was no creditor in whom a title could vest, and there was no jus quæsitum in any of them. The money had never passed out of the custody of Robert Angus, and could have been recalled by him at any time— Baird v. Murray, January 4, 1744, M. 7737; Macintosh v. Brierley, February 19, 1846, 5 Bell's Appeals 1. Even assuming there had been a cash payment made by Robert Angus to Macdonald as agent for his marriage-contract trustees, the transaction was reducible both under the statute and at common law. This was so, because (1) it was not a cash payment made in ordinary course of business, and (2) it was not a bona fide payment—Bell's Comm. ii. 201; Speir v. Dunlop, May 30, 1827, 5 S. 729. Further, James Angus, who, if he was held to represent the marriage-contract trust, was the creditor in the transaction, had by his actings enabled his brother to get hold of the cash which was paid over to the trust. This alone was sufficient ground for reducing the payment— Mitchell v. Rodger, June 26, 1834, 12 S. 802.

At advising—