Scottish Court of Session Decisions

John Watson Mackintosh, Chartered Accountant, 115 St Vincent Street, Glasgow, trustee on the sequestrated estate of James. Craig, farmer, Lathalmond, Dunfermline, brought an action in the Sheriff Court of Fife and Kinross at Dunfermline, against Macdonald, Fraser, & Company, Limited, auctioneers and cattle salesmen, in which, as ultimately restricted, he craved decree against the defenders for a sum of £244, 19s.1d., being a balance which the defenders had retained, over and above their commission and outlays, out of the amount realised at a displenishing sale of the stock and cropping of the said James Craig's farm carried out by the defenders.

Craig was tenant of the farm of Lathalmond on a lease for nineteen years from Martinmas 1895 with a break in his favour at Martinmas 1900. Craig elected to take advantage of the break and made arrangements with the defenders for their conducting a displenishing sale on his behalf on October 20th 1900. The displenishing sale of Craig's effects was carried out by the defenders on said date. By the conditions of sale (No. 9 of process), which were signed by Craig, it was provided that accounts for purchases should be payable to the defenders, “who are hereby authorised to receive, discharge, and if necessary sue for the same in their own name, and the purchaser or purchasers shall not be entitled to withhold payment from the said Macdonald, Fraser, & Company, Limited, of the price or prices for purchases on account of any actual or alleged claim which he or they may have against the exposer.”

The defenders, over and above their commission and outlay in connection with the sale, retained the sum sued for out of the proceeds of the sale. The sum in question was entered by them in their account rendered to Craig dated 26th October as an “advance on sale.”

On November 28th 1900 Craig was rendered notour bankrupt in virtue of the expiry without payment of a charge served upon him. On January 11th 1901 Craig's estates were sequestrated and the pursuer was elected trustee in the sequestration, his election being duly confirmed by act and warrant in his favour of date January 31st 1901.

The trustee thereafter raised the present action.

The defenders claimed right to retain the sum sued for from the proceeds of the sale as being the balance due by Craig to the defenders in a “statement of account” (No. 12 of process) on a series of sales, purchases, and advances with interest.

From the statement of account (No. 12 of Process), between Craig and the defenders, bringing out a balance of £244, 19s. 1d. due to the defenders, it appeared that prior to 26th September 1900 a sum of £437, 18s. 11d. had been due to the defenders by Craig. On 26th September 1900 the defenders sold for Craig stock to the amount of £402, 8s. The defenders credited Craig in the account (No. 12 of process) with that sum, of date 26th September 1900, and also debited him in the said account with a sum of £200, of date 26th September 1900, “to cash advanced on sale.”

The defenders produced a receipt (No. 14 of process) in the following terms:—“26 th Sept. 1900—Received from Messrs Macdonald, Fraser, & Co., Ld., the sum of two hundred pounds to account of my displenishing sale at Lathalmond. Paid, 26th Sept. 1900—(signed) James Craig.” This receipt was stamped with a 1d. stamp. It was in fact signed on 19th October, but was ante-dated of the date which it bore.

It was admitted that a sum of £200 was paid by the defenders to Craig on 26th September 1900. The pursuer denied that this payment was an advance to Craig by the defenders, and averred that it was a payment by them to Craig on account of the stock sold by them on 26th September 1900 for Craig.

The defenders averred that the sum of £200 paid by them to Craig on 28th September 1900 was an advance made to Craig by them on that date in contemplation of the sale of his effects, which he then entrusted to the defenders on the understanding and agreement that the advance should be repaid with interest out of the proceeds of the sale, that said advance and other advances were made by them in the ordinary course of their business, and that the arrangement as to repayment was an arrangement which is customary among auctioneers and live-stock salesmen.

The pursuer pleaded that the retention by the defenders of the sum sued for was contrary to common law, and to the Acts 1621, c. 18, and 1696, c. 5.

The defenders pleaded, inter alia, as follows:—“(3) The defenders' whole intromissions having been in bona fide, and in ordinary course of trade, they are entitled to be assoilzied with expenses. (4) The defenders are entitled to set off or compensate the sums advanced by them to and the obligations undertaken by them for Craig against the proceeds of the sale of his effects.”

The Sheriff-Substitute allowed a proof. The purport of the proof sufficiently appears from the opinions.

On 21st October 1901 the Sheriff-Substitute ( Gillespie) pronounced the following interlocutor “Finds in fact (1) that the pursuer is trustee on the sequestrated estates of James Craig, who was tenant on the farm of Lathalmond, near Dunfermline, for

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five years ending with Martinmas 1900: Finds (2) that the debts due to the creditors represented by the pursuer were all incurred prior to 26th October 1900, the date of Craig's way-going sale: Finds (3) that between October 1899 and 26th October 1900 he had dealings with the defenders from time to time, which are shewn in the statement of account, which is a transcript from their books, the result being that Craig was due to them immediately before his way-going sale an unsecured balance of £234, 9s. 11d., with £10, 9s. 2d. of interest claimed by them, or £244, 19s. 1d. in all: Finds (4) that in the summer of 1900 it was arranged between Craig and the defenders that they should conduct Craig's way-going sale: Finds (5) that at the date of the sale, and for some months previous, Craig was hopelessly insolvent, and if he had looked into his affairs he must have known that he was insolvent: Finds (6) that for about a week before the sale Mr Nicol Ross, the defenders' managing director in Dunfermline, had good ground for suspecting Craig's solvency, and did suspect it: Finds (7) that on 26th October 1900, on the morning of the sale, Craig signed the document entitled conditions of sale, and delivered to the defenders the greater part of his crop, stock, and other effects for public sale, and the sale was accordingly held that day: Finds (8) that Craig was rendered notour bankrupt on 26th November 1900, in virtue of the expiry without payment of a charge served on him: Finds (9) that in settling with the pursuer as Craig's trustee, the defenders claim to deduct from the proceeds of the sale, inter alia, the balance of £244, 19s. 1d. above mentioned: Finds in law that the delivery by Craig to the defenders of crop, stock, and other effects in satisfaction or security for their debt is struck at by the Act of 1696, cap. 5, and that the defenders are bound to pay to the pursuer, as trustee foresaid, the said sum of £244, 19s. 1d., for which decerns against the defenders with interest thereon at 5 per cent. perannum as from 29th January 1901.”

Note—“The salient points on which the decision turns are few and simple.

For some months before the sale Craig was unquestionably insolvent. He had the materials in his possession for knowing his insolvency, and if he did not know it, it must have been because he resolutely kept his mind off the subject. It is not necessary for the pursuer to aver or prove that the defenders were aware of Craig's insolvency; but their managing director admits that he had grounds for suspecting Craig's solvency a week before the sale. The antedating of the receipt No. 14 of process. which is now admitted, is significant of Mr Ross' suspicions.

On the morning of the sale the defenders were nothing more than unsecured creditors of Craig. It is true that it was arranged that they should conduct the sale, and it may be conceded that they advanced the sum of £200 on 26th September in the expectation that they would recoup themselves out of the proceeds of the sale. But they took no security at the time, and it may be doubted whether Craig would then have been willing to give them security. He would have preferred to favour his own relatives who were creditors. They cannot even say that there was an obligation to give security. The receipt No. 14 of process, ‘Received from Messrs Macdonald, Fraser, & Co., the sum of two hundred pounds to account of my displenishing sale at Lathalmond,’ though bearing date 26th September, was not granted by Craig till 19th October, and was within sixty days of notour bankruptcy. Even that was not a security.

Until 26th October Craig might have disposed of his crop and stocking by private sale or through another auctioneer, and all that the defenders could have claimed would have been to be ranked for their debt and for any loss from their services as auctioneers being dispensed with.

The document No. 9 of process, signed by Craig on 26th October, and the delivery of his effects to the defenders, for the first time gave them security for their advances. Unfortunately for them it was within sixty days of notour bankruptcy.

The defenders have a plea on record: ‘The defenders' whole intromissions having been in bona fide and in ordinary course of trade, they are entitled to be assoilzied.’ Bona fides is not sufficient to exclude a challenge under the Act 1696. The defenders have no averment that the transaction was in fact in the ordinary course of trade, and they have led no proof as to custom of trade. There is no evidence of a recognised right of retention on the part of auctioneers and live-stock salesmen for a general balance in a question with creditors. A farmer and an auctioneer cannot contract themselves out of the operation of the Act of 1696, c. 5.

The defenders appeal to the principle of balancing accounts in bankruptcy, and maintain that they cannot be compelled to pay their debt to Craig in full while receiving only a dividend on Craig's debt to them. But the principle of balancing accounts in bankruptcy cannot be pleaded to set up a transaction struck at by the Act 1696, c. 5. The statute where it applies overcomes the common law. The defenders may perhaps seem to be in a more favourable position from the goods delivered to them for sale being largely in excess of their own claim; but if their defence is good it would be good if their claim had swallowed up the whole proceeds of the sale.”

The defenders appealed to the Court of Session, and argued—The transactions in question were bona fide dealings in the ordinary course of business, and as such were not struck at by the Act 1696, cap. 5— Loudon Brothers v. Reid (Lauder's Trustee), December 7, 1877, 5 R. 293, 15 S.L.R. 187; Carter v. Johnstone, May 5, 1886, 13 R. 698; 23 S.L.R. 458; Bell's Comm. (7th ed.), pp. 206 and 211. The sale was duly advertised, and the goods were delivered not as security for debt but merely to be sold as advertised. The receipt dated 26th September 1900 was simply the acknowledgment of a loan made on September 26, and the Act

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1696, cap. 5, could not apply to that receipt There was nothing to show that a preference was intended, and the payment to the defenders on the day of the sale, when their account was made up, was made in the regular course of the defenders' business. The auctioneers, the defenders, were entitled to a lien over the goods sold by them at the sale for the general balance due to them on their transactions with Craig— Anderson's Trustees v. Fleming, March 17, 1871, 9 Macph. 718, 8 S.L.R. 430; Miller v. Hutcheson & Dixon, February 16, 1881, 8 R. 489, 18 S.L.R. 304; Webb v. Smith (1885), 30 Ch. Div. 192. It was contrary to the rule of balancing accounts in bankruptcy that the defenders should be compelled to pay this debt in full to Craig and receive only a dividend on the debt due to them by Craig.

Argued for the respondents—The defenders were in the position of unsecured creditors until the granting of the receipt on 19th October 1900, which for their own purpose was antedated 26th September 1900. The receipt in fact was granted within sixty days of bankruptcy, and if it was a security it was invalid as an illegal preference under the Act 1696, cap. 5— Nicol v. M'Intyre, July 13, 1882, 9 R. 1097, 19 S.L.R. 815; Stiven v. Scott and Simpson, June 30, 1871, 9 Macph. 923, 8 S.L.R. 605. The effect of the receipt, and the intention of the defenders in taking it, was to constitute an assignation to that amount of the proceeds of the sale— Carter v. M'Intosh, March 20, 1862, 24 D. 925, at p. 933. The receipt was taken in the knowledge of Craig's insolvency, and even if it were not proved that the defenders were in mala fide, bona fides was not sufficient to render such a transaction valid. The mere mandate to the defenders as auctioneers to uplift the proceeds of the sale could not give them any right to retain the proceeds of the sale for a general balance due to them by Craig. Their right of retention was limited to the amount necessary to meet their business charges for carrying out the sale. To that extent it was not disputed.

At advising—