Scottish Court of Session Decisions

The Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79) 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; and the trustee, with consent of the commissioners, shall be entitled to a conveyance or assignation of such security, at the expense of the estate, on payment of the value so specified out of the first of the common fund, or to reserve to such creditor the full benefit of such security; and in either case the creditor shall be ranked for and receive a dividend on the said balance and no more, without prejudice to the amount of his debt in other respects.”

James Landells Selkirk, C.A., Glasgow, trustee on the sequestrated estate of Robert Macdougall, Sghor Bheann, Dunoon, raised an action against Mrs Agnes Gardner Dalziel or Lockhart, 26 Dryburgh Avenue, Rutherglen, concluding, inter alia, for declarator that the pursuer was entitled to an assignation from the defender of a bond and disposition in security for £1000 granted by the bankrupt Macdougall in in her favour over subjects in Glasgow.

The bankrupt's estates were sequestrated on 23rd June 1900, and the pursuer was thereafter appointed trustee thereon.

On 29th January 1901 the defender lodged an affidavit and claim on the sequestrated estate, under section 65 of the Bankruptcy (Scotland) Act 1856, in which she valued the security held by her under the bond referred to at £850, and claimed a ranking for a dividend on the balance of £150.

On 31st December 1901 the pursuer adjudicated on the claims lodged in the sequestration, and the defender was admitted to a ranking in terms of her claim under deduction of the value put by her on her heritable security. The pursuer's adjudication on this claim was not appealed against, and became final.

On 22nd January 1902, before any dividend had been paid by the pursuer, he intimated to the defender that he and his commissioners had resolved to take over her bond above referred to in terms of section 65 of the Bankruptcy Act 1856.

On 25th January 1902 the defender, through her agent, withdrew the claim lodged by her in the sequestration in so far as it related to the bond over the subjects in main street. The pursuer thereupon informed the defender's agent that it was too late for the defender to withdraw her claim, he having adjudicated thereon.

In the present action the pursuer averred—“(Gond.7) The pursuer is ready and offers to pay the said sum of £850, with any interest and charges the defenders may establish to be due to them under said bond and disposition in security, in exchange for the conveyance or assignation thereof, which is to be at the expense of the sequestrated estate, all in terms of said section 65. The defenders were not entitled to withdraw their claim at the time they attempted to do so, to the effect of preventing the pursuer from demanding an assignation or conveyance of said security subjects in terms of the resolution.”

The pursuer pleaded—“(1) The defender having in her affidavit and claim put a value of £850 upon her security, the pursuer became entitled to a conveyance or assignation thereof, and having validly claimed the same, is entitled to declarator of his right thereto, with expenses. (2) The pursuer having become entitled under section 65 of the Bankruptcy Act 1856 to a conveyance or assignation of said security, the defender should be ordained to grant the same, and failing her doing so the security falls to be adjudged to the pursuer.”

The defender pleaded—“(2) The pursuer's statements are irrelevant and insufficient to support the conclusions of the summons. (3) The defender having validly withdrawn her claim to rank in the sequestration in so

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far as regards the bond of £1000 referred to in the said claim, the pursuer is not entitled to enforce an assignation of the said bond, and the defender should be assoilzied, with expenses.”

On 25th February 1903 the Lord Ordinary ( Kincairney) found and declared in terms of the declaratory conclusion of the summons.

Opinion.—“A question of some interest and novelty in bankruptcy law, but not of much importance to the parties, is raised in this case. The question is whether when an heritable creditor has lodged a claim for ranking under section 65 of the Bankruptcy Act, and when he has, in accordance with that section, valued his security, and when the trustee has admitted the claim to rank, and the creditor has not appealed, the creditor can afterwards withdraw that claim, with the effect of disentitling the trustee to an assignation of the heritable bond, and of disabling him from realising the security.

“The question has arisen in the sequestration of Robert Macdougall, property agent, Glasgow. His estates were sequestrated on 23rd June 1900. On 29th January 1901 affidavits and claims were lodged with the trustee by Mrs Lockhart. Her claim, as set forth in the account annexed to it, is stated thus—

To amount of bond granted by the bankrupt, dated 4th and recorded October 1898	£1000	0	0
Deduct estimated value of security	850	0	0
	£150	0	0
Amount in extract decree	25	19	7
	£175	19	7

It is stated in the affidavit that the security was valued for the purposes ‘of voting and ranking’ at £850. But there is no question about voting in the case. The sole question is about ranking. The case does not relate at all to section 62, which provides for the valuation of heritable securities for the purpose of voting, but only to section 65, which provides for ranking.

The trustee dealt with the claims lodged with him on 31st December 1901, and on that day he admitted the defender's claim. It is averred and not denied that this decision on the claim was duly intimated, and in the absence of any averment to the contrary I take for granted that the requirements of the statute as to notice were duly satisfied.

This deliverance might have been appealed from to the Lord Ordinary or the Sheriff (section 127), but no appeal was taken. Section 127 provides that if it be not appealed from within the time allowed it ‘shall be final and conclusive so far as regards that dividend.’

On 25th January 1902 the law-agent of Mrs Lockhart wrote on her behalf to the trustee—‘I hereby withdraw the claim lodged by her in the sequestration so far as it relates to her bond.’ The trustee replied that it was too late to withdraw the claim. That is the question which this action has been brought to try.

Section 65 provides as follows—[ His Lordship quoted the section].

No dividend has been paid to the defender, and I do not find it averred that the trustee made any express demand for a conveyance or assignation of the security before he received the letter by the defender's agent purporting to withdraw her claim.

I understand the defender to maintain that, not having received any dividend, she is still entitled to withdraw her claim and realise her bond for her own benefit. The question seems to me to be a difficult one, and no authorities having any material bearing on it were quoted at the debate. I have not found any, with one important exception, viz., the case of Henderson's Trustees v. Auld & Guild, July 6, 1872, 10 Macph. 946, which requires serious consideration.

In that case the facts were that Henderson's estates were sequestrated in September 1870, and Auld & Guild claimed to be ranked as creditors for £3022, 16s. 4d., after deducting £147, the market value of shares which they held in security. On 21st January 1871 the trustee admitted the claim, but called on Auld & Guild to assign the shares, as required by the statute. Auld & Guild, however, had sold the shares for £174 on 14th November 1870. That must have been after the claim was made, although the report does not distinctly say so. The trustee (the report says) did not follow up his requisition until 25th August 1871, when the shares had risen to the value of £337. Apparently he then followed it up by an action in which he demanded an assignation of the shares. Practically he claimed in that action the whole enhanced price of the shares. The decision, affirming the judgment of the Sheriff, was in favour of the creditors, and negatived that claim. But the Sheriff in his judgment finds that the creditors had offered to deduct the full value received by them when they sold the shares, i.e. £174. It is not distinctly found whether they were bound to do that, but it was said that that was all they were bound to do. Something was said about the fluctuating value of the security in this case, but I am not able to see that on principle it does not apply to a case in which the security valued is an heritable bond. From this case, and in particular from the opinion of the Lord President, it appears that the mere claim, with a valuation and deduction of securities, in terms of section 65, had not the effect of transferring the property of the security from the creditor to the trustee. Indeed, it is clear that nothing could do that except a deed of transference by the creditor. Further, it appears that there is nothing in the 65th section, although the claim has been followed by a ranking, which can operate to prevent the creditor from realising the security if he have an interest to do so, and if the trustee unduly delays. But there is nothing in this case which can lead to the conclusion that the creditor could, in the ordinary case (when there is no question of undue delay or of enhancement of price arising from such delay),

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withhold from the trustee the price realised by the sale as a surrogatum for the security.

The case seems not to be without application to this case, but it differs from it materially. It does not decide that the creditor can go back on his claim and plead as if no such claim has been made.

I do not know of any authority for saying that he can. I do not say that a creditor might not withdraw his claim or modify it before the trustee's judgment on ranking had been pronounced; but after ranking it appears to me that, unless he appeals, he loses his remedy so far as concerns the first dividend. This seems to result from section 121.

It was further maintained by the defender that section 65 could not be applied, because it provides that the trustee should pay the value of the security ‘out of the first of the common fund.’ It was suggested or maintained that there was here no common fund, and it was said that there could not be, because there was no true estate. I should wish to say that this argument derives weighty support from the judgment of the Sheriff, which was approved of and adhered to in Henderson's Trustees.

But I am not prepared to take that view in this case. It seems enough that the pursuer avers that he is ready to pay the value which the creditor put on her security, and I do not think I am concerned with the source from which he derives the means of doing so. Of course he will not be entitled to the assignation concluded for unless he tenders, in return for it, the sum of £850 with interest and the expenses offered.

I think the proper course will be to decern in terms of the declaratory conclusion, and appoint the pursuer to lodge a minute stating the payments which he is ready to make.”

The defender reclaimed, and argued—The pursuer's delay in adjudicating on the claim lodged was due to the fact that there was no trust estate, and while there was no trust estate the pursuer could not comply with the provision of sec. 65 of the Act. Claims lodged could be withdrawn at any time, or at least so long as no dividend had been accepted. The pursuer's demand for an assignation was not made debito tempore— Henderson's Trustee v. Auld & Guild, July 6, 1872, 10 Macph. 946, 9 S.L.R. 598. The value put upon the security when the defender's claim was lodged had ceased to be the true value by the time the pursuer demanded an assignation, and the offer contained in the statement of the defender's claim had fallen before it was accepted by the pursuer's demand.

Argued for the respondent—The distinction which the Act drew between the valuation of a security for purposes of voting and the valuation for purposes of ranking made it clear that the latter was intended to be final—Act 1856, secs. 59, 62, and 65. There would be no meaning in the statute if a creditor was free to meet a demand by the trustee for an assignation of his security under sec. 65 by saying that he was no longer of the opinion which he held when he declared the value; such freedom would be to the prejudice of the general body of creditors, because if exercised it would upset all the calculations on which the trustee had proceeded so far.