Scottish Court of Session Decisions

The Entail (Scotland) Act 1882 (45 and 46 Vict. cap. 53), section 18, enacts—“Where any heir of entail in possession is entitled to disentail the estate with the consent of any other heir or heirs, or upon such consent being dispensed with by the Court, any creditor of such heir in possession, in respect of debt incurred after the passing of this Act, who has obtained decree against him for payment and charged upon the decree, shall, in the event of the debt so incurred not being paid for six months after the expiration of the charge, be entitled to apply to the Court, and the Court shall, if the said debt is not paid within three months after the date of the application, order intimation to be made to the heirs whose consents would he required or must be dispensed with by the Court in an application for disentail by the heir in possession, and in the event of any of the said heirs, or his curator ad litem appointed in terms of this Act, refusing to give his consent, the Court shall ascertain the value in money of the expectancy or interest in the entailed estate of such heir, and shall ordain the heir in possession to grant a bond and disposition in security over the estate for the amount so ascertained in favour of such heir; and if he refuses or fails to do so the Court shall grant authority to the Clerk of Court to execute such a bond and disposition in security, and such bond and disposition in security so executed shall be as valid as if it were executed by the heir in possession himself; and the Court shall thereafter ordain the heir in possession to execute an instrument of disentail of the estate; and if he refuses or fails to do so the Court shall grant authority to the Clerk of Court to execute such instrument, and, after provision is made for the interests of any other creditors whose debts are secured on the estate, the creditor aforesaid shall be entitled to affect the estate for payment of such debt, and shall have the same rights and interests therein as if an instrument of disentail had been executed and recorded by the heir in possession himself. If the estates of such heir in possession of an entailed estate shall be sequestrated for debt incurred after the passing of this Act, the trustee on his sequestrated estate shall be entitled to apply to the Court for authority to disentail the estate, and the Court shall forthwith proceed in the same manner as is directed in this section with regard to the application of a creditor.”

The Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), enacts—Section 4—“In this Act … the words ‘property’ and ‘estate’ shall, when not expressly restricted, include every kind of property, heritable and moveable, wherever situated, and all rights, powers, and interests therein capable of legal alienation or of being affected by diligence or attached for debt.…”

Section 111—“All payments and preferences or securities obtained by or granted to prior creditors, and all acts done or deeds granted by the bankrupt after the date of the sequestration and before his discharge out of or in relation to the estate (unless with the consent of the trustee) shall, in the event of sequestration being awarded, be null and void.…

Section 113—“If a creditor holding an heritable security with a power to sell concur with the trustee in bringing the estate to sale, the trustee shall sell the same in his own name.…

On 16th March 1909 John Scott Tait, C.A., Edinburgh, trustee on the sequestrated estates of James Somervell of Sorn, presented a petition for approval of a scheme of ranking and division of the purchase price of the estate of Sorn among the heritable creditors. The estate had been entailed; an instrument of disentail executed by the Clerk of Court and the trustee, the bankrupt having refused to do so, had been approved on April 18, 1907

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(the petition for disentail having been presented on June 6, 1901, and the bankrupt ordained on 14th March 1907 to execute a bond for the next heir's expectancy which he declined to do), and recorded May 1, 1907; and the estate had been sold on October 28, 1908.

The scheme submitted proposed to rank the various creditors on the purchase price, £75,200, after deducting ( a) £391, 18s. 9d. being one-half of the purchaser's agents' expenses, and ( b) £6808, 1s. 3d., the estimated expenses of the trustee in the sequestration, in the following way:—1. Trustees of John M'Ilwraith in virtue of security over certain farms, £4471, 17s. 3d. 2. Mrs Henrietta Jane Stirling or Somervell, the bankrupt's mother, in virtue of a bond of annuity granted by Graham Somervell of Sorn, constituting a first charge over the castle and policies and a second charge over the farms disponed in security to M'I1 wraith's trustees, ( a) value of the annuity £2880, and ( b) arrears of annuity due November 1908, £7006, 5s. 7d., together £9886, 5s. 7d. 3. Mrs Emily Maclaine or Somervell, now Dawes, who had divorced the bankrupt on 20th January 1892, in virtue of a bond of annuity granted by the bankrupt (see Somervell's Trustees v. Dawes, July 10, 1903, 5 F. 1065, 40 S.L.R. 802), value of the annuity £6700. 4. James Graham Henry Somervell, the bankrupt's son and next heir of entail, in virtue of bond and disposition in security recorded 28th March 1907, for his expectancy as it had been valued, ( a) amount of bond £30,632, and ( b) interest £2332, 1s. 4d., together £32,964, 1s. 4d. 5. The Edinburgh Life Assurance Company in virtue of bond and disposition in security granted in December 1899, (a) amount of bond £24,500, and ( b) arrears of interest £5124, 3s. 5d.. together £29,624, 3s. 5d., ranked for the balance of the fund, viz., £13,977, 15s. l0d, 6. Mrs Amy Elizabeth Jones, otherwise Somervell, in virtue of an alleged bond of provision by the bankrupt recorded on 18th March 1907. 7. Agnes Marion Somervell and Elizabeth Julia Somervell in virtue of the said alleged bond of provision. With reference to 6 and 7 the petitioner stated in a note that there were no funds to admit a ranking but that as the alleged bond of provision had been granted during the sequestration without the consent of the trustee it could not rank in competition with creditors.

Answers were lodged for James Somervell, the bankrupt, personally and as guardian and administrator-in-law for his pupil children Agnes Marion Somervell and Elizabeth Julia Somervell, and for Mrs Amy Elizabeth Jones or Somervell.

The respondents averred, inter alia—“By section 18 of the Act 45 and 46 Vict., ch. 53, it is provided that when an instrument of disentail is executed by the Clerk of Court such instrument is only valid after provision has been made for the interests of all creditors other than the next heirs whose debts are secured on the estates. No such provision has been made. The estate is still entailed. The petitioner had no title to expose for sale or pretend to sell the said estate. The alleged sale is void. Denied that the estate was exposed for sale and sold on the 25th October 1908, in virtue of section 113 of the Bankruptcy (Scotland) Act 1856. The articles of roup and conveyance to the purchaser were not executed by a duly qualified creditor. The trustee is only entitled to disentail and sell when such procedure will result in a benefit to the estate and the creditors. In this case there is a very serious loss.… The purchase money has not been properly allocated between the various properties. Mrs Graham Somervell has no charge upon the Castle offices and polices. She is not a heritable creditor in regard to the fee of the estate. Her bond of annuity is a life—rent charged on the rents and proceeds of the estate. There is no power to compulsorily commute this charge. There are no arrears chargeable against the estate or the rents or proceeds thereof. … The actuary, in valuing the expectancy of James Graham Henry Somervell, on the instructions and with the consent of the petitioner, assumed that the respondent James Somervell would make full provision for widow and younger children under the Aberdeen Act and deducted the value thereof.… The actuary in his report stated he had ‘taken into account the power of Mr James Somervell to grant family provisions in terms of the Aberdeen Act.’ The respondent James Somervell, after notice to the petitioner, duly made such provisions by the bond of provision, dated and recorded 18th March 1907. The petitioner having judicially admitted the right of the respondent James Somervell to grant such a bond, is estopped from disputing its validity.…”

A minute was also lodged for Mrs Dawes, who averred her willingness to accept the scheme in the event of its being approved as a whole, but claimed, in view of the answers lodged by Mrs Somervell, that the sum of £6700 for which it was proposed to rank her in respect of her jointure did not correctly represent the value thereof.

On 20th March 1909 the Court remitted to the Lord Ordinary on the Bills to proceed during the vacation, “with authority to him to make such orders, interim or otherwise, as he may consider just: And to consider, and, if satisfied therewith, to interpone authority to any agreement which may be arrived at and submitted to him by the creditors who may substantiate their claims to a ranking to his satisfaction.”

On 26th April 1909 the Lord Ordinary officiating on the Bills ( Salvesen) pronounced an interlocutor reporting the proceedings to their Lordships of the Second Division.

Opinion.—“This petition was presented to the Second Division on 17th March, and was then appointed to be served on the creditors in the sequestration of Mr Somervell and on the bankrupt himself. On 20th March their Lordships remitted the petition and any answers which might be lodged ‘to the Lord Ordinary on the Bills to proceed therewith in the ensuing vacation, with authority to him to make such

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orders, interim or otherwise, as he may consider just.’ Answers were thereafter lodged by Mr Somervell, as an individual and as guardian and administrator-in-law for his pupil children, and by Mrs Somervell, the bankrupt's wife. None of the creditors, preferable or ordinary, have lodged answers.

As the petition relates to the distribution of a sum of £74,000, which is at present lying on deposit-receipt bearing interest at one per cent. only, the trustee is naturally desirous of obtaining an order under which he can distribute the sum in question; and the case was brought before me in the Bill Chamber with that object. I appointed a hearing, and parties were heard at great length, Mr Somervell appearing on behalf of the respondents who lodged answers. It appeared from the discussion that there were certain important and by no means easy questions which fell to be determined before the distribution could be authorised, and I came in the end to the conclusion that it would not be proper that these should be disposed of by the Lord Ordinary on the Bills, as the only appeal from his decision would be one to the House of Lords. Construing the remit, I came to be of opinion that the intention of the Court in authorising the Lord Ordinary on the Bills ‘to make such orders, interim or otherwise, as he might consider to be just' was not to constitute him a Court of Appeal on legal questions, but simply to authorise him to deal with formal or ministerial matters. As, however, I heard a long argument, I think it right to report the case with this opinion, in the hope that it may be of some assistance in focussing the points which appear to require consideration.

The consigned sum represents the price of the estate of Sorn, the sale of which has been carried through by the trustee, with consent of the commissioners on the sequestrated estate and of all the creditors whom he proposes to rank upon the consigned fund. Mr Somervell challenged the validity of the disentail and the regularity of the sale on various technical grounds, which I think are without substance. The instrument of disentail has already been recorded under authority of the Court, and this being so I can see no possible objection to the trustee selling the estate, although in so far as he has not agreed that the price shall be applied in clearing off the burdens upon it, these may still affect the lands in the hands of the purchaser. Mr Somervell, however, appeared to me to be in titulo, as having the reversionary interest in the estate, to object to the proposed distribution of the proceeds, and the first question he raises is whether the persons, or some of them, amongst whom the trustee proposes to distribute the proceeds are creditors for the amounts set forth in the appendix to the petition as due to them. He contends—and in this I think he is well founded—that if authority is granted by the Court to the trustee to pay these persons the sums in question he will be precluded from afterwards challenging the propriety of such payments. It appears that the Edinburgh Life Assurance Company have been in possession of the rents of Sorn under a decree of maills and duties, and the bankrupt alleges that the rents received by them were more than sufficient to pay the interest on the loan which he received from them and the premiums on the policies of life assurance by which the loan was secured. He accordingly disputes the right of that company to be ranked as the trustee proposes.

There is already pending before your Lordships a petition at the bankrupt's instance to have the accounts connected with the administration of his estate investigated. This petition has been sisted meanwhile until he pays the trustee the expenses incurred in a previous petition of the same nature, which was dismissed with expenses; and it was argued that by his answers here the bankrupt was endeavouring to obtain the same investigation which he had already been refused, except on condition of payment of the expenses referred to. This is no doubt so, but it is one thing to impose a condition upon a petitioner and it is another to refuse to hear a respondent who has lodged a relevant answer to a proceeding to which he has been convened as a party. One would be inclined to assume that the administration which meets the approval of Mr Tait is not likely to be open to serious objection, but on the other hand the bankrupt is entitled, if he can, to prove the contrary. His interest to do so is manifest, because the claims of his ordinary creditors only amount to some £3000, and if he can reduce the claims of secured creditors by more than that amount, there may be a reversion payable to him. If it rested with me, therefore, I should appoint the petitioner to lodge in process the accounts of his administration as factor for the secured creditors, and also as trustee on the sequestrated estate.

The respondents do not dispute the claim of M'Ilwraith's trustees as stated by the petitioner, nor the claim of the next heir of entail. The sums due to these two creditors amount to about half the whole sum consigned, and I think payment of these sums might immediately be ordered, so as to prevent further accumulations of interest. As the Court is, however, to meet so shortly, I do not feel myself justified in making this order in opposition to the bankrupt's contention.

The respondents also object to Mrs Somervell senior being ranked for £7006, 5s. 7d. as the arrears of an annuity of £800 granted by the heir of entail then in possession of Sorn under the Aberdeen Act. The bankrupt argued that these arrears could not be charged against his estate at all, as Mrs Somervell had postponed her right to her annuity to the claims of the Edinburgh Life Assurance Company, and an heir of entail was only personally liable for an annuity as a debt if he drew the rents of the entailed estate. There is an obvious confusion of ideas here. It is true that the bankrupt did not himself receive the rents,

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because he had assigned his right to uplift them to the Edinburgh Life Assurance Company, but this does not alter in any way the liability of his estate. Mrs Somervell senior did not discharge her right to her annuity, but only postponed it at the bankrupt's request, and there seems to me no question but that it is a good claim against his estate.

It does not follow, however, that these arrears are a good charge upon the fee of the entailed estate now that it has been disentailed, and it was strenuously maintained by the bankrupt that they were not. His argument was, that just as an heir of entail who succeeded to the estate would not be liable to make good arrears of such an annuity, although liable for future payments, so the price of the entailed estate, except in so far as the reversion formed an asset in his sequestration, would not be liable for this debt. The bankrupt may have an interest to maintain this, so as to swell the dividend to ordinary creditors, even though there be no reversion, and I think his argument is worthy of consideration.

The only other matter that raises a question of law of some importance has reference to the claim made by Mrs Somervell and by the bankrupt on behalf of his two younger children, in virtue of the bond of provision set forth in the petition. This bond was put upon record before the disentail was actually carried out. The argument was that Mr Somervell's bankruptcy could not prevent him from making provision for his wife and younger children to the extent allowed by the Entail Statutes, for such provision would not be in relation to his estate, nor would it diminish the amount falling to the trustee in sequestration, but would simply go to reduce the value of the interest of the next heir. He referred, in support of this view, to the report of Mr Low, upon which the next heir's interest was fixed at £30,632, where the reporter says that in fixing this interest he has taken into account the power of Mr James Somervell to grant family provisions in terms of the Aberdeen Act. If this view is sound, provision would now have to be made for Mrs Somervell and the younger children's contingent provisions in priority to the claim of the Edinburgh Life Assurance Company, and possibly also to the arrears of Mrs Somervell senior's annuity.

The argument on this question appeared to me to be worthy of attention. Bankruptcy only affects a man's right to do anything in relation to his own estate, and it would be a strong thing to hold that a bankrupt heir of entail cannot make a provision for his wife and children payable only after his death, and thus not in any way affecting his interest in the entailed estate. If this is so, the whole scheme of distribution would require to be reconsidered.”

Arguedfor the respondents (James Somervell, &c.)—1. The alleged disentail and sale of the estate were null and void, and the present application was therefore incompetent. By section 18 of the Entail (Scotland) Act 1882 (45 and 46 Vict. cap. 53) a creditor could secure the disentail of an entailed estate and effect it for his debt only on provision being made for the interests of any other creditors whose debts were secured on the estate. The same section directed that on an application by a trustee for disentail the Court should proceed in the same manner as in the application by a creditor, and the same condition therefore attached to the application by the trustee. That condition had not been complied with, for on the trustee's statement the debts secured on the estate exceeded its value, and provision had thus not been made for them. Further, section 113 of the Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), under which the alleged sale had been made, was no warrant for the sale. That section required the concurrence of a creditor with a “power to sell.” A creditor with a “power to sell,” as distinguished from “a power of sale,” which was used in section 114, must be taken to mean a creditor who had served the notarial intimation, requisition, and protest in the form of Schedule FF No. 2 annexed to the Titles to Land Consolidation (Scotland) Act 1868 (31 and 32 Vict. cap. 101), and had complied with the provisions of that Act with regard to sale by a heritable creditor. It was only then that the creditor could bring the security subjects to sale. The sale here was admittedly made without the concurrence of any such creditor. Further, the trustee had sold the estate without the concurrence of any creditor with even a power of sale, for the annuities of Mrs Somervell and Mrs Dawes were secured only on the rents, and that of Mrs Dawes was contingent; the bonds in favour of the Edinburgh Life Company and of M'llwraith's trustees did not embrace the whole estate, while that in favour of the next heir was in security of a debt contracted subsequently to the bankruptcy. 2. In any event the scheme ought not to be approved. Mrs Somervell was not entitled to be ranked for the arrears of her annuity. If that were done, the burden on the estate would exceed the maximum amount sanctioned by the Act under which her bond of provision was granted—Entail Provisions Act 1824 (the Aberdeen Act) 5 Geo. IV, cap. 87, section 1. The case of Boyd v. Boyd, July 5, 1851, 13 D. 1302, was not in point. Further, the annuities could not affect the castle and policies. The Edinburgh Life Company had been drawing the rents of the estate, and if properly managed they would have been sufficient to pay the interest on their bonds and the annuities. The bond of provision granted in 1907 was valid and effectual, and provision ought to have been made for it in the scheme. The respondent would undoubtedly have been entitled to grant such a bond if the Entail Act of 1882 had not been passed. That statute contained no express alteration of the law on the point, and the presumption was against any alteration of the law not explicitly disclosed—Maxwell, Interpretation of Statutes, 4th ed. p. 122, 3rd ed. p. 113. The right to

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make such provisions was not affected by—section 111 of the Bankruptcy (Scotland) Act 1856. It was not “estate” within the meaning of section 4. But in the particular circumstances of this case the trustee could not challenge the validity of the bond. In valuing the expectancy of the next heir in the disentail proceedings instituted by the trustee, a deduction had been made in respect of the power to make such provisions. If there were no such power, then the amount of the bond in favour of the next heir should be increased. The next heir had accepted the amount as ascertained, and the difference could not accrue to the benefit of the other creditors. In any event the validity of a duly recorded bond could not be considered in the present process. [ Earl of Glasgow, November 12, 1886, 14 R. 59, 24 S.L.R. 51, and Leith v. Leith, June 10, 1862, 24 D. 1059, were also referred to.]

Argued for petitioner—1. The consent of the next heir was sufficient to empower the sale. He was a creditor before the sale, though not until the disentail proceedings. The disentail and the sale were in all respects properly and competently carried out, and the statutory requirements complied with. 2. The only question before the Court was whether the scheme which was presented for approval in compliance with section 116 of the Bankruptcy (Scotland) Act 1856 ought to be sanctioned. The bankrupt had no interest in that question as the debts greatly exceeded the value of the estate, and there could be no reversion. There was no doubt that Mrs Somervell was entitled to be ranked for the arrears of her annuity— Boyd v. Boyd, cit. The Edinburgh Life Company were of course bound to account for the rents uplifted by them, but not in this process. The bond of provision granted by Mr Somervell in 1907 after his sequestration was null and void—Bankruptcy (Scotland) Act 1856, section 111; Obers v. Baton's Trustees, March 17, 1897, 24 R. 719, 34 S.L.R. 538. The Aberdeen Act never contemplated provisions by the same heir of entail in favour of two widows.

At advising—