Scottish Court of Session Decisions

The Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), secs. 62 and 65, is quoted in the rubric.

John Maclachlan, Sydney Villa, Tignahruaich, Argyllshire, raised an action against John Maxwell, builder, Maryhill, Glasgow, in which he sought declarator that he was in right of a bond and disposition in security for £700 over certain subjects in Maryhill, granted by the defender in favour of the pursuer to the extent of £500, and in favour of another, whose right the pursuer had subsequently acquired, to the extent of £200, and that he was entitled, in accordance with the powers and the statutory provisions applicable to the rights of a heritable creditor, to sell the security subjects.

The defence was that the pursuer was bound to assign the bond and disposition in security to the defender on payment of £583, 6s. 8d., being the value which the pursuer placed upon the security subjects in the affidavit and claim after mentioned.

The defender's estates were sequestrated on 6th September 1904, and on 16th September, the day appointed for the election of a trustee, the pursuer lodged the following affidavit and claim—“Depones that John Maxwell, builder, Maryhill, Glasgow, was, at the date of the sequestration of his estates, and still is, justly indebted and resting-owing to the deponent the sum of Seven hundred and eight pounds fourteen shillings and tenpence, conform to account or state of debt. Depones that no part of said sum has been paidor compensated; that no security is held for the same except the heritable subjects in Crosbie and Barra Streets, Maryhill, Glasgow, conveyed or assigned to the deponent in security of a loan to the bankrupt of Seven hundred

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pounds, and interest and penalties thereon, conform to bond and disposition in security for Seven hundred pounds, granted by bankrupt in favour of deponent and Lachlan Maclachlan, Seaview, Tignabruaich, and to which the deponent has since acquired the said Lachlan Maclachlan's right by assignation in his favour, duly recorded; that the deponent values his security over said subjects at the sum of Five hundred and eighty-three pounds six shillings and eightpence sterling, leaving a balance of One hundred and sixteen pounds thirteen shillings and fourpence, for which he claims to vote and rank on bankrupt's general estate, over and above his right to get payment of the interest out of the rents of the subjects; and that there are no other obligants for the debt than the said bankrupt.”

On 13th October the trustee on the sequestrated estate wrote to the pursuer the following letter—“Dear Sir,—As trustee on the sequestrated estate of John Maxwell, builder, Maryhill, Glasgow, I hereby intimate that the commissioners, by minute dated to-day, resolved to take over, in terms of section 65 of the Bankruptcy (Scotland) Act 1856, the security over subjects Crosbie and Barra Streets, Maryhill, Glasgow, in your name, which security was valued in your affidavit, of date 14th September 1904, at £583, 6s. 8d., and I therefore demand, at the expense of the estate, a conveyance or assignation of said security on paying the specified value out of the first of the common fund.” Along with that letter there was no actual tender of the money.

On 21st October the pursuer, under explanation that he had lodged his first claim for voting purposes only, and had per incuriam included a claim for ranking, lodged a corrective affidavit and claim, in which he claimed for the same debt, but valued his security at £698, 14s. 10d. instead of £583, 6s. 8d.

On 28th December the trustee's agents wrote to the pursuer's agents the following letter—“Dear Sirs,—A meeting of commissioners was held in the above sequestration a day or two ago, and we were instructed to intimate to you that the trustee is now in a position to make payment to your client Mr John Maclachlan of the sum of £583, 6s. 8d., being the amount of the value placed by him upon his security over the above subjects in his affidavit of date 14th September last. Intimation was sent to your client on 13th Octr. last, and in terms thereof your client is requested to convey his security to the trustee. Please acknowledge this intimation as sufficient.”

No ranking on the claims in the sequestration was made, and on 2nd October 1905 the defender was discharged on payment of a composition, and was thereafter reinvested in his estate. On 9th December 1905 the trustee granted to the defender an assignation of any right of claim which accrued or belonged to him, as trustee, by the lodging of affidavits and claims of creditors owning securities.

On 19th June 1909 the Lord Ordinary ( Skerrington) pronounced this interlocutor—“… Finds, declares, and decerns in terms of the declaratory conclusions of the summons: Quoad ultra continues the cause.…”

Opinion.—“The pursuer being in right of a bond and disposition in security for £700 granted by the defender, asks for declarator that he is entitled to exercise his statutory powers of sale. The defence is that the pursuer is bound to assign the bond and disposition in security to the defender on payment of the sum of £583, 6s. 8d., being the value which the pursuer placed upon the security subjects in an affidavit and claim lodged by him in the defender's sequestration on 16th September 1904. The defender was discharged on 2nd October 1905 on payment of a composition. Two questions have to be decided—(1) Whether the trustee in the defender's sequestration put himself in a position to demand an assignation of the bond and disposition in security on payment of the said sum of £583, 6s. 8d.? And (2) whether this right, if it belonged to the trustee, is now vested in the defender?

The defender's estates were sequestrated on 6th September 1904, and on 16th September 1904 the pursuer lodged with the trustee an affidavit and claim, in which he valued his security at £583, 6s. 8d. He alleges that this affidavit and claim per incuriam bore to be for the purpose both of voting and of ranking, whereas it was intended to be only for the purpose of voting; but he does not allege that the trustee was cognisant of the mistake. On 13th October 1904 the trustee wrote to the pursuer a letter intimating that the commissioners had resolved to take over, in terms of section 65 of the Bankruptcy Act 1856, the security subjects valued in his affidavit at £583, 6s. 8d., and demanding ‘a conveyance or assignation of said security on paying the specified value out of the first of the common fund.’ The pursuer thereupon withdrew his claim, and lodged a corrective affidavit and claim for ranking, in which he placed a much larger value upon the security. The question is whether he was within his right in doing so.

For the reason already indicated, I disregard the suggestion that the valuation was not binding upon the pursuer, in respect that it was framed per incuriam as a valuation for ranking as well as for voting. I am also unable to sustain the pursuer's contention that the trustee was not entitled to call upon the pursuer to assign his security until after he had adjudicated upon the pursuer's claim. Further, I agree with the opinion of Lord Kincairney in Macdougall's Trustee v. Lockhart, 1903, 5 F. 905, to the effect that the pursuer is not entitled to maintain that at the time when the trustee called upon him to assign the security there was no ‘common fund’ available for payment of the price. I am, however, of opinion that, upon a sound construction of section 65 of

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the Act of 1856, the trustee acquires no right to the security, except on payment of the specified value, or, what is the same thing, on tendering payment. I have come to the conclusion that the letter of 13th October 1904 was not a valid exercise of his statutory option on the part of the trustee, in respect that he did not tender immediate payment of the specified value, but merely payment ‘out of the first of the common fund’—in other words, payment if and when such a fund should emerge. The defender alleges that he tendered payment of the £583, 6s. 8d. on 28th December 1904, but the pursuer had by that time lodged his corrective affidavit and claim.

The defender founded upon the case of Macdougall's Trustee as establishing that the letter of 13th October 1904 constituted a binding contract between the pursuer and the trustee in bankruptcy. In that case the Lord Ordinary (Kincairney) decided that a creditor was not entitled to put a new valuation upon his security after his claim had been admitted to a ranking. The Judges of the Second Division disagreed with the Lord Ordinary in this view, and held that a creditor may withdraw his claim at any time before receiving payment of a dividend. But they adhered to the Lord Ordinary's judgment upon a ground which was not argued in the Outer House, and of which no indication is to be found in the written pleadings, viz., that the trustee had intimated to the creditor that he would take over the security in terms of section 65, and that this intimation was three days' earlier than the creditor's withdrawal. The terms of the intimation are not discoverable, but I assume that their Lordships of the Second Division were satisfied that the trustee had validly exercised his statutory option. Having regard to the fact that the intimation was made three weeks after the trustee had admitted the claim, it may, I think, be assumed that it contained in substance, though possibly not in form, a sufficient tender to the creditor of the sum specified by him as the value of his security. Some of the learned Judges who gave opinions in Macdougall's case assimilated the creditor's affidavit and claim to an offer, and the trustee's intimation to an acceptance of that offer. With every respect, it seems to me that the legal fiction of an offer and acceptance introduces serious complications into what would otherwise be a simple question, viz., whether the trustee had validly exercised his statutory option so as to preclude both himself and the creditor from resiling. In the first place, an acceptance of an offer to assign a heritable security would require to be either probative or holograph, whereas no such solemnities are required by section 65 of the statute, or were adopted in the present case. In the second place, difficulties will arise if the attempt be made to write out ad longum the terms of the supposed offer by the creditor. It will be found either that the offer is an idle one or that it commits the creditor to a heavier burden than the statute imposes upon him.

For these reasons I am of opinion that the trustee in the sequestration never placed the pursuer under obligation to grant an assignation in his favour. Even if I had come to the opposite conclusion I should have held that the right to demand an assignation in terms of section 65 was not vested in the defender, seeing that in his offer of composition he expressly stipulated that he should have the same right as his trustee to have any security valued by a creditor assigned to him in terms of section 62 of the Bankruptcy Act. Under section 62 the defender must have paid, not merely the specified value of the security but 20 per cent. in addition. It was probably unnecessary for the bankrupt in his offer of composition to make any reference to the assignation of securities, but if he chose to do so and limited himself to the rights vested in the trustee under section 62, I am of opinion that his creditors, including the pursuer, are entitled to maintain that the bankrupt, after his discharge, is not entitled to exercise the rights conferred upon his trustee by section 65.

I shall accordingly grant declarator in terms of the conclusion of the summons, and quoad ultra continue the cause.”

The defender reclaimed, and argued—The intimation by the trustee of 13th October made a concluded contract—it was the acceptance of the pursuer's offer of 16th September—and the pursuer could not thereafter revise his claim. Reference was made to Macbride v. Stevenson, March 14, 1884, 11 R. 702, 21 S.L.R. 486; Russell v. Daniel & Green, March 19, 1868, 6 Macph. 648, 5 S.L.R. 389; Henderspm's Trustee v. Auld & Guild, July 6, 1872, 10 Macph. 946, 9 S.L.R. 598; Macdougall's Trustee v. Lockhart, June 9, 1903, 5 F. 905, 40 S.L.R. 655.

Counsel for the pursuer were not called upon.