Scottish Court of Session Decisions

The Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), enacts—Sec. 82—“The trustee shall manage, realise, and recover the estate belonging to the bankrupt, wherever situated, and convert the same into money, according to the directions given by the creditors at any meeting, and if no such directions are given he shall do so with the advice of the commissioners.…” Sec. 96—… “The creditors assembled at such meeting” [ i.e., the meeting after the bankrupt's examination] “may receive an offer of composition as hereinafter provided and may, either at this or any other meeting, give directions for the recovery, management, and disposal of the estate; and when any part of the estate consists of land or other heritable property, it shall be optional to the creditors to determine whether the trustee is to bring such property to judicial sale or to dispose thereof by voluntary public sale

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or by private sale, as hereinafter provided.” Sec. 136—“If on the lapse of twelve months from the date of the deliverance actually awarding sequestration it shall appear to the trustee and commissioners expedient to sell the heritable or moveable estates not disposed of, and any interest which the creditors have in the outstanding debts and consigned dividends, they shall fix a day for holding a meeting of the creditors to take the same into consideration, … and if three-fourths in value of the creditors assembled at the meeting shall decide in favour of a sale in whole or in lots, the trustee shall cause the estates, debts, and dividends to be sold by auction, after notice thereof published at least one month previous to the sale, once in the Gazette and in such other newspapers as the creditors at the meeting shall appoint.”

These were two actions arising out of a private sale by James Davidson, C.A., Glasgow, trustee on the sequestrated estates of Yorston & Hogarth, writers, Glasgow, and Robert Yorston, the only surviving partner, of the book debts of the firm to Robert Stewart, accountant, Glasgow. In the first action the assignee Stewart sued James Crookston junior, coalmaster, Glasgow, the acceptor of a bill of exchange for £150, dated 29th June 1907 at three months date, of which the firm of Yorston & Hogarth were indorsees and onerous holders, for payment thereof. The defender pleaded—“(1) No title to sue.”

In the second action William Brodie Galbraith, C.A., Glasgow, trustee on the sequestrated estates of the late John Hogarth, writer, Glasgow, a partner of the said firm of Yorston & Hogarth, sued the assignee Stewart for delivery of an I O U for £160 dated 3rd January 1907 granted by William Forbes in favour of the said John Hogarth, which Stewart had obtained possession of under his assignation of the book debts of Yorston & Hogarth.

The defender pleaded—“(5) The said I O U and sum therein contained being part of the property of the firm of Yorston & Hogarth, and the defender having acquired right thereto in virtue of the said assignation, he is entitled to absolvitor with expenses. (7) The sale by the trustee and commissioners on Yorston & Hogarth's estate to the defender, authorised by the creditors, having been regular and proper, and acquiesced in by the pursuer, and separatim, the pursuer having no title or interest to impugn it, his contentions should be repelled, with expenses.”

The pursuer pleaded—“(1) The defence is irrelevant. (4) The said sale to the defender having been a private one, made contrary to the provisions of the Bankruptcy Statutes, the assignation in his favour founded upon by him is invalid, and the defender has no title to said I O U or the sum due thereunder.”

In the action at the instance of Stewart against Crookston the Sheriff-Substitute ( Welsh) on 6th April 1909, after a proof, found in fact—“(4) That the sale of said outstanding book debts and cash balances was a private sale, and, on the assumption that said acceptance was included in said assignation, that the provisions of the Bankruptcy (Scotland) Act 1856, and more particularly those of section 136 of said Act, were not observed in connection with said sale: Finds in law that the pursuer has not validly acquired the alleged debt which is the subject of the present action, and that he has no title to pursue the defender therefor: Therefore sustains the first plea-in-law stated for thedefender.”

Note.—“… On the facts disclosed at the proof I cannot distinguish this case from that of Robertson v. Adam, 1857, 19 D. 502, which decided that a purchase by private sale from the trustee and commissioners, of a debt forming part of a sequestrated estate does not give a good title to sue the debtor. By the Bankruptcy (Scotland) Act 1856, section 82, it is provided that the trustee shall manage, realise, and recover the estate belonging to the bankrupt, and by section 136 of that Act provision is made for the sale of outstanding debts by auction after certain formalities have been observed. The following sentences from the opinion of Lord Neaves, Lord Ordinary in the case of Robertson v. Adam, put the matter tersely:—‘Under both of these Acts’ ( i.e., the former Bankruptcy Act and the Act of 1856) ‘it must, it is thought, be held that the statutory direction given to the trustee to recover and realise the moveable estate does not authorise him to dispose of outstanding debts at his own hand, or with the mere aid of the commissioners. The disposal of outstanding debts by way of sale seems, under both of the statutes, to be guarded by special provisions requiring first that a certain time shall elapse, and next that the sale shall be by auction—the only safe way, perhaps, by which the value of such a subject can be ascertained.’ Admittedly the sale in the present case was a private sale, and I do not think the fact that it was authorised at the second meeting of creditors can strengthen the pursuer's case on title, it having been held (in the case of Crichton v. Bell, 1833, 11 S. 781) that a private sale of an outstanding debt—though afterwards approved of by the creditors—is not effectual to convey the right thereto. The statutory formalities were not observed in the present case, and accordingly, in my view, the sale of the book debts and cash balances by the trustee in favour of the pursuer not having been validly carried through, the assignation conferred upon the pursuer no title to sue the debtor. I may add that it does not seem to me to affect the principle to be applied that, on the one hand, a price of a fair value, or, on the other hand, an under value, was paid for the outstanding debts. The result is that I sustain the defender's plea of ‘No title to sue,’ and dismiss the action with expenses.”

The pursuer appealed to the Sheriff ( Millar) who, on 28th July 1909, adhered to his substitute's interlocutor.

Note.—“The pursuer's agent, during the debate on the appeal, maintained that

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section 136 of the Bankruptcy Act of 1856 did not apply to a private sale previous to twelve months after the date of sequestration. By section 82 of the Bankruptcy Act it is provided … [ quotes, ut supra] … Section 96 also provides that at the meeting after the election of the trustee, when the trustee submits his report and estimate of the estate … [ quotes, ut supra] … The appellant founded on these sections as giving the trustee power to sell the estate by private bargain, if authorised to do so by the creditors. As it may often be in the interest of the creditors to have such power, I should have felt inclined to have taken this view. But then there are two cases— Crichton v. Bell, 11 S. 761, and Robertson v. Adam, 19 D. 502, which lay down that such a course would be incompetent. There is no doubt that Lord Neaves in the latter case is dealing with the previous Bankruptcy Statute, but the terms of the corresponding sections in the Act of 1856 are almost precisely similar, and that case is therefore a direct authority upon this question. It is to be noted that Mr Goudy, in his book upon the Law of Bankruptcy, quotes these two cases as being his authority for the proposition that a private sale of such property as book debts has been held incompetent. He goes on to say that it is somewhat doubtful whether a distinction would be admitted in regard to such property as furniture or stock-intrade, so as to sanction a sale of the latter by private bargain. These cases, then, being decisions of the Supreme Court directly upon the question at issue, are binding upon this Court until they are altered. Accordingly, I think the learned Sheriff-Substitute has come to a right decision.”

In the action by Galbraith against Stewart, the Sheriff-Substitute ( Boyd) on 29th March 1909 pronounced the following interlocutor:—“Sustains the first plea-inlaw for the pursuer: Repels the defences, and decerns and ordains the defender to deliver as craved in the petition,” &c.

The defender appealed to the Sheriff, ( Millar) who, on 28th July 1909, adhered.

Note.—“…. In any event it seems to me difficult for the present defender to retain possession of the document, because by the decision in another case it has been determined that the assignation to him was not competently granted to him in terms of the Bankruptcy Act. He is, therefore, not entitled to hold the document as against Hogarth's trustee. In the whole circumstances I think the view of the learned Sheriff-Substitute is right, and should be affirmed.”

The assignee, Stewart, appealed in both cases to the Court of Session.

The appeals were heard together by the First Division on 13th and 14th January 1910, and on 15th January the Court appointed both causes to be argued before seven judges “on the question whether in the circumstances the assignation founded upon … is valid.”

Argued for appellant—The words “realise, recover, and convert into money” in section 82 of the Bankruptcy (Scotland) Act 1856 gave the trustee power to sell moveables by private sale within the year. If the power of the trustee was so restricted that he could not so sell within twelve months it was difficult to see where he got power to sell at all. The scheme of the Act was that under section 82 the trustee was given complete power to realise the estate in any way he saw fit. If he selected a method not the best, he would be liable to account when the time came. He took the risk that he had realised the estate in the best way. Section 86 supported this argument, because it made the trustee amenable to the Lord Ordinary and the Sheriff. This section gave protection to the bankrupt and the creditors against the trustee. Following section 82 came section 96, by which power was given to the trustee to sell heritage by private bargain. This meant that the trustee was put in a position to adopt this method whether it was the best method or not, and neither creditors nor bankrupt could subsequently challenge the sale. Then came section 136 by which the trustee was given power to sell the whole estate by auction. The purpose of this section was to save him from subsequent challenge on the ground that he had not adopted the most lucrative method. Again section 176 gave the trustee power to compound debts. But if he had this power, why should he not also have power to sell? If “realise” excluded private sale, why should it include public sale, or any sale? It was in the interest of the bankrupt and his creditors that the trustee should have such power. In Noble v. Campbell, November 4, 1876, 4 R. 77, 14 S.L.R. 42, the view taken by the Court was that it was intra vires of the trustee to sell a decree for payment belonging to the bankrupt estate—Bell's Com. (M'Laren), vol. ii, 344.

Argued for respondents — The whole procedure was statutory. The question was whether the statute either expressly or by implication authorised the sale of the debts. The only express provision was in section 136. Section 82 was a perfectly general one, and the only proper mode of realising book debts was to recover them from the debtor. Book debts were a special class of assets—not visible and tangible. They were speculative claims the precise value of which was not known. The value of corporeal assets was known and could be realised by auction. So with shares and stocks. The policy of the Act was to prevent underhand dealing and to prevent the trustee disposing of these assets at an inadequate price. If regard was had to the circumstances in which private sale was authorised it would be found that it was in each case safeguarded. “Recover” in section 82 was plainly appropriate to debts, &c., vested in the bankrupt at the time of sequestration. This was really the sale of a title to sue. In other cases the creditors could see what the assets were worth, but not in the case of a book debt. In this connection the association of outstanding debts and

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consigned dividends was important, because it indicated that in the view of the Legislature these, being speculative assets, were to be either litigated or enforced; though, after twelve months, it being presumed that the trustee had been diligent, he was to be entitled to resort to a more drastic method and dispose of them by auction. Section 136 had already been construed by the Court in this way— Crichton v. Bell, June 25, 1833, 11 S. 781, better reported 5 Scot. Jur. 468; and Robertson v. Adam, February 20, 1857, 19 D. 502. Further, the English Bankruptcy Statute of 1883, section 56 (1) gave a trustee explicit power to sell book debts by private sale, and if such a power had been contemplated in Scotland it would have been expressly conferred.

At advising—