Scottish Court of Session Decisions

On 25th March 1914 Bonar, Hunter, & Johnstone, W.S., Edinburgh, pursuers, brought an action of multiplepoinding and exoneration against, inter alios, Frederick S. Salaman, C.A., London, trustee on the bankrupt estate of Claud H. M. Lennox of East Pallant House, Chichester, and Claud H. M. Lennox for his interest, if any, reclaimers, and Charles J. Munro, trustee on the sequestrated estates of Lady Lennox Sinclair of Stevenson, in the county of Haddington, respondent. The fund in medio consisted of two sums contained in two deposit-receipts, the one for £245 in the pursuers' name for behoof of Claud H. M. Lennox, executor of the late Lady Lennox Sinclair, and the other for £350 in the pursuers' name for behoof of the executor of Lady Lennox Sinclair.

The facts of the case appear from the opinion of the Lord Ordinary ( Ormidale), who on 19th December 1914 dismissed the claim of reclaimers, and ranked and preferred the respondent to the whole of the fund in medio under deduction of a claim already admitted.

Opinion.—“Parties have agreed to the claim for Messrs Bonar, Hunter, & Johnstone, W.S., being sustained.

With regard to the balance of the fund in medio I have come to the conclusion that the trustee on the sequestrated estates of Dame Lennox Sinclair falls to be preferred, under reservation of the rights and pleas of the claimants the trustee on the bankrupt estate of Mr Claud H. M. Lennox and Mr Lennox.

The deposit-receipts which constitute the fund in medio are dated subsequent to the lapse of six months from the death of Dame Lennox Sinclair, which shows that whatever rights Mr Lennox may have had as at once a creditor and executor confirmed, he did not affect to operate payment of his debt out of the executry estate. At the date of the sequestration therefore the fund in medio was clearly earmarked as part of the executry estate.

Now I take it to be a rule of Scots law that property evidently held by a bankrupt in a representative capacity does not pass to the trustee on his sequestrated estate. It is not said by the trustee on Mr Lennox's bankrupt estate that the law of England is different. In my opinion therefore Mr Salaman has no title to the fund in medio.

The claim for Mr Lennox is not stated as a separate substantive claim, and this creates a difficulty. He claims along with his trustee for any interest he may have in the premises. I am not at all satisfied that if the trustee's title is bad, as I think it is, the defect can be cured by the concurrence of Mr Lennox.

Apart from that, and assuming that a separate claim is tabled by Mr Lennox, he

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justifies that claim on the ground that he is entitled to the fund in preference to the other creditors of the defunct in virtue of his confirmation as executor-nominate. Mr Lennox has not either in effect or form retained at any time either before or after the lapse of the six months the executry estate in question in liquidation of his claim upon it. The result, in my judgment, sequestration having supervened, is that the executry estate still existing as such has vested in the trustee on the sequestrated estate, and while Mr Lennox as executor may have a preferable right to it he must in the circumstances vindicate his claim in the sequestration.

It has to be noted further that there are averments made by Mr Munro which cannot, in my judgment, be disposed of without inquiry. I mean averments with reference to the lodging with and the admitting by the executor of the claims of certain creditors within the six months. Indeed the statement is made that he paid one of these claims within that period. It is also averred that in the knowledge of the executor the estate of the deceased was from the first insolvent. I am not prepared to say that these statements, if proved, may not affect the right of the executor now to claim a preference.

I do not proceed at all on the ground urged by Mr Mackay that the law as laid down in the institutional writers and the decisions draws any distinction between the case where confirmation is taken out within six months and the case where it is taken out after the lapse of six months from the defunct's death. As at present advised, I accept as well founded the proposition that an executor-nominate duly confirmed who is also a creditor, when no other creditor has in terms of the Act of Sederunt of 1662 used the diligence therein prescribed within six months from the death of the debtor, has in the ordinary case secured a preference, and at the end of the six months may pay his own debt out of the executry estate by way of retention. I am not, however, prepared to say that extinction of the executor's debt is operated automatically confusione.

In holding that the claim of the executor to a preference must be worked out in the sequestration I proceed on the ground that the estates of the deceased have been sequestrated before the executor here has in fact paid his own debt, and that the averments to which I have referred are relevant to infer a right in the other creditors to dispute his claim to a preference.”

Frederick S. Salaman and Claud H. M. Lennox reclaimed, and argued—An executor was notatrustee for the deceased's creditors, but the executry estate vested in him subject to a duty to account to the deceased's creditors— Globe Insurance Company v. Mackenzie, 1850, 7 Bell's Appeals 296; Stewart's Trustee v. Stewart's Executrix, 1896, 23 R. 739, per Lord M'Laren at p. 744, 33 S.L.R. 570; Mitchell v. Mackersy, 1905, 8 F. 198, 43 S.L.R. 107; Taylor & Ferguson v. Glass's Trustees, 1912 S.C. 165, 49 S.L.R. 78; dist. Gray's Trustees v. The Royal Bank, 1895, 23 R. 199, 33 S.L.R. 140. An administrator was entitled in any administration action to retain estate to meet his own debt in preference to other creditors of equal degree— In re Belham, [1901] 2 Ch 52. Consequently Lady Sinclair's sequestration was incompetent, because there was nothing in her to attach, and the deposit-receipts fell into the English bankruptcy, where they must be dealt with— Menzies v. Poutz, 1916 S.C. 143, 53 S.L.R. 111; Goetze v. Aders, 1874, 2 R. 150, 12 S.L.R. 121; Obers v. Paton's Trustees, 1897, 24 R. 719, 34 S.L, R. 538. The executor's confirmation operated as a diligence in his favour quoad the debt due to him by the deceased, and placed him in the same position as one confirming qua executor creditor, except that the latter confirmed only to what was necessary to pay his debt. This position was not affected by the mere intimation by other creditors of claims exceeding the value of the executry estate unless they did diligence within six months from the date of death or took out sequestration within seven months, which would bring them in pari passu with the executor—A. S. 28th February 1662; Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. cap. 79), sec. 110. In default, however, of diligence by other creditors or sequestration, on the expiry of these periods the executor became debtor and creditor in himself, which extinguished the debt confusione, or at least entitled the executor to retain the executry estate in satisfaction of his claim—Stair's Inst, iii, 8, 73 and 76; More's Notes, p. ccclv; Ersk. Inst, iii, 9, 44 and 46, and on confusio, iii, 4, 23; Ersk. Princ. iii, 9, 23; Bell's Comm, ii, 80, 84, 118; Bell's Princ. sec. 1900; Creditors of M'Dowal v. M'Dowal, 1744, M. 10,007; Graham Stewart on Diligence, pp. 444 and 449; Elder v. Watson, 1859, 21 D. 1122, per Lord Wood at p. 1127. Lady Sinclair's trustee could only claim in the English bankruptcy where the rights of the creditors he represented would be adjudicated upon— Tait v. Kay, 1779, M. 3142; Goudy on Bankruptcy, p. 594—and he could not claim the corpus of the executry. Further, he could not plead personal bar; that must be pled separately by Lady Sinclair's creditors, each in respect of his own interest.

Argued for the respondent—Lady Sinclair's sequestration was now final and could not be recalled, and it carried her whole estate and property to the respondent—Bankruptcy (Scotland) Act 1856 ( cit.), secs. 4 and 102—which necessarily included the deposit-receipts, for they ex facie existed as executry funds at the date of this sequestration, and whatever rights Claud Lennox may have had over them they had not been exercised at that date. Further, they did not pass to the English trustee, for in England estate held by the bankrupt as executor did not pass to his trustee—Baldwin on Bankruptcy, 11th ed., p. 303; Williamson Executors, 10th ed., vol. i, pp. 471 and 475; the Bankruptcy Act 1883 (46 and 47 Vict, cap. 52), sec. 44. In Scotland the executor not being a trustee, the executry estate might pass to the trustee in his sequestration, who had to administer both for the

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creditors of the deceased and of the heir. In England the trustee could not touch executry estate and could not administer except for the bankrupt's own creditors, and consequently there was material reason for the Scots sequestration. The cases of Menzies, Goetz, and Obers ( cit. supra) did not apply. Confirmation did not ipso facto transfer the deceased's estate in full property to the executor, because, if so, sequestration of the deceased's estate would be impossible without sequestrations of the executor, yet separate sequestration of both were contemplated by the Bankruptcy Acts—Bankruptcy (Scotland) Act 1856, secs. 13 and 15. Further, the liability of the executor was limited to the amount of the estate he received, and he was bound to prefer the ancestor's creditors to his own quoad executry estate. In fact he neither had the full property in the ancestor's estate nor did he hold it in the same capacity as his own. The contention that confirmation had operated a complete transference of the deceased's estate to the executor was only sound where the plea of exhaustion of the estate was available, i.e., where the whole executry estate had been paid away and lost its identity as such. Here there were still funds earmarked as executry. Further, the debt was not extinguished confusione, for the passages quoted from the institutional writers spoke only of a right in the executor to retain and pay himself, which in this case admittedly he had not exercised. But in any event this right to pay himself was on the same footing as the right of any other creditor to get payment. He could only get payment as primus veniens if others had not done diligence or intimated claims or the estate was solvent— Addie v. Gray, 1628, M. 9977; Creditors of M'Dowal v. M'Dowal ( cit. sup.); M'Leod v. Wilson, 1837, 15 S. 1043; Rough's Trustees v. Miller, 1857, 19 D. 305, per Lord Currie-hill at p. 316; Bell's Comm, ii, pp. 84 and 80; Russel v. Simes, 1790, Bell's Dec. (8vo.) 217; M'Laren on Wills, vol. ii, p. 1163; Globe Insurance Company v. Mackenzie, 1849, 11 D. 618, per Lord Fullerton at p. 640; Elder v. Watson ( cit. sup.), per Lord Wood at p. 1128. In fact the executor's confirmation merely relieved him of the necessity to constitute his claim, but as executor he must deal fairly with other creditors, and as a creditor he was only entitled to a dividend— Taylor & Ferguson v. Glass's Trustees ( cit. sup.), per Lord Dunedin, and the cases reported in M. 3863 et seq., e.g., Jaffrey v. Gray, 1626, M. 3866; M'Gann v. M'Gann's Trustees, 1883, 11 R. 249, 21 S.L.R. 179.

At advising—