Scottish Court of Session Decisions

James Wright, building contractor, Glasgow, pursuer, brought an action against Robert Colburn Buchanan, theatrical manager, Edinburgh, and others, the creditors in a bond and disposition in security for £7000 executed by the Kilmarnock Theatre Company, Limited, now in liquidation, the Kilmarnock Theatre Company and the liquidator thereof, and Richard Edmiston junior, auctioneer, Glasgow, defenders, concluding as follows, viz., that “the defenders ought and should be decerned and ordained by decree of the Lords of our Council and Session to exhibit and produce before our said Lords a minute of enactment and preference by the said Richard Edmiston junior as judge of the roup, dated 30th March 1916, whereby he preferred the defender Robert Colburn Buchanan to the purchase of all and whole that piece of ground at Kilmarnock delineated and coloured pink on a plan endorsed on a feu disposition … lying within the parish of Kilmarnock and county

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of Ayr, together with the theatre erected on the said area or piece of ground, and the whole adjuncts and accessories thereof, including furnishings, decorations, seating, upholstery, scenery, and office furniture, with the whole pertinents of the said subjects and the exposers' whole right, title, and interest in and to the same, at the price of £5400, and enacted him purchaser accordingly, and the said deed ought and should be reduced by decree of our said Lords, and the pursuer reponed and restored there-against in integrum; and (second) that it ought and should be found and declared by decree foresaid, upon decree of reduction as above concluded for being granted, that the pursuer was the true purchaser of the said property at the price of £4000 sterling, the upset price thereof when it was exposed for sale within the Faculty Hall, St George's Place, Glasgow, on 29th March 1916, he being the sole offerer and lawful bidder for the purchase of the said property; and further, that the defender the said Richard Edmiston junior ought and should be decerned and ordained by decree foresaid to sign a minute of enactment and preference in favour of the pursuer as purchaser of the said property at the said price of £4000 sterling.”

Defences were lodged by R. C. Buchanan, and also by David Kirkland and others, certain of the creditors under the bond and disposition in security.

The facts of the case appear from the following narrative taken from the opinion of Lord Johnston—“The facts are simple. The Kilmarnock Theatre Company was incorporated in 1904. In August of that year it acquired a local theatre. In spring of 1907 the company borrowed from the defender R. C. Buchanan and six others on bond and disposition in security £7000. These seven persons were on the face of the security joint-creditors. Their individual interests are not disclosed. The company went into liquidation in the spring of 1908. In 1913 the bondholders brought the property to sale by auction under the powers of their bond. The upset price of February 1913 was £9000, of March 1913 was £6500, and of February 1914 was £5000; but no one appeared to bid. After waiting until spring of 1916 the bondholders again exposed the property at the upset price of £4000. At this exposure John Maxwell, writer, Glasgow, offered the upset price of £4000 admittedly on behalf of James Wright, builder, Glasgow. He was opposed by R. C. Buchanan, one of the bondholders, and he bid the property up to £5200, the limit of his authority from Mr Wright, but was outbid by Mr Buchanan. Mr Wright, who was himself present, then intervened and personally bid a further hundred pounds, or £5300, when he was outbid by Mr Buchanan, to whom the property was knocked down at £5400. Mr Wright now seeks to set aside the minute of enactment and preference, and to claim the property at the upset price of £4000 on the ground that Mr Buchanan's bids were illegal, and that he was entitled to be preferred at the upset price bid by his agent on his behalf. There is no suggestion of any collusion between Mr Buchanan and his co-bondholders, or between him and the liquidator of the company. He was acting perfectly independently. It is an important fact that Mr Wright, the pursuer, avers that he did not know that Mr Buchanan, the competing bidder, was one of the bondholders who were exposing the property. His own bids through his agent, and still more by himself, were therefore from his point of view bids in a genuine competition. He was willing to give the price which he ultimately offered, and was disappointed at not getting the property at that figure. That figure therefore was his own genuine valuation of the property to him as a buyer. Yet he seeks to acquire it at £4000, or £1300 under his own valuation, not only in a question with Mr Buchanan but with the other bondholders, and with the liquidator as representing the general creditors and the company in liquidation in reversion.”

The pursuer pleaded, inter alia—“1. The defender the said Robert Colburn Buchanan having illegally and without authority offered for the said property as condescended on, the minute of enactment and preference ought to be reduced as concluded for. 2. The pursuer having been sole offerer for the said property on the occasion condescended on, and having offered the upset price therefor, is entitled to decree in terms of the second conclusion of the summons.”

The defender Robert Colburn Buchanan pleaded, inter alia—“3. The action is irrelevant as laid, and should be dismissed.”

The compearing defenders pleaded, inter alia—“2. The averments of the pursuer being irrelevant, the action should be dismissed.”

On 20th July 1916 the Lord Ordinary ( Cullen) pronounced an interlocutor sustaining the third plea-in-law for the defender Buchanan, and the second plea-in-law for the other compearing defenders.

Opinion.—“[ After narrating the facts of the case]—Now it seems prima facie a peculiar result that the other selling creditors should be bound to accept a sale of the property to the pursuer for £4000 although £1400 more has been offered for it by Mr Buchanan. To relinquish Mr Buchanan's offer means a large sacrifice. The pursuer says, however, that they are bound in his interest to submit to it. In support of this contention he founded on Faulds v. Corbet, 21 D. 587; Taylor v. Watson, 8 D. 400; Stirling's Trustees, 3 Macph. 851; York Buildings Company v. M'Kenzie, M. 13,367; and Bell's Com., ii, 250.

It appears to me that the question raised is ruled by the case of Shiell v. Guthrie's Trustees, 1 R. 1083, 11 S.L R. 625. There two out of ten beneficiaries in whose interests a property was exposed to public roup offered for it and were preferred to the purchase. The next lowest offerer, proceeding on the same view as the pursuer here, brought a reduction maintaining that the purchasers being identified with the sellers could not legally purchase at the sale. This contention failed, and the validity of the sale was affirmed. It was not a case of white-bonneting—that is to say, fraudulently inflating by competing

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bids in the interest of the sellers the price to be paid by some-one else—but a bona fide purchase; and it was not a case of idem emptor et venditor, because a sale could legally be made between the whole body of the beneficiaries as represented by the trustees and two of their number.

It does not seem to me that there are any essential points of difference between that case and the present. The defender Mr Buchanan was one out of seven exposers, and his interest under the bond amounted to a one-seventh share. He did not fraudulently compete at the sale as a whitebonnet, but with a bona fide view to purchasing, and he was preferred to the purchase because he was willing to pay a higher price than the pursuer was willing to pay. Mr Buchanan's interest as an offerer with a view to purchase was not to inflate the price but to buy as cheaply as possible—that is to say, it was different from and opposed to his interest as one of the creditors under the bond.

I accordingly follow the case of Shiell v. Guthrie's Trustees, and doing so I shall sustain the third plea-in-law for Mr Buchanan and the second plea-in-law for the other compearing defenders and dismiss the action.”

The pursuer reclaimed, and argued—(1) The exposer of a property to public roup did so on the footing that he would not bid at the roup or employ another to bid for him, and he entered into an implied contract with the public to that effect. He might reserve a right to bid, giving notice thereof, but if he did not do so, and made a bid at the sale, he was in breach of contract with the public, quite apart from fraud. (2) Where the offerer was not the seller or exposer but the owner or in substance the true owner, as where he was the only person beneficially interested, and made a bid without notice of a reserved power to do so, his action was open to challenge, not as being a breach of contract but as a matter of equity. (3) If the offerer stood in a fiduciary position to the true owner, such as to exclude his acting in a question with the owner, his action in making bids and acquiring the property was open to challenge by the owner. The present case fell within the first of these categories, and the sale was open to challenge— Grey v. Stewart, 1753, M. 9560; Duff's Feudal Conveyancing, p. 165; Moir's Notes to Stair, p. xci. As a result of the implied contract, any interference at the sale by the sellers, directly or indirecty, vitiated the sale— per Lord Wood delivering the opinion of Court in Faulds v. Corbet, 1859, 21 D. 587, at p. 593. Faulds' case ( cit.) fell under the second category, but Lord Wood was laying down a general rule— Rutherfurd v. MacGregor & Company, 1891, 18 R. 1061 ( per Lord Rutherfurd Clark at p. 1065), 28 S.L.R. 768. At common law the extent of the interest in the subject of the seller or exposer was immaterial so long as an interest existed; thus a heritable creditor selling under a power of sale could not bid— Jeffrey v. Aiken, 1826, 4 S. 722; Taylor v. Watson, 1846, 8 D. 400 ( per Lord President Boyle at p. 405, Lord Mackenzieat p. 406, Lord Fullerton at p. 407, Lord Jeffrey at p.407, and Lord Cunningham (Ordinary) at p. 403); Stirling's Trustees, 1865, 3 Macph. 851, where creditors petitioned unsuccessfully for a judicial factor to enable them to buy. Neither could one of several co-owners— Morrice v. Craig, 1901, 39 S.L.R. 600; Thom v. MacBeth, 1875, 3 R. 161, 13 S.L.R. 94. Here the sellers or exposers were the heritable creditors and the purchaser was one of them; at common law therefore the sale was open to challenge. No doubt under the bankruptcy statutes a heritable creditor could effectively bid and buy, but it was essential in that case that the sale should be in virtue of the Bankruptcy Acts—Bankruptcy (Scotland) Act 1913 (3 and 4 Geo. V, cap. 20). sec. 116; Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), sec. 213 (3); Cruickshank v. Williams, 1849, 11 D. 614, which was in contrast with Taylor ( cit.). These provisions were expressly enacted to remove the disability of the creditor at common law— Rutherfurd's case ( cit.) ( per Lord Kyllachy at p. 1063); Goudy's Bankruptcy, p. 304. But a creditor selling under the power in his bond had no such right, and there was no relevant averment that the defenders here were proceeding on anything but the power in their bond, or that they had proceeded in virtue of the Bankruptcy Statutes or under the Heritable Securities (Scotland) Act 1894 (57 and 58 Vict. cap. 44), sec. 8, which also conferred a statutory right on the creditor to purchase as an exception to the common law. The common law in England was to the same effect—Bell's Prins., section 131. Further, the considerations which gave rise to the judgment in the York Building Company v. Mackenzie, 1793, M. 13,367, 3 Pat. 378, were found in the present case, for the defender was a theatrical manager who had special knowledge of the subjects—Bell's Comm. ii, 250; Shiell v. Guthrie's Trustees, 1874, 1 R. 1033, 11 S.L.R. 625, was distinguished, for in that case trustees were selling and one of several beneficiaries bought; the purchaser was not and could not be a party to the contract with the public, for he was not seller or exposer; thus the purchaser was unable to control the sale, as by choosing a particular time for selling or by imposing conditions, or in the articles of roup; the trustees, however, had complete control of the sale, subject to a right in the beneficiaries to an accounting. The cases enumerated by Lord President Inglis in that case at p. 1089 were not exhaustive, and did not embrace the present. Aberdein v. Stratton's Trustees, 1867, 5 Macph. 726, 3 S.L.R. 346, was distinguished, for the facts were different from those of the present case. The sale to the defender being open to challenge, the remedy sought was competent— Grey's case ( cit.). On the question of remedy Shiell's case ( cit.) was not in point, for there the person challenging the sale had not signed the minute of enactment, consequently there was no contract with him; here there was a contract, and if the sale was reduced and the subjects were re-exposed, the pursuer might lose the subjects he had bought, the bids above his being invalid. Consequently upon

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the minute of enactment, which was probative evidence of the sale to him, he had a title, and he had also an interest to sue.

Argued for the defender and compearing defenders (respondents)—In a sale by auction where there was no notice of a reserved right to bid, the owner could not bid, neither could one who was in substance the owner, as, for example, one with the sole beneficial interest. If either of those made a bid, such a bid was quite ineffectual, and no sale resulted to such a bidder, on the principle of idem emptor et venditor. The result was that a member of the public could challenge the alleged sale, and if his bid was above the upset price he was entitled to be preferred to the subjects at the price he offered before the illegal competition with the owner or substantial owner began. Where, however, neither the owner nor the substantial owner bid, but another, the result of whose bidding was to produce conflict of interests in himself— e.g., a heritable creditor selling whose interest as seller was to get enough to cover his bond, and thereafter to secure as high a price as possible for the debtor, and as buyer to secure the property as cheaply as possible—the sale to such a person was not void but voidable, and the sole title to challenge it lay in the owner or substantial owner. The remedy was a complete reduction, so that the subjects might be re-exposed of new. The owner or substantial owner might, however, elect to accept the sale, in which case no other had a right to challenge it, on the principle of jus tertii. Thus Grey's case ( cit.) was an example of the first category, and in that case the sole question was whether the bid in question was bona fide or not; it was never bona fide where there was in reality the same buyer and seller, and a member of the public could challenge the fictitious bids and get the property, it being a breach of contract for the owner to bid— Green v. Baverstock, 1863, 32 L.J., C.P. 181; Warlow v. Harrison, 1858, 1 E. & E. 295; Chitty on Contracts, p. 363; Faulds' case ( cit.) ( per Lord Ardmillan at p. 590, per Lord Wood at p. 593). It was impossible to bring the pursuer within that class of case. He paid a full price, and there was real transference of property to him, No doubt he was one of seven heritable creditors who were selling; but he had no interest as owner, and the utmost interest he could be said to have was his share as creditor in the bond. It had never been held that an owner in such a share as one-seventh was in the present circumstances to be treated as a full owner so as to let in a challenge by a member of the public, and the possession of a share in the possession of a bond was a still weaker case. Moreover, the authorities were the other way— Aberdein's case ( cit.) ( per the Lord Justice-Clerk Patton at p. 732, and Lord Cowan at p. 783); Shiell's case ( cit.) ( per Lord President Inglis at p. 1089, and per Lord Ardmillan at p. 1092). Taylor's case ( cit.) fell within the second category and was no authority for the pursuer, whose only title to challenge was as a member of the public, whereas in that case the challenge was by the heir of the owner. In Rutherfurd's case ( cit.) it was held that a member of the public had no right to challenge. The York Building Company's case ( cit.) was decided on the same ground. Further, in any event, the sale was valid under the Bankruptcy Statutes, for it would be recognised by them, as the bankrupt and the other bondholders concurred, and it was therefore in virtue of those statutes— Cruickshank's case ( cit.) The action was also incompetent as laid. It concluded for reduction of certain bids of the defender and the preference of the pursuer to the subjects at the price offered by him prior to the competition with the defender. But the pursuer's only remedy, if he had one, was that of complete reduction— Shiell's case ( cit.) ( per Lord President Inglis at p. 1089, Lord Deas at p. 1900, and Lord Ardmillan at p. 1092); Aberdein's case ( cit.) ( per Lord Cowan at p. 734), and Faulds' case ( cit.) ( per Lord Wood at p. 595). Silkstone and Haigh Moor Coal Company v. Edey, [1900] 1 Ch 167, and Williams v. Scott, [1900] AC 499, were also referred to.

At advising—