Scottish Court of Session Decisions

The Act 1696, cap. 5, enacts—“… All and whatsoever voluntar dispositions, assignations, or other deeds, which shall be found to be made and granted, directly or indirectly, by the foresaid dyvour or bankrupt, either at or after his becoming bankrupt, or in the space of sixty days of before, in favours of any of his creditors, either for their satisfaction or farder security, in preference to other creditors, to be void and null.”

John Balderston Whyte, chartered accountant, Paisley, acting as trustee on the sequestrated estates of George Robertson & Company and James M'Lardie Robertson, builders and contractors, Paisley, raised an action of multiplepoinding in the Sheriff Court at Paisley in name of the Magistrates of Paisley as pursuers and nominal raisers against the Union Bank of Scotland, Limited, defender and claimants, and against himself in his capacity of trustee, real raiser, defender, and claimant. Both defenders lodged claims to a sum of £200.

The facts of the case were set forth in the opinion of the Sheriff ( Wilson) as follows:—“The competition in this multiplepoinding is between the trustee on the sequestrated estates of George Robertson & Company and the Union Bank of Scotland, Limited. The bankrupts were sequestrated on 28th April 1915. On 1st March 1915 they had granted in favour of the Bank an assignation, ex facie absolute but admittedly in security, whereby they assigned to the Bank a sum of £200 due to them by the burgh of Paisley. At the date of this assignation the bankrupts had at the credit of their current account with the Bank a sum of 18s., but at the same time they were due the Bank £180 under a bill which the Bank held and which had fallen due on 28th February. Accordingly on 1st March the Bank was the creditor of the bankrupts to the extent of £179, 2s. By 4th March, however, this debt of £179, 2s. against the bankrupts was changed into a credit in their favour of £80, 5s. The conversion from the debit to the credit was effected mainly by a lodgment by the bankrupts of £280 in cash on 4th March 1915. From that date onwards down till the close of the bank account on 27th April 1915 only one sum, viz., £70 on 8th April, was paid into the account to the credit of the bankrupts, whilst on the other hand a series of payments to the bankrupts resulted in a debit balance being raised against them of exactly £200 at the date when the account was closed, viz., on 27th April, the day before the sequestration. The sum of £200 which was assigned by the bankrupts to the Bank in security as aforesaid forms the fund in medio in this action, and it is claimed by the trustee on the one hand and by the Bank on the other hand. The question for decision is whether the assignation in security in favour of the Bank is or is not null under the Act 1696, cap. 5.”

The defenders, the Union Bank of Scotland, Limited, pleaded, inter alia—“1. The claimants, the Union Bank of Scotland, Limited, having made advances to the said George Robertson & Company on said account-current as stated in the condescendence of sums amounting to £200 and interest in consideration of the sums assigned to them by the said assignation, and the said assignation having been granted and completed by intimation prior to the date of the sequestration of the estates of the said George Robertson & Company, the claimants should be preferred to the fund in medio. 2. The said George Robertson & Company having obtained, by drawing on said account-current as averred by these claimants, full value for said assignation, and the same not having been granted for the Bank's satisfaction or in further security in preference to other creditors within the meaning of the Act 1696, c. 5, the Bank should be preferred to the fund in medio.”

The defender Whyte pleaded, inter alia—“1. The pursuers being due the said George Robertson & Company the said balance of £200 under said contract, and the whole estates of the said George Robertson & Company having been transferred to the claimant by virtue of said Act and warrant, he is entitled as trustee foresaid to be ranked and preferred to the whole fund in medio in terms of his claim, with expenses against the other claimants. 2. The assignation founded on by the Union Bank having been voluntarily granted by the bankrupts in security of a prior debt, and within sixty days of the sequestration of their estates, is null and void by the Act 1696, cap. 5, and the Bank's claim should therefore be repelled with expenses to this claimant. 3. The assignation founded on by the Bank not being a novum debitum, and being dated within sixty days of the granters' sequestration, is of no avail in a competition with the claim of the bankrupt's trustee, and should be set aside, ope exceptione, with expenses.”

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On 25th January 1916 the Sheriff-Substitute ( Blair) ranked and preferred the claimant Whyte to the fund in medio.

On 22nd March 1916 the Sheriff ( Wilson) recalled the interlocutor of the Sheriff-Substitute, and ranked and preferred the claimants the Union Bank of Scotland, Limited, to the fund in medio.

Note.—[ After the narrative above quoted]—“At the oral debate before me the agents for the parties explained that they knew of no authority directly in point on the one side or the other, and accordingly they based their respective contentions on the terms of the statute and on the general principles disclosed in the decisions which they claimed could be applied by analogy to the circumstances of this case.

In my opinion the Bank's security for the balance of £200 due to them is not struck at by the Statute of 1696.

The assignation in favour of the Bank is not relied on as conferring a security for any debt owing to the Bank at or prior to the date of the granting of the assignation, because the whole of the balance of £200 represents debts incurred to the Bank after the Bank had obtained, and whilst it still held, the security.

Moreover, the security which is claimed cannot be regarded as unfair to other creditors, because the Bank only claim on the security to the extent to which they actually paid money on the faith of the security.

In other words if and in so far as the security became effectual to the Bank the money advanced by the Bank to the bankrupts came in place of the security.

Considerations such as these seem to me to show that the Bank's claim must be outwith the sweep of the statute.

The counter argument for the trustee is I think fallacious.

The contention was on these lines—that when the assignation was originally granted the Bank was a creditor for £179, 2s., that the granting of the assignation was within sixty days of the bankruptcy—that it was therefore in security of a prior debt, and as such was wholly null and void.

Now I assume that an assignation in security of the prior debt of £179, 2s. would be struck at by the statute. The fallacy underlying the contention consists in regarding that debt as the debt in respect of which the Bank is claiming to hold the security. In point of fact the original debt of £179, 2s. was extinguished, and the security is relied on not for that debt but for a debt subsequently incurred—representing actual money payments paid by the Bank after they obtained the assignation and whilst they were holding the security.

In the absence of any express qualification or agreement to the contrary—and no such qualification or agreement appears or is averred—the assignation, being ex facie absolute, conferred a right of security over the fund assigned on the occasion and to the extent of each subsequent advance made by the Bank to the bankrupts— Hamilton v. Western Bank, 1856, 19 D. 152.

I think it unnecessary to refer in detail to the discussion submitted to me on the one side and the other regarding the application to the present case of principles affirmed in previous cases involving what were regarded as analogous questions.

I may explain, however, that I see nothing in the principles founded on which is adverse to the view that this case is outwith the scope of the Act of 1696, but although—alike in recent decision and in recent text books—questions of the precise character under consideration in the present case have not been dealt with, I think that there is clear enough authority for the opinion which I have expressed in favour of the validity of the security held by the Bank, and of their claim in this litigation.

Thus in Robertson v. Ogilvie, November 21, 1798 (Morrison's Dictionary, voce Bill of Exchange, Appendix, Part I, No. 6) an indorsation of a bill within sixty days of bankruptcy, although reduced under the Act of 1696, c. 5, in so far as it related to prior debts, was sustained as a security for money advanced between the date of the indorsation and the actual bankruptcy.

That decision seems to me to be exactly in point and to rule the present case.

I refer also to Stein v. Forbes, (1791) M. 1142, and to Bell's Commentaries, 7th ed., vol. ii, page 197.

For the reasons which I have given, and on the authority of the cases which I have cited, I must sustain the appeal, and rank and prefer the Bank in accordance with its claim to the whole fund in medio.”

The defender Whyte appealed, and argued—As the bankrupts were debtors to the Bank to the amount of £179, 2s. at the date on which the assignation was granted, it was granted in security of a prior debt. Accordingly it was null and void—Act of 1696, cap. 5; Robertson v. Ogilvie, (1798) M. voce Bill of Exchange, App., Part I, No. 6. The assignation was cut down when the debt for which it was granted was extinguished, and it could not be revived for later debts. The Bank could not hold the assignation to secure later debts. In Hamilton v. Western Bank, (1857) 19 D. 152, the Bank did not hold on the same title as in the present case. Other cases cited were— Stein v. Forbes, (1791) Mor 1142; Mann v. Reid, (1704) M. 1183; Black v. Cuthbertson, F.C., December 15, 1814; Roy's Trustee v. Colville & Drysdale, (1903) 5 F. 769, per Lord President Kinross and Lord M'Laren, 40 S.L.R. 530.

The defenders, the Union Bank of Scotland, Limited, argued—The Bank held an ex facie absolute assignation which was admittedly in security. It was to be used as security for the sum of £200 which was advanced subsequently to the 5th March 1915, i.e., for a subsequent not a prior debt. The transaction held good and was not void under the Act of 1696. The assignation was only reducible in so far as it was being used to cover a prior debt. The prior debt having been wiped out, that was not the case here. The Bank could hold a security for any purpose that was lawful— Hamilton v. Western Bank ( cit.). At any rate the

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assignation could only be reduced properly by an action of reduction— Drummond v. Watson, (1850) 12 D. 604, per Lord Justice-Clerk Hope at p. 607, and per Lord Moncreiff at p. 611. The present case was really decided by the case of Robertson v. Ogilvie ( cit.).