United Kingdom House of Lords Decisions

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Cite as: [1797] UKHL 3_Paton_618

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SCOTTISH_HoL_JURY_COURT

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(1797) 3 Paton 618

CASES DECIDED IN THE HOUSE OF LORDS, UPON APPEAL FROM THE COURTS OF SCOTLAND.

(M. 2673.)

No. 115

Richard Hotchkis, W.S., Trustee on Bertram, Gardner & Co's Bankrupt Estate, Appellant

v.

Royal Bank, Respondents

House of Lords, 28th Nov. 1797.

Subject_Compensation — Retention — Bankrupt. —

The Royal Bank of Scotland found entitled to retain stock of an insolvent proprietor, for payment of debts due to the Bank by a Company of which he was a partner, against the trustee on the bankrupt estate.

May 31, 1737.

Adam Keir was a partner of Bertram, Gardner & Co., bankers in Edinburgh, who having failed in 1793, the appellant was appointed trustee on their sequestrated estates. In proceeding to make available the estate of the company, as well as of the individual partners, he found that Mr. Keir

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was a stockholder in the Royal Bank of Scotland to the extent of £2000, and on proceeding to have it sold, in order that the price might form part of the fund of division among the creditors, the bank objected to the sale; and stated that no transfer could be made unless the price of the stock, when sold, were applied towards extinction of a large debt due by Bertram, Gardner & Co. to the bank, they being entitled to the right of retention. The present action of declarator was then brought by the appellant, to have it found and declared that the Royal Bank had no right of retention on the said stock, “but that the same do pertain and belong to the pursuer as trustee foresaid, for behoof of the creditors of the said Adam Keir.” The main defences pleaded to this action were, 1. That the stock of this bank enjoyed peculiar privileges. It was of the nature of public funds, and by their charter it is declared that the shares or interest in the capital stock of the said corporation “shall not be liable to any arrestment or attachment.” This clause is repeated in the subsequent charter of the bank. Another clause provides, that no person who was indebted to the bank in calls, was to be allowed to transfer their stock until such “calls” were paid. 2. That by authority given in their charter, they had a right conferred upon them of making byelaws for the government of their affairs, so that the said laws “be not contrary to the intent and meaning of these presents, or repugnant to the laws of the realm;” that accordingly they enacted the byelaw:—

“That no proprietor who is or shall become debtor to the bank, shall be allowed to transfer his stock, or any share thereof, but in the presence of a Court of Directors, to the end each Court of Directors, if they think fit, may stop such transfer, until such proprietor find security to the bank for what he owes, to their satisfaction.”

3. Independently of this bye-law, the bank had a right of retention, by the nature and constitution of their company, whether viewed under the common law of Scotland, or upon the special privileges conferred by acts of Parliament and Royal charters. In answer to this defence, it was maintained by the appellant, that neither by the common law, nor by the special powers in their charters, had the bank, as a corporate body, a lien on the stock of the individual members, to the effect of pleading retention against the right of the bankrupt member's trustee. That the bye-laws were ultra vires of the powers conferred by their charters: and that at all

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events the general right of retention here claimed for all debts due to the bank, was totally repugnant to the spirit and meaning of these charters and acts of parliament, which makes the stocks transferable to the fullest extent, without any limitation whatever, except what is contained in the said bye law.

Feb. 28,1797.

Mar. 11,1797.

The Court, on report of the Lord Ordinary, on informations, of this date, sustained the defences; and, on reclaiming petition, adhered.

Against these interlocutors the present appeal was brought.

Pleaded for the Appellant.—The bank has, at common law, no lien or right of retention over the stock belonging to the stockholders for debts due by them to the corporation. For these they must rank against their individual estate as creditors. It is only under their own bye-law that they can claim such a right of retention; but although the bank had, by their charters, the general power of making such byelaws, yet it is only under condition that such “bye-laws may not be contrary to the intent and meaning of their charter, or repugnant to the laws of his Majesty's realm.” But the bye-law in question, supposing in its import it gave a right of retention in the circumstances here pleaded, is unwarranted by the bank's own charter; and also inconsistent with the transferable nature of the stock. The only case in which the charters give a right of retention to stop transfers of stock and payment of dividends, is the case where the stockholders are in arrear of calls; which must be construed to be the utmost limit to which the bank can plead their right of retention. But further, in the special circumstances of this case, even if such a right were competent to them, it cannot be pleaded, because the debt due to the bank is not a debt due by Mr. Keir, the proprietor of the stock; but a debt due by Bertram, Gardner & Co.

Pleaded by the Respondents.—At common law the bank has a right of retention, because, according to the law of Scotland, when a person is disabled by bankruptcy from discharging the obligations he owes, payment or transference cannot be demanded of any money which that other owes him, either by himself or by any one claiming in his right. The solvent person is entitled to compensate, and retain for his payment and security, any effects of the bankrupt legally placed in possession within the statutory period. Nor is there any distinction in this respect between a private copartnership and a corporation. The bye-law alluded

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to was quite within the spirit, meaning, and powers of the charters, and is at once decisive of this question. It is not pretended that Mr. Keir was ignorant of this regulation; and that ever since 1728 it had been acted on without question or dispute. He must have bought his stock in the full knowledge that its transference was subject to this regulation; and the bank advanced him money on the faith that the stock was pledged for its repayment. The creditors of Mr. Keir, therefore, can have no better right than Mr. Keir himself, and must take it tantum et tale as in him. The bank's power to make such bye-law is not the least shaken by a right of retention being given in special cases, because such special cases are often inserted ob majorent cautelara, so as to apply to cases where the right might not otherwise be pleadable. But as the charters confer general powers to make by e-laws for the good of the Company; and as they expressly declare the stock not affectable by the diligence of arrestment or attachment, it is obvious that the right of creditors in regard to this stock was limited: and that the bye-law, when enacted, fell within the intent and meaning of the charters so limiting the rights of creditors.

After hearing counsel, it was

Ordered and adjudged that the said interlocutors be affirmed.

Counsel: For the Appellant, W. Grant, Wm. Adam, John Clerk.
For the Respondents, Sir J. Scott, W. Alexander.

1797