Scottish Court of Session Decisions

Subject_1 BANKRUPT.
Subject_2 DIVISION III.

Decisions upon the act 5th Parliament 1696, declaring Notour Bankrupts.
Subject_3 SECT. V.

Of Securities for Debts to be Contracted.

George Pickering
v.
Smith, Wright, and Gray

Date: 16 January 1788
Case No. No 212.

An heritable bond granted in security of sums to be paid on a cash-account, found ineffectual, except as to payments made prior to the infeftment.

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James King granted to Smith, Wright, and Gray, bankers, an heritable bond for L. 2500; on which infeftment was taken. They, on the other hand, by a separate deed, acknowledged, “that they had not then paid the above sum; but that the bond was intended as a security for such payments as they already had made, or should thereafter make, during the currency of a cash-account which they had opened in his favour.”

King accordingly received from time to time considerable sums; but having afterwards become bankrupt, and disponed his estate to Pickering, as trustee for his creditors, the latter instituted an action for reducing this heritable security; and

Pleaded: By the statute of 1696, cap. 5. it is enacted, for the prevention or fraud, “That any disposition, or other right that shall be granted for hereafter, for relief or security of debts to be contracted for the future, shall be of no force as to any such debts that shall be found to be contracted after the sasine or infeftment following on such disposition or right.” The security in question having been evidently granted for a debt to be contracted ‘for the future,’ if it ever was to exist at all, comes directly under the words of the law: So that it is needless, while the expression is thus unequivocal and clear, to enquire, whether future debts, altogether indefinite, may have been more especially the object of the statute. Though in these the danger of fraud might be greater that in definite debts, the language of the enactment proves, that it was apprehended to exist in both. Accordingly, the Court having applied the statute to indefinite debts, in the case of M'Dowal contra Rutherford, No 210. p. 1153. applied it equally to such as were future, though definite, in that of Kinloch contra Dempster, 13th June 1750, Rem. Dec. v. 2. p. 233. voce Right in Security.

Answered: Prior to the statute, it was usual to give infeftments in security of all debts to be contracted, and of all cautionary obligations to be incurred in future. By means of these, not only personal but real creditors, whose rights were posterior to those infeftments, could be postponed at pleasure: A practice of a fraudulent tendency, and as such mentioned by Lord Stair, in a passage; (b. 2. tit. 3. § 27.) where the case of the Creditors of Langton* is referred, to as an example, and which is thought to have given occasion to the act of Parliament quoted. But the present security, on the contrary, was made for repayment of a specific debt, being the balance of a cash-account, not exceeding L. 2500; the onerous cause for granting which security existed from the time when the defenders agreed to pay so much money. If the records were inspected, the estate would appear burdened to that amount; but it is difficult to conceive how creditors could be thus ensnared, or how any loss could ever result from the discovery that in fact the burden was of no less extent.

Replied: The mere promise to advance money is of no significance, as it could not afford ground for an action of damages.

Observed on the Bench: So salutary an enactment ought not to be narrowed in its construction. Far from introducing any innovation, it does no more than confirm the doctrine of our feudal law. The loan of the money was essential to the constitution of the right in question. But it is absurd to conceive this right continually fluctuating between existence and non-existence, according as the money, during the currency of the cash account, should have been paid, repaid, and paid again; the creditor being of course the vassal one day, the next not so, the third a second time vassal, and so forth.

The Lords sustained the reasons of reduction of the heritable bond, so far as respected the sums advanced posterior to the date of the sasine thereon.

Reporter, Lord Stonefield. Act. Dean of Faculty. Alt. Blair. Clerk, Home. Fol. Dic. v. 3. p. 59. Fac. Col. No 14. p. 25.

* See No 11. p. 33. and No 146. p. 1054. See also Competition and Base Infeftment.