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. VII.

Of Voluntary Deeds creating Preference.

The Trustee on the Sequestrated Estate of Andrew Swinton,
v.
Sir William Forbes, James Hunter, and Company

Date: 19 February 1790
Case No. No 224.

A party was debtor to his bankers in various bills. He offered them, in security, a vendition to a ship, which they refused. He found a cautioner, who joined in a promissory note to them, to whom he gave the vendition. In three weeks after, he was notour bankrupt. The promissory note found not to fall under the act 1696.

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Sir William Forbes and Company were creditors in several bills of exchange granted by Andrew Swinton. These bills having been dishonoured, letters of horning and caption were issued.

Being unable to pay the sums due, Swinton applied to a gentleman of the most undoubted credit, who agreed to interpose his security, by indorsing to Sir William Forbes and Company a promissory note subscribed by Swinton. On the same day, a vendition of a ship belonging to Swinton was executed in favour of the cautioner. Within three weeks after Swinton was rendered, bankrupt in terms of the act 1696.

Afterwards a sequestration was awarded; and the trustee having signified his intention to challenge the above-mentioned transaction, the cautioner preferred a bill of suspension, in which he contended, That the efficacy of his obligation depending on that of the vendition, he could not, be obliged to pay, until it was determined whether the transference in his favour was effectual or not.

This bill of suspension was refused. An action was then brought by the trustee on Swinton's sequestrated estate, for setting aside the promissory note granted by the bankrupt, and indorsed by the cautioner and also the vendition of the ship, as falling under the statute of 1696. A proof was offered, that before the interposition of the cautioner, Swinton had proposed to execute the vendition in favour of Sir William Forbes and Company; and that the subsequent bargain had been completed with the knowledge of the agent employed by them in this business. The pursuers

Pleaded: The statute of 1696 strikes against all securities, directly or indirectly, granted by a bankrupt in favour of a particular creditor to the prejudice of the rest. It must therefore be fatal to the preference here obtained by Sir William Forbes and Company. It is not necessary, in such a case, that the preferred creditor should at the time be in the knowledge of the wrong which is intended; it is enough that the granting of the security by the bankrupt, was such as is reprobated by the law. In the present instance, however, it is evident, that Sir William Forbes and Company, or, what is the same thing, the person employed by them, knew the whole circumstances of the transaction. Such was the embarrassed situation of the debtor, that no security immediately given by him could be of any use; and thus the interposition of the cautioner is to be considered, merely as a cover, for obtaining, in an indirect manner, a right equally injurious to the creditors.

To transactions of this kind the Court has often refused its sanction. Thus in a case, where, in order to give to an heritable security obtained by a favourite creditor the appearance of a new loan, it was contrived, that the creditor should advance the money to a trustee, in whose name the infeftment should be taken; the security was set aside, in the same manner as if it had been immediately granted to the creditor himself. In a more recent instance, where a bankrupt, desirous of relieving his cautioner, had obtained a farther loan from the creditor, upon giving an heritable security for the whole sums due by him, the infeftment, so far as it tended to relieve the cautioner, was annulled. There, it was contended, that the cautioner was wholly ignorant of the circumstances of the debtor; it even appeared, that he had afterward trusted him with much larger sums on his personal security only; but this did not prevent the operation of the statute, 9th March 1781, Blaickie contra Robertson, No 12. p. 887.; Grant of Artamford contra the Creditors of Grant in 1789.*

Answered: For annulling a deed in consequence of the statute of 1696, it is not enough that one of the creditors has obtained some additional security within the 60 days immediately preceding public bankruptcy. It must also be shown, that by means of this security, those funds which otherwise would have been divided among the creditors at large, have been appropriated to a favourite individual. Without this, the former have no interest to challenge the transaction, however beneficial it may have been to the latter.

This general rule was not broken through in the cases referred to on the other side. In that of Blaickie contra Robertson, the money for which the heritable security was granted had been advanced by the favourite creditor, and immediately returned to him, so that the wrong done to the other creditors was apparent. So too in the subsequent case, it was justly found to make no difference, whether the debtor, within the 60 days before his bankruptcy, had granted an heritable bond of relief to his cautioner, or to the creditor in whose favour the cautioner had interposed his security.

The present case is widely different. Unless it could be shown that the cautionary engagement, effected by the indorsation of the bankrupt's promissory note, and the vendition of the ship in favour of the cautioner, were the mutual causes of each other; it is evident that the former, by which the creditors of the bankrupt were no wife injured, may be sustained, while the latter, if really fraudulent, may be set aside.

It was separately contended for the pursuers, That the mere granting of the promissory note was injurious to the creditors; Sir William Forbes and Company being thus enabled to rank more than once for the same debt. No attention, however, seems to have been paid to this argument.

The Lord Ordinary sustained the reasons of reduction: thus setting aside the indorsation in favour of Sir William Forbes and Company, and the vendition obtained by the cautioner. And this judgment was acquiesced in by the cautioner, although he preferred a representation to the Lord Ordinary, craving, that his claims of repetition against Sir William Forbes and Company might be reserved.

* Not collected. See Appendix.

After advising a reclaiming petition for Sir William Forbes and Company, with answers, the Lords altered the judgment pronounced by the Lord Ordinary; and found, That the granting of the promissory note by the bankrupt did not fall under the statute of 1696.

It seemed to be the opinion of the Court, that if there had been any concert between the parties, for the purpose of giving a preference to Sir William Forbes and Company, in consequence of the vendition granted to the person who had interposed as cautioner, the judgment of the Lord Ordinary might have been sustained; but no agreement of this kind appeared. And although Sir William Forbes and Company, or their agent, might have been informed of the bargain between the cautioner and the bankrupt, this did not derogate from the validity of the agreement between Sir William Forbes and Company and the cautioner.

A reclaiming petition was afterwards preferred for the trustee on Swinton's sequestrated estate, and refused without answers.

Lord Ordinary, Monboddo. Act. Maconachie, Mat. Ross. Alt. Solicitor General. Clerk, Home. Fol. Dic. v. 3. p. 62. Fac. Col. No 116. p. 220.