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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> M'Laren v. Hill [1889] ScotLR 26_327 (8 February 1889) URL: http://www.bailii.org/scot/cases/ScotCS/1889/26SLR0327.html Cite as: [1889] SLR 26_327, [1889] ScotLR 26_327 |
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Page: 327↓
[Sheriff of Argyllshire.
A heritable subject was burdened with a first bond, and also with a second bond. The first bondholder executed a poinding of the ground, and thereafter the debtor became bankrupt. The first bondholder by his poinding of the ground obtained a preference to the extent of one year's unpaid interest. He sold the subjects under his bond, and took payment of his debt, both principal and all unpaid interest, out of the price. The second bondholder then obtained from him an assignation of the preference he had obtained by poinding the ground, and claimed for that sum in the sequestration. Held that the first bondholder having been bound in equity to communicate to the second the preference he had obtained to the second, the claim of the latter in the sequestration was good.
James Nicol, solicitor, Oban, was proprietor of certain heritable subjects there called Craigievar. In May 1883 Nicol borrowed on the security of these subjects from Thomas Syme, Edinburgh, £2500, and in November 1884 he borrowed, on a second bond on the same security, £500 from Francis Hill, Ardrishaig.
In 1887 Nicol's affairs became embarrassed, and on 10th June Syme executed a poinding of the ground, and on 10th June obtained decree thereunder. On 21st June Nicol was sequestrated, and John F. M'Laren, solicitor, Oban, was appointed trustee.
On 18th October Hill served a petition of poinding the ground upon the said trustee, but this action was not persevered in. The amount of moveables attached by Syme's poinding of the ground was £122, 16s. 1d., being the amount of one year's unpaid interest on the bond.
Section 123 of the Titles to Land Act 1868 (31 and 32 Vict. c. 101) provides—“Upon a sale being carried through in terms of this Act, and upon consignation of the surplus of the price, if any be, it, as aforesaid” [sec. 122], “the disposition by the creditor to the purchaser, shall have the effect of completely disencumbering the lands and others sold of all securities and diligences posterior to the security of such creditor, as well as of the security and diligence of such creditor himself.”
In October 1887 Syme sold the said heritable subjects for £2900. Out of the sum of £2900 obtained for the subjects Syme paid himself both the amount of his debt and also all the interest due to him.
Thereafter on 26th January 1888, at the request of Hill, as second bondholder, Syme assigned to him the preference to the extent of £122, which he had acquired by his poinding of the ground. The assignation was on 13th February intimated to the trustee.
Hill then lodged a claim in the sequestration for the sum of £122, 16s. 1d., as the amount carried by the assignation, but this claim was rejected by the trustee.
Hill appealed against this deliverance, and averred that the effect of Syme's poinding of the ground was to give him (Syme) a preference over the moveables on the ground for one and a-half years' interest; that as a postponed creditor he was prejudiced by the first bondholder paying himself interest as well as capital out of the price of the heritable subjects, and that he only consented to this being done on his obtaining the assignation to the preference created in Syme's favour by his poinding of the ground.
The trustee averred that when the first bondholder sold the heritable subjects under the powers in his bond, and secured payment of his principal and interest, his decree of poinding of the ground became inoperative, and was extinguished at common law and under the provisions of section 123 of the Titles to Land Consolidation (Scotland) Act 1868, quoted supra.
Hill pleaded that he was entitled to decree as he was in right of the preference acquired by the first bondholder.
The trustee pleaded, inter alia—“(1) The assignation founded on is of no effect, in respect, first, that the decree assigned was previously extinguished, and second, that no value was given for the same (2) The sum claimed having already been paid out of the bankrupt estate, the present is a claim for a double ranking. (3) After a sale of the heritable subjects, the first bondholder could not put the said decree in force, and his assignee is in no better position than his cedent.”
On 31st October 1888 the Sheriff-Substitute ( Maclachlan) pronounced the following interlocutor:—“… Finds that the holder of the first bond and disposition in security executed a poinding of the ground, whereby he secured a preference over the moveables on the ground to the extent of £122, 16s. 1d. sterling, being one year's interest, less tax; that the said heritable subjects were sold in October 1887 by the first bondholder at a price more than sufficient to pay his debt and interest, and thereafter, by assignation dated 28th January and intimated 13th February 1888, he assigned to the appellant, as the postponed bondholder, the security created by the said poinding of the ground: Finds in law that the said assignation was valid and effectual to convey said security to the appellant: Therefore recals the trustee's deliverance, and ordains the respondent to rank the appellant as a creditor on the sequestrated estates of the said James Nicol in terms of his claim, with the interest that has accrued on the dividend set apart for the appellant, &c.
Note.—In this case the trustee seems to be under a misapprehension as to the meaning of section 123 of the Titles to Land Consolidation (Scotland) Act 1868. He holds that upon a sale being carried through in terms of that Act the security and diligence of the selling creditor are extinguished. But this is only in regard to the subjects actually sold, and in a question with the purchaser. The provision in the section is that the disposition to the purchaser shall have the effect of disencumbering the lands and others sold—that is to say, the purchaser is entitled to receive the lands and others freed and disencumbered
Page: 328↓
of the burdens therein referred to, but the creditor is not freed of the obligation contained in the previous section (122) of holding count and reckoning with the debtor and the postponed creditor. When the sale to which this action refers took place the selling creditor's debt consisted of the principal sum of £2500 and £122, 16s. 1d., being one year's interest, less tax, and his security consisted of the bond, along with the preference created by his poinding of the ground. In the circumstances it was unnecessary for him to realise the security created by his poinding of the ground, seeing that his principal debt and interest were paid out of the proceeds of the sale of the heritable subjects. But there still remained the obligation in section 122 of holding count and reckoning with the postponed creditor, and this obligation he fulfils by paying over the balance of the price, and assigning his diligence of poinding of the ground, being the unrealised portion of his security. The appellant, by withdrawing the poinding of the ground executed by him, gave up the security thereby created over the moveables, and his security was thus confined to the heritable subjects, and I hold that the first bondholder, seeing that his security extended over the moveables as well as over the heritable subjects, was not entitled to defeat the second bondholder's claims by selling only that portion of the property which formed the latter's sole security, and paying himself in full out of the proceeds, leaving the other portion untouched.”
The pursuer appealed to the Court of Session, and argued—The Sheriff-Substitute had taken an entirely wrong view of the provisions of the Titles to Land Act, and the language of section 123 had no application to an assignation of a decree of poinding of the ground. This decree created no preference in Syme. It merely put a nexus on the moveables, and to have had any practical effect it would have been necessary that it be followed out. This was not a case of a catholic creditor, for here there was only one subject of security, as the sale of the lands of the first bondholder disencumbered them from all diligences. If Hill was entitled to any preference whatever it ought to be limited to £22, the restricted amount allowed by the Bankruptcy Act on his own bond, and not to the £122, 16s. 1d. as assigned by the first bondholder. This assignation was quite invalid, and no effect could be given to it, for at the date of assignation the debt had been paid, and there was no grounds upon which it should be paid twice— Urquhart v. M'Leod's Trustees, June 16, 1883, 10 R. 991; Boswell v. Ayr Banking Company, January 15, 1841, 3 D. 352.
Argued for Hill—This was a case of catholic and secondary creditors, and the first bondholder, who held a security over both subjects, was not entitled capriciously to injure the second bondholder's interests, but was bound to assign to him any right which he had (after he had paid himself) over the subjects over which he alone held a security, i.e., over the moveables. This was a case of an assignation of a diligence, and the rights of parties must be settled as at the date of the sequestration. On catholic and postponed creditors, see 2 Bell's Comm. 418; Littlejohn v. Black, December 13, 1855, 18 D. 207; Goldie v. Bank of Scotland, February 27, 1834, 12 S. 498. The interests of the postponed bondholder had been seriously prejudiced by what the first bondholder had done, and his security had been diminished, and the first bondholder was legally bound to assign to the second bondholder any preference that he had over the moveables. Even though the moveables had been sold, the second bondholder was not too late to obtain a ranking for the sum assigned to him by the first bondholder— Lyons v. Anderson, October 21, 1880, 8 R. 24; Athole Hydropathic Company v. The Scottish Provincial Assurance Company, March 19, 1886, 13 R. 818.
At advising—
Both creditors executed poindings of the ground. That by Syme was executed on 10th June 1887, while the other by Hill was executed on the 18th of October of the same year. These poindings of the ground were of course restricted by the provisions of sec. 118 of the Bankruptcy Act, which denies all effect to poindings of the ground after sequestration, or within sixty days of bankruptcy, except to a limited extent, namely, to interest on the debt for the current half-yearly term, and for the arrears of interest for one year before the commencement of such term. The extent of the first bondholder's interest in the moveables as thus restricted was £122, 16s. 1d.
The first bondholder availed himself of his powers under the bond, and sold the estate in October 1887 for £2900, and out of this sum he not only paid himself in full with interest, but there was in addition a surplus left over for the second bondholder, which surplus of course the first bondholder is liable to account for to the second bondholder. The first bondholder proposes to hand over this sum to the second bondholder, who objects to what the first bondholder has done, because he has taken full payment of his bond and interest from the price of the subjects sold, whereas he avers that he ought to have taken the interest of his bond out of the moveables which he had poinded. The second bondholder maintains that as the first bondholder held two securities be ought to have divided the burden of his bond and the interest between these two securities. That proceeds just upon this principle, that the prior bondholder held a catholic security over the heritable and moveable estate, and was therefore bound so to realise the securities as to leave as large a surplus as possible for the second bondholder. In answer to this Syme assigned to Hill the £122, 16s. 1d., the security created by the said poinding of the ground, and Hill now claims to be ranked preferably for that sum in the sequestration on the principle of the equity applicable to catholic securities, and the question comes to be, whether that equity is admissible in the present
Page: 329↓
Now, the question comes to be, Is that doctrine applicable in the present case? The peculiarity is that we are dealing here with heritage and moveables as separate subjects of security. Both creditors have a separate security over both estates—that is to say, each creditor has a security over the real estate, and to a limited extent over the moveables also, and the moveable estate is sufficient to pay these limited claims, and that is the peculiarity of the present case which distinguishes it from any of the previous cases.
There can of course be no doubt that if the first bondholder had taken his £122 out of his debtor's moveable estate he would have left just this amount more of the heritage available for the second bondholder. But he has elected to take all of his debt and interest out of the heritage, and has therefore diminished to this extent the heritable security. It is just in circumstances such as these that the equity applies, because when the first bondholder has made good his security in such a way as to damage the second bondholder, then he is bound to grant to him an assignation of his security so that the second bondholder may make what he can out of it. The first bondholder has the alternative of apportioning his debt between the two securities or of going entirely against one of these securities, and of assigning his right to the other security to the second bondholder.
But it is urged that to apply this doctrine here would be to benefit the second bondholder at the expense of the general body of creditors. But that is just the effect of the application of this doctrine of catholic security in any case, for whatever confers upon a second bondholder more than he would otherwise have got must have the effect of damaging more or less the interests of the other unsecured creditors. I see no reason here for the exclusion of this equity, and I therefore think that the Sheriff-Substitute has acted quite rightly in what he has done.
Your Lordship, in the passages read from Mr Bell's Commentaries, has laid down the principle upon which this case must be decided, and these principles were given effect to by the Court in the case of Littlejohn, which was referred to in the course of the discussion.
There can be no doubt that the second bondholder was prejudiced by the actings of the first bondholder, who, however, was in no way to blame in what he did. He has assigned his interest in the moveables to the second bondholder, who is undoubtedly preferable to the general body of creditors, and he having done so, the Sheriff has merely given effect to that assignation.
Page: 330↓
I think therefore that the Sheriff-Substitute has acted rightly.
The Court refused the appeal.
Counsel for the Appellant— Guthrie— Craigie. Agents— Welsh & Forbes, S. S.C.
Counsel for the Respondent— Strachan— Patten. Agents— M'Neill & Sime, W.S.
