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. II.

What sort of Alienation falls under the sanction of the act 1696.

Campbell of Glenerowall
v.
Graham of Gorthie

Date: 16 January 1713
Case No. No 192.

Indorsation of a bill of exchange, made by a notour, bankrupt, or his trustee, in payment or security of an anterior debt, fails under the act 1696.

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Robert Campbell, alias Rob Roy, draws a bill upon Graham of Gorthie payable to the drawer, which Gorthie accepted; and the drawer having indorsed that bill to Hamilton of Bardowie, about the same time the indorser broke and fled; Gorthie thereupon raised reduction and declarator against Bardowie, setting forth the matter of fact, and occasion of drawing and accepting the bill, viz. That the cause of the bill was a contract of the same date, whereby Rob Roy was obliged to deliver to Gorthie a certain number of Highland cattle; that he had made the like bargains with a great many gentlemen, who had trusted him with money, in contemplation of receiving the value in cattle; and having thus amassed a great sum of money in his hands, he did most fraudulently withdraw; and fled without performing any thing on his part; and thereby became unquestionably a notour and fraudulent bankrupt, under the description of the act of Parliament 1696 anent bankrupts; and about the same time indorsed this bill to Bardowie, against the faith of this contract.

Bardowie having indorsed the bill to Campbell of Glenderowall, he charged Gorthie upon the accepted bill, who suspended on this reason, that the subject of the bill was rendered litigious against Bardowie upon the act of Parliament 1696.

It was answered, That the process against Bardowie, or the act of Parliament 1696 upon which it is founded, can take no effect in prejudice of the charger, to whom the pursuer's accepted bill was indorsed bona fide, and for a most onerous cause; because bills of exchange are considered as bags of money not liable to exceptions competent against other debts and claims, but pass de manu in manum, without the formalities requisite in other writs, as an instrument of trade, upon Which all dealers reckon them secure; and in this case, Bardowie being a trustee for his behoof, he took the conveyance as better for his use than money; for Rob Roy having money in hand, was ready and willing to have paid the charger the value of the bill in money, bat having no occasion for it, he thought the bill more profitable for him; and he was in bona fide to rely upon it; because the Lords by many decisions in favour of commerce have exeemed bills of exchange from all exceptions competent against other debts; particularly compensation (which operates ipso jure against bands of borrowed money) takes no place against bills of exchange; and arrestments do not hinder posterior indorsations to take effect, as was found 5th December 1712, Smith contra Home,* decided after debate in præsentia, of purpose to be a rule in like cases; and an arrestment being one of the diligences expressly mentioned in the excellent statute 1621 against fraudful alienations, it follows by plain consequence, that the act of Parliament 1696 ought as little to take place, to hinder the currency of bills of exchange; which is agreeable also to the practice of most trading nations, as observed by Du Puy in his L'art de Lettres de change, Chap. 10. § 1.; and Scaccia, § 2.; Gloss. 5. No 327. and Molloy de jure maritimo, L. 2 Ch. 10. § 28.

It was answered, That bills of exchange have indeed many privileges for the favour of commerce; but there is no decision in Scotland, nor the opinion of any author, that would favour an indorsation in the present circumstances; for the indorser being undoubtedly under the description of the fifth act of Parliament 1696, the, words thereof are plain, positive, and general, declaring that all and whatsomever voluntary assignations, dispositions, or other deeds, made and granted, directly or indirectly, by the foresaid dyvor or bankrupt, at or after his becoming bankrupt, or within the space of sixty days before, in favour of any of his creditors, either for his satisfaction, or for his further security, in preference to other creditors, to be void and null; which law leaves no place for any exception, nor is there any reason or expediency for trade, that bills of exchange should be exeemed from the effect of that law, for otherwise there would be a great opportunity for fraud; for persons knowing themselves to be in a bad and desperate Condition might dispose of their effects real or personal, take bills for the value, and then indorse these bills for money, as that exigence should require; and enjoy their estates for themselves and their heirs, to the utter defraud of their creditors; and there is nothing determined in any former case, that can afford the least argument in the present question; for, in the decision, Smith against Hume, the Lords had particular consideration of the acts of Parliament 1621 and 1696, that nothing should be determined, to evacuate the effect of these excellent laws, which were specially noticed both in the reasoning and decision; for the question being a competition betwixt an arrester and the possessor of an accepted bill, the Lords did indeed prefer the possessor of the bill; but the interlocutor does express the reason, viz. it was not alleged, that the arrestment was known to the possessor, or that the indorsation was gratuitous in whole or in part; whereas in the case of the

* Dalrymple, No 93. p. 130. voce Bill of Exchange.

act of Parliament 1696, the law introduces a presumption juris et de jure, of the notoriety that the party was bankrupt; which in this particular case was well known to Bardowie; but the suspender sounds upon the presumption introduced by the law; and it is not peculiar to Scotland what is thereby enacted; for it appears, that in France (where commerce and cases relating to bankrupts are as well regulated as in any place of the world), the law in relation to bankrupts is the same as with us, with this difference only, that whereas our act 1696 annuls all deeds within sixty days, their reglement of the 26th of June, and in Council the 27th July 1667, and in Parliament the 18th of May 1668, is in these words, Que toutes cessions et transports sur les effects des faillis seront nuls s'ils ne sont faits dix jours aux moins avant la failite publiquement connu; that is, all assignations and indorsements upon the effects of bankrupts are null, if they be not made ten days at least before the bankruptcy is publicly known.

“The Lords found, the said act of Parliament takes place, the pursuer proving the indorsation to have been made not for present value, but in satisfaction or security of a prior debt.” See Bill of Exchange.

Fol. Dic. v. 1. p. 82. Dalrymple, No 97. p. 136. *** Forbes reports the same case:

Glenderuel having charged Gorthie to make payment of 1250 merks, contained in a bill drawn by Robert Campbell (commonly called Rob Roy,) upon and accepted by Gorthie, payable to the drawer or order, for value received, and indorsed to the charger also for value; Gorthie suspended, and raised a reduction of the indorsation to the charger, upon the act of Parliament 1696, anent bankrupts, for this reason, That Robert Campbell the indorser, at or within some few days after the indorsation, was a notour bankrupt.

Alleged for the charger: The act of Parliament 1696, anent bankrupts, takes no place in bills of exchange; because, 1mo, Acts of Parliament relative to the formality, constitution, or extinction of writs, use not to be extended to bills of exchange, 2do, Sums even in inland bills, are not compensable by the acceptor for the indorser's debts, 31st January 1699, Stuart contra Campbell;* consequently not quarrellable upon the statute of bankrupt; seeing that were still to elide the indorsation upon the account of the indorser's debt, which would derogate from the faith and currency of bills, and occasion trade to stagnate, 3tio, The generality of the writers upon bills do center and agree in this, That the obligement of the acceptor of a bill is good, and effectual, and cannot be revoked, though the drawer was lapsus before acceptance, or became insolvent immediately after, Du Puy L'Art des Letters de Change, Chap. 10. § 1. 2.; Scaccia, § 2. Gloss. 5. N. 327.; Molloy de Jure Maritimo, Lib. 2. Ch. 10. § 28. 4to, It is the same upon the matter whether the value of bills be paid in money or goods, or be discounted, that is value due to the possessor upon some former account, Ricard.

* Dalrymple, No 13. p. 16. voce Bill of Exchange.

Traite du Commerce, p. 102.; Scarlet, Stile of Exchanges, Ch 35. R. 5. When one having intrusted goods to a merchant, or indulged some delay till he be able to pay accepted bills, takes bills from that merchant for the price of such goods, or in satisfaction of such former bills; were it not out of measure hard to quarrel that bill upon the act of Parliament 1696? especially, considering, that the indorsee in a bill is not, like an ordinary assignee, bound to notice or enquire, if the person on whom the bill is drawn, be debtor to the drawer or not; or to enquire about the drawer's condition, if he find the acceptor to be sufficiently solvent. Nor is it necessary that value be given for a bill immediately when it is drawn, Du Puy, ch. 3. § 29.

Answered for the suspender, 1mo, The act of Parliament 1696, being conceived in general terms, without exception of bills of exchange, ought to be extended to the indorsing of these, as well as to the assignation of any other debt or right; especially in this case, where the indorsement was granted for security of bygone debt, and not for present value in the way of trade, 2do, Compensation is not sustained at the instance of the acceptor of a bill against the indorsee or porteur, upon the debts of the indorser or original creditor,—only where the indorsee purchased the bill for ready money, or other present value in the way of commerce. And 3tio, It is only in that case Du Puy, Scaccia, et Molloy say, That the obligement of the acceptor of a bill is good and effectual, though the drawer was lapsus before acceptance, or became insolvent soon after; for ’tis certain, that if the bill be for the drawer's behoof, his lndorsement to any of his creditors in security or satisfaction of a prior debt, in defraud of his other just and lawful creditors, will not be a valid transport or indorsation; as is clear from the custom of other trading nations, particularly France, as related by Le Sieur Savary, in his Le Parfait Negotiant, p. 143. que toutes cessions et transports sur les effects de faillis seron null s'ils ne sont faits dix jours aux moins avant la faillite publiquement eonnue: Which is the same thing that with us is statuted by the act 1696, with this difference only, that our law annuls such deeds of bankrupts within 60 days; whereas the French edicts 1667 and 1668, limit the time to 10 days: And our lawyers have always made this distinction betwixt satisfaction for bygone and present value, Stair, Inst. lib. 1. tit. 9. p. 83. (85.) 4to, What the lawyers cited by the charger say concerning the different kinds of value paid for bills, doth not meet the present case; for it needs not be disputed, but that one merchant may discount to another a prior debt by bill in the course of trade as value furnished, which is indeed value received in some sense; yet if such a bill be given for payment of a prior debt, while the drawer is actually bankrupt, or upon the point of breaking, the law takes place.

Replied for the charger: Le Sieur Savary's opinion, v. 1. p. 143. doth not militate against him. The case stated by that author is this: Paul, a merchant in Amsterdam, suspecting the condition of James his debtor there, prevails upon James to draw upon Alexander his correspondent at Paris, for sixty thousand livers, value received, payable to Paul or order, albeit he paid no value for this bill, but only gave his note to the drawer, to hold compt to him for the money, when he should get payment of it. Immediately after Alexander at Paris accepted this bill, James the drawer broke; upon which matter of fact, the author gives his opinion in three points, viz. 1mo, If Alexander the acceptor had been debtor to the drawer, before his acceptance, the sum in the bill would have been brought into the bankrupt's effects, and distributed among his creditors; but if Alexander the acceptor was not formerly debtor to the drawer, but accepted his bill in hopes of getting effects from him to pay before it fell due, Paul the creditor in the bill behoved to be answered with payment, and the bankrupt's creditors could not complain nor pretend to any share thereof; because the bill is not to be paid with the effects of the drawer their common debtor, and so they are not wronged; but the acceptor, who has himself to blame for giving trust to the drawer, whose faith he followed; which is a good argument to decide in the charger's favour; seeing the suspender acknowledgeth that he was not debtor to Rob Roy the indorser at the accepting of his bill, but accepted the same for cattle that were never delivered. 2do, That author is of opinion, That Alexandar the acceptor of the bill would not be bound to pay the same to Paul, if he could prove by a note under Paul's hand, that he was only to hold compt to James the drawer, for the value of that bill when it should be paid; which makes nothing against the charger, who accepted of an indorsement to the suspender's bill, not to hold compt to Rob Roy when paid; but took it in payment and satisfaction of what he owed him; against whom he had no recourse if Gorthie had bankrupted and Rob Roy stood. 3tio, Le Sieur, Savary gives his opinion as to a third point, That Alexander the acceptor of the bill for value received, could not be free his acceptance, but behoved to pay conform; because there was no fraud on Paul's part, but only in the drawer of the bill; consequently for the same reason Gorthie must pay the sum in this bill.

The Lords found, That the act of Parliament 1696, anent bankrupts, takes place in this case, if the suspender prove that the indorsation was for satisfaction or security of a prior debt, and not for present value received. See Bill of Exchange.

Forbes, p. 646.