Scottish Court of Session Decisions

Subject_1 FRAUD.
Subject_2 SECT. XIII.

Fraus Auctoris nocet Successori.

Abraham Delvalle, and Others,
v.
The Creditors of the York-Buildings Company

Date: 9 March 1786
Case No. No 65.

An assignee to an English bond, transferable by indorsation, is affected by the frauds of his authors.

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The bonds issued by the York-Buildings Company being payable to one of the clerks, or his assigns by indorsement, passed from hand to hand by blank indorsation.

In 1731, after the affairs of the Company had gone into disorder, some of the bonds were given away in payment at a considerable discount, while others were deposited in security of sums greatly below their value; a proceeding which gave occasion to a parliamentary inquiry, and to several suits in the civil courts in England, against the managers of the Company.

Many of these last-mentioned bonds, however, having been transferred from the original holders, at the same price which the other securities of this Company yielded at the time, the question occurred, Whether the present possessors were to be ranked for the whole sums in the bond, or only for those truly received by the Company.

For the creditors to whose debts the objection was applicable, it was

Pleaded, The bonds in question being made negociable by blank indorsation, the public was authorised to believe, that no exception which did not appear from the document itself could be available against the holders. Nor would it be at all just, that those who fairly acquired them, according to their current value, should thus suffer from defects occasioned by the frauds of former possessors.

Nothing indeed is more usual than to expose to sale at an under value the bond of such a bankrupt company as this. Nor was it ever imagined that the claim of the purchasers was to be restricted to the sums truly paid. The bonds here objected to, accordingly, have in England been viewed in this light. The complaints which were preferred in the House of Commons, and the prosecutions entered in the civil courts in England, would have been quite superfluous if in no case those obligations could be effectual for more than the Company actually received.

Answered for the creditors in general; No assignee to a claim of debt, the case of bills of exchange alone excepted, can, by the law of Scotland, stand in a different situation from that of the persons from whom his right was originally obtained, or through whose hands it has passed; Erskine, b. 3. tit. 5. § 10. And the law is the same in England, where the usual form of assigning is in the nature of a declaration of trust, and an agreement to permit the assignee to make use of the name of the assignor, in order to recover the debt; Blackstone, v. 2. b. 2. c. 30.

Neither is it of importance that the bonds of this Company were negotiable by indorsation. In this manner the mode of transference was indeed rendered more easy and expeditious; but the right transferred, especially in a question not with the Company itself, but with its competing creditors, never could be thought more extensive; and although such bonds, issued by a public company, as have once regularly gone into circulation, may be afterwards legally transferred, at a price below the sums originally drawn for them, it does not from thence follow, that they can be at first issued at an under value. This never can take place, unless from gross mismanagement or fraud; and the consequences must be alike fatal to every one whose rights are derived from those accessory to it.

By one interlocutor, the Lords found, ‘That the bonds of this Company, being passable and negotiable by indorsation, by the special nature thereof, so long as they continued personal, without any diligence being led thereon, the present holders thereof, who purchased for a valuable consideration, though under the amount of the sums in the said bonds, are intitled to be ranked for the full contents thereof, notwithstanding the said bonds may have originally been pledged or deposited as a security for sums below their amount, or issued originally by the Company, without any just or true value being paid for the same.’

But after advising a reclaiming petition, with answers, the following judgment was pronounced.

‘Find, That the holders of the bonds in question must be considered as assignees; and that every objection competent against the cedent is also competent against the assignee; and therefore find, That the holders of these bonds can only be ranked for the sums really and truly advanced to the York-Buildings Company.’ See a case between the same parties, No 73. p. 4525.

Lord Ordinary, Monboddo. For Abraham Delvalle, Lord Advocate, Wight, Craig. Alt. Buchan-Hepburn, Elphingston, Blair. Clerk, Colquhoun. Fol. Dic. v. 3. p. 247. Fac. Coll. No 265. p. 406.