Scottish Court of Session Decisions

The pursuers in this case were hop growers and merchants, carrying on business at Nurnberg in Bavaria, and in Liverpool; and the defender, Frederick Kennedy, was a wholesale hop merchant in Edinburgh. The defender was also a partner of the firm of Thornton, Kennedy, & Hey, hop merchants in London. In or about September 1869 a firm of J. & W. Scott began business as hop and seed merchants at Greenside Place, Edinburgh. The firm consisted of two brothers, James and William Scott, and their business in the hop trade was the purchasing of hops wholesale, and retailing the same to country brewers, bakers, and small dealers. The defender Frederick Kennedy was upon intimate terms with the brothers Scott, and his firm of Thornton, Kennedy, & Hey was one of the wholesale houses from which the said J. & W. Scott were in use to purchase hops for re-sale. In or about the month of August 1872, the said firm of J. & W. Scott became insolvent. In the course of the month of August, and in the beginning of September following, they dishonoured several of their acceptances, among others an acceptance of theirs to Thornton, Kennedy, & Hey. It was further alleged by the pursuers that the defender Frederick Kennedy, and his firm, were well aware of the insolvent condition of the Scotts, and in consequence thereof had in the beginning of August 1872 stopped deliveries of hops under an existing contract with them.

The case for the pursuers was that Frederick Kennedy formed a fraudulent scheme to obtain payment or satisfaction of his firm's claim, by holding over his firm's dishonoured bills upon J. & W. Scott, and inducing others to do so, and appropriating towards satisfaction of his own firm's claims such goods, or the proceeds of such goods, as J. & W. Scott might be able to induce other traders, unaware of their insolvent condition, and of the dishonour of their bills, to sell to them. Accordingly, no proceedings were taken by the defender or his firm for the recovery of the amounts of said dishonoured bills, and the existence thereof was not in any way published; while, on the contrary, the defender represented J. & W. Scott as solvent. In September 1872 the pursuers received an order from the Scotts for a quantity of Bavarian hops of the value of about £500, which order was executed, and on the arrival of the hops the Scotts took delivery and transferred them to the defenders. The pursuers maintained that this transaction was fraudulent, and intended to satisfy in part the defender's unsatisfied claims against the Scotts, and they accordingly raised this action against the defenders for the price of the hops. The Scotts were sequestrated in April 1873, and the pursuers accepted a first dividend but refused a second.

The Lord Ordinary pronounced the following interlocutor:—

“14 th May 1874.—The Lord Ordinary having heard counsel and considered the record, Finds that the pursuers' averments are irrelevant and insufficient in law to support the action: Therefore dismisses the action, and finds the pursuers liable in expenses, as the same shall be taxed, and decerns.

Note.—The general aspect of this case is very unfavourable to the defender; but, on a careful consideration of the record, I am of opinion that the action cannot be maintained. The pursuers sold and delivered hops to J. & W. Scott. They allege that it was dishonest on the part of J. & W. Scott to order them, and to take delivery, instead of rejecting them when they arrived. But they nevertheless stood by the sale, and claimed the price in Scott's sequestration, and received a dividend, which, with respect to the bankrupt estate, is equivalent to payment. The trustee then raised action against the defender for the value of the hops, on the ground that he had obtained them from the bankrupts fraudulently, to the prejudice of the creditors, and recovered a sum of money (£260) on a compromise. The trustee, in admitting and paying a dividend on the pursuers' claim for the price, and in prosecuting the defender for the alleged fraud which he committed on the creditors with respect to the goods in question, necessarily proceeded on the footing that the sale and delivery by the pursuers were valid to divest them and to transfer the property to the bankrupts, and the pursuers having claimed the price and drawn a dividend cannot maintain the contrary either against the trustee or the defender, who satisfied the trustee's claim against him on that footing.

The pursuers don't allege that the defender was a party to the sale by them to the Scotts, that he made any representation to them, or by any fraud or device induced them to sell or deliver the goods. A fraudulent intention on his part to obtain possession of any goods which the Scotts might be able to procure from sellers ignorant of their insolvency is imputed. But I think this insufficient to found an action. I do not omit to join it to the defender's subsequent conduct as averred, in acquiring the goods from the bankrupts, and in respect of which he was prosecuted by the trustee as for a fraud on the bankrupt estate. But I think the whole averments, taken together, are insufficient.

I give no opinion upon a question which naturally occurs though not raised by this action, and is

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now probably incapable of being raised, viz., whether the pursuers might not have challenged the sale and delivery to the bankrupts on the head of fraud, and thereupon followed their goods into the hands of the defender, who certainly had not, according to the averments, any honest or defensible title. Upon these media, they might possibly have recovered the goods, or, if the defender had parted with them, their value. But after claiming and receiving the price (or a dividend) from the trustee on the footing that the goods had passed to the bankrupts, and after the defender had settled with the trustee on that footing, and paid his money to him to recompense the estate for the loss of the goods, I think the pursuers cannot be allowed to maintain action against the defender. They have got their price from the trustee, and the trustee has got from the defender the value of the goods which he improperly acquired. This may not have been the right arrangement to make, but having been made, the matter seems to be concluded.

The record was closed on summons and defences without answers to the defender's statement, the pursuers not having desired or been required to answer the same. I have therefore been under the necessity of proceeding on the answers given at the bar to the two averments which I thought material—viz., the averment in Statement 5, which was admitted, with the qualification that, when the pursuers claimed and received the dividend they were ignorant of the fraud that had been practiced; and the averment in Statement 4, which, so far as consisting of matter of fact, the pursuers' counsel stated he was not instructed either to admit or deny. The qualification of the admission of Statement 5 does not appear to me to avoid the effect of it in this action, although it may open some other remedy to the pursuers. On that I give no opinion. With respect to Statement 4, I regard the answer as tantamount to an admission, considering the nature of the fact averred and that the averment has been on record for three months.”

The pursuers reclaimed, and pleaded:—“(1) The foresaid transaction between the defender and J. & W. Scott having been a fraudulent transaction, to the prejudice of the pursuers, the defender is not entitled to take any advantage thereby. (2) The defender having, in the circumstances stated, fraudulently obtained possession and appropriated the said hops, is liable in the price or value thereof to the pursuers. (3) In the whole circumstances, the pursuers are entitled to decree as libelled, with expenses.”

Argued for them—The Lord Ordinary had decided the case not so much on relevancy as on the averments of parties. The pursuers accepted the first dividend in ignorance of the fraud which had been practiced on them, and when they discovered it they refused a second, which had been declared, and were willing to return the first. What they complained of was a special fraud against them perpetrated in pursuance of a general scheme to defraud the body of creditors. The intention was left, that Scotts’ position might be retrieved—it was irretrievable—but that they might be kept going long enough to pay the defenders to the injury of the general body of creditors. In any view, the plea in bar ought not to be sustained without enquiry.

Authority— Morton v. Abercromby Co., Jan. 7, 1858, 20 D. 362 (Ld. Pres. opin. 369.)

The defenders pleaded—“(1) The pursuers' statements and pleas are not relevant, or sufficient to support the conclusions of the action. (2) The said J. & W. Scott having accepted delivery of the said goods, and disposed of the same, the defender is not liable to restore the price thereof to the pursuers. (3) Any right of challenge, or claim for repetition of the price, was vested, by the sequestration of J. & W. Scott, in the trustee on the sequestrated estates. (4) The said hops having been purchased from the said J. & W. Scott, and paid for in the bona fide belief that they were then solvent, the pursuers' claim is unfounded and untenable. (5) The pursuers having lodged a claim, and having been ranked and accepted payment of a dividend from the estates of the said J. & W. Scott in respect of the same debt as is claimed in the present action, are barred from insisting therein. (6) The pursuers' averments being unfounded in fact, and his pleas untenable in law, the defender is entitled to absolvitor, with expenses.”

Argued for them—The affidavit of the pursuers in the sequestration, sworn on the 9th April 1873, was to the effect that they “Hold no one liable for their debt besides Messrs Scott except Frederick Kennedy.” On what grounds could they hold him liable then, when, as they now say, they did not know the nature of the transaction between him and the Scotts till some months later?

Where the seller is not induced by fraudulent misrepresentation to part with his goods, or where the insolvent buyer has not resolved cedere foro, or ordered the goods so nearly before bankruptcy as to set up a presumption of fraud, the transaction is not reducible. Even if the Scotts were bound to reject the goods, Kennedy was not bound to do so. The real question was whether the pursuers would have been entitled to vindicate the goods in the hands of the trustee on the sequestration if they had been still extant and not transferred to the defenders. The pursuers' case must be that every creditor who dealt with the bankrupts at this time was entitled to have the goods ordered from and supplied by him struck out of the sequestration. There were not sufficient averments on record to found a claim for damages against the defenders on the ground of fraud. Conspiracy was not averred, but merely that the defenders held over their dishonoured bills with the object of fraudulently obtaining possession of goods from the bankrupts. The fraud alleged against the latter was that they fraudulently obtained goods, knowing themselves to be hopelessly insolvent. The two charges of fraud were quite different; the action was not for damages but for debt; it was rei vindicatio.

Authorities—Bell's Comm. (M'Laren) i, 264; Allan & Stewart v. Dean, M. 4945.

At advising—