Scottish Court of Session Decisions

The pursuer of this action was an ordinary shareholder of the Girvan and Portpatrick Junction Railway Coy., and a creditor of the company for, inter alia, the sum of £3000, together with the sum of £594, 8s. of expenses, and £1, 3s. for dues of extract, contained in a decree obtained by him in the Court of Session against the said company, dated the 16th October and 8th November 1879, and on 3d April 1880 he used arrestments by virtue of the warrant in the decree in the hands of the Commercial Bank of Scotland. On or about 17th December 1878 the railway company issued and granted to and in favour of the said bank a bond or mortgage for £3000, which was accepted by the bank and registered in the books of the railway company as due on 11th November 1881. It was this mortgage that the pursuer claimed to have attached by his arrestments, and he brought the present action to have the sum contained in it made forthcoming to him in satisfaction of his decree, and alternatively, in case it should be found that no sum was due by the bank to the railway company, and that he was consequently not entitled to have any sum made forthcoming to him in virtue of his arrestments, to have it found and declared that the said mortgage was illegal, and ultra vires of the granters thereof, and ineffectual as a charge upon the railway company or its assets, and the bank ordained to deliver it up to the railway company to be cancelled or otherwise validly discharged. The pursuer further averred that no consideration was paid or granted for the said mortgage, and the bank were still bound to pay its par value to the railway company, or if no sum were due under it, then its issue was ultra vires of the officials of the company, and it was ineffectual to constitute any indebtedness or security in favour of the bank. The defenders averred that the mortgage was granted in security of an overdraft to the railway company, who were now indebted to them in upwards of £2000. They denied that the arrestment used by the pursuer had attached anything, and pleaded—(1) The arrestment in question having attached nothing, the action is incompetent, and should be dismissed.

The Lord Ordinary ( Curriehill) allowed the parties a proof of their respective averments, adding this note to his interlocutor:—“This is an action of a somewhat peculiar character. The pursuer is a shareholder of the Girvan and Portpatrick Railway Company, and he is also a creditor of the company in virtue of a decree of this Court, dated 16th October and 8th November 1879, for payment of £3000, with £594, 8s. of expenses. Upon that decree the pursuer, as creditor of the company, arrested in the hands of the Commercial Bank the sum of £3000 alleged to be due by the bank to the railway company. The fund so said to be arrested is the amount of a debenture bond or mortgage for £3000 granted by the railway company to, and now held by, the bank, and it is not said that the bank is otherwise indebted to the railway company.

“ Prima facie, the bank is not debtor, but creditor in the mortgage, and in that view nothing was attachable or attached by the arrestments. But the pursuer alleges, in the first place, that no consideration was given by the bank for the mortgage, and that if the mortgage is to be regarded as valid, the bank is still bound to advance the amount to the railway company, or, in other words, is debtor to the railway company in the

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nominal amount of the mortgage, and that the debt has been validly arrested. The bank admits that at the date of the mortgage the railway company had a small balance at their credit in the books of the bank, that the mortgage was granted in security of future overdrafts to be allowed by the bank, and that subsequent to the date of the mortgage overdrafts were allowed to the extent of £2095, still unpaid, and that no further advance has been made by the bank. To the extent, therefore, of about £900 the bank has admittedly not advanced the sum contained in the mortgage.

In the next place, the pursuer maintains, alternatively, that the mortgage is wholly inept, and that it should be cancelled. It is maintained, both for the bank and for the railway company, that the pursuer had no title, either as a creditor or as a shareholder of the company, to inquire into the circumstances connected with the mortgage. The pursuer, however, maintains that in both capacities he is entitled to such an investigation, and that in the event of its being held that the bank is not indebted to the railway company he is entitled to have the mortgage declared to be ultra vires of the railway company, and illegal as a security for a future debt, and on other grounds; and he has conclusions to that effect, being reductive conclusions under another name.

It is, to say the least of it, doubtful whether as a shareholder he is entitled to insist upon any of the conclusions of this action. He is certainly not entitled to sue the conclusions of forthcoming in any character but that of creditor of the company. But it is unnecessary to consider that question of title, because I think that as a creditor he is entitled at all events to be allowed a proof of his averments, and to expiscate all the facts connected with the granting and subsistence of the mortgage. He cannot get payment of the debt contained in his decree, because the railway company say that they have no funds, and that they have exhausted their borrowing powers.

Now, it appears to me (1) that the pursuer as a creditor of the company has an undoubted interest and title to show that the mortgage is altogether illegal and ought to be cancelled, in which case the railway company's borrowing powers may still be exercised to the extent of £3000; (2) that as the mortgage was admittedly not granted in consideration of a present payment of £3000, and as the full amount has admittedly not been advanced, he has both interest and title to ascertain the whole circumstances under which it was granted. Thus it may turn out that the bank at the date of the mortgage became absolutely bound to pay £3000 to the company, in which case the amount, in so far as not already advanced, would appear to be a debt or obligation by the bank arrestable by the creditors of the company—see Bell's Com. ii. 219, and cases there cited,—or it may turn out that the obligation of the bank was of a more limited character, or that there was no obligation at all; and in either of these cases the question would arise, whether or how far the mortgage was a security for a future debt, and so ineffectual? All these are matters as to which I think investigation should be allowed; but as some of the alleged facts may admit of proof only by the writ or oath of the bank, all such questions which may arise are reserved to be dealt with at the proof.”

The defenders reclaimed, and argued—(1) The arrestments have attached nothing; a mortgage as a nomen debiti cannot be thus attached any more than a bill—Bell's Com. ii., pp. 67 and 69, 5th ed., pp. 70 and 73; Haddow v. Campbell, 1796, M. 763; Dick v. Goodall, Nov. 1, 1815, F.C.; Ersk. ii. 67; Johnston v. Commercial Bank, March 11, 1858, 20 D. 790. The pursuer has no title to sue the other conclusions than that of forthcoming, and he could not benefit by having the corpus of the mortgage transferred to him, for assignation is necessary to complete his title. (2) The mortgage is within powers of company—Lindley, i. 619; Campbell's Case, Dee. 14, 1876, 4 Ch. Div. 470; Regent's Canal Company, April 11, 1876, 3 Ch. Div. 43.

The pursuer replied—(1) Mere acceptance and registration of a railway mortgage implies liability on the part of the acceptor; every such mortgage is declared to have the force and effect of a duly completed assignation by 8 Vict. c. 77, sec. 40, &c., and the pursuer has therefore arrested a debt due by the bank to the railway company. (2) The bond is ultra vires of company, being not to raise capital but secure a cash-credit, while its Act 1877 only allows it to issue mortgages for money instantly advanced—8 Vict. c. 77, secs. 46, 47, 48, &c.; 24 and 25 Vict. c. 108, sec. 114; Lindley, i. 271; Inns of Court Hotel Company, 6 Eq. 2; Dempster, cited Bell's Comm. ii. 235, 5th ed.; Mowat, 1848, 12 Jur. 407.