Scottish Court of Session Decisions

This was an action at the instance of Richard Brown, C.A., trustee upon the sequestrated estates of John Scott & Company, shipbuilders and engineers, Kinghorn, against W. M. Low & Company, Limited, the Burgh Sawmills, Leith, in which the pursuer concluded (1) for reduction of an indorsation to the defenders of a bill drawn by the bankrupts upon and accepted by the Scottish Pulverising Company, on the ground that said indorsation had been granted by the bankrupts within sixty days of bankruptcy in satisfaction or security of a pre-existing debt and was reducible under the Act 1696, cap. 5, and (2) for payment of the sum of £225, 17s., being the sum in the bill referred to in the first conclusion.

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It was not disputed that the pursuer was entitled to reduction as concluded for, but the defenders objected to decree for payment being pronounced as concluded for in the second place, upon the ground that they had never received payment for the bill in question.

The defenders offered (Ans. 6) to hand back the bill to the pursuer with the Scottish Pulverising Company's acceptance thereon and with the other indorsations cancelled, and also to hand to the pursuer another bill, which was substantially a renewal of the bill first referred to, with the Pulverising Company's acceptance thereon, and with all indorsations cancelled.

The pursuer pleaded, inter alia—“(2) The said bill having been paid at maturity, the pursuer, as trustee foresaid, on decree of reduction being granted as craved, is entitled to recover in terms of the petitory conclusions of the summons. (4) The defenders' offers not being such as would restore the pursuer to the status quo ante, they cannot be pleaded in bar of decree.”

The defenders pleaded, inter alia—“(3) The pursuer, by the decree of reduction of the indorsation and by the offers made by the defenders, being completely restored against the indorsation complained of, the defenders should be assoilzied from the remaining conclusions of the action. (4) The defenders not having received payment of the contents of the bill in question should be assoilzied from the conclusion for payment thereof.”

Decree of reduction was pronounced by the Lord Ordinary ( Kincairney) on 24th January 1901, and by the same interlocutor the Lord Ordinary, before further answer, allowed the parties a proof of their averments in reference to the petitory conclusion of the action.

The facts as determined by the proof and by a minute of admissions lodged by the parties may be summarised as follows:—

In December 1899 Scott & Company (upon whose sequestrated estates the pursuer was trustee) were creditors of the Scottish Pulverising Company to the extent of £225, 17s. For this sum Scott & Company on 16th December 1899 drew a bill upon the Scottish Pulverising Company at four months date, which was duly accepted. That bill Scott & Company on 22nd December 1899 indorsed and delivered to the defenders Low & Company, Limited, who were then Scott & Company's creditors in a sum larger than that contained in the bill. The estates of Scott & Company were sequestrated on 27th December 1899, less than sixty days after the indorsation of the bill. After the defenders had received the indorsed bill they on 29th December 1899 handed it to creditors of their own, Messrs Buchanan & French, who on that date credited the defenders in account with the amount, viz., £225, 17s. When the bill became due on 19th April 1900 the Pulverising Company (the acceptors) intimated to the defenders and Buchanan & French that they “would be unable to pay the said bill,” and as Buchanan & French had indorsed the bill to their bankers they had to see to its retirement. The course which they adopted was to send to the Pulverising Company a sum of £223 to retire the bill, and to debit the defenders with this sum. After the bill had been retired the defenders drew upon the Pulverising Company a bill for £226 odds (the sum in the first bill with discount added), and this bill was duly accepted by the Pulverising Company. This bill the defenders indorsed to Buchanan & French, who again credited the defenders in account with this amount. When this second bill fell due it was not paid by the acceptors. It was retired by Buchanan & French, and the amount was debited by them to the defenders in account with them.

It was admitted in the minute of admissions that the defenders had not received in cash either the sum of £225, 17s. in the first-mentioned bill, or the sum of £226,10s. 6d. in the second-mentioned bill, or any part thereof.

On 23rd July 1901 the Lord Ordinary pronounced this interlocutor:—“Finds (1 that the defenders W. M. Low & Company Limited, are not bound to pay to the bankrupt the sum in the bill libelled, but are bound to pay or account for such sums as they have received and possess in respect of said bill either in money or in credit; (2) finds that the offer by the defenders in answer 6 on record fully meets the defenders' obligations in the circumstances; continues the cause for application of these findings; Reserves expenses; Grants leave to reclaim.”

Opinion.—“In this action by the trustee in a bankrupt estate for reduction under the Act 1696, c. 5, of the indorsation of a bill granted by the bankrupt the indorsation was reduced by interlocutor dated 24th January 1901, and a proof was allowed before answer. A minute of admissions has been adjusted and a short supplementary proof has been led, and the cause has now to be decided. The bill is for £225, 17s., is dated 16th December 1899, and is payable four months after date. It is drawn by the bankrupt upon and accepted by the Scottish Pulverising Company. It was indorsed blank by the bankrupts, and was handed by the bankrupts to the defenders W. M. Low & Company, Limited, and was accepted by them in part payment of a debt of £320, 16s. 3d. due by the bankrupts.

It was conceded or assumed that the indorsation of the bill was reducible under the Act 1696, c. 5, as a preference granted within sixty days of bankruptcy. But the summons concludes not only for reduction of the bill but also for payment of its whole amount, £225, 17s. The conclusion is not for any less sum, but for the whole; and the question to be now decided is, whether they are entitled to decree for that amount.

John Low, one of the shareholders and directors of the defenders W. M. Low & Company, Limited, was the sole or at least the principal partner of the Scottish Pulverising Company, and the transaction appears to have arisen from that relation, but I do not know that it affects the case in

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point of law. It may perhaps conduce to clearness to treat W. M. Low & Company and the Scottish Pulverising Company as totally different. No fraud at common law is alleged.

The material circumstances ascertained by the minute and proof, omitting such as do not seem to affect the legal question, are, I think, as follows:—

The bill in question is dated 16th December 1899. It is for a debt due by the Scottish Pulverising Company to the bankrupts. It was indorsed by the bankrupts and handed to Low & Company, the defenders, creditors of the Company, on or about 22nd December, and sequestration was awarded on 27th December. This summons was not raised until 14th May 1900, but I think it appears that the trustee had not until that date been fully imformed about the transaction, The bill formed a part of the bankrupt estate, and the indorsation of it and the transference to Low & Company was an assignation of the bankrupts' estate and fell undoubtedly under the Act 1696, c. 5. The Act declares such an assignation to be void and null; but the Act says nothing about the consequence of the assignation otherwise. If the reduction of the indorsation had been pronounced at this point it would have vested the bill in the trustee and would have satisfied his rights. But no reduction was then raised.

The bill was passed by Low & Company to Buchanan & French, timber merchants, who were in intimate business relations with Low & Company, and was placed by them to the credit of Low & Company, who thereby took benefit to the extent of the bill, and if the indorsation had been reduced at this stage I think that Low & Company might have been bound to pay to the trustee the amount in the bill as surrogatum for the bill itself. But the reduction was not then raised.

Buchanan & French sent the bill to their bank for collection, and in ordinary course the bank when it fell due would have presented it to the Pulverising Company. Had that been done, and had the Pulverising Company honoured the bill, the result would have been that the course of the bill would have been exhausted and Low & Company would have benefited by the transaction to the amount of the bill because of the credit given them in account with Buchanan & French.

But that was not precisely what happened. The Pulverising Company were unable to pay, and Buchanan & French advanced the necessary funds. The sum they advanced was £223, and with that sum and a small balance the bill was taken from the bank. This is rather an obscure part of the case. It is not quite clear whether Buchanan & French paid the money to the Pulverising Company or to Low & Company; nor is it very clear who took the bill from the bank, whether Low & Company or the Pulverising Company. But I do not know that that matters. I think that the bill was really paid, and I do not think it is now a current bill. It is stamped by the bank as paid. I am not satisfied that anything can now be made of it. Buchanan & French debited Low & Company with this payment, and I think that in this case that must be held to balance the credit payment formerly entered. There may have been a small balance which probably was afterwards adjusted. But no question in this case was raised about that, and Mr Buchanan depones that Low & Company had taken no advantage in account with them from the bill.

It certainly appears to me that at this stage the bill ceased to exist as a bill, seeing that it was paid by or on behalf of the Pulverising Company with money advanced for behoof of the Pulverising Company. The Pulverising Company were no doubt debtors for the sum so advanced, but I do not see that they could be debtors on this bill. This transaction took place on 19th April 1900, when the bill fell due, and had the reduction been then raised an intricate question would have arisen. In that case Low & Company would certainly have taken no benefit from the bill other than this, that they would probably have been creditors of the Pulverising Company.

Perhaps the legal question which would then have arisen is not materially different from what now arises.

In fact the transaction was not closed in this way. The settlement left the Pulverising Company a debtor, and the transaction which followed amounted substantially to a renewal of the bill. It took the form of a bill at three months, dated 19th April 1900, drawn by Low & Company upon and accepted by the Pulverising Company. It was not due when this action was raised. It fell due on 22nd July 1900. It was handed to and credited by Buchanan & French. It appears from the minute that it was not met by the Pulverising Company, and was taken up by Buchanan & French and debited to W. M. Low & Company.

I confess I do not clearly understand the present position of this bill, but it seems to be the property of the defenders Low & Company, and to represent and to be all that represents the original bill.

I do not think I need to go into the slight differences between the sums which have been mentioned. Some explanations not very clear are given by Mr Buchanan, but they are not of consequence to the general argument and did not enter into it.

It is agreed (Art. 11 of the Minute) that the defenders ‘have not received in cash either the sum of £225, 17s. in the first-mentioned bill, or the sum of £226, 10s. 6d. in the second-mentioned bill, or any part thereof;’ and it is, I think, proved that the defenders have taken no benefit from the bill in account with Buchanan & French.

Now, the defenders have made this offer, ‘to hand back the bill to pursuer, with the Scottish Pulverising Company's acceptance thereon and with the other indorsations cancelled, and to restore the pursuer to the position in which he would have been had the bill not been granted. They … further offer to hand to the pursuer the renewed bill drawn by the defenders upon and accepted by the Scottish Pulverising

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Company with the Pulverising Company's acceptance thereon. Said bill is produced with all indorsations cancelled. This would have the effect of allowing the pursuer to operate for the sum claimed against the Pulverising Company.’

The pursuer argues that these offers, though implemented, would not restore him to the position in which he was before the indorsation, partly because the indorsed bill has been paid and has really ceased to exist and partly because of the change in the position of the debtor, the Pulverising Company, which has it appears, been converted into a limited company.

But I do not see that the Statute 1696, c. 5, confers on the pursuer a right to be restored precisely to his former position. No authority to that effect was quoted. The terms of the Act do not support it, and I think that the defenders have offered all that they are bound to offer.

The pursuer's second plea is—‘The said bill having been paid at maturity, the pursuer, as trustee foresaid, on decree of reduction being granted as craved is entitled to recover in terms of the petitory conclusions of the summons.” That plea comes to this, that the defenders are bound to restore the subject assigned in the same condition in which it was when assigned. But, as I have said, I can find no warrant for that in the statute. The statute simply nullifies the transaction challenged, but it does no more. Suppose that the case had been about the reduction of a bill which by the time it was reduced had suffered prescription, I do not see that, without some great specialty, a defender would be bound to pay the amount.

That the mere circumstance that the bill indorsed had been paid and had therefore ceased to be of value as a bill does not of itself warrant the inference that the defender in the reduction must pay the amount of it was decided in Drummond v. Watson, January 24, 1850, 12 D. 604, a case which, though special, is of much importance in this case. In that case it was held that the indorsee could only be called upon to pay the amount received by him from or by means of the bill; and even that was rather matter of concession than of decision.

That case proceeded to a considerable extent on the bona fides of the indorsee. But in this case also I do not understand that the bona fides of the defenders are questioned. Here, as in the case of Drummond, they were left to act as they thought fit in reference to the indorsed bill; and on the authority of that case I think their liability cannot be carried beyond the amount of the bankrupt estate which they received. If they have received or retained no part of the bankrupts' estate it is not easy to see how the statute can reach them.

But it may be that, if they are found in possession of the bankrupts' estate or of property which comes in its place, they may be called on to give that up, although I am not sure that any decisions have gone so far. But I would not be prepared to decide that they would not be bound to give up to the trustee the new bill for what it is worth. But I understand that that is what they have offered to do, and I have not heard any argument which convinces me that it may not be still a bill effectual against the Pulverising Company.

I do not see that I can, consistently with the above views and with the case of Drummond, take into account any changes which may have taken place in the position and constitution of the Pulverising Company. These are contingencies for which the Act 1696, c. 5, seems to make no provision.

On the whole, I am unable to affirm the pursuer's second plea-in-law, which is that the bare fact of the payment of the bill at maturity subjects the defenders to liability for its amount, and I consider that the offer made by the defenders is in the circumstances sufficient. I shall continue the cause, that the defenders' offer may be implemented if it be accepted.”

The pursuer reclaimed, and argued—The Pulverising Company got money to pay the bill, and it is immaterial whether the money was got on loan or otherwise. The bill was taken up by the acceptors and paid to a holder in due course, and so was discharged—section 59 of the Bills of Exchange Act 1882. Low & Company had by their actings so altered the position of matters that the pursuer could not now proceed against the Pulverising Company on the original terms, and Low & Company were therefore bound to pay the sum in the bill. The case of Drummond relied on by the respondent had no bearing on the present case. It was very special in its circumstance and turned on a question of mala fides. The defenders here had got a security for a prior debt within sixty days of bankruptcy, and were bound to make it good to the trustee. It was no defence to say that they had transferred it to another.

Argued for the defenders—The bill had been paid for and on behalf of the defenders. This was clear from the books of Messrs Buchanan & French, who had debited Low & Company with its payment. The cases of Drummond v. Watson, January 29, 1850, 12 D. 604, and Currie v. Misa, February 11, 1875, L.R. 10 Ex. p. 153, were in point. The bill had not in fact been paid by the acceptors, nor had payment been made on their behalf. Therefore there was no payment in due course, and the section of the Bills of Exchange Act relied on by the pursuer was not applicable to the circumstances of the present case. As the defenders offered to restore to the pursuer the bill originally granted by the Pulverising Company as it stood before the illegal indorsation, they in so doing really offered to restore all they themselves had got.

At advising—