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.

The Trustee on the Estate of Walter Monteath,
v.
Colin Douglas and Others

Date: 12 December 1794
Case No. No 206.

An heritable bond of relief, granted by a principal debtor, and boua fide accepted of by the cautioners in a bond of corroboration of an old debt, was not found to fall under the act 1696; both bonds being executed unico contextu; although infeftment was not taker on the bond of relief, till within 60 days of the principal debtor's bankruptcy.

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Walter Monteath was nearly related to the late Duchess of Douglas, who, at different times, lent him above L. 12,000: For the greater part of this sum, she got heritable security over his estate of Kepp, the value of which, however, was not equal to the sums she had lent upon it.

The Duchess died in 1774, leaving a settlement vesting her whole funds in trustees, who were directed after paying her Grace's debts and legacies, to employ the residue of her fortune in the purchase of land, to be entailed in favour of her nephew Archibald Douglas and certain other substitutes. It was farther declared, That the trustees should hold the lands, in their own names, till the heir for the time should arrive at the age of 22; and that after that event, they should not be obliged to denude, till required by him.

In 1782, the Duchess's nephew had arrived at the age of 19, and the trustees having consulted counsel, how far they were bound to purchase lands with the trust-funds, they were advised to do so.

The trustees having accordingly set about recovering the trust-funds, they applied to Mr Monteath for payment of what he owed, and threatened him with diligence. He, on the other hand, repeatedly begged delays, until a peace with America, where the greater part of his funds were locked up, and at the same time proposed to sell to the trustees his estate of Kepp on reasonable terms.

At a meeting of the trustees in July 1783, Mr Monteath offered to find security to pay the debt at Martinmas 1784, in so far as it exceeded the value of his estate, upon the trustees consenting to supersede personal diligence against him till that term.

This proposal having been agreed to, Thomas Monteath, his brother and partner, granted the trustees one bond of corroboration for L. 1250, and Colin, Robert, and Campbell Douglases, his brothers-in-law, ‘for their further security,’ granted them another for the like sum. This last bond was signed by Colin and Campbell Douglas, 9th March 1784, and by Robert at London on the 20th of that month.

On the 26th March, Walter Monteath granted his brothers-in-law an heritable bond of relief over his dwelling-house in Glasgow, the value of which was from L. 600 to L. 700 Sterling. This bond referred to the bond of corroboration, which it was declared had been granted on the faith of it.

On the 5th February 1785, Mr Monteath sold his estate for L. 9723: 17s. to the trustees, who were infeft on the 24th March thereafter.

Infeftment was taken on the bond of relief, 17th October 1785, and the sasine afterwards recorded.

On the 7th December 1785, Mr Monteath was rendered bankrupt in terms of the act 1696. His estate was afterwards sequestrated, and the trustees for his creditors founding on that statute, brought a reduction of the heritable bond of relief granted by him to the Messrs Douglas, the sasine on it not having been taken till within 60 days of his bankruptcy; and

Pleaded, 1st, The bond of relief was not a security for a novum debitum. The defenders had a personal claim for relief, independent of it, against Mr Monteath from the 20th March, the last date of the bond of corroboration; whereas, it was not signed till the 26th, so that it was granted in security of a debt which had subsisted for at least six days. Besides, in questions on the act 1696, it is not the date of the bond, but of the sasine, which is regarded, so that in fact, the right now under reduction was granted in security of a debt which had existed nearly eighteen months. If persons so nearly related to Mr Monteath as the defenders, had taken immediate infeftment on the house in which he lived, it would have excited the suspicions of his creditors, he would instantly have been made bankrupt, and would thus have been prevented from prosecuting trade, and contracting further debts to their prejudice. Expediency, therefore, requires that the statute should reach this case. See also Dalrymple, p. 232. and 244. 29th January, and 12th December 1717, Grant against Duncan, (infra, h. t.); 19th January 1726, Chalmers against the Creditors of Riccartoun, (infra, h. t.)

But, 2dly, The bond of relief was indirectly a security to the Duchess's trustees for the old debt due to them, and so comes under the very words of the statute. If it had not been for this debt, it never would have been necessary, and although it was directly granted to the defenders, the trustees alone were benefited by it. If securities like the present were supported, a person on the eve of bankruptcy, who wished to give a preference to a favourite creditor, would find no difficulty in getting some person to be cautioner for him, as he could be secured from loss by taking an heritable security in relief, and thus the object of the act 1696 would be entirely frustrated.

Answered, 1st, It may be true, that a claim of relief arose to the defenders on signing the bond of corroboration; but as it contained no obligation of relief, a separate bond became necessary for that purpose, because otherwise, the defenders, upon paying the debt, could not have rendered their claim effectual without a process at law. Both bonds, however, were executed, unico contextu; the bond of corroboration was signed by Robert Douglas at London on the 20th March, and supposing it to have been sent off next day, it could not, according to the arrangement of the posts at that time, have reached Glasgow till the 26th, the date of the bond of relief; it is impossible therefore to consider the bond of relief, otherwise than as a security instantly given for a novum debitum.

The attempt made by the pursuer to split the bond into two parts, and to hold the infeftment afterwards taken on it as a security for the debt contracted by the personal obligation, is a refinement which has no foundation in the statute, and has been long ago exploded; Kilkerran, voce Bankrupt, p. 64.; 29th January 1751, Johnston against Burnet and Home, No 200. p. 1134.

2dly, If there had been any thing fraudulent in the transaction; if the security had been granted to the defenders in trust for the Duchess's trustees, or as third parties interposed, in order to elude the statute, as in the case, Blaickie against Robertson, No 12. p. 887. it would then have been justly liable to reduction. But all parties in this case, were in optima fide. The trustees made a demand on Mr Monteath, from a sense of duty, that they might be enabled to lay out the money on land agreeably to the terms of the trust, and to the opinion of counsel; and when security was offered for it, they accepted it, not so much from any apprehension of Mr Monteath's circumstances, as that they might be secure of the money being paid at certain terms, so as to leave sufficient time for realizing it before the trust expired.

The motives of the defenders were equally pure. Their view was to serve Mr Monteath, not the trustees; and although they stipulated a security over the house, it is clear they had no suspicion of his failure, as it is scarce worth half the sum they engaged for. The heritable bond did not afford even an indirect security to the trustees. Its obligation was merely contingent. If the defenders had failed, without paying any part of the debt, the house would have remained unburdened to Mr Monteath and his creditors. Neither could the trustees have prevented the defenders from renouncing this security at any time. Were it therefore in these circumstances to be reduced, no man could with safety be cautioner for another.

The Lord Ordinary reported the cause on informations.

The Court, by a great majority, found, That “the heritable security in question fell under the act 1696.”

When the cause however came again before the Court, on a reclaiming petition and answers, in which the circumstances attending the transaction were more fully brought out, it being thought to involve a new and important point, a hearing in presence was ordered.

When it was afterwards advised, the Court were much divided in their sentiments.

A majority were for sustaining the security.

The bond of relief, (it was observed), certainly does not come within the letter of the statute, being a novum debitum, quoad the cautioners; and, in determining whether cases of this fort fall under its spirit, each must depend in a great measure on its own circumstances. In the present case, no evasion of the statute was intended. At the time the two bonds were granted, neither the trustees, nor the defenders, nor Mr Monteath's other creditors, had any suspicion of his approaching bankruptcy. The trustees accepted a personal bond of corroboration for a similar sum from his brother and partner. The defenders accepted a security not more than half sufficient to relieve them; and so good was Mr Monteath's credit, that his other creditors did not proceed to diligence against him, although they saw his estate sold, and infeftment publicly taken on it. If in such circumstances the bond of relief were reduced, no person could with safety become cautioner for a merchant, and many cases might be figured where this would be attended with the greatest hardship. For instance, bankers are not fond of security on land at any time, indeed till the present bankrupt act, it could not be given for future advances on a cash-account, yet were the pursuer's doctrine well founded, even merchants possessed of land would find it difficult to get their friends to become personally bound with them, (especially in times of general distrust, when such aid most needed), as the validity of the heritable security which they could give in relief, would depend on their remaining solvent for sixty days.

On the other hand, several of the Judges remained of opinion, that the interlocutor should be adhered to. Nothing, it was observed, would tend so much to narrow the beneficial operation of the statute, as to make every case of this sort a question of bona or mala fides. There are certain leading features in every transaction, by which it is easy to distinguish whether it falls within its spirit. Although, in this case, both the trustees and the defenders are much above any suspicion of planning a fraud, still the effect of the transaction was to give a security for an anterior debt, and although the defenders were not fully secured by the bond of relief, yet it was the only security which Mr Monteath had to give.

The Court found “That the heritable security in question did not fall under the act 1696.”

A reclaiming petition was refused without answers.

Lord Ordinary, Abercromby. Act. Solicitor-General Blair, Arch. Campbell, Moodie. Alt. Lord Advocate Dundas, Rolland, Maconochie, Arch. Campbell, junior. Clerk, Menzies. Fol. Dic. v. 3. p. 56. Fac. Col. No 144. p. 328.