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Cite as: [1834] CA 13_55

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SCOTTISH_Shaw_Court_of_Session

Page: 55↓

Macdougall

v.

Stevenson
No. 14.

Court of Session

2d Division. F

Nov. 18 1834

Ld. Mackenzie, Lord Glenlee, Lord Justice-Clerk, Lord Meadowbank, Lord Medwyn.

Mrs Margaret Macdougall and Miss Grindlay,     Claimants.— Jameson— Dunbar. Alexander Stevenson, W. S.,     Common-Agent.— Sol.-Gen. Skene— Currie.

Subject_Diligence—Arrestment—Personal Obception—Litigiosity.—

1. Questions, whether arrestment, beyond the six months, of funds which had belonged to a defunct, used upon the dependence of an action of constitution against the executor confirmed, can give a preference over the other creditors, and whether the raising of a multiplepoinding as to the fund arrested, before decree be obtained in the action, excludes such preference. 2. Circumstances in which creditors held barred, by acquiescence in a course of management for the common behoof, from adopting separate measures of their own.

The late John Padon, merchant in Borrowstounness, died intestate, in October, 1825, leaving his affairs in a state of embarrassment. He left a son, Thomas Padon, a minor, in whose person titles were made up by service, as heir to his father, cum benefieio inventarii, in October, 1826, and confirmation as executor, qua nearest of kin, in July, 1827. The tutors and curators of the minor, appointed in July, 1826, in a process of choosing, entered on the management of the deceased's estate, with the acquiescence of the general body of creditors, to whom they from time to time reported their proceedings. In August, 1827, a general meeting of creditors was called, by circular notices addressed to each. A report of the steps taken in the management of the estate was laid before the meeting by the tutors and curators, anticipating, in certain events, a shortcoming of funds. The proceedings of the tutors and curators were approved of by this meeting, and another meeting was afterwards called, also by circular notices to all the creditors, in March, 1829, when a farther report of the state of affairs was kid before them, and directions taken for the sale of the heritable property. The claimants, Mrs Macdougall and Miss Grindlay, were creditors of the defunct, and resided in the neighbourhood of Borrowstounness. They did not deny having received the notices of the general meetings, but they did not attend these, nor authorize any one to appear on their behalf, nor did they by any positive act sanction the course of management adopted for the common behoof. During all this time, however, no separate measures had been taken by any of the creditors; but, after a sale of the heritable property had been effected, Mrs Macdougall and Miss Grindlay respectively raised actions of constitution against Thomas Padon, the son, on the dependence of which they used arrestments, of date 2d November, 1829, in the hands of the British Linen Company, with whom one-half of the price had been deposited, and, on the 6th, in the hands of the purchaser, as to the other half, not yet paid. On the 25th November, decree was obtained by Miss Grindlay in the action of constitution at her instance; and, on the 4th February, 1830, decree was likewise obtained by Mrs Macdougall in her action. In the mean time, and between the dates of these two decrees, a multiplepoinding, as to the funds arrested, was raised and executed in name of the British Linen Company and of the purchaser, in which, claims of preference, founded on their arrestments, were given in by Mrs Macdougall and Miss Grindlay. To these it was objected by Stevenson, W.S., who had been appointed common-agent, that arrestment of the funds of a defunct was incompetent to give a preference, and, at all events, that the claimants, having allowed the management for the common behoof to go on so long, though in the perfect knowledge of it, were barred personali exceptione from availing themselves of their arrestments to the effect of obtaining a preference over the other creditors.

The Lord Ordinary repelled the claims to a preference on the part of Mrs Macdougall and Miss Grindlay, and found them liable in expenses, adding the subjoined note. *

_________________ Footnote _________________

* “There seems to be a ground of distinction between the effect of diligence done against a person by any one of his own creditors, and diligence done against a trustee acting for creditors, by any one of those creditors. In the first case, what is not secured by the diligence of the creditor may be consumed by the debtor; and it seems not wholly inequitable, therefore, to allow any creditor, even in case of a deficiency, to keep the whole of what he, by his diligence, has secured from waste, at least to the extent of full payment of his debt. And accordingly this, though under great modifications and exceptions, is still allowed in our law. But, in the case of a trustee, it is not to be presumed that he will consume the funds which do not belong to himself; and, therefore, it would be going a great deal too for to allow any one creditor, merely by doing diligence, to secure to himself full payment, by taking what the trustee was in the reasonably presumed course of ultimately dividing fairly among the whole creditors. Diligence by particular creditors may indeed bo allowed, to the effect of securing or receiving their share, or of securing the fund for the general behoof, in case of any danger of embezzlement or undue delay. But that is quite different from allowing it to constitute a preference, to the prejudice of the other creditors. Accordingly, there seems little reason to doubt that, in ordinary cases of a valid trust for behoof of creditors, no one creditor can, by diligence against the trustee, create a preference over the other creditors, so as to draw more than his fair share of the trust-estate; and then it seems that an executor or heir cum beneficio inventarii, when there is a known or expected deficiency of funds to pay the defunct's debts, is just a trustee for behoof, in the first instance, of all the creditors of the defunct. It may be otherways when there is no known or expected deficiency. An executor or heir, cum beneficio, may fairly pay, primo venienti, without waiting for creditors whom he does not know of, or for creditors whose interests he does not see to be in any danger. But where the executor, or heir cum beneficio does not know of the defunct's creditors, and knows that there must be, or will probably be, a deficiency of funds, Ma duty seems just to be that of a trustee for the general behoof of creditors. Accordingly, it seems fixed by decisions in the case of Rusell, that it is not his duty to pay in full, primo venienti, when there is deficiency, even after the six months, and the creditor clalming payment has obtained a decree for his full debt. For if it had been held his duty so to pay, the decree must have been held to give a preference, as it would have subjected the executor personally, who must then have been entitled to pay under it, and, of course, would have paid; and if it be not the duty of the executor to pay in full, primo venienti, after the six months, although decree be obtained, in other words, though the decree is held valid only to give right to a fair share, how can diligence by arrestment, or any diligence on that decree, be held to convert the right into right to full payment? If horning pass on the decree, it seems indisputable that the executor might suspend beyond the extent of a fair share, and raise a multiplepoinding, calling all the creditors to receive their shares. Why should arrestment have a more extended effect in favour of a creditor? Why should that diligence stretch beyond the substantial intended effect of the decree on which it proceeded? The Lord Ordinary is not satisfied on this head; and not being clearly satisfied, he cannot sustain the preference claimed in this case. It is a very strong case, For here the executor and heir, cum beneficio, had been in a long course of dealing with the creditors of the defunct, as acting for their interest; and the present claimants, if not expressly, yet tacitly, allowed themselves to be considered as going along with the rest. And then, after the fund is notoriously deficient, and ready for division, the claimants attempt, by arrestment, to seize upon a disproportionate share of it. Nothing can be more plainly inequitable. And the grounds of law to support it must have been made very clear indeed before they can be maintained. For this reason, the Lord Ordinary finds expenses due to the common agent. It is an attempt very unfavourable, and ought to be made at their own risk, in regard to expenses.”

These parties having reclaimed, the Court ordered Cases.

Pleaded for the Claimants—

1. At common law, and prior to the Act of Sederunt 1662, executors were not only entitled, but were bound to pay to the creditors of the deceased primis venientibus, and could not refuse on account of private knowledge of other claims, unless interpelled by citation; and it was always competent for the creditors of the defunct to establish a preference by priority of decree or by diligence. The Act of Sederunt, however, had reference exclusively to the first six months after the death of the defunct, giving a pari passu preference to all creditors citing the executor within that period, but it has no application whatever to the mode of securing a preference after the six months, which remains, as before regulated by the rules of the common law. Then, according to these rules, there is no incompetency in any one creditor securing a preference by more timeous diligence. The executor, though a trustee in a certain sense, is not at all in the same situation with the trustee for creditors under a sequestration. He is himself debtor, though his obligation be limited to the extent of the executry funds, which, so long as they are actually extant, may be attached by diligence; and so it has repeatedly been held, while the only case referred to as contrary to this— Russell v. Simes 1—proceeded

_________________ Footnote _________________

1 1791 (Bell's Cases, 217).
expressly on the ground that there was collusion on the part of the executor to prefer one creditor to another, by opposing the latter in his obtaining decree.

2. In regard to the plea of personal exception, the mere abstaining from having recourse to action or diligence, can never be construed into acquiescence in a general course of management, so as to bar separate measures, when these are deemed expedient.

Pleaded for the Common Agent—

1. An executor is substantially a trustee for all interested in the estate of the defunct, and bound to account to them for his intromissions, and more especially if, from the beginning, it appear, as in the present case, that there is likely to be a shortcoming of the funds. In such case, no creditor has a claim for more than his share of what those may yield; and although it may be competent for him to arrest, it can only be to the effect of securing that share, but not of obtaining a preference over the others; and,

2. At all events, in the present case, the claimants having been advertised of the meetings of creditors, and necessarily cognisant that a common management was going on for the general behoof, cannot be allowed, after for so long lulling the other creditors into security by an apparent acquiescence in this course of proceeding, to avail themselves of their measures for obtaining a preference.

Lord Glenlee.—This is a case of considerable difficulty, and I am not sure that the two claimants are in pari casu. No doubt an executor is a trustee, so far as that he must account for his intromissions. But I am not satisfied that the fund is to be considered just as a trust-fund to which he has not right, except as trustee. There may be such a case, as, for instance, where the party is executor under a trust-deed, but where the person confirms suo jure as next of kin, and has an inherent right, he cannot be considered as at all in the same situation with an ordinary trustee. Previously to the Act of Sederunt 1662, it was understood that creditors were all preferred according to priority of diligence, and the Act of Sederunt makes no change on the law, except to prevent any preference whatever being obtained before the expiry of six months. Otherwise matters are left to be regulated by the general law, and part of that is, that after six months, as long as the fund is extant, creditors are in pari casu, if in the same situation as to diligence, and that was really the case in Russell, in which there was nothing to distinguish between the claims but the date of the decree, which could not establish a preference. But when diligence is done, the case is entirely altered. In the case of Dunlop v. Weir, the only point raised was, whether the arrestment competing were competent in the hands of a factor; but how came that to be the only thing, unless on the assumption that if the arrestment were formal and valid in itself, it would have given a preference? It was taken for granted, that if in the hands of a proper arrestee, it would have created a preference. I cannot therefore adopt the idea that the fond itself is tied up as a trust-fund, in the same way as in a sequestration. It is plain, however, that the claimants here are not both in the same situation. Both had summonses, and arrested on the dependence, but Mrs Macdougall did not obtain decree till after the multiplepoinding was raised.

Now, in an arrestment on a dependence, the beneficial effect is suspended till decree be obtained, and the effect of it depends on what sort of decree is obtained; but here, after the parties were called in the multiplepoinding, Mrs Macdougall had no right to take any decree, except qualified as to the matter of preference. The other case is different, for Miss Grindlay obtained decree before the parties were called in the multiplepoinding, Still with all that, I have very great difficulty. This man proceeded in a course of acting as if he was a proper trustee, and these people got notices of the meeting of creditors, without giving any warning that they were not to acquiesce, and on that ground, even as to Miss Grindlay, I would hesitate to alter.

Lord Justice-Clerk.—If I were compelled to say whether I adhered to the whole reasons in the Lord Ordinary's note, I would have considerable hesitation, for I do not think all his views consistent with the decisions. But the question is, if, under all the circumstances of the case, these ladies have substantiated their claims to a preference? Now, I do think the executor acted openly, and for the interest of all concerned. It appears there were general meetings, and circular letters sent to all the creditors before every resolution, and it is not positively denied that these ladies received them. Then these proceedings have been going on for years, and we cannot shut our eyes to their acquiescence, as barring these claims now advanced. They never came forward in an open manner, and said we will not concur; but they give no notice, and allow all parties to proceed on the assumption that they were not to attempt obtaining a preference; and therefore, supposing it ever so clear on the point of law argued, as to the competency of securing such preference by arrestment, we may decide this case without touching on the principles stated in the Lord Ordinary's note.

Lord Meadowbank.—That is exactly my opinion. 1 could not have gone along with the Lord Ordinary in all the views stated by him, but under the circumstances referred to by your Lordship, I am for adhering as to the result,

Lord Medwyn.—I first addressed myself to the personal exception, which would in one view supersede the decision of the question of law; but I have come to a different conclusion from your Lordships. I hold the circulars to have been received, but I can't hold that receiving circulars, and not objecting, is sufficient to bar their taking separate measures. I rather think their non-attendance should have been taken as a warning that they were not to go into these measures. It is not averred that any copies of the minutes, or reports, laid before the meeting in which they were asked to concur, were ever laid before them. Now, although it has been held, and held justly, that if a creditor attends a meeting where joint measures are resolved upon, if any one dissent, he is bound in fairness to express his dissent; he is not allowed, by expressing no opinion, to leave the other creditors in their belief, that joint measures are agreed to by all, as no dissent had been intimated, and a creditor so acting is held to have acquiesced: but I own I never heard of acquiescence being implied in the measures of a meeting which the party did not attend, where the measures were not even notified to the party in any way, either before or after the meeting, no copy of the minutes sent, and nothing was done to show acquiescence or approval. I can figure a case of long delay to disturb a course of joint management, which would cut off a creditor's right to resort to separate measures. But there was no such delay here, only between March and November, and there was no distribution, or even allocation of funds. Thus I am not able to get quit of the question of law, which arises in this case; nor can I say that I have formed an opinion very satisfactory to my own mind. I wish I could have had the benefit of hearing the observations of counsel, to assist me in forming my opinion, which, upon the whole, is, that I cannot go along with the Lord Ordinary in his views of the case. The subject of competition is, the price of the share of the late Mr Padon, in the copartnery of Padon and Vaunan. It is part of the executry of the deceased, and, therefore, we have nothing to do with the other character of heir cum beneficio, which the son took up for behoof of the creditors; and the question is, whether a creditor who does not attend the meetings of the creditors with the executor, and carrying on joint measures with him, is prevented from acquiring a preference, by using diligence after the lapse of six months after the death of the debtor. It has been argued, that an executor is merely a trustee for the creditors; that it is difficult to understand how diligence used against him, as for attaching the trust-funds, can enable any creditor to draw more than his own share; and it has been held that these views were expressed by the Court, and for the first time, in the case of Russel against Simes, 27th February, 1790, and the Lord Ordinary seems to have adopted this view. Now, really I have great hesitation in deducing any such conclusion from this case. If it had been understood that an important alteration was introduced into the law by this case, it is singular that it should not have been noticed in the Faculty Reports then collected by the persons not likely to have overlooked a case introducing an important change in our law. But on looking into the case, the species facti did not admit the decision of any such principle, and it was decided on a totally different ground, perfectly sound, and fully warranting the decision. The facts of this case have not been sufficiently attended to. The debtor died 2d September—the six months expired 2d March—Russell raised a summons against the executor in January, and obtained decree in absence 11th March. Then beyond the six months, Simes raised an action, 9th March, but did not get decree till 23d December, being opposed by the executor. The question was, if citation within six months gave a preference? Ersk. 3, 9, sec. 46, says, “In a competition between two creditors after the six months, the preference was governed formerly by the priority of citation, (Sir J. Gray, July, 1723.) But by later practice, which appears more agreeable to law, the first citation gave no preference by itself, (Graham, 15th February, 1738.)” It is only the decree which regulates this. Accordingly, Lord Dreghorn disregarded the prior decree on another ground. Now, there was no competition with any decree within the six months. The six months had expired before Russell's decree had been obtained, and the question was just, whether where two decrees are obtained after the six months, the prior in date is preferable. The Lord Ordinary held, it was not on this special ground, and contrary to the general rule, as collusively obtained, the citation by the other creditor having been given before decree was obtained, and thus the executor was interpelled from paying. Nothing more was found by this case, and the law is exactly agreeable to what is laid down by Stair, in a passage quoted in these papers, p. 4. Accordingly, in Dunlop against Weir, 29th January, 1823, a preference was given to the creditor, who, after the six months, had arrested in the hands of the executor's factor, and obtained decree before the competing claimant had entered his claim. A very ingenious distinction is drawn by the Lord Ordinary, between diligence done against the debtor himself, or against a trustee acting for the creditors, &c. I doubt if that be the principle on which such preferences are granted, or can be held equitable. It appears to me, that the interest of the other creditors has not been duly attended to here, When it was ascertained that the claimants were going to adopt separate measures, and had cited Padon and his curators in the actions of constitution, the executor should have instantly raised the multiplepoinding, which he afterwards did, but not till after decree was obtained by one of the claimants, and a legal preference secured. It was too late then to attempt to equalize the division, and cut down the preferences by such a process as this, and, therefore, however inequitable I may consider it, that one creditor should obtain full payment at the expense of the others, I am not able to see any ground of law on which this can be resisted, since I cannot do so on the ground of personal exception. This, of course, only applies to the case of Miss Grindlay, who obtained decree on 29th November, 1828, before the multiplepoinding was raised by the executor; but it does not apply to the claimant, Miss Macdougal, who did not obtain decree of constitution till after the multiplepoinding was in Court, bringing all the creditors into the field.

The Court adhered.

Claimant's Authorities.—Stair, 3, 8, 66—69; Ersk. Pr. 3, 9, 23, and Inst. 3, 9, 46; 2 Bell, 84; Gardiner v. Pearsons, Nov. 28, 1810 (F. C.); Atkinson and Co. v. Learmonth, Jan. 14, 1808 (F. C.); Scales and Son v. Russell, Nov. 15, 1821 (ante, 1. 136); Swayne v. Fife Banking Co., June 8, 1822 (ante, I.); Dunlop r. Weir, Jan. 29, 1823 (ante, II. 167).

Common Agent's Authorities.—A. S. Feb. 1, 1662; Ersk. 3, 8, 70, and 9, 5; Russell v. Simes, 1791 (Bell's Cases, 217); 2 Bell, 86.

Solicitors: John Rymer, W.S.— A. Stevenson, W.S.—Agents.

 SS 13 SS 55 1834

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