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Scottish Court of Session Decisions


You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> M'Kenzie v Gordon [1838] CS 16_311b (16 January 1838)
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Cite as: [1838] CS 16_311b

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SCOTTISH_Court_of_Session_Shaw

Page: 311

016SS0311b

M'Kenzie

v.

Gordon

No. 80.

Court of Session

1st Division

Jan 16 1838

Ld. Cockburn. B., Lord President, Lord Gillies, Lord Corehouse, Lord Mackenzie.

William M'Kenzie (D. H. M'Leod's Trustee),     Claimant.— Counsel:
A. Wood.
Mrs Janet Gordon, or Orr, and Others (Gordon's Trustees),     Claimants.— Counsel:
Anderson.

Subject_Right in Security — Confusio — Trust — Litigiosity. — Headnote:

1. The proprietor of an estate which was burdened with real securities in favour of A and others, granted a security in favour of B, who was infeft; the proprietor then granted a private voluntary conveyance of the estate, ex facie absolute, to a party as his trustee and agent, for the more convenient payment of his debts; the trustee paid the securities held by A and others, and took a conveyance to them ex facie absolute, in his own favour; after holding them, in some instances for about six months, he conveyed them to parties making new loans to the proprietor, on the proprietor's heritable bond, along with which these were conveyed as auxiliary securities; for the most part, the securities of A and others were retired by the trustee with the money of the new lenders, and, in all instances, the new lenders stipulated, when making the loan, that the securities of A and others should be conveyed to them by the trustee, as auxiliary to the proprietor's heritable bond; in a ranking and sale of the estate there was a shortcoming of the price:—Held, that the securities of A and others did not become extinguished confusione, by being vested in the trustee, hut were kept up, and effectually conveyed to the new lenders, so as to be preferable, in competition with the real right of B.—2. A party held, as a principal security, a heritable bond and disposition in security by a proprietor for £25,000; he also held several smaller heritable bonds, and heritable bonds of annuity, as auxiliary securities; the principal security was posterior in date to the real right of B, and the auxiliary securities were prior in date to it; the party drew interest on the bond for £25,000, for several years after a ranking and sale of the estate was in dependence; there was a shortcoming on the price, and the party then be-took himself to his auxiliary securities:—Held that he was not bound to impute to them any of the interest which he had drawn on his bond for £25,000, and was entitled to rank for the whole annuities, and whole interest, accruing on the auxiliary securities in the mean-time, without abatement, as well as for the principal sums therein.—3. The creditor, in a heritable bond for £25,000, was infeft in certain minor heritable bonds and annuities, as auxiliary securities, to which he acquired right in 1819; in 1823 a new lender paid him the sum of £25,000, and obtained a conveyance of the heritable bond and of the auxiliary securities, with the annuities and interests accruing thereon, from and after 1823; afterwards a ranking and sale of the estate took place, and the original creditor executed a supplementary conveyance to the new lender, embracing the annuities and interest accruing on the auxiliary securities between 1810 and 1823, on the narrative that this was in implement of the original agreement at the date when the new lender advanced his money:—Held that the supplementary conveyance was effectual in competition with a heritable creditor whose right was posterior in date to the auxiliary securities.—4. The holder of a heritable security disponed it in security of a loan; he afterwards paid the loan, taking a discharge and renunciation:—Held that the discharge freed his original right of the incumbrance which he had created over it, and that he could effectually dispone it anew, without having obtained any retrocession.


Facts:

In 1804, Alexander Hume or M'Leod, proprietor of the estate of Harris, granted a bond and disposition in security over it for £3000, afterwards reduced to £2000, in favour of John Stewart, residing at Dalmeny, who was duly infeft. In 1807, Hume granted to Edward Howard a heritable bond of an annuity of £1000 per annum, during the survivorship of certain lives, which were not extinct when the judgment, after-mentioned, was pronounced, Howard was duly infeft. In 1808, Hume granted a heritable bond of annuity for £285, to Mrs Wallace or Cunningham, who was thereon infeft. In 1810, Hume granted a bond and disposition in security for £1500, to William Dallas, W.S., as trustee of Patrick Bowie of Keithock, who was duly infeft. Hume died in 1811, leaving a settlement by which the estate of Harris was disponed to his eldest son Alexander Norman M'Leod, under burden of an annuity of £300, in favour of Donald Hume M'Leod, his youngest son, besides other provisions in favour of the other younger children, all which were declared real burdens. Under this disposition, M'Leod was infeft in the estate in 1812, and, having granted to Donald Hume M'Leod and his other brothers and sisters a heritable bond of corroboration of their provisions, they were infeft under that heritable bond in 1812.

M'Leod then executed a disposition of the estate of Harris to Dallas, which was ex facie absolute, though truly in trust for the purpose of paying off debts. This was a private voluntary trust. 1

In 1813 an arrangement was made, by which a sum of £10,000 was borrowed on the part of M'Leod from Thomas Newte, formerly of Llandaff, for the purpose of being applied, to the extent of £7500, in redeeming the annuity to Howard. In carrying through this arrangement, M'Leod, on 14th January and 5th February, 1813, granted to Newte, with consent of Dallas, a heritable bond of annuity for £850, over the estate of Harris, to subsist during the joint lives of Newte and certain other parties. In reference to this transaction, Howard, on 1.3th February, 1813, granted a disposition and assignation, ex facie absolute, in favour of Dallas, his heirs and assignees, narrating, that “now seeing that William Dallas, W.S., has made payment to me of the foresaid sum of £7500, being the sum stipulated in the foresaid indenture to be paid for the repurchase of the said annuity of £1000, whereof I hereby acknowledge the receipt, renouncing all objections to the contrary; therefore I have sold and disponed, likeas I hereby sell, alienate, and dispone, to and in favour of the said William Dallas, his heirs and assignees, heritably, but redeemably always, and under reversion,” the bond of annuity and the lands and heritable security. In farther security of the bond of annuity granted to Newte by M'Leod, Dallas, in February, 1813, disponed and assigned to Newte a part of the original annuity in Howard's bond, to the extent of £850, which was declared to be payable “so long as the said annuity, payable to the said Thomas Newte and his foresaids, in terms of the foresaid bond by the said Alexander Norman M'Leod, shall remain unredeemed.” This disposition was not produced, but it appeared from the sasine, to have proceeded on the narrative that it was stipulated when Newte agreed to advance the £10,000, that he should receive this collateral security besides M'Leod's heritable bond of annuity. On 10th April, 1813, Dallas was infeft under the conveyance of Howard's annuity to him; and, on the same day, Newte was infeft both under the heritable bond of annuity for £850, granted to him by M'Leod with consent of Dallas, and also under the conveyance to him by Dallas of £850, of Howard's annuity, as a collateral security.

On 21st October, 1813, the £2000 due to Stewart under his heritable bond was paid, and Stewart executed a disposition and assignation, ex facie, absolute, to Dallas his heirs and assignees, acknowledging the receipt of the £2000 from Dallas. Dallas took no infeftment under that

_________________ Footnote _________________

1 This trust-deed was not produced; but it was founded on as being of the above tenor.

conveyance. On 23d and 26th November, 1813, M'Leod having borrowed a sum of £3000 from Colonel Deas, granted, with consent of Dallas, a heritable bond of annuity to Colonel Deas, whereby M'Leod became bound to pay to Deas an annuity of £385, during the life of Mrs Deas; and while the annuity was unredeemed, Dallas bound himself as cautioner for the payment of this annuity, so long as he remained the trustee and agent of M'Leod; and M'Leod and Dallas disponed the estate of Harris in security of the annuity. Dallas also disponed and assigned to Colonel Deas, in farther security of the annuity, the balance of Howard's heritable annuity of £1000, not conveyed to Newte, being £150; and Stewart's heritable bond for £2000. As Dallas was not infeft under Stewart's conveyance to him, he assigned the unexecuted precept to Colonel Deas. M'Leod, at the same time, executed a corroboration of the bond by Hume, his father, to Stewart, and of the bond of annuity to Howard. The conveyance by Dallas and M'Leod, bore, that these collateral securities were disponed “for and in real security to the said Alexander Deas and his foresaids, for the said annuity of £385 yearly, and each year during the natural life of the said Mrs Catherine Low or Deas, and while the said annuity remains unredeemed.” The precept of sasine contained a clause of redemption declaring that, on payment of £3000, “the foresaid annuity shall be held to be duly and lawfully redeemed, and this bond and disposition in security, and infeftment to follow hereupon, shall henceforth become void and of no effect, any thing herein to the contrary notwithstanding, and the said Alexander Deas and his foresaids shall be obliged to execute, at the expense of me the said Alexander Norman M'Leod, all deeds that may be necessary for renouncing and discharging the several securities hereby created.” Colonel Deas was infeft on 3d March, 1814.

In 1817, William Inglis, W.S., became commissioner and trustee for M'Leod, in place of Dallas, who denuded of the trust, in his favour. On November 3, 1817, M'Leod effected, through the agency of Inglis, a loan of £25,000 from the late Francis Grant of Kilgraston, and it was the intention of parties, when the loan was agreed to, that M'Leod should not only grant his own bond for the amount, with a disposition of the estate of Harris in security, but that he should also cause to be conveyed to Grant, as collateral securities, the bond of annuity originally granted to Howard; the bond and disposition in security originally granted to Stewart; and the two other securities already mentioned as having been granted, one to Dallas for Patrick (afterwards Alexander) Bowie, and one to Mrs Cunningham. In regard to the details respecting these two last securities, there was no variation in the circumstances which raised any question of principle which was not involved in the conveyance of the first two.

On Nov. 3, 1817, M'Leod accordingly granted a heritable bond for £25,000, over the lands of Harris, in favour of Grant, under which Grant was infeft on Feb. 9, 1818. Of the same date (Nov. 3, 1817) the sum of £3200 of the loan was paid to M'Leod, or his agent Inglis; the rest of the loan was placed in the Commercial Bank, payable, on demand, to Grant's agents, and sums were drawn from it, from time to time, with which the debt to Dallas, as Howie's trustee, was paid on Nov. 11, 1817; the redemption money of Deas' annuity, on Dec. 2, 1817; the redemption money of Newte's annuity, on January 6, 1818; and of Mrs Cunningham's annuity, on May 15, 1818. It appeared from a co-temporary entry in the books of Inglis, that the loan was deposited in the Bank, to be employed at the joint sight of Grant's agents and him, “in paying off existing incumbrances.”

On 1st January, 1818, Newte granted a discharge and renunciation, in which his wife was a concurring party, in respect of an interest which she had acquired from Newte. In reference to the bond of annuity for £850, granted directly by M'Leod to Newte, this deed set forth that “we do, by these presents, not only exonerate, acquit, and simpliciter discharge the said A. N. M'Leod, and his heirs, executors, and successors, of the foresaid annuity”—“and of the said heritable bond of annuity and sasine thereon, themselves:”—“but also we, with mutual advice and consent, in so far as we are respectively interested as aforesaid, do hereby grant, confess, and declare, the foresaid annuity of £850 sterling, to be duly and lawfully redeemed from us and each of us, and the heirs, successors, and representatives of me the said Thomas Newte, and the foresaid lands and estate of Harris and others before described, out of which the same was upliftable, and conveyed in security thereof, to be loosed and disburdened of the same, and of the infeftment above-mentioned, in favour of me the said Thomas Newte; and we do, accordingly, renounce and for ever release the lands and estate of Harris and others before described, together with all right, title, and interest, which we, or either of us, have, or can claim, or pretend thereto, or to any part or portion thereof, in virtue of the said heritable bond of annuity, and infeftment thereon, to and in favour of the said Alexander Norman M'Leod and his foresaids, to be by them enjoyed and possessed, freed and disburdened of the said heritable bond of annuity and infeftment thereon, in all time coming, the same being now and for ever extinguished.” The deed then proceeded, in regard to the collateral security conveyed by Dallas to Newte, “And farther, we have renounced and discharged, as we do hereby, with mutual advice and consent as aforesaid, and so far as we are respectively interested as aforesaid, renounce and discharge the real and additional security created by the said disposition and conveyance in security by the said William Dallas, in favour of me the said Thomas Newte, in so far as the same is conveyed to me, for my further security of the payment of the said annuity, stipulated by the said heritable bond of annuity, the foresaid annual rent or annuity of £850 sterling, being a portion of the foresaid original annual rent or annuity of £1000, and lands and others foresaid, out of which the same was uplifted, together with the infeftment, &c.”—“and we, in like manner, confess and declare the said security, and infeftment thereon, in favour of us respectively, to be also redeemed from both and each of us, and the said conveyance in security and infeftments, discharged, in consequence, of the said annuity of £850 sterling, stipulated by the foresaid heritable bond of annuity, herein first above narrated, to which they were merely auxiliary.”

In similar terms the trustees of Colonel Deas, now deceased, on receiving payment of the £3000, being redemption money of his annuity, executed a discharge and renunciation of the heritable annuity granted in his favour by M'Leod, and the relative infeftment: and also of the conveyance by Dallas of £150, being part of Howard's original annuity of £1000; and of the disposition and assignation by Dallas, of Stewart's heritable bond, so far as these two latter rights were conveyed to Colonel Deas in farther security of M'Leod's bond of annuity. Dallas then, on 1st August, and 15th September, 1818, with consent of M'Leod, executed a disposition and assignation to William Inglis, W.S., of Howard's heritable annuity, and Stewart's heritable bond. The deed set forth that he (Dallas) “some time ago acted as trustee for Alexander Norman M'Leod, Esq. of Harris, and in that capacity acquired right, in manner underwritten, to the heritable securities, and lands and others after specified, and seeing that the said trust is now at an end, and that I have resolved, in compliance with the wish of the said Alexander Norman M'Leod, to convey and make over the said securities standing in my person in favour of William Inglis, writer to the signet; Therefore I, the said William Dallas, with consent of the said Alexander Norman M'Leod, who, in token thereof, has subscribed these presents, have alienated, disponed, and conveyed, as I by these presents alienate, dispone, and convey, to and in favour of the said William Inglis, and his heirs, successors, assignees,” &c.

Dallas also having received payment of Bowie's bond for £1500, as already mentioned, disponed and assigned it to Inglis; and Mrs Cunningham, on being paid the redemption money of her annuity as above mentioned, also disponed and assigned it to Inglis. At the date when Dallas denuded of the trust, he was indebted to M'Leod, in the sum of £126.

Francis Grant of Kilgraston having died, some delay occurred before his trustees made up a title to the bond for £25,000. After they had done so, Inglis, on March 30, 1819, executed a disposition with concurrence of M'Leod, which narrated the loan of £25,000 by Grant; the principal security therefor granted by bond and disposition by M'Leod in Nov. 1817; and “that in the treaty for the foresaid loan, it was stipulated and agreed, that the sum lent, should, so far as necessary, be applied in procuring conveyances of the sums due by the several heritable bonds and securities herein after disponed, affecting the foresaid lands and others, and that the said bonds and securities should be disponed and made over to the said Francis Grant and his foresaids, in further security of the sums so lent by him; and the said sum having accordingly been so applied, assignations to the said several bonds and securities by the several creditors therein, were taken to me the said William Inglis, for behoof of the said Francis Grant and his foresaids, to the effect foresaid.” The deed then proceeded:—“Therefore, and in implement of the foresaid stipulation and agreement, I, the said William Inglis, with concurrence and consent of the said Alexander Norman M'Leod, have alienated, disponed, and made over, as I, by these presents, and without prejudice to the foresaid heritable bond, granted by the said Alexander Norman M'Leod in favour of the said Francis Grant, and instrument of sasine following thereon, but in further security thereof, et accumulando jura juribus, alienate, dispone, convey, and make over, to and in favour of Grant's trustees, the four securities above mentioned,” viz. Stewart's heritable bond; Howard's heritable annuity; Howie's heritable bond; and Mrs Cunningham's heritable annuity. Under this conveyance Grant's trustees were infeft in November, 1819. In 1823, Gordon of Milrig advanced £25,000 to Grant's trustees, who executed two deeds of conveyance in his favour. By one of these, the heritable bond and infeftment in favour of Grant was conveyed; by the other the four collateral securities. The latter deed conveyed the interest and annuities accruing under the collateral securities, from and after the date of the deed, November, 1823. Under these deeds, Gordon's trustees were infeft. Ultimately a ranking and sale of the lands of Harris was brought, after which the trustees of Gordon, who was now deceased, continued to draw the full interest on the heritable bond for £25,000, until 1834. In 1835, Grant's trustees executed a conveyance to the trustees of Gordon, of the interest and annuities which accrued under their collateral securities between 1819 and 1823, on the narrative that this had been the intention of parties at the date of the transaction in 1823, but had been omitted by oversight at the time of extending the conveyance. Gordon had previously made a claim in the ranking in 1830, which was rested on his right as it then stood; his trustees now lodged an amended claim, resting on this new conveyance. On the sale of the lands in 1834, the price, £60,200, proved insufficient for paying the heritable creditors, holding real rights: and thus a competition arose between the trustees of Gordon of Milrig on the one hand, and, on the other hand, William M'Kenzie, W.S., trustee for Donald Hume M'Leod, one of the younger children of Alexander Hume M'Leod, and the other younger children. As the heritable bond and infeftment granted by Alexander Norman M'Leod, in 1817, to Grant of Kilgraston, and since acquired by Gordon's trustees, was posterior to the real right held by the younger children, created by the infeftment taken by their elder brother under his father's settlement in 1812, and, by heritable bond of corroboration and infeftment in the same year, the chief question which arose was whether the four collateral securities, all of which were prior to 1812, had been effectually kept up and conveyed to Gordon's trustees.

Pleaded by W. M'Kenzie, D. II. M'Leod's Trustee

1. (1.) Each of the four heritable securities was merely accessory to an obligation, in which Alexander Norman M'Leod became the full and proper debtor by representing his father. If he had paid any of these debts, and taken a conveyance to himself, the effect would necessarily have been to extinguish the debt, confusione, and to evacuate the accessory security, so that neither the old debt or security could be again revived. Because he was the sole debtor, and he had not two distinct characters in him, such as an heir of entail possesses, when he pays a debt affecting the entailed estate. So soon, therefore, as he paid his own debt, the debt was at an end, and the conveyance to himself might strengthen, but certainly could not prevent, the operation of the principle of confusio.

The claimants were creditors holding real rights, and relying on the records. If debts, prior to theirs, were paid by the debtor, and so extinguished, whether for a longer or shorter period, they were entitled to maintain that the debtor, on afterwards making a new loan, or otherwise, should never revive the extinct debt and security to their prejudice.

In this question, Dallas was to be viewed as identified with his constituent M'Leod. He was the mere agent and trustee of M'Leod, under a private trust which had been voluntarily granted by M'Leod, and might be terminated quandocunque. At denuding of the trust, Dallas was indebted to M'Leod in £126; and throughout the trust he made no advances from his individual funds, the debts of M'Leod, so far as paid by him, being paid out of new loans made to M'Leod through his agency. Dallas was thus the mere hand of M'Leod, possessing no rights or character distinct from his; and his act must be viewed, to all legal effects, as the act of M'Leod himself.

Keeping these points in view, and taking, in the first place, the annuity of £385 granted to Colonel Deas in November 1813, it would appear that the two collateral securities conveyed to him were then already extinguished. The first of these was a portion of Howard's annuity, amounting to £150. But that annuity had been redeemed from Howard in February preceding, out of the money borrowed from Newte. And Howard had granted a conveyance, ex facie absolute, to Dallas, who was thereon infeft, and had held the conveyance ever since, and who had in him no right or character which could prevent him from being identified with M'Leod. And as Dallas was invested with a right to the estate of Harris, which was ex facie absolute; and the conveyance of the securities to him was, in like manner, ex facie absolute, there was nothing either in form or principle to exclude confusio. For above six months, therefore, the portion of the annuity so conveyed to Colonel Deas had been an extinct right, as much as if it had been directly paid up by, and conveyed to, M'Leod: and being extinct, it could not be revived as auxiliary to a new loan, to the prejudice of an intermediate real creditor.

For the same reason, the conveyance of Stewart's heritable bond to Colonel Deas was ineffectual. It had been paid up on 21st October, and conveyed to Dallas. The annuity to Colonel Deas was granted on 23d November. During the intermediate period, that heritable bond had come to an end by being paid out of M'Leod's funds, and conveyed to an individual, identified with M'Leod. And the same principle also applied to the conveyance of £850 of Howard's annuity to Newte. Even supposing it to have been the understanding of parties when the loan of £10,000 from Newte was contracted in February 1813, that this portion of Howard's annuity should be conveyed to him as a collateral security, still the mode which had been adopted was inept, as it extinguished the whole annuity before it was conveyed to Newte. It was not conveyed directly from Howard to Newte, but from Howard to Dallas, who took infeftment in it, and then conveyed £850 of it to Newte. But so soon as the full right came into the person of Dallas, the obligation became extinguished, confusione, and the security fell, beyond the power of revival.

On similar grounds, the other two collateral securities of Bowie's bond, and Mrs Cunningham's annuity, became extinct in the person of Inglis, as identified with M'Leod. And as none of these collateral securities were effectually conveyed to Grant's trustees, the right of Gordon's trustees, derived from them, was inept.

(2.) But if Howard's annuity and Stewart's bond were effectually kept up in the person of Dallas, and conveyed to Newte and Deas, still, as Dallas was completely divested by their infeftments, and as they never granted a retrocession to him, but merely executed a discharge and renunciation in 1817, Dallas was not in titulo to convey these securities to Inglis. His conveyance was therefore inept, and, on this separate ground, these securities had never been effectually conveyed to Gordon's trustees. This was especially apparent, as regarded Stewart's heritable bond, because Dallas was never infeft under the conveyance to him from Stewart, and he assigned Stewart's unexecuted precept to Deas. As Deas never retrocessed Dallas, no effectual mode had been taken for enabling Dallas, or his disponee Inglis, to convey the real right of Stewart's heritable bond to Gordon's trustees.

(3.) The heritable bond for £25,000 and disposition in security was granted by M'Leod on November 3, 1817. The conveyance of the collateral securities by Inglis was not executed till March 1819. There was no sufficient evidence to show that this last conveyance was part of the original agreement with Grant, when the loan of £25,000 was agreed to: and unless it were so, Grant had not lent his money on the faith of these collateral securities, and was not entitled to found on them to the prejudice of the claimants.

2. But even if the collateral securities were effectually conveyed, to Gordon's trustees, still they could only claim the interest and annuities accruing under them since 1823, in terms of their original conveyance of that date from Grant's trustees. The supplementary conveyance of annuities and interest since 1819, the date when the right of Grant's trustees began, which was executed during the dependence of the ranking and sale, ought not to be effectual, both, as it was affected by the plea of litigiosity, and as it was not made at the time when Gordon's trustees advanced their money, and it must therefore be presumed that their money was not advanced on the faith of it. Besides, Grant's trustees were divested by the conveyance to Gordon's trustees, as they then received full payment of £25,000, and they had no right to the collateral securities, except so long as that sum was unpaid.

3. Independently of this, the interest drawn by Gordon's trustees on the heritable bond for £25,000, at least since the process of ranking and sale was raised, ought now to be imputed, ante omnia, in satisfaction of the collateral securities. That bond was posterior to the real right of the younger children. It was only the sums due under the collateral securities which were anterior to them: and if Gordon's trustees betook themselves to these collateral securities, they must impute to them the interests drawn under the postponed security: otherwise, the right of the younger children would not only be postponed to the prior collateral securities, but to the subsequent heritable right, in so far as interest had been paid upon it.

4. It would appear, on due inquiry into the titles of Harris, that the collateral securities were so expressed as to affect only a part of the estate: quoad ultra, they could not be preferred to the claimants on the price.

Pleaded by Gordon's Trustees

1. (1.) It was the intention of parties, when the prior securities held by Howard, and Stewart, were paid, that they should be kept up as a fund of credit to M'Leod, and as an additional security to be given to parties from whom he might borrow money. This was a fair and legitimate purpose: and it was effectually executed by the interposition of Dallas as a trustee. Though appointed under a private voluntary trust, that trust was executed for the extrication of M'Leod's affairs, and paying his debts. And in every transaction entered into, for this purpose, though Dallas was the agent and trustee of M'Leod, there were other rights than those of M'Leod alone involved, so as to separate Dallas from being, legally, in a position of identity with M'Leod. There were the rights of the parties with whom new loans were contracted, on the understanding that the old securities were to be conveyed to them, through the instrumentality of Dallas; besides this, Dallas himself contracted various obligations, such as that of guaranteeing to Colonel Deas his annuity of £385, so long as he continued trustee and agent of M'Leod. In these circumstances, if M'Leod had called on Dallas to discharge and extinguish any of the old securities conveyed to him, after Dallas had either conveyed, or agreed to convey, them, to any new creditor in security of a loan, Dallas would have been guilty of a breach of trust if he had executed any such discharge. And as Dallas had a distinct character, and distinct rights from M'Leod, the operation of the principle of confusio was effectually excluded, and the old securities, when vested in him, subsisted unextinguished, and could be effectually conveyed by him, either as principal securities to any lender, or as collateral securities to any party lending money on M'Leod's own heritable bond.

In regard to the conveyance of £850 of Howard's annuity to Newte, which was done unico contextu with Newte's advance of £10,000, and receiving a heritable bond of annuity from M'Leod, it was clear that Howard's annuity did not become extinct by being merely conveyed by Howard to Dallas, and by Dallas to Newte, the whole being parts of one transaction. And although the balance of £150 of Howard's annuity was not conveyed by Dallas to Colonel Deas for several months afterwards, and Stewart's heritable bond had also been held by Dallas for a month before conveying it to Colonel Deas, these debts were all the while subsisting, with their accessory securities in the person of Dallas, and were effectually conveyed to Colonel Deas.

For the same reasons the other two collateral securities, Bowie's bond and Mrs Cunningham's annuity, were not extinguished in the person of Inglis, who succeeded Dallas as M'Leod's trustee and agent; and were effectually conveyed by Inglis to Grant's trustees, and by them to Gordon's trustees.

(2.) The conveyance by Dallas to Newte and Deas, being in security only, and as auxiliary to the principal securities granted by them, the effect of the discharge and renunciation granted by Newte and Deas, while it extinguished absolutely the principal security granted by M'Leod, was expressly limited, by its terms, to renounce the collateral security granted by Dallas “in so far as the same is conveyed to me for my farther security;” and it declared the collateral security, to be freed and discharged of M'Leod's annuity to which it was “merely auxiliary.” By the force of this deed, the original right of Dallas in these collateral securities, under the conveyance from Howard and Stewart, was cleared of the incumbrance created over it by his having conveyed them to Newte and Deas in security of M'Leod's bonds of annuity. He was therefore entitled to dispone these heritable securities of Howard and Stewart to Inglis, without obtaining any retrocession, precisely as if he had never conveyed them as auxiliary securities to Newte and Deas.

(3.) The conveyance of the collateral securities by Inglis, in March, 1819, expressly narrated that it was in implement of the original agreement, when the loan of £25,000 was made in 1817. This was confirmed by the strongest evidence, particularly the lodging of the money in the Commercial Bank, payable to the order of Grant's agents, and applied at their sight in paying the securities held by Newte, Deas' trustees, Bowre, and Mrs Cunningham. And the delay between the deeds was caused chiefly by the intervening death of Grant of Kilgraston, and the time necessary for his trustees to make up a title to the heritable bond for £25,000.

2. In regard to the interest and annuities accruing between 1819 and 1823, as the conveyance by Grant's trustees in 1823, omitted these by mere oversight, and contrary to the intention of parties, it was competent for them, and even obligatory on them, to grant the supplementary conveyance of these interests and annuities, which, being truly part of the original transaction between Gordon's trustees and Grant's trustees, possessed the same validity as if it had been executed from the first.

3. Gordon's trustees were under no obligation to impute any part of the interest received by them on the bond for £25,000, against the collateral securities. It was only after any failure occurred in paying the principal or interest on that bond, that it was necessary to recur to the auxiliary securities; and in the mean-time, the whole interests and annuities accruing under these were necessarily accumulating, just as in the case of any heritable security, of which the annual proceeds were not uplifted.

The whole estate of Harris was affected by each of the collateral securities as would appear on examining the titles, if farther enquiry was necessary.

The Lord Ordinary reported the cases to the Court.

Lord President.—I consider this case to be attended with great difficulty. There are questions of much nicety involved, but the inclination of my opinion is that the collateral securities were extinguished at the time the original debts contained in them were paid, and the debts and securities conveyed to Dallas. It is not disputed that Dallas was the mere trustee of M'Leod. Dallas did not advance funds of his own in paying off the debts of M'Leod which were conveyed to him. These debts were paid off with money borrowed by M'Leod under a new loan. And it seems to me that matters are substantially in the same situation as if M'Leod, being debtor in various heritable debts, had borrowed money, paid the debts, and been assigned to them. But if that had been the precise shape of the transaction, it is difficult for me to understand how he could thereby keep up the debts and securities against himself and his fee-simple estate. I never heard of such attempt having been made. It is quite different where there is an entailed estate affected by debt which is paid by an heir in possession. The heir is not properly bound to pay the full debt, and he has an interest to keep it up to the effect of not subjecting himself in a heavier liability than he is bound to undertake; and accordingly if he pays such a debt he has an interest and a right to keep it up, and has two distinct characters in him, whereby the principle of confusio is prevented from operating. But it is different where a proprietor in fee-simple, pays a heritable debt affecting his estate, for which debt he alone is liable out and out, and takes an assignation of the debt to himself. I am at a loss to see how such debt should not suffer extinction confusione; and as I consider Dallas to be identical with M'Leod, I incline, on the whole, to the opinion that these collateral securities were at an end, when they became vested in Dallas.

Lord Gillies.—I feel very great doubt in disposing of this case. But I incline to differ from the opinion now expressed from the chair. The instance of an heir of entail paying a debt which affects the entailed estate, and taking an assignation to it, is familiar in practice, and such debt is not extinguished confusione. And if a proprietor in fee-simple, acts through the intervention of a trustee, I do not see why the principle of confusio should not be equally excluded. It is a hard case for the younger children, but I apprehend that the claim of Gordon's trustees, founded on the collateral securities, is preferable to theirs.

Lord Corehouse.—I agree with all your Lordships that the case of Mr Donald M'Leod is a hard one, hut I regret to say that the law, in my opinion, is against him. With regard to the principal point in dispute, I mean the effect of the collateral securities, it appears to me that the argument for Gordon's trustees is well founded. There is no room for the assumption, because these securities were assigned, first to Mr Dallas, and afterwards to Mr Inglis, who were successively Mr M'Leod of Harris's trustees, that, therefore, they were extinguished confusione. On the contrary, the very object of the assignation was, that they might not be so extinguished, and I think this object was legal and proper, and that, in point of form, it was regularly and effectually accomplished. It would be attended with the greatest inconvenience, if a person, on whose estate there were subsisting securities, could not keep them up to make them available to other creditors, from whom he had afterwards occasion to borrow money. It is not necessary that the trustee, who is employed to transfer them from one creditor to another, should advance money out of his own funds, and create a debt of his own against his constituent for this purpose. He holds them in a separate character altogether, that they may be made available to his constituent, who requires to pay off the debt of one party by borrowing from another. Take one of the cases here. Mr M'Leod paid an annuity of £1000 per annum to Howard, for the sum of £7,500 which he had borrowed. He found that he could get the same sum from Newte for an annuity of £850, therefore Howard's annuity was redeemed from the money received from Newte. It was then assigned to Dallas by Howard, and Dallas conveyed it to Newte to the extent of £850. There was no occasion, as I conceive, that Howard should have assigned directly to Newte; nor does it follow that, by assigning to Dallas, the whole transaction was frustrated. Observe the situation in which Dallas stood. He was not only the custodier of M'Leod's funds, but he was employed as an agent to effect the new loan. In that capacity he transacted with Newte, and part of the bargain was, as appears expressly on the face of the deed, that Newte should have Howard's preferable security to the extent of £850. If Dallas made a bargain with Newte to that effect, and bad not given him a subsisting security, but one which had been already extinguished by confusion, it would have been a fraud both on his part and on M'Leod's, for which both Dallas and M'Leod would have been responsible. Whenever Dallas, therefore, was employed to negotiate a new loan on these terms, and obtained an assignation of Howard's annuity bond for that purpose, he did not hold Howard's bond merely for M'Leod's behoof—he held it for his own security also, that he might be enabled to complete the transaction which he was instructed to enter into. He held the bond, not only as Mr M'Leod's trustee, and for M'Leod's behoof, but likewise for his own security, and as trustee for Mr Newte, or for any other person with whom he transacted. Confusion is not presumed, nor is it admitted, in any case where there is a distinction of character or interest, in the person, who, being debtor, becomes afterwards creditor in the debt. This is exemplified in the common case of an entail, where the heir in possession pays off a debt affecting the estate, and consequently becomes creditor in that debt. As he has two characters in him, both as heir of entail and as an individual, it is presumed in law that he does not pay up the debt for the benefit of the subsequent heirs of entail, but of his own representatives, although this should not be expressed in the conveyance. The case is much stronger here, where the assignation is not taken to the borrower himself, but to a third party, that the borrower may not suffer by the extinction of the security. To say that, ex necessitate juris, Mr M'Leod and his trustee must be held as one person, appears to me an assumption entirely gratuitous. The trustee, as I have already said, had a separate character and interest from M'Leod the moment he was employed to negotiate a new loan, otherwise he could not have carried it into effect with safety to himself. I am not aware that there is any decision on this point, because I imagine it never was doubted. The question is resolved by the general principles of the law of Scotland.

Perhaps there may be some more difficulty with regard to the effect of Newte's discharge. I rather think it would have been more regular, that, when Newte was paid off, at least it would have been more in accordance with usual practice, if Newte had granted an assignment to Dallas, instead of a discharge. At the same time, it appears to me, upon general principles, that the proper effect of that discharge was to disburden Howard's security then standing in Dallas's person. According to our system of conveyancing, a person who has an infeftment in security has an heritable estate in land to that extent, and it is to be treated in every respect as any other title of that description. The discharge to Dallas of the collateral security was not a discharge to M'Leod. It merely restored the security to the same situation in which it was before the transaction with Newte. It put an end, as Mr Anderson expresses it, to Newte's riding interest on the annuity bond which had been previously granted to Howard.

What I have said with regard to this security applies, a fortiori, to all the others.

With regard to the question as to interest, I think, on the well-known and established principle that the creditor is entitled to impute indefinite payments to the extinction of the debt which is worst secured, that Gordon's trustees might allow the interest of the collateral security which was best secured to accumulate towards its extinction.

Lord Mackenzie.—I concur with Lord Corehouse on every point, and I think it unnecessary to state the grounds of my opinion, which are the same with those stated by his Lordship.

Dean of Faculty, for D. H. M'Leod's Trustee, submitted that there was a peculiarity in so far as regarded the £2000 in Stewart's bond, as Dallas had never been infeft under the conveyance from Stewart, and was therefore absolutely divested by his conveyance to Deas who took infeftment under Stewart's unexecuted precept.

Lord Corehouse—He had the personal right however; and I do not think there is any ground for the distinction now referred to by the Dean.

The Court pronounced this interlocutor:—“Repel the objections stated to the interest, and claim of preference for Gordon of Milrig's trustees, and rank and prefer the said trustees in terms of their Claim, and decern: and remit to the Lord Ordinary in the ranking to proceed farther as shall be just.”

Solicitors: W. Mackenzie, W. S— M'Kenzie and Innes, W. S. Agents.

SS 16 SS 311 1838


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