, Petitioner

18

Among the liabilities was brought out £898, 18s. 2d. as due to the company, thus giving them credit for the whole advance of £800 with interest.

The Bankruptcy Act 1856 provides by sec. 114-"That if a public sale of the heritable estate [of the bankrupt] be resolved on [at the meeting of creditors held after the bankrupt's examination, or at a meeting called for the purpose], such sale shall be made by auction at the upset price, and in the manner which shall be fixed by the trustee with the consent of the commissioners."

Section 116 provides that "It shall be the duty of the trustee to make up a scheme of ranking and division of the claims of the heritable creditors and other creditors on the price of the heritable estate sold, and such scheme of ranking or division shall be reported by him to the Lord Ordinary or either Division of the Court of Session, and the judgment thereon shall be a warrant for payment out of the price against the purchaser of the heritable estate.'

Section 117 provides that "the Court may grant interim warrant for payment out of the price against the purchaser of the heritable estate.'

Goldie lodged answers, narrating the large payments by him to Ferrier, amounting as above detailed to £240. He maintained that he was entitled to credit for these payments with periodical interest thereon. He tendered payment of the balance of the price with interest, and of the feu-duty in arrears on receiving a formal title.

The Investment Company also appeared, and contended that the scheme should be approved. They admitted the payments to Ferrier, and contended that they had been lost by his absconding.

Argued for Goldie-This was a sale under sec. 114 of the Bankruptcy Act of 1856, for it was a sale by the trustee, and not by a secured creditor, and the purchaser was bound to pay the price to him, and was entitled in return to obtain a good title. He was entitled to have the sums advanced to the trustee deducted from the price of the house. (2) At the date of the sequestration only £575 was advanced by the investment company, and no sums advanced after the sequestration were covered by the bond. The disposition was only in security of advances prior to the sequestration, and so only the £575 was covered by it.

Argued for the Investment Company --(1) A loss had occurred through Ferrier absconding, which ought to be made good by Goldie, as he should not, under sec. 116, have paid any part of the price except by order of the Court. scheme of ranking and division should have been prepared before the money was paid. (2) The money advanced after the sequestration was absolutely essential; there would have been no surplus to the bankrupt estate and otherwise.

At advising

LORD PRESIDENT-This was a sale in terms of the 114th section of the Bankruptcy Act of 1856 -that is to say, it was a sale by the trustee alone, and in this respect it differed from a sale completed under the 112th or 113th sections. Under the 112th section a heritable creditor whose right is preferable to the trustee may

sell in terms of his security notwithstanding the sequestration, and by the 113th section the sale may take place by the trustee with the concurrence of the heritable creditors, the articles of roup being executed by the trustee with consent of the secured creditor, "and the price shall be paid by the purchaser to the party legally entitled thereto, and in so far as not paid at the time of the delivery of the conveyance it shall be consigned in bank . . . which payment or consignation shall free and discharge the estate sold, and the purchaser, from the security of the consenting creditor, and from all securities postponed to the security of such creditor."

Now, it is clear that none of these provisions can have any application to a sale under sec. 114, and very obviously, because when the sale is by the trustee alone it becomes a simple contract between the purchaser and the trustee, and the payment of the price is made to the trustee, but such a payment will not have the effect of discharging the estate from all its securities in the manner that articles of roup with the consent of creditors under sec. 113 would accomplish. The articles of roup here provided by their third article that payment of the price was to be made to the trustee at Whitsunday 1883, and in such a case when once the price has been paid by the purchaser nothing further remains to be done except to prepare a scheme of ranking and division, and to give effect to any preferences which may be found to exist. That is the duty of the trustee as laid down in the 116th section.

It was contended by Mr Lorimer that the scheme of ranking and division was to be made up by the trustee before the price was paid by the purchaser, and the words upon which he founded in support of this view are to be found at the close of the 116th section, and are as follows:- "And such scheme of ranking and division shall be reported by him to the Lord Ordinary or either Division of the Court of Session, and the judgment therein shall be a warrant for payment out of the price against the purchaser of the heritable estate." Now, I do not find in the words of this section anything to favour the view I have just referred to. I think that this section was intended as a safeguard to a purchaser, that if he made payment upon a scheme of ranking and division, it should be a good payment, and that so far as he was concerned he would be safe, but I cannot see anything in the section which requires that a scheme of ranking and division must be made up before the purchase price can be accepted from the purchaser by the trustee.

Let us now look at the facts of this case. The entry was to be at Whitsunday 1883, up to which time, and indeed for some time after, the trustee was not in a position to tender a good title, or to grant a discharge of the burdens upon the property.

The purchaser was under no obligation to make any payment to account, but he had the money lying ready to hand over whenever he could get its equivalent in the shape of a clear title. To save interest running against him, he made payment in August and September of sums to account amounting in all to £240, and there can be no possible doubt that these payments were made to the trustee as part of the purchase

LORD MURE concurred.

LORD SHAND-If the view of the various sections of this statute which has been urged upon us on behalf of the Standard Property Investment Company had been a sound one, I should have felt that there was a good deal of force in their argument. It has been urged that sections 116 and 117 are of universal application, and that no payment of the price is to be made by the purchaser until a scheme of ranking and division has been prepared, judgment upon which is to be a warrant for payment against the purchaser of the heritable estate.

I cannot, however, adopt the view taken by the company of the purport of these sections of the statute. I think that these sections were inserted for the protection of purchasers, and in order that interim warrant might on cause shown be granted for the payment of preferable claims out of the price of the estate.

In the ordinary case the trustee grants the disposition, and the purchaser is not bound to wait for a warrant of Court before making payment of the price. Here the purchaser was taken bound to pay the purchase price at Whitsunday, the time specified in the articles of roup. In return for the price he was entitled to have a clear title, in which was included a discharge of the heritable securities on the subjects.

The risk he ran in making advances to the trustee was that he might have, as in the present case, to take the title subject to such securities as might be over it. He so took it, and now he discovers that there is an existing security for £525. There were certain collateral transactions between the heritable creditors and third parties, but it is impossible that these can in any way be made, as has been suggested, to increase the secu

June 18, 1885.

rities attaching to this heritable subject. It is impossible for the company to maintain here, as they have attempted to do, that these advances by them are to be made good by the purchaser.

LORD ADAM-So far as I can see, the purchaser here was entitled, if he had chosen, to have paid the whole of purchase price of the subjects at Whitsunday 1883 under the risks which have been referred to by your Lordships, and especially of his having to be satisfied with such a title as the trustee might be able to give him. It might even happen that the heritable securities might be greater than the value of the subjects, but that is one of the risks he runs in making these advances. The clauses of the statute to which so much reference has been made were clearly intended, I think, for the protection of the purchaser, and did not compel him to keep back the purchase price until the Court ordered payment.

In

They were intended to meet cases in which the trustee could not, from some cause or other, give a clear title, when matters had, in consequence of a sequestration or otherwise, become complicated, and delay was likely to occur. such cases the purchaser withholds payment until he sees to whom he ought to pay, but it was never intended that he should be kept from a settlement until such time as a scheme of ranking and division was made up.

On the question as to the amount of the incumbrance upon the subjects here, there can be no possible doubt that it is only the amount which was due on the cash-credit bond at the date of the sequestration, and that alone, that can be charged against the purchaser.

The Court appointed the trustee to amend the scheme of ranking and division in terms of the foregoing judgment.

The trustee subsequently put in an amended scheme of ranking and division, giving Goldie credit for the sums he had paid to Ferrier, and showing credit to the company only for the amount (with interest) which they had advanced prior to sequestration.

The Court approved of the scheme as amended and granted warrant for payment.

Counsel for the Trustee (Petitioner)-A. S. D. Thomson. Agent-Marcus J. Brown, L.A. Counsel for the Respondent Goldie-W. C. Smith. Agent-J. Stewart Gellatly, S.S. C. Counsel for Standard Property Investment Company-Lorimer. Agents Duncan Smith

& M Laren, S. S.C.

Friday, June 19.

FIRST DIVISION.

[Sheriff of Lanarkshire. ALLAN AND OTHERS (HARVIE'S TRUSTEES) V. GUILD (KETTLE'S TRUSTEE). Bankruptcy-Sequestration - Cautioner — Costructive Letter of Guarantee-Indefinite Payment-Ranking.

A bank, in security of cash advances to A, a customer, received a letter of guarantee

in these terms-"I . . guarantee you due payment of all sums for which A is or may be liable to you, the amount which I am to be bound to pay under this guarantee not to exceed £15,000. . . . And I further declare that I shall not be entitled to demand from you an assignation of this guarantee so long as the said A is indebted to you in any sums such as aforesaid."

A was sequestrated, being indebted in more than £15,000 to the bank. The cautioner having paid up the £15,000, claimed for that amount in the sequestration. Held, on the terms of the guarantee, that the bank were entitled to rank for the full amount of their debt, and that the cautioner was not entitled to rank in competition with the bank. Robert Kettle & Company, cotton yarn merchants and agents in Glasgow, and Andrew Hislop Maclean, sole partner of the firm, had an accountcurrent with the Bank of Scotland. In the beginning of 1883 Maclean, who was at that time a debtor to the bank, desired further advances, and in security therefor a letter of guarantee in the following terms was granted to the bank by Alexander Harvie, grain merchant in Glasgow, Maclean's father-in-law-"I, Alexander Harvie, residing at No. 16 Elmbank Crescent, Glasgow, hereby guarantee you due payment of all sums for which Mr Andrew Hislop Maclean, cotton yarn merchant, Glasgow, is or may become liable to you, the amount which I am to be bound to pay under this guarantee not to exceed £15,000 sterling, with interest from the date or dates of advance, you being always entitled to make calls on me from time to time in respect of my said guarantee for such sums as you may fix. And I further declare that you may at any time or times, at your discretion, grant to the said Andrew Hislop Maclean, or to any drawers, acceptors, or indorsers of bills of exchange or promissory-notes received by you from him, or on which he may be liable to you, any time or other indulgence, and compound with him or such drawers, acceptors, or indorsers, without consulting me or discharging or satisfying my liability. And I further declare that I shall not be entitled to demand from you an assignation of this guarantee so long as the said Andrew Hislop Maclean is indebted to you in any sums such as aforesaid. This guarantee is to remain in force, notwithstanding my death, until recalled in writing, and shall be without prejudice to any other securities or remedies which you have or may acquire for the general obligations or any particular obligation of the said Andrew Hislop Maclean."

Sequestration of the estates of Kettle & Company and of Maclean was awarded by the Sheriff of Lanarkshire on 25th January 1884, and James Wyllie Guild, C.A., Glasgow, was appointed trustee. Alexander Harvie died on the 18th March 1884, and shortly before his death he had paid up in two sums of £10,000 and £5000 respectively the amount which he became liable for to the Bank of Scotland under the letter of guarantee. The £5000 was put to a separate account to be applied as far as required.

At the date of sequestration Maclean and his firm owed the bank £44,106 according to their claim lodged in the sequestration.

Harvie's trustees made a claim to be ranked,

and to draw a dividend on the sequestrated estates for the £15,000 paid to the Bank of Scotland by Harvie under the letter of guaran

tee. They maintained that the bank could not claim in the sequestration for any part of the sum in the letter of guarantee in competition with them, and further that there was an express assignation of the bank's debt to the amount of the guarantee, or in any view an implied assignation thereof had resulted from the payment made by Mr Harvie to the bank.

The Bank of Scotland lodged an affidavit and claim in the sequestration for the sum of £44,106, Os. 11d., the full amount of their debt. The bank maintained that Harvie's guarantee did not fall to be deducted from their claim.

On 10th October 1884 the trustee issued the following deliverance rejecting the claim of Harvie's trustees

"The amount of your claim as lodged is £15,000.

"Trustee's Deliverance.

"The trustee now rejects this claim on the ground that the amount has not been deducted by the Bank of Scotland in their claim against the estate. (Signed) J. WYLLIE GUILD, Trustee." He admitted the claim of the bank, but to the extent of £15,000 he made their right to rank and draw dividend contingent on the rejection of the claim of Harvie's trustees.

Harvie's trustees lodged two appeals in the Sheriff Court of Lanarkshire at Glasgow. The first prayed that the trustee's deliverance should be altered in so far as it granted a contingent ranking for £15,000 to the Bank of Scotland. The second prayed that the trustee should be ordained to rank Harvie's trustees in terms of their claim as creditors on the sequestrated estate.

Harvie's trustees pleaded-" (2) The sums due in respect of said letter of guarantee having been paid to the Bank of Scotland, the latter were barred from lodging any claim therefor in the sequestration, as in competition with the appellant's claim. (3) The Bank of Scotland having been paid and having received the sums claimed on the understanding and condition that they were to assign their claim against Mr Maclean to that extent, are not now entitled to be ranked as creditors in the sequestration for the sum so paid them. (4) Separatim, In any event, the money having been paid to and received by the bank, there is an implied assignation of their claim in favour of Mr Harvie and his trustees to the extent of the sums paid."

The trustee pleaded that as there could not be a double ranking for the same debt his deliverance on the claim for the Bank of Scotland was proper.

The bank pleaded, inter alia-"(2) The said Alexander Harvie having, under said guarantee, guaranteed the Bank of Scotland due payment of all sums for which the said Andrew Hislop Maclean was or might become liable to the bank, although the extent of his liability was limited as aforesaid, the appellants are not entitled to a ranking in competition with the Bank of Scotland, so long as any part of the said Andrew Hislop Maclean's indebtedness to the Bank of Scotland remains unsatisfied."

By interlocutor of 16th March 1885 the SheriffSubstitute conjoined the two appeals, and there

after "Finds (1) that the late Mr Harvie gave a guarantee to the Bank of Scotland for all sums for which Mr A. H. Maclean might become liable to them; the amount to be paid under the guarantee being restricted to £15,000: Finds (2) that Mr Maclean and his firm were sequestrated on 25th January 1884: Finds (3) that Harvie paid to the bank in respect of the guarantee £15,000 between the date of sequestration and 14th March 1884: Finds (4) that his trustees claimed to be ranked on the estate for £15,000, by affidavit dated 19th May 1884; while the bank claimed for the whole debt as at the date of sequestration; and the trustee has sustained the claim of the bank and rejected the claim of Harvie's trustees, against both of which deliverances Harvie's trustees have appealed: Finds in law that the rights of parties to claim in the sequestration must be regulated by their rights at the date of sequestration: Therefore sustains the deliverances of the trustee appealed against, and dismisses the conjoined appeals: Finds the appellants liable to the respondents in the expenses of the conjoined appeals, &c.

"Note.-There can be no doubt that under our Bankruptcy Act the amount of a debt is its amount at the date of sequestration. This is distinctly laid down in the case of Robertson, July 3, 1823, 2 Sh. 450, and Hay, February 5, 1850, under the old Acts; and there can be no doubt it is law under the present Act also, unless under sec. 56 the cautioner obtains an assignation to the debt on payment of the amount thereof,' which is not the case here. Now, in the present case, the amount of the debt due by the bankrupts to the Bank of Scotland at the date of sequestration was that stated in the bank's claim; and at the date of sequestration there was no debt due by the bankrupts to Harvie's trustees at all. Therefore, whatever the ultimate liabilities of parties may be, it is for the bank in the first instance to draw the dividends on the whole debt as existing at the date of sequestration. The question, whether they may not have ultimately to refund to Harvie's trustees the dividends drawn by them on the £15,000 of which they have actually got payment is a very nice and difficult question. The balance of English authorities would seem to be in favour of such a demand, while that of Scotch authorities is more doubtful. But it is out of place to decide this question beforehand."

Harvie's trustees appealed to the Court of Session under sec. 170 of Bankruptcy Act 1856, and argued-The guarantee by Harvie was a limited guarantee, and as the whole debt under it had been paid, the appellants were entitled to get an assignation of the guarantee, or rather an assignation of the claim to rank on the sequestrated estate. The letter of guarantee was clumsily framed; it could not stand the construction claimed for it by the bank; the words "shall not be entitled to demand from you an assignation of this guarantee" had no meaning; there was nothing in the words of the letter to show that the appellants had contracted themselves out of their right to claim in the sequestration; that brought the question to be one of the scope and construction of the guarantee.

Authorities-Robertson (Rae's Trustees), July 3, 1823, 2 S. 403; Hay v. Durham, Feb. 5, 1850, 12 D. 676; Houston v. Spier's Trustees,

July 3, 1834, 12 S. 879; 1 Bell's Comm. 390, and 2 Bell's Comm. 305; Ersk. iii. 3, 68; Ellis v. Emmanuel, L. R., 1 Exch. Div. 157; Hobson v. Bass, 1871, L.R., 6 Ch. App. 792.

Replied for the respondents (The Bank of Scotland)-The question really turned upon the construction of the letter of guarantee. What was it which Harvie undertook to guarantee? the leading words were a guarantee for due payment. At the date of the guarantee M'Lean was due the bank sums in excess of the guarantee. As to cases of guarantee for office, see Balfour v. Borthwick, Jan. 29, 1819, F.C., in H. of L., 1 S. App. 13; Maxtone, M., voce Cautioner App. 1; 2 Bell's Comm. 366-7. whole terms of the letter of guarantee were against the appellants' claim; the meaning of the expression "assignation of the guarantee clearly was that the bank was to retain as against the guarantor some right after the £15,000 was paid, that is, until the whole debt was cleared off. If the interpretation of this expression was, that it was the debt which was assigned them, that made the respondents' case stronger.

The

Authorities-Mein v. Saunders, Mar. 6, 1824, 2 S. 778; Houston v. Speirs, June 25, 1824, 3 S. 180; Barwell, 7 Bingham 489; Smith's Mercantile Law, 9th ed. 456.

Counsel appeared for the trustee but was not called upon.

Three of their Lordships of the First Division being shareholders of the Bank of Scotland, the following joint minute was put in, in which the parties "concurred in stating that notwithstanding three of their Lordships of the First Division, before whom the case is depending, are shareholders of the Bank of Scotland, the parties desired to waive, and hereby waive, all questions of declinature, and consent to their Lordships hearing and judging the cause."

At advising

LORD PRESIDENT-The bankrupt here was a customer of the Bank of Scotland, and he had a current account with them. It appears that the bank had made considerable advances to Maclean, and that in the beginning of 1883 they desired a letter of guarantee as a condition of his obtaining any further advances from them.

This letter was granted by Mr Alexander Harvie, Glasgow, and it guaranteed the bank due payment of all sums which Mr Andrew Hislop Maclean, cotton yarn merchant, Glasgow, "is or may become liable to you," but a clause followed by which the guarantee was restricted to £15,000. In the following year, on the 25th January, Maclean's estates were sequestrated, and it was then discovered that a large balance was due to the bank, amounting to upwards of £44,000.

Mr Harvie before his death, which occurred shortly after Maclean's sequestration upon 18th March 1884, had made payments to the bank amounting in all to £15,000, the extent of his liability under the letter of guarantee. The bank lodged a claim in Maclean's sequestration for a ranking on the full amount of their debt, while Harvie's trustees have also lodged a claim in which they maintain that they are entitled to a ranking for the proportion of the debt which was paid by the cautioner under the letter of guarantee.

& Ors.

19

The trustee has sustained the bank's claim, and the question which we have now to determine is, whether the party who was liable under the letter of guarantee is entitled to any ranking upon the debtor's estate until the creditor's claim has been met in full, or, in other words, whether we can interfere with the rights of the creditor to rank upon the sequestrated estate of the principal debtor for the full amount of their debt. There are some things which are plain enough in the law of guarantee in its application to a case like the present. If the cautioner is liable to the creditor for the full amount of the debt, and if he pays it in full, then of course he is entitled to rank for relief on the principal debtor's estate, while if the cautioner, being liable for the whole debt, only pays a portion of it, he cannot rank for relief in competition with the creditor.

But the peculiarity of the present case is that the cautioner here has paid to the full amount of his guaranteed liability, but that does not extinguish the claim of the creditor, or give him payment of his debt in full.

The question therefore comes to be, whether the cautioner can interfere with the creditor ranking for the full amount of his debt upon the debtor's estate? and that is a question which must depend upon the terms and construction of the letter of guarantee in each particular case.

There is no rule of general or universal application in such cases, and I think it will be found that the terms of the obligation undertaken by the cautioner must be held to determine the question. Applying that rule, then, to the present case, the construction of the letter of guarantee is conclusive of the question between the parties, and makes it clear that the cautioner is not entitled to interfere in any way to prevent the creditor getting a ranking on his debtor's estate for the full amount of his debt.

In the letter of guarantee the cautioner's obligation is thus expressed-I guarantee you due payment of all sums for which Maclean "is or may become liable to you." Now, these

are

very general words, and are certainly applicable to all sums that may be advanced by the bank to Maclean. They are followed, no doubt, by a restricting clause in these terms :"The amount which I am to be bound to pay under this guarantee not to exceed £15,000," the meaning of which just is, that the cautioner guarantees all sums advanced by the bank to Maclean up to £15,000, but whenever that amount is exceeded the guarantee ceases.

This is followed by a declaration in these terms:-" And I further declare that I shall not be entitled to demand from you an assignation of this guarantee so long as the said Andrew Hislop Maclean is indebted to you in any sums such as aforesaid." Now, there is clearly some blunder in the language used here; it is not the guarantee which is not to be assigned, but what is meant is, that the cautioner is not to have an assignation so as to give him relief against the principal debtor so long as the principal debtor owes anything to the creditor. There is here, therefore, I think a distinct declaration which precludes the cautioner from saying that he can interfere with the bank recovering by all means in their power the sums owing to them by Mr Maclean. Any difficulty upon this point is removed I think by what follows-that the

guarantee was to be without prejudice to any other securities or remedies which the bank might have or might acquire for the general obligations, or any particular obligation of the said Andrew Hislop Maclean. Now, the proposal of the cautioner is to interfere, and to interfere with considerable effect, with one of the bank's remedies for recovering a portion of the sums advanced to the bankrupt, and looking to the terms of this guarantee as a whole, and especially to the clause to which I have referred, I am clear that until the creditor is paid in full the cautioner cannot touch the debtor's estate.

I think therefore that the trustee was right in sustaining the bank's claim and rejecting the claim for Harvie's trustees.

LORD MURE-I agree with your Lordship in thinking that this question really turns on the terms of the letter of guarantee. In the course of the discussion we were referred to a variety of cases to illustrate the general rules which prevailed in other countries in dealing with questions like the present, but I do not think that in this case it is necessary that I should either deal with these authorities or attempt to reconcile them, because the terms of this letter of guarantee afford sufficient material for the decision of the present case. I agree with the construction of this letter proposed by your Lordship, and I also agree in thinking that the granter of this letter of guarantee has no right to enter into competition with the bank with a view to obtain a ranking on the bankrupt's estate until the whole sum due to the bank has been paid by the debtor. And I think that this view is strengthened by the clause which says that the guarantee was to be without prejudice to any of the other securities or remedies which the bank might have or might acquire for the general or particular obligations of the bankrupt.

LORD SHAND-The argument in this case extended over a wide field and embraced many authorities in the law both of this and other countries. It does not appear to me, however, that the case turns upon any question of general principle, but falls to be determined entirely on the terms of the letter of guarantee. That letter contains a declaration that the cautioner was not to be entitled to demand from the bank an assignation of his guarantee so long as the debtor was to any extent indebted to the bank. I agree with your Lordships in thinking that it is wrong to speak of an assignation of the guarantee, and that what was intended to be conveyed by the expression was that the cautioner was not to be entitled to an assignation of his claim so long as Maclean was owing any sum to the bank-that is to say, so long as Maclean was due anything to the bank, the cautioner was not to be entitled to compete with the bank on the debtor's estate.

The guarantee was for payment of all sums which the debtor was or might become liable to the bank for so long as the amount which the cautioner might be called upon to pay did not exceed £15,000. Now, I think that the manner in which this clause of the letter of guarantee is expressed, is opposed to the limitation contended for by the cautioner. I think therefore that the deliverance of the trustee is well founded and ought to be adhered to.