Scottish Court of Session Decisions

This interlocutor became final, and Mansfield lodged in process the following state of funds:—

“The funds realized by the trustee on Mr Marjoribanks' estate, as per his accounts to September 10, 1830, audited and approved of by the commissioners, are as follows:—

“But there is still a house for sale, which, it is estimated, may produce to the personal creditors when sold, free of expense, about £400, five per cent whereon will be £20. From the foregoing statement, however, it is evident that no further payment can be made at present to the bankrupt; but the trustee, when the estate is wound up, will hold just count and reckoning with him in terms of the statute, and pay over any balance which may then be due.”

Objections were lodged by Marjoribanks to this state of funds, and the Lord Ordinary “remitted to an accountant to report as to the nett produce of the estate, as it has been ascertained by the trustee and commissioners, in terms of the bankrupt statute, with power to call for the sederunt book.”

The accountant, proceeding upon similar principles to those of the trustee, and making up the accounts at a later date, reported the total free realized fund at £2177, 0s. 7d., subject to the trustee's commission, and the expense of winding up the sequestration.

In bringing out this balance, those lots of the heritage which were burdencd beyond their value were not taken into account at all, although such lots had been sold by the trustee. As to those lots, also sold by the trustee, which were partially burdened, the purchaser had paid the price, so far as effeired to the heritable debt, directly to the heritable creditor, without passing it through the hands of the trustee, and it was only the balance paid over to the trustee for the general creditors which was taken into account. There was also a crown debt of £979, which had been paid as a preferable debt, in order to free the rents of the subjects, and the moveable estate, from the operation of a crown writ of extent before the above-mentioned agreement was made. It was paid partly out of moveable estate existing at the date of the sequestration, and partly out of subsequent recoveries. Its amount was deducted in bringing out the sum of nett produce. In like manner, an account of £257, due to the law-agent of Marjoribanks prior to sequestration, and for which the title-deeds were hypothecated, was deducted; and also an account due to the same agent, for business in the sequestration. This last account was chiefly incurred before the agreement with Marjoribanks. The whole accounts were audited by Richard Campbell, W.S., one of the commissioners. The commission to the trustee was also an item of deduction.

In these circumstances, Marjoribanks objected to the state of accounts—

1. That the heritable debt burdening any lot of heritage, ought not, in a question with him, to have been deducted from the proceeds of the sale of such lot, but merely the expenses of the sale. The rest was “nett produce,” and the allowance of five per cent should have been computed on that amount, provided it did not, in whole, exceed £3, 3s. per week from the date of the sequestration to the date of the discharge.

2. The crown debt of £979 was improperly treated as a preferable debt. As the estate consisted chiefly of heritage in which the trustee was infeft, the writ of extent could not have defeated his right. This sum, therefore, should not be deducted in computing the nett produce, as the crown must have ranked as a common creditor if the trustee had acted regularly.

3. The accounts of the law-agent ought not to be deducted—at least they should be subjected to taxation by the auditor of the Court. In regard to the account incurred during the sequestration, it was only out of the “nett produce” of the sequestrated estate that such account could be paid. But, before paying it, the allowance to the pursuer should be computed on the said “nett produce.” In like manner, the commission of the trustee was paid out of the same “nett produce.” But, before making the payment, the allowance to the pursuer should be computed, or else that allowance would not be given on the whole nett produce as stipulated.

The trustee answered—

1. That the fund for computing the allowance to a bankrupt, which, under § 63 of the bankrupt act, was described as “nett produce,” was the same as that mentioned as “nett proceeds” in § 45, in which last section it was treated as the fund out of which a dividend was payable, to the creditors. It was therefore the free divisible fund alone which could be viewed as nett produce, and it was only the surplus balance of the price of a heritable subject, after deducting the heritable debt, which could go to make up the nett produce. Upon any other principle it would follow, that, even when a subject sold by the trustee was overburdened with debt, and produced nothing for the general creditors, the pursuer should still claim against them for his allowance of five per cent on the proceeds of the sale, deducting expenses.

2. The crown debt was properly paid as a preferable debt, because it could have affected a considerable amount of rents preferably, and otherwise have embarrassed the administration of the estate. But the question, as to its propriety, was not now open, as the transaction had been closed, on the footing of its being a preferable debt, long before the agreement libelled on was entered into. The pursuer knew, and was bound to know, all the proceedings in the sequestration, including this among others.

3. The account of the law-agent, so far as hypothecated, was clearly preferable, and must be deducted. The subsequent accounts had been sufficiently audited, and it was not usual to have a farther audit by the auditor of Court. There was no mala fides, or connivance between the trustee or creditors and the law-agent, alleged as to these accounts; and the creditors were satisfied with the audit which had taken place, and it ought therefore to be viewed as final. But both these accounts, and the trustee's commission, were necessary expenses of the sequestration, and required to be paid before any “nett produce” arose for behoof of the general creditors. All these expenses were as proper deductions from the proceeds of sales as any other cost, such as advertising, &c. incurred in effecting the sales; and it was only on the sum divisible among the creditors as nett produce, that the allowance to the pursuer was to be computed.

The Lord Ordinary “approved of the accountant's report: Found, that the pursuer is entitled to an allowance, from the date of the sequestration to the date of his getting his discharge, equal to five per cent on £2177, 0s. 7 9/12d., under the deduction of the trustees' commission and the expense of winding up the sequestration: And in respect the payments made to the pursuer, being £101, 18s, 0d., exceed that sum, assoilzied the defender from the conclusions of the libel, and decerned; and found the pursuer liable in expenses, subject to modification by the Lord Ordinary.” ^*