Scottish Court of Session Decisions

This was a petition presented to the Lord Ordinary on the Bills by Mrs Mary Macadam or Andrew and Miss Margaret Macadam, under section 104 of the Bankruptcy Act 1856. praying to have a certain £1000 taken out of the sequestration of the estates of the late David Martin, writer in Newton Stewart.

In April and May 1871 some correspondence took place between the petitioners and Mr Martin, who acted as their agent, in regard to the investment of £1000 belonging to the petitioners. On 26th May Mr Martin intimated that he had found a suitable investment, viz., a security over certain heritable subjects in Kirkcowan. Accordingly, about 8th June the petitioners endorsed and remitted to Mr Martin two cheques in their favour for £510, 5s. 9d., amounting together to £1020, 11s. 6d., in order that he might remit them £20, 11s. 6d., and invest the balance of £1000 in the security mentioned. The £1000 was to be paid to Mr Milroy, the proprietor of the subjects, in exchange for the security. Mr Martin remitted £20, 11s. 6d., and in consequence of some delay which took place in the completion of Mr Milroy's title, he paid the two cheques into his deposit account with the British Linen Company's Bank at Newton Stewart, and received a receipt therefor from the branch agent. The cheques were entered specifically in the cash-book of the bank.

On 21st June Mr Martin died.

On 15th June 1871 there stood to the credit of that account the sum of £186, 11s. 6d., and the only operations thereon afterwards were the paying in on that day of the £1020, 11s. 6d., the proceeds of the two cheques, and the drawing out of a sum of £4 on 17th June 1871. On 21st June 1871, the date when Mr Martin died, there stood at the credit of this account, exclusive of interest, £1203, 3s., which consisted of the £1020, 11s. 6d. remitted by the petitioners, and £182, 11s. 6d. the balance of Mr Martin's own funds, after deducting the draft of £4 above mentioned.

On 21st May 1872, about a year after his death, the estates of Mr Martin were sequestrated, and Mr Alexander M'Cutcheon, writer, Newton Stewart, appointed trustee thereon.

The petition prayed for service both on the trustee and on the bank. The Lord Ordinary appointed the petition to be served on the trustee only. Answers were lodged' for him, in which he pleaded that the whole funds standing at the credit of Mr Martin in his account with the bank at his death formed part of the bankrupt estate, to be administered by the trustee for behoof of the creditors.

The Lord Ordinary pronounced the following interlocutor:—

“Edinburgh, 22d July 1872.—…. Finds that the petitioners have right to the sum of £1000 specified in the prayer of the petition, with the bank interest which has accrued thereon since 15th June 1871, and that the same must be taken out of the sequestration of the estate of the deceased David Martin: Grants warrant to and ordains the British Linen Company to pay to the petitioners the said sum of £1000, with the whole interest which shall have accrued thereon since 15th June 1871, and decerns; Finds the petitioners entitled to expenses.

“Note.—(After a narrative of the facts)—The rule of law, as defined by Mr Bell (Com. i. 267), is, that ‘where the factor is entrusted with property or money of his principal to buy stock, exchequer bills, &c. and misapplies it. the produce will be the principal's if still clearly distinguishable and he refers to the leading case of Taylor v Plumer, 1815, 3 Maule and Selwyn, 562, in which the authorities are reviewed by Lord Ellenborough, who delivered the judgment of the Court. Mr Bell further states (Com. i. 268), that the general rule may be laid down that in all cases of factory, where the property remitted by the principal or acquired for him by his order, is found distinguishable in the hands of the factor, capable of being traced by a clear and connected chain of identity, in no one link of it degenerating from a specific trust into a general debt, the creditors of the factor, who has become a bankrupt, have no right to the specific property’ The case of Sayers, 22d January 1800, 5 Ves. jr. 168, cited by Mr Bell, is a strong example of the application of this principle.

In the present case, the sum of £1000 claimed by the petitioners (the £20, 11s. 6d. having been remitted to them by Mr Martin), is clearly identified as their money. It is not mixed and confounded with Mr Martin's money, but is distinguishable in his hands. It remained in his hands as a specific trust, and was never otherwise dealt with either by him or by the petitioners, and it never degenerated into a general debt. Mr Martin evidently paid the money into the bank for safe keeping, after retaining the cheques in his hands for seven days, when he found there was delay, from the state of the title, in completing the transaction, and he had no intention of applying it, and he never converted or applied it, to his own uses and purposes.

“The Lord Ordinary is of opinion that such payment into Mr Martin's bank deposit-account, in which there was then a credit balance, cannot, having regard to the fact that there was thereafter no operations thereon which in any way affected the money, alter the rights of the petitioners, or divest the funds of the trust in their favour, or confer upon the respondent, as the trustee on Mr Martin's sequestrated estate, any greater right than Mr Martin had therein. The Lord Ordinary considers that the respondent can, as trustee for the creditors in the sequestration, only take the right of the bankrupt to this sum tantum et tale as it stood in his person—( Gordon v. Cheyne, 5th February 1824, ii. S. 675).”

M'Cuteheon reclaimed.

In addition to the argument submitted for him

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on the general question, it was stated that the British Linen Company had a claim against Mr Martin's estate in respect of bills discounted by them; and it was submitted that, as the bank might advance a claim of retention, the present question could not be tried without making the bank a party to the case.

At advising—