Scottish Court of Session Decisions

This was an action of multiplepoinding brought by John Wilson, C.A., Glasgow, as trustee on the sequestrated estates of James Colquhoun and of David Turnbull Colquhoun and of the firm of J. & D. T. Colquhoun, writers in Glasgow, as real raiser, in name of the National Bank of Scotland, Limited, as pursuers and nominal raisers. The fund in medio was a sum of £653, the balance of the purchase price of certain subjects in Glasgow formerly belonging to one John M'Phail, which had been sold by the City Commercial Restaurant Company, Limited, under the power contained in a bond and disposition in security in their favour dated in July and recorded in August 1885. These bondholders, after deducting the sums due to themselves under their bond, and paying the sums due to another pari passu bondholder, had consigned the fund in medio in the hands of the nominal raisers.

Claims were lodged (1) by Colquhouns' trustee the real raiser, (2) by the trustees of the late Mrs Catherine M'Callum or Campbell, and (3) by Alexander Reid.

Colquhouns' trustee founded upon an ex facie absolute conveyance of the subjects sold as above mentioned dated 17th and duly recorded in the Register of Sasines 20th, both days of February 1899, granted by M'Phail in favour of the bankrupts, in respect of which he claimed a preference to the extent of a sum of £1768 alleged to be due by M'Phail to the bankrupts' estate at the date of their bankruptcy. The claimants Mrs Campbell's trustees founded upon a bond and disposition in security in her favour over the subjects above mentioned dated 24th September 1896, which had been carried through by the bankrupts as law-agents for both parties to the transaction, and which they had, in breach of their duty, failed to record in the Register of Sasines. The claimant Alexander Reid claimed upon a bond over, inter alia, the subjects above mentioned dated 10th September 1877, which had also been carried through by the bankrupts as agents, and which also in breach of their duty they had failed to record in the Register of Sasines.

Proof habili modo was allowed, reserving therefrom all questions of mere accounting.

On 20th July 1901 the Lord Ordinary ( Kyllachy) pronounced the following interlocutor:—“Repels the claim for John Wilson (Colquhouns' trustee), and sustains the claims for Mary Campbell and others, and Alexander Reid; and, of consent of said last-mentioned claimants, ranks and prefers them upon the fund in medio rateably and in proportion to the amounts due under their respective bonds, and decerns: Finds the said John Wilson, as trustee foresaid, liable to the said other last-mentioned claimants in expenses, including all expenses formerly reserved; and remits,” &c.

Opinion.—“The question in this multiplepoinding relates to a competition which has arisen between the trustee for the creditors of the Messrs Colquhoun, writers in Glasgow, and two of the firm's former clients who had lent money through the Colquhouns to a certain Mr M'Phail upon bonds and dispositions in security. The fund in medio is the balance of the price realised on the sale of the subjects of the security after paying the debt due to a previous bondholder. There could have been no question as to the preference of the two clients if their bonds and dispositions in security had been duly recorded, as of course they ought to have been. But on Messrs Colquhoun's bankruptcy it appeared that, contrary to their instructions and to their duty, and contrary also to their assurances to their clients, they (the Colquhouns) had refrained from recording the two bonds, and had subsequently taken a security in their own favour from the same debtor over the same subjects, which security took the form of an absolute disposition which they duly recorded. On that disposition the trustee now founds as giving him a preference over the fund to the extent of a sum of £1768, which he alleges to have been due by the granter (M'Phail) to the Colquhouns at the date of their bankruptcy; and if that preference is made good there can be no doubt that the trustee must carry off the whole fund, which it appears only amounts to £653, 14s. 1d.

The questions, however, are (1) whether M'Phail was really due the Colquhouns the said sum of £1768, or any sum? and (2)

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whether, assuming that proved, the trustee can, any more than the bankrupts, take advantage of the breach of trust which the latter committed by failing to record their client's securities and then recording their own subsequent security, so as to obtain a preference for themselves? The first question cannot, it is conceded, be determined at this stage or without further inquiry. Upon the account between M'Phail and the bankrupts, as it stands in the latter's books, M'Phail appears to be not their debtor but their creditor for a large amount. But the trustee has prepared, from an examination of the books generally and other materials, a corrected account, by which the balance is turned the other way, and which brings out as due to the bankrupts the sum of £1768, which I have already mentioned. The competing claimants dispute the correctness of this account, and do so on prima facie strong grounds. But the matter is of course one for full inquiry, and it cannot be said that the inquiry is as yet complete.

It appears to me, however, that the competition between the parties may be determined by the decision of the second question, which is a question of law, and may be decided without further inquiry. And having considered the argument which I heard the other day, I have come to the conclusion that the decision must be against the trustee and in favour of the competing claimants.

It appears to me that if a law-agent, being employed and having undertaken to make an investment for a client upon a certain security, and being bound as part of his duty to complete the security, omits to do so or refrains from doing so, and thereafter proceeds to obtain a preference over the subject of the security for a debt of his own—I say it appears to me, and I cannot doubt, that he thereby puts himself in the position of a trustee who has committed a breach of trust; and that if he becomes bankrupt the trustee for his general creditors is equally with himself disabled from taking the benefit of his breach of trust. In the case of a security over moveables, completed by intimation or arrestment or other diligence, this principle has been expressly affirmed in the case of More (Graeme's Trustee) v. Giersberg, 15 R. 691. And it does not appear to me to make any difference although the subject of the competing securities is a heritable estate. The affirmative might perhaps have been argued prior to the decision of the House of Lords in the case of the Heritable Reversionary Company v. Miller, 19 R. (H.L.) 43, but it is not in my opinion maintainable now. For it being once conceded that as between a law-agent and his client there is a fiduciary relation, the result of what took place here was in law really this. The bankrupts being bound under their trust to complete their clients' security by recording their bonds, must be held in law to have taken and recorded the subsequent absolute disposition primarily for their clients, and only in reversion for themselves. In short, they must be held to have done in the matter what it was their duty to do. In that view, the absolute disposition was at the date of their sequestration held primarily in trust for the two competing claimants, and the case accordingly falls not only substantially but precisely within the rule affirmed and applied by the House of Lords in the latter case.

The result is that the claim of the trustee will be repelled and the claims of Campbell's trustees and of Alexander Reid sustained. Expenses will of course follow the result.”

The claimant and real raiser, Colquhouns' trustee, reclaimed, and argued—The trustee for creditors was not bound by the omission of a bankrupt to record a bond. Where a security had been perfected at the date of bankruptcy it would avail an individual creditor against the trustee in bankruptcy as representing the general creditors, but where it was subject to any defect, or required something to be done for its completion, it could not be made good after bankruptcy. No mere personal liability or obligation on the part of the bankrupt would affect the heritable estate vested in his trustee. Accordingly, even if the absolute conveyance to the Colquhouns were swept away the other claimants would have had no preference at the date of the bankruptcy— Miller v. Wright, July 5, 1836, 14 S, 1087.

Counsel for the respondents were not called upon.

At advising—