Scottish Court of Session Decisions

The Crofters Holdings (Scotland) Act 1886 (49 and 50 Vict. c. 29), sec. 1, provides—“A crofter shall not be removed from the holding of which he is tenant except in consequence of the breach of one or more of the conditions following (in this Act referred to as statutory conditions), but he shall have no power to assign his tenancy—(1) The crofter shall pay his rent at the terms at which it is due and payable. (2) The crofter shall not execute any deed purporting to assign his tenancy.… (6) The crofter shall not do any act whereby he becomes notour bankrupt within the meaning of the Bankruptcy (Scotland) Act 1856 and the Debtors (Scotland) Act 1880, and shall not execute a trust-deed for behoof of creditors.” … Section 3 …—“When two years' rent of the holding is due and unpaid, or when the crofter has broken any other of the statutory conditions, he shall forfeit his tenancy, and shall be liable to be removed in manner provided by the 4th section of the Act of Sederunt anent removing of the 14th December 1756.” Section 7—“A crofter shall be entitled upon one year's notice in writing to the landlord to renounce his tenancy as at any term of Whitsunday or Martinmas.” Section 8—“When a crofter renounces his tenancy, or is removed from his holding, he shall be entitled to compensation for any permanent improvements, provided that” … Section 16—“A crofter may by will or other testamentary writing bequeath his right to his holding to one person, being a member of the same family—that is to say, … subject to the following provisions”—…

The Bankruptcy (Scotland) Act 1856 (19 and 20 Vict. c. 79), sec. 4, provides—… “The words ‘property’ and ‘estate’ shall, when not expressly restricted, include every kind of property, heritable or moveable, wherever situated, and all rights, powers, and interests therein capable of legal alienation, or of being affected by diligence or attached for debt.” … Section 81—… “And the bankrupt shall at all times give every information and assistance necessary to enable the trustee to execute his duty, and if the bankrupt fail to do so, or to grant any deed which may be requisite for the recovery or disposal of his estate, the trustee may apply to the sheriff to compel him to give such information and assistance and to, grant such deeds under the penalty of imprisonment and of forfeiture of the benefit of this Act, and unless cause be shown to the contrary the sheriff shall issue a warrant of imprisonment accordingly.” Section 102—“The act and warrant of confirmation in favour of the trustee shall ipso jure transfer and vest in him or any succeeding trustee for behoof of the creditors heritably and irredeemably as at the date of the sequestration, with all right, title, and interest, the whole property of the debtor to the effect following”—…

Donald Mackenzie, fisherman, Shader Point, Stornoway, was the holder of a croft under Major Duncan Matheson of Achany and the Lews, upon which he had erected a dwelling—house and other buildings of the value of about £300. His estates were sequestrated upon the 5th April 1904, and in due course James Murdo Mackenzie, law-clerk, Stornoway, was confirmed trustee thereon. With a view to making a claim upon the landlord for compensation

Page: 377↓

for permanent improvements, the trustee requested the bankrupt to grant a renunciation of his tenancy of the holding. This the bankrupt declined to do, and the trustee therefore presented a petition in the Sheriff Court at Stornoway, in which he asked the Court to decern the bankrupt to execute in favour of Major Duncan Matheson a renunciation or other conveyance of his tenancy of the croft in terms of the deed to be lodged in the course of the proceedings, and in the event of his refusing or delaying to do so, to grant warrant to officers of Court to apprehend and imprison him; and also to find and declare that the bankrupt had forfeited the benefits of the Bankruptcy (Scotland) Act 1856 and Acts explaining and amending it.

Upon 28th November 1904 the Sheriff—Substitute ( Squair) ordained the defender to execute the renunciation sought, and granted warrant as craved in the event of is refusing or delaying to do so.

Note.—This is an application by the trustee on a sequestrated estate, under the bankruptcy statutes, against the bankrupt, craving the Court to grant a warrant to compel the bankrupt to execute a deed, which he refuses to do.

The petition is founded on the 81st section of the Bankruptcy (Scotland) Act 1856, which provides—[ the Sheriff quoted the section].

The bankrupt is the holder of a croft under the Crofters Holdings (Scotland) Act 1886. On that croft he built a dwelling—house and other buildings, the trustee says, of the value of about £300; and the trustee further says that these buildings were erected with money or materials got from creditors who now claim for them in the sequestration.

This is not altogether denied by the bankrupt; so that the crofter having erected buildings on his croft, partly at least with materials got on credit, he has become bankrupt, occupies the house and croft, and defies the creditors to interfere with either.

What the trustee in substance says is that the bankrupt having erected buildings on his croft, they are what are termed in the Crofters Act, section 8, ‘permanent improvements,’ and give rise to a claim for compensation. This right, though co-exis—tent with the placing of the improvements on the ground, became incorporated with the tenancy, and lies in abeyance till the tenancy be brought to an end, either by the landlord or by the crofter. On that happening the demand of a settlement of it becomes exigible. To bring this about it is necessary that a renunciation of the tenancy should be granted in favour of the landlord, and this is the deed which he has called on the bankrupt to sign, and which on his refusal the trustee asks the Court to compel the bankrupt to execute.

The bankrupt challenges the competency of the application on the ground that the claim for compensation is not an asset of the bankrupt estate, and that the terms of the Crofters Act and of the Bankruptcy Acts do not warrant the trustee in making the demand.…

The case of Mackenzie v. Munro, 1894, 22 R. 45, was referred to at the debate, but the questions raised in that case were as to the title of a trustee in a cessio to eject the crofter without having obtained a disposition omnium bonorum, and as to the procedure on the trustees' application in the Sheriff Court. The Lord Ordinary found that the trustee so circumstanced had no title to sue, and ultimately the Second Division held that there had been such an irregularity in the procedure in obtaining the decree that it could not stand. In considering that case it should be kept in mind that a cessio is in a very different position to a sequestration; while a cessio requires a disposition omnium bonorum to vest heritage, a sequestration contains vesting provisions of the most comprehensive description. And while the Lord Ordinary did express doubts whether a trustee in a sequestration could go the length of removing the crofter, the pursuer in arguing the title before the Inner House presented it as a fact that if the cessio were converted into a sequestration the trustee would get the heritage, which would in that case be the tenancy of the croft, into his possession. Nor does it appear that the decisions in Macallister, 22nd February 1859, 21 D. 560, and Bain v. Mackenzie, 25th February 1896, 23 R. 528, or the Sheriff Court cases of Macdonald v. MacRae, and Poison v. Stewart, in any way touch the question now under consideration. The question in these Sheriff Court cases was whether if a crofter did not exercise his right of renunciation during his lifetime his heir would be liable for his debts after his decease. Of course the equitable principle that a power or faculty must be exercised during the lifetime of the party possessing it, if it is to be exercised at all, was quite a good answer in these cases, and therefore they do not in any way touch the question now being considered.

The Crofters Act itself, section 19, declares that it shall apply in the same manner as if the tenancy were a lease. This assimilation enables the position of the crofter to be considered from the point of view of a tenant under a lease containing the conditions embodied in the Crofters Act. The crofter would accordingly be in the position of a tenant holding a lease for life, with a right of succession in his heir, the existing tenant, however, having the power to defeat this right by diverting it to some other member of his family, or by renouncing the tenancy during his lifetime, but without any right in the crofter to assign the tenancy. Although the Crofters Act does not deal with the rights of creditors, I see no reason for holding that because it is silent in regard to these rights the Legislature meant that silence to exclude any rights creditors had. Such an inference would lead to this, that a crofter might erect on his croft valuable buildings on credit, refuse to pay for them, and when made bankrupt, unless his landlord took steps to declare his tenancy at an end, could, as attempted in the present instance, sit in defiance of his creditors. That does not appear to be in harmony with the rules

Page: 378↓

of justice. In the special case of White's Trustees (June 1, 1877, 4 R. 786) the Lord President said—‘It is quite against all legal principle that a party should be able to place her property beyond the reach of creditors extra commercium, and yet herself enjoy the full benefit of it.’ It must therefore be surprising if anything in the Crofters Act can be found which in any way lends countenance to such an idea. On the contrary, the Act provides what appears to be the very means of obviating such a result. While the anxiety of the Legislature was no doubt expended in dealing with the rights of landlord and tenant, care was taken to prevent room for the anomaly of permitting a debtor to occupy the position figured. This can be effected by the debtor renouncing the tenancy of ins croft, which would then revert to the landlord without any violation of his rights to choose his own tenant, but insuring to the crofter or his creditors repayment in name of compensation for such buildings in so far as they have been placed there according to the terms of the Act and have enhanced the value of the holding.

The alleged asset which the trustee proposes to recover is, in the words of the Act, ‘compensation for any permanent improvements.’ Now, the value of this can only be set free on the crofter renouncing his tenancy or being removed from his holding. The crofter having violated one of the conditions of his tenancy in respect that he has ‘become notour bankrupt,’ the landlord has the right to have it declared that the bankrupt has forfeited his right to the tenancy and so set free the claim. But he has not moved in the matter, and it is assumed that he does not wish to interfere. The only alternative, then, for the trustee, if he wishes to recover that fund, is to get the renunciation carried out. The cases of Trappes v. Meredith, November 3, 1871, 10 Macph. 38; Kirkland v. Kirkland's Trustees, March 18, 1886, 13 R. 809; Morison v. Reid, March 10, 1893, 20 R. 510; and Obers v. Paton's Trustees, March 17, 1897, 24 R. 719, afford an excellent view of the constructions which the vesting and interpretation clauses of the Bankruptcy (1856) Act are susceptible of, but do not render much aid otherwise in connection with this case.

By the first of these decisions it has been settled that a spes successionis—a mere expectancy—does not come under the sequestration while it continues to be in the region of hope, but that it does when it vests, if the bankrupt be then undischarged, the reason being, as explained by Lord Rutherfurd Clark, that before vesting an ‘expectancy’ is not property at all, nor anything of the nature of property, and only assumes the nature of property when it becomes vested in the bankrupt. Nothing in these cases seems to affect anything of the nature of property, or estate, which is vested or is in the possession of the bankrupt. On the contrary, the decision in the case of Obers v. Paton's Trustees demonstrates that while even a mere expectancy is in suspension, the bankrupt must not do anything which tends to prevent it vesting in him, which might interfere with its course in falling to the creditors; and Lord Shand, in the case of Kirkland, while agreeing that property in expectancy was not carried by the vesting clauses of the statute, explained that ‘the case here is not the same as it would have been if the bankrupt had been in possession of the interest to which he is entitled under the settlement.’ The subject claimed by the trustee, and which he demands should be renounced by the bankrupt, is in the bankrupt's possession now, and there does not appear to be any legal impediment in the way of his doing what is required. His right of tenancy is, according to the Lord Ordinary in Mackenzie v. Munro, ‘a heritable right in the same way as the right of a tenant to a lease (to which the right of a crofter is assimilated by the Crofters Holdings Act) is heritage.’ The effect of the sequestration in transferring the estate to the trustee may be considered in two ways—(1) In regard to the effect of the provisions of clause 102 alone, and (2) reading that clause along with clause 81 in the light of the interpretation clauses. When the attention is confined to the words contained in section 102 exclusively, it will be seen, as regards moveables, that it only transfers property so far as attachable for debt. It could hardly do otherwise, as it is scarcely conceivable that a person could be in the ownership and enjoyment of a moveable subject while it retains that character purely, and it not be subject to the diligence of his creditors. The only means of placing such a fund extra commercium would be by the creation of a trust, but if that fund become incorporated with a heritable subject, or if there be a heritable subject pure and simple, then the position is very different.…

The title of the right vested in the bankrupt here is limited by the condition not to assign, and is not therefore subject to diligence, but he has power to ‘convey.’ Now, a subject may be conveyed by different kinds of ways, but undoubtedly one of these ways is by means of a renunciation. The Lord President, in the case of White's Trustees, supra, says, ‘For a renunciation is really a conveyance,’ so that the bankrupt having here a right to convey by means of a renunciation this interest in the croft, it must be held to be transferred to that extent to the trustee. It does not, however, appear to me that although the vesting clause by itself might be sufficient for the present purpose it is right to confine the attention to it alone. In connection with this matter section 102 must be read along with section 81, and that in the light of the interpretation clause. To keep out of view the 81st section would be to exclude the very powers vested in the trustee, which not only furnish the machinery for putting the trustee's power in operation, but points out what he has to use that machinery for, namely, to compel the bankrupt ‘to grant any deed which may be necessary for the recovery or disposal of his estate.’ There can be no doubt that the renunciation is requisite for the recovery of the compensation. But what is estate? According

Page: 379↓

to the interpretation clause the words ‘property’ and ‘estate’ shall, when not expressly restricted, include every kind of property, heritable or moveable, wherever situated, and all rights, powers, and interest therein capable of legal alienation, &c. Whether this be applied to the bankrupt's right to the croft as a whole, including the right to compensation or to the latter alone, they are included, because if applied to the croft, which is heritage, the interest in it which the bankrupt can legally convey is thus transferred to the trustee, and if applied only to the compensation it is equally so, because that being a right to property capable of legal alienation vests in the trustee, for there can be no difficulty in seeing that all the crofter would have to do if he wanted to alienate his right to compensation is to renounce the croft and at the same time alienate his claim to the compensation. The respective positions of a bankrupt and the trustee on his sequestrated estate were pretty fully considered in the case of Dobbie and Another v. Marquis of Lothian and Bowie, March 2, 1864, 2 Macph. 788. The lease being one which excluded assignees and sub-tenants without the consent of the landlord, the trustee entered into an agreement with the landlord whereby the lease was to be renounced to him for a consideration. The bankrupt challenged this on the ground ‘that the lease was not carried by the sequestration,’ and other reasons, but the whole Court, confirming the Lord Ordinary's decision, held that the exclusion of assignees only operated in favour of the landlord, and did not prevent the lease from vesting in the trustee, providing the landlord did not object. The arguments of parties in that case were very similar to those of the trustee and the bankrupt in the case now under consideration. In the united opinion of the whole of the Judges the following appears:—‘When, as in the present case, the question is between a sequestrated bankrupt and his creditors we think it clear that the bankrupt cannot be heard to state an objection to the title of the trustee to any part of his estate. The whole of it he is bound to give up for payment of his debts. The whole argument of the pursuer (the bankrupt) proceeds on a fallacy. It was argued that because the lease did not pass to the trustee it formed no part of the bankrupt's estate. But it did pass, subject to the landlord's challenge. It is jus tertii to the bankrupt to challenge or object to the lease going to the trustee. No party can challenge but the landlord. Even the heir of the tenant could not challenge much less the tenant himself.’ It appears from this that even the lease itself would go to the trustee, subject to the landlord's challenge.

This challenge must, however, be active. Lord Ardmillan in the same case said—‘It is not a correct proposition that the assignation is only good if the landlord consents. The correct proposition is that the assignation is valid if the landlord does not object.’

I am therefore of opinion that the power of renunciation and the emerging claim for compensation conferred by the 7th and 8th sections of the Crofters Holdings (Scotland) Act 1886 vest in the trustee in a crofter's sequestration during his lifetime, and while he is an undischarged bankrupt, and thus come under his sequestration for distribution amongst his creditors.

“As it appears to me to be clearly ‘requisite for the recovery or disposal’ of the asset that the bankrupt should grant or concur in the proposed deed of renunciation, his refusal to do so is not a compliance with the requirements of the Bankruptcy Statutes. The trustee's petition must therefore be held competent, and the objection to it on that ground repelled.” …

The defender, in terms of section 170 of the Bankruptcy (Scotland) Act 1856, brought the Sheriff-Substitute's deliverance under the review of the Inner House of the Court of Session.

Argued for the appellant—The Sheriff had interpreted section 81 of the Bankruptcy Act so as to enable the trustee to get possession of an interest not carried to him by the vesting clause, but section 81 was merely auxiliary and could not be so interpreted. The interest here was not “property” or “estate” and did not answer the requirements of the statute. The trustee could not be put in right of the holding by assignation, and the claim for compensation for improvements was an interest which did not exist but only emerged on removal or renunciation, i.e., on the action of the tenant himself or the landlord. It was therefore a more contingent right than a spes successionis, which a trustee could not insist on receiving — Trappes v. Meredith, November 3, 1871, 10 Macph. 38, 9 S.L.R. 29; Kirkland v. Kirkland's Trustees, March 18, 1886, 13 R. 796, 23 S.L.R. 546; Morrison v. Reid, November 10, 1893, 20 R. 510, 30 S.L.R. 477—although he could set aside anything done by the bankrupt to prejudice its eventually falling into the estate— Obers v. Paton's Trustees, March 17, 1897, 24 R. 719, 34 S.L.R. 538. Here the bankrupt was not doing anything to the prejudice of the estate, and the only property belonged to the landlord. In similar circumstances to the present an action of removal against the crofter had been tried but that had failed— Mackenzie v. Munro, November 10, 1894, 22 R. 45, 32 S.L.R. 43. The present proceedings were equally unavailing, and were contrary to the policy of the Crofter Act, for that Act was intended to give security of holding and excluded creditors. Whatever right to claim compensation for improvements there might be, it was only to be exercised by a willing tenant or one that was removed.

Argued for the respondent—It would be inequitable were a crofter to be allowed after incurring debt in erecting buildings to go bankrupt, and either to continue to enjoy the use of the buildings or to get compensation as soon as the bankruptcy was ended. The statutes, moreover, did not lead to that result. The Crofters Act, section 7, gave the crofter an absolute right to renounce, and section 8 an absolute right to claim

Page: 380↓

compensation on renunciation. This right to renounce and claim compensation was a valuable right carried to the trustee by the Bankruptcy Act, for it answered the requirements of that statute being a heritable right of a limited character, capable of legal alienation, i.e., by renunciation—Bankruptcy Act 1856, sections 4 and 102. If it were necessary, it could be maintained that the crofter's interest could be affected by diligence, i.e., could be adjudged—Graham Stewart on Diligence, p. 604; Erskine's Inst. ii. t. 12, section 6—and the rights to the croft could be assigned, subject always to the landlord's challenge. But if the right were not carried by sections 4 and 102, it was at least made available under section 81— Kirkland v. Kirkland's Trustee, cit. supra, at p. 807 and 808. It was a much more tangible right than a spes successionis for it was a vested right, or one which the bankrupt could make available at any moment. The Crofters Act was not directed against creditors, and so was not against the present proceedings; but further, the bankrupt had by breach of one of the conditions lost the security of the Act. He still, however, had a continuing tenancy, and his right to compensation would emerge if at any time the landlord removed him—Crofters Act 1886, section 8. That tenancy he could renounce at any time.

At advising—