William Jeffrey, Trustee on the Sequestrated Estate of Archibald Cuthill - Lushingto - Stuart. v. Henry Paul - Knigh - A. M'Niel. [1835] UKHL 1_SM_767

UKHL
William Jeffrey, Trustee on the Sequestrated Estate of Archibald Cuthill - Lushingto - Stuart. v. Henry Paul - Knigh - A. M'Niel.
[1835] UKHL 1_SM_767 · 1835-05-15
William Jeffrey , Trustee on the Sequestrated Estate of Archibald Cuthill , Appellant—Lushington—Stuart. v. Henry Paul , Respondent—Knight—A. M'Niel.

[ 15th May 1835 .]

Ld. Mackenzie .

Subject_ Trust — Bankrupt — Sequestration — Heritable Bond —

the bonds for 3,000 l . and 1,925 l . fell to be applied, in the first place, in extinction of the outstanding obligations of the trust-estate, and in the second place, in relief of the superadvances of the solvent trustees.Three trustees, to whom certain heritable subjects had been conveyed, with a power of sale, in relief of obligations undertaken by them, having, in a disposition of part of the subjects, granted in their character of trustees, declared 3,000 l . of the price to be a real burden, and afterwards taken a bond for that sum, payable to them privatis nominibus, their heirs and assignees, but without discharging the real burden; having taken a bond for 400 l . (part of the price of a second portion of the trust subjects), as for cash instantly advanced, payable to them privatis nominibus, their heirs and assignees; but having taken a bond for 1,925 l ., part of the price of a third portion of the subjects, payable to them in their character of trustees; on all of which bonds infeftments followed; and one of the trustees having thereafter been sequestrated, and an action of adjudication having been brought by the solvent trustees, to have the three bonds adjudged to them in extinction of the outstanding obligations of the trust, and in order to equalize the superadvances made by them, which greatly exceeded the advances made by the bankrupt trustee:—Held, 1. (reversing the judgment of the Court of Session), that the creditors on the sequestrated estate of the bankrupt trustee were entitled to a third of the 400 l . bond, as appearing on the face of the records to have been vested in the bankrupt and his co-trustees privatis nominibus. 2. (affirming the judgment of the Court of Session), that

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In the year 1816, William Harley of Willowbank near Glasgow became insolvent, and compounded with his creditors. With the view of securing the cautioners for his composition, he executed a trust disposition of his property in favour of several persons. Thereafter, in December 1819, Harley and his trustees disponed in favour of himself, James Cook, John M'Gavin, Thomas Graham, Archibald Cuthill, and Robert Moffat, and the survivors and survivor of them, all his heritable and moveable estate, “in trust, for the purpose of our said disponees and their foresaids selling, feuing, or otherwise disposing of the whole of the said property, or such parts thereof as they may think proper, absolutely and irredeemably, either by public roup or private bargain, for such prices as they may think proper to accept of, and that with or without the consent or concurrence of the said William Harley, and for the purpose of borrowing such sums of money as can be obtained on the security of the said lands, and granting heritable bonds and dispositions in security for repayment of the same, and applying the proceeds in payment of the expense and charges incurred or to be incurred by them in the premises, in payment of all advances and obligations already come under by them, or any or either of them, in relation to said properties or to the affairs of the said William Harley, and to pay over the balance to the said William Harley, or his heirs or disponees.”In the year 1820, Mr. M'Gavin retired from the trust, and was succeeded by the respondent Henry Paul,

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In July 1822, Messrs. Cook, Cuthill, and Paul, “as trustees foresaid, and as such vested in certain lands and others, for the purpose of selling or otherwise disposing of the same, agreed to sell, and do hereby bargain and sell to Hamilton William Garden” certain trust subjects, at the price of 15,500 l . They were to receive payment of this sum in houses to be built by Mr. Garden upon part of the ground purchased by him, which houses were to be transferred to them at a valuation. He built houses accordingly, which were taken from him pro tanto of his purchases. But, for 3,000 l . of the price which he had engaged to pay, Mr. Garden granted his promissory note to Messrs. Cook, Cuthill, and Paul, and that sum was to be declared a real burden on his purchases. This was done in a disposition in favour of Mr. Garden, granted by Messrs. Cook, Cuthill, and Paul, who were there described as “the only acting trustees for the creditors of William Harley,” with consent of Harley and his judicial trustee, and of Messrs. Graham and Moffat, “nominated, but not now acting as trustees for the creditors of the said William Harley.” Some months after Mr. Garden received this conveyance, he, on the

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Of the houses which had been received by the trustees from Mr. Garden, in part payment of his purchases, one was sold to William Ewing for 400 l ., being part of the price, who on 6th September 1825, granted a bond and disposition in security, on which infeftment followed. The inductive clause and the personal obligation are in these terms:—
“Know, &c.—I, William Ewing, merchant in Glasgow, grant me instantly to have borrowed and actually received from James Cook, civil engineer in Glasgow, Archibald Cuthill, writer there, and Henry Paul, accountant there, the sum of 400 l . sterling, whereof I do hereby acknowledge the receipt, renouncing all exceptions to the contrary; which sum of 400 l . sterling, I, the said William Ewing, bind and oblige me, my heirs, executors, and successors, to repay to the saids James Cook, Archibald Cuthill, and Henry Paul, and their heirs or assignees, and the survivors or survivor of them, in trust for the heirs of the prior deceaser.”
It will be observed that the above bond for 3,000 l . and the bond for 400 l . was taken to the parties not as trustees but as individuals. They were, however, prepared by Mr. Cuthill, who was a writer, and the entries in his

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In the same year, and after these deeds were perfected by recorded sasine, Mr. Cuthill became insolvent and absconded. He and Mr. Cook being personally liable in all the trust obligations, had, on that account, paid large sums out of their own funds. In a state of these advances, Mr. Cuthill's advances, at and prior to 24th May 1825, are entered at 6,826 l . 0 s . 7 d .; and Mr. Cook's advances down to the same period amounted to 9,414 l . 2 s . 6 d ., exclusive of which he is also stated to have advanced, since 24th May 1825, 8,545 l . 9 s . 2 ½ d ., making the total of Mr. Cook's advances, 17,959 l . 11 s . 8 ½ d . Together, 24,785 l . 12 s . 3 ½ d .But these advances, it was alleged, were not adequate to pay the trust deficiencies; in particular it was stated, that not only was Mr. Paul in advance for the trust to the amount of 2,745 l . 7 s . 4 d. exclusive of interest, and his allowances for commission and trouble, but that

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Under these circumstances Messrs. Cook and Paul brought an action before the Court of Session in which they set forth, That, by the arrangement under which the said Henry Paul became one of the trustees for the creditors of the said William Harley, all the other trustees bound themselves, jointly and severally, to free and relieve him of all sums to be advanced, and engagements to be come under by him, in that character: That the sums which have been already advanced by the pursuer, James Cook, from his own private funds, towards payment of the debts and obligations owing and undertaken by him and the other trustees for the creditors of the said William Harley, amount to 17,000 l . sterling, or thereby; while the advances which have been made by the said Archibald Cuthill, towards payment of the said debts and engagements, only amount to between 8,000 l . and 9,000 l .: That the sums still due to the creditors of the trust, and for which the pursuers and the said Archibald Cuthill, as trustees foresaid, have come under engagements, and are responsible as aforesaid, amount to 12,000 l . sterling, or thereby, and greatly exceed the total amount and value of the trust estate of the said Wiliam Harley, still remaining vested in the pursuers and the said Archibald Cuthill, as aforesaid, including the amount of the sums contained in the three bonds and dispositions in security before narrated; and there will be an enormous deficiency and loss, which must be borne by the said trustees, in manner foresaid: That, in or about the month of February 1826, the said Archibald Cuthill having become insolvent, he absconded from Scotland;

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Defences were lodged by Jeffrey, the trustee in Cuthill's estate, in which he maintained, 1st., that as the bonds for 3,000 l . and 400 l . were taken in favour of Cuthill as an individual, and appeared so on the record of sasine, he, on behalf of the creditors, was entitled to the benefit of it to the extent of Cuthill's share, and the alleged trust was of no relevancy in a question with him; 2d, that at all events these bonds must be held to have been granted in liquidation pro tanto of the respective advances by the parties; and as those by Cuthill

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The Lord Ordinary pronounced this interlocutor:—

“(8th March, 1831.)—The Lord Ordinary having heard parties' procurators, and thereafter considered the closed record and whole process, finds no ground stated on which the pursuers can be found entitled to more than a rateable share in the funds libelled, in proportion to the amount of the money advanced or debt undertaken by the pursuer James Cook on account of the trust estate libelled, as compared to the money advanced or debts undertaken for the said estate by Archibald Cuthill; and therefore finds that effect cannot be given to the conclusions of the present action, and dismisses the same, and decerns. Finds no expenses due to either party.”
Against this interlocutor both parties presented reclaiming notes (Jeffrey, in so far as it was unfavourable to his pleas, and denied him expenses,) to the Second Division, who ordered the question to be argued in cases, on advising which they pronounced this interlocutor:—
“(29th November 1831.)—Recal the interlocutor complained of, sustain the present action, and remit to the Lord Ordinary to hear parties as to the amount of the pursuers' advances in regard to the affairs of William Harley, referred to in the summons and pleadings, and to proceed further thereanent as to his Lordship shall seem just. Reserving to both parties all claims for expenses.”
The case accordingly went back to his lordship, who remitted to Mr. William Keith, accountant, to make up

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On advising the report with objections by Jeffrey, and a minute stating that Cook was dead, and praying to sist Paul in his place, the Lord Ordinary pronounced this interlocutor:—
“(4th March 1834.)—The Lord Ordinary sists the said Henry Paul in the right and place of the deceased James Cook in this action, and allows the same

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Jeffrey presented a reclaiming note against this judgment to the Second Division, on which their lordships pronounced the following interlocutor:—
“(11th June 1834.)—The Lords having advised the cause, and heard counsel for the parties, find that the sums contained in the securities are applicable, in the first place, for payment of the outstanding debts of the trust; in the second place, in relief and repayment of any superadvances made by James Cook; and in the third place, for any balance due to the pursuer Henry Paul, in his own right; and with this variation adhere to the interlocutor of the Lord Ordinary submitted to review. Further, find additional expenses due since the date of that interlocutor. Allow an account thereof to be given in,” &c.
Jeffrey appealed.

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Appellant. —1. In so far as the heritable securities appeared on the face of the records to be in whole or in part the individual property of Cuthill, the appellant, as trustee in his sequestration, was entitled, by virtue of the adjudication in his favour, to claim them on behalf of Mr. Cuthill's creditors; and it was not competent for the Court to give effect to any statements in regard to these securities contradictory of what appeared from the face of the records, or to any latent trust alleged to qualify Mr. Cuthill's ex facie right as shown by these records.This is now conclusively settled, both with regard to purchasers transacting upon the faith of these records, and also with regard to creditors taking steps of real diligence. At one time, indeed, some doubts existed, now entirely set at rest, how far a distinction might not be drawn betwixt purchasers of real property and creditors adjudgers. In regard to purchasers, the principle had always beensettled from the earliest periods of the law. 1 But in regard to adjudgers, the doctrine was at one time mooted, that they stood differently situated from purchasers, and took the real right, tantum et tale, as it stood in the debtor's person under all the qualifications to which he was himself subjected. And a well-known decision was pronounced, giving some countenance to this doctrine. 2 But subsequent cases very shortly occurred in which, as stated by Mr. Bell, “the decision in Thomson's case was disapproved of, and departed

Footnote

1 Workman v. Crawford , 20th Nov. 1672, (Mor. 10,208); Ruthven v. Lord Redford , March 1686, (Brown's Supplement, vol. ii. p. 94); Anderson v. Dempster , 14th November 1702,. (Mor. 10,213); M'Cubbins v. Ferguson , 20th July, 1715, (Mor. 10,250.)2 Thomson v. Douglas , Heron and Company, 15th Nov. 1786, (Mor. 10,229 and 10,299.)

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This doctrine has been held applicable to a trustee, under a sequestration. 2 In the present case there were at least two of the securities perfected by infeftment, in which, ex facie of the records, Mr. Cuthill had an unqualified pro indiviso right of property. Such securities are, exfacie, redeemable dispositions of the property, and, except as to the mere right of redemption, stand on precisely the same footing with an absolute conveyance; so that, ex facie of the records, there was an heritable disposition in favour of Mr. Cuthill and the other disponees, altogether unqualified, except by the mere right of redemption. There was not only the usual disposition to “heirs and assignees,” (which implies absolute property,) but, in the event of the decease of any of the disponees, the survivors are expressly declared to hold “in trust for the heirs of the prior deceaser.” And nothing can be more exclusive of the idea of a trust for Harley, or any third party, than this declaration; for in such an event the trust would have vested absolutely in the survivors or survivor for behoof of the original truster.In this state of things the respondent claims the securities, on the averment that they did not truly belong to Cuthill individually, as the records represented, but were held by him under the condition of a trust, which

Footnote

1 Russel v. Creditors of Ross , 31st Jan. 1792, (Mor. 10,300, Bell's Cases, p. 166); Bell's Commentaries, vol. i. p. 282. 285. 288; Buchan v. Farquharson , 24th May 1797. (Mor. 2,905.) See also Mitchell v. Ferguson , 13th Feb. 1781, (Mor. 19,296, Hailes, p. 880); Wylie v. Duncan , 8th Dec. 1803. (Mor. 10,269.)2 Mansfields v. Walker's Trustees , 28th June 1833, S.& D. vol. xi. p. 813.

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2. But, independently of the faith to be given to the records, these two securities, in as far as they ex facie appear to be the individual property of the parties in whose names they are taken, must be regarded on that footing, and inasmuch as, even though arising out of transactions connected with Harley's estate, they were taken in these terms for the express purpose of constituting them the individual property of the parties, in reimbursement of the advances which each of these parties had, prior to the date of these securities, made in connexion with Harley's affairs. It by no means follows, that merely because the securities arose out of the transactions of Harley's trust, that these securities cannot possibly be the individual property of the parties in whose

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Truly and substantially, the arrangement was just of this character,—that the individuals who were disposed to assist Harley, made each, separately, from his own individual funds, such advances as he found convenient, whilst the disposition of his property by Harley was simply held as a security to the parties, as it bears, “of all advances and obligations already come under, or to be come under, by them, or any or either of them.” There was no prosecution of any definite joint speculation, or even of any definite course of joint management, as is the usual case in a proper trust. The only connexion amongst the parties was, that each of them, being inclined to aid Mr. Harley, made from his own separate funds such advances as he thought proper, the general disposition of Harley's property remaining as security to all concerned. This is proved by the statements of the respondent himself, whose whole case is rested on the allegation of separate advances being made by Messrs. Cook and Cuthill respectively, of which it is said those by the former were by far the more extensive.Suppose that the transaction had taken a slightly different shape; that there had been one bond for 1,500 l . granted in favour of James Cook, “his heirs and assignees;” and another, and a separate bond, also for 1,500 l . in favour of Archibald Cuthill, “his heirs and assignees.” It is indisputable, that such a separate

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3. Assuming that the securities are to be regarded as subsisting trust estate, still remaining unappropriated, the only correct or just principle in regard to their application is, that they should be shared among the different trustees, pro rata of the advances made or obligation sundertaken by them respectively on account of the trust estate. The question arising in the present case is not raised by third parties, creditors of the trust, or in which such third parties are interested, but is a question amongst the trustees themselves, and exclusively a question inter se; and, as between the trustees

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The plea which was successfully maintained in the Court below was, that the securities were not to be shared by the trustees pro rata of their respective advances, but that these advances must be equalized; that is to say, if one of the trustees has advanced more than another, the securities were to be applied in the first instance in discharging the surplus advances of the former; and until these were paid off, and the parties reduced to an equality, the other trustee was to have no share whatever in the securities; and the case was assimilated to one of partnership or joint adventure.But this was a most manifest error, for there is no identity between the situation of partners or joint adventurers and trustees. Partners or joint adventurers are united for the purpose of procuring, by their mutual capital and exertions, a common profit, which is divided amongst them, either in certain agreed on proportions, or, where nothing is said, equally. If, in place of a profit, a loss is made, of course this is shared according to the same rule. But in the present case the parties were not united for the purpose of making a common profit, with its attendant contingency of a common loss. There was no adventure of profit engaged in at all; and no union for that purpose. Each trustee separately made advances, to such extent as he was prevailed on to do; one to a greater, another

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Neither can it make any difference in regard to the apportionment of the securities by the trustees inter se, whether the advances of the different trustees consisted of past cash payments or of outstanding obligations. There being no question with the creditors of the trust, but the whole question being one between the trustees inter se, past advances and outstanding obligations by the several trustees stand exactly on the same footing, the whole question being, to what extent, either in the one way or the other, each trustee has respectively advanced, and to what extent, therefore, he is entitled to share in the securities, as divisible inter se.At any rate, there ought to have been an accurate estimate made of the exact amount of advance by each of the trustees respectively, whether consisting of money paid, or debt undertaken; and the securities declared

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Respondent. —1. The facts altogether include the idea that the securities belonged to the parties individually, and not as part of the trust estate. It is proved that Harley in 1816, with the view to a composition contract with his creditors, conveyed his whole property to certain gentlemen “as trustees and fiduciaries, or trustee and fiduciary, for behoof of the whole of my just and lawful creditors; and was to be accepted by the said trustees in trust for the ends, uses, and purposes therein mentioned,” and particularly, that the trustees, in the event of Harley failing to pay either of the instalments of the composition referred to, should have power to sell and convert into money the subjects conveyed to them.After this trust had been in operation for three years, and the trustees had involved themselves in serious responsibilities, it was arranged that Harley, with their consent, should convey the trust estate to Mr. Cook, Mr. Cuthill, and other gentlemen, one of whom was an original trustee. Accordingly in 1819 a disposition was executed in their favour, “declaring that these presents are granted, and the said subjects disponed, in trust

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The estate was thus effectually set apart for the trust purposes, and until those were satisfied, it could not be claimed by any party, whether in right of the individual trustees or on behalf of Harley himself. Nor could any distribution of the estate be demanded among the trustees, except on the footing of fair equalization and mutual relief. Numerous other deeds were executed, all on the same footing; and in the course of the trust operations the transactions with Mr. Garden and Mr. Ewing were entered into, under which the securities in question were granted. Mr. Cuthill acted as the law agent in framing them, and the entries in his books represent them as part of the trust estate. Besides, the sum of 3.000 l . was originally constituted a real burden

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Now supposing that the whole bonds were expressed in a manner apparently indicating a pro indiviso right in common, in favour of all the parties, there are no grounds for maintaining that the mere terms of a bond are, in such circumstances, to be looked to without reference to the origin, history, and actual destination of the funds. It is impossible, in this case, to say that the form in which these bonds were taken was intended by the parties to exempt them from the operation of the trust. The books and accounts of Cuthill himself, in whose right the appellant now stands, are conclusive of the fact, that the bonds, whatever their terms might be, were all looked upon as belonging to the trust estate, and under the control of the trustees, and as such the expense of them was charged against them by Cuthill. Indeed, it would have been incompetent or highly improper for the trustees to attempt to divide the funds of the trust among themselves individually, while there were still trust purposes to accomplish, and trust creditors to pay. Those creditors, and any others interested in the trust, would have been entitled to complain if their undoubted preference over the trust funds had been prejudiced, or if any thing had been done to destroy the identity of such funds. Nothing of this kind is to be presumed; nothing of this kind was, in

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The fact being thus proved, the respondent maintains that there are no grounds for pleading that the bonâ fide character and destination of those bonds can be evaded and frustrated by a claim founded on the mere absence of a declaration of the trust in the terms of all the bonds, or any of them. 1The present case does not relate to land rights, appearing to be vested in the parties in property. The rights that here exist are mere securities for the purpose of making more effectual the payment of a money debt, and it is quite fallacious to maintain that the same principle can be applicable to qualified rights of that description as to rights of property, or that creditors or others are entitled to trust, as here pretended, to the faith of what appears on the records. A party who holds a debt secured over heritable subjects has no independent or self-existent right in those subjects which his creditors can attach as a clear and separate estate, without reference to the facts of the case and the situation of the accounts out of which the debt arises. It is the debt that is the proper and substantive right, and the interest in the land is but an accessory. Accordingly, it is certain, and is so laid down in all the authorities, that the records are no security in such a case. An infeftment may appear on the record as securing

Footnote

1 Crooks against Tawes, 29th Jan. 1799. (Mor. 14,596.)

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2. If the respondent be correct in the views which he has submitted, the whole defences of the appellant are fully obviated. There is no objection by the appellant; on the record, as to the mode in which these principles are proposed to be carried into effect by the action in question. The conclusions of that action were framed with the view merely of vesting the trustees then acting with the administration of the funds for trust purposes, and for the discharge of obligations of which they were entitled to be relieved. The action proceeded on the basis that Cuthill refused to concur in uplifting the debts and applying them to the trust purposes. The appellant, as in Cuthill's right, refused in like manner to concur in that object, and the Court have accordingly vested the funds in the person of the respondent, the only party now able or willing to discharge the trust. Their judgment, however, is qualified by a declaration of the purposes for which the funds are so intrusted to him. They have found, “that the sums contained in the securities are applicable, in the first place, for payment of the outstanding debts of the trust; in the second place, in relief and repayment of any superadvances made by James Cook; and in

Footnote

1 2 Ersk. 8. 34; Blackwood v. Sutherland , 17th Nov. 1740. (Mor. 14,140.)

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Lord Brougham ,—My Lords, in this case it appeared to your lordships, in the course of the argument, that there were three claims, in respect of which, or in respect of Mr. Jeffrey's right to which, as standing in Mr. Cuthill's shoes, the question arose;—one was the sum of 1,927 l ., one of 3,400 l ., and one of a smaller sum of 400 l . I had some doubt of the sum of 3,400 l ., and much greater doubt respecting the 400 l . My doubts respecting the 3,400 l . were much removed in the course of the argument on the part of the respondent, and, on further consideration, have been entirely done away, and I am entirely prepared to recommend to your lordships to affirm the decree as to the rateable share of 3,400 l ., and the rateable share of the 1,900 l ., but I still think, and I have seen nothing to remove the impression upon

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The House of Lords ordered and adjudged, That the interlocutor of the 29th of November 1831 (whereby the interlocutor of the Lord Ordinary of the 8th of March 1831 was recalled), and the interlocutors of the 4th of March and 11th of June 1834, be, and the same are hereby affirmed, with this variation and declaration, That the said appellant is entitled to and ought to receive one third part or share of the principal sum of four hundred pounds contained in the heritable bond by William Ewing in the said proceedings mentioned, with a proportional part or share of such interest as may have been received or may be due and payable therefrom, and also to deduction or repayment of the sum of seventy-four pounds out of the costs found due to the said respondent in the said Court of Session.Solicitors: A. Macrae— Thos. Deans—Solicitors.