William Taylor, for Himself, and as Trustee of his Wife Mrs. Eliza Fletcher Taylor; and She with Concurrence of her Curator Ad Litem - Shand v. James Kerr, Trustee on William Taylor's Sequestrated Estate - Keay [1835] UKHL 1_SM_94

UKHL
William Taylor, for Himself, and as Trustee of his Wife Mrs. Eliza Fletcher Taylor; and She with Concurrence of her Curator Ad Litem - Shand v. James Kerr, Trustee on William Taylor's Sequestrated Estate - Keay
[1835] UKHL 1_SM_94 · 1835-04-08
William Taylor , for Himself, and as Trustee of his Wife Mrs. Eliza Fletcher Taylor ; and She with Concurrence of her Curator Ad Litem, Appellants.—Shand v. James Kerr , Trustee on William Taylor's Sequestrated Estate, Respondent.—Keay

[ 8th April 1835 .]

Subject_ Bankruptcy — Sequestration.1. Circumstances under which a transaction entered into by creditors on a sequestrated estate, for taking a lease of part of a coal field adjacent to and forming part of a coal field belonging to the bankrupt, with a view to the beneficial working of the coal, was, in a question with the bankrupt and his wife as a contingent creditor, sustained.2. Where a question as to compromising claims on a sequestrated estate, and counter claims by the bankrupt by executing mutual discharges, had been repeatedly under consideration of meetings of creditors, and the matter was adjourned for further consideration, an objection by the bankrupt and his wife to a resolution of a meeting of the creditors to enter into the compromise, that the advertisement did not specially bear that the meeting was called for this purpose, repelled.By marriage contract in 1814, between William Taylor, then of Nethermains, and Miss Eliza Fletcher, he became bound, in the event of her survivance, to pay to her 1,000 l . a year, and to secure certain sums for the children of the marriage. In security of these provisions, he conveyed his estate of Nethermains, under a reservation of his own liferent, to himself, his wife, and the late Mr. Miles Angus Fletcher advocate, her brother, as

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At this time Mr. Taylor was in possession of a lease of the Bartonholm colliery in Ayrshire, of which the period of expiry was in 1835, the rent being payable by a fixed money rent, or, in the option of the landlord, a lordship on the coal raised; and it was provided that, in the event of the coal becoming unworkable to profit, the lease should then be at an end. A power to subset was granted, but assignations were specially prohibited. The coal consisted of two distinct seams—the one called the parrot seam, and the other the five-quarter seam; the former was the most valuable of the two; insomuch that the latter, or five-quarter seam, was by itself not saleable, and had never been brought to market without a certain proportion of the parrot seam mixed with it. Adjacent to the parrot seam there was a small field of coal belonging to Lord Eglinton, which was a continuation of the parrot seam, and was supposed to extend to about two or three acres.In 1816 Mr. Taylor became bankrupt; and he then conveyed his property and effects by a deed of trust in favour of John Neilson and John Fulton, engine-makers in Glasgow, with general powers of management, sale, and distribution among his creditors. This trust was superseded in February 1819, by a sequestration under the bankrupt statute awarded by the Court of Session, which met with the most determined opposition from

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Mr. Taylor was examined in 1831, and took the statutory oath; in the meanwhile a claim had been lodged on the sequestration by the marriage trustees, for 20,000 l . on behalf of Mrs. Taylor, in respect of her contingent provision of 1,000 l . per annum. Certain complicated transactions had taken place between Mr. Taylor and his brothers John and George, and it was uncertain in whose favour the balance stood; he was also indebted to his sister Mrs. Maxwell Gordon and her family, but he alleged that he had counter-claims.In the month of May 1829, the respondent laid before the creditors a report upon the general state of the affairs,

Footnote

1 1 Shaw's Appeal Cases, p. 254.2 2 Shaw's Appeal Cases, p. 30.3 1 Wilson & Shaw, p. 30.

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Against this resolution a petition and complaint to the Court of Session was presented in the name of Mrs. Taylor, and was superseded for some time. In the meantime the opinion of counsel was taken, and was unfavourable to the creditors.The respondent on entering on his duties as trustee, being unable to dispose of the lease of the Bartonholm colliery, proceeded, with the sanction of the creditors, to work the coal, which, in so far as regarded the parrot seam, was said to have been highly beneficial to the estate; but that seam becoming nearly exhausted, the respondent, on the 30th August 1833, entered into a preliminary memorandum of agreement with the factor of Lord Eglinton for a lease of that part of the parrot coal seam which extended into the lands of Snodgrass, forming part of the Eglinton property, during the currency of the Bartonholm lease; and he also made an arrangement with the proprietor of Bartonholm, by which the latter agreed that the coal might be worked and brought up by means of the pits on his estate, but “under the following conditions and reservations:—1st, That if under any circumstances the lease of Bartonholm colliery should during the

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In October thereafter the respondent published this advertisement in the Gazette:—
“The trustee requests the creditors of Mr. Taylor to attend an adjourned general meeting in the trustee's office, No. 11, Miller Street, Glasgow, on Monday the 22d day of October instant, at twelve o'clock noon, to consider a proposal for a lease of coal, to be wrought in the lands of Snodgrass, adjoining the Bartonholm coal workings, by the creditors of Mr. Taylor, and by the present machinery at Bartonholm; and, if considered advantageous for the creditors, to authorize the trustee and commissioners to enter into the proposed lease; also said meeting of creditors to instruct the trustee generally upon the affairs of the estate.”
At this meeting, (which was attended by Mr. Taylor as trustee under the marriage contract, and by a Mr. Lamond for Mrs. Taylor individually,) the transaction with Lord Eglinton was made the subject of the following motion:—the preses putting the said motion to the vote, in respect of its being incompetent for a meeting of the creditors to authorize the entering into a lease for the working of new coal; and further protested, whatever result the meeting might come to, his constituent and the absent creditors shall not be held bound by any contract that may be entered into; but the creditors who sanction the same shall do so on their own individual responsibility, and that they shall relieve the others of all expences that may be thereby occasioned.”
“And the said proposal for a lease of the coal belonging to Lord Eglinton, as set forth in a memorandum initialed by Lord Eglinton's factor, and Mr. Kerr, the trustee on this estate, of date the 30th day of August last, having been taken up and discussed at great length, as also the minute of consent by the landlord of Bartonholm also produced to this meeting, Mr. Gibb motioned, that the trustee and commissioners on this estate be instructed to enter into said bargain and transaction for working said coal belonging to Lord Eglinton, in the terms expressed in the said memorandum, and in the minute of the landlord of Bartonholm; which motion was seconded by Mr. Montgomery, mandatory of Mr. Burns. Whereupon the said Robert Lamond protested against

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Further, “Mr. Archibald Young, as mandatory of the Kilmarnock Foundery Company, protested in the name of his said constituents, and for all others who might adhere thereto, against said motion being put to the vote, as ultra vires of the trustee and creditors, and inexpedient; and that they should not in any manner be held bound by any consequences which might follow said motion being carried, but should be free therefrom; and that they should not be liable in any expence which might follow from said motion being carried; but that the trustee and creditors acceding to said motion shall be obliged to free and relieve them of all such consequences and expences.To both of which protests against putting the motion the said William Taylor adhered.”The subject of the mutual discharges was then made the subject of the following motion:—the bankrupt, represented by his trustee on the one part, and, on the other part, the partners or representatives of the partners of John Taylor and Sons; also the representatives of John Taylor, the father of the bankrupt, and of John Taylor of Blackhouse, his brother; also Mrs. Gordon his sister, and her family; also Mr. George Taylor, for all and sundry claims of every description for and against each other,—this meeting, without prejudice to the former resolutions approving of said mutual discharges at a meeting of creditors held on the 26th day of August 1829, not only corroborate the same, but do now agree to the same, and authorize and instruct the trustee to carry deeds to that end into effect: farther, in regard that Mrs. Taylor's petition against the said resolutions is still in dependence, authorize and instruct the trustee to bring it to an immediate close.” Which motion was seconded by Mr. Archibald Kenneth. that is, said motion was agreed to under these conditions by Mr. James Dunlop, John Neilson, Anthony Dodds, John Fulton, James Gibb, William Young, Mathew Montgomerie, and the said John Taylor Gordon, and opposed by the said Robert Lamond and the said William Taylor, who severally protested against the validity of the votes given for the motion; whereupon Mr. Gibb of new protested against the validity of the votes of the said Robert Lamond and William Taylor.“Thereafter Mr. John Taylor Gordon motioned, that this meeting shall come to the following resolution, viz., “That having considered the former reports of the trustee, the resolutions of the creditors, and the late reports of the committee of creditors, all in regard to the proposed mutual discharges betwixt William Taylor

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Which motion having been put, after the subject was fully discussed, the following creditors or mandatories for creditors voted for it, subject to the conditions expressed in the minute of the meeting of creditors held on the 26th August 1829; viz., that the counter mutual discharge shall include a discharge of the arrear of rent for Fairlie coal and Peatland farm, prosecuted for by Sir William Cunninghame, and arrear of the rent of Doura farm and coal, claimed by Sir James Cunninghame; and also under this additional condition, that said counter discharge shall include a discharge by Mrs. Burnett, claiming to have right to a large sum of arrears for the Dalhousie colliery, as set forth in her claim and affidavit of date the 10th day of August last, lodged with the trustee;

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The preses now declares, that said motion, seconded as aforesaid, and subject to said condition, is carried by a majority.”Against these resolutions a petition and complaint was presented to the Court of Session at the instance of Mr. Taylor and his wife, praying the Court to declare the same void and null, or to recall them as inexpedient, and to prohibit the trustee from acting upon them; and to remit to him, with instructions to cause full and sufficient inquiry to be made into his claims proposed to be included in the general discharge; and thereafter to take proper measures for making the same available to the estate.The petition and complaint which had been presented against the resolutions to enter into the compromise, if the opinion of counsel should be adverse to the creditors, was now resumed, and was advised along with the second petition. The Court, on the 17th January 1833, by separate interlocutors, dismissed both of the petitions. 1

Mr. and Mrs. Taylor appealed. 2

Footnote

1 11 S., D., & B., 250.2 No appeal was entered against the judgment dismissing the first petition.

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Appellants. —1. The resolution to enter into a new lease of a different subject, for behoof of and at the risk of the creditors ranked on the estate, was under any circumstances incompetent, and ultra vires of the meeting. The main object of the bankrupt statute is to realize and distribute, as quickly as is consistent with the interest of creditors, the funds of the bankrupt, such as they are. 1 The whole tenor and spirit of the act obviously is, that sequestrations shall be brought to a close within a few years at the utmost, and that no delay in realizing and distributing the funds shall be permitted, except under circumstances where that delay is unavoidable. But more particularly is it adverse to the spirit and intention of that statute to allow the trustee, or the majority of creditors, to convert the sequestration into a mercantile adventure, and to employ the funds of the estate as a means of speculation, even were the chance of profit very considerable and the risk exceedingly small. Its object is to wind up old concerns, not to embark in new; nor within the whole scope of the statute is there any thing to countenance the idea, that a majority of the creditors have it in their power to enter upon new contracts of lease, and compel the minority, however small, to enter upon a joint stock speculation in an agricultural, manufacturing, or mining lease, as the case may be. This case must be settled on general principles which will apply to all sequestrations, and not on any adventitious circumstance, such as that of the comparative value of the majority and minority, or the comparative risk of the contract to be undertaken.

Footnote

1 Sect. 41 and 75; 2 Bell, 726.

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Looking to the object and intent of the bankrupt statute, which, instead of prolonging sequestrations indefinitely, contemplates their termination as speedily as possible, and gives the most express directions for that purpose, the rule must be, that no majority of creditors shall have it in their power to hang up the sequestration,—to hazard the funds of the sequestrated estate, in which all the creditors have an interest, and even to subject the objecting creditors to personal responsibility by embarking in new contracts, which, if on the one hand they may turn out to be advantageous, are, on the other, undeniably subject to hazards, the extent of which cannot possibly be foreseen. Whatever may be the nature of the contract the case is truly the same, provided it be a new contract and entered into with the view of speculation. A lease of a farm may be attended with less risk than that of a colliery; a speculation in railway shares may be more precarious than either; these are matters of opinion, as to which no rule can be laid down beforehand; but all are objectionable, not because they are more or less hazardous, but because all of them are opposed to the true intent of a sequestration, which is simply a process of distribution; they are all attended with risk, and are calculated to divert the funds of the bankrupt from their legitimate purpose into a channel of mere speculation and adventure, in which the minority are compelled, whether they will or no, to become partners. It is true that there may be cases in which it would be most injurious to creditors to bring the sequestration to an immediate termination; and where the trustee may even continue to conduct contracts entered into by the bankrupt for years, and

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Footnote

1 2 Bell, 412.2 8 S., D., & B., 793.3 1 S. & D, 417, old edition; 389, new edition.4 3 S. & D., 419, old edition; 294, new edition.

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But even, if under peculiar circumstances a trustee and majority of creditors under a sequestration can enter upon a new contract, their doing so in this case was peculiarly inexpedient and improper. Of all contracts, coal leases are the most speculative and hazardous, both from the absolute impossibility of foreseeing beforehand either the extent or quality of the field, or the risks to which, from local circumstances, the workings are to be exposed. But there are special hazards attending the speculation in question still more formidable; the acceptance of the offer of the proprietor of Bartonholm proceeds upon two conditions:—he stipulates, in the first place, that it shall not be in the power of the trustee to cut through the dyke or stone barrier understood to run through the Snodgrass coal field; and if so cut down, he stipulates for a reservation of his right to claim

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2. The resolution by which it was resolved to compromise the claims of the appellant upon the footing of mutual discharges was null and void, in respect the meeting at which said resolution was put and carried was not duly called by advertisement in terms of the

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In the Court below the respondent attempted to evade the merits of the points at issue, by pleading that

Footnote

1 2 Bell, 726.

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Respondent. —1. The appellants have no legal title to oppose the resolutions, or to sue and insist in the petition and complaint. The present is the first instance which the records of the Court exhibit, of any attempt by a bankrupt, in the shape of legal proceedings, to disturb or resist his creditors in the measures which they deem necessary for realizing the trust property in payment of their debts. The only case in which it has ever been maintained that the bankrupt has a title to sue, or appear in any matter connected with the estate, is that of the dereliction or abandonment of claims by the creditors; but even in that situation, the party against whom the proceedings are directed is held entitled to insist in limine that the bankrupt shall find security for expences. 1 The present is not the case of an abandonment of a debt; it is the case of an act of management for the beneficial administration of the estate; and in regard to the discharge it is

Footnote

1 2 Bell, 461.

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Again, the title of the bankrupt's wife is equally objectionable. Her appearance is founded on the eventual provisions stipulated in her contract of marriage, at the date of which the bankrupt was in a state of utter insolvency, so as to render any such provisions totally nugatory and unavailing. But, at all events, these provisions are in their own nature uncertain and contingent, depending entirely on the wife's chance of survivance, and therefore not furnishing an interest sufficient to qualify her to vote at, nor by consequence to give her a legal title to challenge the proceedings of meetings. By section 24 of the bankrupt act it is enacted,— “That no person, whose claim upon the bankrupt estate is merely contingent, or depending upon an uncertain condition, shall be entitled either to join in the petition above mentioned for sequestration, or to vote in the choice of factor or trustee, or in the other steps of proceeding herein specified;” agreeably to which Mr. Bell lays it down, that “no contingent creditor can vote for interim factor;” and again, as to the election of trustee, “a contingent creditor cannot vote.” And therefore, as a contingent creditor has no voice in the deliberations of the creditors as to the appointment of their managers, it is a necessary consequence that such a creditor can have no legal title under the statute to challenge the result of their deliberations as to the management.But even if they had a title to complain, there are no just or legal grounds for their complaint; and the

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There is nothing in the spirit or letter of the bankrupt statute in the slightest degree inimical to such a transaction. It may be true, as a general observation, that the creditors, as a body, ought not to embark in mercantile adventures, or run the hazard of mere speculations, under whatever temptation of seeming profit. But nothing is more common than for a body of creditors to carry on the business of the bankrupt for a time, where they think it for their advantage to do so. Valuable subjects may be thus gained or secured to the trust estate; machinery may be kept going; and where there is a great deal of raw material on hand, it may be wrought up, and most advantageously sold. In all such cases where profit is to be gained, or great loss to be avoided by a temporary continuance of the bankrupt's business, such a course is quite common among creditors, who are the best judges of the circumstances under which it may be advisable, and of the proper limits

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By the other condition, the creditors are restrained from cutting the dyke or stratum of stone running through the Snodgrass field, and separating it from the Misk field, which is supposed to be overflowed with

Footnote

1 Reid, 25 May 1830, 8 Shaw, 793; 17 May 1822, 1 Shaw & Dunlop, 417 old edition, 389 new edition; 11 Jan. 1825, 3 Shaw, 419 old edition, 394 new edition.

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It is true (though the fact can have no relevant application to the present question,) that about six months after the judgments under review were pronounced, the works belonging to the estate were involved in the destruction brought upon several other works by a totally different cause, from which no danger was or could have been apprehended by any party concerned, viz. the sudden bursting in of the river Garnoch upon the neighbouring works of Snodgrass. This accident happened at the distance of from 400 to 500 yards from the nearest point of the Bartonholm workings carried on by the respondent, and was occasioned by the operations of other parties in pushing their workings from below so close upon the bed of the river Garnoch, that it suddenly burst

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2. The objection that the advertisement contained no special intimation that the matter of the compromise was to be brought under consideration of the creditors, is a mere cavil; it is a subject which had been before the creditors for years past, having been considered by various general meetings, and referred to special committees. It was no new matter, but part of the general business of the estate, adjourned from previous general meetings specially advertised, and on which the trustee was fully warranted to demand the instructions of the creditors. Besides, Mrs. Taylor has taken no appeal against the judgment of the Court dismissing her petition and complaint against the resolution of the meeting of 26th August 1829. But the resolution, respecting this matter of the mutual discharges, was identically the same as those of the meeting now complained of. It is true that the former resolution was to depend on the opinion of counsel, which was to be taken upon the proper construction of the agreement; but in the event of the opinion proving unfavourable to the bankrupt's view of that question, the meeting resolved to agree to the proposal of the mutual discharges. Now, the opinion was against the construction of the agreement contended for by the bankrupt, and consequently the resolution approving of the settlement by mutual discharges took effect. The petition and complaint, therefore, presented by the bankrupt's wife against that resolution having been refused by a judgment, final and acquiesced in by her, she cannot now be permitted to advance the very same pleas which were repelled by that judgment.

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Lord Brougham moved and the House of Lords pronounced this judgment:—

It is ordered and adjudged, by the Lords Spiritual and Temporal, in Parliament assembled, “That the said petition and appeal, be, and is hereby dismissed this House, and that the interlocutors therein complained of, be, and the same are hereby affirmed.”Solicitors: Andrew M. M'Crae— A. Dobie,—Solicitors.