Heritable Reversionary Company v Miller
| Jurisdiction | England & Wales |
| Judgment Date | 09 August 1892 |
| Date | 09 August 1892 |
| Docket Number | No. 7. |
| Court | House of Lords |
Ld. Herschell, Lord Watson, Lord Macnaghten, Lord Field.
Bankruptcy—Vesting of heritable property in trustee—Latent trust—Bankruptcy Act, 1856 (19 and 20 Vict. cap. 79), sec. 102.—
The Bankruptcy Act, 1856, sec. 102, enacts that the Act and warrant of confirmation in favour of the trustee in a sequestration shall vest in him ‘the whole property of the debtor.’
Held (rev. judgment of First Division) that heritable property to which a bankrupt has an unqualified feudal title, but which does not belong to him, is not his property in the sense of the Act, and does not vest in his trustee.
Opinion (per Lord Watson) that a creditor adjudging heritage held by his debtor subject to a latent trust can be in no better position in a question with the cestui que trust than if he had obtained a conveyance without value from his debtor.
(In the Court of Session, July 14, 1891, 18 R. 1166.)
The Heritable Reversionary Company, Limited, appealed.
At delivering judgment,—
Lord Herschell.—The question which arises in this case is whether heritable property vested in a bankrupt, which is subject to a latent trust, passes to the trustee in his sequestration free of that latent trust, and is held for distribution amongst the bankrupt's creditors.
The facts may be shortly stated. Daniel Smith M'Kay, the bankrupt, was the manager of the appellant company. On the 17th of May 1882 he purchased certain tenements of houses in Edinburgh, which were exposed for sale by public roup, at the upset price. The subjects were conveyed to him by a disposition dated the 16th and 17th July 1882, and he was duly infeft by recording the disposition in the appropriate Register of Sasines on the 14th September 1882. The purchase was made by M'Kay for behoof of the appellants, and on the instruction of their directors, and the purchase-money, save in so far as it was raised by a bond and disposition in security over the subjects, was provided by the appellants. They were not, however, ex facie of the deeds, parties to the purchase, and although in May 1886 M'Kay executed a declaration of trust, it was not recorded in the Register of Sasines. On the 2d of December 1890 the estates of M'Kay were sequestrated in the Sheriff Court of Glasgow. In these circumstances, the question has arisen whether the property which became vested in M'Kay, as above stated, formed part of the sequestrated estate, and passed to the respondent as trustee for the bankrupt's creditors.
It seems beyond dispute that as between M'Kay and the appellants he was a bare trustee, and they were the true and beneficial owners of the property. I do not understand it to be questioned that the law of Scotland recognises such a relationship, or that, if it appeared ex facie of the dispositions, the beneficiary would be regarded as the true owner as against all persons and for all purposes. Although as regards third persons the case may be very different when the trust is latent, I do not see how this can affect the relation of the trustee and beneficiary inter se. If M'Kay had disposed of the property and converted the proceeds to his own use, he would, I apprehend, have been guilty of a breach of trust, and rendered himself amenable to the criminal law. It is true that an onerous purchaser from him would have obtained an unimpeachable title, but this would not be because the property was his, but because the true owners had permitted him to appear on the Register of Sasines as the owner, and thus entitled anyone dealing with him for value to regard him as such. A register, whether of heritable or any other subjects, would obviously fail of its purpose unless this were the law. A person entrusted with the custody of a negotiable instrument, who has no property in it, may equally give a perfect title to an onerous purchaser.
I have thought it well to dwell on these considerations, because it appears to me that there has been some confusion between the case of heritable property held upon a latent trust of which the owner appearing on the register is a bare trustee, and that of heritable property as to which the owner has come under some contractual obligation. The latter was the case in Wyllie v. DuncanUNK.1 Archibald was there the owner of the property, not a mere trustee; he had bound himself on certain conditions to re-dispone to Wylie, from whom he took the subjects. But this was a mere personal contract. If he had sold the property and disposed of the proceeds he might have rendered himself liable to legal proceedings on the ground that he had put it out of his power to fulfil his obligation, but he would not have been guilty of a breach of trust, or brought himself within the reach of the criminal law.
The section of the Bankruptcy (Scotland) Act which relates to the vesting of the bankrupt's estate in his trustee is the 102d. The first part of that section enacts what is to vest in the trustee; the following subsections have in view the making that vesting effectual, and accordingly prescribe what is to be the nature and effect of the vesting. The section commences in these terms:—‘The act and warrant of confirmation in favour of the trustee shall, ipso jure, transfer to and vest in him, or any succeeding trustee, for behoof of the creditors, absolutely 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.’
For some reason, which is not apparent, this part of the section was not alluded to in the Court below, the only words discussed being those which have reference to the effect of the vesting of the heritable estate. But unless any subject be within the words with which the section commences, the remaining provisions of the section become irrelevant. Wherever, therefore, it has to be determined whether heritable or any other estate vested in the trustee, the first question which arises is, was it the ‘property of the debtor’? The expression is not a technical one, but is obviously intended to comprehend all that would ordinarily be understood as covered by it. It cannot be doubted that it includes all beneficial interests possessed by the bankrupt, even though the property be vested in other persons as trustees for him. On the other hand, I cannot think, unless compelled by authority to take that view, that it includes, or was ever intended to include, estates of which the bankrupt was a bare trustee, and in which he had no beneficial interest.
The 2d subsection which was so much discussed in the Court below, and which only applies, as I have pointed out, to that which comes within the description ‘property of the debtor,’ itself commences with these words:—
‘The whole heritable estate belonging to the bankrupt in Scotland to the same effect,’ &c. The words ‘belonging to’ are not technical, and I do not think that a heritable estate of which the bankrupt is a bare trustee, and in which he has no beneficial interest, can with any propriety be said to ‘belong’ to him.
It was indeed suggested, and the view found some favour in the Court below, that the trustee in the sequestration was to be regarded as an onerous and bona fide alienee from the bankrupt. I am unable to accede to this view. I do not think that he is an onerous alienee within the principle which renders the title of such a person valid even though it be obtained from a bare trustee in fraud of the beneficial owner. That he is not such an alienee appears to me to be well established in the law of Scotland as regards property other than heritable, and I fail to see any ground for a distinction in this respect between heritable and other descriptions of property.
It is to be observed that the Bankruptcy Act of 1783 required the bankrupt, under the penalty of imprisonment, to make over to the trustee ‘his whole real and personal estate wherever situated.’ There were corresponding provisions in the Acts of 1793 and 1814. I cannot think that it was the intention of the Legislature to compel a bankrupt to convey to his trustee for the benefit of his creditors property which he could not dispose of to any creditor at the time of sequestration without being guilty of a criminal breach of trust. The Act of 1839, which preceded the one now in force, vested in the trustee the heritable estates ‘belonging to the bankrupt in Scotland.’ I have already commented on these words in connection with their use in the present Act.
The only case which to my mind can even plausibly be said to be inconsistent with the view I take of the statutes is the case of Jeffrey v. Paul1 in this House. Lord Brougham in pronouncing his decision assigned no reasons for the conclusion at which he arrived. It can therefore only be said to be an authority for the proposition contended for by the respondent if no other ground for the judgment is reasonably conceivable. The circumstances of that case were peculiar. It was a contest between two trustees and the representative of a third who had become bankrupt. All the trustees had made advances to the trust-estate, and one contention put forward on behalf of the trustee in the sequestration was, that the bond which was then in question had, by reason of the advances they had made, been held by the three trustees in equal shares in their own right, and not on behalf of their trust. Whether this was the ground of Lord Brougham's judgment it is impossible to say, but I think it much more likely that it was, than that he should have determined, without statement made or reason given, the important principle contended for, affecting as it does so seriously rights of property, and being applicable to every sequestration which should thereafter occur in Scotland.
For these reasons I am of opinion that the interlocutor appealed from should be reversed; that it should be declared that the subjects in...
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