DISTRICT COURT.

Oamaru Mail, Volume II, Issue 543, 28 January 1878, Page 2

DISTRICT COURT.

THIS DAY. (Kefore His I-iniior TH-triet Ward.) IS KB JIICUKEU XX r.-VE'fE SCOULAK. His Honor delivered his judgment in the above case ns follows : The facts of the above, case appear to be as follow :In Deceruber, 1870, the de'ot'-r Hiliiker tiled a declaration of insolvency in the Disirict Court at Oimnrn ; and, at the subsequent meeting of creditoi's, Sir, rlauies Hoovi'ar, of tho firm of W. and J. fepon!:';r., of was elected trustee. |-Ie accepted tlie trusteeship, and proceeded to realise the estate. A dividend of only gs. (]|d, in the was declared: and the trustee filed his accounts on the i>th May, 'its7h Objection was taken to certain items in tho aocounts filed, and a general meeting of the creditors was convened and held, at which the majority present, or represented duly by proxies, declared themselves dissatis- ! tied with the balance-sheet filed.; apd a j summons was pqnsequently- obtained under clause llf °f '¥ ilti debtors and Creditors Act. 187v>, calling on the tl-us.pep \,o appear and verify his report. At the hearing of the summons, oii the 2(3th Koyember last, a preliminary objection was taken to. the rejection of <jert;ttn pro.vies at the recent general meeting at whioh tho resolution of dissatisfaction was carried ; but tlrU was overruled at the time, and I do not deem it ifGcessary to refer to it now. The i trustee wag then exaiiiinsd, and the fol- ! lowing facts elicited front his examination and frpm the papers theretofore filed ; First, the firm W. and if. ScQiilar proved | against t}' ( o debtur's egtrfte for n debt of LI34S lils. Hd., and fecoivptl in April, 1877, a dividend on that stun, they being at the time secured by a second mortgage over certain landed property of the debtor, sold by them in July, !877> subsequently to the'receipt of the qiypiend, for fhe sum of LSOO, wliioh 'they appropriated towards the payment pra tuirfo of the balance of their debt. Secondly, on the ftth January, 1877, the trustee paid to the prior incmnj branpers nhe I'taildiog Society of Oaniarn) !a sum of {wepty-t\vo pound' 4 eight shillings and sixpence, being an amount due to them on their first mortgage at that date. Thirdly, the trustee paid to the Town Council of Oamaru 011 the flth Apvhh 1877, the stun of T ( y« for sundry rates and assessments in respect of the mortgaged property in question. The.se payments were made out of the debtor's espue, and increased twifu the value of the second mortgage, It was further shown that the llvm of W. and J. Scouiar had taken possesion of the mortgatred properly on the Ist, February, 1a77. and had "let it at c!os. a week ; 'but the trustee averred that the rout had been applied in liquidation of the L2- B*. tvl.. tl'ieretofore paid by him to tho Building Society, and advanced by his firm, but charged to the debtor's estate. It is fioiuev. hat difficult \o re,;oncile these statements. Las'ly, it appeared that in lieu of employing any local acoouiitunt, the {riistess sent up a person nauttd Eskdale from Dnnediii to take slock and wind up the aifaiys of the estate. This person, from his account filed, ap- : pears to have been in Oamaru from the - 10th December, 187(\. to the loth Jann- ; ary, 1877 — (l : h vs m '• an 'i f'-'i" this 1 time tho fi'iic-tec hr P s p.dd hjjtt the sum of ' L4o 10s,, and has charged it against the ''estate, hi addition to t!;is ; iho tripitee i charges t!io estate with 'lJi'-i Vs., being 5 ■ i p t --r f;-..'iit. oon.uuissiiii) to himself on the 1 i gi'OKS proceeds, Oii i'liu?io gruun.ls ?.h\

iiiul of the debtor. i-i-MVi-fl for an -n-.h.-r ilir.'Ctino' :•;. refund "t tin-, iiiuoiiiiis paid to to the Building H<y-Liy, i\\A to the Town uuri!!;.ll. Ho further Jul,r..v,-.ded that the interest of \V. and J, Hcoukr in the premises should havo boon valued previous to the payment of nny dividend to them, and the dividend paid only on the balance of their debt remaining after deducting the value of their security. He therefore prayed t!ia|" they VTPghi ho ordered to refund thai portion of the dividend which, he contended, had been illegally paid to i,he\ u . For the trustee, Mr. Haggiit submitted that under clause 75 of the Debtors ami Creditors Act, Messrs. W. and J, Secular were entitled to prove for their whole debt, inasmuch as no provision for valuation of their security had been made under sub-section 4 of plaime 4S-; »nd that under sub-sec-tion 4 of clause 'lO3 the trustee was bound to pay every creditor a dividend in proportion to the avnor.nt of his proof, There was a singular abstinence from ipiotation of authorities on both sides • but it an.peared thai; iho decision of Sir. Justice Williams iii re Mnekay. reported in the Jurist of May last, was stronglyrelied upon as conclusive in favor of the trustee, Jtr.iay lie as well, therefore, to refer to that case- befuve giving fiU'ther, The special tjnestion with respept to which Mr. Justice VViljiams usqcl the words alleged to bo dockive in the present case, was whether a partly-secured creditor, petitioning for the adjudication of Ins debtor as a bankrupt, was, for the purposes of his petition, to be considered as a creditor for the whole of his debt, or only for the unsecured part of it. Refoiv ring to clause 105 of the Bankruptcy Act, 1807, Mr, Jiiatiw! Williams syys; "-In would have been very desirable chat suoli a clause should have been inserted, but it wa-3 not inserted. The fact of its beinginserted in the English Act of 18(39, and in our own Act of 1807, seems to show that it ie napessary. The Legislature has not chosen to insert a clause oj that kind, and I do not think it is open to the Court to say that such a provision shall be implied if the Legislature has not chosen to ' insert it." The deduction sought to be drawn from these wi,rda in favor of the trustee appears to me to be too comprer hensive. The argument used is clear j enough, and may well serve on a point of practice, but scarcely on one of principle. The question, whether a creditor secured debt is to be regarded as a good founds tion for a petition for adjudication, lias been the subject of much contradictory legislation. By o G. IV., c. 98, s. 14 ;

6 G. IY., c. IG, s. 15 ; 5, and 6 Vict., c. 122, s. 9 ; 12 and 13 Vict., c. IOQ, s. 01 : for instance, it is provided that a-secured creditor may petition for adjudication on an Act of bankruptcy (even if the time for payment of the secured debt have not arrived). Vide Hill v. Harris, Moody v. M., 448. By 32 and 33 Vict., c. 81, and 24 and 25 Vict., c. 134, the contrary is specially enacted. It can scarcely be wondered at, therefore, if Mr. Justice Williams regarded the point as one rather of practice than principle. Yet it might he argued that the total silence of the Act of '7(> on the point simply remits the debtor j and petitioning creditor to their original equities on this head,unfettered by statute, and, if this be so, the right of a creditor to ground a petition for adjudication on a secured debt will be found questionable, to say the least (vide "., G. 1., c. 3.1.. and 5, G." 2, e. 30 and 33). Judging from the statutes, I should rather deem that the equities between the debtor and creditor K'ui'o swayed by the exigences —ival or supposed —of commerce : but tins, is a question which need not bo debated now. The ohief p.uiufc to be decided in the present case is, whet'soy a secured iv-'odicor is entitled to. receive, a dividend on his whole debt, without selling or deducting the value of his security ; c.v, whether lie ia only epiitknl !q a dividend on the balance remaining after deducting such value ; the Debtors and Creditors Act, 187(3, being wholly silent on the mutter, and the repealed Bankruptcy Act of 13(17 i having contained a clause [Vip). declaring that a secured uredjtor. shall be entitled [ j to a dividend in respect of the balance of i liis debt only. Yi'e may with some to, yho Jaw of England, where | our Acts are silent. By the early Eaigdish ; Bankruptcy Ads, \)-i and $5, Men, VI'II., o. 4, 11} lil-lbs. c. 7'. and the two statutes of .Tames 1., large powers we.yo veufced. with regard to bankrupts and their estates, in the Ijovd Ohanoellor, These brief Aofcs, for the most part, merely sketched an outline, as to jurisdiction ami intent, leaving the Courts of Equity ; to lilt up Ihu details hs required. 'De-f cision follows decision ; rule after rule s was hv'd dow-ji; until the judgyqen.fc in equity farmed a oade to guide alt pro ceedings in Bankruptcy. And tho maxim on which those judgments proceeded was that laid down by Lord Coke, ajuihts est •ji'.ad eijiuditus. But few Bankruptcy Acts were passed for two hundred years after thy tJr„t ; our legislators had not then acquired the vwuethe-i loqimndi <d scrihriidi which distinguishes them at present. Some statutes were rendered luces, sary by the rcquirereepts of tvaue, but those were brief, 'and jew aud far between,, But with the r|so of commerce in England can'!!.'thy lurflti plication of commercial complications, and from an early date in the present century the English statute books are thickly studded with Bankruptcy Acts ; increased, no cioubt, in length by the tendency to consolidation developed i.u v,;tidci-n legislation, and in eornplovity by the eo.nseo.uer.t hV'bh'hle endeavours of sivo Ijegislatur.es to compress all tho kaleidoscopic phases <<f bankruptcy within tho Hair corners of a single statute, A« the acts multiply, we find tlitou Including various, principles laid down in decisions of the Equity Courts ■ but the olatises fi.nnded on the-a* decisions are merely declaratory, and the repeal of an act containing such a clause would simply leave the law as it stood before that act was passed. If it be desired to alter the lav.* as laid dawn by a jp.ng series of decisions, it must be done by special cnactinc-d, and not by mere implication or- omission Lot V',s iiii=n to the special question before us. By 84 and 35, Hen, \\tjj-., o. 4. power was given (luft-r- (die) " to order the goods a-nct chattels of the b-'iukriipt for the true payment of the creditors ; that is to say. to every of the said creditors a portion rate and rate alike, according to the : quantity of their 4'iqs was con- : riiiucd by tiili statutes of Elizabeth and ! James I. j and in noqo of these Ac's : is they-o any reference to creditors secured i| by lien or mortgage. Un this point Some i | a-mbiguj; y might arise j'r.mi the neonliar i ii.ic o" tiie word *'' security "in '4l Jam. 1., !c. V.). kci't-. ;? ; but this word was in ■ i this <.■.■■.>■•! c'-i'i.'.-r:'!ie:l as excluding both - jlien and mortgage--(p,r Lord Hard-:-vi e.ve.-'pf',(.o. embodied in 0 Geo. IV,, e, '.Yd. s. 111, and in the succeeding ataluio. : Tii tho best- oi' my .■oooUee.tion. tiie iirst statu tow deilnition' of the shtlus of creditors secure.' by lion or mortgage is to ■ ho found in 1 and 2 Vic. c. lltf, sec. 52, i which provides that secured a-editors should be accounted Mich, ji>r- lUe p-irrpo.-w »/• i-iif/j/;/, only in'respect of the balance due to then; after deducting the Yuhtu of tho property vnorigaged to them. See. ! :-'i; of 2-i and i) 5 Vie., c. 23, goes a step | further, stating that there" shall be

reckoned as dubhs. for the purposes "f any petition under that Act, only the sums due to creditors after deducting tlie value of their £o.4".!'.■.■■iiy. And I in 33 and m 3 \-iot., e. 71, may he found the rights and duties of secured creditors defined at length. (Vide sections 6, 1(5, and 40.) We have, therefore, a long period; <luring which those rights ami duties were defined, not by statute, but by the decisions of the Court of Chancery ; and it is to those divisions that we must iioiv turn for guidance. The case of Wiseman and Carbon ell, 1 Erp Ca. Ah., 312., gives r.s the rule adopted in l(ii)s. There ,1 mortgagee of the frcsehf.]i) 0+ si bankrupt prayed ihjit the mortgaged property might bs sold, and that as to so much as the proceeds thereof fell jshoyt of his claim, he might come in as a creditor nuclei' the commission; and it was so decreed. Forty-eight years later, in 1743: we find the same ruling given by Lord Hard wick, in e>- parte Bonnet. (.1 Atk., 027.) But in ex Vfirtc Grove (}. Atk., 10-i), a ease decided in 1?47, the same learned judge goes somewhat further, 1 His dictum, .in that oasc runs thus: <: Every creditor must swear whether he has security or not; and if he have security and insists on proving, he must deliver up the security to the creditors." In ex parte Smith (2 Rose. 03), decided in 1813, the-law is thus laid dp.wn by Lord Eldon ; - The practice has long been established in bankruptcy not to suffer a creditor holding a security to prove, unless 'he will give up that security, or the value has been ascertained by the sale qf it. The reason is, that until hia debt has been reduced by the proceeds of that sale, { it is impossible to say what the amount of it is." This decision gives us not only the rule, but the reason for it, showing clearly that the amount of the debt considered to be due to a.secured creditor vyho desires to prove against a bankrupt's estate, is merely the'balance due to him a'ter realising his security. See also ex parte

Downes, 18 Vesey 290. Tho next case, e.c -parte Hornby, 1 Back, 351 (1.819) shows a further advance. There the YiceChaucellor says :—"' Where a solicitor who has papers m his hands relating to the bankrupt's estate, upon which ho daims a hen for his hill of costs, comes in under the commission and proves his debt, such proof is equivalent to payment, and lie must deliver up the papers to the assignees." hi e..-yai-ta Solomon, I fi!vn and J. 25 (1821), it was decided that where a secured creditor had proved, and had, by virtue .if his proof,'done acts which might affect the interest of other creditors, lie could not retract hu proof, but must deliver up Ins security. Tu ,m* parte Eggington, Mont, 't'2 (ik',o\ this riding wss upheld. In that caso a creditor had proved, and had received a dividend, but she stated in her proof that she held a lieu an certain Title deeds of a part of the bankrupt's estate. The asHigiioes sold, hut boforo tho sale was completed tho creditor prayed that they might pay he-r the amount due on the dee'H> she repaying tho dividend received. The petition was dismissed by Lord Lyndhurst, The same learned judge thus laid down the law in the case in re. Mummer, 1 Phil., eh. r. 50 (1.841) : "It the creditor of a bankrupt holds a ; security on part of a bankrupt's, cat-ate, he ! is not entitled to prove. Ids,'debt under a commission w.\tlu..u6 giving up or realising his. aeuurity. For tho principle of the ! bankrupt laws is, th.jt all creditors are to be \.\ut on an eaiial fo.oiiug ; and t'.H'rotVt.re.. if !*> creditor wl-ihes to prove under, the co.uy.viiWon, he must sell or surwwlei* whatever properly he holds belonging to the bankrupt." And. in the case of Oockoixd! v. Dickons, 1840, (3, P, C. !£2), Baron Parke thiij; delivered the judgment of tho Privy Council on this point:—"The principle ia, iluifc one creditor shall not take a part . of the fund wide'" otherwise would have been available fur the paytuetit of all the creditors, ;tntl ;.i »hc asiino time bo allowed to vio.ue. in /;//;■;' /• .i:-m with the other creditors for satisfaction out of the remainder of that fund, 1 ' livery Bankruptcy Act intuit bo road by the light of these decisions ; and, were it needful, I would hny.U'd a wide solution of our «;trtitico of 187G, rather than absent tu the contention urged on h'.'hidi of the trustee that, tlmuigh a mere omission, it repudiates a I principle of justice firmly fixed by a. long j line of judgments delivered by the most illustrious judges of However, in my ore! u ion., no straining of tho Act ia needed. Tho contention of tho trustee ' here simply amourii.-s to this : that, forasmuch a« r... provision has been made. in. 'die Acts or Rules for valuation <;£ h;s security, lie is entitled, without deducting its value, to prove for, and receive a dividend <m, his whole debt, realising uuder security afterwards. No I'nmsior pretext for injustice was ever invented. r\o doubt there is a Ju/asu-s which should have been ere now supplied by the Rules ; but whew they are sdeut. we are remitted to to the principles of equity by clause 21 of the Act. Until tho ride for valuation bo made, the mortgagee must sell under Ids mortgage, or apply to the Court to presenile ihe method of valuing it. Vide Smith, 2 Rose 53, and ex par-h- Nvtnu, 1 Rose. h'22. The principle cJ I ' justice being laid down | in the lltughsh cases, and clearly intended I to be carried out- by our statute (ritle subj sections j, A. and 5 of CI. 48), it is for a ! Judge to see how far he can prevent any j step from being taken advantage of. not how far he can assist in evading the Act. And were tho law doubtful, the Court wotdd lean to the side of justice and equity. But by clause Oil it is tniiiercd that the proving of a deYtt under the Act shall be deeiiipd an election by tho creditor- in take the benefit of tho bankruptcy with respect to that debt, and nothing can be cleat el' than that a secured creditor cannot ttavo the benefit of a bankruptcy with rusp.-.ct to the secured ponton of his debt, and y.t retain his security. lie may elect which to take ; he cannot haw both, I need scarcely observe that subjection 4 of clause 102, specially relied on by Mr. Kaggitt, bar. no reai reference to this caso. JMo. trustee oui be compelled to i-iiv, ov would be ju-Udlod in p".y:ng. claims which ho knows to he fraudulent or unjust, however perfect in form the proofs may be. to the trustee's counsel, the f.tllnwiug is the history of the nres.-nc c.iso. Moouiar Rrothors tlrst put in a proof %• vhoir. whole debt, without nlliuV-og t" "'o mortgage' .securing it. ■Then .). Seoular is elected trustee ; seiidinise.s this proof at leis'uv, and doubtless finds it a model of perfection. He next carefully considers the construction of the said sub-section ; fakes sweet counsel thereon ; and at length finds hiutaolf conscientiously cuiipi lied, to pay himself a dividend on his whole debt as proved: the security Letug quietly absorbed afterwards, and no reference made to it in his report ; doubtless out of delicacy fur the feelings of the oMn r creditor;*. ' V/hat a touching tihicati of iho frou'ol 's of trusteeship, Li my opinion, W. amid. Sooularhave incurred a forfeiture of their security by the course they have taken, and may bo Ceimpe'ljd to repay the LSOO, received by tlicm under their mortgage, to the debtor's estate, for distribution among the whole body of creditors, They have prove.-l. and recoiv d a dividend on their whedo' debt, and it is now too late for client to retract, They may possibly plead that they noted under erroneous evidence ; but If/iiiiMiitia far.il—noil juris (•.■■rnmit. ; and whatever doubt might have existed on tho point of law, there could bo none on tho questions of justice and honesty. The order applied for cannot, however, be granted in full, Tho question whether this Court h<is jurisdiction to order tho I refund by a creditor of a dividend improperly paid to him, was raised by Mr. Hagei'itt on behalf of the trustee. On this head the case e.c jiarta 'Brown, 2 Rose 50. might be quoted ; but it is unnecessary to decide that point now. Having forfeited their security, Mesars. fjcoular arc entitled to kcop their dividend. The amounts paid to the Building Society ami to the Town Council would bo ordered to be refunded, as of course, were tho amount realised on Sconlav'a security to remain in the present hands ; but as tho effect of those payments was simply to increase, the value of that mortgage, of which the oredttors generally will now reap the benefit, it would not he equitable to compel the trustee to repay them. Of the amount paid to Eskdale by the trustee, L 22 10s. must be refunded. Twenty shillings per dievu will be allowed for each working day of the twenty-eight days spent by that accountant in Oamaru, »** vt no more. That is ample pay ftp--Sklent accountant, and I shall -" P resi "ne that

there are no book-keepers to ho found in this town, and that it is consequently necessary to bring one up from Dunediii. ihe order will therefore simply bo that the trustee do refund this amount to the estate, and do also pay tho costs of these proceedings. In England, the order would further be for the removal of the trustee front his office, for the grave misconduct of which lie lias been guilty; but our Debtors and Creditors Act contains no provision for the removal of a trustee for misbehaviour, except at the request of a. majority in number of the creditors,, whose debts must amount to three-fourths; in value of those proved (CI. 51). Thus,, l / to the value of over onelourth of the debts proved become trustee,. it is impossible to remove him at. all ; unless, as provided in CI. 52, he happens to become bankrupt,. or incapable of acting, or lea ves i he Colony.. It would be well that further provision; should be made by the Legislature on this; pointy I have given this judgment at. some length, not so much in consequence? of the difficulty and importance of the. points involved as on account of the belief apparently held by creditors' trustees, and by divej-s. of the legal profession, that our liobtors and Creditors, Act, ISTti, contains within its four corners the Whole Duty of Man in Bankruptcy—a delusion which deserves to be dispelled. After his Honor had delivered judgment, Mr. O'Moagher said ho wotdd take tho necessary steps for the benefit of the creditors. Tho Court was then adjourned.