Scottish Court of Session Decisions

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Cite as: [1835] CA 13_582

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SCOTTISH_Shaw_Court_of_Session

Page: 582↓

Dobson

v.

Christie No. 182.

Court of Session

1st Division D.

Bill-Chamber

Feb 28 1835

Ld. Cockburn, Lord President, Lord Balgray, Lord Mackenzie, Lord Gillies.

Robert Dobson and Others, Suspenders.— Buchanan. Robert Christie, Charger.— A. Wood.

Subject_Compensation.—

Four co-obligants were conjunctly and severally bound to a bank for a credit, to be operated upon in name of one of the parties; and, at the period when the bank failed, there was a balance due by this party to the bank, while at the same time balances were due by the bank to two of the obligants, to a larger amount, on their deposit accounts—bill of suspension, at the instance of the principal party and obligants, passed to try the question, whether they were entitled to set-off the balance due to the obligants against the balance due to the bank.

John Lunn, builder in Edinburgh, along with Robert Dobson, and two other parties, became bound to Robert Allan and Son, bankers in Edinburgh, in a bond of credit for £500, to be operated upon by Lunn, and the credit to be kept in his name in the books of the bank. On the face of the bond, the whole four obligants were, conjunctly and severally, bound, directly to the bank, for the balance. Lunn continued to operate on the credit till August, 1834, when Robert Allan and Son failed. At that time there was a balance of £397, 5s. 9d. standing against Lunn, in the books of the bank. Dobson and another co-obligant (Traquair) had deposit-accounts with the bank, and there were two sums of £918, 14s. 8d. and £175, 7s. 10d. at their respective credits on these accounts. Christie, as trustee on the sequestrated estate of the bank, charged Lunn on the bond for payment of the balance due by him to the bank. Lunn gave intimation to the other obligants, and, along with them, presented a bill of suspension of the charge. They pleaded, that, as each co-obligant was directly liable to the bank for the whole sum standing against Lunn, each was necessarily entitled to liberate himself from such obligation by paying the debt at any time; and the bank could have no legitimate interest beyond that of getting full payment of their debt. But as Dobson and Traquair were creditors of the bank for a larger sum, on their deposit accounts, they were entitled to pay the bank debt by compensation. They could certainly have done so, if the bank had given a charge to them, in place of Lunn; and the bank were not entitled to defeat the equitable operation of compensation, by charging Lunn alone, seeing that, by the bond, Dobson and Traquair had been taken directly liable singuli in solidum.

Christie answered, that the debt due by Lunn to the bank was quite distinct from any debt due by the bank to Dobson or Traquair, or any other party. Lunn did not dispute the justice of the debt, or its amount, and the bank was therefore entitled to proceed against him, and to leave Dobson and Traquair, in so far as they happened to be creditors of the bank, to rank like the other crditors, otherwise they, by becoming cautioners for Lunn (which they substantially were), would derive the indirect benefit of making him pay them in full so much of the debt due by the bank to them, as amounted to the sum due by him to the bank. This would give an unjust preference to Dobson and Traquair over the other personal creditors of the banks and the trustee was entitled to object to their interposing between Lunn and him at all.

The Lord Ordinary “refused the bill, and found the suspenders liable in expenses.” ^*

The suspenders reclaimed.

Lord President.—Is Lunn solvent?

A. Wood.—Yes; and he is ready to pay to the party entitled to exact payment.

Lord President.—I think the interlocutor should be altered, and the bill passed. I conceive it to have been settled by the cases of Bogle v. Bannatyne, and Somerville v. Bisset, which were very fully considered, that wherever a party is liable to pay a debt, and is also creditor of the person to whom he is so liable, he may pay his debt by compensation. In this case, each co-obligant, by the tenor of the bond, was directly and immediately debtor to the bank for the full balance standing against Lunn. He might have received a charge for the amount, and be was entitled to liberate himself from the obligation by paying it. But if such co-obligant be creditor of the bank as well as debtor to it, I conceive he is entitled to compensate the debt due by him with the debt due to him, and that he is not barred from this by the circumstance, that the debt, being directly due by him, was contracted through the operation of Lunn, while the debt due to him arose from his own deposit-account. I have a difficulty, however, in seeing on what ground Lunn can suspend this charge, as he admits the debt to be undoubtedly due.

Lord Balgray was understood to dissent. His Lordship considered that the credit was granted solely for behoof of Lunn, and that the bank could not have applied it to cover advances made to any other co-obligant. The purpose of making all the co-obligants liable directly to the bank was solely for the bank's benefit, so as to exclude all questions as to the benefit of discussion or division, and leave these to be adjusted among the obligants themselves. In these circumstances, when a balance arose on the credit account against Lunn, he was the true and proper debtor for the amount, and none of the other obligants, though they might be creditors of the bank, could step between him and the bank with an offer of compensation, in order thereby to obtain, pro tanto, full payment to themselves of a debt due by the bank to them.

_________________ Footnote _________________

^* “ Note.—The suspension is only of a charge—not of a threatened charge—and therefore does not apply to any suspender, except Lunn, who alone has been charged. ^† Independently of this, each of the obligants being liable for the whole debt, it is competent for the charger to proceed against any one of them, and it is not alleged that Lunn, who has been selected (he being the person for whose behoof the credit was granted), has any ground of compensation. When any obligant, to whom money is due by the bankrupt, shall be charged, that person will have the benefit, whatever it may be, of this circumstance. It is admitted that the bankrupts owe Lunn nothing.”

^† (The charger afterwards consented to hold the bill of suspension, in so far as at the instance of Lunn, to be of a charge actually given, and in so far as at the instance of the other suspenders, to be of a threatened charge).

Lord Mackenzie.—This is a question in the Bill-Chamber, and I am for passing the bill. It is true that Lunn admits the debt to be due by him, but it is important for him to pay with safety to himself; and I apprehend, if he were now to pay to the bank, he would run the risk of having to pay over again to the co-obligants. He was, therefore, justified in suspending. I do not think it of any consequence that it was only Lunn's operations on the account which could have reared up this debt. The bond might have been so conceived as to give a credit to a party who was not an obligant under the bond at all. The obligants might have bound themselves in favour of a man in London, or in the West Indies; but the question would still be, What was the obligation they undertook? What is their liability to the bank? By the terms of their bond, and according to the practice of banks, none of them stands in the relation of cautioner; each and all are primarily and directly liable, singuli in solidum. But the result of this is, that as each is directly liable to pay to the bank, each is necessarily entitled to make payment; and that is offered to be made by compensation. Any one may insist on extinguishing his obligation, by fulfilling it; that is, to make payment of the debt for which he is immediately liable, and the bank has no legitimate interest to object to receive payment of its debt.

Lord Gillies.—I incline to consider the question in the same point of view. It is true that the bank, solely for their own benefit, took the obligation against each party as conjunctly and severally liable to them. But, from the nature of the obligation thus exacted, it seems to result, that, since each obligant is directly bound to pay the sum now charged for, he must have a right to make such payment, and extinguish his obligation. This seems to be all that Lunn's co-obligants insist for.

The Court altered the interlocutor, and passed the bill.

Solicitors: J. Pedie, W.S—J. Wight, W.S.—Agents.

SS 13 SS 582 1835