Scottish Court of Session Decisions

Of date 11th April, 1820, James Buchanan, merchant in Glasgow, partner of the house of George and Robert Dennistoun and Company, granted to his mother, the late Mrs Jean Buchanan, his promissory note for £5250, with reference to which the company gave her the following letter of guarantee, holograph of the managing partner:—

“ Madam,—As we understand from our partner, Mr James Buchanan, that he owes you £5250, on a promissory note for that amount, dated Glasgow, 11th November, 1820, and payable one day after date, we, at his request, hereby engage to guarantee said bill to the extent of the value of the stock which he may have in our house, subject to the liquidation of our debts and engagements. And we further engage, should the said stock be reduced in value to the sum of £10,000, to apprise you of the same at the time of docqueting our books. We are, Madam, your most obedient servants, GEO. & ROB. DENNISTOUN & Co.”

James Buchanan's share of stock in the concern of George and Robert Dennistoun and Company was about this time nominally £29,000, and there stood at his debit in his account-current nearly £9000, leaving, however, on the face of the books, due him on account of stock upwards of £20,000.

The company became insolvent in 1826, and vested their affairs in trustees for behoof of their creditors. The estates of the individual members of the company were at the same time sequestrated, and a claim was lodged on that of James Buchanan by Mrs Buchanan, who also, with concurrence of her husband, the pursuer, Andrew Buchanan, raised this action (carried on after her death by the pursuer) against George and Robert Dennistoun and Company and their trustees, under their letter of guarantee, on the allegation, that the value of James Buchanan's stock in the concern had been reduced below £10,000 shortly after the date of the letter of guarantee, while no intimation of this had ever been given to her by the company, who had, nevertheless, themselves, in 1824, required from him heritable security for certain advances made to him by them.

This allegation as to the value of James Buchanan's stock was denied; and it was farther pleaded in defence, that the bill was prescribed; that the letter of guarantee was improbative; that, even if binding, it only extended to the value of James Buchanan's share, subject to deduction of debts and losses, which entirely exhausted it; and that, although failure to intimate the reduction of James Buchanan's stock, supposing it to have been reduced, might subject the company to a claim of damage, it could afford no foundation for an action of recovery of the amount of the bill under the letter of guarantee.

To this it was answered—

1. The claiming on James Buchanan's estate, and the raising of this action within the six years from the date of the bill, have saved it from prescription.

2. The letter of guarantee, being holograph of the managing partner, is a probative writ.

3. The obligation under the letter of guarantee required that the company should give fair notice of the reduction in value of James Buchanan's stock, so as to enable Mrs Buchanan to secure payment of the note; and the company having failed to do this, are liable in the amount, or at least in so much of it as might have been recovered had they implemented their obligation; and,

4. As to the averment of the reduction in value in James Buchanan's share, although, ex facie of the books, its nominal value was maintained above £10,000, its real value was greatly beneath it; and must have been known to be so by the company, who, however, had abstained since 1820 (contrary to their previous usage) from deducting from their stock any thing for bad debts, or on account of the great depreciation in West India property and securities, in which their funds were vested, and had not deducted various obligations due them by James Buchanan; whereas, by giving effect to the real state of matters, there could be no doubt that the value of James Buchanan's share of stock had been reduced below £10,000 so early as 1821, and had continued still farther to decrease till the period of the bankruptcy.

The Lord Ordinary pronounced this interlocutor:—“Finds that the company of George and Robert Dennistoun and Company were validly bound, in terms of the letter of guarantee libelled, and repels the defences of want of statutory solemnity and prescription: Finds it sufficiently proven, by the admissions and evidence in process, that, as early as the 30th of April, 1821, when a balance was struck in the said company's books, the stock of James Buchanan was not truly, and according to a fair and reasonable estimate, of the value of £10,000; and that this was known to the said company; and finds that, nevertheless, the said company did not apprise the pursuer, in terms of their obligation: Finds no ground in law on which it can be inferred that, in consequence merely of the said failure to implement their obligation, the said company became directly and absolutely liable to pay to the pursuer the sum contained in the promissory note, to which the said guarantee related, or interest thereon; but finds that they did become liable to make payment to the pursuer of the said sum and interest, in so far as it may appear reasonable to believe that she would, in case of receiving due notice, in terms of the letter, on the said 30th April, have been able to secure payment thereof, either out of James Buchanan's share in the company stock, or his other funds; but finds no sufficiently precise averments, or sufficient admissions in process, to enable the Lord Ordinary to decide on that subject—nor have the parties said that they were content to restrict themselves to the evidence in process; and, therefore, appoints the cause to be enrolled, that an order may be made for further procedure in relation to it.”

Dennistoun and Company and their trustees having reclaimed, the Court adhered to the Lord Ordinary's interlocutor, so far as it repelled the pleas of prescription and of the letter of guarantee not being probative, and, quoad ultra, before further answer, remitted to an accountant to examine the books of the company and report.

The accountant having reported that James Buchanan's share was reduced below, £10,000 at the date of the balance of 1st May, 1821,

The Court, on advising cases, adhered to the interlocutor of the Lord Ordinary.