Scottish Court of Session Decisions

The advocator, Clark, W.S., had, from the year 1818, been the ordinary law-agent of James Scott, wood-merchant in Leith. Scott was proprietor of certain heritable subjects in Leith, and of several feus at Duddingstone near Edinburgh, forming a villa called Hawthornbrae. Prior to 1824 the Leith property was burdened with heritable securities in favour of the British Linen Company, to the extent of £4926, together with a prior security for £1100 in favour of another party, while the Duddingstone feus were subject to an heritable bond, held by one Coles, for £1000. In April, 1824, Clark, as agent for Scott, addressed a letter to the late Andrew Morrison, saddler in Dunbar, father of the respondent Mrs Thomson, mentioning that he had heard that Morrison had a sum of money to lend, and that if he would give £1250 or £1200 on security of the Duddingstone feus, over which Coles's bond for £1000 extended, Scott would pay off that debt, and give a bond to Morrison for either of these sums. He further stated that the property had been valued by an Edinburgh architect at £2400. Morrison agreed to make a loan of £1200, on being satisfied as to the encumbrances; and in the month of June following be advanced this sum, obtaining an heritable bond, which contained the usual assignation to writs, Clark undertaking personally to furnish a search of encumbrances, which had not then been completed. In August following, Clark transmitted a search of encumbrances, requesting, at the same time, that, if found satisfactory, the title-deeds of the property, which three months previously had been handed to Morrison's agent, might be returned. In compliance with this request, the title-deeds were returned to Clark. At this time Clark had claims against Scott for business accounts to the extent of £273, and he had also advanced for him sums to the amount of £400. No intimation was given by him to Morrison that he had any claims against Scott, for which he considered himself entitled to a hypothec over the title–deeds. In 1827, some irregularity having occurred as to the payment of the interest, Morrison threatened to call up his money; but Clark having personally guaranteed the regular payment in future, with a reservation of withdrawing his guarantee on six months' premonition, Morrison allowed it to remain. In 1829, Scott, being at the time, as it ultimately appeared, in a state of total insolvency, executed a trust–deed for behoof of his creditors in favour of the respondent Grieve. To this trust Clark acceded, and delivered up to Grieve the title–deeds of both the properties belonging to Scott, but under reservation of the effect of his right of hypothec in the ranking.

In 1830, Grieve entered into an agreement with the British Linen Company, by which he was to convey to them the Leith property, subject to the prior security of £l100, and they were to take it in satisfaction of their debt over that property, and were not to make any claim on the personal estate. A conveyance was accordingly executed by Grieve, who delivered up to the British Linen Company the titles of the property. Clark was made aware of this transaction, and, to enable it to be carried into effect, he discharged an inhibition which he had executed against Scott. The remaining property, the Duddingstone feus, proved to have been extravagantly overvalued in 1824, and was totally inadequate to satisfy Morrison's heritable debt of £1200 over it. In addition to this debt, there were also considerable arrears of feu-duty, which formed a preferable burden; and Clark further advanced a claim of hypothec over the title-deeds for various accounts, the particular nature of which it is unnecessary to advert to, amounting in all to £587, 19s. 3d., afterwards restricted to £497, 19s. 3d. In these circumstances, the respondent, Mrs Thomson, as representing her father, Morrison, now deceased, presented, alongst with, her husband, a petition to the Sheriff of Edinburgh, directed against Grieve, and praying to have him ordained to deliver up the title-deeds to them, as entitled thereto in virtue of the assignation in the heritable bond. To this petition Grieve put in answers, stating that Clark alone had the real interest in resisting this demand, and ought to be made a party. The Sheriff thereupon ordered the petition to be intimated to Clark. This having been done accordingly, Clark made compearance, and made up a record with Mr and Mrs Thomson, Grieve not taking any further part in the proceedings before the Sheriff, Objections were taken by Mr and Mrs Thomson to certain of the accounts for which Clark claimed a right of hypothec, and to different items in these accounts; but at present it is only necessary to attend to two more general pleas which were maintained by them, and which were as follows:—

1. They contended that Clark having induced the late Mr Morrison to make the loan over the Duddingstone property on the understanding that it was affected by no encumbrances, was barred, personali exceptione, from pleading his right of hypothec as to that portion of the account which was due at the date of the bond, he having withheld from Morrison all information of the existence of any such claim, which was substantially of the nature of an encumbrance preferable to the security to be granted to Morrison; and,

2. They contended, that Clark having an equal right of retention over the title-deeds of both the Leith and the Duddingstone properties, was not entitled, after Scott's insolvency, to part with the titles of the one property so as to subject the holder of the security over the other to the whole burden of his claim, and that he could now only demand from Mr and Mrs Thomson, on the titles to the Duddingstone property being delivered up, such a share of those accounts for which his hypothec was available, as would effeir to the value of that property compared with the value of the Leith property.

The Sheriff ordained Grieve to deliver up the title-deeds on caution being found for payment of such part of Clark's accounts as might be found covered by the right of hypothec, and after considerable further procedure he pronounced an interlocutor, in winch, besides determining on the objections to the accounts themselves, he found as to these two pleas as follows:—“Finds, that in the circumstances of this case, the defender is barred by a personal objection from pleading his right of hypothec for that part of his accounts which was incurred prior to the bond by James Scott to the deceased Mr Morrison on 9th June, 1824, in respect, that in the circumstances of the case, the defender ought to have informed Mr Morrison of the existence of the burden of his hypothec;rdquo; and “Finds that, in consequence of the titles of the Leith property having been delivered up to the British Linen Company, so that the defender cannot now enable the pursuers to operate a proportional relief by means of those titles, the defender is entitled to recover under his hypothec such a proportion only of that part of his account which shall ultimately be sustained as the value of the Duddingstone property, shall bear to the value of the Leith property.”

Thereafter the Sheriff appointed a valuator to report on the respective values of the Leith and Duddingstone properties, and a report having been returned that the value of the former was £4300, and of the latter £615, he found Clark entitled to the sum of £7, 14s. 11 1 2d., as the proportion of the amount for which he held the right of hypothec was pleadable, effeiring to the value of the Duddingstone property.

Of the judgment of the Sheriff, Clark brought an advocation, which he served upon Grieve, as well as on Mr and Mrs Thomson. A new record, on the demand of Clark, was made up in this Court, in which Grieve pleaded that he had been improperly made a party to the advocation, after being substantially dropped out of the cause in the inferior Court, and he maintained generally on the merits that he could not be required to give up the title-deeds, delivered to him by Clark, without being freed from all claims which the latter might have against him, in respect of the conditions on which they were so delivered.

For Clark, it was maintained,—

1. That there were no grounds on which to hold him barred from pleading his right of hypothec as to accounts incurred prior to the date of Morrison's bond; and if, as held in the case of Campbell and Clason, ¹ an agent was entitled to plead his hypothec for accounts Incurred subsequently to the date of an heritable security, a fortiori, must he be entitled to plead it as to accounts previously due. That he had in no respect acted as agent for Morrison, and was not bound to make any communication to him regarding the amount of his business accounts against Scott; and that as Morrison saw that he (Clark) was in possession of the title-deeds, he of course knew that they must be subject to a hypothec for whatever accounts were due, and ought to have enquired into the amount had he deemed it of any consequence; but that the value of the subjects were then considered so far beyond the sum lent, and the business account was comparatively so trifling, that the knowledge of it could not in any way have affected Morrison's conduct in entering into the transaction.

2. That an agent holding the title-deeds of different proprietors could not be required to insist in his right of hypothec over them all, so as to admit of the apportionment adopted by the Sheriff; that the right of hypothec was not at all of the nature of a security attaching to the subjects themselves, and was available only by occasioning inconvenience to the proprietor from want of his titles, which might be felt in decrees altogether out of proportion to the value of the respective properties; and that the attempt to treat this right as a catholic security over several properties, and to compel the agent to apportion his account, was perfectly novel, hitherto unknown, and not supported by any authority whatever; and, at any rate, that the delivering up the titles of the Leith property

_________________ Footnote _________________

¹ 15 ^th November, 1822, ante, II. 16.

was the act of Grieve, and not of Clark, he having given no consent to this proceeding.

To this it was answered for Mr and Mrs Thomson,—

1. The case of Campbell and Clason is altogether inapplicable to the present. No question of personal exception arose there, the only point determined being, that when an heritable creditor allowed the title-deeds of the property over which his security extended, to remain in possession of the proprietor's agent, they became necessarily subject to hypothec for business accounts subsequently incurred. The plea here, however, is, that Clark, who had held out to Morrison that the property was free from all encumbrances, and had got back possession of the titles on that representation, while he had himself a claim that he could render preferable by means of his hypothec, all knowledge of which he had withheld from Morrison, was barred from insisting on such preference by having virtually deceived Morrison, and led him to take the security on the erroneous representation by himself, that the property was free from all encumbrances.

2. Although the right of hypothec does not attach as a security to the lands themselves, but operates by the power of withholding the title-deeds, it substantially gives the same benefit as a proper catholic security, especially in the case of insolvency, when the properties necessarily fall to be sold. Although, therefore, so long as the proprietor remains solvent, there can be no call on an agent to retain any titles beyond what will suffice to effect payment of his claims, yet when insolvency ensues the very same principle which obliges a catholic creditor so to use his security as to make it bear equally on all the subjects over which it extends, where the interests of secondary creditors requires this, renders it imperative on an agent having a hypothec over several sets of titles not to part with one set so as to free the property held by them from all share of the burden, and throw it exclusively on another to the undue injury of the creditors on such other property. Here Clark was perfectly aware of the several burdens over the two properties, and yet after Scott's insolvency, and the execution of a trust-deed for behoof of his creditors, he, or Grieve, acting for him, by authority derived from him, and with his concurrence, parted with the titles of the Leith property; and he can now only be allowed to avail himself of his hypothec in a question with the heritable creditor on the Duddingstone subjects to the extent to which these would have been subjected, had the titles to the Leith property been still in his hands, and also liable to the claim of retention.

As to Grieve's plea, it was contended, that as the original petition was directed against him, and the order for delivery of the titles was pronounced upon him, it was alike competent and proper to make him a party in this advocation, although he had not made up a record in the inferior Court, which, however, he had now done here.

The Lord Ordinary reported the cause on cases, adding the subjoined note. ^*

_________________ Footnote _________________

^* “The Lord Ordinary reports this case without a decision, chiefly because he thinks the questions raised, as to the personal exceptions against Clark, and as to the right of an heritable creditor (in a case circumstanced like the present), to insist on a proportional restriction of a law-agent's hypothec, according to the value of the different properties, over the titles of which he had this hypothec when the heritable debt was constituted, are of such general interest, and attended with so much difficulty, as to be properly left, in the first instance, to the decision of the Court. He cannot say that upon either of these he has formed a decided opinion; but he will not withhold from the parties the views to which he inclines.

“If he thought that the argument for the heritable creditors, on the first of these points was at all inconsistent with the decision in the case of Campbell and Clason, 15th November, 1822 (F.C.), he should have no difficulty (though that was a hard and difficult case), in at once rejecting it. But though Clark endeavours to represent it in this light, such is not truly its description. It is, as it is expressly stated to be, an argument on a personal exception merely, and its object is to show that Clark, by his own improper conduct, and culpable, if not fraudulent concealment of the existence and amount of the debt for which he intended to retain the titles of the property, induced the creditor to advance money to his client, on a security of which he would not otherwise have accepted. Of the general relevancy of such an allegation, the Lord Ordinary entertains no doubt; and the difficulty he finds in the present case arises solely from his doubts as to the sufficiency of the proof to fasten on the agent the blame of such a proceeding. Cases, however, may easily be supposed in which there would be no such difficulty. If the agent had a business-account against an insolvent client, to the amount of £1500, and held under his hypothec the titles of a property worth about that sum, and did notwithstanding induce and encourage a stranger to advance £1000 or £2000 on the security of that property, without any hint of the existence of such a lien, the Lord Ordinary does not think it doubtful, that the personal exception arising from this concealment, would at once deprive him of his hypothec in a question with that stranger, and make him liable for the titles without regard to the payment of his account. The present case, though by no means so strong, is truly of this description; and though he has not finally made up his mind upon it, he rather inclines to concur with the Sheriff in holding that, in the circumstances, the agent was not justifiable in negotiating for the loan from Morrison, while entirely suppressing the fact that the titles were impledged for a sum which has turned out to be equal to the free value of the property.

“There is something rash perhaps in Clark's objections to the distinctions taken by the Sheriff between the part of the account incurred previous to the advance by Morrison, and that subsequent to it. But it is obvious that the ground upon which the Lord Ordinary inclines to support the judgment, really applies to the previous part only. It was only at the time of negotiating for that advance that the agent had any dealing with Morrison, or came into such contact with him as to make him personally responsible for any concealment or suppression of necessary information. Morrison was then an entire stranger to the property, and its history and condition, and must consequently have relied on what the agent was pleased to communicate. After that, he had such a connection with it, as may be supposed to have made it his duty to look to his own security, and see that neither it nor its titles were subjected to preferable claims. It seems to have been upon some such grounds that the decision in Campbell and Clason's case proceeded. But it is enough that, in regard to the subsequent accounts, there is no room for that personal exception on which the Sheriff is understood to have proceeded; that is, no room for imputing individual misconduct or unfairness in the agent's personal negotiations with the heritable creditor.

“The second question as to the compulsory apportionment of the hypothec, derives all its difficulty, in the Lord Ordinary's apprehension, from its connexion with the first, though a much smaller degree of impropriety might justify the Sheriff's judgment on this, than might be necessary to support it on the former. If the agent was not at all aware of the existence of any heritable debts, or of the consequences to the several creditors, of his giving up one part of the titles and retaining another, it would be absurd to hold that he lost, or in any respect narrowed his hypothec, for his whole account over the titles he retained. But if he was perfectly aware of the condition and relative interests of different real creditors on particular parts of the property, the Lord Ordinary inclines to think, that he should be considered as in the situation of a catholic creditor, aware of the relative interests of different secondary creditors on the same subject, and bound so to deal with his preferable security, as not needlessly to interfere with their legal rights. Full justice perhaps is not done to this part of the argument, in the able case for the heritable creditors. But it is certainly dealt with in far too confident tone on the other side, by the agent and the trustee. In particular, the Lord Ordinary is of opinion, that there is no real weight in the circumstance so much relied on in their argument, that the lien of the agent imports no actual right or interest in the lands themselves, but is merely a power to retain the ipsa corpora of the written titles; and is available only when the parties happen to have necessary occasion to reclaim them. Whether the interest be direct or indirect, it is undeniably a preferable interest, which overrides and controls that of those who have the actual right to the subjects themselves, and ought, therefore, it is humbly conceived, to be exercised under all the conditions and restraints which regulate the exercise of any other catholic or preferable right.

“The Lord Ordinary thinks it impossible to doubt, that the property at Leith was conveyed, and the titles given up free of any burden of hypothec, with the knowledge and consent of the agent; though it is probable enough for the heritable creditors that they were so given up without their knowledge or consent. He thinks there is no solidity in the trustee's argument, that, if the heritable creditors did not accede to the trust, they have no right to challenge any arrangement made by him and the agent in the execution of it. They have a clear right to challenge whatever is improperly done to their prejudice, and if the agent and trustee wilfully discharged the Leith property from all claim of hypothec, without consideration for, or notice to them, it is as if they had discharged correi debendi, and destroyed a known and most equitable right of proportional relief.

“If the Sheriff's judgment on these two points is confirmed, it probably will not be necessary to go much into any other. If it be necessary, however, to dispose of them, some farther investigation in point of fact would seem to be requisite; and the Lord Ordinary is not of opinion that the parties can be precluded from such investigation, by the tenor of the Closed Record, or proceedings generally in the Inferior Court. As to the accounts arising out of Sprett's trust, he inclines to think that, if the claim was against James Scott, in his character of trustee, although directed against him individually, but upon grounds that would bind the trust-estate, and entitle him to relief from the acceding creditors, his constituents, then the titles of his private property were not properly hypothecated for the account incurred in resisting that claim. But if, on the other hand, the claim was properly and purely against him personally on account of individual malversation as trustee, it must be regarded as any other claim against him individually, whether arising from contract or delinquency. The parties are understood to be at issue on the fact, and still it is ascertained, it is the Lord Ordinary's impression, that no judgment can be given. As to the accounts entered as charges against James Scott and Company,—if it be true that there was truly no such company, or at least no other partner, but the individual James Scott himself, at the time these accounts were contracted, it is apprehended that the use of a company firm can have no effect on the agent's right of hypothec; and that he is entitled to hold the papers of his own employer, in security of his account. If there was actually a partnership, however, the Lord Ordinary thinks it was rightly ruled in the case of Skinner (which would at all events be binding upon him), that the company agent should have no right of hypothec over the titles of an individual partner. The other accounts charged against William Scott, in the books of the agent, would rather seem not to warrant the hypothecation of James Scott's titles.

“The trustee's argument in the Act 1594, c. 220, is conceived to be inadmissible and irrelevant. But it is rather thought that Andrew Scott, the assignee of Mr and Mrs Thomson, ought to be sisted as a party.”