Scottish Court of Session Decisions

In 1824 the company of Stirling and Kenney, booksellers in Edinburgh, was formed, of which Andrew Stirling, Isaac Banners Kenney, and his brother-in-law, the Rev. George H. Robertson, Ladykirk, were partners. The capital stock of the company was declared to be £12,000, of which one-third was to be put in by each partner; if any partner, with consent of the Company, put in a larger amount, he was to be deemed a creditor for the surplus, and to draw interest at five per cent on it; and for any deficiency, he was to be debited with the amount, and interest at the same rate. Alexander Robertson, W.S., the brother of the Rev. G. H. Robertson, acted both as the cashier, and as the confidential agent of that gentleman, and also of Isaac B. Kenney. In 1824, payments to the amount of £3530 were made to Stilling and Kenney, by G. H. Robertson, through the hands of Alexander Robertson.Alexander Robertson entered these, in his own books, to the debit of G. H. Robertson, as having been made on his account to Stirling and Kenney; but in the books of Stirling and Kenney, although an account was kept in the name of G. H. Robertson, they were not credited to him in that account, but were entered in an account kept in name of Alexander Robertson, and carried to the credit of Alexander Robertson. In 1825, and subsequently, a series of transactions was carried on between Stirling and Kenney, and Alexander Robertson, which were, in a great measure, mutual accommodations, by temporary advances of money, and by discount of bills on the joint security of the parties.

In 1829, according to the books of Alexander Robertson, Stirling and Kenney were indebted to him in £2644, 17s. 9d.; I. B. Kenney, in £227, 4s. 4d.; and, after correcting an error calculi, he was indebted to G. H. Robertson in £91, Os. 3d. In that year, owing to particular circumstances, it was necessary for the Company of Stirling and Kenney to make large advances. The correspondence and transactions of Alexander Robertson, Kenney, and G. H. Robertson, showed it to have been arranged, that these advances should be made by Kenney and G. H. Robertson respectively, through the hands of Alexander Robertson, and that he should state himself as the lender of the money to Stirling and Kenney, though in reality he lent no money of his own whatever, but was the mere hand through which the money of Kenney and G. H. Robertson was advanced to Stirling and Kenney. The object of this was stated by Kenney in his correspondence to be, to “avoid putting a larger capital into the house than we already have.” In the course of that year a sum of above £6000 was received by Alexander Robertson on account of G. H. Robertson, and a sum of above £6000 was also received by him on account of Kenney. He mixed these with his own funds in his bank account, and made advances, from time to time, for behoof of Stirling and Kenney, acting under the arrangement already referred to. These advances were entered to the credit of his account in the books of Stirling and Kenney; and in the private books of Alexander Robertson the sums received by him from Kenney and G. H. Robertson were entered to their credit in account with him, while he took credit in his own account with Stirling and Kenney for the advances made to them. This was done under the arrangement already mentioned, and it appeared from the accounts and correspondence of the parties, that the money advanced to Stirling and Kenney was, in truth, the money of Kenney and G. H. Robertson, respectively, supplied to Alexander Robertson for the purpose of being so advanced by him.

In 1832, an alteration was made in the books of Stirling and Kenney, as to the advance of £3530, made by G. H. Robertson at the commencement of the copartnery. It was now transferred from the credit of Alexder Robertson, to the credit of G. H. Robertson, in account with Stirling and Kenney. But no alteration was made as to the advances in 1829, which were left standing at the credit of Alexander Robertson in the books of Stirling and Kenney until February 11, 1834, when these advances were transferred to the credit of Kenney, to the amount of £2629, 19s. 3d.; and to the credit of G. H. Robertson, to the amount of £5662, 12s. 8d. No corresponding alteration, however, was made on the private books of Alexander Robertson, whose estates, in three days afterwards, were sequestrated. At the date of the sequestration, his books stated a balance of £8880, 17s. 7d. to be due to him by Stirling and Kenney, exclusive of the sum of £3530, which had been transferred from his credit to that of G. H. Robertson, in 1832, as already mentioned. They also stated him to be indebted to Kenney individually in £2615, 12s. 9d, and to G. H. Robertson, after correcting an error calculi, in £6450, 1s. 2d. making in all £9065, 13s. 11d.

The estates of Stirling and Kenney were sequestrated, and William H. Lizars was appointed trustee. Alexander Low, accountant in Edinburgh, being appointed trustee on the estate of Alexander Robertson, raised an action for payment of the above balance of £8880, as due by Stirling and Kenney. Defences were lodged, in which, as Isaac Banners Kenney bad previously died, his private trustees made appearance. Two defences were pleaded; 1st, that the whole of these advances consisted of the funds of Kenney, and G. H. Robertson, who gave them to Alexander Robertson, as their confidential agent and cashier, for the special purpose of their being advanced by him for behoof of Stirling and Kenney; and that they accordingly, and not Alexander Robertson, were the creditors as to these advances, no part of which had ever belonged to Alexander Robertson at all. 2d, That, even if Alexander Robertson could be held to be the creditor of Stirling and Kenney for the advances in question, he was the debtor of two of the partners of that company, Kenney and G. II. Robertson, to a larger amount, and, under the law of compensation as established by several well known cases, his debt was thereby extinguished. Low answered, 1st, that, whatever might have been the private motives of the parties, their transactions had taken the shape of placing Alexander Robertson in the position of being indebted to them as individuals, for the sums which they respectively advanced directly to him. They took him for their debtor, leaving him to become the creditor of Stirling and Kenney for his advances. The whole entries in the books of Stiring and Kenney, and in the private books of Alexander Robertson, corresponded with this; and were confirmed by the circumstance, that, when the original advance of £3330, by G. H. Robertson in 1824, was transferred in Stirling and Kenney's books in 1832, from the account of Alexander Robertson to that of G. II. Robertson, no similar transfer was made as to the advances in 1829. That was only attempted in the books of Stirling and Kenney, three days before the sequestration of Alexander Robertson, when of course it was unavailing; and it was never done in the books of Alexander Robertson at all. 2d, The principle of compensation could not apply where the creditor was a company, and the debtor an individual partner, these being, in law, two different and distinct persons.

The Lord Ordinary found “that according to the legal construction of the entries in the books of Stirling and Kenney, the said company must be held to be debtors to the estate of Alexander Robertson, in the balance truly due on the account kept in his name in the company books; but that the defenders are entitled to plead compensation against the said balance on the debts due by Alexander Robertson to the defenders, the Rev. George Home Robertson, and the late Isaac Bennett Kenney, individual partners of the said company.” ^*

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* “ Note.—The first question which arises hove, is whether or not the balance appearing on the books of Stirling and Kenney, is to be held as a debt due to Alexander Robertson, or is composed of various sums paid to the company by Alexander Robertson on account of George Home Robertson and Isaac Kenney? Considering the mode in which the accounts were stated by the company themselves, the Lord Ordinary thinks himself bound to adopt the first view. It is no doubt true, that by the contract of copartnery, Messrs G. Robertson and Kenney were obliged to advance large sums as their contributions to the company's stock. It is also admitted on the part of the pursuers, that Alexander Robertson was the agent and cashier of those parties. It is not denied that he was aware of their obligations to the company, and there seems no reason to doubt that he was enabled to make the advances for which he received credit in the company's books, out of the large funds which came into his hands as the agent and cashier of those individual partners.

“But it does not appear, and is not even averred, that Alexander Robertson was specially directed to appropriate any parts of those sums now pursued for to payment of those contributions, and it is certain that they were not so appropriated by the company; as, in the first place, they were entered to the credit of Alexander Robertson as an individual, in his private account with the company, while in the private accounts between the company and G. H. Robertson and Kenney, they were not entered at all.

“It is obvious, that so long as all the parties remained solvent, this was a matter of no importance. The only effect of the transactions as appearing in that form, was to render the company debtors to Alexander Robertson, while the company continued creditors of G. Robertson and Kenney, for their contributions, and while G. Robertson and Kenney again continued creditors of Alexander Robertson to the extent of their funds remaining unaccounted for in his bands.

“But now, and in consequences of the bankruptcies, the interest of third parties, the creditors of the different estates, are brought into operation; and in regard to them, there is no other mode of determining the various rights of debit and credit but by reference to the transactions as recorded by the company in their own books. In this view, the case of the pursuer is rather strengthened than otherwise, by the correction which was made on the company's books in 1832. Upon that occasion, various large sums, paid in 1824 and 1825, were transferred from the account of Alexander Robertson, and placed to the credit of G. Robertson and Kenney in their private accounts with the company, as having been paid by Alexander Robertson for their behoof. Rut while the attention of the parties seems thus to have been called to the precise nature and effect of the cash advances made by Alexander Robertson, and the entries in their books, the subsequent part of the account, embracing the whole balance now pursued for, was left unaltered,—evidently affording the implication, that as to them the parties intended to allow the transactions to stand on the footing of the accounts as appearing in the books; and no attempt was made to alter those entries till the year 1834, after the insolvency of Alexander Robertson was known, and immediately before his sequestration, when, of course, no alteration could be availing.

“The second question which arises is, whether the defenders are entitled to set off against the balances due to Alexander Robertson, the debts due by him to G. H. Robertson and Kenney, individual partners of the company? Whatever doubts may at one time have been entertained on such a question, the Lord Ordinary is bound to hold it as definitively settled in the affirmative, by the train of decisions since the case of Bogle's Creditors against Ballantine, 8th June, 1793; and in particular, by those of Scott against Hall and Bisset, 13th June, 1809; and Salmon against Paddon and Vannan, 17th December, 1824, which, in any essential particular, it is impossible to distinguish from the present.”

Both parties reclaimed; the pursuer against the finding which admitted the principle of compensation to apply—and the defender against the finding that Stirling and Kenney were the debtors of Alexander Robert-son in the sums in question. The Court directed a remit to an accountant, who reported, on examining the correspondence, books, and accounts of the parties, that “it appears to be very clear, that the advances which were made by Mr Alexander Robertson to Stirling and Kenney in 1829, were made from funds received from or on account of the individual partners, with a view to their being applied to that express purpose. It is true that the payments were made in Mr Alexander Robertson's name, but it would seem that this was done according to an arrangement between the parties, for making these advances appear to the acting partner, Mr Stirling, as if they were a loan from Mr Alexander Robertson, instead of an increase of the company's stock; and that this plan was devised with a view to the money being afterwards more easily withdrawn from the concern. In these circumstances it certainly appears to the accountant, that Mr Alexander Robertson may justly be considered as having acted in the matter in the capacity of trustee for the principal parties.”

The consideration of the cause was then resumed by the Court.