Scottish Court of Session Decisions

This is an action for relief of a guarantee granted by the pursuer to the Clydesdale Bank for £150, which it is contended the defender (Mitchell) by a letter became bound to relieve him of, and the defence is that the document on which the pursuer founds is not one which entitles him to that relief. The original guarantee is contained in a letter granted by the pursuer to the bank, dated 22d June 1853, requesting the bank to give James Wood, watchmaker in Glasgow, a credit account to the extent of £150; and binds the subscriber to pay any balance that may arise due to the bank under the guarantee to that extent. The letter addressed by the defender to the pursuer was dated 15th June 1853, and is in these terms:—“As you have become security to Clydesdale Bank for £150 on account of Mr James Wood, for the purpose of assisting him in his business, I hereby guarantee you against any loss by your so doing.” At the date of this letter the pursuer had not interposed his security to the bank for Wood, but had arranged, or was in the course of arranging, to do so. On 22d June, seven days after the date of the defender's letter, the pursuer addressed to Mr Readman, manager of the Clydesdale Bank, the following letter:—“Sir,—I request you will allow Mr James Wood, watchmaker, West Nile Street, Glasgow, a credit account with your bank to the extent of £150, and I bind and oblige myself to see you repaid the balance due, with interest thereon.” After receipt of this letter, a credit account was opened in the bank books in Wood's name on 28th June 1853, on which Account Wood continued to operate by drawing and lodging monies to 12th June 1861. At the latter date there was a balance due to the bank of £151 odds. Wood being unable to pay this balance, the bank obtained decree against the pursuer for £150 in virtue of his cautionary obligation. The pursuer then brought his action of relief against the defender, who pleaded—(1.) The guarantee having reference to a specific existing debt, for which the pursuer, as was represented, had at its date “become security” to the bank, and no such debt being then really existing, and no such security having been then granted by the pursuer, the guarantee was inoperative and not binding, and cannot now be enforced. (2.) The defender's guarantee, even although it was otherwise binding, must be strictly interpreted, and cannot be construed to extend to transactions subsequently entered into, to which it has no reference. (3.) The obligation granted by the pursuer to the bank being of a date subsequent to the date of the guarantee subscribed by the defender, and the pursuer's obligation being for a credit account with the bank, which was not contemplated by the defender's guarantee, the guarantee does not apply to the obligation of which the pursuer seeks to be relieved. Before answer, the Sheriff-Substitute (Bell) allowed the defender a proof of his averments, to which interlocutor the Sheriff adhered.

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The defender led no proof, and the Sheriff-Substitute held him confessed as unable to instruct any of his averments, beyond the extent to which they were admitted or proved scripto. But on the merits, the Sheriff-Substitute assoilzied the defender under the following findings:—

“Finds that the circumstance of the pursuer's cautionary obligation to the bank being posterior in date to the defender's cautionary obligation to him, might not have excluded the claim of relief, had it been apparent not only that the one was granted with a view to the other, but also that the obligation granted by the pursuer to the bank was no broader or wider than the prior obligation granted by the defender: Finds, however, that all the defender undertakes in his letter of guarantee is, that he will not allow the pursuer to suffer loss by his becoming security to the bank for £150, to be advanced to Wood to assist him in his business: Finds that the guarantee which the pursuer subsequently gave to the bank is not in the same terms, but much broader, in respect it commences with a request that the bank will allow Wood ‘a credit account to the extent of £150,’ and ends with an undertaking to see the bank repaid whatever balance may arise on said account: Finds that the bank transacted with Wood for a series of years on the footing of such credit account, and Wood more than once during that period withdrew and repaid, and again withdrew the whole sum at his credit, leaving finally the above balance against him, all as instructed by the proof and productions in the process at the bank's instance against the pursuer, produced herein: Finds that it is not averred by the pursuer in the closed record that the defender knew, or was made aware of, the precise terms of the pursuer's letter to the bank, or of Wood's operations on the cash credit account: Finds that cautionary obligations are to be interpreted strictly, and that whatever liability the pursuer chose to incur to the bank on Wood's account, he cannot extend the defender's liability to himself beyond the terms of said defender's letter: Finds that there is nothing in said letter to lead to the belief that the defender contemplated a credit account, or undertook more than to stand between the pursuer and the bank for a first and single advance of £150 to Wood: Finds that such advance having been made and repaid by Wood, the defender's obligation of relief was at an end, and it is an error to suppose that he went the length of guaranteeing the pursuer of any loss arising from the larger and wider guarantee subsequently granted by the pursuer to the bank without the defender's knowledge or assent. Therefore, sustains the defences, and assoilzies the defender from the conclusions of the action.”

The Sheriff, on appeal, altered this interlocutor, and allowed the pursuer a proof “of all his allegations on record of the circumstances which led to the defender's granting him the letter of relief of 15th June 1853, and the real intention of parties for that engagement being entered into.” The Sheriff-Substitute held the import of the proof led under this interlocutor to be that it was distinctly explained by Wood, both to the pursuer and defender, that he wanted a specific sum of £150 to enable him to increase his stock-in-trade; that the bank would advance that sum on the pursuer's guarantee, and that all that was asked of the defender was to stand between the pursuer and any loss arising from Wood's inability to repay the advances to the bank; that the pursuer himself apparently so understood the transaction, as he deponed that the guarantee he first sent to the bank was “for a specific sum of £150;” and that it was only after the bank objected to the form of that guarantee that he granted the letter requesting the bank to allow Wood “a credit account to the extent of £150;” and that the defender deponed that his distinct understanding was “that the pursuer's obligation was to cover one single transaction for £150 for a temporary purpose, and that Wood never hinted to him that the pursuer's obligation to the bank was for a credit account.” The Sheriff-Substitute accordingly assoilzied the defender of new. The Sheriff Principal altered this interlocutor, holding that the pursuer had sufficiently instructed that the defender, when he granted to the pursuer the letter of relief libelled on, was aware that Wood was to get a credit from the bank to the amount of £150, under a guarantee by the pursuer to the bank to that extent, and that it was the understanding of all parties at the time that if the pursuer became security for Wood to the bank, the defender was to guarantee the pursuer against any loss he might sustain under his obligation to the bank, and that the defender understood that he was binding himself accordingly, under the letter of relief granted by him. To-day the Court returned to the judgment of the Sheriff-Substitute on the grounds expressed in his interlocutor.