Scottish Court of Session Decisions

The following narrative of this case is taken from the opinion of Lord Kinloch:—

There are two separate questions which we are now called on to determine. The one is that presented to us by the defender Mr M'Murray under the reclaiming-note at his instance, and is in substance whether the pursuers, the Union Bank, are entitled to maintain at his debit a sum of £45,000, advanced to him under the minute of 11th November 1856; or whether the arrangement of this minute was superseded, and this charge wiped away, by the effect of the two other minutes of the same date, but of posterior operation.

The case on this point, when accurately analysed, comes to present itself in a very simple aspect.

The defender Mr M'Murray had, in the year 1856, become much involved in the affairs of Messrs Cameron & Co., paper-makers. That firm having had their estates sequestrated, the trustee in the sequestration set up to public sale the paper-mill at Springfield, belonging to the company, with the moveable machinery.

The defender became purchaser at the cost of £45,000. To enable him to pay for this purchase, the pursuers, the Union Bank, agreed to advance to him this sum of £45,000, of which £7500 were to be paid into the trustee's account, as the value of the moveable machinery, for division among the personal creditors; and the balance of £37,500, less a sum of £2500, the value of certain annuities proposed to be continued on the property, into a separate account for behoof of the heritable creditors.

All this was duly carried out; and there cannot be a moment's doubt that in this transaction, considered by itself, the defender became debtor to the Bank, and bound to reimburse it, for the advance. of £45,000 thus made.

A new transaction then supervened. Messrs Durham & Sons agreed to purchase the mills from the defender at the advanced price of £47,500, besides agreeing to take on themselves the annuities, estimated at £2500 more,—making in whole a profit to the defender of £5000. The Bank agreed to advance this sum of £47,500 as a loan to Messrs Durham, who were to make repayment by instalments. The sum to be so advanced was to be credited by the Bank to the defender in part payment of a large debt owing by him in connection with the affairs of Cameron & Co., being a debt wholly separate from that incurred by him in connection with his purchase of the property. This was accordingly done. The defender had this sum of

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£47,500 put to his credit in the books of the Bank, and a corresponding amount of his existing liabilities wiped out. The Bank took Messrs Durham as their exclusive debtors for this sum, except for a portion of it amounting to £5000, for which they agreed to take their bill indorsed by the defender, and ultimately took the joint promissory-note of both. The effect of this transaction was precisely the same as if the Bank had paid over the money into the hands of Messrs Durham, and they had paid it to the defender, who then ‘paid it into his account with the Bank, and obtained credit for the amount.

“The other question to be determined by us relates to the balance of this bill of £5000, granted by the defender and Messrs Durham & Son in part payment of the advance of £47,500, made to these latter by the Bank. The defender has pleaded that on this bill he was simply cautioner for Messrs Durham, with the fact of his being so fully known to the Bank; and that the Bank having given time to Messrs Durham for payment of this bill, without his, the defender's, consent, have thereby liberated him from his obligation. The Lord Ordinary has sustained this plea of the defender, and on that account has deducted a sum of £1742, 0s. 8d., the balance of this bill, with interest, from the sum otherwise due by the defender.”

The Lord Ordinary Mure pronounced this interlocutor and note.—The Lord Ordinary having heard parties procurators, and considered the closed record, report of the accountant, and whole process, Finds that the three minutes of agreement founded on by the pursuer, and executed on the 11th November 1856, are valid and probative writings, and that the obligations undertaken by the defender under the first of the said agreements were not superseded or discharged by the second and third of the said agreements: Finds, therefore, that the rights and interests of parties under the present action must be regulated by those agreements, and that the sum due to the pursuer by the defender, as at the 4th of March 1864, amounted to £13,875, 3s. 7d., under deduction of the sum of £1742, 0s. 8d., being the balance of principal and interest claimed by the pursuer as due upon the bill for £5000 granted to them under the second of the said agreements: Appoints the case to he put to the roll, that parties may adjust, with reference to the conclusions of the summons, the amount for which decree is to be pronounced in terms of the above findings, and reserves in the meantime all questions of expenses.

Note.—By the report of the accountant, prepared under the interlocutor of Lord Kinloch, which was adhered to by the Inner House on the 12th of March 1867, alternative states of the accounting have been brought out, showing the sums duo by the defender, under the agreements founded on, upon the supposition—1st, that the agreements are all valid and subsisting deeds, and that the views maintained by the pursuers relative to the import and effect of these agreements are well founded; and 2d, that the first of those agreements was superseded by the third, and that the defender has been liberated by the pursuers giving time from liability for the balance claimed on the bill for £5000 granted by Durham & Sons and the defender, under the second clause of the second of the agreements as maintained by the defender.

A third alternative view of the accounts has also been reported on, proceeding on the assumption that the first agreement was superseded by the third, but that the defender has not been liberated from liability for the balance claimed on the hill for £5000. But the Lord Ordinary has not deemed it necessary to advert more particularly to this view of the accounts, because he is of opinion that the first agreement has not been superseded by the third, and that the defender has been liberated by the pursuers having given time to Durham & Son from liability for the balance claimed in respect of that £5000 bill. And the conclusion he has arrived at on the whole matter is, that the defender is liable for the sum brought out under the first alternative view of the accounts, less the balance of principal and interest claimed as due upon the £5000 bill.

No objections have been taken to the accuracy of the accountant's report, nor was proof asked by either party on any part of the case. And as the Lord Ordinary concurs with the view indicated by Lord Kinloch in the note to his interlocutor, remitting the case to the accountant, that as the rights and interests of the parties stand settled by probative writings, which are not challenged by reduction, parole evidence cannot be admitted to control or modify those writings, he has proceeded to dispose of the case on the footing on which it was argued before him on the accountant's report—viz., as a concluded cause.

1. As regards the import and effect of the agreements which bear to have been executed on the same day—viz., on the 11th of November 1856—

(1) It appears to the Lord Ordinary that the first of these agreements must be construed as having been entered into between the pursuers and defender with reference exclusively to the purchase made by the defender of Springfield Mills and machinery at the sale of that property by the trustee on the sequestrated estate of Cameron & Company on the 1st of October 1856.

The purchase was effected at the price of £54,000, under an arrangement between the trustee on Cameron & Co.'s estate and the defender, entered into with consent of the pursuers, to whom the defender was under large obligations in connection with Cameron & Co.'s affairs; and as the defender does not appear to have then had at his command money sufficient to pay for the property, an agreement was come to between him and the pursuers for the necessary advance, the terms and conditions of which were embodied in the first of the agreements in question, which bears expressly to have been made ‘ with relation to the said purchase.’

By the first head of this agreement, the pursuers undertook to pay into the account of the trustee on Cameron & Co.'s estate £7500, as the value of the moveable machinery in the mills; and into a separate account, for the heritable creditors of Cameron & Co., the balance of the price—viz., £37,500, less £2500, as the estimated value of the annuities payable to Mr Cameron's sisters, which were to continue a burden on the properties. By the second head the defender, in respect of the above advances, agreed that the whole subjects should be conveyed by the trustee on Cameron & Co.'s estate directly to the bank, to be held by them in security until liquidation of the advances, and of the interest which might accrue thereon. By the third and fourth heads the bank undertook, when required, to grant a lease of the premises to the defender, or any party named by him; and upon receiving payment of the sums so advanced,

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to make over the whole premises to the defender or his asignees, subject to the burdens exigible therefrom. And by the last article of the agreement it is provided that this minute shall not supersede or interfere with Mr M'Murray's existing obligations ‘ to the Bank in connection with Cameron & Co. or the liquidation thereof.’

At the date of this agreement the defender's existing obligation to the Bank in connection with Cameron & Co., for whom he had for long been cautioner, amounted to upwards of £79,500, as is shown by the state, which is the basis of, and embodied in, the third agreement. So that if the second and third agreement had never been entered into, the defender's obligation to the pursuers would, as the Lord Ordinary reads the transactions between them, have amounted to the £42,500, which the pursuers undertook, by the first article of the first agreement, to pay into separate accounts for the creditors of Cameron & Co., and the £79,500 of obligations otherwise incurred, less the value of any securities held by the Bank as creditors of Cameron & Co., and which are duly credited to the defender in the states appended to the accountant's report.

That these sums of £7500 and £35,000, or £42,500 in all, were paid into the trustee's account by the pursuers in implement of their part of the agreement, was not, as the Lord Ordinary understood, disputed by the defender. The fact that they were so paid is reported by the accountant, and seems to be satisfactorily instructed inter alia by the disposition and assignation executed in October 1857 by the trustee on Cameron & Co.'s estate in favour of the Bank, with concurrence of the defender, which proceeds upon the narrative (quoted at p. 23 of the accountant's report) that those sums had been duly paid.

In these circumstances the main question raised for consideration in the present case is the extent to which those obligations, amounting in all to about £122,000, have been wiped off or discharged by the other agreements.

(2.) The second agreement, as the Lord Ordinary reads it, does not in any respect interfere with or discharge the obligation of the defender relative to the purchase-money of the Springfield mills and machinery, which was paid over to the trustee on Cameron & Co.'s estate by the pursuers in implement of the agreement undertaken by them to that effect, but deals exclusively with matters which were either not embraced in, or excepted from, the first agreement.

It was entered into in order to make provision for an arrangement between the defender and Messrs Durham & Sons, papermakers in Edinburgh, which was effected before the first agreement was executed, and by which Springfield mills and machinery were sold by the defender to Durham & Sons at a profit of £5000; and as the price which Durham & Sons were to pay for the property, viz., £47,500, was to be advanced by the pursuers, they became parties to the arrangement.

The first head of this agreement accordingly provides that the above sum was to be paid to the Bank in liquidation pro tanto ‘ of Mr M'Murray's obligations granted in connection with the firm of Cameron and Co.’ As a security for this sum, which was to be borrowed from the Bank by Messrs Durham & Sons, the second head of the agreement, inter alia, provides that for £5000 of the price the Messrs Durham shall grant their promissory note to the defender, ‘who shall indorse it to the Bank, and that Messrs Durham shall grant their promissory note directly to the Bank for the remaining £42,500’ and shall liquidate both of these notes by half-yearly instalments of two thousand five hundred pounds, ‘£1250 of which instalments, when so paid, shall be placed annually towards liquidation of the note for £5000.’ The third head provides for the manner in which the price was to be advanced by the Bank—viz., by their ‘ writing off, as at Martinmas 1856, £47,500 from Mr M'Murray's said obligations to them, his liquidation of the remainder of those obligations being provided by a separate agreement.’ And as an additional security for those promissory notes, the fourth head of this agreement provides that the Bank shall hold the Springfield mills under the conveyance to be granted to them by the trustee on Cameron & Co.'s estate, with concurrence of the defender.

All these things, with the exception of the regular payment of the instalments by Durham & Sons, appear to have been duly carried out. The promissory notes were granted; the £47,500 was written off the defender's ‘ said obligation,’ and in October 1857 the trustee on Cameron & Co.'s estate executed the stipulated conveyance in favour of the Bank. And it is, in the opinion of the Lord Ordinary, very important to observe that the obligations which were thus written off are not said to be those arising out of the £42,500 advanced to enable the defender to effect his purchase of Springfield mills, but those which had been ‘ granted in connection with the firm of Cameron & Company,’ and which are referred to in the first agreement, and excepted therefrom as separate and distinct obligations existing at the date when that agreement was signed.

(3) The £47,000 advanced to Durham & Sons to enable them to effect the purchase of Springfield mills from the defender having thus been written off his obligation to the pursuers, the question still remains for consideration, under this branch of the case, ‘whether under the third agreement the defender's liability to account for the £42,500 advanced under the first to enable the defender to purchase Springfield Mills, which under the second agreement he sold at a profit of £5000, was also discharged?’

Now, ex facie of the state upon which this agreement proceeds, there was unquestionably no such discharge. That state contains a variety of transactions with reference to which the defender had incurred liability for Cameron & Co., beginning on 31st of December 1855 and ending on the 11th November 1856, amounting in all to upwards of £79,500. From these obligations £47,500 was written off as the state bears; but among them there is no mention of the price of Springfield Mills, which is now proved to have been advanced for behoof of the defender in the manner stipulated in the first agreement. And the reason why this sum was not entered appears to the Lord Ordinary to have been plainly this, that the obligation to account for that sum of £42,500 was not considered one which had been granted by the

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defender in connection with the firm of Cameron & Company in the sense in which that expression is used in the agreements. It was an obligation incurred by the defender himself on his individual account, to which Cameron & Co., who had by that time been sequestrated, were not parties; whereas those described in the agreements as obligations of the defender in connection with Cameron & Co. appear to the Lord Ordinary to he those only which were granted by him for Cameron & Co. before their sequestration; and it is to those alone, as he conceives, which are expressly excepted from the first agreement, that the state dealt with in the third agreement relates. And while the state itself is thus prepared with reference to transactions quite separate and distinct from those in regard to the purchase of the mills, the Lord Ordinary has been unable to find anything in the substantive provisions of this agreement which can be held, as contended for by the defender, to operate a discharge of his liability to account for the money advanced by the pursuers to enable him to make that purchase.

On these grounds the Lord Ordinary has come to the conclusion that on this branch of the case the defender has failed to establish his defence.

A separate point was raised by the defender at the debate, to the effect that, as the machinery in Springfield Mills, in payment of which the £7500 had been advanced by the pursuers, had been found to belong to them in a question with the trustee on Durham & Sons sequestrated estate (3 M., p. 765), the value of that machinery should have been brought into account. The Lord Ordinary was at first disposed to think there might be some room for this claim; but, upon examining into the matter, he is satisfied that there is no good foundation for it, because under the second agreement the defender received full value for the machinery from Durham & Sons; and the £7500, at which it was estimated, was credited to him as part of the £47,500 written off his obligations. So that when the right to this machinery came to be tried upon the bankruptcy of Durham & Sons, the question resolved itself into one between the general creditors of Durham & Sons, represented by the trustee, and the pursuers, who maintained, and were found to have established, a preferable claim over the machinery as creditors of Durham & Sons. It was one, therefore, with which the defender had plainly no concern; and as he had received a full price for the machinery on the sale of the mills to Durham & Sons, lie has not, it is thought, any claim now to have its value brought to his credit a second time in account with the pursuers.

2. Upon the questions raised as to the defender's liability for the balance of the £5000 bill, granted with reference to the second head of the second agreement, it appears to the Lord Ordinary that the defence is well founded.

That time was given to Durham & Sons by the pursuers relative to the payment of the stipulated instalments, was not, as the Lord Ordinary understood, disputed; and the fact is, in his opinion, sufficiently instructed by the correspondence in process referred to in the accountant's report. It was, however, contended that, as the defender was a joint-obligant with Durham & Sons, and not a cautioner merely, the pursuers were entitled to give time without asking the consent of the defender, and that the latter was therefore liable for the balance due upon the bill. But the circumstance that the defender was apparently a joint-obligant on the bill is not, in the opinion of the Lord Ordinary, of itself conclusive of this question. Because the bill must, it is thought, be read with reference to the written obligation in fulfilment of which it was granted; and if that obligation is substantially a cautionary undertaking on the part of the defender, the fact that he may in one view appear to be bound as a co-obligant, will not, in the opinion of the Lord Ordinary, deprive him of the ordinary requisites of a cautioner. This was so settled, with reference to a cash-credit bond, in the case of Mackenzie, September 23, 1831, 5 W. & S., p. 504.

“Now the arrangement made under the second head of the second agreement with reference to the bill in question, was not that Durham & Sons and the defender should grant their joint acceptance for the amount, but that Durham & Sons should grant their note for £5000 to the defender, who was to endorse it to the Bank. Again, the agreement as to the liquidation of the note was not that that should be done through payments made jointly by Durham & Sons and the defender, but by instalments of £2500 paid half-yearly by Durham & Sons, £1250, or one-fourth, of which was, when so paid, to be placed to the liquidation of the note. So that it was only upon failure of Durham & Sons to pay off the note by instalments that proceedings could be taken against the defender. The bill, moreover, was to be granted for payment, pro tanto, of a sum advanced by the pursuer to Durham & Sons, who were thus the principal debtors in a transaction for payment of part of which the pursuers seem to have stipulated for additional security—viz., the endorsation of the defender. Tile obligation therefore was, in the opinion of the Lord Ordinary, substantially an accessory obligation on the part of the defender, who was entitled to rely that payment of the instalments would be duly exacted; and as the pursuers appear to have given considerable indulgence to Durham & Sons without the consent of the defender, he has, it is thought, been thereby freed from all claim at their instance for the balance now due upon the bill.”

The defender reclaimed.

Solicitor-General and Adam for him.

Gordon, Q.C., and Marshall in answer.

At advising—