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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Liquidators of Western Bank v. Baird's Trustees [1872] ScotLR 10_116 (15 November 1872)
URL: http://www.bailii.org/scot/cases/ScotCS/1872/10SLR0116.html
Cite as: [1872] SLR 10_116, [1872] ScotLR 10_116
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SCOTTISH_SLR_Court_of_Session
Page: 116↓
Court of Session Inner House Second Division.
v.
Facts:
In an action for debt due to a Joint-stock banking company, at the instance of the Liquidator of the Company against a former director, founded on gross negligence on the part of the defender individually, or along with his co-directors, and, upon consideration of the sums concluded for, classed under three branches of—(1) sums advanced to customers on open account; (2) sums advanced by way of discount on bills of exchange; (3) sums expended on payment of premiums on policies of insurance, opened by the Bank on the lives of certain of their debtors—held (1) that certain statements to the effect that the defender, along with his co-directors, grossly neglected to superintend and control the manager in granting credits on open accounts, where the loss was ascertained and the debtors were insolvent before the defender retired from the directorate, were relevant to go to proof; (2) that the liquidator, by adopting the balances in certain open accounts, and by continuing to trade with the customers in these accounts by renewing the bills and selling the policies, had lost his recourse against the defender.
The pursuers in this suit are the Western bank, registered under the joint-stock banking Companies Act 1857, and the liquidator of said bank, appointed by the partners of the bank in terms of said act. The late W. Baird of elie was the original defender, and his testamentary trustees were, on his death, sisted as defenders. The summons concludes for payment to the pursuers of the sum of £299,736, 7s. 6d., or such other sum as shall be found in the course of the process to be the amount of loss and damage due to the pursuers as at the 23d June 1852, with interest until payment.
Mr William Baird, the original defender, became a shareholder of the Bank in December 1837, when he acquired from the Bank forty shares of its stock. In October 1845 he held seven hundred shares. He disposed of these between June 1849 and November 1852. On 12th June 1839 Mr Baird
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was elected an ordinary director of the Bank, and acted as such until June 1845, when he retired by rotation. He was elected an extraordinary director in 1845 for a year; and in June 1846 he was again appointed an ordinary director. He held office until June 1854. The ground of liability is gross neglect on the part of Mr Baird as an ordinary director during the period libelled. The principal averments by the pursuer as to the business of the Bank, the duties of the directors, the negligence of the defender, and the actual losses sustained by the Bank, are as follows:— The Western Bank of Scotland was established in 1832 as a public Joint-Stock Banking Company, for the purpose of carrying on the business of banking in Glasgow, with agencies or branches in other places in Scotland. The Contract of Copartnery is dated 2d June of that year, and subsequent dates; and the 23d of May 1832 was thereby declared to have been the period of the commencement of the Company. By the contract, the nominal capital of the Company was fixed at £4,000,000 sterling, divided into twenty thousand shares of £200 each. In the year 1848 the paid—up capital amounted to £1,792,850; but in or about the year 1853 the capital was reduced to £1,500,000, divided into shares of £50 each—the shares representing the difference of capital betwixt the sum of £1,500,000 and the sum of £1,792,850 having been re-acquired or re-purchased by the Company. The Company carried on business until 9th November 1857, when it stopped payment. It has since been found that at that time not only was the whole of the paid-up capital entirely lost, but additional losses had been sustained by the Company to the extent of about £1,500,000 sterling.
In accordance with the provisions of the Contract of Copartnery, the shareholders were, throughout the period during which the Bank carried on business, excluded from participating to any extent in the administration or management of the Company, and from all interference with the conduct of its business or affairs; they were also excluded from any examination of the books of the Company; and their only source or means of information in regard to the Company's business and affairs were the Reports, which, it was provided, should be made to them by the Ordinary Board of directors, through the manager, at the stated annual general meetings of the company. On the other hand, by the constitution of the Company, and in terms of the contract, the administration of the Company's affairs, and the charge and responsibility of superintending, directing, and conducting its business, rested with, and devolved entirely upon, the ordinary board of directors and committee of management.
“It was also provided by the contract, ‘that the Company shall subsist and remain entire, notwithstanding the death, or bankruptcy, or retirement of any of the partners thereof, from time to time, and shall endure and continue, without contemplating any period of dissolution; subject always to this special provision and condition, that if it shall at any time appear, on balancing the Company's books, that a sum equal to twenty-five pounds per centum on the advanced capital stock of the Company has been lost in prosecution of the business of the Company, such loss shall ipso facto, and without the necessity of any further procedure, dissolve and put an end to the Company; which dissolution shall be forthwith notified by advertisement and circular letters, in like manner as is provided with regard to special general meetings of the Company, as well as in the London and Edinburgh Gazettes; which advertisements in the Gazettes and newspapers shall be continued once a week for at least one month succeeding the dissolution; and within thirty days at furthest after such dissolution the Company shall discontinue the issuing of notes, operations on cash accounts, and all ordinary business. And it is specially provided and declared that no alteration shall take place upon the provisions of this article without the consent, signified thereto by a probative writing, of two-thirds in point of extent of stock of all the partners of the Company at the time.’ By article 36th of the Contract it was provided, that in the event of the dissolution of the Company in manner before mentioned, or in any other manner whatsoever, the affairs of the Company should be wound up, their outstanding debts realised, their books balanced, and their whole funds and property converted into money, with every possible despatch.
It was the duty of the persons who held the office of ordinary directors and members of the committee of management to superintend and control the advances of the Bank's funds made to persons applying therefor: and they were not entitled to neglect this duty and to leave the manager or other officers of the Company to make advances at their own discretion or pleasure, and without control. In granting cash-credit accounts, or authorising cash-credit accounts to be granted to partners of the Bank, they were only entitled, by the terms of the Contract, to give or authorise such credits to the extent of the value of one-half of the advanced capital stock of such partners, and to such further extent as the true circumstances of the Company and the current value of the stock warranted. In granting or authorising cash-credit accounts to a larger extent, they were bound to require and obtain security; and they were not entitled to grant cash-credit accounts to persons other than partners of the Company, unless on bond with security, real or personal. Further, in making advances, or allowing advances to be made, to persons applying therefor, either as overdrafts on cash-credit accounts, or on drafts, orders, or receipts, and otherwise than on cash-credit accounts with security as aforesaid, it was the duty of the members of the said ordinary board to exercise ordinary care and prudence, and also to conform to the ordinary rules and practice of banking. It is the usual practice of bankers, as well as an act of ordinary prudence, in making advances to persons or companies on overdrafts, on cash-credit accounts, or on drafts, orders, or receipts (and otherwise than on cash-credit accounts having a stipulated limit and security), to require adequate security, real or personal, for the repayment thereof, in addition to the obligation of the person or persons obtaining the advances. It is only in exceptional cases, for a limited time, and for some special purpose, that overdrafts on cash-credit accounts, or advances on drafts, orders, and receipts, otherwise than on cash-credit accounts, are granted by bankers without adequate security, real or personal, being required. Further, in making advances or allowing advances to be made on bills of exchange, or other negotiable instruments presented to the Bank for discount, it was the duty of the members of the said board to satisfy themselves as to the character, credit, and
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circumstances of the obligants on such bills of exchange or other instruments, as well as of the parties to whom, or on whose credit, such advances were made, and, if necessary for that purpose, to have inquiries made and information before them in regard thereto. It is the usual practice of bankers, as well as an act of ordinary prudence, to fix limits of discount to customers of the Bank who are in the habit of applying to have their bills discounted; and it was the duty of the members of the board to have such limits fixed and observed. It was also their duty to take reasonable care that the bills discounted were granted in the due and regular course of business, and were not granted as part of a system of accommodation or wind bills, unrepresented by real transactions, and uncovered by security of any kind. Notwithstanding the said William Baird's knowledge of the embarrassed position and circumstances of the Bank, and of the necessity for diligent superintendence of its affairs, and a careful control of the advances of its funds, he, during the period between 24th June 1846 and 23d June 1852, when he held the office of a member of the ordinary board of directors and committee of management as aforesaid, grossly neglected his duties. He failed during that period to superintend and control the Bank's business and affairs, and particularly the advances of the Bank's funds. Ordinary meetings of the board were held at the Bank's office in Glasgow once weekly or thereby, in nominal compliance with the provisions of the contract; and during the two years from June 1846 to June 1848, the said William Baird attended a number of these meetings. At these meetings, however, he failed to perform the duties of superintendence and management which he had undertaken. At such meetings there was no inquiry or investigation made, or information required and obtained, in reference to the advances of the Bank's funds which were from time to time applied for, and were in course of being made at the head office and at the branches, or in reference to the circumstances and credit of persons applying for and obtaining advances, and the security to be obtained therefor. With the knowledge of the said William Baird, Mr Donald Smith, the manager of the Bank, was allowed, without control, systematically to make advances at his own discretion, and that without security, or upon such security as he thought fit. Subsequently to June 1848, the said William Baird attended no meeting of the board; and during the whole period from June 1846 to June 1852 he did not attend any meeting of any committee of the directors.
The members of the said ordinary board, during the said period, did not, at said weekly meetings or otherwise, require from the manager information as to the persons to whom, or the security upon which, the Bank's funds had been advanced by him. Of the advances made on current accounts, amounting at the head office alone to about £1,500,000, they had no statement or account laid before them. Of the bills under discount at the head office, amounting, at June 1852, to above £2,400,000, they had no statement or account submitted to them showing the amount under discount to different customers of the Bank, nor had they before them the information necessary to enable them to judge of the propriety of making further and continued discounts to customers to whom they were already largely in advance on bills discounted. The books of the Bank were readily accessible, and would have shown to whom the Bank's funds had been advanced, and the amounts advanced to each customer, and the security, if any, taken therefor, and the members of the board knew this. But they, including the said William Baird, grossly and culpably neglected to examine these books, or to require that abstracts thereof, containing the information necessary to enable them to judge of the propriety of the actings of the manager in making advances at the head office, or in making or allowing advances at the branches, should be furnished to them. They, including the said William Baird, through gross neglect, remained in culpable ignorance of the actings of the manager of the Bank in reference to the advances of the Bank's funds; and, notwithstanding their being aware that advances of the Bank's funds were being constantly applied for and made to a very large amount, they suffered the advances to be given at the will and pleasure of the manager, for whose guidance no rules or limits of advances were prescribed, and who was left uncontrolled in all his operations. The said William Baird was aware that during the said period the business of the Bank was carried on on the system above set forth, and that the advances of the Bank's funds were made systematically, without superintendence or control by the directors.
During the said period, from 24th June 1846 to 23d June 1852, advances of the Bank's funds were made, under the system above explained, to a number of persons and companies, at the head office and at the branches, without supervision and control on the part of the said William Baird and the other directors, and with a gross and reckless disregard of ordinary prudence, and of the ordinary rules and practice of banking; and the Bank has thereby sustained serious loss. Such advances were made simply on cheques or drafts on the Bank by the parties receiving the money. (1.) A number of these parties, not partners of the Bank, without having provided any security other than their own personal obligations for repayment of the advances obtained (constituted by their cheques or drafts), were allowed to operate on current accounts which were opened in their names in the books of the Bank; in which accounts were entered to their debit the amount of the advances made on their drafts, and to their credit any payments which they made from time to time. These accounts, in most instances, contained a large number of operations, but in all showed balances due to the Bank, varying in amount. In many instances the accounts commenced with an entry to the debit of the party on an opening advance made by the Bank, and thereafter further increasing advances, without security, were from time to time given. In others, the party originally deposited funds on an open account, and for a time the balance remained due by the Bank; but these parties, after drawing out the amount of their deposits, were allowed, without security, to draw sums from the Bank, and the advances thus made in many instances gradually increased to a large amount. (2.) In the same way, parties who were partners of the Bank, and whose shares were regarded as security for advances, or who had provided other securities, also were allowed, under the system pursued, to draw large additional sums on their cheques or drafts after the utmost market value of their stock, and of any such securities, had been
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exhausted by prior advances, and that without providing any security for such sums. (3.) And, in like manner, parties who were not partners of the Bank, and who had originally provided securities of a value which was plainly exhausted by the advances made to them, were thereafter allowed to draw large sums on their own cheques or drafts, and on similar current accounts, without providing any security for such sums. The advances made as aforesaid, in each of the three cases above-mentioned, were not of the nature of casual or temporary over-drafts made for a limited time and for some special purpose, but were made as a system, on operative cash accounts, with balances fluctuating in amount, but uniformly, and for years, exhibiting large and increasing sums due to the Bank. Although, in most instances, no prescribed amount was named up to which it was agreed the party might draw, as in an ordinary cash-credit account, yet, practically, the persons and companies in whose names current accounts were opened and kept as above-mentioned, passed cheques and drafts, and operated on these accounts as if cash-credit accounts had been granted in terms of the contract of copartnery without a prescribed limit having been fixed. The provisions of the contract of copartnery with reference to cash-credits or accounts, were systematically disregarded. Under the system of management of the Bank pursued as above explained, the manager of the Bank was allowed, without control, to judge as to the propriety of making advances by way of discount of bills presented to the Bank, and advances were made by him in this way with great recklessness and gross imprudence; and the result was, that serious loss and damage was sustained by the Bank. In particular, during the period between 24th June 1846 and 23d June 1852, such advances of very large amount were made, to the loss and damage of the Bank, to five firms carrying on business in Glasgow.
During the said period, between 24th June 1846 and 23d June 1852, when the said William Baird held office, fresh advances by way of discounts were thus made to these five firms, to the extent of £294,009, 13s. 11d. The same system continued down to the period when the Bank stopped payment. The amount of discounts having been still further increased, it was found in November 1857, when the discounts ceased, that the Bank was under advance to these five firms to the extent of £1,476,891, 16s. 11d., or thereby, which nearly equalled the whole advanced capital stock of the Bank. Of that amount there was lost to the Bank not less than £805,096, 2s. 2d. Although, after June 1852, the discounts were continued, and new bills were discounted to replace the bills falling due from time to time, the total amount of discounts was never diminished, but, on the contrary, was largely increased. The total advance made prior to 23d June 1852 was thus not really repaid. A large portion of the bills discounted was retired with money provided by these firms, who obtained the funds from the Bank by discounting new bills, which were accommodation bills, not representing real transactions, and were drawn for the purpose of meeting and replacing the old bills, and farther additional advances were made down to the stoppage of the Bank. The amount advanced during the said period by way of discount to the said five firms, was, at the close of the said period, irrecoverable to the extent of not less than the ultimate loss after mentioned; and, had the Bank then ceased its advances, the said firms must have thereupon stopped payment. As soon as the Bank intimated that these discounts must cease, these five firms stopped payment, and announced themselves to be bankrupt. Of the foresaid increased advance on discounts, amounting to £294,009,13s. 11d., there has been lost to the Bank, after crediting all recoveries which the liquidators have been able, or expect to make, a sum of not less than £151,574, 11s. 8d.
At the period of the stoppage of the Bank the losses which the Company had sustained, in addition to the loss of the entire capital, amounted to £1,500,000, or thereby. To meet these losses, the liquidators of the Bank were compelled to make large calls on the shareholders. On the 8th of February 1858 they made a call of £25 per share, payable by two equal instalments on 1st March and 1st June 1858. On the 4th October 1858 they made a further call of £100 per share, payable on 1st November 1858. The said calls have been paid to the extent of £1,989,707, 6s. 2d.
The material statements made by the pursuers are denied by the defenders. After setting forth that the business and transactions of the Bank were, from the outset, and for the period libelled, of great magnitude, and affording illustrations of these as in the amount of bills annually discounted (£10,000,000 per annum, it is said, during the period libelled), the sums deposited at the Bank, the number of cash credits in operation, &c., the defenders proceed to state the provisions made by the contract of copartnery for the appointment of a manager, accountants, secretaries, &c. The manager, cashiers, secretaries, &c., were, in terms of the contract, entrusted with the management of the business of the Bank at the head office; and these officers, it is said, were carefully selected, and were not fewer than eighty in number.
The defenders found on article 31 of the Contract of Copartnery, by which it was provided as follows:—“The said ordinary board of directors shall not be liable for omissions, nor shall they, nor the manager, cashier, or other officer, be liable for the responsibility of persons dealing with the Company, nor for the sufficiency of the securities or properties in which the funds of the Company may be invested as aforesaid; nor shall the said directors be liable for the acts and intromissions of the manager or other officers of the Company, appointed or to be appointed as aforesaid, or of any other person entrusted with the business of the Company, nor shall they be liable in solidum, nor for the intromissions of each other, but each of them for his own actings and intromissions allenarly.” The defenders also found on the 21st article, which provides that no person should be qualified to be elected or to serve as an advising director who should permanently reside at a greater distance than ten miles from Glasgow, and they state that during the period libelled, and of his tenure of office, Mr Baird was permanently resident at Rosemount, in Ayrshire, about forty miles from Glasgow.
Mr Baird, it is said, attended the meetings of the board of directors between June 1846 and May 1848 as regularly as his engagements would admit of. The last meeting he attended was on 31st May 1848; and after the lapse of six months from that date, it is said that under the contract he be
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came disqualified as a director. After 1848 the defenders say Mr Baird received no notices of special meetings of the board of directors, it not being the practice to send notices to any director of ordinary meetings. At the meetings at which he attended, Mr Baird is said to have acted to the best of his ability, in common with the other directors, in exercise of the powers and authorities vested in them, but never to have acted individually. After 1852, and until the stoppage of the Bank in 1857, the defenders allege, the shareholders and the Company, with every means of examining the affairs of the Company during Mr Baird's tenure of office, continued to appoint directors, &c., to transact business, without any objections to the transactions when Mr Baird was director, and adopted and acquiesced in the whole of the transactions carried on during that period. In particular, they adopted the several accounts mentioned in the schedule as they stood in June 1848 and June 1852, never intimated any objection thereto, and permitted them to be operated upon. It is said the Company adopted the bills current in June 1848 and in 1852, to which the parties mentioned in the condescendence were parties, and continued to discount bills with the said parties until the stoppage of the Bank to a larger amount than during the period libelled. The defenders also maintain that the Company adopted and acquiesced in the insurances effected, and, as above stated, allege that the liquidators of the Bank kept up these policies after the stoppage.
The defenders explain and state objections to the manner in which the accounts are made up by the pursuers, and specify payments made by the respective companies and firms mentioned in the condescendence and schedules, which, they say, fall to be imputed in extinction of the sums debited therein. They also found on a minute of agreement, dated 2d May 1861, by which the pursuers compromised with the other directors of the Bank. In regard to this minute the following statement is made:—“Mr Baird was not a party to the said agreement, discharge, or decree of absolvitor. By the said agreement, discharge, and decree the directors who held office during and after the period when Mr Baird is alleged to have been a director were discharged and assoilzied from all claims in respect of the negligence or violation of duty on the part of the directors, or any of them, during the said period. By the said discharge and decree, all of the third parties to said agreement were discharged from the claims sought to be enforced against the defenders in the present action, and the claim of relief which otherwise would have been competent to the defenders was extinguished and prejudiced.” The defenders further say that a considerable amount of the loss sustained by the Bank on the accounts of the persons or companies and firms mentioned in the condescendence and schedules was caused by the neglect of due diligence in the performance of their duties on the part of the liquidators, and by the manner in which the winding-up has been carried on.
The ground of liability is maintained to be gross neglect of duty on the part of Mr Baird as an ordinary director.
The pleas for the pursuers are—“(1) The pursuers having sustained loss and damage to the extent concluded for, through gross neglect of duty on the part of the said William Baird, as an ordinary director of the Bank, under the circumstances condescended on, are entitled to decree against the defenders as representing him, in terms of the conclusions of the summons. (2) The pursuers having sustained loss and damage to the extent concluded for, through gross neglect of duty on the part of the said William Baird, and of his co-directors, under the circumstances condescended on, are entitled to decree against his representatives as concluded for. (3) The defences, being unfounded in fact and in law, ought to be repelled.”
The pleas for the defenders are—“(1) The pursuers have no title to sue. (2) Having regard to the character and nature of the former action raised at the instance of the Western Bank and the Liquidators of the said Bank, and the grounds thereof, the compromises, or settlements, discharges, and decree of absolvitor, referred to in the preceding statement, amount in law to a compromise, or settlement and discharge of the whole claims made in the present action, and the same cannot now be insisted in or maintained to any extent or effect against the defenders. Separatim, The action cannot be maintained, because by the said compromises or settlements, discharges, and decree of absolvitor, the pursuers have extinguished or prejudiced the claims of relief otherwise competent to the defender. (3) The late William Baird was never legally elected a director of the Bank, nor entitled to hold office as such during any part of the period libelled, and his representatives are not responsible for any transactions except those of which he was personally cognizant, and in which he took part. (4) The said William Baird was not responsible for any transactions which took place subsequently to May 1848, nor for any losses which arose on those transactions. (5) The claim made in the present action is excluded by the 31st section of the contract of copartnery. (6) The claims of the pursuers under the present action are excluded 1, by mora, and 2, by acquiescence and adoption. (7) The averments made by the pursuers are irrelevant and insufficient in law to support the conclusions of the summons. (8) The averments of the pursuers are not sufficiently specific to entitle the pursuers to have these remitted to probation. (9) The defenders are entitled to absolvitor, or the action should be dismissed, in respect—1, that there is no specification of the advances through which loss is said to have been sustained; 2, that there is no allegation that such advances were made by the late Mr Baird, or with his knowledge; 3, that there is no specification, or at least no sufficient specification, of the alleged losses, or of the cause of these losses; 4, that there is no relevant allegation of any gross negligence on the part of the late Mr Baird; and 5, that there is no relevant allegation that the alleged losses were caused by any such negligence. (10) The defenders are entitled to absolvitor, or the action ought to be dismissed, in respect the loss and damage alleged were not occasioned, and are not by the pursuers relevantly or sufficiently averred to have been occasioned, by the late Mr Baird, or by any person for whom he was in law responsible. (11) The sums credited in the accounts of the respective persons or companies and firms mentioned in the condescendence and schedules fall to be imputed in extinction of sums debited therein in the order of their dates. (12) The averments of the pursuers being contradicted by the books of the Bank, the defenders are en
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titled to absolvitor. (13) The averments of the pursuers being unfounded in fact, the defenders are entitled to absolvitor. (14) No losses having been sustained by the Bank during the period during which the late Mr Baird is alleged to have been a director of the Bank, his trustees and executors are entitled to absolvitor. (15) The conclusion for interest is untenable, in respect interest is not due upon damages from any date prior to their being found due, and the amount assessed and fixed.” On 14th July 1866 the Second Division, substantially affirming the interlocutor of Lord Kinloch, repelled the first and second plea for the defenders, and, before answer, remitted to an accountant, who submitted an elaborate report.
The following authorities were cited in the course of argument— Devayne, 1 Mer. 529; Spens v. Houston, 3 W. and S. 392; Christie v. Royal Bank, 2 Robinson, 212; Lang v. Brown, 22 D. 113; Pemberton v. Okes, 4 Russell, 168; Turquand, 4 L. R. 123; Balmano, 2 W. and S. 7; Overend, Gurney, & Co. L. R. (Ch.) 142; Lewin on Trusts, 654; Wallace, 3 S. 434; Hennicker, Adolphus and Ellis, 4 Queen's Bench, 792: Campbell v. Clayson, 1 D. 271.
On 15th November 1872 the Lord Justice-CIerk pronounced the following opinion and judgment, which was concurred in by the other Judges:—
The
The Western Bank stopped payment in 1857, and has since been registered and wound up under the Winding-up Acts. All its debts have been paid, although at great loss to the shareholders; and the present action is the second which has been raised at the instance of the liquidators against persons who had held the office of directors of the Bank, to make good the losses, or part of them, which the Bank sustained.
The proceedings against William Baird, whose representatives are now the defenders in this suit, commenced by an action raised in 1859 by the liquidators of the Bank, against him and other parties who had been directors of the Bank, found—edoncharges rested on alternative allegations of joint fraud and joint negligence on the part of these directors in the conductof the affairs of the Bank, and concluding against them for sums said to have been lost through their delinquency, to a very large amount. In the progress of that action, after some important legal questions had been the subject of decision or observation by the Court. certain of the defenders compromised the action by payment of a considerable sum, and they were assoilzied. When the ease came to be pressed against the only two defenders who remained in the process, viz. William Baird and his brother James Baird—after opinions on the relevancy of the action had been delivered by your Lordships of the Second Division, the case was abandoned under the provisions of the Act of Parliament, and the present action was brought against William Baird, who had been a Director from June 1846 to June 1852, and a separate action against James Baird, who was a Director from 1852 to 1856. Although these proceedings terminated in no practical result, and although the legal questions involved in the present case are presented in a form in some respects materially different from that which they assumed in the former action, the views elicited from the Bench in that case are in many respects exceedingly important in the judgment we are now to pronounce, and may save me the necessity of lengthened exposition.
The present action is directed against William Baird alone. Its object is to recover from him certain sums of money, very distinctly specified, which are said to have been improperly advanced from the Bank's funds during the period from June 1846 to June 1852. The allegations of fraud have been abandoned; and the present suit is laid entirely on the alternative allegation that these sums were lost either through the gross negligence of William Baird himself individually, or through the gross negligence of himself and of his other co-directors, in the discharge of the duties of the office.
The sums which are concluded for are classed under three branches:—Sums advanced to customers on open account; sums advanced by way of discount on bills of exchange; and sums expended in the payment of premiums on policies of insurance opened by the Bank on the lives of certain of their debtors. The amount concluded for under the first head is £132,670, 3s. 2d., under the second head £151,574,11s. 8d., and under the third head £15,491, 12s. 8d. It is needless to say that, whether as regard the importance of the legal principles involved, or the pecuniary interests at stake, the case is of the deepest importance, and deserves, as it has received, most anxious consideration.
This action was raised in 1863. The first occasion on which it came before this Division of the Court was on a question relative to the obligation of the pursuers to produce the books of the Company which contained the accounts on which the pursuers founded. The Lord Ordinary found that they were not bound to produce them; but the Court altered his judgment, and the books were ordered to be produced. Your Lordships, and the Lord Justice-General, who then presided in this Division, held that the books were founded on in the record “as absolutely essential to the pursuers' case.” The books, accordingly, were produced, and the case having been sent back to the Lord Ordinary, he, on the 1st of December 1865, pronounced an interlocutor, in which he sustained the title to sue, repelled adefence founded on the compromise and discharge with the other directors, found the action relevant in so far as regarded the allegation of gross neglect of duty on the part of William Baird, along with similar negligence on the part of the other directors, but assoilzied him as regarded the allegations founded on his own individual negligence.
This interlocutor came by reclaiming note before this Division of the Court, and the judgment then pronounced must be carefully attended to. In the first place, the Court sustained the title of the pursuers, adhering to the judgment of the Lord Ordinary in that respect. It is not unimportant to observe the views in law on which the title was thus sustained. A similar question had arisen in the former action. It was maintained on the part of the defenders in that case, that the claim was not a company debt, and therefore could not be insisted in by the liquidators, but was one which individual shareholders alone could sue for. This contention was founded on the judgment of the Court in the case of Tulloch and Davidson of the Aberdeen Bank. But the Court held that the claim was in its nature and substance simply a debt due to the Company, and that the liquidators accordingly, as representing and coming in place of the going concern, were entitled to recover it. The Lord Ordinary
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It is therefore fixed in this case, and is a material element as regards some important points involved in it, that the title on which the summons is rested is that of the Company itself, and that the debt sued for is a debt due to the Bank.
The second point decided by the interlocutor in question related to the second plea in law stated for the defenders upon the record. This plea was founded on the compromise entered into with the other directors, and the discharge granted to them by the liquidator. The defenders pleaded that they were liberated by these proceedings. The same plea had been raised and repelled under the former action, but the Court recalled the Lord Ordinary's interlocutor in hoc statu, explaining that in the subsequent progress of the case circumstances might emerge which might entitle the defenders to raise the question again. Their judgment accordingly was, “Find that the compromises, discharges, decreet of absolvitor referred to in the second plea in law for the defenders, do not preclude the pursuers from insisting in their claim against the defenders, as stated in the summons and record, therefore repel the second plea for the defenders in both its branches, in so far as it is stated in limine as a bar to the ‘action.’” Some argument was addressed to us on the merits of this plea, on which I do not propose to express any opinion but this, that no circumstances have occurred in the process since that judgment was pronounced which can affect the grounds on which it proceeded. I am therefore precluded by the previous judgment from considering its merits.
After thus disposing of these two pleas which were stated in bar of the action, the Court remitted to Mr Charles Pearson in terms of the judgment under which the report now before us was prepared. The judgment was one before answer. The Court was desirous, before farther considering the relevancy of the action, of seeing the accounts referred to, and learning how far they squared with the allegations contained in the record. But in the opinions which the Court delivered in pronouncing the judgment, two very important matters were substantially settled. In the first place, the Court differed from the Lord Ordinary's judgment as to the distinction which he drew between the individual negligence of William Baird, and his joint negligence along with the other directors, and indicated an opinion that they were not prepared at that time to hold any part of the record as irrelevant. I shall have occasion to advert to this when dealing more especially with the question of relevancy. The Court farther intimated that they did not consider this as an action of damages, but as a suit brought to recover specific sums of money alleged to have been improperly advanced by the manager, and to have been lost to the Bank by the delinquency of the directors; and it was mainly in that view they made the remit to the accountant to report upon the particulars specified in their judgment.
This judgment was appealed to the House of Lords, but after full argument the appeal was dismissed as incompetent, and we have now the report of the accountant prepared in terms of the remit. It is only right to say that it is a very careful, elaborate, and able report, and the materials with which the accountant has furnished us, voluminous as they are, have proved of the utmost assistance in our consideration of the case. We are therefore now to consider what course we are to follow in disposing of the action,—whether we are to send it to proof on all the three branches of the claim, or whether in all or any of them the action is irrelevant?
Before proceeding to deliver my opinion on these points, I may as well dispose of some other pleas which have been stated on the record as exclusive of the action. The third is to the following effect:—“The late William Baird was never legally elected a director of the Bank, nor entitled to hold office as such during any part of the period libelled, and his representatives are not responsible for any transactions except those of which he was personally cognisant, and in which he took part;” and the fourth plea is “The said William Baird was not responsible for any transactions which took place subsequently to May 1848, nor for any losses which arose on those transactions.”
In so far as these pleas are founded on the proposition that William Baird could only be liable for transactions in which he took part, I do not deal with them at this stage. But it was explained to us at the debate that the defenders maintained that William Baird never was entitled to act as a director, because he had his permanent residence more than ten miles from Glasgow, and was therefore disqualified from holding office by the express provisions of the contract of compartnery. It was also maintained, that as he had absolutely ceased to act in any respect from the month of June 1848, he had forfeited his seat at the Board of Direction from the lapse of six months from that date, and that the directors were entitled to have declared his seat vacant, and to have elected another in his room.
The contract contains such provisions, but I am of opinion that the defenders can take no benefit by them. If William Baird accepted office, and undertook to discharge its duties, whether he was qualified or not, he was bound to discharge the duty which he undertook. If he found that he could not discharge these duties, he had it in his power to retire. But he was not entitled to hold himself out to the shareholders as willing to fulfil the functions of the office, and as undertaking their discharge, and thereby give the weight of his credit and authority to the Bank, and at the same time entirely refrain from acting, and shelter himself under his own disqualification. Whatever effect that plea might have had if maintained by the Bank against him, it could not be available when pleaded by himself. I am prepared therefore to repel the third and fourth pleas in so far as founded on the alleged disqualification of William Baird. The fifth plea, also founded on the 31st section of the company's contract, will fall to be repelled, seeing that the provisions of that section can form no defence against gross negligence in the performance of duty.
Having thus cleared the way for the material questions which we have to decide, I now proceed to consider these important claims. First, The alleged advances to customers on open account.
These alleged advances are collected under schedule A, appended to the summons. The schedule contains no detail or specification beyond the names of the customers, the amount due by them in 1846, the amount advanced between 1846 and 1852, the amount due in June 1852, and the amount which is said to have proved ultimately irrecoverable. Although these accounts are massed together under schedule A, they consist of two classes, which are materially distinct from each other. The first class
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As to the first class. It is necessary, in the first instance, to consider what the allegations are which the record contains in regard to the gross negligence of William Baird, and to what extent these allegations, if true, will infer liability for the sums in question.
It is impossible to over-estimate the importance of the question thus raised. Considering the condition of the persons who generally occupy such positions in joint-stock companies, and the immense value of the interests entrusted to them, no question could enter more deeply into the ordinary conduct of commercial affairs. It arises here substantially for the first time under circumstances which admit of a direct decision on the principle. It was very largely discussed under the prior action which was abandoned, and the views of the Court in the last advising of that action are exceedingly valuable and instructive. But they are complicated by the fact that they related to a record originally framed mainly to raise a question of fraud. Similar questions have been made the subject of some important observations in the English Courts, as in the case of Turquand, in the 4th vol. of the Law Reports; Equity Series, and the case of Brown, in the 8th vol. of the Law Reports, as well as in the very recent case of Overend, Gurney, and Coy. in the current volume of the same reports. But in none of these cases did the question arise under circumstances which admitted of any general decision upon the principle. In Turquand's case there was plainly no ground for the contention of gross negligence. The second is not without some importance, as being the case of a single transaction for which it was sought to make an absent director responsible. The director escaped, but he was found not entitled to his costs in consequence of his negligence. The case of Overend, Gurney, and Coy. is chiefly important from the opinion of the Lord Chancellor, who refers to views which he had expressed in the case of Turquand, and makes some observations upon the doctrine of gross negligence which are not without weight. But the general question as to how far the director of a joint-stock company—such as the Western Bank—is liable for mere omission to discharge his duty, or what amount or kind of omission will be held to be crassa negligentia, have never as yet been authoritatively determined.
This record contains no allegation or suggestion of corrupt motive or fraudulent intent, neither is there any allegation of conspiracy, or concert, or joint action with the other members of the direction. These things are not only not in the action, but are excluded from it.
It may be said, not without force, that the duty undertaken by the directors of joint-stock companies, such as the Western Bank, is subject to some qualifications which may not be always incident to offices of agency or trust. Such officials are generally chosen from their commercial position, their habits of business, and the amount of credit which their name will command. They are generally persons who have their time occupied by avocations of their own. When the shareholders elected William Baird as a director of the Western Bank they could not have expected him to make himself conversant with all the details of the management, or the items of all the accounts kept at the head-office, and the numerous branches of so vast a concern. The ordinary conduct of the Bank was placed in the hands of a professional manager, to whose integrity, as well as to whose skill, the directors were entitled in great measure to trust.
But, on the other hand, it is impossible for a court of law to assume that such an appointment is a mere name. The duties which are prescribed by the contract must be performed by the directors. If these are not very specific, their scope and object at least are sufficiently intelligible, and if a director grossly neglects the discharge of them, he must be liable in the consequences, as agents or trustees are who grossly neglect the interests of those for whose benefit they are appointed. Whatever the duties are, they must be discharged with fidelity and conscience, and with ordinary and reasonable care. It is not necessary that I should attempt to define where excusable remissness ends and gross negligence begins. That must depend to a large extent on the circumstances. It is enough to say that gross negligence in the performance of such a duty, the want of reasonable and ordinary fidelity and care, will infer liability for loss thereby occasioned.
The gross negligence alleged against William Baird in this record is set out in the 29th, 30th, and 31st articles of the condescendence. I need not read them, but their substance is this—The general ground of complaint is that William Baird, along with his co-directors, grossly neglected to superintend and control the manager in granting credit on open accounts. That is the general charge brought against them, and, as far as it goes, it is a charge not of action, but of inaction. There are, besides, two allegations of knowledge on the part of William Baird and his associates which are material. They are said, in the first place, to have known that the Bank was in embarrassed circumstances owing to improper credit having been given by the manager, and, in the second place, to have known that the manager was in the habit of allowing advances on open account at his pleasure and without control. It is at the same time said that they were in culpable ignorance of what these advances were, and that they never at any time made the arrangements which the contract empowered them, and which it was their duty to make, to regulate the powers of the manager in this respect. The specific statement against William Baird, personally, is, that for two years he attended the meetings of the directors and the committees, but entirely failed to discharge his duty in superintending the manager, and that for the last four years he kept aloof from the Bank altogether, and did no duty whatever. Divested of much superfluity, this is the substance of the allegations on record. It is admitted that in 1852 he ceased to be either a directer or a shareholder.
I cannot say that these allegations are in themselves irrelevant. If William Baird knew that the Bank was in embarrassed circumstances, owing to improper advances by the manager, and knew also that the manager systematically gave advances without control by the directors, and if he failed to take any steps to put matters upon a more safe or proper footing, he did grossly neglect his duty,
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A question was much agitated under the former action, as to whether it was necessary to the relevancy of the action that the neglect libelled should be joint with the other directors. I doubt if neglect can be accurately said to be joint, where it is not the consequence of previous concert. But in the question of loss, as the consequence of negligence, it seems clear that no individual neglect on the part of one director could have led to damage, unless all the other directors had also neglected or at least failed to discharge their duty. It would therefore be necessary for the pursuer to prove his averments that no director had fulfilled his duty, before he can trace the loss, which he alleges as the result, to the neglect of any one of them. If one director had performed his duty, according to the hypothesis of the action no loss could have been sustained. In regard to that period during which William Baird absented himself from the direction, it may be material whether he had reason to know or believe that the other directors neglected their duty. I read the averments on record in regard to his knowledge as applying to the whole period.
But on these open accounts there still remains the question, Whether any case is sufficiently alleged on record to infer that the advances in question were unwarranted on the part of the manager, who is said to have made them? On this matter the record is not satisfactory. It only specifies balances of account. It does not, as I conceive it ought to have done, take up each account individually, and explain wherein the unauthorised advances consisted, but only avers that the accounts in 1852 show a certain balance which was unauthorised. In the former action similar statements in regard to the open accounts were considered so doubtful and unsatisfactory that the Court were not prepared to sustain them as relevant.
An attempt is made in the 26th article of the record to represent the permitting of overdrafts on open accounts, excepting in special circumstances, as of itself equivalent to granting cash credits without security, and so in violation of the contract, and contrary to the rules of sound banking. In regard to that matter I have only to refer to the opinion of Lord Cowan on that part of the statement in the former case in which he explained very clearly that overdrafts on open account, when kept within their legitimate limits, were among the most usual, as they were among the most profitable, branches of banking business. I concur in that opinion. But, on the other hand, advances on open account must be within the limits which the nature of the account, the position of the customer, and the amount of the advance, indicate. An open account must not be made the vehicle of, or the excuse for, dead loans without security, nor can the advances on it with propriety go to an amount manifestly beyond the position of the customer or the objects of the account. I should have found great difficulty in dealing with these allegations had they come up for judgment without the accounts to which they relate. But these accounts, have now been reported in extenso by the accountant. I have studied them attentively, and I am relieved of all difficulty on this head. In regard to the greater number of them, they are prima facie consistent with the statement on the record. I by no means intend to prejudge questions which may arise when the facts have been ascertained, but I am of opinion that many of them disclose advances which are not legitimate on open account or under the contract, and that this appears on the very face of the accounts. If, under the colour of an advance on open account continuous drafts are made without any payments to credit over a long period, or if the accounts are manipulated so as to conceal the true balance, or if large drafts are made in single sums without any counterpart, in such cases it will be difficult to maintain that these form legitimate operations, merely because they appear in an open account. I forbear however to say more in the present state of the proceedings.
On the whole matter, therefore, on this first branch of the claim, I am of opinion that the record contains statements which ought to be sent to proof. In regard to the accounts which are to be the subject of this proof, they will embrace all those which terminated at or prior to June 1852, although I do not intend the remarks which I have made to be applicable to all of them, but see no sufficient reason to exempt any of them from the course which I propose. I think we should also include one or two of the accounts which, although not absolutely terminated in June 1852, had no substantial operations on them after that date.
The pursuers will have to consider whether it will not be incumbent on them to prove their allegations in regard to each of these accounts, and not only to substantiate their averments of gross negligence, and the knowledge alleged on the part of the directors, but also to prove in each instance that the advances complained of were unwarranted, and that reasonable and ordinary care on the part of the directors would have prevented the Joss which was sustained. Any pleas in regard to the individual accounts which may be maintained by the defenders are of course in no degree prejudged.
The second branch, however, of these open accounts raises a different and more difficult question. These accounts were carried on to the failure of the Bank, and the demand under the record, although apparently, as in the preceding claim, for a loss incurred when Mr Baird left the direction, is in reality for a loss incurred, or at least ascertained, five years afterwards.
The record on this subject does not disclose the true nature of the facts, but we must read the accounts, as they stand in the books, as an essential part of the statement of the pursuer, and from them, as appears from the appendix to the report of the accountant, we gather the facts which are truly alleged, and the relevancy of which we are to determine. Many of the customers whose balances in 1852 are in question, remained ostensibly solvent until 1857. Their accounts were carried on by the Bank, and the balances entered the books as good assets year by year. In almost every instance the credit given was increased, and in some largely increased, and the debtors, for the most part failed when the Bank failed, many of them paying considerable sums. The claim which is now made is in each instance for the balance which was due in 1852, diminished by a proportional amount of the ultimate recoveries, ascertained by applying the amount per £ of dividend, paid on the whole ultimate debt, to redace proportionally the balance of 1852.
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It must, however, be evident that a result arrived at by such a process is, as a statement of a loss incurred in 1852, entirely imperfect. As far as it is an averment of fact, it amounts to no more than this, that in the liquidation of the debtor's estate after the stoppage of the Bank, the liquidator claimed for the whole debt then due, and recovered a sum which amounted to a certain percentage of that debt. But this fact does not exclude, on the contrary is consistent with, the entire solvency of the debtor, and the entire safety of the debt to the Bank, in 1852. The record says that the debt for which the pursuers sue “proved irrecoverable” to the extent specified. But the pursuers do not say that the debtor was insolvent, or that the debt was irrecoverable in 1852, or offer to establish this by proof. All that is said is, that these debtors were “unworthy of credit to the extent” sued for, an averment which falls far short of saying that the amount was lost to the Bank in 1852.
An instance or two will illustrate the anomalous position in which the record stands in this respect. John Monteith owed in 1852, £8000. In 1857 we find from the report that he owed £68,000. In 1852 Buchanan and Lockhart owed £18,000. In 1857 they owed £28,000. They paid £22,000, being more by £4000 than the whole debt due in 1852 by £4000. John Moffat owed in 1852, £247. In 1857 he owed £2337, or about ten times the amount of his debt in 1852. He paid £750, or three times the amount of his debt in 1852. The balance due on the aggregate of these accounts exceeds that of 1852 by more than £100,000. Yet in these and the other instances the balance sued for is brought out by ascertaining the amount per £ which the debtor ultimately paid on the whole debt, and deducting that percentage from the balance due in 1852.
All this is quite irrelevant as an allegation of a specific loss suffered in 1852, if it be a necessary part of the case of the pursuers, as stated, that the debt was irrecoverable in 1852. This radical defect in the allegation of loss, however, is more an objection to the structure of the record than to the substance of the claim itself. If it be otherwise well founded, the Bank was entitled in 1857 to have claimed from William Baird the whole of the outstanding balance of 1852, leaving him to recover what he could from the customer, whom they were not bound to discuss. William Baird's obligation was in no sense subsidiary, but was original, arising from the misappropriation of the funds of the Bank. If William Baird had in 1857 ranked for his relief on the estate of the insolvent customer, he would no doubt have drawn exactly the dividend which is now credited by the Bank,—and no more. But this, had it been the case plainly stated in this record, would have inevitably raised the important question whether the Bank was entitled to delay their claim until then? and whether the course of dealing with these customers during the interval had not excluded it? I am of opinion that the Bank, after taking over these accounts as good assets in 1852, continuing to deal with the customers as solvent traders, and increasing their credit, were not entitled, and the Liquidator who represents the Bank is not now entitled, to come back on William Baird with this demand. The claim, such as it is, is one in which the Bank is the creditor. The Bank might have made it in 1852. If the Bank had not stopped, it might have been made by the directors in 1857. It is a claim of a kind which any Bank, as a going concern, might make against any former director on similar grounds. Its nature is in no respect altered by the insolvency or stoppage of the creditor. The liquidator now represents, as the directors would then have represented, the Bank,—entitled to sue on the same grounds, and of course liable to the same exceptions. William Baird, since 1852, has had no relation to the Bank excepting that of a third party against whom the Bank alleged a claim, and whatever he could have pleaded against the Bank he can plead against the pursuer. The latter, indeed, represents the shareholders, but exactly in the same sense, and to the same effect, as that in which, while the Bank was solvent, the directers represented them. Both must be held as representing the Company, and—only through the Company—the shareholders; a claim which the Bank, as a going concern, would be precluded from making, could not acquire any vitality from the Bank going into liquidation.
If, therefore, the Bank in 1857 had brought this claim against William Baird, I think it could not have been sustained. The directors stood in the position of being the agents or mandatories of the Bank, for their own interest and that of the society, composed of shareholders, acting by the management provided by the contract. If an agent by gross negligence allows the money of his principal to be advanced to customers contrary to his instructions, he will be liable for any loss thereby occassioned. But if the principal, whether he be an individual or a collective body acting through a management provided by contract, in full knowledge of the facts, take the agent's accounts off his hands, adopt the balances as legitimately incurred, and continue to trade with the customer, it is too late, when a crisis occurs, and the customer fails, to fall back on the agent. Things are no longer entire. The commercial position of the customer has been changed by the act of the principal, and it would be inequitable to require the agent to enter into the question whether the debt was, when his agency ceased, one which the debtor could have paid. The case would of course be different if the principal were in ignorance of, or without the means of knowing, the grounds of the claim. But that the Bank, and those who acted for them, knew the grounds of this claim, is necessarily implied in the statement on which this action is maintained.
On this ground, therefore, I have come to the conclusion that this part of the case must fail, on the statement of it in the record, taking the accounts themselves as an essential part of it.
It has been pleaded for the defenders that these balances in 1852 have been paid up and extinguished by subsequent payments into the accounts, and that, although, the aggregate balance was never reduced, all the entries to credit must be held as appropriated to the earliest balance, on the principle established in the well-known decisions in the cases of Clayton and Devaynes, and in the series of judgments by which they have been followed. If the views I have already expressed are well founded, I need not resolve this rather difficult question; and, indeed, its solution seems very much to depend on the same principle. As between these customers and the Bank these balances have been innovated again and again. The balance on which the Bank drew a dividend in 1857 was not composed to any extent of the balance of 1852, which
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The doubt which arises is, Whether in this question with the delinquent director, who is no party to the account, the Bank are now bound so to apply these payments? The nature of their demand involves a challenge of the form of the account, and the debit entries and balances in it. They maintain that these advances were not legitimate transactions with the Bank, and that they are now entitled to strike them out of the account, and throw them back on the director who made them. If they have not adopted the account, and are entitled to repudiate it, the principle of Devayne's case can have no application. If they have adopted, and are bound by it, no further question remains. But I reserve my opinion on this matter.
II. The Bills of Exchange.—The claim under this head is for the balance of five discount accounts as they stood in June 1852. The total of this balance, after deducting the amount due in 1848, when Mr Baird became a director, is said to have been no less a sum than £292,000, and after crediting the amount of the alleged recoveries, the sum now sued for is £151,000.
Had the accounts terminated in 1852, I should not have doubted that farther investigation would have been necessary. The amount of the advances themselves raises a prima facie case of reckless dealing; and the averments regarding the position of the customers, and the general course of dealing between them and the Bank, although not so precise as could be wished, are very strong, and would in my opinion have compelled us to send the case to proof. The accountant reports that the total discounts during the period in question amounted to £1,200,000. On the question of negligence the case does not quite rest on the same footing as that on which the open accounts stand, because it cannot be said that advances by way of discount are prohibited by the Bank contract; and therefore the propriety or impropriety of the advances to a large extent would come to depend, in this part of the case, on the position of the customer, and the amount of the advance. But looking to these accounts, I should have had no hesitation at all in saying that they raised a prima facie case, which would have entitled the pursuers to go to proof upon it. But we have now a very complete analysis from the accountant of the whole of these bill transactions down to the stoppage of the Bank. The information thus given, along with that disclosed on the record, raises important considerations.
It appears that these five firms continued down to 1857 to deal with the Bank as solvent customers. All the bills which were current in 1852 were retired. The credit given to them by way of discount was enormously increased, so that when the Bank stopped the aggregate balance was £1,476,000, or nearly five times the amount due in 1852. I gather, by deducting the outstanding deficit stated on the record, from the balance of 1857, that of this sum the liquidator has recovered no less than £673,000—more than twice the amount due in 1852, although on the same principle as that followed on the open accounts only £141,000, or little more than a fifth part, is credited in reduction of the balance due in 1852.
The observations which I have already made on the principle followed in calculating the loss on the open accounts, applies with still more force to this branch of the claim. There is certainly no presumption that debtors who paid nearly £700,000 in 1857 could only have paid one-fifth of that sum in 1852, and indeed there is no allegation to that effect, or offer to prove it. The only matter of fact on this head which can be held to be averred, is the proportion which the debtors' assets in 1857 bore to the balance they then owed. The rest is a mere arithmetical process,—which seems to me to be entirely fallacious, if the amount of loss in 1852 is to be measured by the debtors' capacity at that time to pay.
It is said on the record that although the bills which were taken by William Baird and his associates for these advances were retired, this was done by the subsequent directors renewing the bills from time to time, without any fresh payment, and that this could not amount to repayment of the money, or fresh advance. The accountant has given us, in an appendix, a very exhaustive analysis of all these bills, from which it appears that a considerable proportion are shewn from the books to have been renewed, but that a considerable proportion also were retired by payment, as far as the books indicate. He says, “A latitude of eight days has been allowed on either side of the exact date when the bill or renewal became payable, that is, a bill due or at maturity on, say the 10th day of a month, is held to have been renewed in whole or in part by a bill with similar drawers, acceptors, and indorsers, entered in the list of bills discounted to the respective firms, within a period from the 2d to the 18th of the month.” Beyond that period the bills are held not to be renewals. He reports that in both cases this list may be fallacious in detail, and that it would be necessary to examine the books of the firms in question to ascertain the fact with accuracy, but that, with hardly an exception, he has found evidence of the payment of all the bills contained in the list.
If our opinion depended on the principle thus assumed, or on the proportion of bills actually retired by payment, it might have been necessary to have investigated these matters farther, although, for myself, I should have been satisfied to adopt the views of the accountant as conclusive on both points. But my opinion on this part of the claim is founded on the more general principle which I have already explained. The Bank, after William Baird ceased to be a director, have dealt with these customers, and trusted them to an enormous amount. In so far as the balance of 1852 was kept alive by renewals, they have traded on it, and made profit by the discounts paid and charged on the renewed bills. But they have done much more. The balance of £340,000, which was outstanding in 1852, grew in five years to the sum of £1,400,000, and the Bank must have got the benefit, such as it was, of the discounts on several millions of money, in the turning over of so large an amount. For the system disclosed in these transactions, hazardous as it was to the Bank and ruinous to the customer, was one, while it lasted, attended by considerable
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Holding this opinion, I think we should give effect to it at this stage of the proceedings. I see no ground for further enquiry, which could only put the party to additional and very great expense, without affecting the result. In regard to both these branches of the action, I am of opinion, taking the accounts themselves as an essential part of the pursuer's case, that there is, first, no relevant specification of loss as the result of the gross negligence libelled; and, secondly and mainly, that the state of the accounts, and the course of dealing which it discloses, exclude the claims.
III. The Policies of Insurance.—My remarks on this head may be very short. The amount sued for consists of sums paid as premiums of insurance under policies opened by the Bank on the lives of sundry debtors. This is a matter very different from those I have hitherto dealt with. These insurance transactions seem to have been practised by the Bank from a very early period of its history; and the accountant has reported on them very fully. It appears that as far as they consisted in taking assignations from debtors to subsisting policies of insurance in security of debts, on the whole they resulted in a considerable gain to the Bank. But in so far as they were opened by the Bank itself, without collateral security for payment of the premium, they seem to have resulted in a loss.
Opening such policies is certainly not ordinary banking business. But it is a different question whether there may not be circumstances in which the course might not he prudent and desirable. Your Lordships on a former occasion expressed yourselves much to that effect. I think the case on this branch resolves into an allegation of error in judgment, and rash or indiscreet administration, very similar to the illustrations put in some of the cases I have referred to. But, as it appears that since the stoppage of the Bank, the liquidator, without communication with William Baird, has sold these policies, I am of opinion that he has lost his recourse, even if otherwise it had been open to him.
I propose, therefore, that we should sustain the action as regards the open accounts which terminated in 1852, according to a schedule which I have prepared to the effect of farther enquiry, and dismiss it quoad ultra. In regard to the mode of proof, I am very clear that this is a case in no respect fitted for a jury. Each of these accounts forms a separate subject of enquiry, and questions may arise under each of them, as to the particulars to which I have referred, and as to the details of the accounting, which are specially within the province of a court of law I think in regard to that branch of the claim we should order a proof before answer.
The other Judges concurred.
The following is the interlocutor as ultimately adjusted, and the relative schedule:—
“Repel the third and fourth pleas in law stated for the defenders, so far as founded on
the alleged disqualification of the defender William Baird to be elected, or to continue to be, a Director of the Western Bank: Repel also the fifth plea stated for the defenders: Before answer, in regard to so much of the action as relates to the accounts of the parties named in the schedule appended to this interlocutor, allow both parties a proof of their respective averments relative thereto: Appoint the proof to be taken by Lord Cowan at such lime and place as he may fix: Quoad ultra dismiss the action, and decern; and reserve all questions of expenses.
“Schedule.
1. George Birrell, flesher, Cupar.
2. William Fulton & Co., Paisley.
3. David Husband, draper, Cupar.
4. Muir, Taylor, & Co., merchants, Mon treal.
5. William M'Ewan & Co., sugar refiners, Glasgow.
6. Ralph and Risk.
7. William Scoon, Jedburgh.
8. St Andrew's Church, Greenock.
9. Michael Taylor, Glasgow.
10. D. M. Dewar, Western Bank.
11. J. & D. Macarthur, fish curers, Glasgow.
12. James Stirrat, thread manufacturer, Paisley.
13. Caird & Co., Greenock.
14. John Smith, Western Bank.
15. William Thomson, Western Bank, Glasgow.
16. Henderson & Innes, silk mercers, Glasgow.
17. James M'Innes, Edinburgh.
18. W. F. Campbell of Islay.”
Counsel for Pursuers— Millar, Q.C., Shand, Balfour, and Asher. Agents— Morton, Neilson, & Smart, W.S.
Counsel for Defenders—The Lord Advocate, Solicitor-General, Dean of Faculty, Watson, and Lee. Agents— Webster & Will, S.S.C.