Scottish Court of Session Decisions

This was an action at the instance of Robert Waugh, farmer, Bathgate, and others, trustees of the late William Shaw of Trees, against Alexander Clark of Wester Inch and Whitehill, Bathgate. The summons concluded (1) for payment of £94, being the balance due to the pursuers by Robert Brock, sometime banker in Bathgate, on the accounts of his intromissions as factor for the pursuers with the funds of the trust-estate of the said deceased William Shaw, conform to account-current between the said Robert Brock and the pursuers, and for which balance the defender was liable to the pursuers as cautioner for the said Robert Brock; and (2)

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that the defender, as cautioner, should be ordained “to free and relieve the pursuers of the sum of £133, 9s. 3d., being the balance due to the Clydesdale Banking Company on an account-current” kept with the bank in the pursuers' name by Brock, and exclusively operated on by him. An alternative conclusion for payment of £227, 9s. 3d., conform to account between Brock and the pursuers, was subsequently added.

The late William Shaw of Trees died on 3rd September 1875, leaving a trust-disposition and settlement, whereby he appointed the pursuers his trustees for the purposes therein mentioned. The chief purpose of the trust, after payment of debts, was to pay over the yearly rents to the truster's grand-daughter Mrs Davidson. On 8th September 1865 the trustees appointed Robert Brock, banker in Bathgate, to be their factor on the trust-estate, which consisted both of heritable and moveable property. The defender became cautioner for Brock, and on 10th and 11th December 1866 a bond of caution was executed in which the said Robert Brock, as principal, and the defender, as cautioner, but only to the extent of £400, became bound “that I, the said Robert Brock, shall hold just count and reckoning for my whole transactions of every sort in virtue of the said appointment, and shall make payment to the said trustees, or to any other person duly authorised to receive the same, of the rents and other sums uplifted or received by me from or on behalf of the said estate of Trees and others, half-yearly and termly, or at such time as I may be required by said trustees, or as the same are uplifted by me from the tenants of the said lands, and shall also transmit yearly to the said trustees, or other person authorised to receive the same, my accounts, with rentals of the estate and lists of the arrears due by the tenants.”

The defender continued factor until 1875, when he became bankrupt and his estates were sequestrated.

The pursuers averred that besides his cash account with them, Brock kept an account-current in their name with the Clydesdale Bank on which he alone operated. On both these accounts there were balances due by the defender to the amounts set forth in the summons. In reference to the balance due on the bank account, the pursuers admitted that they had on 16th June 1874 authorised Brock to overdraw the Bank account to the extent of £230 for an advance which they had agreed to make to Mrs Davidson. Brock accordingly drew this sum from the bank and paid it to Mrs Davidson, but although he entered the sum in his account-current to his credit, he did not debit himself with the sum as received from the bank. Owing to the fact that Brock retained and applied to his own purposes the rents of the estate which he subsequently received, the overdraught was never repaid, but a balance of £133, 9s. 9d. remained due by him on the bank account.

In defence, the defender in the first place stated—“It was in the knowledge of the defender when he granted the foresaid bond of caution that there was in the trust a law-agent different from Brock, who would exercise independent influence over the trustees, and independent control over Brock and his proceedings; and it was not in his contemplation that there should cease to be a law-agent in the trust, or that the two offices of law-agent and factor should be merged in Brock, nor was he aware until after the raising of the present action that the latter had in point of fact been done. In or about the end of 1871 or beginning of 1872 the pursuers, without the defender's sanction or knowledge, changed their contract with Brock, or the nature of his appointment, and increased the risk of loss through him by appointing him law-agent in the trust and permitting him to act in that capacity.”

In the second place, the defender maintained that Brock, in having paid into the bank account, had in fact to implemented the terms of the cautionary obligation, which provided that the sums received by him should be paid to the trustees or “any other person duly authorised to receive the same.”

In the third place, the defender pleaded that there had been gross negligence and remissness in their duty on the part of the trustees, which, assuming their own statements to be true, barred them from having recourse against him. In support of this plea the defender founded upon the fact that the factor's accounts, and in particular his account for the year ending 1874, were docquetted by the pursuers as correct.

The Lord Ordinary gave decree against the defender for payment to the pursuers of £227,9s. 3d., the sum alternatively sued for, with expenses, subject to a modification, and explained his ground of judgment in the following note:—

“ Note.—The terms of the bond of caution sued on are the measure of the defender's liability; and the question raised by the pursuer is, Whether there are rents or sums received by Brock from the estate of Trees and others for which the defender interposed his guarantee, and which have not been accounted for and paid to the pursuers? Before, however, this question can be properly taken up for consideration, there are two questions raised by the derender which must be decided. These are—Has Brock, the principal, been discharged? And was the contract with Brock altered, and the risk of the defender as a consequence been increased, without his consent? The affirmative of both is assumed by the defender, and each is set up as a defence to this action.

“As regards the first of these defences, all that appears is that there were yearly accounts exhibited, examined, and docquetted; but the docquets are not a discharge of all liability arising out of Brock's intromissions. The accounts exhibited, for anything that appears, are supported by vouchers, and this must be held to be established by the docquets. But the accounts thus docquetted were imperfect; they did not present all Brock's intromissions. On the contrary, sums which ought to have been entered as rents received were purposely omitted, that the true result of his intromissions might be concealed; and this being the real situation, the Lord Ordinary thinks that what occurred is not a bar to the claim now urged against the defender.

“As regards the second of the defences referred to, all that has been proved is that from the opening of the trust till 1872 Mr Sinclair, a writer in Bathgate, was the law agent of the trustees; that there was no appointment of a successor;

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and that such business as had previously been done by Sinclair for the trust was afterwards performed by Brock. These arrangements, however, the Lord Ordinary thinks, did not concern the defender. There was no contract with him, either expressed or implied, that the law business of the trust should be carried on through the instrumentality of Sinclair; or that if his services were discontinued, Brock, in the character of an agent, should not be employed. It is said in the defences (defender's statement 8)—[ quoted above]. Though this statement is denied on the record, no evidence in support has been adduced. The defender did not appear as a witness; and it may therefore be assumed, not only that the arrangements of the trustees as to the conduct of the trust business were unknown to the defender, but that the subject was one as to which he was indifferent when he undertook the obligation contracted by his bond.

“The real question in the case is that raised by the pursuers—Are their rents or other sums uplifted from the estate of Trees and others unaccounted for and unpaid? That such there are unaccounted for was not, and could hardly be, disputed, for sums still in the hands of Brock were not entered in his accounts. But it is contended that, whether accounted for or not, these, in a question as to the liability of the defender, must be held to have been paid to the pursuers or to ‘a person duly authorised to receive the same;’ and in this way Brock opened in the books of the Clydesdale Bank, of which he was the agent at Bathgate, an account in his own name as factor for the pursuers. From time to time rents were paid into that account, and sums were drawn out by Brock, but these operations were never entered in his factorial accounts. All were ignored; and indeed it was only years after it had been opened that this account came to the knowledge of the trustees. But it did at length come to their knowledge; and they on two occasions—the one occurring in 1871, and the other in 1874—authorised overdrafts. The account therefore must be regarded as one which was recognised by the trustees. It does not, however, follow from this that every sum paid into this account is to be regarded as a sum for which Brock accounted, and which in the sense of the bond of caution was paid to the pursuers, or to a person duly authorised to receive it. And yet this contention constitutes the answer of the defender to the pursuers' claim. The Lord Ordinary considers that this account is to be regarded as a part of the machinery by which the transactions of Brock as factor or cashier were to be conducted; that the use he made of this machinery was consequently one of the things covered by the cautionary obligation; that till his factorial accounts were rendered there could be no accounting in the sense of the bond; and finally, that as these accounts were perfect or imperfect, as they were or were not vouched, and as the balance truly due was or was not brought out and paid, the liability of the defender would or would not be discharged. The defender cannot reasonably complain of this as a view of the case by which he is exposed to hardship. The bond of caution did not provide for the deposit in bank of the rents collected before the time at which there was to be an accounting for the defender's intromissions. Nor was such a thing in the contemplation either of the defender or of the pursuers when the defender became cautioner. Unless, therefore, he could show, which he could hardly do, and certainly has not done, that his position to-day is worse than it would have been if all the rents collected between the yearly examinations of accounts had remained unlodged in bank, his suggestion of hardship cannot, the Lord Ordinary thinks, be entertained. And the conclusion on the whole matter to which the Lord Ordinary has come is that to which effect has been given by the foregoing interlocutor.

“The reasons for which expenses have been awarded, subject to some modification, is that there was a debate as to the construction of the bond, in which the pursuers were unsuccessful. That was a matter considered material by both parties, and the expenses involved in the discussion ought now, the Lord Ordinary thinks, to be allowed for in awarding the expenses of process to which the pursuers are to be found entitled.”

The defender reclaimed.

Authorities quoted— Leith Bank v. Bell, May 12, 1830, 8 S. 721, 5 W. and S. 703; Bonar v. Macdonald, July 17, 1847, 9 D. 1537, 7 Bell's App. 379, Bell's Prin. § 259; Dalzell v. Menzies, Feb. 15, 1831, 9 S. 434; Whitcher v. Hall, 1826, 5 Barnewall & Cresswell, 269; London and N.-W. Ry. Co. v. Whinray, June 7, 1854, 10 Hurlstone & Gordon, 77; Mays. of Glasgow v. Hopkirk's Trs., Nov. 16, 1839, 2 D. 61; Bringle v. Tait and Others, July 10, 1834, 12 S. 918; Thomson v. Bank of Scotland, June 11, 1824, 2 Shaw's App. 317.

At advising—