Scottish Court of Session Decisions

Alexander Gilruth Fleming was appointed in January 1874 by the North of Scotland Bank to act as their agent in Dundee. A bond of caution was thereupon entered into, by which he, as principal obligant, and his brother John Fleming, farmer, Alyth, and John Playfair, farmer, Johnshaven, as cautioners and full debtors, bound themselves “conjunctly and severally, our heirs, executors, and successors whomsoever, that during the time that I, the said Alexander Gilruth Fleming, shall continue in the said trust and office of agent for the said North of Scotland Banking Company, I shall carefully and diligently attend to the said business, and honestly and faithfully discharge the duties and trust thereof to the best of my skill, and in particular that I shall follow out and obey such instructions regarding the mode of conducting the business placed under my charge, or generally in regard to my duties as agent foresaid, as may be prescribed to me by the said banking company, or by their manager for the time being, and subscribed by the said manager, or by the secretary acting under him, and that I shall not act contrary to the said instructions in any particular, either by doing what may be thereby forbidden, or omitting to do what may be thereby enjoined; and further, that I shall well, fully, and truly account to the said North of Scotland Banking Company, or to their manager for the time, for all sums of money, whether in specie or bank notes, whether of the said banking company or other banks, or bankers' drafts on London or Edinburgh or otherwise, and for all bills, promissory-notes, or other vouchers, instructions, and documents of debt with which I shall be entrusted from time to time by the said company or their manager, or which shall come into my hands in the execution of the trust committed to me; and that I shall pay in and deliver to the said banking company, or to their manager

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for the time, all sums of money or other funds or effects of every denomination belonging to the said banking company in my custody when required so to do; and whatever loss, damage, skaith, or expense the said North of Scotland Banking Company shall happen to sustain or incur by me, or by my clerks, servants, or other persons acting under me in any capacity, or by fire, robbery, theft, embezzlement, or any other accident or misfortune happening to what is under my charge belonging to the said banking company during my continuance in the said office and trust, provided I am in any way to blame thereanent, or from my personal neglect or delinquency, or by my acting contrary to or neglecting to obey and follow out such instructions as may be prescribed to me, we, the said principal and cautioners foresaid bind and oblige ourselves, conjunctly and severally, and our respective foresaids, to refund, content, and pay to the said banking company, or to their manager for the time, for the use and behoof of the said banking company, and that on demand, with a fifth part more of liquidate penalty in case of failure, by and attour the said damage, loss, skaith, or expense, and together therewith; declaring, however, that I, the said Alexander Gilruth Fleming, shall not be liable for the loss of money, notes, bills, or other property belonging to the said banking company in the course of transmission or conveyance by post or otherwise, except in so far as the said loss or damage may arise from my acting contrary to or neglecting to follow out and obey the instructions prescribed or to be prescribed to me as aforesaid, or may be traced to the fault or delinquency of me or of the clerks, servants, or others acting under me; And farther, it is hereby provided and declared that I, the said Alexander Gilruth Fleming, and the said cautioners for me, shall take upon us the risk, to the extent of one-eighth part, of all bills to be discounted by me, and of all bills on London or elsewhere which I may purchase in conducting the business of the said banking company, and that I and the said cautioners, and our respective foresaids, shall be liable, conjunctly and severally, to the said banking company for all loss that may be sustained by forged bills or by bills not duly protested or negotiated, as also for the regularity of all the vouchers and accounts of my transactions in conducting the said business, and in particular for the regularity of the vouchers of sums drawn out upon cash-credits granted by the directors of the said banking company, and for all sums drawn out upon such credits beyond the sums for which the same have been granted, as well as for all sums drawn out of any current or deposit account beyond the sums which may be at the credit of such accounts, with interest thereof; declaring always that we, the said John Playfair and John Fleming, cautioners foresaid, and our foresaids, shall be liable respectively under these presents only to the extent of £500, to which sum our cautionary obligation above written is hereby restricted, which sum of £500 we bind and oblige ourselves, jointly and severally, and our respective heirs, executors, and successors, to pay to the said banking company, or to their manager for the time for their behoof, and that on demand, with interest from the date of the said demand until payment, and a fifth part more of liquidate penalty in case of failure; and we consent that all necessary execution may pass, &c., declaring that it shall not be competent for us to plead in suspension of such charge that the state of accounts between the said banking company and their said agent, the principal obligant in this bond, has not been previously intimated or made known to us by the said banking company or their manager, or that the said banking company or their directors or manager have not been sufficiently vigilant in superintending the operations of their agent, or that they have taken any separate security from him, by bills or otherwise, for the amount or any part of the amount due by him, or in general, that any blame is attached to the said banking company or their directors or manager in the premises, it being agreed and covenanted that they shall not be bound to take any superintendence of their said agent, the principal obligant in this bond, on account of us the said cautioners, or to give us any notice of his actings, dealings, or transactions, or of any circumstances likely to render necessary the enforcement of our cautionary obligation, which may occur or come to their knowledge in the course of his agency, reserving, however, our right to demand at any time from the said banking company or their manager a state of the accounts between them and their said agent, and of the sums due by him to the said banking company; declaring also, that it shall not be competent for us to plead in suspension of any charge to be given to us, the said cautioners as aforesaid, that the sums charged for are not due under this bond, or that the said principal obligant in this bond is not indebted to the said banking company to the full amount of the sum charged for, or that his inability, or that of his representatives, to satisfy the demands competent to the said banking company against him or his foresaids has not been ascertained, we, the said cautioners, having renounced, as we hereby renounce, all benefit of discussion or right of suspension in these respects.”

For some time previous to his being appointed to this agency Alexander Fleming had resided at the farm of Bruceton, near Alyth, and he had an account with the Royal Bank there for the advances necessary to carry on the farm. After his appointment to Dundee he closed an account which he formerly had with the Royal Bank at Alyth, in which he was indebted to that bank in £381, 12s. 2d., and opened one with the North of Scotland branch at Dundee, under the title “Alexander Gilruth Fleming, Bruceton farm, near Alyth.” The first item in this account was a debit entry of £381, 12s. 2d., and the account bore to have been opened on the 6th June 1874. By themiddle of September the balance against Alexander Fleming had by repeated additional overdrafts increased to £1192, 15s. 6d. In order to prepare this account for the eyes of the directors of the bank, and for the annual balance, a number of bill transactions took place between Alexander Fleming and his brother John Fleming, who was manager of Bruceton farm, but no money except one small sum was ever paid into the account, and any balance which ever appeared on the right side was only brought out by the discounting of bills. The result of these transactions was that when Alexander Fleming, having become insolvent, executed a trust-deed for behoof of his creditors, and left the service

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of the bank, there was a balance due by him on the account of £6030, 5s. 10d.

This was an action by the bank against John Fleming, as cautioner, to recover from him the amount for which he had bound himself under his bond of caution. This sum amounted to £500, but as dividends had been paid to the bank on the bankrupt estates of the principal debtor and Playfair, the other cautioner, to the extent of £166, 19s. 4d., the sum sued for was limited to £333, 0s. 8d. The bank maintained that by the terms of the bond of caution the cautioners were made liable for overdrafts granted by the principal obligant, and that as Alexander Fleming had advanced these sums for behoof of the Bruceton farm, of which the defender was manager, the cautioner must make good these advances to the limit of his liability, this being the kind of transaction which the bond of caution was intended to cover.

The defender maintained that from beginning to end this account was known to and sanctioned by the bank officials, and that an overdraft of this kind was not one which the bond of caution was ever intended to cover, and that although by its terms the bond provided that the defender could not competently plead want of vigilance on the part of the bank officials in not superintending the operations of their agent, yet that could not free them from the responsibility of exercising reasonable watchfulness over his actings.

The defender's second plea-in-law was in these terms—“(2) The pursuers having acquiesced in and drawn a dividend from the insolvent estate of the defender's co-cautioner without intimation thereof, the defender is liberated from his cautionary obligation.”

On the 18th October 1881 the Sheriff-Substitute issued the following interlocutor and note:—“Repels the defender's second plea-in-law, and before answer as to the other pleas hinc inde allows to both parties a proof in support of their respective averments, and to the defender a conjunct probation.”

“ Note.—… A new question of some importance and interest arises out of the pursuers' plea that the defender is barred from maintaining his defences founded on their alleged failure duly to superintend their agent by the terms of the provision quoted in their answer to his statement of facts. With regard to this plea, the defender's contention is that the provision on which it is based is so repugnant to the nature of the contract, and so unreasonable and iniquitous in itself, that a court of law will refuse to give effect to it. In support of his contention the defender's agent cited a passage in Professor A. M. Bell's Lectures on Conveyancing (2d. ed., pp. 284–5), in which it is laid down by the learned author that however comprehensively bonds of caution for bank-agents are framed, the granters cannot screen themselves from the necessity of due and reasonable watchfulness over their agents, but that the cautioners are entitled to expect, and the law will secure to them, notwithstanding the most stringent clauses to the contrary, a fair regard to their interests. I find, too, that Professor Menzies (Lectures on Conveyancing, 2d ed. p. 227), speaking of the very provision which we have here, indicates a doubt whether it would be treated as legitimate and effectual. So far, however, as actual decision goes, the point would seem to be still an open one, and that being so it must be decided on principle. Now, the principle to which the defender appeals is one with which we are familiar in questions of proprietary rights in land, in regard to which the general rule is that at common law conditions or limitations in a property title which are repugnant to the common legal notion of property and proprietary rights are held to be invalid. ‘Thus'—to quote Lord Young in Earl of Zetland v. Hislop, March 18, 1881, 8 R. 681—‘conditions against selling and alienating, burdening with debt and altering the succession, are all bad ( i.e. at common law), for these are common law incidents of property, and at common law inseparable from it.' Can it be said that it is an inseparable incident of such a contract as we are dealing with here that the grantees are to exercise a reasonable amount of superintendence and watchfulness over their agents? That is really the question to be determined, and much may I think be said on both sides. At present, however, I do not intend to decide the point, partly because before deciding it I should like to have further argument on it and more time to consider it, and partly because, assuming the provision to be a legitimate and enforceable one, I think that it is beyond all doubt one which must be very strictly construed against the pursuers, and that till all the facts are ascertained it cannot be satisfactorily determined whether the pursuers are or are not protected by it. Entertaining these views I have allowed a proof before answer.”

The proof allowed by this interlocutor was led on the 8th of December 1881, and the result of it appears from the findings in fact of the Sheriff-Substitute, and from the passages quoted in the opinion of the Lord President.

On the 1st February 1882 the Sheriff-Substitute issued this interlocutor:—“Finds in fact (1) that the defender has failed to prove that the pursuers have discharged Mr Alexander G. Fleming, his brother, and the principal obligant in the bond mentioned on record; (2) that the defender was from the first well aware that his said brother was getting advances from the pursuers to carry on Bruceton Farm, and that the farm account was at times heavily overdrawn; (3) that the greater part of the drafts on said account were made by cheques or bills signed by the defender, who acted as manager of the farm, and in some instances there is reason to believe that the drafts were not for the debts or purposes of the farm, but to meet the defender's obligations in connection with a commission business which he carried on on his own account; and (4) that the defender's attention was called to the state of the farm account in October 1876, by a letter addressed to him by one of the bank officials, but he nevertheless allowed matters to go on just as before: Finds in law, as the result of the foregoing findings and the admissions on record, that the remaining defences must be repelled, and decree pronounced in the pursuers' favour for the sum sued for, with interest, as libelled: Therefore decerns against the defender for payment to the pursuers of the sum of £333, 0s. 8d. sterling, with interest thereon at the rate of 5 per centum per annum from the 29th day of July 1880 years until paid: Finds the pursuers entitled to their expenses,” &c.

“ Note.—On further consideration I can see

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no sufficient ground for the doubts expressed by Professors Menzies and Bell as to the validity of the clause in the bond specially referred to in the note to the interlocutor of 18th October, which I hardly think can be held to be contra bonos mores, or inconsistent with public policy; but I do not require to determine the point, for now that the facts of the case are fully before me I am clearly and decidedly of opinion that, even taking the clause in question pro non scripto, it is impossible to reach a conclusion favourable to the defender, and it will be agreed that a judgment rested on the merits of the case is more satisfactory for all parties.” …

On appeal the Sheriff ( Trayner) adhered.

The defender appealed to the Court of Session, and argued—The guarantee undertaken by the cautioners under this bond of caution was for the faithful discharge of his duties by the principal obligant as bank agent, and the overdrafts for which they were to be held liable were overdrafts made by the agent to customers of the bank in the ordinary course of business and not for advances made by the bank to their own agent. These advances were made entirely with the consent of the bank officials, who from the monthly returns were kept aware of the state of the account. Alternatively, even supposing the cautioners might under ordinary circumstances have been liable, they are entitled to be freed in the present case, owing to the negligence of the bank officials. Notwithstanding the clause in the bond of caution, it was competent for the cautioners to plead that the bank officials had not exercised a sufficient supervision over their agent.

Authorities — Thomson v. Bank of Scotland, June 11, 1824, 2 Sh. App. 317; Forrester v. Walker, June 27, 1815, F.C.; Leith Banking Co. v. Bell, May 12, 1830, 8 Sh. 721; Gilmour v. Finnie, July 8, 1831, 9 Sh., 907; Bell's Lect. on Convey., i. 266 and 284; Menzies' Lect. on Convey., 226 and 232; Bell's Comm., i. 382.

During the discussion the following additional plea-in-law was stated for him:—On a sound construction of the bond of caution, the cautioners did not undertake liability for the overdrafts or advances in respect of which the defender is now sought to be made liable.”

Argued for respondent—This account must fall within the provisions of the bond of caution unless it can be shown to be specially excepted, and the mere fact that the account is in the agents' name will not diminish the cautioner's liability. It could not be pleaded that the cautioner had not notice of what was going on, because as manager of the farm of Bruceton he was aware of the advances which were being made to carry it on—he in fact was getting the benefit of the overdrafts. There was nothing illegal in that clause of the bond of caution which freed the bank from the necessity of superintending their agent, and it excluded the plea of negligence urged by the defender. The cautioner has failed to show that if the bank had acted otherwise he would have been in any better position. The advances were made to Bruceton farm as if it had been a customer of the bank; therefore it could not be said that this was an advance by the bank to its own agent.

Authorities— M'Taggart v. Wilson, April 16, 1835, 1 Sh. and M'L. 553; Creighton v. Rankin, May 26, 1840, 1 Rob. App. 99.

At advising—