Scottish Court of Session Decisions

Robert M'Whirter, who was engaged in a large building business in Greenock, was in 1878 proprietor of certain heritable subjects in Gourock, Greenock, and Glasgow, estimated to be of the value of between £40,000 and £50,000. Towards the close of that year, finding himself in want of capital to carry on his business, and being unable to meet his liabilities to his creditors, he entered into an arrangement with Colin Stuart Caird, merchant, and William M'Clure, of the firm of M'Clure & Macdonald, writers in Greenock, which was carried into effect by a memorandum of agreement, dated 3d January 1879, between Caird and M'Clure of the first part, and M'Whirter of the second part. This agreement, so far as bearing on the present case, was as follows:—“Whereas the second party having become involved in heavy building speculations, called a meeting of his creditors, and agreed with them that he should be discharged of his ordinary debts for a composition of five shillings in the pound, payable at six and twelve months, with security, and he having asked the first parties to become cautioners and sureties for the said composition, and to undertake certain other responsibilities for him, which they have conditionally agreed to do, it has been, and hereby is agreed as follows:— First, The second party agrees to grant a valid and absolute disposition and assignation to the first parties of his whole heritable and moveable properties, excepting only the household furniture in his dwelling-house at Gourock, and that whenever called upon to do so, and also to grant all other deeds, supplementary and otherwise, relating to the premises, which the first parties may require him to execute, and the necessity or propriety of granting which they shall be the sole judges; and he further agrees to concur in all deeds to be granted by the first parties if and when required; and he shall grant absolute warrandice of all deeds and writings, while the first parties shall only be bound to grant warrandice from their own facts and deeds& . . Second, It is agreed that the first parties shall have the absolute and uncontrolled power over, and management of, the whole subjects to be so conveyed to them, always under the several burdens at present affecting each separate subject, but with power to renounce any of the separate subjects, and give the same up to the heritable creditors for their separate heritable debts, according to their rights therein; and also with full power to the first parties to sell, use, and dispose of the whole or any of the properties at pleasure, and to uplift and use the price or prices thereof, as they may see fit, for their own benefit and advantage.” By the third article M'Whirter agreed to give his utmost skill and attention in finishing the properties so conveyed, superintending the workmen, making necessary contracts, and managing the property, receiving a certain sum per week for his services, and being at liberty to perform other work. “ Fourth, The said first parties agrees to grant bills for the composition due to the second party's ordinary creditors, according to a list subscribed as relative hereto (and which the second party warrants to be a complete list), and to pay the said bills when due; and the first parties also agree to pay the past due interest on bonds and dispositions in security and other securities affecting the properties, and also the past due feu-duties affecting the same, excepting always the feu-duties on the plots of ground feued on the Gourock estate, on which no buildings have been erected. Fifth, In order to finance for the purposes in article 4th, the first parties may either obtain a bank cash-credit, or they shall be at liberty to draw upon the second party, at such times and for such amounts as they please, and which drafts he agrees to accept for being discounted, the first parties always retiring such drafts when due… … Seventh, Should the first parties be satisfied that the second party has given all due and proper attention to the duties herein agreed to be performed by him, that he has not directly or indirectly obtained or bargained for discounts, commissions, or profit, or advantage to himself beyond that herein agreed for, that he has not misrepresented the debts due by him, or the liabilities of the estate, or its value as agreed to be conveyed, of all which particulars the first parties shall be the sole judges, the first parties may allow the second party one-third part or share of all profit nett to be derived from the estate on being finally wound up, in addition to the money payments hereinbefore agreed upon, and the furniture; but in estimating this third, the profit in the foresaid machinery and plant, of which the second party must keep a correct account, will be included. Eighth, Subject to the terms of the 7th article hereof, the whole profits to be derived from the estate shall be held for behoof of, and to be divided equally between the two first parties and their representatives, and should there be loss, they shall sustain the loss in equal shares, none of them being to take profit directly or indirectly unless what is herein allowed or may be due and acknowledged as preferable, or specially admitted in writing, under pain of forfeiture of all interest under this agreement.”

M'Whirter on 15th January following (1879) executed a disposition and assignation of his whole estate, heritable and moveable, with the exception of his household furniture and some other subjects agreed not to be conveyed, in favour of Caird and M'Clure. The narrative of this deed bore that it was granted “for certain good and onerous causes and considerations, but not for a price paid,” and in implement of the obligation undertaken by him in the memorandum of agreement.

Caird and M'Clure thereafter became cautioners for the payment of M'Whirter's composition to

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his creditors, and entered into possession of his whole means and estate, making up titles by notarial instruments to the heritable property, most of which was burdened with debts secured by bonds and dispositions in security.

In November 1882 Caird and M'Clure executed a deed of renunciation whereby they, on the narrative of the memorandum of agreement and the power thereby given them to make renunciation to heritable creditors, and of the disposition and assig nation by M'Whirter in their favour, and of their having entered into possession and collected the rents of the heritable properties thereby conveyed to them, renounced and gave up to certain heritable creditors, therein enumerated, certain of the heritable subjects conveyed to them by M'Whirter, among them being included subjects over which the trustees of a Mr Ballantine held a bond and disposition in security for £900, and also the subjects in Brougham Place after mentioned. They sent a circular letter, with a copy of the deed of renunciation, to each of the heritable creditors secured over the property conveyed by M'Whirter.

In September 1883 David Alexander Tallach, liquidator of the firm of M'Clure & Macdonald (which firm had been dissolved), which had made to M'Whirter an advance of £500, receiving in security a conveyance, ex facie absolute but truly in security, of certain subjects in Octavia Terrace and Brougham Street, Greenock, raised an action against M'Whirter for payment of £161, 17s. 1d., being the balance withinterest of said advance remaining unpaid after a sale of the property by M'Clure & Macdonald. The disposition to the purchaser in this sale was granted by Caird and M'Clure as heritable proprietors, with the firm of M'Clure & Macdonald and M'Whirter as consenters, and contained absolute warrandice. Tallach also claimed £25 as the expenses connected with the roup of the subjects. M'Whirter intimated the action to Caird and M'Clure, who gave him no instructions regarding it. He lodged defences, and, after a proof, decree was granted by the Lord Ordinary, on 8th March 1884, for payment of the sums sued for, with expenses. M'Whirter's expenses in the action were £133, 2s. 3d. In April following M'Whirter was charged on the decree for the sums found due in the action.

In January 1884 M'Whirter was charged on the bond held by Thomas Ballantine's trustees over a property in Greenock, to pay up the sum of £900 therein contained, withinterest and penalty.

In May 1884 M'Whirter raised the present action of relief against Caird and M'Clure, concluding that the defenders ought to be ordained, jointly and severally, to pay to him, or otherwise to relieve him of all liability for payment of (1) the £900 in the bond to Ballantine's trustees; (2) the £137, 6d. 4d., which had been the principal sum concluded for in Tallach's action (and to which fell to be added £24, 10s. 9d. of past due interest, making the total £161 17s. 1d.), and also the £25 for which decree had been given against him in that action; and (3) for payment of £133, 2s. 3d., being the amount of expenses incurred by him in defending that action. He averred that it was a condition of his having conveyed his whole heritable property to the defenders under the agreement, that they should relieve him of his liability in respect thereof; that since taking over his whole means and estate the defenders had managed the same entirely for their own use and advantage, and had drawn the whole profits thereof.

The defenders averred that the pursuer, in breach of article 3 of the memorandum of agreement, had wilfully neglected his duties as their factor, and had in other ways failed to implement his part of the agreement, and that in consequence they, the defenders, had lost sums of money amounting in all to £8000. They set forth the renunciation above mentioned.

A statement of the pursuer's affairs, dated 29th October 1878, brought out a deficiency of £3184, 18s. 4d., and an estimated outlay of £1607, 10s. still required to complete certain properties. The estimated value of the heritable properties was £40,650, while the amount of bonds was £37,810, leaving a surplus of £2840, from which fell to be deducted £300 as the estimated cost of the formation of a street. An abstract of receipts and disbursements for the properties conveyed to them, prepared by the defenders, showed, at the date of the renunciation above mentioned, a nett deficiency of £7925.

The pursuer pleaded—“(1) Under the agreement dated 3d January 1879, the defenders are bound, jointly and severally, to pay to or relieve the pursuer of liability from the sums first and second concluded for in the present summons. (2) In respect of the said agreement and what followed thereon, and, in particular, the conveyance to the defenders of the pursuer's whole property, with the exception of the subjects they did not desire to take over, the pursuer is entitled to the relief concluded for in the summons. (3) The defenders, to whom intimation of the pursuer's claim to relief was duly given, are also bound to refund to him the expenses incurred in defending the action at the instance of Mr Tallach.”

The defenders pleaded—“(1) The statements of the pursuer are irrelevant and insufficient in law to support the conclusions of the summons. (2) By the terms of the memorandum of agreement the defenders did not undertake to relieve the pursuer of his personal liabilities and the bonds affecting the heritable property. (3) Separatim. The pursuer not having fulfilled his obligation under said agreement, cannot sue thereon.”

The Lord Ordinary decerned against the defenders in terms of the first and second conclusions of the summons, and with reference to the third conclusion, remitted the account of expenses libelled to the Auditor, and granted leave to reclaim.

“ Opinion.—The parties are agreed that the case should be disposed of on the closed record. The only question is, whether the defenders, in taking over the pursuer's estate without any price being paid, have also taken over (as between disponer and disponee) the liability affecting his estate? The answer to this question may be made clear by reducing the case to one of a more usual character.

If I purchase a house over which there exists a disposition in security of £1000, and if I am in want of £1000 to make up the price, my right is to require the seller to clear the property of the en cumbrance, and I may then simultaneously contract a fresh loan in my own name on the security of the property, and for the same amount. Under this

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mode of settlement the seller is discharged of his obligation by payment, and the purchaser comes under a new obligation to a creditor who may be the same person who had lent the £1000 to the seller. Now, if, by arrangement, instead of re quiring the old bond to be cancelled, I agree to take over the house with the debt of £1000 affecting it, paying the difference only to the seller, evidently the seller's right against me is to require me to relieve him of his personal obligation under the bond, and to arrange with the creditor that he shall accept my obligation in its place. If this were not so, the seller would not be in as good a position as if the transaction had been carried out in the first-mentioned way. Because, observe, under the second way the seller has not received full payment; he has only got my promise to pay £1000 and actual payment of the difference, and in order that he shall be completely satisfied, my promise to pay the £1000 must be made as good to him as actual payment by the creditor accepting my promise as coming in place of his (the seller's) promise. All this is very elementary, and the principle is just the same when the property is mortgaged to its full amount. If I purchase the property for a price equal to the debt affecting it, and agree to take it over with the debt upon it, then while I pay nothing to the seller in cash, the consideration I give him for his property is that I relieve him of all liability for the mortgages, and take that liability on myself. The heritable creditor may possibly not be willing to discharge the seller, and take the purchaser bound; he may regard the seller's obligation as a valuable part of his security. In that case the heritable creditor may proceed against the seller for his principal and interest, and compel him to make payment, but of course in that case the purchaser must refund to the seller the money he was compelled to pay, because he (the purchaser) has got the property, and the consideration for which the seller parted with his property was that the purchaser should relieve him of the debts which were secured upon it.

Now, in the present case I can regard Messrs Caird and M'Clure in no other light than as purchasers of M'Whirter's heritable property for a price or consideration equal to the debt affecting it. They were not agents or trustees; they were not employed to sell the property for M'Whirter's benefit; they were to take it, keep it, sell it for their own benefit, to divide the profit, if any, and to share the loss if loss should result. M'Whirter was to participate in profits no doubt in a certain contingency, but in substance the agreement was as I have represented.

The disposition bears to be for onerous causes, and the onerous cause evidently is that the disponees take over the liability for the debt secured upon the property. They are not liable directly to the heritable creditor, but they are liable to relieve their disponer when distressed, because they have taken the property with its engagements.

It can hardly be supposed by anyone that M'Whirter meant to give the defenders his property for nothing; that he, without a shilling in the world, was to continue to be responsible for the large loans affecting the estate, while he was giving away gratuitously the estate on which these loans were secured—the estate which was the only fund out of which he could honestly hope to pay back that loan. Clearly the disposition was not gratuitous. Then it was onerous; yet being onerous, it is admitted that no price was paid, and no other property was received by the pursuer in exchange. In what, then, did the onerosity or the valuable consideration consist? In the defenders relieving the pursuer of the obligations to his heritable creditors, which he was not—and they were—able to meet. No other consideration has been or can be suggested. The property was very properly considered by both parties to be fairly worth the money borrowed upon it to an owner who could afford to hold for a few years, and the defenders were willing to take it over and take their chance of the property being ultimately sold for a price exceeding the amount of the heritable debt. That being so, it follows that the defenders must relieve the pursuer of his liability for the debts heritably secured. These are the losses which by the agreement the defenders were to share equally, and to which the pursuer was not asked to contribute.

As to the specific conclusions, I need say nothing as to the first and second conclusions. The third conclusion is for repayment of expenses incurred in resisting a claim which ultimately the pursuer was compelled to pay. The decree was pronounced in a litigated action which depended before myself. I think that this sum must also be paid by the defenders. The pursuer intimated the dependence of the action to the defenders, and the defenders ought to have instructed him whether to admit or to dispute the claim. In the absence of such instructions, the pursuer's only safe course was to defend the action, because if he had not defended it, the present defenders might have refused relief, on the ground that there was a good defence, which ought to have been stated. Probably the defenders thought that, as they were repudiating liability for the heritable debts, they ought not to give any instructions in regard to the defence of the action. But as I have found them liable to relieve the pursuer of the heritable debts, I think that this liability covers the expenses incident to a debt which the pursuer was not instructed by the defenders to admit.”

The defenders reclaimed, and argued—It was no part of the agreement that the defenders were to relieve the pursuer of the personal obligation to the heritable creditors under the bonds. The Lord Ordinary in finding that the consideration the pursuer received could have been only an obligation to relieve him of liability to the heritable creditors, and that no consideration had been given for the conveyance of the property to them by the pursuer, had left out of account the payment by them of the composition to his creditors. Taking that into view, the composition was the price or consideration paid by them for the property. The pursuer's action, therefore, failed, because at common law, where the conveyance is onerous, only the real security passes, while the personal obligation still remains on the disponer.— Carrick v. Rodger, Watt, Paul, & Co., Dec. 3, 1881, 9 R. 242 (p. Lord Young 245); Ritchie & Sturrock v. Dullatur Feuing Co., Dec. 16, 1881, 9 R. 358. The existence in the agreement of the clause of renunciation implied a remaining liability on the part of M ‘Whirter. If the defenders were absolute owners, what was the object of inserting a power to renounce

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The pursuer replied—The conveyance to the defenders being absolute and gratuitous, and solely for their own benefit, the obligation to relieve the pursuer of the debts affecting the property passed to them— Reid v. Lamond, Jan. 13, 1857, 19 D. 265; Kippen v. Stewart, Feb. 24, 1852, 14 D. 553; Garrick, supra cit., per Lord Justice-Clerk, p. 249. The renunciation clause was inserted merely ob majorem cautelam, and could not affect the principle of law governing the case.

At advising—