Scottish Court of Session Decisions

Messrs G. W. Rainey, Knox, & Company, linen manufacturers, Glasgow, of which firm G. W. Rainey was sole partner, had in the beginning of May 1884 an account-current with the British Linen Company at Glasgow.

On 3d May 1884 there was at the credit of the account £519, 0s. 7d. On that day the bank received from G. W. Rainey, Knox, & Company a memorandum (according to the usual custom of the firm when their trade bills payable at the bank were about to fall due) as follows—“Please debit our account with undernoted acceptances due at your office—5th, John Boath jun. & Co., £345, 12s. 4d.; 7th, Hay & Robertson, £186, 3s. Od.”

The latter of these bills had been drawn by Hay & Robertson on G. W. Rainey, Knox, & Company on 4th March 1884, accepted by them payable to the British Linen Company's office in Glasgow, and was payable on 7th May.

On 6th May the former bill (Boath jun. & Co.) was presented at and paid by the bank. On the same day G. W. Rainey, Knox, & Company, by an ordinary “paid-in slip,” paid in to the credit of their account at the bank £321, leaving a balance at their credit on that day of £494, 8s. 3d.

Page: 543↓

On the forenoon of 7th May the bank-agent came to know that G. W. Rainey, Knox, & Company were in difficulties, and were probably about to suspend payment. At that time G. W. Rainey, Knox, & Company were liable to the bank as last indorsers of bills which the bank had discounted to the amount of £2575, 12s. 4d. The agent decided to stop their account, and retain the balance of £494, 8s. 3d. which was at the credit of the account until the last of these bills should mature and be met. He therefore stopped further operations on the account. Accordingly when later in the same day the bill for £186, 3s., payable to Hay & Robertson, was presented, the bank refused payment of it, and returned it to the Commercial Bank, through which it had been presented.

On 24th May 1884 G. W. Rainey, the sole partner of G. W. Rainey, Knox, & Company, granted a trust-deed for behoof of his creditors in favour of William Brown, C.A.

On 16th June 1884 Hay & Robertson brought an action against the bank for £186, 3s., in respect that funds to that extent had been specifically appropriated in the hands of the bank for payment of the said bill at and prior to the date of presentment, and, separatim, that funds to that extent had been validly assigned to them by presentment of the bill in terms of the acceptance. The bank lodged defences to that action, pleading, inter alia, that as bankers they had a lien over the funds of the said G. W. Rainey, Knox, & Company, who on or before the 7th of May 1884 were insolvent, and had subsequently granted a trust-deed for behoof of creditors, and were entitled to retain the balance at the credit of that firm's account-current until the said bills (the last of which was to mature on 4th October 1884) discounted by them had matured and been paid, and that there having been no specific appropriation of funds in their hands, or at least none such as they were bound to recognise in a question with themselves, they were entitled to be assoilzied. They explained that any question as to the effect of presentation of the bill as a transfer of the funds of G. W. Rainey, Knox, & Company in their hands was one between that firm's trustee and Hay & Robertson. The record in the action was closed on 19th July 1884, and the case sent to Procedure Roll.

Thereafter the bills on which G. W. Rainey, Knox, & Company were liable as last indorsers were all duly met.

This was a multiplepoinding raised by the bank against Brown, as trustee for the creditors of G. W. Rainey, Knox, & Company, and Hay & Robertson, to have it determined that the bank were only liable in once and single payment of £494, 8s. 3d. standing at the credit of G. W. Rainey, Knox, & Company in their account-current as at 7th May 1884.

Brown claimed, as trustee for the whole creditors of G. W. Rainey, Knox, & Company, the whole fund in medio as part of the firm's assets, for distribution among the body of their creditors, on the following grounds — “(1) There was no specific appropriation of the funds in medio, or any part thereof, in the hands of the pursuers and real raisers to meet Messrs Hay & Robertson's draft upon G. W. Rainey, Knox, & Company for £186, 3s. (2) The bill for £186, 3s., drawn by Hay & Robertson, not being drawn upon the pursuers and real raisers, did not on presentation to them operate an assignation of the fund in medio, or any part thereof, in favour of the holders of said bill. (3) The debit slip addressed by G. W. Rainey, Knox, & Company to the pursuers and real raisers on 3d May 1884 did not operate as an assignation in favour of the holders of the bills therein mentioned of the fund in medio, or any part thereof.”

Hay & Robertson claimed the fund to the extent of £186, 3s., with interest from 7th May 1884. Their condescendence in the action against the bank was held as their claim. Their grounds of claim as there stated were—(1) that the bank held funds to the amount of the bill, which were specially appropriated thereto at and prior to the date of presentment; (2) that funds to the amount of the bill having been specially paid to and held by the bank for their (the claimants') behoof at and prior to the maturity of the bill, the bank were barred from setting up any lien or retention over the said funds, and were bound to pay them to the claimants; and (3), separatim, that the funds held by the bank to the amount of the bill having been validly assigned to them they were entitled to payment thereof.

The Lord Ordinary ( Kinnear) ranked and preferred Hay & Robertson on the fund in media to the extent of £186, 3s., with interest according to their claim, and found the trustee (Brown) liable to them in expenses.

“ Opinion.—There is no specific appropriation in this case which can exclude the banker's lien. That is a right which cannot be excluded except by agreement, express or implied, with the banker, and there is nothing in the circumstances from which such an agreement can be inferred. It may undoubtedly be inferred from the acceptance of money or securities which are put into the banker's hands with an intimation that they are destined to some special purpose inconsistent with his right to retain. But there was no such intimation with reference to the moneys which were paid in from time to time to the account in question. It is true that a sum of £321 was paid in and placed to the credit of the account on the 6th of May after the bank had had notice that an acceptance for £186 would be due on the 7th. But it was paid in generally to the credit of the account, and with no intimation that any portion of it was specially appropriated to meet the acceptance.

But I do not think it necessary for the success of Messrs Hay & Robertson's claim to show that the money was specifically appropriated as between the bank and their customers, Messrs Rainey, Knox, & Company. The claimants held an acceptance of Rainey, Knox, & Company for value, which was marked payable at the office of the British Linen Company in Glasgow. The bill was payable on the 7th of May, and on the 3d the acceptors had transmitted to the bank a memorandum, according to what is stated to have been their usual custom when trade bills payable at the bank were about to fall due, in these terms, ‘Please debit our account with undernoted acceptances due at your office,’ one of the acceptances so noted being that to Messrs Hay. & Robertson, due on the 7th. I think it clear that in these circumstances, the bank having sufficient assets of the acceptor in their hands, and having received no countermand, were just as much bound to honour the acceptance as they would have been

Page: 544↓

bound to honour a cheque drawn by the acceptors on the same account. I believe it to be in accordance with the custom of bankers both in Scotland and England to honour acceptances in such circumstances (and I should be disposed to hold that it was their duty to do so) even without special directions as to each particular bill, because the meaning of marking a bill as payable at a certain bank is perfectly well known. It is an intimation to the payee that the acceptor has funds at the office in question, and an authority to the bank to pay. It was so held in Kymer v. Lawrie, 18 L.J., Q.B. 218, and English decisions upon such a question, although they may not be technically binding, are of the highest authority. But it is unnecessary to determine what the duty of the bank might have been in the absence of specific direction, because it is stated by the bank, and their statement is adopted by the competing claimant, that they were specially advised by the acceptor that the bill would fall due at their office in Glasgow, and that this was in accordance with the usual course of dealing between them and their customer when trade bills payable at their office were about to fall due.

It follows that the acceptance, in the terms in which it was conceived, was a mandate, and being for value, an irrevocable mandate, to the bank to pay, or, in other words, it was an assignation duly intimated by presentation of the bill for payment.

The bank declined to pay when the bill was presented in the exercise of their right to retain in security of bills which they had discounted, and upon which the acceptors were liable as last indorsers, and for the present purpose it may be assumed that they were entitled to retain upon that ground. It is not necessary to determine absolutely that they were so entitled, for that question may depend upon circumstances, and it does not arise for decision in this competition. But assuming that they were right, the result was that the bills for which they retained were duly met, and they have still assets of Rainey, Knox, & Company available to meet the acceptance.

In these circumstances the competition arises between Hay & Robertson and the other claimant Mr Brown, who founds upon a trust-deed in his favour for behoof of creditors executed on the 24th of May. Messrs Hay & Robertson are not parties to the trust, and it is not suggested that the acceptance is challengeable as an illegal preference. It follows that if the acceptance operated as an assignation Hay & Robertson must be preferred.

I have already indicated my opinion on that question, and I may add that the ground in law upon which a bill operates as an assignation of the funds of the drawer in the hands of the drawee appears to me to be equally applicable to such a case as the present. The true ground is explained by Lord Rutherfurd in the case of Wait v. Pinkie, 16 D. 279, where it was held that bills which were not properly drawn or duly negotiated so as to justify diligence were still good as assignations, and preferable to subsequent arrestments. Lord Rutherfurd says— ‘The bill passes the fund, because it is an irrevocable order or mandate to pay, addressed to parties who have a fund of the drawer in hand, and if they had such a fund when the document was presented to them it operates as an assignment, for they hold the fund no longer for the drawer, but they hold it for the payee alone;’ and his Lordship goes on to point out that ‘where, in England, a bill cannot be sued on as a bill of exchange, yet when intimated it operates as an assignment of the fund, and that stands on a clear principle, because, being for value, it is an irrevocable mandate, and the party holding the fund stands in the position of trustee for the party in whose favour that mandate is addressed.’ In such a case as the present the mandate is in a different form, but it is just as clear in effect, and as obligatory, as if it had been in the form of a draft.

I am aware of the case of M'Leod v. Crichton, M. 16,469, where the Court would appear to have held that a banker has no authority to honour an acceptance payable at his bank. I do not think this is in accordance with the law, or with the custom of bankers as now understood. But the present case is distinguishable, inasmuch as the bank had received a specific direction to pay, and it is not in my opinion doubtful that, subject to their right to retain, they were bound to comply with that direction.”

Brown reclaimed, and argued—There was no specific appropriation to exclude the banker's view, and the Lord Ordinary had mistaken the effect of such a document as the one in question. He had applied the law applicable to a bill of exchange to what was not one— De Bergareche v. Pillia, April 18, 1826, 3 Brougham's Rep. 476. The acceptance had not even the effect of an authority to pay, and at most it merely fixed the place of presentment, and was subject to the death of the party, and revocable to the date of execution. The Lord Ordinary's view of what was decided in Kymer v. Lawrie and Others, May 3, 1849, 18 L.J., Q.B. 218, was only an inference from the decision It was not the point decided. Where a bill is accepted payable at a banker's, though money have been remitted by the acceptor to the banker for the express purpose of fixing the bill, the banker is not liable to the holder in an action for money had and received, unless he have assented to hold the money for the purpose for which it was remitted—Byles on Bills, 13th ed., p. 183. The bank then was a mere agent having authority, but being under no obligation to pay— Walker's Trustees v. M'Kealay, July 1, 1879, 6 R. 1132; Williams v. Everett and Others, November 25, 1811, 14 East. 581; Yates v. Bell, June 6, 1820, 3 Barnewell & Alderson's Rep. 643; British Linen Company Bank v. Carruthers & Ferguson, June 6, 1883, 10 R. 923; Waterston v. City of Glasgow Bank, February 6, 1874, 1 R. 470. But further, the document was struck at by the Act 1696, c. 55, notour bankruptcy having taken place on the 14th May. The only exception is in favour of payments in cash, and there never was any such payment.

Hay & Robertson replied—There was specific appropriation which secured their right in the sum contained in the document—2 Bell's Com., M'Laren's ed., p. 13. The bank admitted that it was their custom to honour acceptances in such circumstances without even special directions as to each particular bill, and

Page: 545↓

the meaning of marking a bill as this was that it should be an intimation to the payee that the acceptor had funds at the office in question, and was just an authority to the bank to pay. The case of Kymer must rule here. There was authority to pay, and failure would render the bank liable in damages to the customer. When the bill was presented, then the acceptance and order concurred, and the matter was made irrevocable.

There were no averments on record as to the effect of the bankrupt laws on the question between the parties. Counsel for the reclaimer stated that he did not desire to amend his record, and renounced probation on this matter.

At advising—