Scottish Court of Session Decisions

Messrs Dill, Smillie, & Wilson were a firm of law-agents in Glasgow, Mr Thomas J. Smillie and Mr Archibald Cunninghame Wilson being in 1874 the sole partners. Mr Wilson was deceased at the date of this case. On 12th November 1874 two brothers of Mr Thomas J. Smillie, George and Matthew Smillie, bought a property in Braehead Street, Rutherglen Road, Glasgow. The disposition bore that the price was £1350, that £350 of the price was paid by the purchasers in cash, and that the balance, £1000, was contained in a bond and disposition in security over the property, of which the purchasers bound themselves to free and relieve the sellers. Previous to the purchase of this property, George and Matthew Smillie had procured from the first bondholder's agents a valuation of the property by a Glasgow measurer, in which the value of the property was stated at £1450, over and above the feu-duty of £15, 6s. Messrs Dill, Smillie, & Wilson were agents for a retired farmer, Mr Brownlee, who was a relative of Mr Smillie, and was also a relative of a widow Mrs Beatsy Yates or Oastler, pursuer of this action. On the 7th November 1874 Mrs Oastler along with Mrs Brownlee called by appointment upon Mr Smillie, and the former lady handed over to him the sum of £600 for investment. Part of this, viz., £200, was invested in a security over a property belonging to a certain Mr M'Kinlay. The other £400 Mr Smillie invested in a second bond over the property in Braehead Street acquired by his brothers. Interest was paid upon this bond until 1880, when it ceased to be paid.

Mrs Oastler on the 17th March 1886 brought this action in the Sheriff Court of Lanarkshire, in which she called Messrs Dill, Smillie, & Wilson, and Mr Thomas Smillie as the sole partner of the firm, and Mrs Wilson as executrix-dative of her deceased husband Archibald Cunninghame Wilson, who was the only other partner of the firm, as defenders. The action concluded that the defenders should be found liable to pay the sum of £480, being the £400 and £80 as arrears of interest.

The pursuer averred that she had placed her money in Mr Smillie's hands, as a member of the firm, “with instructions to invest it in a first bond upon good heritable security,” and that he having charge of the business, had invested her money, in violation of her instructions, on a second bond, which investment turned out

Page: 19↓

to be a worthless security, taken with gross and culpable negligence, since the property would not fetch the amount of the first bond. She also stated that she had relied upon Mr Smillie investing her money as a first bond, and on good security.

The defenders denied that the loan was made contrary to Mrs Oastler's instructions, and stated that Mr Brownlee had agreed with them on Mrs Oastler's behalf that her money was to be invested in this particular security, and that Mrs Oastler's visit was merely to hand over the money for the purpose of investment, and that on her call being made with the money the transaction was explained fully to her again. The bad position of the pursuer's security, they averred, was due solely to the depressed state of the house market in Glasgow, and was only temporary.

The pursuer pleaded—“(l) The said company of Dill, Smillie, & Wilson having been instructed by the pursuer to invest £400 on first bond, and having failed to do so, the defenders are liable to the pursuer in the loss, injury, and damage she has sustained. (2) The said Dill, Smillie, & Wilson having been guilty of gross and culpable negligence in taking as security for the said sum what by the exercise of ordinary care they would have known to be worthless, or at least grossly inadequate for the pursuer's protection and safety, the defenders are liable in the loss and damage she has sustained.”

The defenders pleaded—“(1) Mora. (3) The said sum of £400 having been placed in defenders' hands for the special purpose of being invested as a second loan over the property in Braehead Street belonging to George and Matthew Smillie, and the money having been invested as instructed, the defenders are entitled to absolvitor, with expenses. (4) All the particulars connected with said security having been fully explained to the pursuer and to her friend George Brownlee, on her behalf, and she having, while fully cognisant thereof, agreed to lend said money as a second bond at the increased rate of 5 per cent., being the amount usually paid on second bonds, was bound to take the risk of the property depreciating in value, and the defenders are entitled to absolvitor, with expenses. (5) A valuation of said subjects having been procured, and the same having been submitted to the pursuer, or the said George Brownlee on her behalf, and the said property being a sufficient security for said second loan, the defenders are entitled to absolvitor, with expenses. (6) The defenders not being guilty of any gross or culpable negligence, are not liable in the alleged loss and damage sustained by the pursuer, and are entitled to absolvitor, with expenses.”

The Sheriff-Substitute ( Lees) allowed a proof.

At the proof Mrs Oastler deponed that she had had explained to her by a relative before the transaction the difference between first and second bonds, and that she had been warned to make sure her money was put on a first bond. “My sister Mrs Brownlee said if I had a little money to invest it with Mr Smillie. I did so. I called upon him one day with some money. Mrs Brownlee was with me. 1 left the £600 on that date. I gave him the money, and got a line that he had received it. I gave it to him to put on a good investment in a first bond. I was particular about that. I never authorised Mr Brownlee to find an investment for me. I had no conversation with Mr Brownlee about the investment. (Q) Would you have trusted him with the duty of investing your money?—(A) I am not sure, but he was a frail old man. I never asked him, and he gave me no advice upon the matter. I trusted Mr Smillie with the £400, and told him to put it on a first bond.” She also stated that she did not receive the bond and disposition in security for two years, and that then she was greatly surprised to find her security was a postponed bond, and that she then complained to Mr Smillie, who told her she would suffer no loss by it.

Mr Smillie stated that he had told Mr Brownlee everything about the position of the property, that he (Brownlee), having rejected other investments proposed, decided on this one, that he had had no communication with the pursuer previous to her call on the 7th November, and that he assumed Mr Brownlee had told her everything, and that she was familiar with the circumstances. He denied that he had ever received instructions from Mrs Oastler to invest her money in a first bond, and stated that he received it for the specific purpose of being invested in these two loans.

The pursuer led the evidence of persons of skill to show that in 1874 the property would be worth, after deducting £300 for the capital value of the feu-duty, from £1190 to £1240, and was now worth £809 to £938, with no prospect of great improvement.

The defenders' evidence of the same class went to show that in 1874 £1450 to £1500 would be the value, and that though it had decreased owing to the fall in the value of heritage it was still worth £1080 to £1150, with good prospect of improving in value.

The Sheriff-Substitute pronounced this interlocutor:—“Finds that in November 1874 the pursuer granted a loan of £400 on a second bond over a property in Braehead Street, which has proved a security insufficient for the loan: Finds that the pursuer has not proved that this loan was effected on the advice and responsibility of the defenders as her agents: Finds in law that in these circumstances the defenders are not responsible to compensate the pursuer for the loss she has suffered: Therefore assoilzies them from the conclusions of the action, and decerns: Finds the pursuer liable to the defenders in expenses, under deduction of one-half of the expenses of the proof, &c.

“ Note.—The case on which the pursuer comes into Court is set forth in the second article of her condescendence, and is as follows:‘Sometime prior to 12th November 1874 the pursuer placed a sum of £400 in the hands of the defenders, Dill, Smillie, & Wilson, with instructions to invest it in a first bond upon good heritable security,’ Whatever other points may be in doubt through the lapse of time, this is certain, that that statement is not true. It is clearly proved that the pursuer did not place this or any other sum in the defenders’ hands with such instructions. On the contrary, the first time she saw the defenders was the day she came with the money. The loan having been resolved on, the defenders were thereon employed to carry through the transaction. Assuming that it was an imprudent loan—as I think it was—the question is, is a law-agent liable in compensation for the loss that is caused by carrying into execution an imprudent

Page: 20↓

loan which his client has resolved to grant? If, in the course of the legal services which he is called on to grant, the agent discovers some defect in the title, or ought with proper care to have discovered it, and omits to certiorate his employer of the defect, I can understand that in such circumstances an agent might be held liable. If he is employed as a lawyer, and is guilty of negligence as a lawyer, for such negligence he is responsible. But where the question is the sufficiency of the loan, the result may be different. If an agent is called upon to advise, as a man of experience in business, in regard to the sufficiency of a loan that a person who is relying on such advice for the course he is to take is disposed to grant, it may quite be that the agent, in agreeing to give such advice, and to undertake a duty for which, without the aid of a valuator, he has no sufficient data to go on might incur responsibility. Or if he gave advice that was so foolish that no person possessed of ordinary intelligence would have given it, then I can understand a case of liability possibly existing against him. But where the lender goes for executorial services and not for advice, it is different. The liability applicable to any class of employment begins only where such employment itself begins. Now, here the first interview the pursuer had with the defenders was on the day that she brought the money for investment. That investment had been already selected. A friend of the pursuer's was a relative of one of the defenders. That friend was looking out for a loan for the pursuer. The defenders, on behalf of clients of their own, wished such a loan. I am therefore induced to believe that whatever negotiations there were in which the defenders had any part in regard to this loan, took place before the pursuer met with them. Now, on record there is no suggestion made that the pursuer acted through her friend Mr Brownlee. The case that is set forth there is, that she put the money into the hands of the defenders, ‘with instructions to invest it in a first bond upon good heritable security.’ The defenders deny that they ever got such instructions. They say, on the contrary, that it was distinctly intimated at the time that the loan was to be granted on a second bond. Such a loan bore a greater risk and a higher interest. The pursuer says she did not know it was a second bond that she had got; but she admits she discovered it two years afterwards. If so, why did she not take action then? She could have called up her bond; she could have insisted on the defenders giving her a guarantee against loss; but she took no such steps. Nay, more, though the loan has yielded no interest for nearly six years, she has all that time refrained from instituting any claim against the defenders. I daresay it is probable that the presumption in regard to any heritable loan is, that it is to be on a first bond. To some extent five per cent. interest suggests a second bond. But it is matter of familiar knowledge that at that time scores of first bonds bore five per cent. interest where the security was not high class. And, on the other hand, the long silence of the pursuer seems to me strongly to favour the version of matters given by the defenders, viz., that the loan was to be granted on a second bond.

“But it might be expected that unless the defenders were guilty of fraud—not of negligence, but of actual fraud (and this is not even hinted at)—their business books would have contained entries which showed or implied employment of them by the pursuer as her agents in the selection of this loan. No doubt then, as now, the borrower somewhat unfairly was saddled with the expenses attending the loan; but these expenses are only those caused by the execution of the necessary deeds. It frequently occurs, of necessity, that the lender incurs expenses for meetings and advice in regard to the question of whether the proposed loan should be granted or not. Now the first entry in the defender's books against the pursuer is writing to her naming the day when she was to call with the money, and this entry has never been priced; and in the 11½ years that have elapsed since then no account has ever been made out or presented to the pursuer, or any claim made on her by the defenders for the employment, which she now says she gave. On the other hand, the defenders' books contain full entries against the borrowers for the services rendered by the defenders from the date when they met the pursuer.

“It seems to me, therefore, on a consideration of the whole case, that the pursuer has not proved that she employed the defenders as her agents, or that they agreed to act as such, either for payment or gratuitously, at any period of the negotiations, which would imply that they were responsible to her for loss caused by negligence or imprudent advice on their part as to the sufficiency of the security.

“If these views be sound, the defenders are entitled to absolvitor. But I only give them half the expense attending the proof,—a step which I stated to them in the course of the proof I might have to take,—inasmuch as at least one-half of the evidence led by them was to show that, even if they had advised the pursuer in regard to this loan, the advice was not imprudent. In my opinion this point is hardly open to question. The property was bought at £1350, and was subject to a feu-duty of £15, 2s., and to a first bond of £1000. Whatever doubt there may be as to when a second bond is expedient, I think it is certain that by no stretch of indulgence could it be said that the property was fit a few days afterwards to bear a second bond of £400.”

The pursuer appealed to the Court of Session, and argued—The agency of the defender was completely proved. The pursuer came to him, and gave him a sum of money to invest. Her instructions were to invest it on a first bond, but this he did not do, as he invested it on a second bond. The agency being proved, it was quite plain the defender had invested the pursuer's money on an insufficient security. The price paid for the property was £1350, and there was a bond of £1000 upon it. By this loan of £400 the house was actually bonded for a larger sum than had been paid for it. The defender was therefore bound to repay the pursuer the money he had so badly invested as her agent.

Argued for the defenders—This action was founded on negligence only—that was, a failure by a law-agent to inform the client of all the facts of the case—but there was no negligence here. Mr Smillie had arranged with Brownlee, who was as well able as himself to advise the pursuer as to what security the pursuer's money was to be lent over. Mr Brownlee was fully cognisant of

Page: 21↓

all the circumstances affecting the property, and when Mrs Oastler came on the 7th November it was merely to hand over the money to be invested as arranged. Mr Smillie had no choice in the matter; he had merely to make out the necessary deeds. Liability attached to an agent only where he had shown gross negligence in conducting his client's business, and here there was nothing of the sort— Fleming v. Robertson, June 17, 1859, 21 D. 982— rev. June 25, 1861, 23 D. (H. of L.) 8. This also was the English law on the subject, summarised in Begg's Law Agents, 243.

At advising—