Scottish Court of Session Decisions

In January 1885 the affairs of John Rankine, fruit and vegetable dealer in Glasgow, became embarrassed, his liabilities amounting to about £635, his assets being £183. A meeting of his creditors, of whom there were nineteen, was convened on 21st January 1885, and an offer was submitted to them to pay a composition of 5s. per £ by two instalments at two and four months. Sixteen out of the nineteen signed a written acceptance of this offer by which they agreed “to accept 5s. per £ on our respective claims, payable in two instalments of 2s. 6d. each in two and four months (21st March and 21st May), provided James Marshall, Virginia Street, Glasgow, becomes cautioner for the same within one week.” Amongst the signatures was that of William Cairns, whose debt amounted to £43.

On 27th January Marshall wrote to W. E. & A. J. Annan, writers in Glasgow, who were negotiating the matter for some of the creditors, and agreed that “failing punctual payment of the said John Rankine of the said instalments, or any part thereof, I will pay the amount remaining unpaid on being required to do so.”

On 24th March Cairns wrote to Rankine as follows—“As your composition has not been paid when it became due, I will now decline to accept it, and must ask you for an immediate settlement of my account in full.”

On 2d April Marshall, Rankine's cautioner, sent to Messrs W. E. & A. J. Annan a cheque for £75 to enable them to pay the creditors the first instalment of the composition which was due. He received back from Messrs W. E. & A. J. Annan the following letter dated 2d April—“Dear sir,—You have to-day handed us your cheque for £75 to enable us to settle the first instalment of the composition of 5s. per £ agreed to be accepted by John Rankine's creditors, the other instalment being payable on 21st May next. The sum handed us is paid on the condition that all the creditors named in the list signed by most of them accept the composition on or before the 10th inst., and that we give no preference to any creditor.” On 2d April the Messrs Annan called a meeting of the creditors in order to get the accession of the three creditors who had not signed the acceptance of 21st January. This accession was ultimately obtained before 10th April. In reliance on the cheque being honoured, the Messrs Annan paid the first instalment of the composition to, and obtained receipts from, all the creditors with the exception of Cairns, who wrote to them on 3d April intimating that he “had now resolved not to accept the composition.”

On 10th April Marshall countermanded the cheque, and this action was raised by the Messrs Annan for payment of the amount of the cheque, viz., £75, or alternatively for the sum of £70, 16s. 4d., which was the sum they had paid the creditors as the first instalment of the composition. In defence Marshall maintained that he had only handed the cheque to the pursuers on the distinct understanding and condition that it was not to be used unless all the creditors accepted payment of the composition on or before 10th April, and that no preference should be granted, all as expressed in the letter of 2d April; that Cairns had declined to accept, and further, that notwithstanding the knowledge of these facts and in breach of the conditions of their instructions from the defender and without his authority, the pursuers had paid away the sums to the creditors.

The pursuers pleaded—“The pursuers being the onerous holders of said cheque granted by the defender, and the same not having been paid, decree should be granted as craved. And (additional plea)—The pursuers having so far fulfilled the purpose for which the said cheque was handed them, and being prepared to fulfil the same entirely, are entitled to decree as craved.”

Page: 95↓

The defender pleaded—“(1) The pursuers having been the agents of the defender, were bound to observe and comply with his instructions, and having failed to carry out the same, they are not entitled to sue. (2) The said cheque having been banded to them on the conditions before averred, and the latter not having been observed and complied with, the pursuers were not entitled either to present or demand payment of said cheque, or to pay any of said creditors. (3) The pursuers not having been authorised or instructed by defender to make the alleged payments, they are not entitled to sue him therefor. (4) The composition contract having been broken, and the offer not having been accepted by all the creditors within a reasonable time, the defender was entitled to withdraw therefrom, and is not bound thereby.”

A proof was led, but it is unnecessary to consider its import further than to notice that on Rankine's sequestration, his trustee intimated by letter of 9th June 1886 to Messrs Annan that he was willing to accept the composition offered.

The Sheriff-Substitute ( Lees) on 30th June 1886 pronounced this interlocutor—(After findings in fact in accordance with the above narrative).… “Finds that the defender has failed to justify his conduct in stopping the cheque: Finds in law that the pursuers, having, on the employment of the defender, expended the sum of £70, 16s. 4d., and to that extent discharged on his behalf the obligations he had come under as cautioner, are entitled to obtain decree against the defender for payment of this sum: Therefore repels the defences; decerns against the defender for payment to the pursusers of the sum of £70, 16s. 4d.”

On appeal, the Sheriff ( Berry) on 25th May 1887 adhered.

“ Note.—The argument on this appeal turned for the most part on the construction of the document in which the pursuers state the conditions under which the cheque for £75 was handed to them by the defender on 2d April 1885. These are said to be, ‘that all the creditors named in the list signed by most of them accept the composition on or before the 10th inst., and that we give no preferences to any creditor.’ It was contended for the defender that those conditions required the pursuers to obtain from Cairns, one of the creditors who had signed the agreement of composition, but had afterwards intimated his withdrawal, a fresh assent to the composition, and again, that the expression ‘accept the composition’ meant acceptance of payment of the first instalment for which the same cheque for £75 was given. I do not think that either of these contentions can be supported. On a fair construction of the document it seems to me that what was required of the pursuers was that they should obtain the acceptance of those creditors named in the list who had not already signed the agreement for a composition, and that the expression ‘accept the composition’ meant accept the offer of composition, and not the money which was to be paid as the first instalment. I think, therefore, that in proceeding as they did to pay the creditors, the pursuers carried out the conditions imposed upon them, for there is no doubt that those creditors who had not signed did in fact by their actings accept the composition. Taking this view, I think that the further contention of the defender fails, that the pursuers, having assumed the position of the defender's agents, failed in their duty of disclosing the declinature of Cairns to accept the first instalment. All that the pursuers undertook on behalf of the defender is, I think, expressed in their letter of 2d April, and beyond that I do not think they lay under any obligation to him. They have applied the funds, which the cheque given was intended to supply, for the purposes for which it was intended, and I think, therefore, that they are entitled to recover from the defender the sum they now claim.”

The defender appealed, and argued—The letter of 2d April 1885 was unequivocally expressed, and the condition in it under which alone the cheque was handed to the pursuers was that all the creditors should “accept” the composition. If the writers had meant the payment (as the Sheriff held) to depend on the condition of “accepting the offer” of composition, they would have said so. Further, the pursuers were acting as the defender's agents, and they were guilty of a breach of duty in not intimating the declinature of Cairns to accept the first instalment. It was unnecessary, then, to go behind a document which clearly and unequivocally expressed the terms on which the parties concerned were dealing with one another. But if it was necessary, then, as matter of law, it was a condition implied in every composition contract between a debtor and his general creditors that all the creditors should concur, which they had not done here.—2 Bell's Com. (7th ed.), p, 400; Goudy on Bankruptcy, p. 481.

The pursuers replied—All the creditors, including Cairns, acceded to the composition arrangement with the exception of three. In order to obtain their accession, the letter of 2d April was written, and in this light it was perfectly clear that the words “accept the composition” meant “accept the offer of composition.” The meaning of the letter was that the cheque was handed to the pursuers on condition that all the creditors accepted the offer of composition by the 10th inst. This condition was in point of fact fulfilled, and the pursuers were entitled to cash the cheque and apply it in payment of the first instalment. As regarded the statement of law in Bell's Commentaries concerning a cautioner's obligation where all the creditors do not accede, the authorities cited in support of the dictum did not bear it out. The cautioner's obligation was one quite independent of the rights vested in creditors— Freeland v. Finlayson, June 11, 1823, 2 S. 389; Muir v. Scott, Dec. 2, 1825, 4 S. 252; Thomson & Craig v. Latta, June 12, 1863, 1 Macph. 913..

At advising—