Scottish Court of Session Decisions

In October 1885 James Tod, engraver, Edinburgh, and John Stenhouse junior, stockbroker, Edinburgh, for behoof of William Ritchie, stationer, Edinburgh, Tod's nephew, became joint obligants with him in a cash-credit bond to the Commercial Bank for the principal sum of £150 and interest, with the proviso that the liability of the pursuer and defender for principal and interest should not exceed £172, 10s. On this security the bank, prior to 1st November 1886, advanced to Ritchie £150 exclusive of interest. Tod in 1888 paid to the bank the sum of £172, 8s. 6d. due underthe bond, andraised this action against Stenhouse for £86, 4s. 3d., the half of the sum for which he alleged they were equally bound.

The defender alleged (1) that he consented to sign the bond on the undertaking of the pursuer to relieve him of all liability thereunder. (2) It is further believed and averred that the said William Ritchie, sometime in the summer of 1888, provided funds for payment, inter alia, of the whole debt due under the cash-credit bond which the defender signed, and handed the same to the Pursuer to pay to the bank. The defender believes and avers that the funds so provided amounted to £600, and that the said William Ritchie instructed the pursuer to apply any balance over after paying the debt for which the defender was cocautioner towards payment of another cash-credit bond for £500 or thereabouts of his to the Commercial Bank, under which the pursuer and another party were cautioners.

He pleaded—“(1) The pursuer having agreed to keep the defender free of all liability under the cash-credit bond referred to in the condescendence, is thereby barred from insisting in the present action. (3) The pursuer having received from the principal debtor in the said cash-credit bond the sum necessary to pay the debt due thereunder, with instructions, or at least on the understanding that it was to be applied primarily to that purpose, was bound so to apply it. (4) Separatim, and even if the principal debtor gave the pursuer no instructions as to the application of the fund primarily to payment of the amount for which the defender was security to the bank, still the pursuer having received a sum from the principal debtor to pay to the bank on account of his indebtedness, was bound to apply it equitably so as to relieve those who were his co-cautioners proportionately, and to that extent the defender is entitled to relief.”

On 11th February 1889 the Sheriff-Substitute (Rutherfurd) found that the first ground of defence could not competently be proved pro ut de jure, but allowed a

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proof at large of the defender's second averment.

“ Note.— The Sheriff-Substitute thinks there can be no doubt that parole evidence would be inadmissible for the purpose of provingthat as in a question with the pursuer the defender's position was not truly that of a co-obligant under the cash-credit bond. Upon that point reference may be made to the observations of Lord Young and Lord Moncreiff in Macpherson v. Haggart, 1881, 9 R. 306.

The case of Smollett v. Bell and Rennie, 1793, Diet. 12,354, which was cited on the part of the defender is not an authority to the contrary. In that case one of two joint obligants in a bond paid the whole amount, and afterwards, in a question with the creditors of his co-obligant, ‘stated a variety of circumstances’ tending to show that he was really cautioner for the latter and entitled to relief. The report bears that ‘the Court had no doubt of the competency of a proof by facts and circumstances.’ That, however, is a very different thing from a proof at large. In the present instance the defender has not specified any facts or circumstances of real evidence tending to support his averments with reference to the conditions under which he alleges he subscribed the cash-credit bond, and he has not proposed to lead any such proof.

“In the latter part of the defender's statement of facts, however, it is alleged that the pursuer paid the debt due to the bank out of the funds handed to him for that purpose by Mr William Ritchie, the person for whose behoof the cash-credit bond was granted. If that is true the pursuer is attempting to commit a gross fraud upon the defender, and the Sheriff-Substitute does not think that the defender is limited in his mode of proof as regards these averments.”

The defender failed to prove by writ or oath the pursuer's alleged agreement with him.

The proof further established—“That the pursuer and Duncan Campbell Gilmour, commander of the steamship ‘City of Manchester,’ became co-obli-gants with and for behoof of William Ritchie, then wholesale stationer in Edinburgh, in a cash-credit bond to the Commercial Bank of Scotland, dated the 15th and 18th of December 1883 for the principal sum of £500, and interest thereon, with the proviso that the obligation of the pursuer and the said Duncan Campbell Gilmour for both principal and interest should not exceed £575. The bank on the security of the said bond advanced to the said William Ritchie prior to the first of November 1886 £499, 16s., exclusive of interest. On the 3rd of December 1886 the pursuer paid to the bank £23, 3s. 5d. of interest due under the bond for £500, and on the same day paid to the bank £7, 4s. of interest due under the bond for £150. No further payments were made to account of the principal or interest due under either of the said cash-credit bonds until the year 1888, when the pursuer, with concurrence of the said William Ritchie, took steps with the view of raising funds for payment of the debt due under the said bonds, and for that purpose obtained from Mrs Margaret Campbell or Smart or Tod a loan of £600 on the security of his own and Ritchie's personal obligation, and an assignation by Ritchie of his contingent right to one-fourth of the sum contained in a policy of assurance for £1500, amounting with bonus additions to £3000 or thereby, which had been effected upon the life of his father James Ritchie in implement of an obligation in his (James Ritchie's) antenuptial contract of marriage, whereby he became bound to apportion the sums to be realised from the said assurance among the children of the marriage. Ritchie's share amounted at the date of the action to about £1000. After deducting the expenses connected with the said loan of £600 the pursuer received from the lender's agents £584, 2s. 11d. which he applied in payment of the sum of £499, 16s. of principal due to the Commercial Bank under the cash-credit bond for £500 the sum of £23, 3s. 5d. of interest paid by himself as aforesaid on the 3rd of December 1886, and the sum of £44, 7s. 11d. of additional interest to the 24th of October 1888. After deducting the said sums of principal and interest, amounting in all to £567, 7s. 4d from £584, 2s. 11d. (the net amount of the loan of £600 aforesaid), there remained a balance in the pursuer's hands of £16, 15s. 7d. On the 31st of October 1888 the pursuer paid to the Commercial Bank the principal sum of £150 due under the cash-credit bond, in which he and the defender were co-obli-gants with Ritchie, together with £15. 4s. 6d. of interest to that date, and these sums (£150 and £15, 4s. 6d.), with £7, 4s. of interest previously paid by the pursuer to the bank on the 3rd of December 1886 amounted as above mentioned to £172, 8s. 6d. The pursuer, in respect of the payments made by him as aforesaid, obtained from the Commercial Bank an assignation in his favour to the said cash-credit bonds.”

Certain correspondence was produced. In October 1886 the bank intimated to the pursuer and defender their intention to call up the cash account for £150. The following replywas sent “Both Mr Tod and myself think that by allowing the overdraft on your bank of £150 by Mr Wm. Ritchie to remain for six months we may get him to pay so much per month to wipe it off by degrees. Should we pay it at once we think it highly probable he may never think it worth while to settle direct with us. We shall be obliged if you can see your way to do this.—John Stenhouse jr.; James Tod.”

This suggestion was agreed to.

In May 1888 Tod wrote to Ritchie—“After a great deal of trouble and anxiety I have got a friend to advance £600 at 4 1 2 per cent. to affect a settlement with the bank. The interest will be £27 per annum, which I have no doubt you will be able to

Ritchie replied—“I am glad to learn you have arranged matters so far, and I will certainly do my best to see after the interest, which I would suggest to be payable half-yearly. Now, the total sum due

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on 31st October 1887, including interest, is £682, 3s. l1d. made up as follows—

1st Loan …	£500	0	0
Interest …	24	14	4
2nd Loan …	150	0	0
Interest …	7	9	7
	£682	3	11

Of course there is interest to be added since that date, and would be about £16 more, or say £100 more than you are borrowing. I do not know whether you intend paying off the total sum and getting done with the bank, or whether you mean the balance to run on. Would it not be better to borrow a sum of say £700 and clear the bank; the interest of course would be a little more for me to pay.”

On 9th August 1888 Ritchie wrote to the defender—“I should like you to let me know if the Coml. Bank or Mr Tod have been pressing you. I may say I have signed a bond for £600 which was forwarded by me to Mr Tod last May, and I fully anticipated that by this time the whole affair was arranged.” He again wrote on 15th August—“I am duly in receipt of your letter of y'day's date, and in reply thereto I gave a bond for £600 to a Mrs Tod (no relation) for money she was to advance to me with the object of paying off the bank the sum you were joint security for, and the balance towards my other a/c. I understand that my uncle has obtained the amount, but he has done nothing as yet. My advice to you is to see my uncle with this, and request him to put the overdraft in order forth with.”

Ritchie deponed, inter alia—“I never understood it to be Mr Tod's idea that money should be raised to pay off the £500 to the exclusion of the £150 bond. I understand the money was being raised to pay off the bank loans. I had no desire that Captain Gilmour should be released from the obligation any more than Mr Stenhouse. I thought there would be a surplus of my share over after paying both bonds, and that is why I suggested raising £700 instead of £600. I anticipated that there would be a balance left over the £600 after paying the £500 bond and interest. I do not think that the £600 was to be applied only to pay off the £500 bond, but to be applied to both bonds, and Mr Tod would pay the balance, if any.”

Upon 11th December 1889 the Sheriff-Substitute (Rutherfurd) pronounced this interlocuto:—“Finds in point of law that the pursuer was bound to have applied the said sum of £16, 15s. 7d. (being the balance of the said loan and the principal sum and interest due under the bond for £500) in liquidation pro tanto of the debt, £172, 8s. 6d., due to the Commercial Bank under the bond for £150: Finds that after deducting £16, 15s. 7d. from the said sum £172, 8s. 6d. there remains £155, 12s. 11d., of one-half whereof (£77, 16s. 5 1 2d.) the defender, as co-obligant in the bond for £150, is bound to relieve the pursuer: Therefore sustains the defender's fourth plea-in-law in so far as regards the application of the said sum of £16, 15s. 7d., but quoad ultra repels the defences: Decerns and ordains the defender to make payment to the pursuer of the sum of £77, 16s. 5 1 2d., with interest thereon at the rate of £5 per centum per annum, as follows, videlicet, on £3, 12s. from the 3rd of December 1886 until payment, and on £74, 4s. 5 1 2d. from the 31st of October 1888 until payment: Finds the defender liable to the pursuer in the expenses of process.”

The defender appealed, and argued—He acquiesced in the Sheriff's decision as to his first ground of defence. There was evidence that the loan of £600 had been raised with primary reference to the bond for £150. At all events, the pursuer was bound to communicate the advantage he had on getting that sum of money to his co-cautioner. Instead of doing so he had used all the money in paying off another cash-credit bond for £500, in which he (the pursuer) was interested, but under which the defender was not bound. The sum had not been borrowed by Tod alone but by Tod and Ritchie together, and the security was Ritchie's right of succession under his father's marriage-contract. Even had Tod paid the loan of £600 he could have got an assignation to the security. Ritchie was entitled to specify the purposes to which the money should be applied — Bannatyne's Reps. v. Brown's Trustees, February 26, 1825, 3 S. (N.S.) 408. The pursuer had no right to change the destination— Freeth v. Hamilton & Company, July 17, 1889, 16 R. 1022. It might be said that Ritchie's right to this security was not vested, the defender thought that it was, but it was not necessary to go so far as that— M'Donald v. M'Grigor, March 10, 1874, 1 R. 817. Had Ritchie borrowed the money alone there would have been no answer to the defender's right to share the benefit with the pursuer. The defender's position, was, however, not weakened by the interposition of the pursuer's personal obligation— Atkins, May 2, 1883, 24 L.R., C.D. 709. The duty of communication was clear whatever the source of the funds— Christie v. Reid, January 19, 1826, 4 S. 369. At least there was a clear understanding apparent especially by the letters that Ritchie had agreed with Tod that the loan of £600 was to be applied to paying off the two bonds of £500 and £150 pro rata. The £150 bond had been in view from the first of the negotiations which had ended in the present action. The bank's letter referred to this alone. Nothing was said about the bond for £500. The pursuer then busied himself in getting a loan, and it must have been to pay off this £150 bond. The defender would have been willing to take the same course as the pursuer in negotiating this loan, and it was only on account of the pursuer's sanguine disposition and greater interest in the matter that the defender was not applied to. He referred further to these authorities—Bell's Prin. sec. 563; Ersk. Inst. iii. 4,2; Campbell v. Campbell, July 18, 1775, M. 2132.

The respondent argued—The loan had not been granted in respect of a security assigned by Ritchie, but upon the pursuer's

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personal liability. Ritchie could only assign an expectancy under his parents' marriage-contract, but that was of no avail until his father died, and no money would have been lent upon such a security. That being so the appellant's whole case failed, because if the pursuer had really borrowed the money on his own security, he was entitled to apply it to reduce his debts in the way he thought best— Jamieson v. Forrest, May 25, 1875, 2 R. 701. If the loan was obtained to pay off the £500 debt to the bank, the defender had no claim to have any benefit from it communicated to him because he was not a co-cautioner with Tod in that bond. There was no evidence to show that Tod and Ritchie had really agreed to pay off both debts rateably.