Scottish Court of Session Decisions

The Leith Heritages Company, Limited, was incorporated in 1874 under the Companies Acts 1862 to 1867, one of its objects being to acquire certain property in Leith for the purpose of, inter alia, borrowing money on the security of said property. Having acquired it the company issued a proposal for effecting a loan of £40,000, in which they stated that “In addition to the heritable security offered as above, the company are prepared to contribute the personal corroborative guarantee of the following gentlemen from among their shareholders, viz.:—P. M'Lagan, Esq. of Pumpherston, M.P.; Henry Moffat, Esq. of Eldin; Adam Beattie, Esq., Builder, Edinburgh; Robert Clark, Esq., Printer, Edinburgh; Thomas Aitken, Esq., 5 Grosvenor Crescent, Edinburgh; Hugh Morton, Esq., Belvidere House, Trinity; and David Mac-Gibbon, Esq., Architect, 89 George Street, Edinburgh.”

Peter Stocks and others, tutors and curators of the children of the late James Methuen, agreed to advance the money, the rate of interest to be 4 1 4 per cent. and thereafter received a bond and disposition in security over the property dated 5th and 6th November and recorded 12th November 1874. The bond and disposition in security, after acknowledging receipt of the money, provided as follows—“which sum of forty thousand pounds sterling we the said The Leith Heritages Company (Limited) incorporated as aforesaid bind ourselves and our successors and representatives whomsoever and our capital funds estate and effects and we Peter M'Lagan Esquire of Pumpherston Member of Parliament for Linlithgowshire Henry Moffat Esquire of Eldin Adam Beattie Esquire Builder in Edinburgh Robert Clark Esquire Printer Hanover Street Edinburgh Thomas Aitken Esquire residing at Number five Grosvenor Crescent Edinburgh Hugh Morton Esquire residing at Belvidere House Trinity near Edinburgh and David MacGibbon Esquire Architect Number eighty nine George Street Edinburgh all shareholders of the said The Leith Heritages Company (Limited) bind ourselves as individuals and by way of corroborative guarantee conjunctly and severally and our respective heirs executors and representatives whomsoever without the necessity of discussing them in their order and renouncing the benefit of discussion and we the whole granters hereof conjunctly and severally bind ourselves and our respective foresaids as aforesaid to repay to the … Tutors foresaid and to the survivors or survivor of them and to their successors in office and assignees whomsoever.”

In 1878 the then surviving tutors and curators of Mr Methuen's children resolved to call up £10,000 of the £40,000 lent, and in 1879 an arrangement was entered into whereby £7000 was paid by the company in cash, and the bond was discharged to that amount and £3000 were paid by the trustees of the late William John Aitchison, 11 Buckingham Terrace, Edinburgh, upon an assignation of the security to that extent.

The said Hugh Morton died on 10th June 1878, and the said Adam Beattie died in February 1880.

On 1st February 1884, the law-agents of the said company wrote to the agents of the said tutors in the following terms:—“ Leith Heritages Company — Methuen's Trust—£30,000 Loan. Dear Sirs—Referring to our interview with you to-day, we beg to mention that this company has at present a loan from the late Mr Methuen's trustees of £30,000, over the old Glass Work property in Salamander Street, Leith… . The loan is further secured by the personal obligation for its repayment, given at the date of the advance (which we may state was originally £40,000) by Peter M'Lagan of Pumpherston, M.P.; Henry Moffat of Eldin; the late Adam Beattie, builder; Robert Clark, printer; Thomas Aitken, 5 Grosvenor Crescent; the late Hugh Morton, shipbuilder; and David MacGibbon, architect. The rate of interest payable on the bond at present is 4 1 4 per cent. As we explained to you, the company have now an opportunity of paying off the loan and negotiating a new one at the rate of 4 per cent. per annum, as the security for the loan is perfectly unexceptionable. If the

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trustees are unwilling to continue the loan at the reduced rate of interest above mentioned, you can let us know in the course of next week, so as to enable us, if necessary, to give the requisite notice.”

The money was allowed to remain with the company at the reduced rate of interest proposed viz., 4 per cent.

The said company on 29th November 1888 passed an extraordinary resolution to the effect that it be wound up voluntarily. The voluntary winding-up was, on 1st December 1888, continued subject to the supervision of the Court.

Notice of the meeting, at which the resolution to wind up the company was to be proposed, was sent to the agents of Mr Stocks, the only surviving tutor and curator of Mr Methuen's children, with an intimation that the company would not pay the interest upon the loan at the ensuing term of Martinmas. Mr Stock's agents thereupon wrote a letter to Messrs Moffat, Clark, Aitken, MacGibbon and M'Lagan, and to the representatives of Mr Hugh Morton and Mr Adam Beattie, intimating that Mr Stocks would require payment of the half-year's interest due at the ensuing Martinmas from them. Answers to all these letters were received denying liability, and in February 1889 Mr Stocks, with the consent of Mr Methuen's children, who were then all out of pupillarity, brought an action against Messrs M'Lagan, Moffat, Clark, Aitken, and MacGibbon, and against the trustees of the late Mr Hugh Morton, and the trustees of the late Mr Adam Beattie, to have them decerned conjunctly and severally or severally, and according to their respective liabilities, to make payment to the pursuer, as tutor and curator foresaid, of the sum of £30,000 with interest from 15th May 1888.

The Act 1695, c. 5, provides … “That no man binding and engaging for, hereafter, for and with another, conjunctly and severally, in any bond or contracts for sums of money, shall be bound for the said sums for longer than seven years after the date of the bond, but that from and after the said seven years the said cautioner shall be eo ipso free of his caution, and that whoever is bound for another either as express cautioner, or as principal or co-principal, shall be understood to be a cautioner to have the benefit of this Act, providing that he have either clause of relief in the bond, or a bond of relief apart, intimate personally to the creditor at his receiving of the bond.” …

The pursuer averred that he and his colleagues had transacted with the company, and had lent them money upon the footing that the defenders or their authors should be co-obligants in the bond. If it had not been for the additional security thereby given the tutors would not have lent the money under their charge to the said company. The defenders were well aware that the tutors relied (and they intended that they should rely) upon their obligation as a corroborative and continuing obligation, and it is believed and averred that the view that they were only cautioners was suggested for the first time when the company went into liquidation, and it became necessary for them to make good the loan. Further, the defenders have by their actings recognised their obligations as that of co-obligants, and in particular by the application already referred to, which was made in 1884 with their knowledge and under their authority for a reduction in the rate of interest.

The defenders explained that they or their representatives had become parties to the said bond only as cautioners for the company, and that their obligations have expired.

The pursuer pleaded—“(1) The pursuer is entitled to decree against the defenders as libelled in respect of the obligation undertaken by them or their authors in the said bond and disposition in security. (2) The individual grantors of the said bond being parties thereto as principal co-obligants and not as cautioners, the defenders are not entitled to the benefit of the septennial limitation. (3) The investment having been in the contemplation of both parties an investment of a continuing nature, as condescended on, the septennial limitation does not apply. (4) The defenders by their actings in relation to said loan are personally barred from pleading the septennial limitation of cautionary obligations.”

The defenders pleaded—“(2) Prescription.”

The defenders Hugh Morton's trustees pleaded—“(2) The obligations undertaken by the late Hugh Morton having been extinguished by the septennial limitation introduced by the Statute 1695, c. 5, the present defenders ought to be assoilzied from the conclusions of the summons with expenses.”

The trustees of the late W. J. Aitchison brought a similar action upon the same grounds against the same defenders for payment of £3000 in respect of the assignation to them of the said bond and disposition in security to that amount as explained above.

The actions were conjoined.

Upon 29th June 1889 the Lord Ordinary ( Kinnear) found that the obligation undertaken by the defenders in the bond libelled was extinguished by the operation of the Statute 1695, c. 5, and assoilzied the defenders from the conclusions of the summons in the conjoined processes.

“ Opinion.—The action is brought for payment of £40,000 lent to the Leith Heritages Company, and is founded upon a bond dated 5th and 6th November 1874, to which the company and the defenders Mr Peter M'Lagan and others, or deceased persons whom they represent, were parties. The defenders maintain that they became parties to the bond as cautioners for the company, and in no other capacity, and therefore that their obligation is extinguished! by the septennial limitation introduced by the Statute 1695, c. 5. The first question is whether the statute is applicable so as to extinguish the defenders' obligation.

The construction of the statute is fixed by a series of decisions, and in particular by

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two decisions of the House of Lords affirming judgments of the Court— Scott v. Yuill, 5 W. & S. 436, and Tait v. Wilson, 1 Rob. App. 137. The result of those decisions appears to be that the statute extinguishes a cautionary obligation after the lapse of seven years in two separate cases—First, where the cautioner is bound in the same writing as the principal debtor, and by the form of the bond is bound expressly as cautioner; and secondly, where he is bound as principal or co-principal, and is shown to be a cautioner by a clause of relief in the bond itself, or by a separate bond of relief intimated at its execution to the creditor. The defenders have no clause of relief, or separate bond of relief intimated in terms of the statute, and the question is whether they are cautioners by the form of the bond itself. I find nothing in the statute nor in the decisions to make the word cautioner indispensable if equivalent words be used. All that is necessary is that the character of the obligation shall be made apparent by the express terms of the bond, and by the express terms of the bond in question the defenders are in my judgment cautioners. It begins with an acknowledgment by the company alone, to which the defenders are not parties, that the company has borrowed and received from certain persons the sum of £40,000, and then follows the clause of obligation by which the company binds itself and its estate and effects, and the defenders bind themselves ‘as individuals and by way of corroborative guarantee,’ and ‘the whole grantors bind themselves, conjunctly and severally,’ to repay the sum borrowed by the company at the term of Whitsunday 1875. An obligation by which certain persons bind themselves ‘by way of corroborative guarantee’ to pay another person's debt is nothing but a cautionary obligation. It is of no consequence that they have not the benefit of discussion, not merely because cautioners for the payment of debt have been deprived of that benefit by the Mercantile Law Amendment Act, but because it was quite settled before the passing of that Act that persons bound as ‘full debtors’ might be cautioners in the sense of the Act of 1695. The position of the defenders, indeed, answers exactly to the very words of the Act. The entire enactment to which they require to appeal is contained in a single clause—‘That no man binding and engaging for, hereafter, for and with another, conjunctly and severally, in any bonds or contracts for sums of money, shall be bound for the said sums for longer than seven years after the date of the bond, but that from and after the said seven years the said cautioner shall be eo ipso free of his caution.”

The statute therefore gives its own definition of a cautioner. It is a person binding and engaging for and with another in a bond or contract.’ That is exactly what the defenders have done. They bind themselves for the company by way of corroborative guarantee, and they bind themselves conjunctly and severally with the company in the same bond by which the company acknowledges its debt.

It is said that the words I have quoted are qualified or restricted by the immediately following clause of the Act. But the House of Lords decided that to be a wrong construction— Scott v. Yuill. The Lord Chancellor, after commenting on the words already quoted, goes on to say—‘All this having been ordained with respect to the person who is cautioner or co-obliger with another,’ then comes the clause, which he proceeds to quote, beginning with the words ‘and that whoever is bound for another,’ and that clause he says is to be taken ‘as an extension of the remedy as a new clause coming in when the first fails.’ It is not by way of exception that those words are introduced into the Act, but by way of ‘express provision.’ This is by way of addition. This is something ‘adjected into what had passed before, as if the Legislature had said first let it be understood whoever is bound for another shall have the benefit of this septennial limitation, and next whoever is bound as principal or co-principal shall have the benefit of the Act, provided that he is made a cautioner by having a clause of relief or a separate bond of relief intimated to the creditor.’

It is said that a corroborative guarantee is a different thing from a cautionary obligation. But if two persons bind themselves in the same instrument—the one to repay money lent to him, and the other ‘by way of corroborative guarantee’ to repay the money lent to the first—these last words have no significance whatever if they do not mean that the second has come forward as surety or cautioner for the first. Accordingly Lord Mackenzie says— Tait v. Wilson— that as a matter of course he takes guarantee and caution to be equivalent terms, and the Lord Chancellor's criticism of that observation in the House of Lords does not appear to me to detract from its value as an authority upon the ordinary use of those two terms in our legal language.

The Lord Chancellors observation is directed exclusively to the construction of the particular instrument before him, and what he says is—‘That the term guarantee, as used in the appellant's letter, does not express an undertaking that others shall perform what they had contracted to do, but amounts to a distinct contract to pay the sum due on demand.’ I do not understand that to mean that the writer of the letter could not be a cautioner because he had undertaken to pay the sum secured to the creditor, not merely in default of the principal debtor, but, in the first instance, and at all events on the contrary, his Lordship points out that he may be and very often is in the position of ‘a surety or cautioner.’ But the point of his observation is that there was in that case a separate and independent contract to pay, and the ground of judgment is that such separate and independent contracts, whereby one person binds himself to pay as principal a sum of money also contracted to be paid by another, are not provided for by the terms of the statute.

All the cases cited, in which it has been

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held that guarantees or bonds of corroboration are not within the operation of the statute, appear to me to depend on the same principle. The granter of a separate guarantee or of a bond of corroboration is not within the terms of the enactment on which the defenders rely, because he has not bound himself for and with the other in the same bond or contract. But when the express terms of the bond make it apparent that one of the parties, although as between himself and the creditor he is a principal debtor, is a cautioner as between himself and the other for and with whom he binds himself, then according to all the authorities the cautioner has the benefit of the statute.

If the statute applies there appears to me to be no foundation for the plea of personal bar. The debt is not prescribed but extinguished by the statute, and in order to revive it it would be necessary that the defenders should have undertaken a new and distinct obligation, upon which the creditor could sue independently of the extinguished bond. The case of Scott v. Yuill appears to me to be conclusive on this part of the case.”

The pursuers reclaimed, and argued—1. The defenders were co-obligants with the company, and not cautioners for it. Consequently they were not entitled to the benefit of the Act 1695. That Act was to be construed strictly, and the defenders must show they came under it. It had been decided— Burnet v. Middleton, June 29, 1742, M. 11,018; Scott v Yuill, September 15, 1831, 5 W. & S. 436—that two classes of obligants were entitled to the benefit of the statute, viz., those expressly described in the bond as cautioners, and those, although not so described, who had a clause of relief or separate bond of relief intimated to the creditor. The defenders did not come under either of these categories. They were bound “by way of corroborative guarantee,” which was not equivalent to “as cautioners.” They were principal co-obligants without any clause or bond of relief. Since the case of Gordon v. Tyrie, November 16, 1748, M. 11,025, it had been held that those liable under bonds of corroboration were not entitled to the benefit of the statute. That was the true position of the defenders here — Stair, i. 17, 3; Bell's Comm. i. 361; Scott v. Rutherford, February 8, 1715, M. 11,012; Muir v. Fergusson, January 1728, M. 11,014; Howison v. Howison, December 7, 1784, M. 11,030; Park v. Maxwell, February 16, 1785, M. 11,031. 2. They were entitled to a proof in order to show that the defenders, even if originally under the Act, had renounced the benefit of it, or had set up a new obligation by instructing their agent to write the letter of 1st February 1884.

Argued for the respondents—1. It was not necessary to use the word “cautioner” to make an obligantone. It was not a word of style, and “guarantee” was not equivalent to “cautioner”— Wilson v. Tait and Others, July 21, 1840, 1 Robinson's App. 137. They were bound with and for another, they had renounced (however needlessly) the right of discussion, which only a cautioner renounced, and they were bound by way of corroborative guarantee. They were therefore clearly cautioners, and as such entitled to the benefit of the statute. 2. The obligation came absolutely to an end in 1881— Carrick v. Carse, August 5, 1778, M. 2931. The letter of 1st February 1884 could not keep up an obligation which was dead, and could not rear up a new obligation, at least not against Mr Morton's trustees and Mr Beattie's trustees. A proof was unnecessary.

Before deciding the case the Court allowed a proof, from which it appeared that no special directions were given by the defenders to Mr Neilson (of Messrs Morton, Neilson, & Smart), who attended to the affairs of the company, when he wrote the letter of 1st February 1884, that it was written with the view of getting the interest paid by the company reduced, and that the Act 1695 had not been thought of by anyone until after the company went into liquidation.

Argued for the appellants—They had been led to continue their loan upon the representations of the letter referred to. There was at least an honourable understanding that the personal obligation of the defenders should continue. There was a re-adoption of the bond from the date of the letter. Those of them who had been examined had admitted that they thought they remained bound until their attention had been called to the Act after the company went into liquidation. The case of Norie v. Porterfield, February 19, 1724, M. 11,013, which laid down that the benefit of the Act could not be renounced, was no longer good law. Whether the benefit of the Act was renounced or not depended upon circumstances. The circumstances here were sufficient to infer renunciation, or at least to set up a bar to pleading the statute— Wallace v. Campbell, July 13, 1749, M. 11,026; Douglas, Heron, & Company v. Riddick, March 1, 1793, M. 11,045, and (H.L.) April 2, 1800, 4 Pat. App. 133.

Argued for the respondents—The old obligation was absolutely at an end in 1881, and the proof had failed to show that any directions had been given by them in 1884 which created a new obligation. It was a case of ignorance of the statute on both sides, but that did not bar the defender from pleading it— Carrick, supra.

At advising—