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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Allan, Buckley Allan, & Milne v. Pattison [1893] ScotLR 31_138 (29 November 1893)
URL: http://www.bailii.org/scot/cases/ScotCS/1893/31SLR0138.html
Cite as: [1893] ScotLR 31_138, [1893] SLR 31_138
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SCOTTISH_SLR_Court_of_Session
Page: 138↓
Court of Session Inner House Second Division.
[Sheriff of Aberdeen.
v.
Facts:
Under a composition arrangement a cautioner guaranteed to a certain extent the due payment of the last instalment of the composition. The first instalment was not paid, and the creditors obtained from the debtor a trust-deed conveying to them his whole estate. No intimation was sent to the cautioner, but after the execution of the trust-deed a meeting of the creditors was called by circular, a copy of which was sent to the cautioner without objection by him. The debtor's estate was realised, and the amount guaranteed was claimed from the cautioner.
Held that the creditors, by taking from the bankrupt the trust-deed without the cautioner's consent, liberated him from the conclusions of the summons.
The affairs of James Chalmers M'Kay, printer, Aberdeen, became embarrassed in the beginning of 1891, and upon 12th February he granted a trust-deed in favour of William James Middleton and John Thomson, Aberdeen, as trustees for behoof of his just and lawful creditors as at the date thereof. After several meetings of creditors they agreed to supersede this trust-deed, and to accept a composition of 7s. 6d. per pound, payable by instalments of 2s. 6d., 2s., and 3s. at four, eight, and twelve months respectively, with security for the last instalment, which amounted in all to about £250. James Y. Pattison, Aberdeen, became one of the sureties for this instalment to the extent of £100, and granted a holograph letter of guarantee, dated 21st February 1891, to Messrs Allan, Buckley Allan, & Milne, advocates, Aberdeen, who acted for the creditors. On the composition contract being concluded M'Kay was reinvested in his estate. The debtor was unable to pay the first instalment
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of the said composition, and on the 20th June 1891 a trust-deed was taken from him in favour of William James Middleton, and Hugh Macdonald, solicitor, Aberdeen, as trustees for behoof of his creditors, without any intimation to Pattison. Notice of this was at once sent to all the creditors, and a meeting called for the 24th June. A copy of this circular was sent to the cautioners, including Pattison. The creditors of James Chalmers M'Kay agreed to his estate being realised under this trust-deed, and no objection was made to this by the defender. The said estates were realised, and the dividend thereon was under 2s. 6d. per pound. Allan, Buckley Allan, & Milne now sued Pattison for £100, the sum contained in his letter of guarantee.
The pursuers pleaded—“(1) The debtor M'Kay having failed to make payment of the last instalment of his composition, the pursuers, on behalf sf the creditors, are entitled to call upon the defender to make payment thereof to the extent of his guarantee. (2) The defender having guaranteed payment of the said last instalment to the extent mentioned, he is bound, on the failure of the debtor to pay, to implement his guarantee. (3) The said James Chalmers M'Kay having, on his failure to pay the first instalment of the composition, become insolvent, his creditors were entitled to take a trust-deed from him, and under it to realise the estate. (4) The creditors of the said James Chalmers M'Kay not having by their actings or otherwise relieved the defender of his cautionary obligation, they are entitled to insist on implement thereof.”
The defender pleaded—“(4) The creditors of the said James Chalmers M'Kay having under the circumstances above set forth abandoned any competent claim against the said alleged cautioners, are now barred from insisting in this action. (6) The said James Chalmers M'Kay having failed to pay the first instalment of the alleged composition, and the pursuers, or those whom they represented, having in consequence thereof departed from the said composition arrangement, and entered upon the possession of the said estate under the trust-deed, and that without having consulted the defender, as above narrated, and the defender having thereby suffered prejudice, at least to the extent of the said alleged obligation, the pursuers, or those whom they represent, are barred from insisting in this action, and the defender is entitled to be assoilzied, with expenses. (7) The alleged guarantee sued on having been granted on the condition-precedent that the first two instalments of the said composition should be paid, and the same having not been purified, and the composition arrangement having been abandoned and departed from, the defender is entitled to absolvitor, with expenses.”
Upon 3rd April 1893 the Sheriff-Substitute ( ) pronounced an interlocutor finding the facts above stated, and proceeding:—… “Finds in law that the estate of the said James Chalmers M'Kay having been realised with the knowledge of, and without objection on the part of the defender, he is now barred from objecting thereto or pleading it as a ground of release from his obligation. Therefore repels the defences: Decerns against the defender as concluded for: Finds the defenders entitled to expenses.” &c.
Upon appeal the Sheriff ( ) pronounced this interlocutor:—“Affirms the findings in fact in said interlocutor: Quoad ultra recals the same: Finds in law that the creditors by taking from the bankrupt the trust-deed of 20th June 1891, without the defender's consent, liberated him from his obligation: Therefore assoilzies the defender from the conclusions of the summons, &c.
Note.—This case seems to me to be governed by the case of Scott v. Campbell, 12 S. 447, mentioned by the Sheriff-Substitute in the note to his interlocutor. The offer of composition by the bankrupt, the interposition of the defender as one of the securities to a limited extent for payment of the last instalment, and the acceptance by the creditors of the composition so guaranteed, put an end to the prior trust-deed, and amounted to a contract between the cautioner and the creditors which could not be altered or varied without the cautioner's consent. This is the effect of the judgment in Scott v. Campbell. Nor is it relevant to inquire whether the new agreement with the bankrupt, by which he granted a second trust-deed, altered the cautioner's position for the worse, because when a man undertakes a cautionary obligation on a certain footing it is for him to judge whether or not he will remain liable notwithstanding the change; when therefore the bankrupt failed to pay any of the instalments of the composition which he had promised to pay, the creditors might have called on the cautioner to make good the deficiency to the extent of his obligation, and in that event he would have had recourse against the estate left in the hands of the bankrupt for his own indemnification, but they were clearly not entitled to deprive him of that remedy by taking from him the second trust-deed, without discharging the surety, unless he had expressly agreed to continue bound. It is this want of consent on the defender's part which seems to be fatal; and I cannot agree with the Sheriff-Substitute that standing by and doing nothing was as good as consent, and bars him from now urging the plea. This view of the Sheriff-Substitute is opposed to the opinions expressed in Polak v. Everett, L.R., 1 Q.B. Div. 669, an English case no doubt, but there is really no difference on such a purely equitable question as this between the practice of the English and Scottish Courts. Wherever a man has knowledge of a transaction, and from the usage of trade or otherwise there is a duty to speak, he may be precluded by his silence from afterwards objecting. ‘But to say’ (says Lord Blackburn) ‘that a person who, being a surety, becomes aware that the creditor is going
Page: 140↓
to give time, or do something else, which if done without his consent may discharge him, is bound to warn the creditor against it, is a thing for which no authority has been cited.’ The defender therefore seems entitled to judgment.” The pursuers appealed, and argued—The trust-deed of 20th June 1891 did not discharge the defender. Its effect was equivalent to sequestration against the debtor, and it was settled law that the granter of a guarantee was not relieved of the obligation he had voluntarily undertaken by sequestration proceedings— Freeland, June 11, 1823, 2 S. 389; Muir v. Scott, December 2, 1825, 4 S. 252; Thomson v. Craig & Latta, June 12, 1863, 1 Macph. 913. The case of Scott v. Campbell had no application, because in this case the cautioner had not taken particular precautions to see that his liabilities were not increased by the actings of the debtor.
The respondent argued—The cautioner was discharged. Anything which materially changed the position of affairs freed the cautioner if it was done without his consent, and it was not necessary to show that what was done would prejudice the cautioner. By this trust-deed, however, the security upon which the cautioner relied, viz., the debtor's estate, was taken away, and as time was thus given to the debtor, the composition arrangement was abolished, and along with it the defender's cautionary obligation— Forsyth v. Wishart, February 8, 1859, 21 D. 449; Johnstone v. Duthie, March 15, 1892, 19 R. 624.
At advising—
The question in the case is, whether the second trust-deed, being entered into by M'Kay and his creditors without the consent of the cautioner, has or has not the effect of relieving the defender from his obligation to pay the £100 he had become security for.
Now, this second trust-deed was a voluntary arrangement made by the creditors of M'Kay, and it is said by the defender that it has superseded the former arrangement and has freed him. The Sheriff-Substitute found that the defender was liable; the Sheriff reversed that finding, and held that the taking of the trust-deed without the defender's consent liberated him from his obligations, and I have come to the conclusion that the Sheriff is right,
Had the intervention taken the form, not of a voluntary trust-deed, but that of proceedings in exercise of right by creditors, such as the diligence of sequestration, that would make quite a different case. Sequestration would not free the cautioner from his obligation, because sequestration is a diligence according to law. But the position of this case is quite different. The defender undertook to become surety for this £100 upon certain conditions, and if these are not carried out, then he is not bound to submit to other conditions to which he was not a party.
It was said for the pursuers that the defender was barred from claiming to be relieved from the obligation because he did not object to the second trust-deed when it was entered into, but I do not see that a cautioner is bound in such circumstances to interfere. It is for the persons who are making the new arrangement to take care of themselves, but a cautioner cannot lose his right to relief in consequence of innovation because he did not inform the innovators that if they went on with their arrangement he would hold himself freed from his obligation.
Page: 141↓
The condition of the agreement or contract under which the defender became cautioner was, that the debtor was to remain vested with his whole estate with a liability to pay the instalments under the composition arrangement as they became due. That bargain was one which the debtor and his creditors were not entitled to depart from if the cautioner was to remain liable. But in four months after making that bargain the creditors and the debtor entered into a newcontract, whereby the debtor was at once divested of his whole estate, and such a bargain did, orreasonably might deprive the cautioner of a right of relief against the debtor's estate which he was entitled to rely upon having when he granted his cautionary obligation. The appellant argued that the taking of the trust-deed did the cautioner no prejudice, which he would not have suffered if the creditor, instead of taking a trust-deed, had applied for sequestration of the debtor's estate after his failure to pay the first instalment; and that taking out sequestration would not have liberated the cautioner. The cases of Freeland and Muir were cited in support of this argument. The law laid down in these cases was not questioned, but I think these cases do not aid the pursuers' contention.
In the cases cited, the rule laid down was that creditors who do diligence for recovery of a first instalment under a composition arrangement do not thereby liberate the cautioner for a second or third instalment. Sequestration is just a kind of diligence, and may be resorted to by a creditor like diligence of any other kind. It would be out of the question to say that creditors to whom a first instalment is due are not to be allowed to use the means which the law provides for recovery of what is due to them except on condition of giving up a cautionary obligation for something which is not yet due. Creditors may undoubtedly resort to such means without any such consequence following. But if creditors, instead of using such means, enter into a new bargain with the debtor for obtaining, not money payment of the instalment due, but payment of their whole debt, so far as the debtor's whole estate when realised will yield payment, then they cannot hold a cautioner like the defender liable on his limited cautionary obligation—an obligation granted on a condition which left the debtor vested in his whole estate. In short, the creditors by voluntary arrangement with their debtor, having without the cautioner's consent essentially altered the conditions under which the cautioner alone consented to be bound, cannot enforce that cautioner's obligation. I think the case of Scott, referred to by the Sheriff, is quite in point, and am of opinion that this appeal should be dismissed.
The Court pronounced this interlocutor:—
“Find in fact in terms of the findings in fact in the interlocutor of the Sheriff-Substitute of the county of Aberdeen dated 3rd April 1893: Find in law in terms of the findings in law in the interlocutor of the Sheriff of the county of Aberdeen dated 23rd May 1893: Dismiss the appeal, and of new assoilzie the defender from the conclusions of the summons, and decern,” &c.
Counsel for Appellants— M'Kechnie— W. Campbell. Agents— Duncan Smith & M'Laren, S.S.C.
Counsel for Respondent— Salvesen— W. Thomson. Agents— J. Douglas Gardiner & Mill, S.S.C.