Scottish Court of Session Decisions

Messrs J. & G. Paton, merchants, Dundee, raised an action against the Clydesdale Bank, Limited, and Alexander Scott, agent at the Dundee branch of the bank prior to November 1894, as defenders jointly and severally, for £4083, 8s. 5d. In their condescendence the pursuers averred that in and prior to March 1893, Douglas, Reid, & Company, manufacturers, Dundee, were indebted to the Dundee Branch of the Clydesdale Bank in sums amounting to upwards of £20,000, They also stated that prior to March 1893 they had sustained very serious losses in their business, and that in that month the defender Alexander Scott, the agent of the bank, was well aware of the losses which had been incurred by Douglas, Reid, & Company, and knowing that they were insolvent, or at all events in great financial difficulties, he became apprehensive of the safety of the bank's claim against them, and also as to the effect on his own position if he were obliged to report the real state of matters to the head office of the bank.

The pursuers further averred—(Cond. 4) “Mr Scott, either alone or in conjunction with Charles Reid, one of the partners of the said firm of Douglas, Reid, & Company, conceived the fraudulent design of getting Douglas, Reid, & Company to procure acceptances from the pursuers and other merchants in Dundee, with the view of applying the proceeds of these acceptances in extinction pro tanto of the debt due to the Clydesdale Bank. It was a part of this scheme that the pursuers and the other mercantile friends to whom Douglas, Reid, & Company applied for acceptances should receive from Mr Scott satisfactory assurances ( first) as to the solvency of Douglas, Reid, & Company, and ( second) that none of the money payable under the acceptances should be applied in extinction of any prior claim or debt of the bank or other creditor of Douglas, Reid, & Company. (Cond. 5) In pursuance of this fraudulent scheme, Charles Reid, in or about the month of March 1893, represented to Mr John Paton, the senior partner of the pursuer's firm, that his firm of Douglas, Reid, & Company required temporary accommodation, and suggested that Mr Paton should see Mr Scott on the subject. Mr Paton accordingly saw Mr Scott, who assured him ( first) that Douglas, Reid, & Company were in a thoroughly sound condition financially, and only required temporary accommodation ; ( second) that the sum due to the bank

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was very trifling; ( third) that Douglas, Reid, & Company had made up the losses which they sustained through Lipman & Company's failure, by fortunate speculations in jute ; and ( fourth) that no portion of the proceeds of any acceptance by the pursuers would be applied in extinction of the bank's debt or of any obligation to the bank … The said statements and assurances by the said Alexander Scott were false, and were made by him in pursuance of the fraudulent design above condescended on.” The pursuers further averred that in reliance on these statements and assurances, the pursuers, on various dates between March 1893 and April 1894, accepted bills to the amount of £4000, drawn upon them by Douglas, Reid, & Company, the proceeds of which were placed to the credit of Douglas, Reid, & Company's overdrawn account with the Clydesdale Bank.

The pursuers pleaded, inter alia—“The defenders, the Clydesdale Bank, are liable for the fraud of the defender Scott, in respect that he was acting in said transactions within the scope of his duties as agent for the bank and for their benefit.”

The defenders lodged defences and pleaded, inter alia—“The alleged misrepresentations and assurances not having been in writing and subscribed by the person making the same, are by sec. 6 of the Act 19 and 20 Vict. cap. 60, of no effect.’ The Clydesdale Bank, Limited, further pleaded—“In any event, these defenders are not liable in damages in respect that the alleged false representations were unauthorised and outwith the terms and scope of the said Alexander Scott's employment.” On 29th August 1895 the Lord Ordinary (Low) before answer allowed the pursuers a proof of their averments, and to the defenders a conjunct probation.

“ Opinion.—The pursuers’ motion for a proof in this case was resisted upon the ground that the representations and assurances of Scott, upon the faith of which the pursuers alleged that they accepted bills for the accommodation of Douglas, Reid, & Company, not being in writing and subscribed by him, were of no effect under the 6th section of the Mercantile Law Amendment Act. It is true that the greater part of the alleged representations and assurances, said to have been given by Scott to the pursuers, might he brought within the scope of the very wide phraseology of the Act, namely—‘All representations and assurances as to the character, conduct, credit, ability, trade, or dealings of any person.’ But then in order to bring the case within the Act the representations and assurances must be given, ‘for the purpose of enabling such person to obtain credit, money, goods, or postponement or payment of debt, or of any other obligation demandable of him.’ Now, no doubt, the purpose for which the representations and assurances are said to have been made, was to be accomplished by enabling Douglas, Reid, & Company, to obtain credit from the pursuers, but the purpose itself was to enable the bank to obtain payment of the debt of Douglas, Reid, & Company. That, in my opinion, is sufficient to take the case out of the provisions of the statute.”

The defenders reclaimed.

Argued ( for both defenders)—The action was excluded under sec. 6 of the Mercantile Law Amendment Act, the alleged representations and assurances of Scott not being in writing. Taking the representations in condescendence 5 as a whole, they were representations as to credit, which were specifically dealt with by the Act. The mode of executing the fraudulent design was exclusively by false representations as to character and credit. The representations were also made for the purpose of enabling Douglas, Reid, & Company to obtain credit. The pursuers' own complaint was that on account of these representations he did give Douglas, Reid, & Company credit. Sec. 6 of the Mercantile Law Amendment Act was passed in order to assimilate the Scots to the English law on matters falling within Lord Tenterden's Act (9 Geo. IV. c. 14), sec. 6; Bell's Comm. (7th ed.) vol. i. 402, note 8. Lord Tenterden's Act was passed in order to meet the case of all false representations as to the character and credit of third parties; by Pollock, C.B., in Tatton v. Wade, 1856, 18 Scott's Rep. Com. Bench pp. 371, 381; and by all the Judges in Lyde v. Barnard, 1836, 1 M. and W. 101. The representations in this case were of the same class as those in Swann v. Phillips, 1838, 8 A. & E. 457. The Act applied even although the person making the representation benefits thereby— Devaux v. Stein Keller, 1839, 8 Scott's Reps., Com. Pleas 202. ( For the Clydesdale Bank)—Even supposing that all the averments set forth in the condescendence were true, the bank was not liable, because their agent acted outside the scope of his duty in making such false and fraudulent representations— Swift v. Jewsbury, 1874, L.R., 9 Q.B. 301. If false and fraudulent assurances given by an agent are given by him outwith the scope of his employment, the agent must be viewed as a third party, and the bank would be entitled to take the benefit, if any, resulting from the statements made. In Mackay v. Commercial Bank of New Brunswick, 1874, L.R., 5 Privy Council App. 394, the fraudulent acts committed were within the scope of the bank agent's employment. In the last sentence of the judgment (p. 416) the distinction between that case and such a case as the present, where the agent's actings were not in the usual or ordinary course of business, was pointed out.

Argued for the pursuers—(1) The action was outside the scope of the Mercantile Law Amendment Act, because the representation was not made in order to provide means by which Douglas, Reid, & Company could procure credit, but (1) in order to get the pursuers' signature to certain acceptances, and (2) in order to get payment of money for the bank. The present action was not only founded on representations, it contained a general averment of a fraudulent scheme. Representations of the

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kind averred in this action, and made for the purposes averred, did not fall within the list of representations enumerated in the Act— Haslock v. Ferguson, 1837, 7 Ad. and El. 86. Under section 100 of the Bills of Exchange Act 1882 (45 and 46 Vict cap. 61), any fact relating to a bill of exchange may be proved by parole evidence. (2) This fraud was committed by the agent in his capacity of agent, and the bank could take no benefit by his fraud— Borwick v. English Joint-Stock Bank, 1867, L.R., 2 Exch. 259; Houldsworth v. City of Glasgow Bank, 1879, 6 R. 1164; 1880, 7 R. (H. of L.) 53.

The pursuers moved to be allowed to add the following additional plea-in-law—“The defenders having been induced to sign the said bills by the fraud of the said Alexander Scott, and the hank having received the proceeds thereof, and being lucrati by said proceeds and the interest thereon, the pursuers are entitled to decree as concluded for.”

At advising—