Scottish Court of Session Decisions

On 9th February 1898, Peter Forrest, banker, Edinburgh, and Robert Sneddon of Hillhouseridge, Shotts, granted a letter of guarantee to the London and Midland Bank, Limited, in the following terms:— “We, Peter Forrest, banker, Edinburgh, and Robert Sneddon of Hillhouseridge, Shotts, hereby undertake and bind ourselves, jointly and severally or severally, and our respective heirs, executors, and representatives whomsoever, to pay to the London and Midland Bank, Limited, whose registered office is 52 Cornhill, London, the sum of One thousand pounds sterling, and interest thereon at the rate of five per cent. per annum from the date hereof, on condition that no payment of said sum of principal or interest is demanded by said bank before two calendar months from the date hereof; this letter of guarantee and the payment thereunder being in satisfaction of a bill, dated 28th September 1897, for the sum of One thousand pounds, now overdue, drawn by Accles Limited and accepted by the Glasgow Trust Limited, any sum received on account of said bill being held to be in part satisfaction of this guarantee.”

Accles Limited were due to the London and Midland Bank Limited a large sum on current account, and in security of this sum they from time to time handed to the bank bills accepted to them by third parties, among others so delivered being the bill referred to in the guarantee.

On 8th February 1898 the bank had commenced an ordinary action in the English Courts against Accles Limited for recovery of £2601, 13s. 6d., being the balance due on the latter's account-current with them. Accles Limited entered appearance on 17th February 1898, and on 14th March an order for judgment was made in favour of the bank. Judgment, however, was never signed, although the bank was entitled to take judgment at any time.

On 13th April 1898 the bank raised an action against Forrest and Sneddon for £1000, being the sum contained in their letter of obligation of 9th February.

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The defenders, inter alia, averred that in suing Accles Limited on the overdraft the pursuers had violated the condition of the letter of guarantee, and pleaded (2) the pursuers having violated the conditions of the letter of guarantee libelled, the defenders should be assoilzied.

On 2nd March 1899 the Lord Ordinary ( Kincairney) pronounced the following interlocutor:— “Finds (1) that by the obligation dated 9th February 1898 the defenders became bound to pay to the pursuers the sum of £1000 therein mentioned; (2) that said obligation was a guarantee for payment of a bill dated 28th September 1897, for £1000 by Accles Limited, and accepted by the Glasgow Trust Limited: (3) that the defenders' obligation under the said guarantee was subject to the condition that no payment of said sum should be demanded by the pursuers before two months from the date of the guarantee; (4) that before the said period had elapsed the pursuers, in violation of said condition, raised an action against Accles Limited, which included and imported a demand for payment of said £1000; (5) that the pursuers having thus violated the condition of said guarantee are not entitled to sue for implement thereof: Therefore assoilzies the defenders from the conclusions of the summons and decerns.”

Note.— “This is an action for £1000 founded on a document which is stated in the condescendence to be a guarantee for a bill for £1000 said to be drawn by Accles Limited and to be accepted by the Glasgow Trust Limited; and the defences are that a condition in the obligation has been violated, and that the pursuers have not tendered, and are not in a position to tender, any bill by Accles Limited for £1000. The obligation of the defenders under the deed founded on is express. It is to pay £1000; but the obligation is subject to this condition that no payment of said sum of principal or interest should be demanded by said bank before two calendar months from the date thereof. This is a condition which is said to have been violated; and if it has been violated, I do not understand that it is disputed the pursuers cannot enforce their obligation. The violation is said to have consisted in this, that before the two months elapsed the pursuers raised an action against Accles Limited for the debt due by that company to them on their overdrawn current account. The question is, Was that proceeding a breach of the condition that no payment of the £1000 mentioned in the guarantee should be demanded for two months. Reading the first part of the obligation only, it is nothing but an obligation by the defenders to pay £1000; and if that were the whole of the deed I would construe the condition as an obligation not to demand payment from the defenders within two months, and would hold that that condition had not been violated by proceedings against Accles Limited, but not against the defenders. But the latter part of the document discloses that the deed is not a primary obligation, but a letter of guarantee for a bill, dated 28th September 1897, for £1000, drawn by Accles Limited and accepted by the Glasgow Trust. I think the deed must be construed as if it had borne to be an obligation to guarantee payment of a bill drawn by Accles Limited and accepted by the Glasgow Trust Limited on condition that payment should not be demanded for two months. The pursuers in their condescendence say that the defenders agreed ‘to guarantee to the pursuers payment of the said sum of £1000 in the said bill, with interest at five per cent. thereon, provided that no payment of said sum of principal or interest should be demanded till the expiry of two months from the date thereof. So reading the document I think that on a sound construction of it the condition imports an obligation not to sue any of the obligants on the bill guaranteed, or to sue for payment of the debt guaranteed—that is to say, it imports an obligation not to sue either the defenders or the Glasgow Trust Limited or Accles Limited for the £1000. The question is whether this obligation has been violated. The pursuers have not raised any action on the bill, and they have not sued the Glasgow Trust Limited or (prior to this action) the defenders. But they did within the two months sue Accles Limited, but not on the bill; and the question is, whether in so suing Accles Limited they sued that firm for the £1000 mentioned in the guarantee and embraced in the bill.

Parties are agreed that the pursuers' action against Accles Limited was an action for the amount due under their overdrawn current account; and the pursuers also say that the bill guaranteed was one of the securities for their current account delivered to them by Accles Limited. So far as it bore the obligation of the Glasgow Trust it was no doubt a proper security. It gave the pursuers a new obligant. But although bearing to be drawn for Accles Limited by their secretary, it added nothing to the obligation of Accles Limited. It only expressed in a convenient form a part of their indebtedness under their current account. The £1000 was only a part of their debt under their account-current; and therefore when the pursuers sued for payment of their account it appears to me that they demanded payment of the £1000 expressed in the bill, which was, as I have said, nothing but a part of the sum due under their overdrawn account. Suppose the debt due under their account-current had been just £1000, and that this bill had been granted in security of it, it would not in that case have been doubted that a demand for payment of the £1000 due under the current account was in reality a demand for payment of the sum in the bill, and it makes no difference that the £1000 formed only a part and not the whole of the sum due under the account-current. I am therefore of opinion that the pursuers, by suing Accles Limited for the amount in their account-current within two months after the date of the letter of guarantee, violated the condition of the

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defenders' obligation and have therefore released the defenders.

Parties seem at one on all essential points relating to this defence, and therefore I think that the case may be disposed of by sustaining this defence without a proof.

The defenders have a further defence, which comes to this, that the bill mentioned in the letter of guarantee is not the bill of Accles Limited, and did not bind them, because their secretary had not authority to grant bills in their name. Parties are at variance as to the facts on which this defence depends, and I could not have sustained it without a proof. But parties do not seem at variance at all as to the facts on which the other defence depends.”

The pursuers reclaimed, and argued— The Lord Ordinary's fourth finding that the raising of the action against Accles Limited was a demand under the guarantee was wrong and should be recalled. The bill had been lodged as collateral security for a sum due under current account by Accles Limited to the pursuers, but the action raised by the pursuers against Accles Limited was not in respect of the bill in question, and there had been no attempt on the pursuers part to operate payment of their debt out of this collateral security. Even if the sum due under the bill had been demanded from Accles Limited, that would not have invalidated the guarantee. The last sentence of the guarantee itself was inconsistent with the Lord Ordinary's judgment. It being a condition of the guarantee that any sum received on account of the bill was to be held to be in part satisfaction of the guarantee, showed that payment might be asked from other persons than the guarantors within the two months. In any event, judgment had never been signed in the action against Accles Limited, so that at present no demand had been made that could be enforced.

Argued for the defenders—It was a condition of the guarantee that no payment of the sum of £1000 should be demanded within the two months, and a violation of this condition of the guarantee would bring the guarantee to an end —Drummond v. Rannie, February 5, 1836, 14 S. 437; Murray v. Lee, July 5, 1882, 9 R. 1040; Rolt v. Cozens, 1856, 18 Scott's C.B. Rep. 673. Accles Limited being debtor of the bank, and having lodged this bill with them in security of their debt, any demand made on Accles Limited for payment of their debt would drive them back on the defenders. The condition of the guarantee implied that the bank would hold their bond absolutely for two months. Not having done this they had violated the guarantee and freed the defenders from all liability. No doubt the bank had instructed the proceedings against Accles Limited before the date of the guarantee, but the condition in the guarantee involved the cessation of any demand that had been made. Instead of that the pursuers had proceeded with their action against Accles Limited, and had by 18th March put themselves in a position to get a judgment signed so as to operate diligence whenever they desired.

At advising—