Scottish Court of Session Decisions

Clark & Macdonald, S.S.C., Edinburgh, brought an action against William Schulze, tweed merchant, Galashiels, in which they concluded for payment of £33, 5s. 7d., being the amount of their business account in conducting an appeal from the Sheriff Court at the instance of the defender against the Burgh of Galashiels.

Schulze maintained that he was entitled to credit for a sum of £20 paid by him to one Peebles, his local law-agent, on behalf of the pursuers, and offered to pay the balance of £13, 5s. 7d. as in full of the pursuers' claim. Peebles was the country agent in the case and had conducted it in the Sheriff Court.

The defender pleaded, inter alia—“(1) The pursuers having instructed Mr Peebles, as their agent, to obtain payment for them of the £20 referred to in the defences, and payment thereof having been made by the defender to Mr Peebles on behalf of the pursuers, said sum falls to be credited to the defender in accounting between him and the pursuers.”

Proof was allowed and led.

The facts of the case sufficiently appear from the opinions of the Lord Ordinary ( Kincairney), and of the Court.

The Law-Agents (Scotland) Act 1873 (36 and 37 Vict. cap. 63), section 21, is in these terms:—“Agreements between law-agents acting for the same client to share fees or profit shall be lawful, and a law-agent authorised and acting for a client whom he discloses shall incur no liability to any other law-agent employed by him except such as he shall expressly undertake in writing.”

On 26th June 1901 the Lord Ordinary pronounced an interlocutor by which he found that the defender was not entitled to deduct the sum of £20 from the account sued for in respect of the payment of £20 made by him to his agent, John K. Peebles; repelled the defences; and decerned in terms of the conclusion of the summons.

Opinion.—“The amount at stake is only £20, but the case is narrow and relates to important questions, although I think that this case is too special to be of general importance. It arises out of the defalcation of a Mr Peebles, a law-agent in Galashiels, who acted as law-agent for the defender Mr Schulze in a litigation with the Corporation of Galashiels, which was carried by appeal to the Court of Session and lost there, Clark & Macdonald being Mr Schulze's Edinburgh agents employed by Peebles. This action is for payment of their account, amounting to £33, 5s. 7d. The defender has tendered £13, 5s. 7d. He claims credit for £20 as previously paid.

The facts are very few. On 22nd February 1899 the pursuers wrote to Peebles a letter containing the following paragraph:—‘We think you might now send us a payment of say £20 towards our outlays. We annex a note of these made and to be made. Of course there may be further outlays, but we cannot say what these will be until after the discussion.

On 23rd February 1899 Peebles forwarded this letter to the defender, and the defender says that in compliance with the

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demand or request he gave to Peebles his cheque, dated 1st March 1899, for £20.

The cheque is produced indorsed by Peebles, and receipt is acknowledged in an account rendered by Peebles to Schulze in which it is mentioned, the entry being ‘received from you to account of outlay, £20,’ but the £20 is not credited as a payment to account.

I think that these documents, with the defender's evidence, instruct that Schulze understood Clark & Macdonald's letter to Peebles to be a demand on him (Schulze) for a payment of £20; and that, in consequence of and in compliance with that demand, he paid £20, not to Clark & Macdonald but to Peebles, by his cheque in order that Peebles should pay it to the pursuers in compliance with their request. I think the payment was appropriated to that purpose, and that Peebles could not without fraud have applied it to the payment of an account due to himself.

Peebles, however, never made the payment to the pursuers, and now the money cannot be recovered from him, and apparently he has disappeared.

The facts then are these:—Schulze owed Clark & Macdonald £20, part of their account. He paid that sum to Peebles, but the pursuers never received it. The question is, who bears the loss? Must Schulze pay it a second time, or must Clark & Macdonald lose it?

There is another fact of considerable importance, viz., that Schulze has never paid Peebles' account. He declined to do so because Peebles mismanaged his case, and he says that Peebles acquiesced in that and never took any steps for recovery of his account. Peebles' account considerably exceeds £20. It may be true that Schulze had a good defence against a claim for payment of this account. At the same time that cannot be taken for granted or assumed on his mere assertion.

In considering the case the 21st section of the Law-Agents Act of 1873 must be kept in view, the effect of which is that Peebles incurred no liability to Clark & Macdonald.

The pursuers are suing for an unpaid account, and must prevail unless the defender proves payment, and the question is whether payment to Peebles was payment to Clark & Macdonald. Now Peebles was the defender's country agent and the pursuers' correspondent. It may be that Peebles could not be held to be the defender's general agent to receive or pay money. Yet he was the person through whom in the ordinary course of business the debt due by the defender to the pursuers would be paid. If without any special application Schulze paid money to Peebles in connection with the litigation in order that he might pay it to the pursuers, that would be an employment of Peebles in the ordinary course of his relations with Schulze, and would not, I take it, be a payment to the pursuers unless it reached them. In that case Schulze would suffer the loss arising from the default of his own agent; and I did not understand the defender to dispute that that would be so. He rested his case mainly on the letter by Clark & Macdonald to Peebles of 22nd February. He argued that that letter could not be held to be a request to Peebles to pay the £20 out of his own pocket, seeing that in virtue of section 21 of the Law-Agents Act he was not liable for any part of the account, and he represented the letter to be an authority to Peebles to obtain £20 from Schulze on their behalf, and that it constituted Peebles their agent to receive this sum from Schulze, and was, or when sent to Schulze became, an implied request or authority to Schulze to pay £20 to Peebles on their account and as their agent; so that, as they argue, when Schulze paid the £20 to Peebles he paid it to him not as to his own agent but as to the agent of Clark & Macdonald specially authorised to receive it. This argument, no doubt, was highly ingenious, but I think it pressed the letter of 22nd February too far. It must be remembered that Peebles was the person by whom in the ordinary course of business payment would be made by Schulze to Clark & Macdonald. Schulze had no relations with Clark & Macdonald except through Peebles; and Peebles was the person through whom, and through whom alone, Clark & Macdonald could ask for payment. It is clear that it would have been altogether against custom, and probably against professional etiquette, had they passed over Peebles so long as he could be reached and applied to Schulze directly. Further, the letter was not addressed to Schulze, and Peebles was under no obligation and probably no necessity to send it to him. Clark & Macdonald did not ask Peebles to lay it before Schulze.

I cannot read it as an authority to Peebles to receive money on their account or as a request to Schulze to pay money to Peebles on their account. It was a request for payment to themselves, not to Peebles. It was no more than what it expresses—a request to Peebles to manage somehow to get the money paid.

The request might have been complied with in more ways than one. Schulze might merely have authorised Peebles to pay the money and to enter it in his account against him. Had he done so that would not have been payment to Clark & Macdonald; it might or might not have involved loss to Schulze. Or Schulze might, as would have been prudent, have drawn his cheque in favour of Clark & Macdonald, which would have avoided all risk. That would have been the natural way of complying with Clark & Macdonald's request. But when he drew his cheque in favour of Peebles he thereby merely put Peebles in funds to pay Clark & Macdonald, not as their agent but as his. I think, therefore, that the plausible contention of the defender that the £20 should be held as paid to Peebles as the pursuers' agent should not receive effect.

When the question is put in this form, Who of two innocent parties is to suffer from the default of a third? that is a question which is seldom easy to answer; and no doubt it might have been satisfactory

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had the parties agreed to divide the loss.

It is argued that the loss should fall upon the party who furnished the means of fraud, supposing that there was fraud. It is not easy to say on which side that argument lies, whether against the pursuers, who wrote the letter of 22nd February, or against the defender, who granted a cheque in favour of Peebles instead of a cheque in favour of the pursuers. There might be as much to be said on the one side as on the other. But I cannot but think that there is an equitable consideration, arising from the fact that the defender, taking the law in his own hands, has refused to pay Peebles' account. Peebles has not discharged his account, and prima facie he was entitled to payment of it, or part of it. If I should decide in favour of the defender in this case, then the pursuers would undoubtedly lose £20 of their account and the defender might perhaps pay nothing at all. If I should decide against the defender, then the result will be that he will pay the account which he owed to the pursuers and may lose the £20 paid to Peebles, to whom he may possibly have owed a larger account. But I do not rest my judgment on that ground, but on the ground already explained, that payment to Peebles was not payment to Clark & Macdonald.”

The defender reclaimed, and argued—Clark & Macdonald were employed by and acted for Peebles, and they looked to him as their principal. Their claim was therefore against him. But if it should be considered that the defender was responsible to Clark & Macdonald under section 21 of the Law-Agents (Scotland) Act 1873, quoted supra, then Peebles had been employed by them to collect the money and they must suffer from the fault of their authorised agent.

Argued for the pursuers—The client was clearly responsible under the 21st section of the Law-Agents (Scotland) Act 1873 for the account, and the proper way to intimate it was through his local agent. To have acted otherwise would have been contrary to etiquette and invariable custom.

At advising—