Scottish Court of Session Decisions

Miss Jessie Scott, Nellfield Lodge, Braidwood, Lanarkshire, complainer, brought a note of suspension against Donald Davidson, Grantown-on-Spey, respondent.

The following narrative is taken from the opinion of the Lord Ordinary ( Hunter):—“In this action the complainer seeks to set aside a charge proceeding upon a decree obtained against her and others for payment of a sum due upon a promissory-note dated in March 1910. The other granters of the promissory-note were a Mr Lawson and a Mr Agnew, the latter being a brother-in-law of the complainer. The promissory-note was granted in favour of Messrs Howard & Cope, and the charge proceeded at the instance of a Mr Davidson, as assignee of a Mr Krall, who in turn was the assignee of Messrs Howard & Cope. At the time when the complainer and the two gentlemen I have named gave to Messrs Howard & Cope a promissory-note for £500, Mr Lawson and Mr Agnew also granted a promissory-note for £1000. In security of these two promissory-notes for £1000 and £500 respectively, Mr Lawson conveyed to Messrs Howard & Cope the estate of Nellfield, by disposition dated in August 1910. Subsequent to granting that conveyance, Mr Lawson in June 1911 conveyed Nellfield estate to Mr Agnew, who in turn gave a feu-charter of 18 acres of that estate to a company known as the Nellfield Estate Company. That company erected plant upon the estate and went into liquidation. They attempted apparently to sell the heritable subjects, or rather the plant, but without success. There are other bonds upon the estate. To some extent these complicate the different questions raised before me, but I do not think they materially affect what, in my opinion, are very clearly the only material points that are raised in this action. Howard & Cope did not get payment of what was due to them by Messrs Lawson & Agnew, and they took decree against Messrs Lawson & Agnew for the £1000, and against Lawson, Agnew, and the complainer for the £500. The decree was not satisfied, and Messrs Howard & Cope assigned the decree, and at the same time assigned the disposition and security for sums due under the promissory-note to Mr Krall on 17th July 1913. After Mr Krall was thus in possession of the decrees and the security subjects, he exercised a right which had been conferred upon the holders of the security, namely, Howard & Cope, and disponed to another company—which, for brevity, I will call the chemical company—the subjects on 5th August 1913, the deed being registered on 6th August 1913. The price received by Mr Krall was £700. When Mr Krall had received that price for the subjects, he assigned the decrees to the present respondent for a sum of £100. The challenge now made by the complainer is this—She says that the price which Mr Krall received from the chemical company, £700, was a totally inadequate price; that he should have received a much larger price; and that if an adequate price had been received the total indebtedness upon the bills would have been wiped out.”

The complainer pleaded, inter alia—“(2) The complainer is entitled to have the note passed and the charge complained of suspended, in respect—( a) That the respondent's cedents being bound to account to the complainer for the price of the heritable subjects sold, the same should be applied pro rata to meet the indebtedness of the complainer on the said promissory-note. ( b) That on a just accounting no sum is due by the complainer to the respondent. ( c) That the amount of the charge is in any view excessive, and falls to be restricted.”

Proof was allowed and led, and on 28th April the Lord Ordinary repelled the reasons of suspension, and found the warrants and charge orderly proceeded.

Opinion.—[ After giving the narrative already set forth]—“I heard a discussion in the procedure roll in this case, and in the note appended to my interlocutor of 23rd January 1914 the reasons for my allowing a proof will be found. I may say this, that it appeared to me then that the vital point for the complainer was that she should establish, as she undertook to do, that she was merely a cautioner under the £500 bill. I considered that was a point upon which parole proof was competent, and I allowed it. Her other averment of consequence was to the effect that by the inadequate price that had been unjustifiably received by Mr Krall she was continued liable under the bill, whereas had a sufficient price been received she would not have been under any liability. The averment which the complainer

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makes upon the question of her being a cautioner is as follows—‘The complainer signed said bill p. £500 at the request and for the accommodation of the said John Lawson; she did not receive any part of the said sum, and as was well known to the said Howard & Cope, Limited, and the said John Robertson she was merely a cautioner for the said sum.’ As regards the latter part of this averment, it is to my mind not only clear that the complainer has failed to establish what she avers, but I think neither Howard & Cope nor Mr Robertson knew at the time when the complainer signed the promissory-note that she was merely a cautioner and not a principal. With reference to the question as to whether she was a principal or a cautioner the matter stands thus. On the face of the bill, which is in the complainer's own writing, she appears to be a principal. Against that there is merely her own testimony. Neither Mr Agnew nor Mr Lawson has been adduced as a witness in this case. I think that however clear and above all possible challenge the testimony given by the party to a bill may be, it is more than doubtful whether a judge could accept such evidence as sufficient. In the present case, without making any severe comment on Miss Scott's evidence, I am bound to say I could not accept it as in itself sufficient to justify me relying upon it as accurate in detail. In my judgment the complainer has failed to establish that she was merely a cautioner and not a principal.

“The only question remaining is what is the effect of that failure. It, of course, makes it unnecessary for me to consider whether, on the assumption that the complainer was a cautioner, and the price received adequate, there ought to have been a pro rata apportionment by the creditor between the £1000 indebtedness and the £500 indebtedness. The complainer argued that although she had not established that she was a cautioner, she was still entitled to take up this position—that as an insufficient price had been received for the security subjects, she had suffered, for if a fair adequate price had been got she would not have been liable at all, or to the extent she is sought to be made liable. I am bound to say I cannot accept that position as sound in law. I do not think that on the footing that the complainer is not a cautioner she can challenge in the present proceedings the price received for the subjects. Neither Mr Agnew nor Mr Lawson is a party to the present case. So far as I know, Mr Lawson, who was granter of the disposition, is satisfied with the price that was received, and I cannot tell as in a question between the complainer and the co-obligants of the bond what the state of indebtedness between them is. I think therefore that the complainer having failed to establish that she was a cautioner, cannot succeed upon the ground that the price received was insufficient. But I may say with reference to the latter part of the case that I was not satisfied with the complainer's evidence as establishing clearly that Mr Krall in effecting the sale which he did sacrificed the property and took an inadequate price. No doubt, if the position is looked at from the point of view of what was got for the property as compared with what was spent on the property, the amount received was small; and I cannot help thinking that the witnesses who gave evidence for the complainer applied their minds to the question as to what was what I may describe as the intrinsic value of the subjects rather than to what was the market value, on the footing that the subjects were put up for sale. I am not going into detail in connection with this matter. All I need say is, that looking to the troubled state of the title to the property and the want of success of the different enterprises carried on, I am not satisfied that the price actually paid to Mr Krall was other than what might fairly and reasonably be described as the fair value of the subjects. Therefore on the whole matter I am of opinion that the complainer has failed in her case, and I refuse the note.”

The complainer reclaimed, and argued—The complainer here was a cautioner; but even if that were held not proved the complainer was entitled to challenge the sale of the security subjects. It had been held that a security holder was to a certain extent a trustee for the common debtor and his representatives— Beveridge v. Wilson, January 17, 1828, 7 S. 279. In Stewart v. Brown, November 17, 1882, 10 R. 192,20 S.L.R. 131, the security-holder's obligations were applied to a larger class, which included a cautioner. Accordingly the security-holder here or his assignee was bound to exercise his rights in a way beneficial and not hurtful to the complainer. The respondent was in no better position than his author, and accordingly the onus was on him to justify the sale—Menzies on Trustees (2nd ed.), sec. 282; Bell's Principles, sec. 62; Hodgson v. Deans, [1903] 2 Ch 647; Farrar v. Farrars Limited, 1889, 40 Ch. Div. 395, at p. 400; Thomson v. Eastwood, 1877, 2 A.C. 215, at 236. The complainer was entitled to have the charge suspended. The sale was not a bona fide one, but was for an entirely inadequate consideration, and if the proper price had been obtained the debt would have been extinguished. Further, as a co-obligant, the complainer was entitled to relief against the other obligants, and to an assignation of the security held. Accordingly by selling the security subjects for an inadequate price the obligee had prejudiced the complainer, and she was accordingly released from her obligations— Mackirdy's Trustees v. Webster's Trustees, February 1, 1895, 22 R. 340, 32 S.L.R. 252.

Argued for the respondent—The complainer here had no title, because even if she was a cautioner she was not entitled to any different treatment from an ordinary co-obligant unless the creditor was aware that she was a cautioner, and this had not been proved— Duncan Fox & Company v. North and South Wales Bank, 1880, 6 A.C. 1, per Selborne, L.C., at p. 11; Newton v. Chorlton, 1853, 10 Hare 646. Even if she had a title, she had no grounds for objecting to the sale. The duty of the bondholder was merely to act in good faith— Kennedy v. De Trafford,

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[1897] AC 180. The mere fact that Krall, the vendor, was largely interested in the buying company did not affect the bona fides of the sale— Salomon v. Salomon & Company, [1897] AC 22. In any event, the disposition in security was not granted for some months after the bill debt was incurred, and accordingly the complainer had no interest in it. Further, the value received for the subjects was quite adequate.