Scottish Court of Session Decisions

On 10th November 1917 William Gibson, Writer to the Signet, Edinburgh, pursuer, creditor in a bond and disposition in security over certain heritable property situated in George Street, Edinburgh, brought an action of maills and duties against John Sloan Blair, 20 Pitt Street, Edinburgh, defender, the debtor in the bond.

On 31st August 1907 the defender had granted the pursuer a bond and disposition, which was recorded on 4th September 1907, over certain heritable property at No. 37 George Street, Edinburgh, in security of the sum of £600 borrowed by the defender from the pursuer. The position of matters between the parties at the raising of the action appears from the following averments.

The pursuer averred—“(Cond. 2) In August 1915 it was arranged between the pursuer and defender that the rate of interest payable on the said sum of £600 should be at the rate fixed by the Commissioners for fixing the rates of interest payable on heritable securities in Scotland from and after the term of Martinmas 1916, whether the rate then should be more or less than 4 per cent., which was the rate stipulated to be paid to Martinmas 1916. The said Commissioners prior to Whitsunday 1917 fixed the rate at 5 per cent. The defender now declines to pay the 5 per cent., alleging that at the time this arrangement was made it was never anticipated the Commissioners' rate would go so high as 5 per cent.”

The defender in his statement of facts averred—“(Stat. 1) Prior to the defender's purchase of the subjects of security contained in the bonds and dispositions in security referred to in the condescendence for pursuer the defender was tenant of the shop and premises No. 37 George Street, Edinburgh, forming part of said subjects, at a rent of £200, and carried on therein the business of wine and spirit merchant and restaurateur. In 1907 the defender arranged to purchase the said subjects from his late father's trustees at the price of £12,000. To enable the defender to pay the said price he borrowed £7400 from the trustees of the late Mr Duncan Macpherson on bond and disposition in security, recorded on 3rd September 1907, and £600 from the pursuer on bond and disposition in security, recorded on 4th September 1907. These transactions were carried through after a report and valuation had been obtained for the lenders by Mr W. Allan Carter, C.E., Edinburgh. At the time of the defender's purchase in 1907 the total rental of the subjects was £522, 10s. per annum. (Stat. 2) The defender in 1912 disposed of his said business, and let the premises in which same was carried on, on a lease at a rent of £200 per annum. The defender is not now engaged in business. (Stat. 3) The interest payable on said loans was duly and regularly paid by the defender at Whitsunday and Martinmas in each year down to and including Whitsunday 1917. By letter dated 7th February 1917 the agents for the lenders intimated that from Whitsunday, 1917 the rate of interest on the loans would be increased to 5 per cent. Shortly after this intimation the defender submitted to the said agents a statement of the rents and outgoings, representing to them that the defender was not in a financial position either to supplement the free rents to meet the increased rate of interest or to repay the loan, that he was willing to have the rate of interest increased from 4 to 4 1 2 per cent. as from Martinmas 1916, but was unable to undertake the payment of a higher rate through conditions consequent on the war. On 20th March 1917 the agent for defender wrote to the agents for the lenders that the defender would, no doubt, make arrangements for meeting the half-year's interest at Whitsunday 1917, that he could not make any promise to pay a higher rate of interest after that, but that if the defender should find himself able to pay a higher rate he would do so. By letter dated 1st November 1917 the agents for the lenders notified to the defender's agent a

Page: 301↓

half-year's interest at 5 per cent. to Martinmas 1917 on the £8000 loans, amounting to £200. By correspondence subsequently between the agents for the respective parties further endeavours were made for an adjustment of the rate of interest to be paid by the defender at Martinmas 1917. On 7th November 1917 the agents for the lenders wrote that 5 per cent. must be paid, that if defender was unable to pay that rate he would require to hand over the management of the property to the bondholders, and that if defender was not prepared to do so proceedings would require to be taken with this object in view. While the defender was giving the position his final and anxious consideration the summons in this action was served on him on 10th November, and notices were then issued to the defender's tenants interpelling them after receipt of such notices from making payment of their rents due by them to the defender. In consequence of the action of the pursuer the defender was unable to pay any interest on the term day. (Stat. 4) No formal demand for repayment of the said loan of £600, as required by section 119 of the Titles to Land Consolidation (Scotland) Act 1868, has been made by the pursuer to the defender, and no interest was due and payable on the said loan at the date of raising this action. (Stat. 5) In order that the claim of the pursuer might be settled without further procedure in this action the defender has paid a half-year's interest at 5 per cent. on the loan of £600 under reservation of his defence, but the pursuer's agents have intimated acceptance of this as a payment to account of the interest on the bonds for £7400 and £600, and have refused to withdraw the intimations made to the tenants unless an undertaking is given that interest on the whole loans at 5 per cent. for the half-year to Martinmas 1917 will forthwith be paid. The pursuer also demands payment of the expenses of this action. The defender avers that the action was premature, and is unnecessary and oppressive, and in the circumstances stated incompetent. …”

The pursuer pleaded—“1. The pursuer being entitled in virtue of the said bond and disposition in security to enter into possession of the said subjects and uplift the rents thereof, decree should be pronounced in terms of the conclusions of the summons. 2. The defender having refused to admit liability for interest at the full rate, the pursuer was justified in raising the action, and is entitled to expenses.”

The defender pleaded, inter alia—“1. The action is incompetent, in respect that no statutory notice was given and no arrears were due before service. 5. The action being premature, unnecessary, and oppressive, ought to be dismissed, with expenses.”

On 8th January 1918 the Lord Ordinary ( Ormidale) without delivering an opinion dismissed the action.

The pursuer reclaimed, and argued—The defender was in default in payment of the interest due. There was to all intents and purposes no real distinction between a public intimation of the debtor's inability to pay his debts and a private intimation on his part to his creditor that he refused to pay the increased amount of interest demanded— Ferrier v. Dunlop, (1831) 9 S. 837; Davidson v. Gibb, (1839) 12 Sc. Jur. 211. The defender had not stated that he would pay the increased rate of interest if possible. The debtor had at any rate not suffered any prejudice, the interest demanded being in excess of the total amount of the rents of the property which was covered by the bond and disposition in security. Counsel also referred to the case of Saxty v. Smiths & Company (1893), 1 S.L.T. 61, in which case an offer of payment had been made after the summons had been served.

Argued for the defender—As no interest on the bond was due at the date when the action was brought there could not be any default on the part of the debtor. The summons having been served on the day before the interest fell to be paid, and the debtor's estate not having been sequestrated, the present action was incompetent—Graham Stewart on Diligence, p. 514. A creditor was only in a proper position to demand payment of interest due when the time for payment had elapsed, and in the present case that time had not yet arrived. The case of Ferrier v. Dunlop ( cit.) was distinguishable, as in that case sequestration had taken place. The following authorities were also cited— Saxty v. Smiths & Company ( cit.); Davidson v. Gibb ( cit.); Ferrier v. Dunlops ( cit.); Graham's Trustees v. Dow's Trustees (1917), 2 S.L.T. 154; M'Ara v. Anderson, 1913 S.C. 931, 50 S.L.R. 713.