Scottish Court of Session Decisions

Sir Stephen Herbert Gatty and Lady Gatty, pursuers, brought an action against Kenneth Douglas Lorne Maclaine of Lochbuie, and, for any interest they might have, against Mrs Catherine Marianne Schwabe or Maclaine, his mother, and others, trustees (the Lochbuie trustees) nominated by and acting under an inter vivos disposition and assignation in trust granted by Maclaine, defenders, concluding for declarator that a sum of £350, being the interest due and payable on 1st August 1918 to the pursuers under a bond and disposition in security dated 9th November 1910 and relative back agreement of the same date, and a further sum of £20, being the interest due and payable on 1st August 1919 to the pursuers under a bond and disposition in security dated 16th March 1911 and relative back agreement of the same date, had not been punctually paid to the pursuers in terms of the foregoing writs, and for declarator that the pursuers were entitled to call up the principal sums in the bonds, and for decree for payment of £450, being interest at 5 per cent. upon the principal sums borrowed under the bonds.

The bond and disposition in security of 9th November 1910, after setting forth that Maclaine had received £36,000 from the pursuers, provided—“Which sum I [the principal defender] bind myself and my heirs, executors, and representatives whomsoever, without the necessity of discussing them in their order, to repay to the said Sir Stephen Herbert Gatty and Lady Gatty or the survivor of them, or their, his, or her assignees whomsoever, or the executors of such survivor or their assignees, at the term of Whitsunday 1911, within the head office of the Commercial Bank of Scotland, Limited, at Edinburgh, with a fifth part more of liquidate penalty in case of failure, and the interest of said principal sum during the not-payment of the same at the rate of £5 per centum per annum from the date hereof, and that by equal quarterly payments on the first day of February, the first day of May, the first day of August, and the first day of November in each year, beginning the first payment of the said interest on the first day of February 1911 for the interest due preceding that date, and the next payment thereof on the first day of May following, and so forth quarterly thereafter during the not-payment of the principal sum, with a fifth part more of the interest due at each of the dates of payment of liquidate penalty in case of failure in the punctual payment thereof.”

The back agreement of the same date provided—“The parties agree and acknowledge that the said loan was made on the conditions herein expressed:—1. Lochbuie covenants and agrees with the lenders that so long as the said loan of £36,000 or any part of it shall remain due to the lenders, he will not raise any more money on the security of the estate of Lochbuie or any part thereof, and will not burden the estate or any part of it, directly or indirectly, with any new or additional debt, security, charge, or incumbrance, unless he shall have first obtained the lenders' consent thereto in writing. 2. Provided the covenant in article 1 hereof be duly observed, and the interest of the loan be punctually paid in terms of the bond and disposition in security as modified by the immediately succeeding clause, article 3 hereof, the lenders agree not to call in the loan for a period of fourteen years from and after the term of Martinmas (being 11th November) 1910; but Lochbuie shall be at liberty to repay the loan in whole or in sums of not less than £500 at a time at any term of Whitsunday or Martinmas on giving the lenders three months' previous notice in writing of his intention. 3. Notwithstanding the said bond and disposition in security specifies 5 per centum per annum as the rate of interest which the loan is to bear, the lenders agree to modify the rate to 4 per centum per annum provided and so long as punctual payment shall be made of interest at said lower rate, and they further agree either to allow Lochbuie a deduction from the said interest at the rate of £200 per annum, or alternatively in their option they will pay £200 of the

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interest of the loan to Mrs Catherine Marianne Schwabe or Maclaine or Lochbuie.”

The bond and disposition in security of 16th March 1911 was in similar terms to those of the prior bond, the principal sum borrowed being £2000, and the back agreement was in similar terms to those of the earlier back agreement.

Answers were lodged by Maclaine and the Lochbuie trustees.

The facts of the case appear from the following narrative, which is taken from the opinion of Lord Mackenzie—“The pursuers became tenants of Lochbuie for fourteen years from 1st November 1910 at the rent of £1900. They had a break in their favour at 1917 and 1920. The day the agreement and lease was signed, 9th November 1910, the defender granted the bond and disposition in security in question in this case in favour of the pursuers for £36,000 over the estate. By the said agreement and lease it was provided that the defender was not to sell or convey the estate so long as the debt remained upon it without first offering the estate to the male pursuer at the figure at which it was proposed to sell it. The clause as to payment in the bond was as follows—‘… quotes v. sup. … ‘On the same date an agreement was entered into by which under article 1 Lochbuie covenanted and agreed with the lenders that so long as the loan of £36,000 and any part of it should remain due to the lenders he would not raise any more money on the security of the estate. [His Lordship quoted articles 2 and 3 of the agreement.] An additional £2000 was advanced by the pursuers to Lochbuie, with reference to which a bond and disposition in security and relative agreement in terms similar to the above were executed on 16th March 1911. The pursuers took advantage of the break in their favour and terminated the lease as at 31st October 1917. Down to that date there had been no difficulty in arranging about the interest on the debt. The instalments as and when they fell due were compensated by the rents payable by the pursuers. It is stated that Lochbuie was serving abroad when the pursuers terminated the lease, and that he had no personal knowledge of the matter, which was dealt with by the agents for the trustees to whom the estate had been conveyed. These trustees are Mrs Catherine Marianne Schwabe or Maclaine, residing at 48 Connaught Street, Hyde Park, London; Edwin Sandys Dawes, sometime of 94 Piccadilly, in the county of London, now major in His Majesty's Army; and Alexander Maclennan, agent of the National Bank of Scotland at Oban. They are called as defenders in the action. The agents are Messrs Hope, Todd, & Kirk, W.S., Edinburgh. What followed upon the termination of the lease appears from the pleadings and correspondence. There was a delay on the part of the pursuers in settling the rent due on 1st November 1917 for the last quarter owing to delay in the adjustment of the amount of income tax. The pursuers' agents volunteered to pay interest on the net amount. In consequence of this delay the defenders' agents did not pay the interest falling due under the bonds on 1st February 1918, and the pursuers' agents acquiesced in this. On 18th April 1918 the pursuers' agents wrote intimating that they were ready to settle the November rent. At the same time they enclosed a note of the November rent and of the interest due to the pursuers on 1st February 1918. The factor for these defenders was away from home at this time, and as the matter had already remained over for a considerable time, it was left to await his return. On 29th April 1918 the pursuers' agents wrote to these defenders' agents as follows—‘Referring to our letter of 18th inst., we must ask you to let us have without further delay a remittance for the interest payable on our clients' bonds on 1st February last. Another quarter's payment of interest amounting to £285 falls due on 1st proxo., and you may be so good as to send us a remittance for it at the same time. We are instructed to say that unless the interest be in future regularly and punctually paid, interest at the rate (5 per cent.) stipulated in the bonds will be exacted.’ The settlement was not carried through until 13th May 1918, when, notwithstanding the intimation as to interest made in the letter just quoted, the pursuers accepted interest at the rate of 4 per cent. On 24th July 1918 the pursuers' agents wrote this letter to the defenders' agents—‘Dear Sirs, We send you herewith note of interest due to Sir Stephen and Lady Gatty by the Maclaine of Lochbuie in respect of loans over the estate of Lochbuie, as at 1st proximo, and shall be glad to receive a remittance for the amount of the interest, less tax, in due course.’ Messrs Hope, Todd, & Kirk sent on 7th August a cheque in favour of the pursuers' agents for £266, and received the following letter, dated 8th August, in reply—‘Dear Sirs, We have this morning received your letter of yesterday's date in which you tender us your cheque for £266 as in settlement of the interest which fell due on our clients' bonds on 1st instant. We cannot treat this tender as either timeous or sufficient, and beg to return the cheque herewith. Default in payment of interest having arisen, in terms of the agreements relative to the bonds interest has become payable at the rate specified in the latter, namely 5 per cent., and you may be as good as to send us your cheque for the amount, less tax (£332, 10s.), of the last quarter's interest at that rate. We have further to intimate that in respect of the default which has occurred in punctual payment of interest in terms of the bonds, our clients now hold themselves at liberty to exercise their full rights and powers under their bonds, free from any restrictions imposed upon them by the agreements.’ What had happened was this, as sufficiently appears from Messrs Hope, Todd, & Kirk's letter of 14th August to Messrs John C. Brodie & Sons, in consequence of Mrs Maclaine's movements the cheque sent Mrs Maclaine had not reached her to allow her to sign and return it by 1st August. The cheque reached Messrs Hope, Todd, & Kirk's office on 2nd August, which was a Friday. The Monday following, 5th

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August, was a bank holiday. Payment was tendered on Wednesday the 7th, and refused.”

The pursuers pleaded, inter alia—“1. The terms of payment of the principal sums under the bonds and dispositions in security condescended on being long by-past, and the defender, the said Kenneth Douglas Lorne Maclaine, having failed to make punctual payment of the interest due thereunder as modified by the relative minutes of agreement, the pursuers are presently entitled to call up and demand payment of said principal sums. 2. The defender, the said Kenneth Douglas Lorne Maclaine, having undertaken, in terms of the bonds and dispositions in security referred to in the summons, to make payment at the term of 1st August 1918 of the sums of interest sued for, being at the rate of £5 per centum per annum upon the principal sums borrowed by him, and having failed to make punctual payment of the modified interest provided for by the relative minutes of agreement, decree for payment should be pronounced as concluded for.”

The defender Maclaine pleaded, inter alia—“1. The averments of the pursuers are irrelevant and insufficient to support the conclusions of the summons. 2. The defender not being in default in punctual payment of the interest due should be assoilzied from the conclusions of the summons. 3. The pursuers being barred by their actings from objecting to the timeousness of the payment tendered, the defender should be assoilzied. 4. The payment of the interest having been timeous in view of ( a) the course of dealing, and ( b) the recognised custom condescended on, the defender should be assoilzied. 5. In the circumstances condescended on the action is nimious and oppressive, and should be dismissed.”

The Lochbuie trustees pleaded, inter alia—“1. The averments of the pursuers being irrelevant and insufficient to support the conclusions of the summons, these defenders are entitled to absolvitor. 2. The expression punctual payment in the said minutes of agreement must be reasonably construed, and payment in the sense of the said expression as so construed having been tendered the defenders are entitled to absolvitor. 3. Payment of the interest having been timeously made in accordance with recognised custom, the defenders are entitled to absolvitor. 4. The pursuers having waived their right to payment of the said interest on 1st August 1918, the defenders are entitled to absolvitor.”

On 12th March 1919 the Lord Ordinary ( Sands) sustained the first plea-in-law for the defenders and dismissed the action.

Opinion.—“The pursuers are heritable creditors upon the Lochbuie estates in right of two bonds for £36,000 and £2000 respectively. These bonds are in ordinary form payable at the next six monthly term after the date of granting, with interest at the rate of five per cent. Both bonds were qualified by back agreements, under which, if the interest was punctually paid the rate should be four per cent., and the bonds should not be called up until Martinmas 1924. To one unaccustomed to our system of conveyancing these might appear extraordinary concessions in view of the letter of the formal bonds. But this is not so. The back letter, or the agreement corresponding thereto, really embodies what the parties have contemplated throughout. The provisions of the principal deed, if not technically penal, are substantially so, or at all events are precautionary merely. When the current rate on first-class securities was three per cent. five per cent. was still inserted in bonds; and people borrow large sums solemnly stipulating to pay them back at the next term though the expense of such borrowing, if repayment at next term was contemplated, would be ruinous. The expressions in the present back agreement, ‘provided … the interest of the loan be punctually paid,’ and ‘provided so long as punctual payment shall be made of interest,’ are general expressions. Had the intendment been that if on any single occasion through any possible inadvertence payment was a day late after the term the agreement should be void, I should have expected some more precise provision, and I doubt if any borrower who was not under dire stress would have entered into any such agreement. If under a contract of employment it was intended that the employment should terminate if the employee on a single occasion was five minutes late, I should expect this to be articulately set forth. If the stipulation was simply that he should be punctual it seems to me that the contention that the agreement was terminated if on a single occasion he was five minutes late would be extravagant.

“The course of the dealings of the parties as regards interest seems to have been as follows:—Down to November 1917, pursuers' rent due to defenders was in excess of the interest, and was set against it pro tanto. Pursuers' tenancy came to an end in November 1917, and when the interest became due upon 1st February there was no current rent to set against it. But pursuers' rent past due had not, for reasons into which it is unnecessary to enter, been squared by 1st February, and there was no settlement at that date. The matter of rent was not settled up until April. Pursuers' agents then wrote the defenders' agents upon 29th April—‘Referring to our letter of 18th instant, we must ask you to let us have, without further delay, a remittance for the interest payable on our clients' bonds on 1st February last. Another quarter's payment of interest, amounting to £285, falls due on 1st proximo, and you may be so good as to send us a remittance for it at the same time. We are instructed to say that unless the interest be in future regularly and punctually paid, interest at the rate (five per cent.) stipulated in the bonds will be exacted.’

This letter makes no reference to abrogation of the time bargain, and I think that if I had been in the position of the recipients I should have been disposed to interpret it as meaning that any future instalment not punctually paid would be charged at five

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per cent. I do not, however, proceed upon this construction of the letter.

It is important, however, to note the circumstances under which the letter was written. It purports, whether justly or not in the circumstances, to proceed upon a delay of three months. I cannot, particularly in view of what followed upon this letter, interpret it as a warning that if ever the interest should on a single occasion be a day or two late the back agreement would be voided. Interest was not paid by 1st May; an explanation of the delay was sent and was not demurred to. Upon 13th May the February and the May instalments were paid and payment was accepted without comment or demur.

It occurred to me that the delay in May might be founded upon as depriving the delay in August of the character of an isolated inadvertence. But I find that by answer 5 to defendants' statement pursuers expressly disclaim founding in any way upon the February and May payments. There is therefore no case of cumulative delays.

Upon 24th July pursuers' agents sent defenders' agents a reminder of the interest due upon 1st August. Payment was not made upon 1st August. Pursuers' agents were in Edinburgh, so were defenders'. If pursuers had been insistent upon payment on the exact day, and disquieted by the failure, and not simply lying by to catch defenders out, I should have expected their agents to have asked defenders' agents for an explanation on 2nd August and to have intimated that if the interest was not paid within forty-eight hours, or some short period, serious consequences would be entailed. No communication, however, was made. Payment was tendered upon 7th August, two dies non having intervened. Certain explanations of the delay are given by the defenders, for which I refer to the record. Acceptance of this payment was however refused, the back agreement was denounced, and this action was begun.

It is difficult to regard such proceedings otherwise than as oppressive, especially if pursuers knew of the absence of Lochbuie, the person principally interested, on military service at the time. But the matter falls to be considered on its merits without prejudice.

In my view the words ‘punctually paid’ and ‘punctual payment’ fall to be construed reasonably. That was the opinion of Lord Low in the case of Scott Chisholm v. Brown, 20 R. 575. Lord Kinnear states that he concurs in Lord Low's construction of the contract. The opinion of Lord M'Laren is to a similar effect, for he thinks that there must be some elasticity. It is true that there was a division of opinion in that case and that Lord Kinnear and Lord Low were in the minority. But I find nothing to the contrary upon this point in the only other reported opinion—that of the Lord President. He does not demur to the opinion that there may be a certain elasticity, but he holds that when all bounds of elasticity are passed, as the word ‘punctual’ is a word of time, there is no room for construction. What he says in effect comes to this—‘If you had agreed to be there at four o'clock, and did not appear until six, you might perhaps be allowed to show that it was impossible to have been earlier, but you cannot be allowed to argue that in the circumstances you arrived at four o'clock as that expression may reasonably be construed.’ That does not appear to me to involve any opinion adverse to the proposition that if you arrived at 4.1 you might reasonably contend that you had fulfilled your engagement to arrive at four o'clock. In the case in hand the Lord President held that ‘punctual’ is a word of time and that it could not be maintained that a payment which was five months late was punctual.

Now attempting to construe the words in the present contract reasonably it appears to me that if a term's interest had been allowed to fall several months into arrears the conditions would not have been fulfilled. The same result would have followed if payment of interest had been repeatedly a few days late, and this had been persisted in, in the face of remonstrance. Having regard, however, to the serious nature of the cousequences involved I cannot hold that on a reasonable construction of the contract these consequences attach to what I must treat as a single and isolated case of delay of six days, particularly during a period of public stress and general unsettlement of family and business arrangements.

I shall accordingly sustain the first plea-in-law for the defenders and dismiss the action with expenses.”

The pursuers reclaimed, and argued—The Lord Ordinary was wrong. The stipulation in the agreements was either to be regarded as a privilege to the debtor or as an express term of the bargain. If it was regarded as a privilege, then the conditions upon which the privilege was granted must be strictly observed, and if not, as there was no question of forfeiture or penalty there could be no equitable relief— Ford v. Earl of Chesterfield, 1854, 19 Beav. 428, per Sir John Romilly, M.R., at p. 434; Davis v. Thomas, 1830, 1 R. & M. 506, per Sir John Leach, M.R., at p. 507. As a term of the bargain it was clearly of the essence and onerous. The bargain was reasonable but the security was doubtful, and the creditors were tying up their capital for a long period. If the borrower was to get the money on such easy terms as the payment of four percent., less the £200 to be paid to Mrs Maclaine, it was only natural that there should be a counter stipulation in favour of the lenders. Time was the whole consideration for the contract. There was no question of penalty—the stipulations were mutual. “Punctual” was in itself a word which admitted of no latitude in meaning, but it was in the bonds as to payment of interest as well as in the agreement. That being so the agreements were intended to mean and could only mean payment of interest exactly on the day stipulated. In England the matter was completely covered by decision— Leeds and Hanley Theatre of Varieties v. Broadbent, [1898] 1 Ch 343; Hicks v. Gardner,

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1837, 1 Jur. 541. In Scotland Paterson v. Tod, 1828, 6 S. 1062, would have been decided in the sense for which the reclaimers contended had there not been personal bar. Scott-Chisholme v. Brown, 1893, 20 R. 575, per Lord President Robertson at p. 579, concurred in by Lord Adam, 30 S.L.R. 558, was in the reclaimers' favour. Lord Kinnear dissented, but not upon the meaning of “punctual.” Lord M'Laren was contrasting an obligation to pay on a day as against to pay punctually, but he had not in view an obligation such as the present, to pay punctually on a day. The same result should follow even if the payment had been a day late. If any latitude were allowed the stipulation would become worthless, for it would always raise the question of how many days' latitude was reasonable. No relevant case of waiver or personal bar had been set out.

Argued for the defender, Maclaine—The word “punctual” was not absolute in its meaning. It was not so even in a dictionary sense. Further, there was no reason here to read the clause in anything more stringent than its reasonable meaning, for no privilege was given. The lenders were obtaining the market value of their money, and the stipulation was merely to provide the remedy. “Punctual” constantly occurred in such deeds as the present. It was found in the penalty clauses of bonds both in the traditional and the statutory styles. It was open to construction, and meant that the interest should not be allowed to fall into arrears. It it had been intended that the interest should be paid on or before a certain date those words should have been used. So long as there was substantial performance that was sufficient. The opinions of Lord M'Laren, Lord Kinnear, and Lord Low in Scott Chisholme's case, and of Lord Alloway in Paterson's case, were in favour of an elastic construction of punctual. In all the English cases cited for the pursuers there was a material breach of the stipulations. Time was never of the essence of a contract unless it was expressly so made—Sale of Goods Act 1893 (56 and 57 Vict. cap. 71), section 10 (1); Gloag on Contract, p. 717 and p. 719. Where there was no material failure to pay as in the present case the remedy could not be enforced— Nova Scotia Steel Company v. Sutherland Steam Shipping Company, 1899, 5 Com. Cas. 106, per Bigham, J.; Thoms v. Wilson, 1862, 4 Best & Smith 442, per Cockburn, C. J., at p. 453, approved in Moore v. Shelley, 1883, 8 A.C. 285, per Sir Barnes Peacock at p. 293. In any event the averments of the pursuers showed that they were barred by their actings from insisting upon payment upon the exact day.

Counsel for the defenders, the Lochbuie trustees, adopted the argument for Maclaine.

At advising—