Scottish Court of Session Decisions

In 1990 the pursuers, the Royal Bank of Scotland, who are the respondents in this appeal, made certain banking facilities available to the defender and her husband at their Thurso branch. These facilities related to two bank accounts. The first was a personal current account (No. 00204723) in their joint names which was opened on 21 May 1990. The second was what was entitled an equity release loan account (No. 00204731), also in joint names which was opened on 23 October 1990. In or about September 1994, about one year before the coming into force of the Requirements of Writing (Scotland) Act 1995, the pursuers raised an action against the defender and appellant in Wick Sheriff Court in which they craved payment of three sums. The first of these was averred to be the balance due by the defender and her husband jointly and severally to the pursuers on the overdrawn current account (00204723). The sheriff, after proof, found that that sum was not due and resting owing by the defender to the pursuers, for reasons he gave in his judgment which we need not relate since that finding has not been made the subject of appeal either before the sheriff principal or us. The second sum, namely £35,113.98, was averred to represent the debit balance as at 16 June 1994 on the equity release loan account for which the defender and her husband were also said to be jointly and severally liable. The third sum, namely £731.31, was averred to represent accrued but unapplied interest on these two accounts to 16 June 1994. Of this sum the sheriff found that £514.57 was attributable to the equity release loan account. The balance, since it related to the personal current account, was not due and resting owing by the defender and her husband. After proof, the sheriff granted decrees for the sums of £35,113.98 and £514.57 with interest thereon at the rate of eight per centum per annum from 23 November 1995 until payment. On appeal, the sheriff principal adhered and refused the defender's appeal. Before us it was argued principally that, since there was no writ of the defender to constitute or establish the loan which the pursuers averred had been incurred on the equity release loan account, the sheriff and the sheriff principal erred in holding that the sums of £35,113.98 and £514.57 were payable by the defender.

According to the interlocutor sheet, on 22 June 1995 the defender was allowed to amend her preliminary plea No. 2 at the Bar on an unopposed motion. On the defender's motion the sheriff at Wick allowed parties a proof habili modo. Such a proof took place on 11 September 1995 and 23 October 1995, and on 23 November 1995 the sheriff gave judgment. The defender's second plea-in-law, as amended, was in these terms: "The pursuers' averments anent loan to the defender should be restricted to the defender's writ or oath". In her fifth and sixth pleas-in-law the defender also pleaded:

Proof habili modo simply means proof by the kind of evidence appropriate to each part of the case. (See Walkers on Evidence page 5). In Clark's Executrix v. Brown 1935 S.C. 110 Lord Murray said, at page 119, that in a case such as the one before the court, the proper course was to allow the parties a proof habili modo of their averments and to the pursuer a conjunct probation. He went on:

The present case, it is clear to us, did involve a number of extrinsic circumstances which could be established by parole evidence, not least the defender's case that she was induced to sign the equity release loan agreement under essential error or as the result of negligent or fraudulent misrepresentation by the pursuers' bank manager et separatim her husband. It is also clear to us that the allowance of proof habili modo was the direct consequence of the defender's second plea-in-law which was thereby reserved until after proof. In their commentary upon Clark's Executrix v. Brown the authors of Walkers on Evidence at page 336 say:

The pursuers' counsel, at the commencement of the proof, ought therefore to have appreciated that in order to establish the loans which the pursuers maintained they had made to the defender and her husband, the pursuers had either to produce and found on relevant writs of the defender or her husband, or to rely on judicial admission, or have the defender and her husband referred to their oaths on the matter. (See Patterson v. Patterson 1897 25 R. 144 per Lord Young at p. 150). That he failed to understand this is apparent from his unsuccessful submissions both to the sheriff and the sheriff principal on appeal that the interlocutor of 22 June 1995 meant that the defender's second plea-in-law must be deemed to have been repelled for want of insistence. It was submitted for the pursuers that the defender's solicitor did not make timeous objection in support of the defender's second plea-in-law during the re-examination of the pursuers' bank manager, Mr. Leonard. (See the transcript of evidence at pages 77 to 78). We do not think the objection raised by the solicitor focuses properly upon the plea, and we are satisfied that an appropriate objection to the competency of parole evidence was not taken at the proof. We would

observe that had it been taken properly at the first opportunity, it would have caused considerable dismay to the pursuers' counsel who conducted the proof in the belief that the second plea-in-law was deemed to have been repelled. Having regard to what is said by the sheriff in paragraph 3.3 of his note on page 20 of the print it is apparent to us that in his first submissions to the sheriff, the pursuers' counsel had no regard to the defender's second plea-in-law, because the sheriff records that it was only when turning in due course to deal with the submission of the defender's solicitor to the effect that the pursuers had failed to prove by competent evidence that the balance claimed on either account had been borrowed and was due and resting owing, that counsel for the pursuers made any submission on this at all. In any event, it is far from evident that any writ of the defender or her husband could, if necessary, have been produced.

It does, however, appear that the proper course in a proof habili modo is to object to the competency of parole evidence whenever it is adduced to constitute the fact and nature of the loan and the fact also that it is due and resting owing. The presiding judge then has the choice of ruling upon the objection at that point or, more commonly, of reserving consideration of the objection until after the proof has been concluded. In Jackson v. Ogilvie's Executor 1935 S.C. 154 Lord Moncrieff, who was the Lord Ordinary, said (at page 159) in a similar case: "Proof was allowed habili modo, and, in the course of the taking of the proof, evidence other than written evidence was repeatedly admitted under reservation of all questions of competency". (See also Gill v. Gill 1907 S.C. 532 per the Lord Justice Clerk Macdonald at page 535 and especially per Lord Stormonth-Darling at page 536).

The question is whether, as the sheriff principal expressed it, by failing to take timeous objection, the defender's solicitor lost the right to invoke the defender's second plea-in-law, as the sheriff held he had. The sheriff principal agreed with the sheriff on this question. Before us the solicitor for the pursuers relied on two of the three authorities founded on in the courts below, namely McGlone v. British Railways Board 1966 S.C. (H.L.) 1, and Albacora S.R.L. v. Westcott & Laurence Line 1966 S.C. (H.L.) 19. In both of these cases evidence at the proof was led which went beyond the boundaries of the written pleadings. No objection was taken to that evidence until much later in the case. In both cases it was held that the objection came too late, there having been ample opportunity earlier to object, and the parties having, no doubt, developed their cases on the basis of such evidence as had been led. We are of opinion that the principle which underlies the decisions in these cases is quite different from what was at issue in this case. Plainly this is not a case in which evidence was led which went beyond the record. Nor is it in our opinion a case in which the pursuers can, with any justification, rely upon the plea of prejudice, namely that if an objection had been taken, they would have realised that the plea was being insisted on. By the very fact that a proof habili modo was allowed in light of the defender's second plea-in-law, the pursuers should have known that in order to establish any loan made to the defender and her husband, they had to produce a writ of one or other or both, their obligations being joint and several, as we will discuss shortly. It is obvious to us from the stance taken by the pursuers' counsel at the proof, as we have already said, that this was not understood. Nor has it been made apparent to us, despite the pursuers' solicitor's submissions, how the pursuers in the conduct of the proof were prejudiced by the absence of any objection to the competency of the evidence led on this matter. In short, it was not suggested to us that any relevant or appropriate writ was available but not produced at the proof. In our opinion, the defender's second plea-in-law remained for consideration and application to the evidence at the conclusion of the proof.

We now turn to consider the competent evidence which was led in support of the defender's alleged indebtedness in relation to the equity release loan account (00204731). The sheriff found as facts proved that in 1990 the defender, her husband and another couple, Alexander and Patricia Grant, formed a partnership for the purpose of obtaining a garage business in Thurso. It was arranged among the partners that the defender and her husband would jointly contribute £40,000 towards the capital of the partnership. To assist them in that they approached the pursuers' bank manager, seeking to borrow funds from the pursuers to be applied towards their contribution to the capital of the partnership. It was agreed between the bank manager, as representing the pursuers, and the defender that the pursuers would obtain security over the dwellinghouse which belonged to the defender and which was not encumbered by any security. In the result, as the sheriff records in finding 30, an effective security was not obtained by the pursuers over the house. On 21 May 1990 the defender and her husband applied to the pursuers for an equity release loan of £35,000 to enable them to provide their contribution to the capital of the partnership with the Grants. They did so by means of the document which is 10/5 of process. It is recorded in that document that the purpose of the loan for which they applied, was: "Business Investment - Capital Required for new partnership to take over Business known as Ness Motors, Thurso". The amount of the loan required was £35,000. Details of the property to be offered as security were also supplied in the document which both parties signed on 21 May 1990. The sheriff found that by October 1990 the partnership undertaking had been acquired by a limited liability company, George Malcolm Motors Limited.

According to the sheriff's findings, on 23 October 1990 the defender and her husband called at the pursuers' Thurso branch and entered into an equity release loan agreement with the pursuers. The sheriff found that the defender and her husband signed the document before two witnesses and that the document was probative. The copy of 10/6 of process, which has been provided to us, we should point out, is not probative. However that may be, the purpose of the credit was made clear: "To enable the customer to purchase 35,000 shares at a nominal price of £1 per share in George Malcolm Motors Limited". And the credit figure was stated as £35,000. The security for the loan was declared to be the dwellinghouse belonging to the defender. The obligations which the defender and her husband undertook in terms of clause 10 of the loan document were joint and several. The sheriff held, after proof, that when she signed the loan agreement the defender fully understood the nature and effect of the agreement into which they were entering. The pursuers' bank manager, Mr. Leonard, did not misrepresent to her the nature or effect of the loan agreement before she signed it nor had he any reason to suspect that any misrepresentation on the part of her husband induced her to undertake the obligations in the agreement. She did not sign it under essential error. Indeed, the sheriff found that the defender was directly and actively involved in the conduct of the business first of the partnership and then of the company. She held the office of secretary of the company and as such had access to and responsibility for its books, including the register, and lodging annual returns.

Thus far, all the matters which have been the subject of findings-in-fact by the sheriff were capable of being established by parole evidence. Mr. Holroyd was however well-founded in our view when he submitted that proof of the advance of any credit in terms of the loan agreement was restricted to the writ or oath of the borrowers. As he put it, the loan drawn on the authority of the co-obligant could only be established by writ or oath. He further submitted that the proof of the amount drawn down was also similarly restricted. There is a wealth of authority, of course, to support his primary submission. In his book on Contract in its second edition Professor Gloag expressed the evidential rule most succinctly at page 192 thus:

We will deal with Mr. Holroyd's secondary submission later in our opinion.

It is clear, and the solicitor for the pursuers did not suggest otherwise, that the pursuers at the proof before the sheriff did not adduce any writ of the defender or her husband who were the co-obligants under the loan agreement, to establish that any funds were drawn or advanced in terms of the agreement. If it were to be held that the defender had not waived her right of objection at the proof, as indeed we have held, the solicitor for the pursuers fell back upon the admissions on behalf of the defender in answer 3 of the pleadings. Mr. Holroyd immediately objected to this. In his submission, that argument came too late. He pointed out that, although the sheriff at paragraph 6.4.2 of his judgment, had considered the point and the sheriff principal observed that he could see a good deal of force in the sheriff's reasoning, it was not raised or argued before the sheriff who did not base his conclusion on it. Had the pursuers intended to make this argument, they should have made it by lodging a ground of appeal. That not having been done, according to Mr. Holroyd it was too late for the pursuers to advance it. He referred us to Rippin Group Limited v. I.T.P. Interpipe S.A. 1995 S.C. 302 where the Lord Justice Clerk (Ross), delivering the Opinion of the Court, said at page 304 of two arguments advanced by the respondents:

Having heard the solicitor for the pursuers in reply we allowed the submission to be made, reserving to Mr. Holroyd the right at the end of the appeal to make any further submissions which he wished to make on this point. At the end of the appeal Mr. Holroyd renewed his objection. He maintained that Rule of Court 40.14(1) applied to an augmentation of the grounds, as he put it. In relation to a respondent the Rule reads as follows:

Having regard to the language of the Rule he did however appreciate that if his submission were correct, the language would have to be stretched somewhat. But in Rippin, as he pointed out, the grounds advanced were additional to and not in substitution for the grounds upon which the Lord Ordinary found in favour of the respondents. It may be that this Rule requires clarification. Its object ought to include the notification by one party to the other of the arguments to be deployed in the reclaiming motion or appeal and, with all respect to the court in Rippin, it does seem to us to strain the language of the Rule to hold that the advancing of additional grounds for the decision of the inferior court is a challenge to the grounds upon which it made its decision.

Be that as it may, in this case the question of what the admission on record amounted to and what could be taken from it, was considered in the courts below, although no argument was presented with regard to it. The sheriff certainly dilated upon it and so the defender, as it seems to us, cannot have been especially taken by surprise when it was raised before us, although commendably Mr. Holroyd made his objection at the earliest opportunity. In any event, Mr. Holroyd was afforded the opportunity to consider Mr. McIlvride's submissions on this point overnight. Since in this case the defender's counsel has not been disadvantaged by the late deployment of this argument, we shall proceed to consider it.

Article 3 of the condescendence is concerned with the equity release loan account (00204731) in joint names of the defender and her husband. The pursuers aver that the defender and her husband borrowed money from them by virtue of the loan agreement granted over the account. It is further averred that she and her husband failed to repay the sums borrowed in accordance with the arrangements agreed with the pursuers. As at 16 June 1994 the total sum borrowed by the defender and her husband, exclusive of interest accrued but unapplied, was £35,113.89. In answer the defender avers:

Thereafter the thrust of the defender's averments is directed towards her case that she signed the loan agreement under essential error or as a result of the negligent or fraudulent misrepresentation by the pursuers' bank manager. That case, of course, failed for all the reasons given by the sheriff in his judgment. It is because the defender wished to impugn and if possible to reduce the loan agreement that she restricted the admission to her husband in the second sentence. That sentence, however, and indeed the next sentence cannot in our view be read in any way other than as an admission which is express, not tacit, that a principal sum was borrowed in terms of the loan agreement and that that sum had not been repaid. It is correct, as Mr. Holroyd submitted, that the word "principal" does not appear in article 3 of the condescendence. The word "principal" however is normally used to refer to the actual sum or sums borrowed but without the addition of interest, whether simple or compound. The only sum this could refer to is the sum of £35,113.89 which is set out in article 3. If that is right, this averment in answer 3 has to be regarded as an admission that that sum is due and resting owing. It cannot be ignored also in this context that the sum of £35,000 was required for the purchase of 35,000 shares in the company at a nominal price of £1 per share.

Mr. Holroyd drew our attention to the general denial which he maintained included the averments about borrowings in article 3 of the condescendence. The defender, he said, was careful to say that she did not know what the present balance was, if indeed there was any balance outstanding. The difficulty for the defender is that the sheriff held that she took an active part in the affairs of the partnership and subsequently of the company of which she was secretary. She was under no misapprehension about what she was entering into when she signed the loan agreement. It is against that background that the admission is made about her husband not having "repaid the principal to said account". The obligation in the loan agreement being joint and several, that admission has to extend equally to the defender's interests. If her husband has not repaid it, neither has she, and she had an equal obligation with him to repay it.

If, contrary to what we have said, the word "principal" indicates simply that a sum is outstanding but that it is not known what the amount is, the question arises whether the amount of the sum which is admittedly due and resting owing, can be proved only by writ or oath, or by parole evidence. Mr. Holroyd submitted that it could be proved only by writ or oath. He referred us to Rutherford's Executors v. Marshall 1861 23 D. 1276. No opinions were issued in that case, and the only assistance one can obtain in explanation of the interlocutor is from the rubric where it is said that the debt was not proved scripto by two letters from the defender to the alleged lender, expressing regret for not having "cancelled the debt I owe you" and asking if the lender would take "a bill for the amount" but without mentioning the sum or the nature of the debt referred to. Lord Constable in Morison's Trustees v. Mitchell 1925 S.L.T. 231 referred to Rutherford's Executors v. Marshall as very similar to the case he was considering, and he said of it at page 233 that it was a case "where it was held incompetent to prove by parole the nature and amount of a debt which had been indefinitely referred to in correspondence". It does not seem to us that the nature of the debt in the present case can be regarded as having been indefinitely referred to in the pleadings. It is clear what is meant by "principal" in the context of the loan agreement and the equity release loan account. Moreover, the purpose of advancing the "principal" was made abundantly clear. If the amount it represented was not ascertainable from the pleadings, contrary of course to what we have held, we are of opinion that that can in this case be established by parole evidence. In certain prescription cases it was necessary to establish the obligation by the writ or oath of the debtor; but once the obligation had been established satisfactorily and unequivocally by the writ, the amount of the debt and certain subsidiary matters, could be proved by parole evidence. (See Borland v. McDonald Limited 1940 S.C. 124 per Lord Justice Clerk Aitchison at page 130 and per Lord Wark at page 138; Johnson v. Tillie, Whyte & Co. 1917 S.C. 211; and Walkers on Evidence at page 335). We see no reason why that principle should not equally be applied to cases of loan where the constitution and resting owing of the debt requires to be proved by the writ or oath of the debtor.

The pursuers in this case rely for evidence of the amount of the debt upon the evidence of their bank manager, Mr. Leonard, giving evidence-in-chief at pages 27 to 28 of the transcript of evidence with regard to the production No. 9/2 of process. That evidence was not challenged and the sheriff accepted it. The document No. 9/2 of process discloses and establishes that as at 21 June 1994 the amount of the debt was £35,113.98. In further support of the amount of the loan Mr. McIlvride also referred us to Mr. Leonard's evidence in cross-examination at pages 57-8 of the transcript where Mr. Leonard spoke to his own letter (D2/3 of process) dated 31 January 1992, which refers to "your loan of £35,000". Mr. McIlvride also drew our attention to the status of the document No. 9/2 of process. He submitted, correctly in our view, that, under reference to sections 5, 6 and 9 of the Civil Evidence (Scotland) Act 1988, that document must be deemed a true copy and treated for evidential purposes as if it were the document itself to which Mr. Leonard could speak, whether or not he had accessed the statement of account in the document. We should add that the amount of £514.57, being interest accrued but unapplied on account No. 00204731, cannot be challenged, once the amount of the debt outstanding on that account has been established.

For the reasons we have given we refuse the appeal and adhere to the interlocutors of the sheriff and the sheriff principal.