Scottish Court of Session Decisions

[1] In this action the pursuers, The Royal Bank of Scotland plc, seek payment from the defenders jointly and severally of the sum of £66,152.40, which represents the debit balance on an overdraft account opened with the pursuers in the name of the partners of the former firm of Scott Moncrieff & Dove Lockhart, Solicitors, Edinburgh. In separate conclusions they also seek payment from the first, second and fourth defenders jointly and severally of the sum of £4,061.75 and from all the defenders jointly and severally of the sum of £13,676.71. The first defender is the judicial factor on the estates of the former firm, having been appointed on 14 December 1990. The second defender is the trustee on the sequestrated estates of John Joseph McCabe who, until 14 December 1990, was a partner of the firm. The third defender is the executrix of the late Finlay McLeay Morgan who, until his death on 8 October 1990, was a partner of the firm. The fourth defender was a partner of the firm from 1 April 1989 until 14 December 1990.

[2] The pursuers aver that the overdraft account was opened in January 1990 in the name of the partners of the firm who, at that time, were John Joseph McCabe, Finlay McLeay Morgan and the fourth defender. In a letter to the pursuers dated 29 January 1990 the partners requested an overdraft facility of £75,000. On 31 January 1990 the pursuers intimated their agreement in principle to the provision of such a facility subject to certain conditions. Those conditions were agreed to by the partners and in a letter dated 15 March 1990, the pursuers confirmed the terms and conditions which were to apply to the facility. The credit limit was to be £75,000 and Condition 3 was in the following terms:

The pursuers go on to aver that all sums due by the firm were secured over heritable property at 119 Bruntsfield Place and 4 Dalry Road, Edinburgh. On 2 October 1990 the pursuers ceased operations on the overdraft account following on the registration of letters of inhibition against Mr McCabe, and on that date the account was "frozen". As at that date the debit balance on the account was £84,899.96. On 14 December 1990 the first defender was appointed judicial factor on the estates of the firm. As at that date the debit balance was the same as it had been on 2 October 1990. The pursuers set off against that sum sums held by them to the credit of the firm totalling £18,747.56, leaving a net debit balance of the sum sued for in the first conclusion.

[3] The pursuers further aver that as at 14 December 1990 two further accounts in name of the firm were in debit. One was a business current account, and the other was a bridging loan account. No averment is made as to the sums outstanding on those accounts, but the sums sued for in the second and third conclusions presumably relate to them. No point was taken by the defenders in this regard. The pursuers aver that the three sums sued for remain due and resting owing to the pursuers by the defenders, that the defenders have been called upon to make payment of the sums but have refused or delayed to do so, that no demand for payment of the debit balance on the overdraft account was made to the firm or the partners prior to the appointment of the first defender on 14 December 1990, and that, in terms of the agreement between the parties, the obligation to repay sums withdrawn from the overdraft account did not arise until 15 March 1991, on the expiry of 12 months from the date the overdraft facility was made available, or on demand by the bank.

[4] The cause came before me on the procedure roll on pleas-in-law tabled by the third and fourth defenders. Both defenders tabled a plea of prescription and a general plea to the relevancy. The fourth defenders also tabled a plea of all parties not called.

[5] On behalf of the third defenders it was submitted that, in terms of section 6(3) of the Prescription and Limitation (Scotland) Act 1984, the obligation to repay was extinguished on the expiry of five years after the date on which the obligation became enforceable. The pursuers had raised the action without making a demand for repayment. They were entitled to do so, but the fact that they had done so indicated that the obligation to repay became enforceable as soon as it was constituted on 15 May 1990. Alternatively, it became enforceable when the account was "frozen" on 2 October 1990. Whichever date was appropriate, the obligation had prescribed by the time the action was raised on 13 December 1995.

[6] The third defender's second argument, which was based upon his plea to the relevancy, was directed against the following passage in Article 2 of Condescendence:

It was argued that these two sentences were inherently contradictory and should not be admitted to probation. In any event, since it was not clear what the word "frozen"' meant, the pursuers had failed to give fair notice of the precise legal basis of the claim against the pursuer.

[7] On behalf of the fourth defender counsel adopted the submissions made on behalf of the third defender in support of the plea of prescription. In support of his plea of all parties not called, counsel argued that the first defender, on his appointment as judicial factor on the estates of the firm, also became judicial factor on the personal estate of the fourth defender. Accordingly he should have been called as a defender in the present action in that capacity. The fourth defender himself had no capacity to settle actions against him, only the first defender could do so. Counsel further argued that the period during which interest had been applied to the outstanding sums was not specified in the pursuers' pleadings.

[8] It is important to understand the nature of the contract into which the parties entered. The arrangement between the parties was described in the letter of 15 March 1990 as an "overdraft facility". The letter provided that the facility would be available initially for a period of 12 months but might be extended by mutual agreement. In addition, the pursuers reserved the right to call for repayment on demand at any time. I was told that there was no authority which bore upon the application of the law of prescription to overdraft accounts, and no comprehensive analysis of the effect of the contract was offered by counsel. My interpretation of Condition 3 is as follows. The words "overdraft facility" indicate an arrangement whereby the account holder or debtor is allowed to draw money from an account, creating a debit balance. The money he draws constitutes a loan. The credit limit represents the total amount that he is allowed to draw. The provision that the facility is available for a period of 12 months means that the debtor is entitled to continue to draw money during that 12 month period, so long as he does not exceed the credit limit. The effect of the expiry of the 12 month period without extension is that the debtor is prevented from drawing any further funds after the expiry date. That does not mean that he is automatically required to repay. Condition 3 makes no such provision. The obligation to repay, in my view, is only triggered by a demand from the bank. The reservation of the right to call for repayment at any time means that the credit limit and the 12 month period may be overridden by a demand for repayment. On receipt of a demand at any time the debtor must repay. In this case the pursuers aver that they made no demand for repayment before raising the action. Their counsel argued, contrary to his averment on record, that the raising of the action constituted the demand which created the obligation to repay. The Opinion of Lord Justice Clerk Cooper in Macdonald v The North of Scotland Bank 1942 S.C.369 at 375 indicates that there is nothing to prevent a pursuer raising an action before making a demand for repayment. If he does so, the service of the summons constitutes the demand.. On the basis of the argument advanced on behalf of the pursuers, I consider that there was no obligation to repay until the action was raised. That means that the debt was not enforceable until then. It follows that the debt has not prescribed. The pursuers' averment, on the other hand, is that the obligation did not become enforceable until 15 May 1991. While it is entirely unsatisfactory that this discrepancy should exist, my task is to deal with the defenders' pleas of prescription. For the reasons I have given I consider that they are not made out and I accordingly repel the pleas of prescription.

[9] I take the view that the third defender's attack on the relevancy of the passage relating to the freezing of the account is also ill-founded. I do not consider that the two sentences referred to are mutually contradictory. On the contrary, the meaning of the word "frozen" in the second sentence is explained by the terms of the first sentence, where it is averred that the pursuers took the view that they required to cease operations on the account. In other words, they would not allow any further funds to be drawn by the firm. They were entitled to do that because the credit limit had been exceeded. They did not, however, demand repayment, and so no obligation to repay arose.

[10] In my view the plea of all parties not called also falls to be repelled. In Wilson v Independent Broadcasting Authority 1979 S.C.351 at page 356, Lord Ross said that the plea of all parties not called could only be sustained if the appearance of all the parties in question was necessary for the effective disposal of the case. The judicial factor is already a party to the action in his capacity as judicial factor on the estates of the firm. Counsel for the fourth defenders argued that, on his appointment, the judicial factor became judicial factor on the estates of the individual partners as well as on the estates of the firm. He cited Law Society of Scotland v McKinnie (No.2) 1995 S.C.94 as authority for that proposition. In my view, calling the first defender as judicial factor on the estates of the firm brings him into the action with all the responsibilities of that office. There is no warrant for him to be additionally called in any other capacity. The fourth defender's argument is without substance.

[11] Counsel for both defenders made passing criticism of the pursuers' claim for interest. Counsel for the third defenders complained that the date from which interest on the sums sued for was to run was not specified, while counsel for the fourth defenders, as I understood it, argued that the pursuers should say when interest fell to be applied to the overdraft account. I do not consider that in an action of this kind it is necessary for the pursuer to aver any more than the outstanding balance on the account. The application of interest may be a matter for evidence. The absence of reference to it in the pleadings does not render the case irrelevant. If there is any deficiency in the pursuers' conclusion for interest, they and not the defenders will suffer.

[12] In these circumstances I shall repel the first and second pleas-in-law for the third defender and the first, second and third pleas-in-law for the fourth defender.