Scottish Court of Session Decisions

William and Archibald Rhind, farmers and corn-dealers in Morayshire, having become embarrassed in their circumstances some time prior to 1820, considerable advances were made for their support by James Rhind, merchant in Leith. In that year James Rhind became bankrupt, whereupon a claim was made on the part of his creditors against William and Archibald Rhind for repayment of these advances; and it was arranged that the creditors should accept a composition amounting to £566, and payable 2d August, 1820. For this composition the chargers, Balfour and Company, corn-merchants in Leith, agreed to become cautioners, and to advance by bill the funds necessary to discharge the same, on receiving from the suspenders, Bain and Williamson, and another party, an obligation of relief to the extent of £250.

The obligation of relief, which was dated in June, 1820, stated that Bain and the other obligants therein, considering that Balfour and Company had agreed to become security for payment against the 2d August to Rhind's creditors of the foresaid composition, and to grant a bill or other obligation therefor; and seeing that Balfour and Company had been induced to agree to this on condition of the granters' becoming bound, as after expressed; therefore, in case Balfour and Company did not, in the course of two years from 2d August, 1820, receive from William and Archibald Rhind, or their estate, the full repayment of the said sum of £566, with interest thereon, they (the obligants) bound and obliged themselves, conjunctly and severally, their heirs, executors, and successors, to make payment to the said Balfour and Company, and their heirs or assignees, of such part of the foresaid sums of principal and interest as might be then remaining due, but to the extent only of £250, and that at and against 2d August, 1822, with interest thereafter during the not payment; in consideration of which obligation Balfour and Company became bound to accept the repayment of the said £566, with the interest which might become due thereon, from W. and A. Rhind, by such instalments and at such periods during the course of the above-mentioned two years as should suit their convenience;—it being always expressly understood and agreed to by Balfour and Company, that, in consideration of said obligation, they were not to “demand payment” from W. and A. Rhind of the balance of any sums that might be otherwise due by them to Balfour and Company, previous to the date thereof, until 2d August 1822, excepting the legal annual interest which might become due on such balance, which they were to be entitled regularly to uplift, the validity and effect of any security they might hold for the same being always preserved entire.

At the date of this obligation, W. and A. Rhind were also indebted to Balfour and Company in the farther sum of £609, in part security of which debt the Company had previously obtained an heritable bond over certain property belonging to W. Rhind. An account (No. 1.) for this old debt was kept by Balfour and Company in name of W. and A. Rhind; and a separate account (No. 2.), with reference to the advances above mentioned, was also kept by them in name of these parties.

Both before and subsequent to 1820, Archibald Rhind had transactions with Balfour and Company on his own account, which were continued down to 1829, when he again became insolvent. In the course of these transactions, but more particularly after the composition arrangement effected with James Rhind's creditors, extensive consignments of grain were made by him to Balfour and Company, by whom they were disposed of at the usual commission, Archibald Rhind being allowed to draw on them for a proportion of the value of the different cargoes at the time of their consignment, for the purpose of enabling him to settle with the parties from whom he purchased. In regard to the consignments made subsequent to the date of the obligation of relief, the profits realized from the sales were not such as to extinguish the composition-advances and interest contained in the second of the above accounts, and be applied in this way to the credit of W. and A. Rhind.

There was, however, on 2d December, 1820, and consequently within the two years, mentioned in the obligation of relief, a balance of £82 upon the second account, which was then transferred to the credit of Rhind's old debt in the first account, the interest of which amounted, at 3d December, 1820, to £71. During this period Balfour and Company had made requests or suggestions by letter as to payment of this old debt, but had taken no steps of diligence to enforce payment.

At the period of Archibald Rhind's insolvency in 1829, considerable advances remained due to Balfour and Company on the several accounts above mentioned. In particular, on the second account, as to the composition-advances, a balance remained due to them in December, 1829, of £836.

Balfour and Company thereafter charged Bain and Williamson, in terms of the obligation of relief, which they had come under as to these advances, to make payment of the sum of £250, with interest from 2d August, 1822; whereupon these parties brought a suspension of the charge. A record was made up on the expede letters, in which it was, inter alia, pleaded, as the principal grounds of suspension;—

1st, That, when Bain and Williamson came under the obligation in question, they had a right to reckon on Balfour and Company conducting their business with the Rhinds acccording to the rules of trade and their former course of dealing; whereas they had deviated therefrom, and conducted the business in a more irregular and indulgent manner after the date of their guarantee, particularly by allowing Archibald Rhind to draw bills on them for grain before it was shipped, and at rates exceeding the previous limits.

2d, That, at all events, Balfour and Company had violated an express condition of the obligation of relief, by demanding payment of their old debt from the Rhinds, and actually, by the transference of the £82 balance on 2d December, 1820, applying a part of the Rhinds' funds in their hands towards its reduction, within the two years mentioned in the obligation.

It was pleaded in answer by Balfour and Company;—

1st, That there had been no material deviation on the part of Balfour and Company from the regular course of trade; and besides, the bond in question contained no provision as to any particular mode of carrying on business with the Rhinds, and there was no warrant for supplying such omission.

2d, That under the circumstances there had been no misapplication of the balance of £82, which at all events was clearly applicable in extinction of the interest on the old debt; that Balfour and Company had come under no obligation that they were not to receive or take payment of that debt, and the condition of not demanding payment referred to legal proceedings, and not to requests or suggestions in letters.

3d, That by the terms of the bond, the obligation of Bain and Williamson only came to be extinguished in case Balfour and Company had, prior to 2d August, 1822, received the sum of £566 from W. and A. Rhind or from their means and estate; but as this was not the case, and as, even upon the suspenders' own showing, a sum much within the amount guaranteed had been applied in extinction of the balance on the first account, the present charge, proceeding as it did on a liquid obligation of relief, should be found orderly proceeded.

The Lord Ordinary, before answer, remitted to an accountant (Mr Holmes Ivory) to report “as to the state of the accounts and transactions between the chargers and Messrs W. and A. Rhind,” at the same time granting diligence against havers. A report was given in accordingly, the result of which was (giving effect to the pleas of the chargers) that a balance of the guaranteed debt, greater than the sum charged for, was due by W. and A. Rhind to Balfour and Company at the date of the charge. ^*

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^* After the record was closed, the suspenders moved to be allowed to add to the record the averment of a fact which they alleged to be noviter veniens ad notitiam, together with an additional plea in law founded on this averment. The fact in question related to an alleged violation on the part of the chargers of the condition in the last clause of the obligation of relief above-recited, and was said to have been brought to light by the recent production of certain documents which had been all along in possession of the chargers, and ought to have been produced by them in initio litis. The Lord Ordinary allowed the proposed addition to the record, pronouncing the following interlocutor, with the accompanying note: ^†—“In respect that the suspenders' knowledge of the said fact appears clearly to be derived from the recent production of certain documents which have been all along in the hands of the chargers, which ought to have been produced by them in initio litis, which were called for by the suspenders before the litigation began, and the want of which was noticed by them in all its subsequent stages; in respect also that the chargers admit that the suspenders are still entitled to found upon those recent productions, in so far as they bear upon the mere state of the accounting, notwithstanding that they never moved for a formal order on the chargers to lodge them in process, or asked a diligence for their recovery; and particularly, in respect that the fact now alleged to be noviter veniens ad notitiam, viz., that the chargers had violated the condition under which the guarantee of the suspenders was granted, was one which the said suspenders had no reason to believe would be proved by the documents in question, and which they had no right to aver previous to their recent production, finds that the matter thus averred is to be regarded as truly noviter veniens ad notitiam on the part of the suspenders; and upon the said suspenders making payment of the sum of five guineas of previous expenses, allows-the condescendence and additional plea in law now lodged by them to be received and added to the record, and appoints the chargers to lodge answers thereto within ten davs after pavment of the said sum of expenses.”

^† “ Note.—The argument of the chargers in this case has raised a new point in the law of res noviter. When an averment not in the Closed Record is said to be proved by writings newly produced, and the objection is, that those writings might and ought to have been recovered by the party founding on them before he allowed the Record to be so closed, the uniform course, as the Lord Ordinary understands, is to object to the writings being at all produced or looked at, if it is made out that they might have been so recovered tempestive. Now in this case the chargers, though apparently resting their present opposition entirely on the allegation that the suspenders might and should have recovered the documents in question in initio litis, and have themselves to blame for not having timeously discovered all they contain, yet make no objection to their production, and admit that they may be competently founded on, in so far as they bear on any of the Reasons of Suspension embraced in the original Record, but maintain that they cannot be looked at (in respect that they might have been earlier obtained), to the effect of making any new averment for which they may notwithstanding have furnished the only possible information. To the Lord Ordinary it appears that there is some inconsistency in this; but the material thing is, that though the mere existence of the documents might have been all along known to the suspenders, as well as their probable bearing on the accounting, it does not appear that they had any reason to suppose that they would afford any proof of the separate and most important fact, which (if proved) would supersede the obligation to account in toto, viz., that the chargers had lost all recourse on the sureties, by secretly violating the conditions under which alone their guarantee had been granted. If that fact is proved by documents called for and produced for other purposes after the record is closed, it seems no answer to the plea of res noviter, that the existence of these documents, and their probable utility for those other purposes, were previously known to the suspenders, and the objection seems even more untenable than it might have been against their being thus tardily produced to affect the accounting. It is, besides, one of the averments which the suspenders now undertake to prove, that they were intentionally concealed and withheld by the chargers in the earlier stages of the action, which of itself would bar them from objecting to their being now founded upon for every purpose which they ran answer.”

Thereafter the Lord Ordinary pronounced the following interlocutor, with the subjoined note ^*:—”Approves of the said report, and finds, in terms thereof, that a balance of the guaranteed debt, considerably greater than the sum now charged for, was due by William and Archibald Rhind to the chargers at the date of the said charge, and therefore repels the Reasons of Suspension; finds the letters and charge orderly proceeded, and decerns; finds the chargers entitled to expenses.”

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^* “The suspenders seek to be relieved from their cautionary obligation on two grounds, 1st, That when they came under that obligation, they, the suspenders, had a right to reckon on the chargers conducting their business with the Rhinds, according to the rules of trade and their own former course of dealing, whereas they did conduct it in a more irregular and indulgent manner, after the date of their guarantee. And, 2d, That, at all events, they violated the express condition of their guarantee, by demanding payment of their old debt from the Rhinds, and actually applying a part of their funds in their hands towards its reduction, within the two years mentioned in the obligation.

“Now, the Lord Ordinary is of opinion, that the first of these grounds of suspension is obviated, and indeed excluded, by the special terms of the suspender's own obligation of guarantee. In the first place, it nowhere provides or stipulates that the chargers should enter into, or continue any sort of business-connexion with the Rhinds, during the two years in question, and consequently, could not have proceeded on any reliance on such business being transacted according to any rules or course of former practice. Unless a case of actual fraud, therefore, or a conspiracy between them and the Rhinds, to throw risks off themselves on the suspenders, could be made out, there are truly no termini habiles for this ground of pleading. Nothing of this kind, however, is alleged; and considering the general state of the charger's account with the Rhinds, it is plain that no such thing could be insinuated. But, in the second place, it is an express stipulation in the suspenders’ obligation of guarantee, that, during these two years, the Rhinds should be left to pay up the guaranteed debt ‘by such instalments as might suit their convenience,' so that all idea of the guarantee itself being discharged, by any indulgence shown to those persons, is plainly excluded by the express terms of the agreement.

“The second ground relied on, has, at first sight, a more formidable aspect; the obligation certainly providing that the chargers should not demand payment of their old debt, during the two years in question; and the Lord Ordinary being of opinion that this was truly a condition of the suspenders' undertaking, and a condition introduced not so much for the benefit, of the Rhinds (though that, too, was probably in contemplation), as for that of the suspenders themselves. It appears to him, however, that, in the circumstances of this case, it cannot avail the suspenders. In the first place, he rather inclines to think that the stipulation, not to demand payment of the old debt, was rather intended to prevent proceedings of a coercive, or at least threatening nature, than such mere requests or suggestions as those contained in the letters of the chargers; and with all due regard to the strict construction to which cautioners are in such questions entitled, he cannot bring himself to think that a simple request, slightly made for example, and instantly rejected, would, if brought to light, or admitted at once, put an end to the cautioner's obligation. Even if it were complied with, he would have considerable doubts on the subject; especially if readily and cheerfully complied with. For by the terms of the obligation, the debtors here were only to pay up the guaranteed debt, by such instalments as they found convenient and as there is no provision in the deed, that the chargers should not receive payment of their old debt, if voluntarily tendered, it might be difficult to distinguish between such a case of ready compliance with a request or suggestion, and a payment purely and entirely spontaneous. It is not, however, upon this ground that the Lord Ordinary now rests his decision. He places it on these two considerations,—1st, That, in point of fact, the funds written over to the credit of the old debt, were truly the proceeds of goods already pledged or consigned in security of that debt, and therefore properly applied to its reduction, in virtue of the express reservation of all existing securities which they might hold at the time of requiring the obligation of the suspenders. The facts as to this matter are distinctly stated in article 7 of the chargers' statement in the Supplementary Record, as to the res noviter veniens; and seem to be sufficiently instructed by the documents and accounts there referred to. That statement, too, plainly disposes of the whole sum so written over, as more than £3, 18s. of interest must have accumulated upon the old debt, between the date of the suspenders' obligation in June, 1820, and the end of that year, when the account complained of was first made up, even supposing (which is by no means clear), that they were not entitled to take payment of the interest then in arrear. In principle it is thought to be clear, that what the cargoes consigned, prior to the suspenders' obligation, were as much existing securities for the chargers' separate debt, as the heritable bond they then held for payment of it; and that, under the reservation referred to, they were as well entitled to apply the proceeds of those cargoes to the liquidation of that debt, as they would have been to have diminished it by selling the lands covered by that heritable bond.

“The other satisfying answer is, that no proper payment was either demanded or made by the transaction referred to, which consisted merely in writing down, in a certain ledger or account, that the sum of £82, the produce of Rhind's wheat, was to go to the credit of the chargers' old debt of £600, and not to that of the other debt for £250, for which the suspenders were contingently answerable. No part of the Rhinds' funds was actually taken out of their hands by this proceeding, or directed from its proper application. Funds arising in the hands of the chargers, and at all events to be retained by them, were merely stated in account, as applied to one of those debts, and not to the other. Even if the application, therefore, had been clearly wrong, the rectification would be completed by merely writing back that sum to the credit of the right account; after which it is impossible to dispute that the suspenders would be precisely in the same position as if it had never been written otherwise in the private books of the parties,—the whole, up to this hour, being a mere operation of words and arithmetic. But as it is admitted that, even if this bad been the case, and if the guaranteed debt were now credited with the whole £82 in question, with interest from the time it arose, the balance of that debt would still greatly exceed the sums charged for, it does not appear to the Lord Ordinary that there is any tenable ground for holding that the stipulation in the deed of guarantee bad been truly transgressed.”

Bain and Williamson reclaimed.