Scottish Court of Session Decisions

This was an action at the instance of Moncrieff Mitchell, trustee on the sequestrated estate of William Weir Brothers & Company, wholesale wine and spirit merchants in Glasgow, and coalmasters, Fifeshire, and of the individual partners, against James Mackenzie of Glentore and Waterhead, merchant in Glasgow, asking reduction of—(1) a bond and disposition in security granted by William Weir in favour of Mackenzie, proceeding on the narrative of an instant advance of £5000 by Mackenzie to Weir; (2) certificate of registration thereof; and (3) back letter by Mackenzie, of the same date as the bond, stating that the bond appeared to be for cash advanced and instantly lent, but that the fact was that the bond and disposition in security and the subjects therein referred to, were conveyed to, and were to be held by, him and his heirs and assignees, only in security and relief to him of all business transactions between Weir and his firm.

The defender pleaded, inter alia, “the bond and disposition in security is a valid and effectual security to the defender for relief of the obligations contained in, and the debt due under, his guarantee to the National Bank of Scotland.”

The Lord Ordinary (Barcaple) repelled the plea, adding this note:—“It is admitted that there was no advance of £5000 made by the defender, as stated in the bond and disposition in security granted to him by William Weir, one of the bankrupts. But he maintains that it is an effectual security to that extent for relief of his obligations under a guarantee granted by him to the National Bank for payment of the sums which might be due by Mr Weir's firm of Weir Brothers & Company to the bank at any time, on account of discount of bills. This guarantee, which was limited to £7000, was granted in 1857, and the bond and disposition in security in 1861. On getting the bond the defender granted a back letter to Weir, acknowledging that there had been no advance, and that the bond was held by him in security and relief of all business transactions between Weir and his firm and the defender and his firm. The defender

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founds upon his guarantee to the bank for Weir Brothers & Company, as one of the business transactions for relief of which he held the security. He avers that when the bond was granted there were bills discounted by Weir Brothers & Company in the hands of the bank to an amount exceeding £5000, and that since that time the bank has always held bills so discounted greatly exceeding that amount, the sum due by the firm for such discounts at the date of its sequestration being £8774. But he does not aver, and at the debate it was admitted not to be the case, that any part of this sum is due for or in any way represents bills which had been discounted by the bank at the date of recording the bond in the Register of Sasines.

“The defender asks that, for the purposes of this question as to its validity as a security, the bond shall be read along with, and as qualified by, the back letter. The back letter has not been recorded, and the Lord Ordinary is disposed to hold that it cannot be taken account of for the purpose of exempting the completed heritable security from any invalidity which may attach to it under the Act 1696, c. 5. The purpose of the provision of that Act as to heritable securities for future debts, was to prevent frauds which could hardly be accomplished if such securities might be validated by the production of latent deeds. But whether the bond and disposition in security be read along with the back letter or not, the Lord Ordinary is of opinion that, when founded upon as a security for the relief of the defender from his obligation to the bank for the amount of Weir Brothers & Company's discounts at the date of their sequestration, it falls within the enactment of the Act 1696, c. 5, and that it is not exempted from the application of that Statute by 19 and 20 Vict.,c. 91, sec. 7, as to securities of cash accounts, the provisions of which have not been complied with if they were applicable to the case.

“The back letter makes no reference to the defender's guarantee to the bank. It merely acknowledges that the bond is held as a security and relief of all business transactions. As regards future ordinary business transactions, this was clearly a security struck at by the Act 1696, and in no way supported by 19 and 20 Vict., c. 91. But, assuming that the declaration in the hack letter includes relief of the obligations under the guarantee, the Lord Ordinary thinks that under the provisions of the latter Statute the attempted security is invalid even as to it. The exception from the Act 1696 established by that Statute, and by the Bankrupt Acts 33 Geo. III, c. 74, and 54 Geo. III., c. 137, sec. 14, in favour of securities for cash accounts or credits, and for relief of cautioners for the payment of these, is guarded by a provision that the principal and interest, ‘which may become due upon such cash accounts or credits, shall be limited to a certain definite sum, to be specified in the security.’ The Statute thus requires that the nature of the transaction and the limit of the security shall enter the record. The Lord Ordinary cannot hold that this provision has been complied with by the bond being taken for payment and in security of a sum of £5000 as having been advanced, which in point of fact never was advanced. The insertion of that sum in the bond had no special reference to the transaction with the bank, more than to any ordinary business transactions that might take place between the defender and Weir Brothers & Company. The bond was not for any sum to become due on an account with the bank, but for payment of £5000 at Martinmas 1861, with interest till paid; while the Act requires that the interest shall be limited to three years' interest.

“The defender pleaded that the date of his cautionary obligation to the bank must be taken as the date of the debt to him, and that on that ground the Act 1696 does not apply. But that view was distinctly set aside in Geddes v. Smith's Trustee, 1st December 1810, F.C.”

The defender reclaimed.

Mackenzie for reclaimer.

Watson for respondent.

The Court adhered, holding that the bond could not be brought under the Act 19 and 20 Vict., c. 91, not being in compliance with the provisions thereof; and farther, that this was not one of the class of cases to which the Statute referred, not being a security either for a cash credit account, or for a bond of caution for a cash credit account.