Scottish Court of Session Decisions

This action was brought by the widow of the late David M'Lachlan, lessee of the George Hotel, Glasgow, for the purpose of reducing an agreement entered into by her late husband and the defender Andrew Watson.

The Lord Ordinary pronounced the following interlocutor:—

“ Edinburgh, 17th December 1873—The Lord Ordinary having heard the counsel for the parties, and considered the closed record, proof, and process; repels the reasons of reduction, sustains the defences, assoilzies the defender from the conclusions of the action, finds no expenses due, and decerns.

Note—The question in this case is, whether the minute of agreement between the deceased David M'Lachlan, the husband of the pursuer, and the defender, dated 26th and 27th May 1868, and the eight promissory-notes, each for £300, granted by David M'Lachlan to the defender in pursuance of the said minute of agreement, are reducible upon the grounds stated by the pursuer, or any of them.

The said minute of agreement was granted in the following circumstances—The deceased David M'Lachlan had for ten years previous to the date of that agreement carried on business as a wine and spirit merchant in Oxford Street, Glasgow. During the course of that business he had received from time to time pecuniary advances from the defender, all of which he had repaid, with the exception of about £150. Although that business had improved greatly under Mr M'Lachlan's management, and was in a flourishing state, he was desirous to give it up, and to become an hotel-keeper. Having seen, towards the end of 1867, an advertisement that the George Hotel in Glasgow was to let, he, after advising with the defender and other friends, applied for and obtained a lease of it for ten years from Whitsunday 1868, at the yearly rent of £770. The defender and the witness Robert Brown, a wine and spirit merchant, with whom Mr M'Lachlan dealt, became cautioners for payment of the first year's rent. As Mr M'Lachlan had not the funds which were necessary to enable him to carry on the hotel, he required assistance, and having applied to the defender, the latter agreed, as he avers, to assist him to the extent and upon the terms set forth in the minute of agreement which the pursuer now seeks to reduce. The firm of Messrs J. & J. Boyd, writers in Glasgow, had been the law-agents both for Mr M'Lachlan and for the defender for some time before this agreement was made. They were employed to prepare it. Mr John Boyd, the senior partner of that firm, did so, and he went over the deed with both parties, and adjusted it with them before it was extended and executed.

The said minute of agreement proceeds on the narrative of the lease of the hotel, and upon the further narrative that, in order to enable Mr M'Lachlan to furnish and carry on the hotel, he had applied to the defender to discount, or procure to be discounted, bills for him from time to time, to advance money, to guarantee payment of fur nishings, and to purchase and give him various articles of furniture, plate, and others, and that the defender had agreed to do so on the terms and conditions therein set forth. By this agreement it is provided that, as the defender had already granted guarantees, or was liable to pay on account of David M'Lachlan to the extent of £4500, the defender thereby obliged himself, if called on, to lend or guarantee him to the further extent of £500. Mr M'Lachlan, on the other hand, bound himself duly to fulfil all guarantees come under by the defender; to grant bills for all sums paid by the defender to or for him, bearing interest at the bank discount rates; to repay all advances and furnishings, and to discharge all guarantees at or before Whitsunday 1872; and, in consideration of the advances and furnishings to be made, and guarantees granted by the defender for him, to pay the defender and ‘his executors and successors, during the currency of the said lease, an annual bonus of £600 sterling, commencing the first payment of £300 at Martinmas first (1868), for the half-year preceding, and so on the same sum at each half-year of Whitsunday and Martinmas thereafter,’ until Whitsunday 1878 inclusive, with interest on each half-yearly payment if not paid. By the 6th article of the minute it is provided that M'Lachlan shall be entitled, so soon as the payments guaranteed and obligations undertaken by the defender shall have been fulfilled by him, to anticipate the payment of the said bonus, receiving discount on the payments made by anticipation at the rate of five per cent. per annum to the term when payable. The minute also contained a clause binding M'Lachlan, his executors and successors, to assign and transfer to the defender the lease and whole furniture, plate, and others, of the hotel, in security for the payment of the foresaid advances, furnishings, guarantees, and annual bonus, with power to the defender to sell or assign the same for payment of the sums due to him, or for which he should be liable.

The £4500 mentioned in the minute as the sum to the extent of which the defender had at its date granted guarantees, or was liable to pay for Mr M'Lachlan, consisted of the proceeds received by the latter, less the discount of a bill for £1000, dated 30th April 1868, drawn by the defender upon and accepted by him, or of a promissory-note granted by M'Lachlan for that amount, which the defender endorsed, of a guarantee to Wylie & Lochhead for furniture to the extent of £2700, and of other guarantees. After the date of the minute of agreement, the defender gave further guarantees on behalf of Mr M'Lachlan, and

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made furnishings to him. Mr M'Lachlan also received the proceeds, less the discount, of a promissory-note for £500, dated 10th November 1868, which he granted to the defender, and which the defender endorsed. The whole guarantees, advances, and furnishings exceeded the sum of £5000.

Mr M'Lachlan died on 24th July 1872. The profits made by him during the four years that he carried on the hotel amounted to the sum of £5057, 3s., as appears from the report of Mr Hugh Blair, C.A., No. 37 of process. These profits were applied in payment of the sums due for furnishing the hotel and starting the business. Being unable to pay the half-yearly bonus stipulated in the minute of agreement, Mr M'Lachlan regularly granted to the defender for each bonus, as it fell due, the eight promissory-notes for £300 each now sought to be reduced. During these four years Mr M'Lachlan never objected to or challenged the minute of agreement in any way.

In support of the conclusions of reduction the pursuer pleads—1 st. That the obligations imposed on Mr M'Lachlan by the minute of agreement were without due or lawful consideration, and are exorbitant and unconscionable; 2 d. That the minute of agreement and promissory-notes were impetrated from Mr M'Lachlan by fraudulent representations and threats on the part of the defender; and 3 d. That the deed was procured by the defender from Mr M'Lachlan by fraud or circumvention when he was in a weak and facile state of mind and easily imposed upon.

The Lord Ordinary, after full consideration of the proof, is of opinion that the pursuer has completely failed to establish any facts and circumstances which can support the two last of these pleas. There is no evidence of any fraudulent representations or threats by the defender. There is no evidence that Mr M'Lachlan was in a weak and facile state of mind and easily imposed upon when he executed the minute, and no evidence that the defender, taking advantage of such facility and weakness, did by fraud or circumvention procure and obtain the said minute of agreement.

The reason of reduction chiefly relied on by the pursuer is that which may be held to be embraced in her first plea in law. She maintained that the terms of the minute of agreement are so grossly inequitable and unconscionable as in themselves to establish fraud on the part of the defender, without the necessity of proving any special circumstances of fraud, the bargain being ‘such as no man in his senses, and not under delusion, would make on the one hand, and as no honest and fair man would make on the other.’—(Lord Chancellor Hardwicke in Chesterfield V. Janssen, 4th February 1750, 1 White and Tudor's Leading Cases, 585). She also maintained that the consideration given by the defender was not only wholly inadequate, but that there was misrepresentation by him in regard to a very material part of that consideration, namely, the guarantee for £2700 to Messrs Wylie & Lochhead. And she contended that the position of Mr M'Lachlan was so necessitous in consequence of having taken the lease, and of not having the funds required to carry on the hotel, that he was entirely at the mercy of the defender, who (as he admits) advised and assisted M'Lachlan in the negotiations which terminated in the lease, and that the defender, taking advantage of such necessities, extorted from M'Luchlan the exorbitant bonus of £6000 in consideration of the advances and guarantees above set forth.

There can be no doubt that the defender made a very hard bargain with Mr M'Lachlan. But mere inadequacy of consideration will not, per se, invalidate the agreement. Such inadequacy will, no doubt, form a very important element in considering the question whether there has been fraud. The question then is, whether the facts and circumstances established by the proof in the present case do, when taken in conjunction with the great inadequacy of consideration, establish a charge of fraud against the defender in obtaining the minute of agreement from Mr M'Lachlan.

And first of all, with regard to the consideration given by the defender; according to the proof he undertook obligations or granted guarantees for Mr M'Lachlan, and supplied him with goods to the amount in all of about £5070. Of these guarantees, one of them, for £368, 10s. 6d. to Roberts & Belk of Sheffield, was a verbal guarantee, and therefore not binding. But this does not seem to have been known to the defender. Mr Wylie of Messrs Wylie & Lochhead, who supplied the furniture for the hotel, and to whose firm a guarantee for £2700 was granted, depones that they were anxious to get the order for the furniture, that they did not seek a guarantee, that it was offered without being asked, that he does not think they had any thought of asking a guarantee, and that, ‘of course we would have asked as to his arrangement for payment, but that would be all.’ The Lord Ordinary, on considering the whole proof upon this part of the case, is of opinion that both Mr M'Lachlan and the defender conceived such a guarantee to be necessary, that there was no misrepresentation in regard to it by the defender, and that the defender granted it in bona fide. Had Mr M'Lachlan failed, the defender would have had to pay to Wylie & Lochhead, under this guarantee, £2700. As regards the two sums of £1000 and £500, these were obtained from the bank on the indorsation by the defender of Mr M'Lachlan's bill and promissory-note, payable at long dates, which were repeatedly renewed before these amounts were paid. The defender was therefore, in respect of the consideration which he gave as mentioned in the minute of agreement (exclusive of £180 due for goods supplied by him at cost price), liable to the extent of nearly £5000 for Mr M'Lachlan. Had the hotel venture proved unfortunate, the defender might have incurred a serious loss in respect of these obligations.

Next, as regards the capacity of Mr M'Lachlan and the position on which he stood at the time he entered into the agreement: He had for ten years previously carried on with success a considerable wine and spirit business of a superior description in Glasgow, and had extended that business to England and abroad. Mr John Boyd, who was agent for both parties and prepared the minute of agreement, and who went over its terms with Mr M'Lachlan, depones that he fully understood it. The terms are clear and explicit, and easy to understand. It is proved that Mr M'Lachlan applied his mind to these terms. He suggested, in a letter to Mr Boyd, written immediately after discussing the agreement with him, an addition to the draft, giving him the right to forestal payments on receiving discounts. (See Letter, April 1858, No. 59 of process.) A clause to that effect was at his request inserted in, and now forms the sixth

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article of the minute. The pursuer and her brother state that Mr M'Lachlan was nervous or timid, and easily excited about money matters. But Mr Boyd depones that he was a very intelligent man, much above the average, and that he spoke most intelligently on every matter of business regarding which he consulted him, including the agreement. His success too in conducting his business in Oxford Street, and afterwards the hotel, is a practical proof of his capacity, which is also instructed by other evidence. There is no proof of haste, or of pressure, or of undue influence, or unfair practices, or of force and fear, or that Mr M'Lachlan was labouring under essential error in relation to the agreement or any part of it. On the contrary, it is, the Lord Ordinary thinks, established by the proof that Mr M'Lachlan entered into the agreement with a full knowledge of its terms, and freely and voluntarily; that he was of undoubted capacity, and in a position to act and judge for himself; and that he did so, perfectly understanding what he was about. Mr John Boyd continued to be agent for both parties down to the date of Mr M'Lachlan's death, and he prepared Mr M'Lachlan's trust-disposition and settlement, in June 1872, a few weeks before his death. Mr M'Lachlan returned the draft of his settlement to Messrs Boyd for completion, along with one of the promissory-notes libelled on, which he asked them to deliver to the defender as on former occasions. Now Mr John Boyd depones he has not the slightest doubt that Mr M'Lachlan fully understood the agreement, and that he appeared to be quite satisfied with it; that he spoke to him at the time of having got a good bargain of the hotel, and of having got a place where he could make a fortune; that he afterwards told him that he was making £3000 a-year, and that he estimated his net profits at £1500 a-year, and that to the last he never indicated that the agreement was unfair, or complained of it in any way. No objections were ever stated by him to its terms to any person during the four years between the date of the minute of agreement and his death. He regularly sent promissory-notes for each half-yearly bonus as it fell due, these promissory-notes being accepted by the defender because Mr M'Lachlan was paying off the liabilities for which he was guarantee under the agreement, with the profits of the business, and was unable to pay the bonus at that time in cash. While the granting of these promissory-notes does not amount to a confirmation of the agreement sufficient to exclude the present challenge, they are an important element in the proof as showing that Mr M'Lachlan, during these four years, so far from considering the agreement as liable to challenge on the grounds now stated by the pursuer, recognised its validity.

After repeated consideration of the proof, and of the authorities cited by counsel, the Lord Ordinary is of opinion that there have not been established any grounds on which the minute of agreement and promissory-notes libelled on can be reduced.

On the question of expenses, the Lord Ordinary has had some difficulty. But, considering the very peculiar nature of the agreement, and that the pursuer insists in the action as executrix under the trust-disposition and settlement of her husband, he is of opinion that the defender, although successful in establishing the validity of the agreement, is not entitled to expenses.”

The pursuer reclaimed.

Authorities— Tennent v. Tennent's Trs., 27 May 1868, 6 Macph. 840, 15 March 1870, 8 Macph., 10, H.L., and authorities there cited; Aylesford v. Morris, Feb. 1873, 8 Law Rep., Chan. App.; Millar v. Cook, 10 Law Rep. Eq., 641; Moxon v. Payne, May 1873, 8 Law Rep., Chan. App., 881; Gibson v. Jayes, 6 Vessey, 266; A. B. v. Joel, Nov. 27, 1849, 12 D. 188; Ersk. Inst, iv., 1,27; Prin. iv., 1,1.

At advising—