Scottish Court of Session Decisions

The Act 37 and 38 Vict. c. 94 (Conveyancing (Scotland) Act 1874) provides by section 47—“Subject to the limitation hereinbefore provided (sec. 12) as to the liability of an heir for the debts of his ancestor, an heritable security for money duly constituted shall, together with any personal obligation to pay principal, interest, and penalty contained in the deed or instrument whereby such security is constituted, transmit against any person taking such estate by succession, gift, or bequest, or by conveyance, when an agreement to that effect appears in gremio of the conveyance, and shall be a burden upon his title in the same manner as it was upon that of his ancestor or author, without the necessity of a bond of corroboration or other deed or procedure; and the personal obligation may be enforced against such person by summary diligence or otherwise in the same manner as against the original debtor … A discharge of the personal obligation of the original or of any subsequent debtor, whether granted before or after the commencement of this Act, shall not, where the debt still exists, prejudice the security on the estate or the obligation as hereby made transmissible against the existing proprietor.”

In January 1876 George Pearson, builder in Glasgow, borrowed from the North British Building Society (established under, the Act 6 and 7 Will. IV. c. 32) £600, and in security for the price granted a bond and disposition in security over steadings of ground belonging to him at Kelvinside. The bond was recorded on 28th January 1876. In July following he borrowed other £600, and granted bond and disposition in security over certain other steadings at Kelvin-side. This bond was recorded on 1st August 1876. In order to entitle him to become a borrowing member of the society, Pearson held at the date of the bonds shares to the same amount in the society as required by the rules.

By disposition dated 3d February 1877 Pearson, who was largely indebted to the firm of Rodger, Watt, & Paul, writers in Glasgow, conveyed to the three partners of that firm, and the survivors or survivor as trustees for the firm, the subjects over which the bonds above referred to, as well as other securities, had been granted. The disposition bore to be in consideration of the sum of £1000 instantly paid by them to Pearson, and to be further “in consideration of their freeing and relieving me, as by acceptance hereof they bind themselves to free and relieve me, of payment of the sum of £6400 contained in certain bonds and dispositions in security granted by me over the said subjects, said sums amounting in cumulo to the sum of £7400, being the agreed-on price of said subjects.”

Pearson's estates were sequestrated in 1877. The shares in the North British Building Society which he held to the amount of his two loans therefrom, as above stated, were transferred by his trustee in bankruptcy to Mr Watt, one of the partners of Rodger, Watt, & Paul, in March 1878, and were divided by him between himself and his partner Mr Rodger, the firm having been dissolved at 31st December 1877, and these two partners having taken over the assets and liabilities of it. Mr Watt, as an individual, had taken over the subjects over which the earlier of the two bonds for £600 had been granted, while Mr Rodger had taken over the subjects over which the £600 contained in the latter bond had been lent.

On 31st May 1831 Carrick and others, the pursuers, as trustees of the North British Building Society, raised this action against Rodger, Watt, & Paul, and the individual partners of the firm, concluding for £661, 5s. 6d., being, with interest, the sum contained in one of the £600 bonds, and £676, 19s. 7d., being, with interest, the sum contained in the other. They maintained that under the disposition above quoted the personal obligation contained in the bonds had been transmitted against the defenders.

They pleaded—“The defenders being justly indebted in and resting-owing to the pursuers the sums concluded for, in respect that the personal obligations contained in the bonds and dispositions in security above libelled were effectually transmitted to and became enforceable against the defenders by the terms of the disposition of the subjects in their favour also above libelled, decree as concluded for should be granted in favour of the pursuers.”

Separate defences were lodged for (1) Rodger, Watt, & Paul, and Andrew Paul, (2) Rodger, and (3) Watt.

All the defenders pleaded, inter alia, that the action could not be maintained, in respect that the disposition founded on contained in gremio no agreement that the personal obligations contained in the bonds should transmit against the disponees.

The Lord Ordinary, after findings in fact to the effect above stated, and finding that among the

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bonds and dispositions in security granted by Pearson, and of payment of which he was to be relieved, were the two bonds of £600 each, found in law, “that the said clause” (above quoted) “in the above disposition accepted by the defenders amounted to an agreement in gremio thereof, to the effect that the personal obligation to pay principal, interest, and penalty, contained in the bond by Pearson to the North British Building Society, shall be held to transmit against the defenders taking the estate by conveyance, all in terms of the 47th section of the Conveyancing (Scotland) Act 1874.” He therefore gave decree as concluded for. He added this note—“The defenders obtained the ownership of the property on payment of £1000 in cash, and by undertaking to relieve Pearson of payment of sums which he had borrowed on it to the extent of £6400. Apparently, therefore, the property was worth £7400. Now, when they undertake to free and relieve the seller Pearson of all his obligations to pay the money he had borrowed, it surely must be held that there was in gremio of the conveyance an agreement on their part that the obligation under which Pearson lay to pay the borrowed money should transmit against them. Of course such an agreement might be made in more express language and more direct form. But the legal effect and meaning is the same under the form which was here adopted. If Pearson was to be relieved of the obligation, the object surely was that the defenders, his disponees, were to come in his room—See Reid v. Lamond, 19 D. 265. The subsequent divisions of the property among the various partners of Rodger, Watt, & Paul can have no effect in restricting the rights of the pursuers or in limiting the liabilities of the defenders, by whom freedom was given to Pearson, the original debtor.”

The defenders reclaimed, and argued—That it was quite settled law prior to the date of the Conveyancing Act of 1874 that an obligation by a disponee to relieve the disponer of the sum due under a bond did not give the bondholder any right to sue the disponee— Kippen v. Stewart, February 24, 1852, 14 D. 533. In the case of Reid v. Lamont, January 13, 1857, 19 D. 265, referred to by the Lord Ordinary, the bondholder was no doubt held entitled to sue, but he had obtained an assignation of the disponer's right to relief, and thus sued merely qua assignee. In the present case there would be no objection to the pursuers' right to sue if they obtained an assignation from Pearson, but then they could be met with a plea of compensation in respect that Pearson was very largely indebted to the defenders. Section 47 of the Conveyancing Act was not intended to create in every case an agreement between a disponer and a disponee to the effect that the latter should become personally liable to a bondholder, but merely to enable the parties to embody such an agreement, if come to, in the conveyance, instead of in a separate bond of corroboration. What the section required was an agreement to the effect that the personal obligation should transmit, and it was settled law that an obligation of relief was not an agreement to that effect. The only creditor in the obligation of relief was Pearson, who might grant a discharge without the pursuers' consent.

The defender Paul specially argued—That even if the pursuers' construction of the statute were correct, he (Mr Paul) had been liberated by the subsequent conveyance of the properties to the other two partners, in respect that the Act and the relative schedule imposed liability only on the existing proprietor. To hold the contrary would be to hold that the statute had the effect of reversing the decisions of the House of Lords in regard to ground-annuals in the cases of Small v. Millar, February 3, 1849, 11 D. 495— rev. March 17, 1853, 1 Macq. 345; and Gardyne v. Royal Bank, March 8, 1851, 13 D. 912— rev. May 12, 1853, 1 Macq. 358.

The pursuers argued — That the statute was intended to correct the common law, as laid down in the case of Kippen v. Stewart. A bondholder might have a jus quœsitum in respect of an agreement between seller and purchaser. Had the conveyance declared that the purchaser was to pay the amount of the bonds to the bondholder, he would clearly be entitled to sue the purchaser. The obligation of relief was practically a declaration to that effect. As regarded the liability of Paul by ceasing to be the proprietor, he might no longer be subject to diligence under Schedule K, which assumed that the person to be charged was the existing “proprietor,” but he was nevertheless not discharged of the liability imposed upon him by the words of the section, and he might therefore be sued in an ordinary action.