Scottish Court of Session Decisions

Robert Kettle & Company, cotton yarn merchants and agents in Glasgow, and Andrew Hislop Maclean, sole partner of the firm, had an account-current with the Bank of Scotland. In the beginning of 1883 Maclean, who was at that time a debtor to the bank, desired further advances, and in security therefor a letter of guarantee in the following terms was granted to the bank by Alexander Harvie, grain merchant in Glasgow, Maclean's father-in-law—“I, Alexander Harvie, residing at No. 16 Elmbank Crescent, Glasgow, hereby guarantee you due payment of all sums for which Mr Andrew Hislop Maclean, cotton yarn merchant, Glasgow, is or may become liable to you, the amount which I am to be bound to pay under this guarantee not to exceed £15,000 sterling, with interest from the date or dates of advance, you being always entitled to make calls on me from time to time in respect of my said guarantee for such sums as you may fix. And I further declare that you may at any time or times, at your discretion, grant to the said Andrew Hislop Maclean, or to any drawers, acceptors, or indorsers of bills of exchange or promissory-notes received by you from him, or on which he may be liable to you, any time or other indulgence, and compound with him or such drawers, acceptors, or indorsers, without consulting me or discharging or satisfying my liability. And I further declare that I shall not be entitled to demand from you an assignation of this guarantee so long as the said Andrew Hislop Maclean is indebted to you in any sums such as aforesaid. This guarantee is to remain in force, notwithstanding my death, until recalled in writing, and shall be without prejudice to any other securities or remedies which you have or may acquire for the general obligations or any particular obligation of the said Andrew Hislop Maclean.”

Sequestration of the estates of Kettle & Company and of Maclean was awarded by the Sheriff of Lanarkshire on 25th January 1884, and James Wyllie Guild, C.A., Glasgow, was appointed trustee. Alexander Harvie died on the 18th March 1884, and shortly before his death he had paid up in two sums of £10,000 and £5000 respectively the amount which he became liable for to the Bank of Scotland under the letter of guarantee. The £5000 was put to a separate account to be applied as far as required.

At the date of sequestration Maclean and his firm owed the bank £44,106 according to their claim lodged in the sequestration.

Harvie's trustees made a claim to be ranked, and to draw a dividend on the sequestrated estates for the £15,000 paid to the Bank of Scotland by Harvie under the letter of guarantee. They maintained that the bank could not claim in the sequestration for any part of the sum in the letter of guarantee in competition with them, and further that there was an express assignation of the bank's debt to the amount of the guarantee, or in any view an implied assignation thereof had resulted from the payment made by Mr Harvie to the bank.

The Bank of Scotland lodged an affidavit and claim in the sequestration for the sum of £44,106, 0s. 11d., the full amount of their debt. The bank maintained that Harvie's guarantee did not fall to be deducted from their claim.

On 10th October 1884 the trustee issued the following deliverance rejecting the claim of Harvie's trustees—

“The amount of your claim as lodged is £15,000.

Trustee's Deliverance.

The trustee now rejects this claim on the ground that the amount has not been deducted by the Bank of Scotland in their claim against the estate. (Signed) J. Wyllie Guild, Trustee.” He admitted the claim of the bank, but to the extent of £15,000 he made their right to rank and draw dividend contingent on the rejection of the claim of Harvie's trustees.

Harvie's trustees lodged two appeals in the Sheriff Court of Lanarkshire at Glasgow. The first prayed that the trustee's deliverance should be altered in so far as it granted a contingent ranking for £15,000 to the Bank of Scotland. The second prayed that the trustee should be ordained to rank Harvie's trustees in terms of their claim as creditors on the sequestrated estate.

Harvie's trustees pleaded—“(2) The sums due in respect of said letter of guarantee having been paid to the Bank of Scotland, the latter were barred from lodging any claim therefor in the sequestration, as in competition with the appellant's claim. (3) The Bank of Scotland having been paid and having received the sums claimed on the understanding and condition that they were to assign their claim against Mr Maclean to that extent, are not now entitled to be ranked as creditors in the sequestration for the sum so paid them. (4) Separatim, In any event, the money having been paid to and received by the bank, there is an implied assignation of their claim in favour of Mr Harvie and his trustees to the extent of the sums paid.”

The trustee pleaded that as there could not be a double ranking for the same debt his deliverance on the claim for the Bank of Scotland was proper.

The bank pleaded, inter alia—“(2) The said Alexander Harvie having, under said guarantee, guaranteed the Bank of Scotland due payment of all sums for which the said Andrew Hislop Maclean was or might become liable to the bank, although the extent of his liability was limited as aforesaid, the appellants are not entitled to a ranking in competition with the Bank of Scotland, so long as any part of the said Andrew Hislop Maclean's indebtedness to the Bank of Scotland remains unsatisfied.”

By interlocutor of 16th March 1885 the Sheriff-Substitute conjoined the two appeals, and there

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after—“Finds (1) that the late Mr Harvie gave a guarantee to the Bank of Scotland for all sums for which Mr A. H. Maclean might become liable to them; the amount to be paid under the guarantee being restricted to £15,000: Finds (2 ) that Mr Maclean and his firm were sequestrated on 25th January 1884: Finds (3) that Harvie paid to the bank in respect of the guarantee £15,000 between the date of sequestration and 14th March 1884: Finds (4) that his trustees claimed to be ranked on the estate for £15,000, by affidavit dated 19th May 1884; while the bank claimed for the whole debt as at the date of sequestration; and the trustee has sustained the claim of the bank and rejected the claim of Harvie's trustees, against both of which deliverances Harvie's trustees have appealed: Finds in law that the rights of parties to claim in the sequestration must be regulated by their rights at the date of sequestration: Therefore sustains the deliverances of the trustee appealed against, and dismisses the conjoined appeals: Finds the appellants liable to the respondents in the expenses of the conjoined appeals, &c.

“ Note.—There can be no doubt that under our Bankruptcy Act the amount of a debt is its amount at the date of sequestration. This is distinctly laid down in the case of Robertson, July 3, 1823, 2 Sh. 450, and Hay, February 5, 1850, under the old Acts; and there can be no doubt it is law under the present Act also, unless under sec. 56 the cautioner obtains ‘an assignation to the debt on payment of the amount thereof,’ which is not the case here. Now, in the present case, the amount of the debt due by the bankrupts to the Bank of Scotland at the date of sequestration was that stated in the bank's claim; and at the date of sequestration there was no debt due by the bankrupts to Harvie's trustees at all. Therefore, whatever the ultimate liabilities of parties may be, it is for the bank in the first instance to draw the dividends on the whole debt as existing at the date of sequestration. The question, whether they may not have ultimately to refund to Harvie's trustees the dividends drawn by them on the £15,000 of which they have actually got payment is a very nice and difficult question. The balance of English authorities would seem to be in favour of such a demand, while that of Scotch authorities is more doubtful. But it is out of place to decide this question beforehand.”

Harvie's trustees appealed to the Court of Session under sec. 170 of Bankruptcy Act 1856, and argued—The guarantee by Harvie was a limited guarantee, and as the whole debt under it had been paid, the appellants were entitled to get an assignation of the guarantee, or rather an assignation of the claim to rank on the sequestrated estate. The letter of guarantee was clumsily framed; it could not stand the construction claimed for it by the bank; the words “shall not be entitled to demand from you an assignation of this guarantee” had no meaning; there was nothing in the words of the letter to show that the appellants had contracted themselves out of their right to claim in the sequestration; that brought the question to be one of the scope and construction of the guarantee.

Authorities— Robertson ( Rae's Trustees), July 3, 1823, 2 S. 403; Hay v. Durham, Feb. 5, 1850, 12 D. 676; Houston v. Spier's Trustees. July 3, 1834, 12 S. 879; 1 Bell's Comm. 390, and 2 Bell's Comm. 305; Ersk. iii. 3, 68; Ellis v. Emmanuel, L.R., 1 Exch. Div. 157; Hobson v. Bass, 1871, L.R., 6 Ch. App. 792.

Replied for the respondents (The Bank of Scotland)—The question really turned upon the construction of the letter of guarantee. What was it which Harvie undertook to guarantee? the leading words were a guarantee for due payment. At the date of the guarantee M'Lean was due the bank sums in excess of the guarantee. As to cases of guarantee for office, see Balfour v. Borthwick, Jan. 29, 1819, F.C., in H. of L., 1 S. App. 13; Maxtone, M., voce Cautioner App. 1; 2 Bell's Comm. 366–7. The whole terms of the letter of guarantee were against the appellants’ claim; the meaning of the expression “assignation of the guarantee” clearly was that the bank was to retain as against the guarantor some right after the £15,000 was paid, that is, until the whole debt was cleared off. If the interpretation of this expression was, that it was the debt which was assigned them, that made the respondents’ case stronger.

Authorities— Mein v. Saunders, Mar. 6, 1824, 2 S. 778; Houston v. Speirs, June 25, 1824, 3 S. 180; Barwell, 7 Bingham 489; Smith's Mercantile Law, 9th ed. 456.

Counsel appeared for the trustee but was not called upon.

Three of their Lordships of the First Division being shareholders of the Bank of Scotland, the following joint minute was put in, in which the parties “concurred in stating that notwithstanding three of their Lordships of the First Division, before whom the case is depending, are shareholders of the Bank of Scotland, the parties desired to waive, and hereby waive, all questions of declinature, and consent to their Lordships hearing and judging the cause.”

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