Scottish Court of Session Decisions

In January 1889 Robert Pettigrew, coal-master, Coatbridge, Lanarkshire, and others, borrowed £500 from the British Mutual Banking Company, Limited, Ludgate Circus, London, upon a bond in the following terms—“Grant us instantly to have borrowed and received … the

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sum of £500 sterling, which sum, together with the additional sum of £131, 5s. of interest on the said advance (making together the aggregate sum of £631, 5s. sterling), we bind and oblige ourselves, jointly and severally, and our respective heirs, executors, and successors, renouncing the benefit of discussion or division, to repay to the said company, and to the assignees of the said company, at the term of Whitsunday 1889.” At the same time the borrowers received from the company the following back-letter, viz.—“Gentlemen—In reference to the loan of five hundred pounds sterling, granted to you by the British Mutual Banking Company, Limited, on the security expressed in your bond and assigation in security, … it is hereby declared, notwithstanding the terms of your said bond, that you shall be allowed five years, from the Fifteenth day of January, Eighteen hundred and eighty-nine, to pay off the amount of said loan, and that by quarterly instalments of £37, 10s., £36, 17s. 6d., £36, 5s., £35, 12s. 6d., £35, £31, 7s. 6d., £33, 15s., £33, 2s. 6d., £32, 10s., £31, 17s. 6d., £31, 5s., £30, 12s. 6d., £30, £29, 7s. 6d., £28, 15s. £28, 2s. 6d., £27, 10s., £26, 17s. 6d., £26, 5s., and £25, 12s. 6d., sterling respectively; the first of these instalments to be paid on the 15th April 1889, and the remaining instalments on the third Monday of July, October, January, and April following, until the whole amount be paid off. It is, however, expressly understood that this declaration is to have no force or effect whatever, unless the said instalments are regularly paid as they become due: And it is hereby declared, that in case of non-payment of any of the said instalments, as they become due, or in the event of any of you dying, or becoming bankrupt, or insolvent, or unable to meet his engagements with his creditors, or going to reside beyond seas, unless with consent and approbation of the directors or others acting for the company, they shall have power to call up the loan, or balance thereof, if they think proper, and that as fully and freely as if this letter had not been granted.”

Upon 1st September 1890 five of the quarterly instalments of principal and interest had been paid, in terms of the back-letter, but the sixth instalment of £34, 7s. 6d., due 14th July 1890, was past due and unpaid, while two of the co-obligants in the bond had died and one had been sequestrated. Accordingly the Banking Company called up the bond.

Pettigrew, the only solvent debtor under the bond, offered to pay the sixth instalment, and also £350, being the balance of the principal sum of £500 borrowed, with interest thereon at 10 per cent. per annum from 14th July 1890, and upon 24th September 1890 he paid £390 to account.

The Banking Company, however, in October 1890 brought an action in the Sheriff Court at Glasgow against Pettigrew for £37, 14s. 6d., as the balance still due to them, calculated upon the footing that he was bound to pay, not merely the balance of the £500 still unpaid, with interest at 10 per cent., but the balance of the lump sum of £631, 5s. stipulated for under the bond.

The defenders pleaded, inter alia—“(1) The pursuers having received interest on the principal sum up to 14th July last, they are only entitled to interest on the balance from then to the date on which it was paid. (3) The defender having paid up the balance of the principal sum with interest thereon when called upon by pursuers, he is entitled to absolvitor with expenses.”

The Sheriff-Substitute ( Guthrie) pronounced the following interlocutor:—“Finds that on a sound construction of the bond and back-letter, founded on by the parties, the pursuers having called up the loan in virtue of their powers under the contract, are entitled to interest at the rate of 10 per cent. on the balance due at 14th July 1890, when the sixth instalment fell to be paid, less said instalment, which has now been paid: Finds that the defender having paid the amount of the loan as called up is not liable for the instalments that would have become due if it had not been called up, so far as these consist of interest, &c.

“ Note.—The obligation in the bond is certainly an obligation for payment of an aggregate sum consisting of principal and interest. But I do not find either in the bond or in the back-letter anything that can fairly be interpreted as requiring the obligants to continue to pay the interest upon a loan which has been fully paid up. The documents indeed are silent on that point, and I am of opinion that it could only be meant that when the loan was called up as the back-letter provides, the provision as to instalments necessarily ceased to have any effect; and the pursuers were thrown back upon their right under the bond to interest which appears, and indeed is admitted, to have been fixed at 10 per cent. The obligation in the bond to pay £131, 5s. bears on the face of it to be an obligation to pay interest, and the explanation of it is found in the back-letter. It does not seem to be a violent but a natural and almost necessary implication, although the contract is silent, that the obligation to pay this sum of interest applies only to the normal and anticipated continuance of the loan for five years, and its gradual extinction by instalments, and that it becomes inoperative if and so far as there ceases to be a balance due.”

The pursuers appealed to the Sheriff ( Berry), who recalled the judgment of the Sheriff-Substitute, and found under reference to note that on a true construction of the bond and back-letter founded on in the action, the pursuers having called up the amount secured by the bond in so far as remaining unpaid, were entitled to recover from the defender the amount sued for, and decerned against the defender accordingly.

“ Note.—The extent of the defender's liability must be determined by the language of the bond in which he is an obligant, qualified in so far as that may be by the terms of the relative back-letter granted by the pursuers.

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[ After narrating the terms of the bond and back-letter]—On 1st September 1890 intimation was made on behalf of the company to the defender, that in consequence of default having been made in payment of the instalments, and of the deaths or bankruptcy of the other co-obligants, they required him to pay £421, 11s. 3d., that being the balance due on the assumption that the bond was one for £631, 5s., and not merely for £500, with interest to be calculated thereon at a certain rate, and with the amount of interest payable depending on the time when the bond was called up and paid.

The pursuers maintain that the bond bears the former construction. The defender says that the latter is its true meaning and effect.

I am of opinion that the pursuers' contention is right, and that they are entitled to succeed in this action. The undertaking in the bond is to pay at Whitsunday 1889, not £500 with interest calculated at a certain rate up to that or any other particular date, but the sum of £500, with a named sum of interest in addition, viz., £131, 5s., and that has accumulated with the principal into the specified sum of £631, 5s. It appears by calculation from the note of instalments, and indeed is admitted, that the interest has been fixed on the basis of a 10 per cent. rate, but that is an element which seems to me not to have a legitimate bearing on the question as to the extent of the defender's liability, or on the construction to be given to the bond. Willing as one might be to modify the stringency of the obligation, I think that the language used is too clear to admit of a condition being imported to the effect that a deduction should be made from the stipulated lump sum of interest, if the bond should be called up before the five years allowed for payment by the back-letter. The obligation which each of the obligants undertook was for the payment, at Whitsunday 1889 of the specified amount of £131, 5s., in name of interest, in addition to the principal sum of £500 which had been borrowed; and the conditions of indulgence allowed in the back-letter not having been complied with, the unpaid balance of the aggregate of these sums must, in my opinion, be held now to have become exigible.”

The defender appealed to the Court of Session, and argued—That he was not bound to pay the interest which would have accrued upon the £500 in five years when he had only had the use of the money for two years. The contract was to repay £500 and the interest which had accrued thereon at the high rate of 10 per cent., not to repay £631, 5s. The right was to call up “the loan or balance thereof” in certain emergencies instead of having to allow it to lie for five years. That did not involve the payment of the extravagant interest of £131 for £500 for four months, which would have been the case, upon the pursuer's contention, if any of the co-obligants had died or become bankrupt immediately after Whitsunday 1889, and the bond had been then called up. If there was dubiety as to the meaning of the contract, a fair and equitable construction should be put upon it.

Argued for the respondents—Even a hard contract, if clear, must be enforced according to its terms. If the bond stood alone, there could be no doubt it was repayment of a lump sum of £631, 5s. which was stipulated for. All distinction between principal and interest had been purposely obliterated. The only condition under the back-letter was that unless certain circumstances occurred the repayment of the £631, 5s. was to be spread over five years. But these circumstances had emerged, and consequently the back-letter was to be regarded as pro non scripto, and the balance of the £631, 5s. could be at once called up.

At advising—