Scottish Court of Session Decisions

Lord President.—Along with your Lordships I have found it unnecessary to consider and decide whether or no the 6th section of the Mercantile Law Amendment Act of 1856 applies to this case. On that question I desire expressly to reserve my opinion, for, having in view the condition of the pleadings and the course and conduct of this action in the Outer House, it appears to me to be preferable to follow the path which has been taken by the Lord Ordinary.

In substance, although not in form, this is an action for the reduction of a letter of guarantee, dated 5th November 1908, addressed to the Royal Bank of Scotland by a Mr Greenshields, the original defender in the action, who died since the proof was taken and whose representatives have been sisted in his stead. The ground on which Mr Greenshields sought release from the obligation contained in the letter of guarantee is very succinctly stated in his first plea in law to the effect that the “defender undertook the guarantee founded on by pursuers under essential error induced by material misrepresentations on the part of the pursuers' said agent.” That plea, which at once puts the defender in the position of pursuer of the issue, rests upon the following statement set out in his defence: an interview took place between Mr Allan, agent for the Bank, and the defender, Mr Greenshields, “on 3rd November 1908, in Mr Allan's private room at pursuers' branch bank at Lesmahagow. At said interview, in answer to defender's questions as to Hutchison's financial position, Mr Allan represented to and assured defender … that Hutchison's total indebtedness to the pursuers was less than £300.” That was the vital question which was remitted to probation.

The law applicable to this case is well settled. A bank-agent is entitled to assume that an intending guarantor has made himself fully acquainted with the financial position of the customer whose debt he is about to guarantee. And the bank-agent is not bound to make any disclosure whatever regarding the customer's indebtedness to the bank. But if he does, either voluntarily or in answer to a question put, make any representation which turns out to be erroneous or untrue, then the guarantor who has relied upon that statement is entitled to liberation from his obligation. That is the law as laid down in the case of Young v. Clydesdale Bank and some prior authorities to which we were referred, and is accepted by both parties as applicable to this case.

Now it is certain that, at the date when the letter of guarantee was signed, the customer was indebted to the Bank, not only in respect of an overdraft amounting to close on £300 sterling, but also in respect of certain promissory-notes amounting to, in round figures, £1100. It is equally certain that the existence of that indebtedness on the promissory-notes was well known to the bank-agent and was not known to Mr Greenshields, and that the latter would not have signed the letter of guarantee had he been aware of the indebtedness on the promissory-notes. The question, therefore, which at once emerges is this: Did the bank-agent at the interview prior to the date when the letter of guarantee was signed represent to the intending guarantor that Hutchison's (the customer's) total indebtedness to the pursuers was less than £300?—[Here followed the first passage from the Lord President's opinion quoted supra.]

I think it must be obvious that this, which is the whole evidence in the case upon the vital issue, is quite insufficient to sustain the defence and to cut down this formal letter of guarantee. Even on the assumption that Mr Greenshields's evidence was to the effect that the misrepresentation charged had actually been made, the evidence would have been insufficient because unsupported, not only unsupported but contradicted by Mr Allan. No doubt the Lord Ordinary says that he prefers Mr Greenshields's evidence to Mr Allan's, not, I gather, on the ground of its greater candour, but of clearer recollection. Be it so, nevertheless the unsupported although uncontradicted evidence of one reliable witness, deeply interested in the case, is not sufficient, in my opinion, to prove the whole case and to destroy this formal deed. But on the assumption that Mr Greenshields's evidence is to be accepted as it was given and to be considered as supported, it falls very far short of establishing his case, because the expression of a personal opinion that a man's financial position is good is not equivalent to a statement that his total indebtedness does not exceed a certain sum. An honest opinion may be entertained that a man's financial position is sound although his indebtedness at the time may be considerable. The Lord Ordinary, I observe, has fully acquitted Mr Allan of any intention to deceive. I think his Lordship was quite right, and that the general opinion which Mr Allan expressed regarding Hutchison's position was quite honestly given and honestly entertained.

I reach, therefore, without any hesitation, the conclusion that the evidence given is inadequate to sustain the defence. The Lord Ordinary has reached a different conclusion, not because he finds that a misrepresentation was made—he finds no misrepresentation—not because he finds that a question was asked which elicited the answer that the total indebtedness of Hutchison to the Bank was less than £300—for no such question was put and no such answer was given—but the Lord Ordinary's judgment in favour of the defender is rested on this ground that the defender signed the guarantee under a material error, and this error was induced by the failure of Mr Allan to disclose the existence of the bill debts under circumstances which laid on him a duty of disclosure. So that the Lord Ordinary's judgment does not proceed upon the assumption that the defender has proved that misrepresentation was made regarding the amount of the customer's indebtedness. His judgment rests upon a failure to disclose on the part of the bank-agent. Now it is well-settled law, as I have already pointed out, that the bank-agent was entitled to assume that the intending guarantor was fully conversant with the financial position of the customer, and was not bound to make any disclosure whatever to the intending guarantor. The only circumstances in which I can conceive that a duty of disclosure would emerge, and a failure to disclose would be fatal to the Bank's case, would be where a customer put a question or made an observation in the presence and hearing of the bank-agent which necessarily and inevitably would lead anyone to the conclusion that the intending guarantor was labouring under a misapprehension with regard to the state of the customer's indebtedness. Nothing short of that, in my opinion, would do.

Now when I turn to the Lord Ordinary's reasoning in the note appended to his interlocutor, I find that the particular circumstance which, in his judgment, caused a duty of disclosure to emerge was that a statement was made to the defender that a guarantee for £300 might not be of much benefit to Hutchison, as the sum in it might be taken by the Bank to pay off his overdraft to that amount. On hearing this the defender agreed to give a guarantee for £500 so as to provide a substantial margin over said debt. In my opinion, if that statement was made—we shall see in a moment in what form it was made—it would fall very far short of an expression of view on the part of the intending guarantor which ought to have elicited a full disclosure of the amount of the customer's indebtedness by the bank-agent. The Lord Ordinary himself expresses some doubt as to the circumstances under which and the person by whom that statement was made, and that of itself would be sufficient, I think, to displace the ground of judgment, because the circumstances must be, as I think, plainly and unequivocally proved. But turning to the evidence, I think it will be found that the evidence of the bank-agent upon this topic, which has bulked so largely in the Lord Ordinary's view, is perfectly clear and distinct.—[Here followed the second passage from the Lord President's opinion quoted supra.]

That is to say, the bank-agent himself, without any question put or without any observation made by others, volunteers the statement that a guarantee for £300 might not be of much use to enable the customer to carry on his business, in respect that it might be taken by the Bank. That Mr Allan's account of what took place is correct is, I think, clear when one turns to the evidence of the customer himself, Hutchison, who says, “then we,” that is to say, he and Mr Greenshields, the intending guarantor, “talked about the overdraft, and Mr Greenshields said that there was just a danger of the Bank seizing that, and it was then that I asked him kindly to make it £500 instead of the £300. It was either Mr Greenshields or I who mentioned the overdraft.” “It was I,” he says further on—alluding to what occurred at the subsequent meeting in the Bank—“who led off; I said, addressing Mr Allan, that I thought Mr Greenshields would kindly consent to make it £500 instead of £300, and then Mr Greenshields said that a hundred or two was neither here nor there seeing that everything was satisfactory, or words to that effect.”

Now Mr Greenshields denies that anything of the kind took place at the first interview, and he says that the overdraft was mentioned at the second interview, but under circumstances by no means so favourable to himself as the circumstances stated by Mr Allan in the evidence I have just read.

It appears to me that to say that £300 might not go very far, and that it might be taken by the Bank, or would be taken by the Bank in respect of an overdraft, falls very far short of a distinct representation to the effect that the total indebtedness of the customer was less than £300, and is quite compatible with the view that the customer's indebtedness upon other obligations might amount to a very much larger sum. But that is the sole circumstance on which the Lord Ordinary founds when he says that there was a duty of disclosure laid upon the Bank which they failed to discharge. I think there was no duty of disclosure laid upon the Bank by anything that was said in the presence and hearing of the bank-agent either by Mr Greenshields himself or by the customer, and, accordingly, that his Lordship's judgment cannot be supported.

I move your Lordships, therefore, to recall the interlocutor of the Lord Ordinary, and to give the pursuers decree in terms of the conclusions of the summons.

Lord Johnston.—Although I have had considerably more difficulty in the case than I think your Lordship has, I am now quite satisfied that the judgment which your Lordship proposes is the right one. One cannot of course avoid sympathising with anyone in the position of the late Mr Greenshields, who is ultimately responsible under a guarantee of this sort, because one sees clearly that, in this case, Mr Greenshields was misled. But he was misled, I think, partly by want of caution and full inquiry on his own part, and partly by unquestionable suppression of facts on the part of Hutchison, who is now bankrupt. But one's sympathy with the guarantor cannot affect the question of liability, and that, I think, is clear, unless one can follow the line of judgment which was taken by the Lord Ordinary. I thought that there was very great strength in what the Lord Ordinary says on this subject, and it was only on the explanations which your Lordship has given, and which I know are concurred in by my colleagues, that I see that the Lord Ordinary—though perfectly right in his reasoning, and therefore in his conclusion, if he is justified by the facts—is not so justified. I think that what he says in his judgment really amounts to this: Mr Allan was not bound to give any information whatever, but, if he did give information, that information must be full. What I think the Lord Ordinary means when in this connection he uses the words “under circumstances which laid on him a duty of disclosure” is that Mr Allan was not bound to mention the overdraft at all, but if he did touch upon anything of the sort, he was bound to touch upon everything of the sort. If Mr Allan had said in answer to a question, “the indebtedness of Hutchison is £300 on overdraft,” he would have undoubtedly been bound to add “but that is not all his liability.” But when one comes to examine the evidence, one finds that Mr Allan does not give this information in answer to a question. Of course there is great dubiety as to what really happened, but taking the case at the worst for Mr Allan, his reference to the overdraft is only an incidental remark, and I cannot hold with the Lord Ordinary that an incidental remark, dropped in the way in which this one was and not in answer to any question, imposed upon Mr Allan the responsibility which the Lord Ordinary has laid upon him. But, apart from that view of the case, the evidence on the subject is very unsatisfactory. It is a crucial point in the case and there are only three witnesses, Mr Greenshields, Mr Hutchison, and Mr Allan. They none of them agree, and certainly neither of the latter two agree with Mr Greenshields.

Mr Greenshields seems to suggest that his first meeting with Mr Allan led him to decide mentally that he would guarantee the £300, that he then went out, saw Hutchison, and that Hutchison hinted at an overdraft. I should say that if Hutchison had hinted at an overdraft in the interim, then when Mr Greenshields went to the second meeting he was bound in his own interest to inquire “What does this overdraft mean, and is this Hutchison's full liability to the Bank?” But then he says that he himself volunteered that a little more or less might be of some use. “Whether I mentioned the sum of £500 or Mr Allan mentioned it I could not swear, but directly after that Mr Allan said that he thought £500 was a very suitable amount, because the Bank might come down on Hutchison for his overdraft. That was the first time that an overdraft was mentioned.” If then it was the first time the overdraft was mentioned between Greenshields and Allan, Greenshields himself says that he comes to that meeting knowing about the overdraft. “That was the first time that an overdraft was mentioned. I was sitting down at the time; I got up and said, ‘If there is an overdraft £500 is no good at all.’ Mr Allan said, ‘Oh, the amount of the overdraft is under £300, and £500 will make everything right.’”

If that latter statement had been proved, it would have been a different story; but, when one comes to Messrs Hutchison and Allan, one finds a totally different account given. Now I think that in a case of this sort if a guarantor is to avoid liability under his guarantee he is bound to prove his case, and at the best the case here is left in such doubt on the statements of the three witnesses—none of the other two corroborating this last and important statement of Mr Greenshields—that the verdict on the question must be one of not proven.

There is only one other point which I think it right to refer to: Mr Greenshields, in his record, says that the “defender was a customer of the pursuers and expected to receive full and correct information as to Hutchison's financial position, and to get every consideration and perfect fairness in the inquiries he was about to make.” And I think there is running through Mr Greenshields's evidence a sort of impression upon his part that, because he was a customer, he was entitled to different treatment on the part of the bank-agent from the treatment that would be given to an outsider. I do not think that is sound. I think it is quite true, particularly in country banks, that there is a great deal of coming and going between customers and the bank-agent who really does a great deal in the way of advising them in regard to their business. But that is not the true position of the Bank to its constituents. It is to be noticed that Mr Greenshields talks of himself as a customer of the Bank and that is quite correct; he is a customer and not a client. And to impose upon the Bank the same responsibility of advising and caring for the interests of a customer as you would impose upon a law-agent of caring for the interests of his client would be to place upon the Bank responsibilities quite outside the lines of its business. I do not think that a banker has any more obligation to protect his customers from entering into a bad guarantee obligation, than he has to protect them against entering into a bad investment. He is bound, as your Lordship has said, to give information, full and accurate information, when asked, but nothing more.

On these grounds, I concur in the result at which your Lordship has arrived.

Lord Mackenzie.—I agree with your Lordships, and upon the same grounds.

There is a branch of the case to which I think it right to call attention, because we heard an argument to the contrary of the view taken by the Lord Ordinary, and that is the branch of the case which the Lord Ordinary deals with first and says:—“The defender, on record, alleges that for some time prior to the guarantee Mr Allan had been aware that Hutchison was financially unsound, and he imputes to Mr Allan a deliberate scheme to obtain Hutchison's debt to the Bank fortified by outside security, and an intention to deceive the defender in the matter of his guarantee.” Now, the Lord Ordinary goes on, “But the evidence does not contain anything sufficient to explain why he should have been willing to be a party to misrepresenting the position of Hutchison's affairs to the head office. I take the case, therefore, on the footing that in these matters Mr Allan acted in good faith.” I am of opinion, after having heard an argument against that view, that the Lord Ordinary's conclusion is entirely right, and that it is the only one which is justified upon the facts of the case.

As regards that part of the Lord Ordinary's opinion which your Lordships have discussed, I have really nothing to add to what has been already said. It is well-settled law that there is no obligation upon a bank-agent to disclose the position of his customer's account unless he is asked a specific question which imposes that obligation upon him, or unless circumstances emerge which put upon him the duty of making a full disclosure. The circumstances may be either that he volunteers a statement which is only half the truth, in which case the cautioner is entitled to say, “I was misled; I was entitled to assume that you were disclosing the whole truth,” or—and this would be a case of ordinary fraud—if the intending cautioner makes a statement to the bank-agent, or in his presence, which plainly shows that he is entering into a transaction in an entire misapprehension of the facts of the case, then the bank-agent equally would be under an obligation, arising out of the circumstances of the case, to prevent the cautioner from being misled.

Now, in the present case, no specific question was put which imposed a duty on the bank-agent to disclose the financial position of his customer. That is the only possible view upon the facts, and, if I recollect aright, it was not even attempted to be argued that there was a specific question imposing that duty. But then, the view which the Lord Ordinary has taken is that, in consequence of statements made during the interview, there was an obligation on the bank-agent to disclose that there was a possible indebtedness of £1100 upon outstanding bills.

I keep in view that in his cross-examination Mr Allan goes a little further than he did in the passage which has been already read from his examination-in-chief. His evidence amounts to this: he said he did not think £300 would benefit Hutchison by paying tradesmen's accounts, because it was very likely to be swallowed up by the bank overdraft. That was not a statement made in the course of an inquiry by the cautioner as to what the position of Hutchison was. It was a comment by the bank-agent on what the parties wished him to carry out. I am unable to find it proved that Mr Greenshields, in the presence and hearing of Mr Allan, the bank-agent, made any statement to the effect that he believed that the bank overdraft was the whole amount of the possible liabilities of Hutchison who asked for the guarantee. Accordingly, I am of opinion, with your Lordship, that the Lord Ordinary's interlocutor should be recalled.

Lord Skerrington concurred.