Scottish Court of Session Decisions

Lord President (Clyde).—In this case the creditor in a promissory-note sues the two signatories for the amount of the note. Their defence is that their signatures were intended to bind, and do actually bind, a limited company of which they were director and secretary respectively, without implying any personal obligation on their part. This defence rests on certain words in the note partly opposite to and partly underneath their signatures.

The question thus raised is truly one of the construction of the promissory-note as a whole. Words which are appended to a signature, while they may be nothing more than descriptive, or designative, of the signatory, may be (and in the case of commercial documents often are) such as to express the capacity in which the signatory puts his name to the deed, and so to qualify (and indeed control) the effect of the signature. In this way they may have the result of making the obligation in the document exclusively binding on a third party who had conferred upon the signatory the representative capacity in which he signed. But in all such cases the appended words are truly part of the document itself; and the test is whether—fairly construed along with the rest of the document—they make the equivalent of a clause which, being embodied in the deed, would have the effect of making the signatures bind, not the signatories themselves, but a third party. The note runs simply, “we promise” and so on. Prima facie “we” refers to the two individuals who sign the note. The question is whether the words appended to their signatures, construed along with the rest of the document, are equivalent to some such clause as “we, the limited company, promise,” or again, “we, for the limited company, and as authorised by the said company, promise.”

Now, the promissory-note is written, in every word of it except the two signatures themselves, in the same clerical hand (plainly not the hand of either of the signatories), and had obviously been so written in advance with a view to the reception of the two signatures. In what I may call the body of the note there is nothing but the usual form of words, “We promise,” and so forth. Below the body of the note two blank spaces have been left by the writer; these were reserved for the two signatures. Opposite those two blanks there is written (in the same hand as wrote the body of the document) the designations “Director” and “Secretary” respectively. Then, immediately underneath the two spaces and the designations opposite them, the name of the limited company is written (still in the same clerical hand).

The first aspect of the question arises under section 26 of the Bills of Exchange Act, 1882; for the primary question in the case is whether the two people who put their signatures to the note are personally liable on it or not. The second aspect of the question arises under section 77 of the Companies (Consolidation) Act, 1908, which regulates the conditions under which a limited company can be made liable on a promissory-note.

According to section 26 of the Act of 1882, where a person who signs a bill “adds words to his signature, indicating that he signs for or on behalf of a principal, or in a representative character, he is not personally liable thereon; but the mere addition to his signature of words describing him as an agent, or as filling a representative character, does not exempt him from personal liability.” Plainly then, if the words appended to the two signatures to the promissory-note in this case were merely words describing the signatories as filling a representative character, the signatories remain (notwithstanding those words) personally and exclusively liable on the note. The argument for the defenders was based, in the main, upon the view that the name of the company written at the bottom of the note was truly the signature of the company. If that could be made out, the description of the signatories as director and secretary of the company might possibly be held—I do not say it would—to involve no personal liability on their part. But I am unable to understand how the name of the company written by the clerk who drew out the bill under the two spaces reserved for the signatures, and under the words “Director” and “Secretary” opposite those two spaces respectively, can be said to constitute a signature by the company. It has no doubt been held in a recent English case that the use of a company's rubber stamp by the managing director, the impress of which he put on the bill above his own signature (to which the words “Managing Director” were appended) could be regarded as the equivalent of the signature of the company. But there was evidence that this was the usual method by which the company's obligations were given. Properly, a company can only sign a bill by putting its seal upon it. That may quite well be done, although I believe it is not usually done. It is intelligible that the written name of the company might be regarded as the equivalent of the signature of the company, if written on the bill by somebody who, by the authority, or according to the ordinary business practice, of the company was in the habit of executing deeds for the company by signing its name and appending his own signature in a representative capacity But I cannot bring my mind to regard the name of the company written on this bill by the clerk who prepared it, underneath the designations of “Director” and “Secretary,” as constituting in any sense whatever a signature by the company; it seems to me to be nothing more than an appendage to the designations of “Director” and “Secretary.” It is true that the word “of” does not appear between those designations and the name of the company. But, looking at the document as a whole, the effect seems to me to be the same as if that word had been there inserted.

The appellants presented a further argument on section 77 of the Companies (Consolidation) Act, 1908. They maintained that this note was so executed and signed as to bring it within section 77—that is to say, that it was executed in such a fashion as to bind the company within the meaning of section 77. The section says that a bill shall be deemed to have been made by a company if made “in the name of, or by or on behalf or on account of, the company by any person acting under its authority.” I do not see how a bill or promissory-note could be made “by” a company otherwise than by the use of its seal. But no doubt the bill or note could be made to bind the company, if it was actually made in the name of the company. I have already indicated that, if the bill had read “we, the [limited] company, promise,” it might have bound the limited company exclusively. So also, if it had borne to be made “on behalf or on account of” the company, the authorised signatures would have bound the company and not the signatories. I am not suggesting that the actual words “on behalf of” or “in name of” or “on account of” must be used: it would be enough that the note was so drawn that, on a sound construction of it, it should be held to be truly in the name of the company, or on behalf of the company, or on account of the company. But it seems to me to be plain, on the terms of this note, that it is neither expressly nor by implication made in the name or on behalf or on account of the limited company. In the case of a commercial document like a bill or promissory-note, which passes freely from hand to hand, it is a reasonable requirement that, if the actual signatory is to bind a third party and not himself, the obligation should unambiguously bear that meaning. Hence the statutory requirements of 1882 and 1908. The note with which this case is concerned binds, in my opinion, the signatories and not the limited company of which they designed themselves as director and secretary. It may be the case—I think it is—that anyone acquiring this note would think it highly probable that the director and secretary signed the note because it had some connexion or other with the concerns of the limited company. But I do not think that such a person would infer from its terms that he had the obligation of anybody except the individual signatories for the money.

The Sheriff-substitute has written a most painstaking note in which he discusses a number of English authorities. I confess I have a doubt whether, on what is really a question of construction of the terms of a particular document, it is possible to derive more than general instruction from the examination of precedents of the kind. So far as I am concerned I do not proceed upon any of them, but upon the construction of this particular document; and, in my opinion, if one has regard to section 26 of the Act of 1882, it does not absolve the signatories from personal liability; and, if one has regard to the Companies Act of 1908, it does not impose liability on the company.

Lord Cullen.—I am of the same opinion. The question depends on what can be ascertained on the face of the note itself; and I think the words accompanying the defenders' names as signatories to the note, and written by the unknown person who penned the body of the note, do no more than make a description of the defenders as respectively “Director” and “Secretary” of the company. The use of such descriptions does not suffice to avoid personal liability under section 26 of the Bills of Exchange Act of 1882, nor does it, in my opinion, make the note one made either in the name of the company or by or on behalf or on account of the company under section 77 of the Companies Act of 1908.

Lord Sands.—I agree. If one reads in the word “of” before the words “The Fraserburgh Empire, Limited” the defenders' case must fail. On the other hand, if one reads in “on behalf of,” the defenders succeed. My impression is that the reading in of the words “on behalf of” accords with probable intention. But, in view of the terms of the statutes to which we were referred, I think that, in order to prevail, the defenders must rule out “of” as being an altogether inadmissible reading; and this they fail to do.