United Kingdom House of Lords Decisions

There were two questions raised in this case,—(1) Whether these agreements, executed of the same date, were all valid and subsisting deeds; and (2) Whether the defender, a party to a bill, was principal debtor, or only a cautioner.

The circumstances in which these questions arose were as follows:—The defender M'Murray had, in the year 1856, become much involved in the affairs of Messrs Cameron & Co., papermakers. That firm having had their estates sequestrated, the trustee in the sequestration set up to public sale the paper-mill at Springfield, belonging to the Company, with the moveable machinery.

The defender became purchaser at the cost of £45,000. To enable him to pay for this purchase, the pursuers, the Union Bank, agreed to advance to him this sum of £45,000, of which £7500 were to be paid into the trustee's account, as the value of the moveable machinery, for division among the personal creditors; and the balance, of £37,000, less a sum of £2500, the value of certain annuities proposed to be continued on the property, into a separate account for behoof of the heritable creditors.

All this was duly carried out, and a new transaction supervened. Messrs Durham & Sons agreed to purchase the mills from the defender at the advanced price of £47,500, besides agreeing to take on themselves the annuities, estimated at £2500 more,—making in whole a profit to the defender of £5000. The Bank agreed to advance this sum of £47,500 as a loan to Messrs Durham, who were to make repayment by instalments. The sum so advanced was to be credited by the Bank to the defender in part payment of a large debt owing by him in connection with the affairs of Cameron & Co., being a debt wholly separate from that incurred by him in connection with his purchase of the property. This was accordingly done. The defender had this sum of £47,500 put to his credit in the books of the Bank, and a corresponding amount of his liabilities wiped out. The Bank took Messrs Durham as their exclusive debtors in this sum, except for a portion of it amounting to £5000, for which they agreed to take their bill endorsed by the defender, and ultimately took the joint-promissory-note of both. The three agreements concerning (1) the purchase of Springfield by the defender; (2) the resale to Durham; and (3) the arrangement for the settlement of the defender's obligation in connection with Cameron's affairs were executed on the same day, viz., on 11th November 1856; and it was in reference to them that the first question in the case arose.

The second question arose as to the balance of the bill of £5000, granted as above narrated. On this the defender pleaded that he was simply cautioner for Messrs Durham, with the fact of his being so fully known to the Bank; and that the Bank having given time to Messrs Durham for payment of this bill without his (the defender's) consent, had thereby liberated him from his obligation.

The Lord Ordinary found that the three agreements were valid and subsisting deeds, and that

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the first was not superseded by the other two; and as to the bill, he sustained the plea of the defender above stated.

The defender reclaimed, and the First Division adhered to the first part of the Lord Ordinary's judgment, but reversed as to the bill.

The defender appealed.

For the appellant, the Attorney-General contended that agreement No. 1 was superseded by No. 3, and that the agreements must be construed not by themselves, but in the light of the banking transactions between the parties, and particularly of certain minutes of the directors of the bank which really led to them. After a lengthy examination of the accounts and correspondence, he proceeded to the other and minor point of the case—viz., whether a promissory note for £5000, granted jointly by the appellant with Messrs Durham & Sons, was still due to a limited extent with interest. His contention was that the appellant was merely a cautioner for the principal debtor to the promissory note, and was liberated by the respondents having given time to the Durhams, the principal debtors. He admitted that this sum was included in the account docquetted in July 1862, and the circumstance that this docquetted account was so far accepted by the appellant, or at all events not at once repudiated by him, operated against him in regard to both branches of the case, but the circumstances as explained were exceptional, and it must not be held as conclusive.

For the respondent, the Dean of Faculty maintained the entire validity of all three agreements, and directed the attention of the House to the whole course of the transactions from first to last, as showing the meaning and intention of parties to be in harmony with the only true reading of these regular and formal deeds. Moreover, accounts framed upon the same principle upon which the present claim rests were regularly rendered to the appellant, and payments received and credited on that footing. Such accounts were rendered in 1858 and 1859, and then in 1862 there was the formal general account of the appellant's liabilities shown to him, adjusted with him, docquetted by him as approved, and afterwards sent to him with a formal letter.

On the second branch of the case the Dean of Faculty contended that not only must the document be read by itself as making the appellant clearly a principal and not surety, but the agreement under which it was granted showed that it was really M'Murray who got the benefit of the sum contained in it, which, in fact, represented the amount of profit obtained by him on the re-sale of Springfield to the Durhams. Any leniency shown or time given to the obligant Durham was given, as the correspondence showed, with the knowledge and consent of the appellant.