Scottish Court of Session Decisions

From October 1884 to 28th March 1885 John Sibbald Ritchie, the pursuer of this action, and

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R. S. L. Hardie, stockbrokers, carried on business as stockbrokers in Edinburgh under the firm of Ritchie & Hardie, and they kept an account with the Clydesdale Bank, Limited, at the office of the bank in Edinburgh. The firm and the partners of it were sequestrated on 17th April 1885, the firm having previously, as hereinafter explained, been declared defaulters on the Stock Exchange.

This was an action by Mr Ritchie to recover damages from the Clydesdale Bank for an alleged wrong done to him by them in stopping the firm's account and refusing to honour their cheques on 28th March 1885, with the result of bringing out the sequestration of himself and his firm.

The material averments of the pursuer were as follows, viz., that prior to the formation of his firm he had dealt with the Royal Bank, but that his partner, Hardie, having previously dealt with the defenders, and having a security there which was continued to the firm, the defenders' agent, Mr Henderson, had expressed a wish that the firm should deal with the defenders, and promised them facilities such as Hardie had before enjoyed; that notwithstanding the withdrawal of the, security the promise that facilities should be given was continued, and in point of fact the only security held by the defenders from 8th January till 28th March 1885 was worth about £250; further, that the practice on the Edinburgh Stock Exchange was that shares were bought and sold for fortnightly settlement, the purchaser sending his broker a cheque for the price the day before the settling-day, and it being that broker's duty on the settling-day to pay over the price to the selling broker in return for the transfer which was then delivered on the seller's behalf; that the 14th and 28th March 1885 were settling-days; that at 14th the firm had overdrawn their amount £1300, or deducting the £250 security, £1050; that during the week ending on 28th Hardie had casual interviews with Henderson at the bank, when the latter asked that the balance might be kept down so that his quarterly return to the head office, then due, might be the more favourable; that Hardie promised to do what he could to this end, though he had a large amount for settlement on 28th. “(Cond. 6) … On Friday, 27th March, Mr Hardie went to the bank for the purpose of paying in cheques to the amount of £1805, and while he was in the course of doing so he had another interview with Mr Henderson, who, referring to his former conversation on the subject of the account, asked the state it was then in—meaning after credit had been given for the sum which had just been paid in. Mr Hardie said there was a small balance (£300) at credit, but added that the firm would require an overdraft of as much as they had had at last settlement (£1300), or more. Mr Henderson asked how much more. Mr Hardie replied, £2000 at the outside. This conversation was held in the telling-room. Mr Henderson then took Mr Hardie to his private room, and had further conversation as to the outstanding balances due to the firm. He suggested the firm should press for payment, offering to discount a bill for part of one of the balances mentioned, and which bill was subsequently got. Mr Hardie further stated that his partner Mr Ritchie had never acted in the way of ‘squeezing clients,’ but he would do what he could to get in moneys due to the firm. Nothing occurred at this interview to induce Mr Hardie to suppose that his firm's cheques would not be cashed on the Saturday, and Mr Henderson well knew that it was his belief and expectation that they would be cashed. (Cond. 7) The said cheques, representing as aforesaid the sum of £1805, were cheques which the firm had received from customers to pay for shares and stocks that had been bought for delivery at the settlement on Saturday 28th March. Mr Henderson knew the purpose for which these cheques had been received. He saw Mr Hardie pay them in. He knew also that they could not be lawfully applied, and were not intended to be applied, in reduction of the pursuer's firm's account with the bank, and that they would not have been paid into the bank at all but for the understanding and expectation that the firm's cheques would be honoured as usual, and that they would have been at once re-claimed or stopped if he had refused Mr Hardie's request to be permitted to overdraw to the extent of £2000 asked, or if the least hint had been given that any change was in comtemplation in the course of dealing which had subsisted between the bank and the firm.”

The pursuer then set forth that it had been arranged before this conversation that the defenders should advance £1500 to take up certain Arizona shares upon the joint acceptance of the firm and two clients, which the defenders agreed to discount, a transfer of the shares being taken to trustees for the defenders, and being ready for delivery on the 28th. Further, that having paid in the £1805 on Friday (27th) and having other funds amounting to £1323 ready to lodge on Saturday (28th), the firm drew cheques on the defenders for £3356, the whole sum they required for settlements on the 28th, the effect of which would have been to leave their account practically as it stood before the £1805 was paid in; that the firm was perfectly solvent, and nothing had occurred since Henderson's interview with Hardie to justify a suspension of its credit, but notwithstanding, about 12 o'clock (half-an-hour before the Stock Exchange closed) on Saturday the 28th Henderson sent for Hardie and told him the cheques of the firm would not be cashed; that Hardie told him the £1323 above mentioned would be lodged, that he had a bill for £250 and £50 in notes, and that the securities then in the bank were worth £239, 3s. 3d. but that Henderson said that was not enough without putting the defenders again in advance, which he would not do; that there being only a few minutes to spare, it was impossible to make other arrangements, and the firm's cheques being returned they were declared defaulters and the pursuer irretrievably ruined, and the firm which had been doing a safe business worth £2000 a-year brought to sequestration, whereas if reasonable notice of Henderson's intentions had been given money would have been gathered to meet the firm's engagements and the disaster averted. “(Cond. 12) It is averred that the action of the bank having been in violation of their express agreement to allow the account to be overdrawn, as well as of the course of dealing which hitherto subsisted—a course of dealing which no honourable merchant or banker would have terminated without reasonable and timeous notice—the defenders are legally responsible for all the loss and

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injury which have been the consequence. The pursuer has suffered grieviously in health, fortune, and character.. .. This action has become necessary for the vindication of his character, and the restoration of the position and credit which he held before the bank caused his ruin. In name of damages and solatium he claims £5000.”

Action was reserved for re-delivery of the cheques for £1805 paid in on 27th, the pursuer averring that the application of them to the debit balance was an attempt to use for that purpose cheques of the firm's customers entrusted to them for a specific purpose.

The pursuer pleaded—“(1) The defenders having, in breach of their undertaking to honour the drafts of the pursuer's firm, wrongfully failed so to do, are liable in damages. (2) The said £1805 cheques having been paid in by the pursuer's firm, in the belief and expectation induced by the defenders that they would be permitted to draw to the extent intimated, the defenders are precluded from denying that they were under a promise and engagement to the effect alleged. (3) In no event were the defenders entitled to close the pursuer's firm's account without timeous notice, and the defenders are liable in damages as concluded for.”

The defenders denied that the firm were allowed unsecured overdrafts when desired, but only temporarily and by special arrangement. They also denied the accuracy of the pursuer's statement as to the conversations between Henderson and Hardie. They pleaded that the pursuer's statements were irrelevant, and that in the circumstances they were entitled to dishonour the cheques of the pursuer's firm.

The action was intimated to the pursuer's trustee, who did not appear.

The Lord Ordinary ( Fraser) allowed a proof.

The pursuer examined Mr Henderson. He deponed that the account of the firm on the 26th March was overdrawn £1482, that on the 27th Hardie paid in £1805, a great part of which was in cheques [these were the cheques of the firm's customers for settling the price of the shares they were buying]; that seeing him in the bank he spoke to Hardie on this occasion to remind him of a previous promise to pay up the overdraft; that Hardie said he had just been paying in money; that he (Henderson) told him (Hardie) overdrafts would not be repeated; that he asked him what he had to pay out and get in on the next day (Saturday 28th), and from his answer it appeared that he would need a good deal of money then but not how much; that on £1000 to £2000 being spoken of as what might be required he told him they would not get it; that on 28th the cheques drawn by the firm for their settlement that day came in from the various banks to which the sellers of stocks had paid them in about 11·30; that he saw them to be far above what Hardie spoke of the day before; that he sent several times for Hardie, and on his arriving and proving to have insufficient money—what he had and what he offered being, after taking into account all at his credit, as margin on a seourity, insufficient to meet the cheques that came in—still refused to cash the cheques, when Hardie went away to get help from a friend whom he expected to aid him; that he then deferred action till there was just time to send back the cheques to the other banks as dishonoured, at 12·30; that it was usual before stopping an overdraft to give notice to the customer, according to the circumstances of the case, that he considered his conversation on the Friday, taken with previous conversations, good notice; that Ritchie & Hardie had had overdrafts on previous occasions; that he did not know till after the stoppage of the cheques that the £1805 paid in on the Friday consisted of customer's cheques, Hardie having himself represented it as intended to reduce the overdraft.

On the other hand, Hardie, whom the pursuer also examined, deponed that the £1805 was paid in in customer's cheques to meet the settlement, not to pay off the overdraft; that he had told Henderson on the 27th they would require about £2000 of an overdraft on 28th, and Henderson never said a word about refusing overdrafts and stopping the account, and that the result of the conversation was that it was agreed that they were to be allowed to overdraw at least up to £1800; that on the 28th he went to the bank and showed Henderson that if the cheques were honoured the account would stand just as it did before the £1805 was paid in, but that Henderson told him he had only a few minutes to provide the money, otherwise the cheques would be dishonoured; that he left the bank, and while consulting with a gentleman, who was already his cautioner on the Exchange, saw a porter come in from the National Bank with one of the dishonoured cheques, which therefore must have been sent off as soon as he left Henderson; that the firm had been overdrawing frequently for some time, and had no warning up till 28th of the course Henderson was to pursue.

The pursuer led evidence to show that with warning he could have produced sufficient money on the 28th to avoid what had occurred.

It appeared from the evidence of the cheque-clerk in the defender's bank that on the 27th, immediately after seeing Hardie, Henderson ordered that overdrafts should not be allowed, telling the witness the account was now put on the right side and there were to be no more overdrafts.

The Lord Ordinary assoilzied the defenders, finding no expenses due.

“ Opinion.—The pursuer's firm of Ritchie & Hardie opened an account with the defenders at their branch office in George Street, Edinburgh, on the 13th of November 1884—which account consisted of payments of sums of money by Ritchie & Hardie, and the drawing from the defenders (who are money-lenders) of such money as they needed in their daily business. Upon the 28th of March 1885 the defenders, through their assistant manager in Edinburgh, Mr Henderson, abruptly closed the account, and refused to honour the cheques which Ritchie & Hardie had passed upon that day. The result was that the credit of the firm of Ritchie & Hardie, and of the pursuer as one of the members of that firm, was destroyed, and sequestration of the estates of both the partners shortly afterwards followed.

This is an action of damages at the instance of John Sibbald Ritchie, the senior partner of the firm, against the Clydesdale Bank (Limited) for the abrupt closure of the account and the consequent ruin of the pursuer. The defence of

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the bank is, that they had a right to close the account at any time they pleased, and this defence is perfectly sound in law, unless there was an agreement, express or implied, that the cheques of the firm of Ritchie & Hardie should continue to be honoured. Express agreement is not alleged upon the record, but it it said that something tantamount to an express agreement has been proved.

On the 27th of March 1885 the firm of Ritchie & Hardie had overdrawn their account to the amount of £1482, 0s. 2d. On that day, however, they had paid into their account the sum of £1805 which turned the balance in their favour to the amount of £322, 19s. 10d. On this day they drew out £16, 5s., which reduced the balance at their credit to £306, 14s. 10d. These £1805 were contained in cheques of customers of Ritchie & Hardie, given to them for payment of stocks which the customers had purchased, and which were to be delivered on the following day, the 28th of March. The money was therefore really the moneys of the customers of the firm, and Mr Henderson, the assistant manager for the defenders, in the George Street Branch in Edinburgh, who saw the payment made of the £1805 to the teller of the bank knew this perfectly well. Still the payment was made as for Ritchie & Hardie.

On the 28th March Ritchie & Hardie drew cheques upon their account which were presented to the amount of £2800, which would have exhausted the small balance then at their credit, and left a very large sum overdrawn if the cheques had been honoured.

The cheques so presented were dishonoured by the bank upon the 28th of March. This was immediately intimated upon the Stock Exchange and to the other banks, and the result was the collapse of Ritchie & Hardie.

It is proved that the firm (taking into account the £1805 which was paid on the 27th of March), tendered or had at their command funds sufficient to meet the whole cheques which were drawn, so far as these cheques increased the overdraft beyond the sum that had been overdrawn before the £1805 was paid in. In short, if the bank had honoured the cheques presented to them on the 28th of March they would have been in the same position as they were in on the morning of the 27th, that is to say, with a sum overdrawn to the amount of £1482.

The bank were in the habit of allowing the firm to overdraw their account. It was indeed in consequence of the solicitations of Mr Henderson, their assistant manager, that the firm opened their account with the bank at all. No sort of unpleasantness occurred between the firm and Mr Henderson until a week before the end of March, when Mr Henderson became uneasy at the state of the account. He had heard of the loss which the firm had made through a defaulting debtor, Ligertwood, of Aberdeen, to the amount of £600. This induced Mr Henderson to require the firm to keep down these overdrafts, which Mr Hardie for his firm promised to do. On the 27th of March (which was a Friday, and was the day preceding the settling-day on the Stock Exchange), Mr Hardie, after having paid into the bank the £1805, had a conversation with Mr Henderson at the latter's request in the telling-room, and afterwards in Mr Henderson's private room, the subject of the conversation being as to how much money Hardie would need for next day's settlement, and about the propriety of keeping down the overdrafts. Henderson says that Hardie intimated that he would need £1500. Hardie says that he intimated he would need £2000 of overdraft. The amount is of no consequence. If the Lord Ordinary could hold it to be proved that Henderson had agreed to give either £1500 or £2000 he would sustain this action of damages. But he cannot find it to be so proved. There can be on the evidence no doubt that Hardie left the bank that day after his conversation with Henderson in the firm and assured belief that Henderson would accommodate him on the morrow, as he had accommodated him on previous days, with an advance of money sufficient for his needs, and there can be no doubt that Henderson knew that Hardie had left him under that belief, and he did not disabuse him, as he ought to have done, of the delusion and mistake under which he was labouring. On the contrary, the moment Hardie was out of the bank Henderson stepped over to the cheque-clerk and said to him that the account was now put on the right side (the £1805 having been paid in), and to stop all further overdrafts. Hardie in simple confidence goes to his office, and he shows what the conclusion he drew from the conversation with Henderson was by not saying one word to his partner, the pursuer, of the peril in which the firm stood. He could not have so acted if Henderson had informed him, as he said he did, that the cheques would not be honoured on the morrow. The Lord Ordinary does not believe that Henderson said this to Hardie.

The cheques were presented on Saturday the 28th, and payment was refused notwithstanding that Hardie showed Henderson that he had money sufficient, if the cheques were honoured, to leave the account only with the sum due as it was on the morning of the 27th. The whole thing was roughly done; it was contrary to the usual custom of banks. To give twenty minutes’ notice that the account was to be closed, and that upwards of £2000 must be raised within these twenty minutes, is so contrary to all the established ways of dealing with a customer that it is very difficult to defend it, but still the Lord Ordinary is unable to spell out of the facts and occurrence an agreement to honour the cheques presented upon the 28th of March 1885.

The mere fact that the pursuer and his firm had been allowed to overdraw their account on former occasions of Stock Exchange settlements does not operate so as to bar the money-lender from stopping his advances. His business is of somewhat critical a character, depending upon the varying credit of his customers, and he cannot be tied down in reference to this action today by his action last week. Some consideration no doubt is due to a customer before his account is closed. Some notice is given (which was not done here) by every bank which wishes to retain and encourage its business, before such an abrupt termination shall be brought to a customer's credit. Mr Henderson here brought two men to the ground who might but for him have been in the enjoyment still of their income of £2000. But for such a result the law cannot in the circumstances of this case give any redress in the way of damages.”

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The pursuer reclaimed, and argued—There was an agreement averred and proved by the bank through their manager to honour the pursuer's cheques, or at anyrate there had been conduct such as led the pursuer to believe his cheques would be honoured— Smith v. Hughes, June 6, 1871, L.R. 6 Q.B. 597, opinion of Lord Blackburn, 607; Bell's Prin., sec. 231; Collinson v. Lister, Dec. 3, 1855,; 7 De Jex, Macn. & Gordon, 634. But it might be stated as a proposition applicable to this state of facts, that once the relation was established of banker and creditor, it was the duty of the banker (on arriving at that determination) to intimate at once to the customer that his cheques are not to be honoured. When once the banker had intimated his willingness to honour the customer's overdrafts he was not entitled to stop this without giving notice— Smith v. Hughes, Lord Blackburn's opinion, supra; Marzetti v. Williams and Others, Nov. 18, 1830, 1 B. & A. 415. The Lord Ordinary had found the facts in the pursuer's favour, but had shrunk from deducing the sound legal inference from these facts.

The defenders replied—Unless it was proved that such an agreement had been made, then the agent could not by his refusal to honour the overdrafts render the bank liable in damages. Such an agreement, which was just a gratuitous promise, could only be proved scripto. No such proof of an express agreement had been offered. The implied agreement said to have been disclosed by Hardie's leaving the office in the belief that his cheques were to be honoured failed also, because it was proved that he did not leave the office with this idea.