Scottish Court of Session Decisions

In the beginning of 1887 John M'Farlane, Edinburgh, started a daily newspaper called the Scottish Leader. Upon 13th December he wrote to his uncle James M'Murray, of the Royal Paper Mills, Wandsworth, Surrey, asking him to join a company under the Limited Liability Acts with a capital of £25,000, the object of the company being to lend money to the Leader, and the inducement held out to intending shareholders being that they should receive one-third of all the profits made, and should incur no responsibility beyond their subscription. M'Murray declined to join the company, but upon 22nd December 1887 he wrote him this letter—“My dear John,—In further reply to your letter of the 13th inst., I shall be very pleased to lend you £5000—say, five thousand pounds at a moderate rate of interest—say, 2 1 2 per cent. in the meantime, and till such time as the Scottish Leader becomes a paying property, after which you will pay me at the rate of 5 per cent. per annum, so long as you have the use of the money, and should the Scottish Leader unfortunately turn out a failure, I agree to renounce all claim for the repayment of both principal and interest, and in the event of my decease, this letter will be sufficient to protect you against any claim being made.” After repeated requests by M'Farlane, his uncle paid him £1250 sterling. M'Farlane granted this receipt—“14th August, 1888. Received from James M'Murray, Esq., the sum of twelve hundred and fifty pounds, being the first instalment of a loan of five thousand pounds, terms of interest and repayment as per your letter to me of 22nd December 1887.” M'Farlane continued to press for the rest of the money and by a letter dated 23rd November 1888, while stating he could send no more money, M'Murray wrote—“However, in order to assist you out of your present difficulty, I am willing to accept for the amount—viz., £3750 at 6 m/d, and I have no doubt Mr Aikman will be quite willing to take my bill for this sum.” This offer having been accepted the bill was sent, and it was twice renewed afterwards, the last bill falling due in May or June 1890,

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but during the currency of those bills M'Murray made a suggestion in a letter of 21st May 1889, thus—“You will require to re-draw the bill due the 4th prox., as all my spare cash is invested; or would it not be better if I were to become security to the bank for the amount? I should like this mode of dealing with the matter better than by bill.” In May 1890 M'Farlane returned to the subject of a security to the bank, and in a letter to M'Murray mentioned his former suggestion of continuing the loan in that way. As the result of that, the bill then current was no longer renewed, but an arrangement was made with the bank whereby the £5000 was to be advanced by them to Macfarlane, M'Murray guaranteeing repayment. M'Murray also stipulated that he should have repayment, out of the money advanced by the bank, of the £1250 which he had advanced to M'Farlane in August 1888, and M'Farlane was to have the benefit of the balance of £3750 for the purposes of the paper. This was carried out and M'Murray granted this receipt—“31st May 1890. Received from Mr John M'Farlane the sum of £1250, being sum received by him from me Aug. 16/88, also £13, 0s. 6d., being interest up to this, this loan being commuted into one from the Commercial Bank on my personal security.”

Following upon this arrangement M'Farlane drew £5000 from the Commercial Bank. In September 1891 M'Murray intimated to the bank that he recalled the guarantee. In May 1892 the bank called upon M'Murray to pay the sum due under his guarantee, and accordingly he paid the sum due and obtained an assignation of M'Farlane's debt to the bank.

Upon 27th May 1892 M'Murray brought an action against M'Farlane for the amount of the sum he had paid to the bank.

After the record had been closed the defender sold and transferred the Scottish Leader to Thomas Carlaw Martin, and from the date of the sale he ceased to have any right or interest in the newspaper.

The record was thereafter opened up, and the pursuer added the following averments—“(Cond. 7) The pursuer believes and avers that Mr Martin had not of himself the means either to purchase or to carry on said paper, and it is believed and averred that a number of persons interested in the political views advocated by the Scottish Leader provided the said purchase money. The said persons were at first induced to come forward with their money in order to avert the stoppage of the leading Scotch Gladstonian newspaper on the eve of or during the progress of the general election in the end of June and beginning of July 1892. It is believed and averred that in one week alone a sum of not less than £10,000 was subscribed by the aforesaid parties and others for this purpose. The Scottish Leader, with such generous voluntary contributions to its funds, at once became a paying concern, and continued to be so until the sale thereof on 20th August 1892. (Cond. 8) The defender is called upon to produce in process the contract or agreement between him and Mr Martin, by which he sold or bore to sell the Scottish Leader to Mr Martin. The pursuer believes and avers that the defender so sold or bore to sell the newspaper in consideration of a very large sum of money (provided as aforesaid) as the price of the said newspaper. The pursuer believes and avers that the defender has thus received payment from Mr Martin of sums far exceeding the said sum of £5000, for which the pursuer had become responsible on behalf of the defender, and which was invested by the defender in said paper. It was the defender's duty to apply these sums primo loco towards reimbursing the pursuer for the moneys advanced on the defender's behalf. The defender, however, refuses or delays to do so. In any view, the defender has, as the pursuer now believes and avers, alienated his whole interest in the Scottish Leader, and all control over or management of the same, and the condition upon which the defender alleges repayment by him of the loan could be demanded by the pursuer, has thus been purified, or must be held to be so, or at all events has been, by the defender's own actings, eliminated from the contract.”

The defender averred—“(Stat. 7) By the pursuer's said letter of 22nd December 1887 the said loan is made ‘till such time as the Scottish Leader becomes a paying property.’ The loan was accepted, and has been continued throughout, on the same terms. Said condition was not purified up to the time when the defender sold the paper. Had it been so, the loan would have been repaid. By the said letter the pursuer also agreed, in the event of the said Scottish Leader turning out a failure, to renounce all claim for the repayment of both principal and interest of the said loan. The defender incurred heavy loss in carrying on the Scottish Leader while it remained his property, and he was obliged to part with it at a sum entirely insufficient to recoup him for his loss, in order to avoid further loss, and the paper was thus a failure in his hands.”

These statements were denied by the pursuer.

The pursuer pleaded—“5. Assuming that repayment of the said loan was, as maintained by the defender, conditional upon the Scottish Leader becoming a paying property, said condition is now of no effect as a defence to the present action, in respect—(1) That the Scottish Leader did by reason of voluntary contributions to its support and progress, taken along with its ordinary revenue, become a paying property before the defender parted with it, and at all events it is now so. (2) That the condition was for behoof of, and personal to, the defender, and that he, having voluntarily parted with his whole connection with and interest in the said newspaper, cannot now maintain or insist upon the said condition. (3) That the defender having received from Mr Martin a price for the Scottish Leader exceeding the amount which the pursuer became liable

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for, and has now paid on the defender's behalf, and which was invested in the Scottish Leader, is not entitled to plead the alleged condition against the pursuer to any effect. (4) The said condition was imposed in intuitu that the Scottish Leader should throughout remain the property of and be under the control of the defender, and should, under said control and management, become a paying property, and the defender having by his own act rendered such an event impossible, said condition must in a question with him be held as purified.”

The defender pleaded—“(4) The sum sued for being that embraced in the transaction of loan mentioned in the defences, the pursuer is not entitled to maintain the present action, in respect that the condition upon which alone repayment was to be made has not been purified, and the action should accordingly be dismissed, with expenses. (5) The Scottish Leader having turned out a failure in the defender's hands, the pursuer is barred from claiming or enforcing repayment of the loan and interest, and the defender should be assoilzied, with expenses.”

The Lord Ordinary allowed a proof, a great part of which was directed to the question whether the grant of the letter of guarantee by the pursuer to the bank constituted a different arrangement from that entered into by his letter of 22nd December 1887.

The result of the evidence was to establish that the conditions in that letter applied to the ultimate form which the transaction took.

The purchaser of the Scottish Leader, Thomas Carlaw Martin, deponed—“ Cross.—With reference to the statement in Cond. 8—‘The defender has thus received payment from Mr Martin of sums far exceeding the said sum of £5000,’—that is absolutely untrue. The sum of £2500 in the assignation represents the whole sum paid by me to the defender.”

The defender deponed—“I am a wire-cloth manufacturer. I had been engaged in that business for some years prior to the time when I started the Scottish Leader newspaper in the beginning of January 1887. In starting the Leader I put £20,000 into the concern at the beginning. I very soon perceived that additional capital would be necessary. I set to work to consider how that could best be raised. I thought at first that the party in London would take it up—using the word party as the political party whose views my paper was to advocate. After a little, finding various difficulties, I proposed to raise money amongst my personal friends and to establish a limited company. The object of the limited company was not to work the paper, but simply to provide capital … By the month of August 1892 I found it necessary to sell the Leader. I found it was being carried on by me at a heavy loss which I was unable to continue to provide for. The necessity was before me of either stopping the paper or selling it, and accordingly I sold it to Mr Martin at the price of £2500. That left me a very heavy loser. If I include interest, I lost in round figures about £40,000. That is what I individually put in, and excluding what was advanced by the company. (Q) So you parted with the paper in order to avoid further loss, and the paper became a failure, and was a failure in your hands?—(A) Yes. The statement in Cond. 8 that ‘the defender has thus received payment from Mr Martin of sums far exceeding the said sum of £5000’ is quite wrong. The averment ‘that the Scottish Leader is and was at and long prior to the pursuer's recall of his said guarantee a paying property,’ is quite untrue. The statement ‘that the Scottish Leader, with such generous voluntary contributions to its funds as are set forth in Cond. 7, at once became a paying concern, and continued to be so till the sale thereof on 20th August 1892’ is quite absurd. … I had made up my mind that in the earlier years I would drop a good deal of money. In the first year the loss was £10,000; in the second £9000; and in the third £4500, which I thought was exceedingly good—it looked like turning the corner—but after that the amount of loss rebounded up. Mr J. A. Robertson has had an opportunity of going fully into the books of the Scottish Leader. The books available to him contain the whole material, truly stated, showing the financial condition of the paper.” … Cross—“I cannot exactly give you the date when I changed my view as to the Leader becoming a success, but I began to have doubts after the Baring disaster in 1890. (Q) Did you ever communicate these doubts to pursuer in 1890?—(A) We were always talking when I was in London. (Q) Did you ever communicate to him that you thought the Leader was going to be a failure?—(A) I would not likely use these words. I would not have been talking about it to my friends as if I thought it was going to be a failure. (Q) Did you ever suggest, or if you did, when did you first suggest, to pursuer that the Leader was not going to be a success?—(A) I had been very little in communication with him, and therefore I could not communicate it to him. I had not made up my mind in 1891 that the Leader was to be a failure. The letter of 14th October 1891 was about the last time that I was in agreeable correspondence with him. I was still hopeful then that a good turn would come, and if any of those plans I had in my mind had been given effect to I think it would have been all right. I may say it was the raising of this action which caused me very considerable difficulty in the matter. … (Q) What was to happen, according to your view, if the Leader was sold by you?—(A) Pursuer would repay the £5000. (Q) Where is there anything in this letter to suggest that?—(A) This was simply a continuation of our arrangement. (Q) Can you point to a single syllable in this letter to suggest to pursuer that he was to repay the £5000 if you sold the Leader, which you could do next day?—(A) lf I had sold the Leader at a profit, and such a profit

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as would have left me a clear surplus of £5000, I would certainly have undertaken to pay that. (Q) Can you point to anything in this letter to suggest to pursuer that he was to pay the £5000 in the event of your selling the Leader?—(A) I did not think it required to be mentioned. (Q) Is it your suggestion that it was pursuer who was to repay this £5000 to the bank, and not you?—(A) Certainly, if the paper was a failure. (Q) But you do not say so here?—(A) I say in the very next page that this is commuted into a loan from the Commercial Bank, and pursuer signs that. (Q) You drafted it?—(A) He was ill at the time and could not write very well, and I drafted it for him and sent it to him. I think it follows from the agreement of 22nd December that he was to repay that loan to the bank. (Q) Why did you not refer to that agreement in this letter?—(A) It was not called for…. (Q) If pursuer was in that position, do not you think it would have been right to take him along with you in this sale of the paper and consult him about it when the consequences were that he was to be liable in this sum to the bank?—(A) No, I think the shareholders in the company were the people to be consulted, and after them three other parties. The shareholders of the company were the Scottish Syndicate Company who lent me the money. (Q) If they should be consulted, why should pursuer be left out?—(A) Because he would not join the company; if he had joined the company and paid his money he would have been consulted along with the other members of the company. At the time the paper was sold I was not on speaking terms with the pursuer, and besides we had much nearer interests than his—preference interests I should call them—for about twelve months before the stoppage of the paper. I myself put in a sum of £3333; Lord Overtoun put in an equal sum; and Mr Thomas Glen Coats put in £1000—amounting to £7666. These men, I held, were preference shareholders, and the company decided to give them a preference if they would advance money to keep the Leader going after the company themselves had given their last funds to it. (Q) But did you not think it would be a right thing, taking the view of the matter that you did, to consult pursuer, who had become liable for £5000, as to your selling the Leader?—(A) The loss was so large that it would have been no use. (Q) Was that why you did not consult him?—(A) He had raised this action against me, and I was not on speaking terms with him. I suppose that was the reason why I did not consult him as to the sale of the paper. … (Q) I show you certain balance-sheets, from which it appears that at 20th August 1892 there is a sum at your credit, after deducting losses, of £7981. Was that sum at your credit since, and have you got anything?—(A) I have told you what I got. I am not a creditor of Mr Martin in any sum, but I have the collection of the accounts in my own hands, and these are not all collected yet. There will not be anything like sufficient to pay the preference claims of £7666 of which I spoke. I should think that about one-half of the £7981 consists of assets and accounts to be collected, but the accounts are very bad, not yielding anything like what we expected.”

J. A. Robertson, accountant, Edinburgh, who had examined the books of the Scottish Leader, under a remit from the Lord Ordinary, deponed—“I adhere to the view I then stated, that as at 27th May 1892 the newspaper was not at that date, or at any date prior thereto, a paying property; and also to the view that however the accounts might be stated, the loss was so considerable that it would be impossible for the pursuer or anyone to succeed in having them stated in such a manner as to leave any room for doubt in the matter. … Average annual loss for each of the five years to 31st December 1891 fully £7800. Excluding the first year as exceptional, the average annual loss for each of the four succeeding years is £7111, 9s. Taking the same proportion for the whole year to 31st December 1892, as for the period to 20th August, the loss is £7856, 11s. 8d. I have prepared a statement showing the capital put into the Leader, and progressive interest thereon. The total capital put in down to 20th August 1892 is £58,250, exclusive of interest. No interest was paid on that sum, or any part of it. My state shows the different sums of capital put in between November 1886 and August 1892, and the dates when they were put in. In the books the defender is credited with having paid these sums. The periodical interest on these sums, at 5 per cent. to 20th August 1892 is £10,113, 8s. 2d. If the interest had been entered in the books, and assuming the sum of £58,250 was a debt due by the Leader, it would make the total loss £54,415, 12s. 9 1 2d., which is the addition of the interest to the summation of the loss each year. … Taking into the calculation all these different items, and adding interest, it makes the total loss from the starting of the paper to 20th August 1892 £60,382, exclusive of anything for defender's services or for depreciation on machinery. Excluding interest on capital, and taking the loss through the sale to Mr Martin into account, the loss is £59,268 during the five years and nine months. With regard to the sum of £7981 brought out in the final state, I take the £58,250 as entirely lost with the exception of that £7981, which is the difference between the £50,268 and the £58,250. Cross.—Interest is not charged upon capital in the books. There appears from the books a surplus of £7981 of assets over liabilities. Re-examined.—“That is the sum which I have just explained is the difference between the total of £58,250 and the actual amount lost, excluding interest. If there are preference creditors, the only amount available for them from the assets of the newspaper is that amount of £7981.”

Upon 2nd December 1893 the Lord Ordinary assoilzied the defender from the conclusions of the summons.

“ Opinion.—[After stating the facts]— The shape which the transaction ultimately

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took was not a direct loan by the pursuer to the defender, but a guarantee by the pursuer to the Commercial Bank on advances to the extent of £5000, and the first question in the case is whether the terms and conditions of the letter of 22nd December 1887 applied to the transaction in its actual form.

On that point I confess I have no doubt at all.

[ His Lordship further stated the facts and proceeded]—“That being so, I have no hesitation in holding that the conditions of the letter of December 1887 applied to the transaction in its ultimate form. I do not think that the pursuer in his evidence successfully combats that view. He makes the bald assertion that the one thing superseded the other, but when he is pressed upon that point in cross-examination he fails to show any reason why it should, and in particular he fails altogether to account for his silence when the defender again and again brought under his notice that the guarantee was merely a substituted mode of carrying out the original arrangement.

“The only other question in the case is whether, assuming that the money was to be repayable, if and when the newspaper became a commercial success, and not otherwise, the defender has debarred himself from enforcing that condition by voluntarily selling the paper. The sale took place in August 1892, after the action was raised. Accordingly the record was opened up and new pleas were stated for the pursuer to meet the altered circumstances. He now appeals to a well-known rule of law to the effect that if the debtor in a condition renders the fulfilment of the condition impossible, the condition is held to be fulfilled. That is a doctrine borrowed from the Roman law and firmly fixed in ours, but I do not think that it has any bearing on the present question, because the real question is on this branch of the case, what was the condition under which the defender was bound? By the terms of the letter he was bound to repay the money unless the Scottish Leader should turn out a failure, and the question is, what is the meaning of these words? The letter itself supplies a gloss upon them, because in the first part of it, where it is dealing with the payment of interest, it provides that the lower rate of interest is only to endure until the paper becomes a paying property, and that, I think, shows pretty plainly that what was meant by ‘turning out a failure’ was the paper not becoming a paying property. The pursuer's construction comes to this, that the defender truly bound himself to carry on the concern until all his funds should be exhausted and he should become a bankrupt. That would have been hanging a mill-stone about his neck with a vengeance, and it is a stipulation which I cannot imagine the defender would ever have agreed to, or that the pursuer himself ever intended. I think the reasonable construction of the expression is that the paper was to get a fair trial, and if after that the defender could not make it pay, he was not to be liable in repayment of the loan.

The kind of trial which the parties contemplated should be given to the paper is pretty well indicated by the defender's letter of 13th December 1887, in which he said that if £25,000 were raised, and if the paper were carefully worked for the next two or three years, he expected it would turn out a profitable investment. That undoubtedly must have suggested to the pursuer's mind that what was in contemplation was at least a trial of two or three years and an expenditure of something like £25,000. In point of fact the paper was worked for more than two or three years. It was worked very nearly five years after December 1887, and a great deal more than £25,000 was lost in it. The concern has turned out, so far as the defender is concerned, not merely a failure, but a disastrous failure. It is in evidence that his own losses have approached the sum of £40,000, and that the total losses of the newspaper, if interest be included, have been something like £60,000 in the six years of its existence. Therefore it cannot be said that the concern did not have a fair trial, and that is really all which I think the defender bound himself to give it. If immediately after the letter of December 1887, or within a year of the date of that letter, he had stopped or sold the paper, I think that would not have been giving it a fair trial, and indeed might have been described as a fraud on the contract. But no case of that kind can be made. It is clear that the defender, with his own large interest in the concern, had every motive to give, and did give, the fairest trial to the concern, and there is no suggestion that he did not put forth every effort to make it a financial success. The pursuer had confided the managing of the paper entirely to him. He had made no stipulation that he should ever be consulted in the question whether it should be carried on or whether it should be wound up or sold. He cannot therefore complain that he was not consulted on that question. There having been, in my view, a bona fide effort to make the paper a financial success, and that effort having failed, I am of opinion that the state of things contemplated by the agreement is in existence, and that the defender is no longer liable to repay to the pursuer either principal or interest. He is therefore entitled to absolvitor with expenses.”

The pursuer reclaimed, and argued—It was proved that the guarantee to the bank was a new arrangement, and had nothing to do with the letter of 22nd December 1887. If this guarantee was to be subject to the letter, the pursuer was denied the usual rightof a cautioner—the right of relief. Further, the defender had sold the paper, and so had put it out of his power to fulfil the obligation of repaying the £5000 with interest at five per cent. A newspaper was not a property which could be made to succeed at once, it was necessary that a fair trial should be given it, and the defender bound himself to give this fair trial

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— Dick & Stevenson v. Mackay, May 21, 1880, 7 R. 778; affirmed Mackay v. Dick & Stevenson, March 7, 1881, 8 R. (H. L.) 37; Pirie v. Pirie, July 19, 1873, 11 Macph. 941; M'Intyre v. Belcher, June 5, 1863, 14 C.B. (N.S.) 654; Addison on Contracts, 54, 9th ed.; Stirling v. Maitland & Boyd, November 15, 1864, 5 Bert. & Smith 840: Stevens v. Benning, December 7, 1854, 1 Kay & Johnstone, 168. Assuming that the pursuer was not entitled to be paid if the newspaper turned out a failure, that result had not happened. Failure meant either stoppage of the paper or bankruptcy, and neither of these two events had happened. The paper had been sold to another person, and was still being carried on, and at the time of the sale there was, as shown by the accountant's report, a surplus of £7981 of assets over liabilities— Ross v. M'Farlane, January 19, 1894, ante, p. 305.

The respondent argued—The whole correspondence and evidence showed that the stipulations in the letter of 22nd December 1887 were carried into and became part of the bargain by which the pursuer granted a letter of guarantee of £5000 to the Commercial Bank in favour of the defender, and the Lord Ordinary had rightly so held. If the defender's actings had rendered impossible the fulfilment of an obligation which he was bound to carry out, the obligation must hold good against him, but that rule did not apply. The stipulation was that the money was to be repaid unless the paper turned out a failure. The defender admitted that in such a property as a newspaper some time must elapse before it could be said to be a failure or success. This paper had been carried on since 1887 till the sale in June 1892, the defender had lost £40,000, and all he got back was less than £8000. In these circumstances it could not be said that the paper had not turned out a failure so far as the defender's pecuniary interests in it were concerned, and it was absurd to say that when the defender said the paper was turning out a ruinous loss, he was not entitled to sell it for what he could get, at the risk of being called upon to repay this £5000, and that what he must do was to carry it on until he had exhausted all his remaining funds, or bring the paper to a stop, thus losing what little recoupment he could get from the sale.

At advising—