Scottish Court of Session Decisions

Samuel Dunlop Richardson, stockbroker, Kilmarnock, raised an action against the Reverend Robert M'Millan and Others (M'Geoch's testamentary trustees) to have it declared that the obligations undertaken by him in virtue of a bond and disposition in security granted by him in favour of the defenders had been duly implemented and fulfilled by him, and that the said bond had been validly and effectually discharged by him. There was also a conclusion to have the defenders ordained to deliver up to the pursuer the bond in question and the discharge thereof.

The facts of the case as averred on record and disclosed at the proof are thus set forth in detail by the Lord Ordinary—“ In September 1800 the pursuer owed the defenders M'Geoch's trustees a sum of £200 for which they held a bond and disposition insecurity over certain heritable subjects belonging to him. Arthur Sturrock, solicitor, Kilmarnock, and agent there for the British Linen Bank, was agent for the defenders trust, and he had also acted for the pursuer. Both parties had implicit confidence in him and apparently had had no reason to distrust him.

“By the desire, if not by the express instructions of the trustees, Sturrock on 11th September 1896 intimated to the pursuer that the bond was to be called up. The pursuer accordingly looked about for another lender, and a friend of the name of Currie agreed to give him a loan of £250 on receiving a bond over the pursuer's property for that amount.

“Currie instructed Sturrock to prepare the bond. Sturrock did so, and also prepared a discharge of the first bond by the defenders which he sent for signature to the trustees.

“On 5th October Currie paid Sturrock £250 in notes, for which Sturrock granted the receipt in these terms:—‘Kilmarnock, 5th October 1896. Received from Charles Currie, Esq., the sum of two hundred and fifty pounds to be lent on bond over subjects in Hurlford belonging to Mr S. D. Richardson, at 4 percent. (Signed) Arthur Sturrock. 5th October 1806.’

“The discharge of the first bond was returned to Sturrock, signed by all the trustees on the evening of the 7th or morning of the 8th October. On 7th October Sturrock wrote to the pursuer—‘I am now in a position to settle bond to Mr Currie. Enclosed is a note of debt, &c.’ The pursuer called at Sturrock's office on the 9th of October, but Sturrock was out. He again called on the 12th October, when a settlement or a pretended settlement of the transaction took place. Sturrock gave the pursuer two receipts, one being a state for settlement in which the pursuer is credited with the sum in bond £200, and debited with interest on that sum from 15th May to 17th October £3, 3s. 7d., less tax 2s. Id., and expenses as per separate account, also receipted by Sturrock, £9,12s. 7d. Deducting these sums from £250 left a balance of £37, 5s. 11d., for which Sturrock gave the pursuer a cheque. The pursuer thereupon signed a bond for £250 in favour of Currie. The discharge of the first bond remained in Sturrock's hands.

“On 13th October the pursuer gave Sturrock a receipt for £250 in these terms—‘ 13th October 1896. Received from Arthur Sturrock, Esq., Solicitor, the sum of two hundred and fifty pounds sterling, being amount of bond received by me from Charles Currie, Esq., Hurlford, over subjects at Mauchline Road, Hurlford. (Signed) S. D. Richardson. £250, 13th October 1896.’

“No money passed .at the meeting on 12th October. The pursuer never personally

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received the £250 and never paid the £200 due to the defenders. In Sturrock's books the pursuer is credited with £250 on 5th October, and is represented to have paid the £200 on 12th October in settlement of the bond in favour of the defenders.

“ During the proof the defenders at first endeavoured to establish that no meeting or transactions such as that spoken to by the pursuer took place on the 12th October. I am not much surprised at this, because the bond in favour of Currie is dated 29th September, and the cheque for £37, 5s. 11d. and the receipt are both dated 13th October. I am quite satisfied, however, that the pursuer's account of what took place on 12th October is substantially correct, and I abstain from stating my reasons for thinking so merely because at the debate the Solicitor-General, without giving any informal admission, did not seriously dispute this. I think I do not overstate what was said. On 23rd October Sturrock absconded without having paid any part of the £200 to the defenders. He was found to have been not only for long hopelessly insolvent, but to have misappropriated money intrusted to him by clients to a very large extent.

“These, with one important exception, which I shall presently notice, are the material facts of the case. The difficulty in disposing of it lies in the fact that Sturrock acted as agent for no less than three parties, the pursuer, the defender, and Currie; and the problem is to ascertain which of those three parties were defrauded. In some of the previous cases the Court have been enabled to decide the question of liability by evidence that one of the innocent parties has by remissness in supervision or misplaced confidence given the mutual agent facilities for defrauding the other. In the present case I see no evidence of remissness on the part of the defenders; on the other hand, I see no reason to doubt the bona fides of the pursuer, and I do not think that he was in any way personally negligent in regard to the transaction. There being therefore nothing to turn the scale between the pursuer and the defenders, the loss must lie where it fell unless the pursuer is able to demonstrate that he actually or constructively paid up the debt due to the defenders.

The case stands thus—No part of the £200 was paid to the defenders; on the other hand, the pursuer did not get possession of the discharge of the first bond which was signed by the defenders, and it was not put on record. The pursuer is therefore in this unfortunate position that at present he appears on the record as debtor in two bonds for £200 and £250 respectively.

If it had been proved that the pursuer at the settlement on 12th October paid, as averred on record, the £200 to Sturrock as the defenders' agent, Sturrock would have thereafter held the discharge for the pursuer.

It is admitted, however, that no money passed at the settlement on 12th October, the pursuer never personally paid any part of the defender's debt to Sturrock,

This is not by any means conclusive, because if money was at the time held by Sturrock to meet the debt, the transaction might have been carried through in the manner adopted. But there are serious grounds for holding that the money out of which the £200 due to the defenders ought to have been paid, viz., the £250 paid to Sturrock by Currie, on the 5th October, was appropriated by Sturrock before the meeting on the 12th. Currie paid £250 to Sturrock in notes on 5th October ‘ to be lent (on bond,&c. That money has not been traced; it was certainly not paid into bank. Sturrock himself says that it may have been paid away to one of his own creditors when it was received, and the state of Sturrock's affairs and bank account at the time and his utterly unscrupulous practice of dealing with trust funds make it, I think, certain that this was done. To look only at the entries for the fortnight beginning 30th September and ending 13th October 1896, we find that Sturrock was laying his hands on available trust funds and paying them away to his own creditors. On 30th September a sum of £2006, 12s. 6d. is paid into bank, converting a debit of £625, 19s. 9d. to a credit of £1380, 12s. 9d. It is proved that the sum so paid in was the proceeds of a deposit-receipt belonging to M'Gibbon's curatory in which Sturrock was curator. This sum was speedily drawn out and paid to creditors. In particular, on the same day £1400 was paid to a Mr Finlay, and by the 5th of October, the day upon which Currie paid him £250, we find that the credit balance had been turned into a debit balance of £267, 18s. 6d. I cannot believe that Sturrock having £250 in cash in his hands did not on 5th October apply it in payment of his own debts.

On 12th October there was standing at Sturrock's credit a sum of £367, 15s. 10d., but that balance was created by Sturrock on 8th October appropriating a sum of £204, 19s. lid., the proceeds of a deposit-receipt belonging to Mrs Gray, and on 10th October 1893 the proceeds of another deposit-receipt belonging to M'Gibbon's curatory. These sums were also exhausted by cheques to brokers. Without these two sums Sturrock's debit balance would have been over £500.

As a jury question I am prepared to find that Sturrock on 5th October appropriated the £250 given by him to Currie to his own uses and purposes, just as he appropriated the funds which I have specified from other trusts, with this difference, that he paid away the £250 at once and did not pay it into bank.”

The pursuer pleaded, inter alia—“(1) The pursuer having fully implemented the obligations incumbent upon him in respect of the foresaid bond and disposition in security for £200, is entitled to be discharged of all further liability thereunder.”

The defenders pleaded, inter alia—“(2) The sums due to the defenders as trustees foresaid under the said bond for £200 never having been paid to the defenders or to anyone on their behalf, they are entitled to absolvitor,”

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On 25th January 1898 the Lord Ordinary ( Moncreiff) assoilzied the defenders.

Opinion.—“This is one of these painful and difficult cases in which the Court is called upon to decide which of two or more innocent persons must suffer on account of the fraud of a mutual agent. As I consider the case not only a hard one but also narrow, I shall state in some detail the facts which I hold proved and the grounds of my judgment—[ His Lordship then narrated the facts as above, and continued]—If this is so, what is the law of the case? As I have already said, I do not think that there was any personal fault or negligence on the part of the pursuer, but in deciding as between the pursuer and defenders it is of vital importance to ascertain for whom Sturrock held the money when he appropriated it. If the pursuer himself had paid the £250 to Sturrock on 5th October, and Sturrock had then and there embezzled it, the pursuer would, by the confidence which in the case supposed he placed in Sturrock by paying him the money before he received the discharge of the first bond, have given Sturrock the opportunity of defrauding him. I do not say that there would have been anything reprehensible in the pursuer paying the money to Sturrock to await settlement—few men would have hesitated to do so, dealing with a trusted agent. But anyone who does so runs a certain risk, as is clearly stated in Lord Fullerton's opinion in the case of M'Intosh v. Pitcairn, 14 D. 187-107—‘In these circumstances there was no absolute safety except by the simultaneous exchange between the parties of the money for the bond. And this risk is nothing unusual. I believe there are few cases of the kind in which, to a certain extent, some such risk is not run in the full confidence that if the money be first advanced to the borrower's agent, it will be followed by the delivery of the security, and if the delivery of the security to the lender's agent takes the lead, that it will be followed by the payment of the money. To the credit of professional men it may be said that this in general raises no question, because the confidence reposed is honourably responded to. But when confidence does happen, as in the present case, to be violated, and a loss is incurred, the question must always be—by whom the confidence was reposed—who, in short, performed his part through the intervention of the agent without getting the counterpart in return.’

In point of fact, however, the £250 paid by Currie to Sturrock was Currie's money, and should have been held by Sturrock for Currie as Currie's agent until the pursuer signed the new bond in favour of Currie. If, as I hold, Sturrock appropriated the £250 on the 5th October, it would rather appear that the person who was defrauded was Currie. Suppose that Sturrock had absconded before the pursuer signed the second bond, could Currie have recovered the £250 from the pursuer? I take it that he could not; the pursuer's defence would have been that Sturrock never held it as his agent. If so, when the pursuer came to settle with Sturrock on the 12th of October, there were in Sturrock's hands as his agent no funds which could be imputed in payment of the debt due to the defenders.

Currie is not a party to this action, and in ordinary circumstances I should not have expressed any opinion as to his position. But the crucial question being at what time did Sturrock appropriate the £250, and in what capacity did he receive it, I have found it necessary to consider Currie's connection with the transaction, with the result that in my opinion the money never was in Sturrock's hands as agent for the pursuer, and that therefore upon 12th October the pursuer neither directly nor constructively paid anything to the defenders.

In conclusion, I must say a word upon two points which were pressed in argument by the pursuer's counsel. First, he maintained that if any obligatory document is delivered by the granter to an agent who acts both for the granter and the grantee, the presumption is for delivery to the grantee. The presumption such as it is, is of the slightest, and yields readily to evidence of contrary intention to be proved or deduced as a matter of fact from the circumstances in which the deed is delivered. If nothing remains to be done by the grantee, the presumption may receive effect, but where the grantee has not performed his part of the bargain, the presumption will be displaced, and that if he has only partially fulfilled it, the deed will only be held to be delivered to that extent, if the nature of the contract admits of this view being adopted— Mair & Sons Thoms' Trustees, 12 D. 748. In the present case I think the inference from the circumstances is that the discharge was sent by the defenders to Sturrock, to be retained by him as their agent until he obtained payment of the debts due to them.

“Secondly, it was maintained that the pursuer must be held to have paid the £200 to the defenders, because on the 12th of October Sturrock had standing at his credit in bank a sum more than sufficient to pay the debt. If I had to deal with the case of an honest agent of undoubted credit who had received money for the settlement of such a transaction, and paid it into his own bank account on which there was an ample credit balance at the date of the settlement, I should be slow to say that such a settlement as we have here would not infer payment by the borrower to the lenders. Even if the agent had, on receipt of the money, used it for his own purposes, it would be a hard thing to say (though this is more doubtful) that he misappropriated it if he had an ample fund out of which to satisfy the purpose for which it was given. But the question could not well arise in the case of an honest and solvent agent, and the facts with which I have to deal are very different. On 12th October Sturrock was hopelessly insolvent. With marvellous skill he had up to that time managed to escape exposure, but he

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had been able to do so only by misappropriating trust funds over which he had control. He could not move a step in liquidating his present debts without defrauding somebody, and the balance in bank—the fund which is pointed to as that out of which payment might have been made—was ear-marked as the remains of trust funds which he had recently misappropriated. In these circumstances I think that the necessary inference is, that when he used the £250 to pay his own debts he committed a fraud, and that on 12th October there were no funds which he could lawfully have applied in payment of the pursuer's debt to the defenders. I shall therefore assoilzie the defenders.”

The pursuer reclaimed.

The arguments of parties sufficiently appear from the opinions. The following cases were cited in argument:—For the pursuer: Cundy v.Lindsay, L.R., 3 App. Cas. 459. For the defenders— Mair v. Thoms' Trustees, February 29, 1850, 12 D. 748; Mackintosh v.Pitcairn, December 16, 1851, 14 D. 187; Kirkwood v. Bryce, March 17, 1871, 8 S.L.R. 435; Traill v. Smith's Trustees, June 3, 1876, 3 R. 779; Clydesdale Banking Company v. Paul, March 8. 1877, 4 R. 626; Henry v. Miller, March 18, 1884, 11 R. 713; Couper's Trustees v. National Bank, February 6, 1889, 16 R. 412.

At advising—