Scottish Court of Session Decisions

This was an action at the instance of Mrs Margaret Stewart Macpherson or Mackay, widow of the late Alexander Mackay, chemist in Oban, executor-dative qua relict of the said Alexander Mackay, as such executrix and as an individual, against Alexander Macarthur, solicitor, Oban, and also agent for the Commercial Bank there, in which the pursuer concluded for reduction (1) of an assignation in the defender's favour of a policy of insurance on her late husband's life for £100; and (2) of an assignation in the defender's favour of a policy of insurance for £500 payable to the survivor of her late husband and herself. The pursuer sued for reduction of the first assignation as executrix of her husband, and of the second in her own right. There was no petitory conclusion. Restitution was offered of the sum paid by the defender for the assignations with interest, and of the premiums paid by him on the policies.

The following statement of the pursuer's pleas and of the facts is taken from the opinion of the Lord Ordinary ( Kincairney):—“In support of the conclusions of reduction of both assignations the pursuer pleads—(1) Fraud and circumvention, and undue influence on the part of the defender, the law-agent of the granters. (2) Essential error, et separatim, essential error induced by the misrepresentations of the defender. (3) That the assignations had been executed by the granters in ignorance of their contents, and in favour of their law-agent, and without independent advice.

With regard to the assignation of the joint policy for £500, the pursuer pleads

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besides—‘(4) The assignation of the policy for £500 having been granted by the pursuer without consideration in favour of her law-agent is null, aut separatim is voidable. (5) The said assignation by the pursuer being a donation inter virum et uxorem is revocable.

It appears from the condescendence that the essential error referred to in these pleas was this, that whereas the assignations are absolute, the pursuer and her husband erroneously believed that they were only in security for repayment of the sums advanced.

The facts are not complicated but some of them are disputed. So far as not open to dispute they are as follows:—

The pursuer and the deceased were married on 28th June 1889, and they resided in Oban, where he carried on the business of a chemist, and she a licensed grocery business. Their businesses were carried on separately, and they had separate bank accounts at the defender's bank. The deceased had effected the policy for £100 several years before the marriage, and the joint policy for £500 was taken out on 11th October 1889. It appears that at that time Mackay's health was fairly good, and his habits tolerably temperate, but it appears that some years afterwards his habits became dissipated, and his health to some extent affected. There is, however, considerable variance in the evidence as to the degree of his intemperance and the effect to which his health was affected. There are receipts in process showing that on two occasions the premiums on the policy for £500 were paid by the pursuer.

In January 1894 Mackay fell into financial difficulties, and having to meet the demand of a creditor when his bank account was overdrawn, he applied to the defender for leave to overdraw further or for assistance. As he could not be allowed to overdraw, and could not get anyone to accept a bill for him, he consulted the defender as to the practicability of raising money on his policies, and the defender at his request ascertained their surrender values. Mackay and the defender also consulted as to exposing the policies for sale, but Mackay objected to that on account of the publicity, and it was found to be impracticable. The defender says that on the pressing solicitation of Mackay he advanced £60 for the policies. He says that he did so very reluctantly, and that he told Mackay that if he could get anyone else to advance the money he would hand over the policies. This part of the case depends necessarily on the evidence of the defender and of his assistant Mr Coats, but I see no reason to doubt it. At all events, the assignations were granted on 22nd January 1894, and the £60 was advanced by the defender, and was paid into Mackay's bank account. It does not appear that any part of it was paid to the pursuer. The assignations are in absolute terms. The consideration for the assignation of the policy for £500 is said to be £36 as its ascertained value, and both the granters acknowledge receipt of it. The consideration for the other assignation is £24, as the ascertained value of the policy for £100. The surrender value of the one was £31, 16s. 3d., and of the other £21s. 15s. The sum of £60 paid by the defender was thus between £6 and £7 above the sum of the surrender values. The one assignation is signed by Mackay and the pursuer, and the other by Mackay only.

Mackay paid the first premiums which thereafter fell due; but the defender repaid him and paid the premiums afterwards. I think it proved that Mackay asked repayment of the premiums which he paid.

About October 1896 Mackay took out a policy of insurance for a small amount with the Prudential Assurance Company, Limited. He did so on the solicitation of the resident agent of the company. The materiality of this fact is that it seems to show that so late as October 1896, neither Mackay's habits nor his health were such as to deter an insurance agent from insuring his life.

Mackay, however, died on 20th December 1896, and the sums in the policies (with bonus additions), amounting to £644, 0s. 2d. were paid to the defender. On the day after Mackay's death the pursuer sent a message to the accountant of the Commercial Bank to the effect that there were several accounts which she desired to pay by cheques on her bank account, and that the insurances on her husband's life would provide the money. The accountant communicated this message to the defender as bank agent, who at once stated that he had bought the policies, and that the pursuer was not entitled to any part of the sums insured. The defender afterwards placed £50 to the pursuer's credit with the bank. He says in a letter to her, dated 22nd March 1897, that this sum was allowed to her ‘as a grant from the proceeds of the life policy which fell due on Mr Mackay's death, and it is possible,’ the defender added, ‘I may be able to make a further payment to you again.’ The defender said in evidence that the £50 was paid, and that he had in view to pay her more out of consideration for her position. But when she advanced her claim for the whole amount in the policies, under deduction of what the defender had paid, this sum was repaid on the defender's demand.

These are the main facts, about which there is no dispute, or room for dispute. There are, however, one or two important matters of fact which are in dispute.

First, with regard to the execution of the assignations, I consider it amply proved that they were signed by Mr and Mrs Mackay at the same time and in the defender's office. I am satisfied that the pursuer was in error in deponing that she signed the assignation of the policy for £500 in her shop, and not at the same time as her husband.

I am also of opinion that the deeds were read in presence of Mr and Mrs Mackay before they signed them. This is not quite so well proved. The defender and his assistant Mr Coats are the only witnesses who depone to it. The instrumentary witness, M'Calman, did not actually

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hear the deeds read; but, sitting in an adjoining room he heard something being read in the room in which Mackay and his wife and the defender and Coats were, but could not distinguish the words. I do not, however, doubt that the deeds were so read, and I think that proved. I think the pursuer's evidence to the contrary is disproved.

It is said that the deeds were fully explained, but it is not clear what the explanations were. The deeds no doubt contain the ordinary amount of useless tautology, which seems persistent in all lawyer—made deeds; otherwise they are short and simple, and did not need explanations. It is clear, however, that the pursuer never saw the deeds, or any draft of them, before she signed the assignation of the £500 policy, and that she had no professional advice. In particular, the defender did not advise her.

Another question of fact is, whether the price paid by the defender was in the circumstances adequate. The pursuer endeavoured to show that Mackay's life was bad and precarious on account of his intemperate habits and poor constitution, that the defender was aware of this, and that £60 was therefore inadequate. But I think that nothing of that kind is proved. Mackay lived almost three years after the assignations were executed; and other insurance agents endeavoured to get him to take out new policies a considerable time afterwards. It does not appear that the defender was intimate with him, or knew of his habits, or had reason to think, or did think, that his life was under average; neither do I think it proved that it was under average. It is, I think, the clear result of the proof that the defender overpaid Mackay, and that so much as £60 could not have been got otherwise. No attempt is made by the pursuer to prove inadequacy of price, except by the suggestion that Mackay's life was under average. I think it impossible to say that the defender over-reached Mackay by inducing him to sell his policies for less than what they were worth. So far as regarded Mackay, the bargain was a fair one. The defender's purchase of these policies may not have been prudent or expedient, but it is due to him to say that, in my judgment, it was not dishonest.

The next question of fact is this: Was the transaction a sale or a loan? In other words—Were the assignations absolute or only in security? This question admits of only one answer. The assignations are absolute, and if the pursuer's case had been that they were truly in security, proof of that case would have been confined to the defender's writ or oath. But that is not the pursuer's case. There is no plea to that effect. Her case is not security, but essential error.

That being the state of the pleadings, it is perhaps unnecessary to observe that the transaction was manifestly of the nature of an absolute sale, and that it is hardly possible that the defender could have regarded the assignations as merely securities. £60 was a very full price for a purchase, and very much more than any reasonable man would have advanced as a loan, even if it had been agreed that the borrower was to pay the premiums and interest. No interest was paid or offered, and the defender paid the premiums. There was no mention of repayment of the loan, and the defender cannot be presumed without proof to have been so improvident as to have advanced his money as a loan under the circumstances. The fact that each policy was assigned by a separate deed, and for a distinct consideration, seems also against the idea of loan.

But the pursuer says that she and her husband were in error, and thought the transaction was a loan, and the assignations securities. The evidence is not overabundant. I am satisfied that Mackay was under no such error. The unambiguous language of the deeds, the conditions under which the transaction took place, the previous consultations with the defender, the fact that he paid neither interest nor premiums, conclusively show that Mackay was not and could not have been under that mistake. The only evidence to the contrary is that of the pursuer, who says that her husband spoke to her of the transaction as a loan. The pursuer's evidence is not to be accepted without some scrutiny; and her impression on that point cannot be held to meet the counter evidence.

The case is different with regard to the pursuer on this point. Knowledge of the exact nature of the transaction is not brought home to her except by the fact that she heard the deeds read, and, as the defender says, explained. They are, it is true, not obscure or ambiguous; still it is possible that from want of attention she may have misapprehended them. Yet it cannot be the pursuer's case that she misunderstood the deeds, because she depones that she never read them or heard them read. What she does say is that her husband told her that the transaction was to be a loan. It is possible that she may have been misled by him, and it is proved that whenever her husband died she acted as if she were in that belief. She is, however, the sole witness on this point. She is an interested witness, and not always correct, and I cannot hold it proved that she misunderstood the deeds. At the same time, it is not very well proved that she did understand them.

The last question of fact is, whether this erroneous belief on the part of the pursuer, supposing it to have existed, was induced by the representations of the defender. To that question I have no hesitation in returning a negative answer. There is nothing like proof of any such misleading representations. The pursuer suggests that the form of the draft assignation, with the marking on it about the value of the stamp intended to be affixed, shows that at that time a deed in security was intended, and not absolute deeds. I do not think it necessary to examine the evidence on that point. It is enough to say that I cannot draw that inference. Further, the pursuer referred to

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two letters, dated 7th and 12th June 1894, from the defender to the pursuer, and argued that these letters were calculated to induce the idea that the defender had acquired the policies only in loan. But as to these letters, I think the defender has given a sufficient explanation.” …

The Lord Ordinary also found that as regards this transaction the defender stood in the relation of law-agent to Alexander Mackay and to the pursuer, but this finding was ultimately recalled by the Second Division.

The facts with reference to this matter were as follows:—Prior to the date of the assignations three small and isolated pieces of law-business had been done in the defender's office for Mackay. Prior to that date no law business had been transacted by the defender for Mrs Mackay. When the defender at Mackay's request wrote to ascertain the surrender value of the policies, he said in these letters—“He ( i.e. Mackay) is my client,” and “They ( i.e. Mr and Mrs Mackay) are my clients.” With reference to this the defender explained that he used that language merely in order to show that he had a right to ask for the information. At that time it had not been suggested that he should take the policies.

A scroll draft assignation in blank was prepared on the directions of Mr Coats, who had charge of the defender's law business, so that an assignation could be prepared whenever it was arranged. If an outside person had been found willing to take the policies the expense of this draft would have been paid by him. No account for law business done was ever rendered by the defender to either Mackay or the pursuer.

The defender did not suggest that Mrs Mackay should consult another law agent. He did not explain the deed to her outwith the presence of her husband, nor did he press upon her attention the absolute nature of the assignation, nor did he point out to her that the deed was not a wise one for her to grant considering the matter purely from the point of view of her own private and personal interests.

The facts with reference to the history of the transaction were as follows:—Mackay came to the defender originally for the purpose of getting a loan. This was upon 18th January 1894. On the same day the defender wrote inquiring what was the surrender value of the policies. He got the answer on 20th January. Meantime the scroll draft had been prepared. In this draft no price was mentioned, the consideration being only “certain good and onerous considerations.” The stamp-duty marked upon the draft was ten shillings, which was the duty applicable to an assignation-insecurity, absolute in form, but in fact in security only. The form used by the clerk who prepared the draft, was a form which had been used for a security transaction, and was the usual form for a security transaction, but the assignation was ex facie absolute. The stamp duty on the sale of the policies at the price of £60 would have been seven shillings and sixpence. The clerk explained that he copied the form used by him throughout, and that it was from it that he took the amount of the stamp.

On Monday 22nd January, for the first time it was suggested that the policies should be assigned to the defender. Immediately after the defender had agreed to this the assignations were made out, and they were signed by Mr and Mrs Mackay on that same day. The reason given for the transaction being carried through so quickly was that Mackay had in fact meantime issued a cheque, which would have been dishonoured if the money had not been put to his credit by the time it was sent to the bank for payment.

The total amount paid by Mr and Mrs Mackay in premiums on the policies with interest was £171, 9s. 4d., which, less the £60 received from the defender, made £111, 9s. 4d. The total sum paid by the defender as the price of policies and premiums with interest was £147, 0s. 7d.

When Mackay paid the first premiums which fell due on the £500 policy the defender wrote to him as follows:—“7 th June 1894.—Dear Sir—If you will please send me the insurance premium receipt you recently paid, I shall place the amount thereof to your credit in bank. I think it is better that I should keep the matter going in the meantime, and that it remain as originally arranged.” On 12th June the defender again wrote to Mackay in the following terms:—“Dear Sir—I send you herewith paid-in slip for £10, 12s. 1d. to-day put to the credit of your bank account, and which is the amount of the premium of ince. paid by you on the policy for self and spouse, and which receipt you have handed to me. I will in future pay the premiums direct, and so keep the transaction in proper shape.”

The defender explained that by “keeping the matter going in the meantime” he meant until the Mackays could get another purchaser, and that he was willing to “suspend the purchase” until they did so, as he wished to get rid of the transaction.

On 30th October 1894 the defender wrote to the Insurance Office—“I enclose my cheque for £10, 12s. 1d. in payment of Mr Alexander Mackay's life insurance premium.” The relative entry in the defender's ledger was under the name of Alexander Mackay—“Writing Mr Archibald Campbell with cheque for £10,12s. 1d. for premium on your life policy,” The defender explained that he never saw the letter, that the expression used was merely to identify the policy; that the entry in the books was taken by a clerk from the letter-book merely for purposes of reference and was erroneous, that Mackay was not charged anything, and that he was not debited with the premium.

The defender several times told Mackay after the transaction was completed that if he could get anyone else to take the policies he (the defender) would be willing to give up the purchase, and he deponed at the proof that up till Mackay's death he would have been willing to give up the policies upon payment of £60, with the amount of the

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premiums paid by him added. The defender explained that he thought he had been very foolish in advancing the money he gave, that he wished to get rid of the transaction, and that this was the reason why he was willing to give up the policies if repaid his disbursements, although he had purchased them outright from the Mackays and acquired full right to them.

Upon these facts the pursuer maintained that a loan was originally contemplated, that up till the forenoon of 22nd January nothing else was contemplated by anyone, and that in consequence of the defender's having frequently expressed his willingness to return the policies if he was repaid his disbursements, Mackay and his wife both considered and were justified in considering that the transaction was for a security in fact whatever it might be in form.

The defender explained that after Mackay's death he was willing to share the profit made on the transaction with Mrs Mackay, and that he was prepared to have given her in all £250 by instalments of £50, but that when she took up the position which she maintained in this action, and when accusations of fraud and other improper conduct in reference to the part he took in the transaction began to circulate, he declined to give her anything, and was compelled to defend this action for the sake of his professional reputation.

On 14th December the Lord Ordinary ( Kincairney) pronounced the following interlocutor:—“Finds (1) That on 22nd January 1894 the deceased Alexander Mackay executed an absolute assignation to the defender of a policy of insurance for £100 on his life, and that of the same date the said Alexander Mackay and the pursuer his wife executed an absolute assignation to the defender of a policy of insurance for £500, payable to the survivor of them: (2) That the defender then stood in the relation of law-agent to the said Alexander Mackay and to the pursuer: (3) That the defender paid a full price for each of the said assignations: (4) That the said deeds were not procured by the fraud or misrepresentation or undue influence of the defender: (5) That the said Alexander Mackay was under no error in regard to the said assignations: (6) That the pursuer has not proved her averments to the effect that she was under the erroneous belief that the said assignations were not absolute, but were granted in security for repayment of the sums advanced: (7) That she was not induced to form said erroneous belief by any representation made or act done by the defender: (8) That the defender did not fail to use reasonable precautions as her agent to secure her understanding of the said assignations: Finds, therefore, that no ground has been established for reduction of either of the said assignations: Repels the pleas-in-law for the pursuer, and assoilzies the defender from the conclusions of the summons and decerns: Finds the defender entitled to expenses,” &c.

[ In the course of his note the Lord Ordinary, after signifying his opinion that the other pleas-in-law of the pursuer were unfounded, proceeded]—“There remain the third and fourth pleas, which taken together and applied to the assignation of the jointpolicy, only come to this, that the assignation, so far as granted by the pursuer, should be reduced because she got no consideration for it, it being in favour of her lawagent, by whom she was not sufficiently informed or advised as to its true nature.

I have found this to be a point of great difficulty, and it is not without much hesitation that I have formed an opinion in favour of the defender. No authorities on the point were quoted. A sale by two persons to their law-agent of property in which both were interested would not be bad merely because it afterwards appeared that the price had been paid to one of them only. That would be a matter with which the buyer would have no concern, either as buyer or law-agent; and I do not think it would signify although it were known to the buyer beforehand (as in this case) that the whole price would go to one of the parties, and I do not see that it makes any difference that the parties are husband and wife, especially since it is clear that the wife knew that no part of the price was to go to her.

But the question is, whether the defender was careful enough to make it certain that the pursuer fully understood the transaction. It is not said in this case that the pursuer was ignorant as to the nature of her interest in the policy, or that she did not know that she was giving up her interest to a certain extent, or that the money to be paid in return was to be paid not to herself but to her husband. Her case is that she was not aware of the extent to which she relinquished her interest. She was, she says, in error on that point, and it is clear that, if she was led into that error, it was her husband and no one else who misled her. But it is not easy to see that the right of the defender can be thereby affected.

The real and narrow point seems to he, whether the defender used all the care and precaution which it was his duty as lawagent to use in order to guard the pursuer against that mistake. I hold—contrary to the pursuer's evidence—that he read the deed to her, and that he gave what explanation he thought required. It is, as I have said, a simple deed. The pursuer asked no questions, and gave no indication that she misunderstood it. Was it his duty to do more? The pursuer had, she says, been informed by her husband that the deed which he was to sign was to be a security, but the defender did not know that, and was not bound to suspect it. No doubt the defender might have done more. He might have insisted that she should employ another agent, or he might have fully explained the deed to her outwith the presence of her husband, or he might have pressed on her attention the absolute character of the assignation, or he might have strenuously advised her not to grant the deed at all. Was it his duty to do all or any of these things, and is this deed reducible because he did not do them? I am not able to answer these questions affirmatively. I

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think the defender was perhaps a little slack, and not quite alive to the delicacy of the transaction. It would have been better had he been more particular. But I incline to the view that he did all that he was bound in law to do.

What the pursuer seeks to do is to substitute for the authorised issue, whether she granted the assignation under essential error induced by the defender, a novel issue to this effect, whether she granted the assignation under essential error from which she was not protected by the defender. That is an issue for which there is no precedent, and which does not seem consistent with the principles of the judgment in Stewart v. Kennedy. On the whole it seems to me that the pursuer's case fails on this point also, and that the defender should therefore be assoilzied.”

The pursuer reclaimed, and argued—The defender was the pursuer's agent in relation to this transaction, or at least he was in such a relation towards her as to impose upon him an obligation to act as if he had been her agent. If so, then he was bound to prove that she understood the nature of the transaction, and it was not sufficient to find as the Lord Ordinary had done that she had failed to prove that she did not understand it. The onus was upon the defender, and he had not discharged it. It certainly did not clearly appear that the pursuer did understand the transaction, and the defender was bound at his peril to make sure that she did. So far from doing so, by the undue haste with which he hurried through the transaction, notwithstanding the fact that up till almost the end a loan only was contemplated, by his failure to advise the pursuer, and by his offers to give up the policies upon repayment of his disbursements, he had led the pursuer to believe that what was intended was a security transaction only. Apart from this, however, the defender was bound either to insist on the pursuer having independent legal advice or to see that she was as well advised by him as she could have been by an independent lawagent, and if he failed to do one or other of these things the assignation in his favour should be reduced. Admittedly the defender did not advise the pursuer to go to another law-agent, and, as he did not regard himself as being her law-agent, be could hardly maintain that he had advised her as well as a law-agent consulted by her would have done. In fact he did not do so. He ought to have pressed upon her the absolute nature of the assignation, and the facts (1) that she was giving up the only provision made by her husband for her in the event of his death, and (2) that she was getting nothing for doing so. An independent law-agent would have pointed out all these things, and especially in view of her husband's health and habits would have endeavoured to dissuade her from signing the assignation at all, or at least from signing unless the price was increased, and some of the price given to her.—Authorities referred to—Begg on Law-Agents, pp. 295 to 297; M'pherson's Trustees v. Watt, December 3, 1877, 5 R. (H.L.) 9, per Lord O'Hagan at p. 17; Cleland v. Morrison, November 9, 1878, 6 R. 156; Weir v. Grace, March 10, 1898, 25 R. 739, and December 13, 1898, 1 F. 253. The case of Montesquieu v. Sandys (1811), 18 Vesey 301, was decided when the law upon this subject was not so strict as it was now.

Argued for the defender—(1) Neither the pursuer's husband nor the pursuer herself were clients of the defender. There certainly was no evidence whatever that the pursuer was the defender's client. The original reason why the pursuer's husband went to the defender was that the defender was his banker, and he wanted to get money. The relation between the parties throughout the transaction was that of banker and customer. No law charges were made against the pursuer or her husband. The draft assignation could not have been prepared on the employment of Mackay, because it is the purchaser's or lender's agent who prepares the assignation. It was merely prepared so as to be ready, the pursuers unsound being in a hurry to get the money as soon as possible. If the transaction had been carried through with a third party the third party would have been the person on whose instructions the draft would have been made, if it had been used at all; (2) Even if the relation between the parties was that of agent and client there was nothing to show that in the circumstances of this case the defender failed to do anything which was incumbent upon him. He paid a full price. The pursuer's husband wanted money. This was the only way in which he could get it, and the pursuer was willing to assist him. The nature of the defender's argument on this part of the case fully appears from the opinion of the Lord Ordinary.—Authority referred to— Montesquieu v. Sandys, cit.