Scottish Court of Session Decisions

On 1st June 1908 Charles Duff Young, Cove, Kincardineshire, and others, testamentary trustees of the late Robert Gordon, Summer Lane, Aberdeen ( pursuers and real raisers), brought an action of multiplepoinding against (first) the said C. D. Young as an individual, and others, the surviving children of the late John Young, musical instrument maker, Aberdeen, and the representatives of a deceased child, Mrs Ann Young or Gray, beneficiaries under the trust; (second) James Brown Nicol, architect, Aberdeen, the testamentary trustee of the late George Thow, clothier, Aberdeen; and (third) Arthur Fyfe Mortimer, ship chandler, Aberdeen ( defenders). The pursuers sought decree, inter alia, that they were only liable in one and single payment of the one-half share of the residue of the late Mr Gordon's trust estate, held by them for behoof of the children of the said John Young.

The facts as given by the Lord President in his opinion ( infra) were as follows—“In 1873 a Mr Charles Duff Young being desirous of obtaining accommodation from the bank, it was arranged that he should be allowed credit on a current cash account. The security given to the bank was a cash-credit bond, which was signed by two gentlemen besides Mr Young, viz., Mr George Thow and Mr Arthur Fyfe Mortimer. In addition to the cash-credit bond certain further security was provided by the members of the Young family conveying to the bank their interest in a certain trust estate. The arrangement was carried out by the execution of a bond, and the bond may be described as a cash-credit bond in ordinary form. It narrates that ‘We, Charles Duff Young, George Thow, and Arthur Fyfe Mortimer, considering that the bank has agreed to allow us credit on a current cash account to be kept in the name of me, the said Charles Duff Young, to the extent of £500, hereby bind and oblige ourselves conjunctly and severally, and our heirs, executors and successors whomsoever,’ to pay to the bank the said sum of £500. So far the bond is in ordinary form, but it then continues—‘And in security of the personal obligation before written, I, the said Charles Duff Young, and we’ (then follow the members of the Young family), ‘seeing that in security of the personal obligation before written we have agreed to grant these presents, therefore we, the said Charles Duff Young, Mrs Anne Young or Gray’ (and then follow the other members of the Young family) ‘do hereby dispone to and in favour of’ the bank and their assignees, all and whole the one-half share of the following subjects, namely—and then the subjects are described. Mr Charles Duff Young operated on the cash-credit but was unable to repay the advance. Mr Fyfe Mortimer could not pay either, and the bank then sued Mr Thow, who accordingly was obliged to pay. Mr Thow has since died, and the present claim, which is made by his trustee, is to make good to him a certain share of the heritable estate which the Young family conveyed to the bank in security. The ground on which he makes the claim is that as Thow was a cautioner who has paid the debt he has a right of relief against the other parties to the bond, viz., not only against Mortimer (against whom it has proved to be ineffectual), but also against the heritable estate which the bank held in security. The Lord Ordinary has held he has no such right, and I agree with him.”

Claims were lodged by, inter alios, (1) the said J. B. Nicol, Thow's testamentary trustee, and (2) John Gray and others, the various members of the Young family.

The claimant Nicol averred, inter alia—“4. The said advance by the bank was entirely for behoof of the said Charles Duff Young, who was the sole principal in the matter, the said Mr Thow and Mr Mortimer being mere cautioners along with Mr Young's said brothers and sisters, and there was an agreement between Mr Young's brothers and sisters and Mr Thow and Mr Mortimer to the effect that the security of the reversion of the interest in the said Gordon's trust, so far as the other guarantors possessed it, should be available to meet any loss that might be incurred by Mr Thow and Mr Mortimer. The narrative in said deed that the bank had agreed to allow the credit to Mr Young, Mr Thow, and Mr Mortimer was in accordance with the usual form of such deeds to banks under which they require the cautioners to bind themselves as principals. The minute of the directors of the bank agreeing to grant the loan bears that it was granted to the said Charles Young, commission agent, on the security of George Thow and Arthur Mortimer, with collateral security of assignation of the interest of the principal Mr Young and his brothers and sisters in one-half of the property of their grandfather, on which certain liferents subsisted, the then value of the whole of the subjects being upwards of £2000. … 9. In terms of the said trust-disposition and settlement of the said Robert Gordon the fund in medio falls to be divided into five shares, the said John Young having been survived by five children. One of these five shares falls to the said Charles Duff Young, and this claimant is entitled to said share in payment pro tanto of the amount paid by him to the bank, in virtue of the said assignation by Charles Duff Young to the bank and the assignation by the bank to Mr Thow. The remaining four-fifth shares vested respectively in the said Mrs Anne Young or Gray, John Sinclair Young, Eliza Young, and Jessie Young (now Gregor). In virtue of said assignations, and in accordance with agreement come to between the various parties at the time, the said advances were made by the bank … this claimant is entitled to receive payment of said four fifth shares in order that he may recover payment of the sums paid by the said George Thow to the bank. In any event he is entitled to receive payment out of the said shares of four-fifth parts of the balance of the sum paid to the bank, and interest thereon at 5 per cent. from the date of payment to the bank by the said

Page: 325↓

George Thow, after deduction of the amount received from the share of the said Charles Duff Young. The said Arthur Fyfe Mortimer is bankrupt, and no sum has been paid by him or his estate. In these circumstances this claimant claims to be ranked and preferred to the whole fund in medio under obligation to count and reckon with the beneficiaries under said assignations, or alternatively to be ranked and preferred to (1) the one-fifth share of the fund in medio falling to the said Charles Duff Young, and (2) to such portion of the remainder of the fund as shall, together with the amount of said one-fifth share, make up the sum paid by Mr Thow to the said bank and interest at 5 per cent. from the date of payment by him.”

He pleaded, inter alia—“(1) The claimant in virtue of the assignations condescended on, and also in virtue of the agreement between the said Charles Duff Young and Mr Thow as condescended on, whereby the whole reversion of the said Robert Gordon's trust estate should be available to meet any loss incurred by Mr Thow, is entitled to uplift the whole fund in medio. (2) In any case this claimant is entitled to uplift the fund in medio subject to his accounting to the other parties interested. (3) This claimant having paid the said sum to the bank as cautioner for the said Charles Duff Young, and being assignee to the share of the said Charles Duff Young of the fund in medio, is entitled to receive the share of the fund falling to the said Charles Duff Young. (4) Mrs Anne Young or Gray, John Sinclair Young, Eliza Young and Jessie Young (now Gregor) having assigned their said shares to the bank in security, this claimant, in respect that Mr Thow paid up to the bank the whole sum due under said cautionary obligation and in virtue of the assignation in favour of Mr Thow, is entitled to relief against the said shares to the extent stated in the second branch of his alternative claim.”

The claimant John Gray and others (the various members of the Young family) denied the averment made by the claimant Nicol that prior to the granting of the cash-credit bond there was an arrangement that the interest of Mr C. D. Young's brothers and sisters in the late Mr Gordon's estate should form the primary security for the advances made by the bank. They maintained that they signed the bond merely in security of the personal obligation of the three principal obligants, and that as one of these obligants had paid the debt, the only obligation in security of which the bond was granted had been thereby discharged. They accordingly claimed to be ranked and preferred to their respective shares of the said trust estate.

On 16th February 1909 the Lord Ordinary ( Skerrington) allowed the claimant Nicol a proof before answer, and to the other claimants a conjunct probation.

Opinion.—“… In his condescendence and claim Mr Thow's trustee gives a somewhat inartistic account of the circumstances under which these advances were obtained from the bank by Charles Young—who admittedly was the true debtor—and of an agreement alleged to have been entered into between the parties who pledged either their personal credit or their property for his accommodation. On the whole, however, I think that this claimant has sufficiently alleged an agreement between Mr Thow and Mr Mortimer, on the one hand, and Charles Young and his brothers and sisters, on the other hand, to the effect that Mr Thow and Mr Mortimer should have the benefit of the securities pledged by the Young family, and that these securities should be available to indemnify Mr Thow and Mr Mortimer in the event of the true debtor Charles Young failing to fulfil his obligation to the bank. There is no suggestion that the bank were parties to this agreement, and accordingly the claimant is not attempting to prove that the rights of the creditor were different from these conferred on him by the bonds. The members of the Young family, however, and the executor of Charles Young maintain that this alleged agreement is irrelevant, and that in any event it can be proved only by writ or oath, in respect that it goes to contradict the contract expressed in the bonds. Upon the question of relevancy their counsel submitted a very simple argument. He pointed out that the subjects were on the face of the bonds conveyed to the bank in security only of the joint and several obligations undertaken by Charles Young, Mr Thow, and Mr Mortimer, and he argued that as Mr Thow, one of the co-obligants, had paid the debt due to the bank, the debt was thereby extinguished and the security ipso facto came to an end and was incapable of assignment by the bank. This argument is, in my opinion, unsound, and it proves too much, as it would follow from it that the assignation was bad in toto even as regards Charles Young's personal obligation and the security subjects belonging to him. It is, however, well settled that a co-obligant in a bond who pays the whole debt to the creditor is entitled to demand an assignation both of the bond and of any securities granted to the creditor by the co-obligants. By means of such an assignation he can operate his own relief to the extent to which the rules of equity and the true relations of the parties entitle him to do so, though he cannot make use of it for the purpose of obtaining any larger measure of indemnity. Accordingly, if the assignation of the personal obligations in the bond was valid and effectual to any extent, I see no reason why the assignation of securities granted by third parties should not have been equally valid, provided there existed no equity which disentitled the assignee from claiming the benefit of such securities.

In regard to the mode of proof, I am of opinion that Mr Thow's trustee is entitled to prove the alleged agreement by parole. It is obvious that the substantive rights of the parties cannot be affected by the accident that Mr Thow paid the debt when called upon to do so instead of allowing the bank to sell the securities and pay themselves. If the bank had taken this latter

Page: 326↓

course, prima facie the owners of the securities would have had a good claim of relief against Mr Thow upon the ground that their property had been sold and the proceeds applied in paying Mr Thow's debt. But I think that Mr Thow would have been entitled to prove by parole that, although he bound himself as a principal to the bank, the debt was not really his but Charles Young's, and that the members of the Young family had agreed that he should be kept indemnis out of the proceeds of the securities. Of course no such agreement is to be found within the four corners of the bond, and if attention is confined to what is contained in the bond alone the inference would be quite the other way, viz., that the loss must ultimately fall upon Mr Thow and not upon the owners of the securities. But the bond was not intended to contain the agreement between the co-obligants and the owners of the securities, but only the rights which they desired to confer upon the creditor, and accordingly extrinsic evidence may be resorted to in order to clear up the true rights of the co-obligants and security owners inter se. The position seems to be very similar to that which would have arisen if Mr Thow, after paying the bank, had sued Charles Young for repayment of the whole debt. In that case he would have been entitled to prove by parole that Charles Young was the true debtor and he himself only a cautioner, although if no further evidence had been adduced than what was contained in the bond alone, Mr Thow would have been entitled to be relieved only of a rateable proportion of the debt.

I accordingly allow Mr Thow's trustee a proof before answer of his averments and to the other claimants a conjunct probation.”

On 11th June 1909, after the proof, his Lordship pronounced an interlocutor in which he, inter alia, ranked and preferred the claimant Nicol to one-fifth of the fund in medio, and the various members of the Young family (other than C. D. Young) to the balance thereof.

Opinion.—“Having heard the proof, I have come to the conclusion that the claimant Mr Thow's trustee has failed to prove that there was any agreement between Mr Thow and his co-cautioner Mr Mortimer on the one hand, and the members of the Young family on the other hand, to the effect that the cautioners should be indemnified out of the proceeds of the securities pledged by the Young family. It was quite natural on the part of Mr Thow and Mr Mortimer to believe, as I think they did, that they were entitled to such an indemnity, seeing that they were strangers in blood to the principal debtor Charles Duff Young, and that the securities belonged to the principal debtor and to his brother and three sisters. Such a belief on the part of the cautioners goes, however, a very small way towards proving the existence of an agreement of the kind alleged by Mr Thow's trustee.

“Counsel for Mr Thow's trustee further argued that in the absence of any agreement for an indemnity, Mr Thow, being a cautioner, was entitled to be indemnified out of the securities conveyed to the bank in the cash account bond. I entirely assent to this argument in so far as it relates to the security subjects belonging to and pledged by the principal debtor. I am, however, unable to discover any legal ground for holding that the security subjects which belonged to the brother and sisters of the principal debtor, and which they pledged to the bank in security of the joint and several personal obligation of the principal debtor and his cautioners fall to be applied in indemnifying the cautioners. It will, of course, be kept in view that the brother and sisters of the principal debtor did not undertake personal liability for the debt. Nor am I able to hold that the loss suffered by the cautioner ought to be apportioned between him and the owners of the security subjects.

Lastly, it was argued that Mr Thow having obtained an assignation of the cash account bonds from the bank, his trustee had in virtue of the assignation the same rights quoad the security subjects as were possessed by the bank. In regard to this argument I adhere to the view which I expressed in the note to my former interlocutor to the effect that, while an assignation is a useful piece of machinery, it does not alter the substantial rights of the parties.”

The claimant Nicol (Thow's trustee) reclaimed, and argued—The terms of the bond showed that all the parties to it were co-sureties, and that being so, the reclaimer was entitled to relief—Bell's Prin., sec. 255; Gloag and Irvine on Rights in Security, p. 760, et seq. Moreover, he had an express assignation to the security pledged to the bank. He was therefore entitled to a pro rata contribution from the various members of the Young family. Esto that the Young family were not bound as principals, but merely as collateral cautioners, such cautioners were, in the absence of a clear indication to the contrary, as much bound as the original cautioners, for the law presumed that they had intervened on behalf of the principal debtor—Bell's Prin., sec. 272 ( note); Lennox and Others v. Campbell, May 18, 1815, F.C.; Thorburn v. Howie, July 16, 1863, 1 Macph. 1169; Walker v. Inglis, May 30, 1827, 5 S. 726 (341), aff. March 3, 1830, 4 W. & S. 40; Dering v. Earl of Winchelsea, (1787) 1 Cox 318, 1 R.R. 41; Parsons v. Briddock, (1708) 2 Vernon 608; Goddard v. White, (1860) 2 Gifford 449; Wright v. Morley, (1805) 11 Vesey 11, at p. 21; Rowlatt on Principal and Surety, 201.

Argued for the claimants, the Young family (respondents) — The respondents were cautioners for the cautioners, not for the principal debtor. That was plain from the terms of the bond. They were only bound therefore as secondary cautioners, and could not be called on where, as here, the primary cautioners had fulfilled the obligation. As to the distinction between primary and secondary cautioners, reference was made to Bell's Prin., sec. 245;

Page: 327↓

Bell's Com., i, p. 364; Gloag and Irvine ( op. cit.) 642; Inglis v. Walker, cit. sup.; and Craythorne v. Swinburne, (1807) 14 Vesey 160, at p. 170.

At advising—