United Kingdom House of Lords Decisions

Paterson and Harwood, hat-manufacturers in London, were in the practice of employing Peter Morton as their agent in Glasgow; and having got into pecuniary difficulties, they made arrangements with him for raising money by means of accommodation bills. With this view, and by their instructions, he drew bills in their favour on Hance, Son, and Weise, merchants in London, by whom they were accepted and paid. Among other bills were two,—one for L.479. 3s. dated 23d June 1815, and another for L. 294. 17s. dated 24th July 1815. Paterson and Harwood having stopped payment, called a meeting of their creditors on the 11 th of September 1815, and the following resolutions were entered into:—

“It being proposed by Messrs Paterson and Harwood, to pay a composition of 10s. in the pound on their several debts,—9s. in the pound to be secured to the creditors by three bills of exchange, drawn by Mr Ralph Harwood, of Kirby Moorside, Yorkshire, upon and accepted by Messrs Paterson and Harwood, for the amount of 3s. in the pound each, payable at four, eight, and twelve months, and by the promissory-note of Messrs Paterson and Harwood for 1s. in the pound, payable at ten months' date, the last of the three bills of exchange to have the indorsement of Mr James Orr, of Size Lane: We do agree to accept of the said composition, on all the creditors of Messrs Paterson and Harwood agreeing thereto, and to give a release to Messrs Paterson and Harwood, on all the creditors so coming in, and on the several bills and notes being duly paid, and to execute a proper deed for that purpose; such deed to be prepared at the expense of Messrs Paterson and Harwood.

We creditors not having had a sufficient opportunity of satisfying themselves as to the responsibility of Mr Ralph Harwood, his security is accepted only subject to the approbation of Mr Ryle, Messrs Hance and Company, Messrs White, Custon and

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Company, and Messrs Cook and Metcalf, to be Signified by their first signing the proposed deed.

Resolved, That the following gentlemen be deputed to obtain the concurrence of such bill-holders and other creditors as are not now present, to the above propositions, viz. Mr Hance, Mr Watt, Mr Metcalf, and Mr Paynter.”

It was alleged by the appellants, that Hance, Son, and Weise, concurred in these resolutions.

On the 16th of October, (at which time the bill for L.294. 17s. was in the circle), Morton wrote to Hance, Son, and Weise, in these terms:—

“My draft on you for L.294. 17s. due on the 27th instant, drawn by me by desire of Messrs Paterson and Harwood, and remitted them for their accommodation, I beg to know whether you retain funds of theirs to pay it when due, or that it will return upon me for payment. I am,” &c.—To this they answered on the 19th: “We are this day favoured with yours of the 16th current; and in reply to its contents beg to apprize you, that Mr Paterson, of the firm of Paterson and Harwood, left here on Sunday last by the smack; and we should presume, that ere this comes to hand he will have arrived at Glasgow, and fully explained to you the situation in which we are placed in regard to your draft for L. 294. 17s. due the 27th instant. Should he however not have arrived, we will state to you the particulars for your guidance. Instead of retaining any funds belonging Paterson and Harwood, we are creditors under their estate to the amount of L. 1600, or thereabouts, for goods and money advanced them; and that certainly without your assistance we shall be placed in a very unpleasant situation; for we cannot, both for your credit and our own, let the bill go back, as we understand from Paterson and Company that you hold back from them funds sufficient for the payment of this acceptance, till you know whether it is paid or not. The better plan will be, for the preservation of our credit, for you to remit us the amount, in order that the acceptance may be duly honoured, or else enable Paterson to do so, and which you may fully rely will be only appropriated to that purpose. However, on this subject we doubt not but Mr Paterson will be able fully to satisfy you.”

The bill was retired by Hance, Son, and Weise.

On the 11th of November the creditors (including Hance, Son, and Weise) entered into the following agreement:—

“Memorandum. It being proposed by Messrs Paterson and Harwood to pay a composition of 6s. in the pound upon their several debts,

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secured in the following manner, viz. two shillings at four months, two shillings at eight months, and two shillings at twelve months, in three bills of exchange, drawn by Mr Ralph Harwood, of Kirby Moorside, Yorkshire, upon and accepted by Messrs Paterson and Harwood; the last of the three bills to be additionally secured to the creditors by the indorsement of Mr James Orr, of Size Lane, London, and which bills are to be dated the 22d instant:—We do hereby agree to accept of the said composition of 6s. in the pound, on all the creditors of Messrs Paterson and Harwood agreeing thereto on or before the 22d, (at the same time it being left in the power of Mr James Hance, Mr George Ledger, and Mr R. Heath, to extend the time to a period not exceeding fourteen days, should they deem it advisable); and to give a release to Messrs Paterson and Harwood, on condition of all the bills being duly paid, (but in case either of the three bills shall not be duly paid, each creditor shall be at liberty to proceed against Messrs Paterson and Harwood for the full amount of their respective debts), and to execute a proper deed for that purpose; such deed to be prepared at the expense of Messrs Paterson and Harwood.”

A regular deed in these terms was extended, and subscribed by Hance, Son, and Weise; and, on the 22d they prolonged the time for obtaining the consent of all the creditors, which was eventually procured.

In December, Hance, Son, and Weise raised an action before the Magistrates of Glasgow against Morton, for payment of the bills for L.479. 3s. and L.294. 17s. drawn by him in favour of Paterson and Harwood, and accepted and paid by Hance, Son, and Weise, on the allegation that they had done so without having received any value from Morton. On the other hand, Paterson and Harwood, (in whose right the appellants, as assignees, now stood), founding on a holograph account by Morton, brought an action also before the Magistrates, for payment of a balance of L.620. 1s. 1 ½d.; so that, in this way, a competition arose between Hance, Son, and Weise, and Paterson and Harwood, for the fund which Morton admitted to be in his hands, and which the Magistrates ordered to be consigned. In the latter of these processes appearance was made by Hance, Son, and Weise, and after conjoining them, and a great deal of procedure, the Magistrates pronounced this judgment:—

“Find, that the compearers (Hance, Son, and Weise) have declined adducing any further proof: Find, that in the special circumstances of the case, as appearing from the admissions of parties, and the written evidence adduced, the compearers have not established any claim

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against the defender Morton personally, on the ground of the bills in question having been drawn by the defender, and accepted by the compearers for the defender's accommodation; or of the defender having indirectly derived benefit from the acceptance by the compearers of the said drafts; or of the defender having thereby virtually interposed his credit or guarantee for the pursuers, or otherwise, so as to render the defender, the drawer of the bills, liable to the compearers, the acceptors; or so as to render the defender liable to the compearers for the debts of the pursuers; and to entitle or bind the defender to retain the funds which he formerly held belonging to the pursuers, and which are now in medio, in relief of his own engagements, or of the engagements of the compearers on account of the pursuers. Farther find, that, in the circumstances of this case, as appearing from the admissions of parties and the written evidence adduced, the compearers have not established any preferable claim to the said funds which the defender formerly held, and which are now in medio in a competition with the other creditors or assignees of the pursuers, through the medium of the said bills, drawn by the defender, and accepted by the compearers, or by the use of legal diligence, or otherwise; and appear also to be precluded from insisting in any such preferable claim by the arrangement which the pursuers are stated to have made with their creditors, and to which the compearers are stated to have been parties. Accordingly, prefer the assignees of the pursuers to the funds in medio, reserving to the compearers their right to prove, and to be ranked pari passu on the estate of the pursuers. Further, find the defender seems to be entitled to expenses, inasmuch as he was interpelled from paying the funds in medio to the pursuers or their assignees, by the action against him at the instance of the compearers. And, before issuing any order with regard to the payment of the funds in medio, remit to the auditor to tax the defender's expenses. Finally, find that, in the circumstances of the case, there do do not appear to be sufficient grounds for subjecting the compearers in the expenses occasioned by their urging a preferable claim to the funds in medio.”

Hance, Son, and Weise, having advocated, the Lord Ordinary pronounced this interlocutor:—

“Finds, that the defender, Peter Morton, was bound to relieve the advocators of the engagement which they came under, by accepting and retiring the two bills in question, drawn by him upon them, without value, for the accommodation of the defender and

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of Paterson and Harwood, for whom he acted as agent: Finds, that the said defender was bound to retain in his hands, and thereafter to remit to the advocators, the funds which came into his possession belonging to Paterson and Harwood, in payment of the bills which had been accepted by the advocators, trusting to the security of these funds, and to the defender's holding goods of Paterson and Harwood sufficient to pay the bills which he drew on the advocators: Finds, that the advocators are not barred from insisting in their claim on the money which was consigned by order of the Magistrates, or in their claim against the defender, Peter Morton, arising out of the nature of their transactions, and out of the correspondence between them, by the alleged arrangement with the creditors of Paterson and Harwood.”

Thereafter, his Lordship decerned in terms of the libel at the instance of Hance, Son, and Weise, and ordained the consigned money to be paid to them. To these interlocutors the Court adhered on the 8th December 1820, and 9th February 1821. ^*

Orr and Harwood, assignees of Paterson and Harwood, appealed; but no case was lodged by the respondents.

Appellants.—The funds in the hands of Morton belonged to the bankrupts, Paterson and Harwood. Hance, Son, and Weise, were creditors of the bankrupts, and had no right to any preference over these or any other funds belonging to them. They acceded to the composition contract, and have received payment in terms of it; and by that accession they discharged all claim on the funds. But the appellants were the cautioners under the composition contract, and as such received an assignation in relief. They alone, consequently, are entitled to the fund in question.

The House of Lords ordered and adjudged, “that the interlocutors complained of be reversed; and the Lords find, that the appellants, James Orr and Ralph Harwood, assignees of Paterson and Harwood, are entitled to the funds in medio: And it is further ordered, that the cause be remitted back to the Court of Session, to do further therein as shall be consistent with this judgment, and as shall be just.”