Payment of Another's Debt, Unjustified Enrichment and ad hoc Agency
| Author | Niall R Whitty,Laura J Macgregor |
| Pages | 57-87 |
| Date | 01 January 2011 |
| DOI | 10.3366/elr.2011.0004 |
| Published date | 01 January 2011 |
In 1822, discussing the question whether paying another's debt extinguishes it, Baron Hume suggested that “it may be very long before such a question come to trial”.
Baron David Hume,
2005 SLT 281.
In what circumstances does Scots private law recognise the power of a third party to extinguish another's debt by making a payment to the creditor?
Where a third party, not being the debtor's agent, has extinguished another's debt by an authorised or unauthorised payment, upon what ground, if any, is the third party entitled to claim reimbursement of his expenditure from the debtor?
What are the implications for the law of agency of a new doctrine of
While the accounting and payment functions were being transferred, all payments were temporarily halted.
On 27 May Fairbar sent to Goldapple's bankers, the Royal Bank of Scotland, a cheque in favour of Goldapple, for the amount of rent due, for crediting to Goldapple's account. The cheque was cleared on 3 June and credited to Goldapple's account. On 31 May Goldapple's solicitors telephoned Whitbread's solicitors to inform them that the payment would be returned because it had been received from the third party Fairbar rather than the tenant, Whitbread. The judge found that the result of discussions between the parties' agents was an agreement that the Fairbar cheque should be returned by Goldapple and that thereafter Whitbread should be given an opportunity to make payment of the rent by another means. On Goldapple's instructions, RBS returned the payment to Fairbar, which received it on 11 June. When this cheque was repaid, Whitbread made another attempt to pay the rent, on 12 June, but failed because of a mistake in the account number. On 6 July Whitbread's new attempt to pay the rent (by CHAPS) also failed because by then Goldapple had instructed RBS not to accept it.
Meantime Goldapple began proceedings to irritate the lease by serving a pre-irritancy notice on 11 June and a notice of irritancy on 29 June, and by raising an action of declarator of irritancy on 6 July. Whitbread reacted by raising an action in the Court of Session of reduction of the two notices and declarator that the lease continued to exist. Lord Drummond Young rejected Goldapple's argument that Fairbar's payment of 27 May was not a valid payment of the rent due by Whitbread. He held that Fairbar had paid the money as an
Unfortunately, counsel omitted to cite to the court the main Scottish authorities which do and should govern the situation of payment of another's debt,
Para 10.
so that Lord Drummond Young felt bound (in his words) “to go back to first principles”.Para 11.
Para 13.
From the following facts Lord Drummond Young inferred that Fairbar was acting as Whitbread's
Para 19, head 1.
First, though Fairbar was in occupation, the obligation to pay the rent was Whitbread's, not Fairbar's. The tenant's interest had not been assigned, and could not be effectually assigned without Goldapple's consent as landlords. Second, the business transfer agreement between Whitbread and and Fairbar specifically recognised that the obligation to pay the rent remained with Whitbread and obliged Fairbar to reimburse Whitbread for the rent.This agreement purported to transfer “the beneficial interest” of Whitbread in the relevant assets to Fairbar and to procure that “the legal interest” (sic) should be transferred in due course. Lord Drummond Young commented at para 18 that: “The distinction between legal and beneficial interest is a fundamental part of the English law of property, but it obviously forms no part of Scots law.” He pointed out that there was no trust which alone in Scots law can create a beneficial interest. “Consequently the tenant's interest under the lease … was not transferred in any way by the business transfer agreement.”
Lord Drummond Young did not think that Fairbar had made the payment of 27 May “in its own right” because the business transfer agreement recognised that the obligation to pay rent remained Whitbread's. The use of a Fairbar cheque was administratively convenient, in that all debts of Whitbread's pubs and bars division payable after 10 May were paid using Fairbar cheques. The payments themselves were effected on Fairbar's behalf by employees of Whitbread. When the arrangements governing such payments were looked at in the light of the business transfer agreement, it was clear that the intention was that Fairbar funds should be used to pay a Whitbread debt. The judge deemed this to be wholly consistent with Fairbar's acting as agent for Whitbread in respect of such payment.
Lord Drummond Young summarised his view of the law applicable as follows:
[11] Although a number of authorities on the payment of debts were cited by counsel in the course of their arguments, none appeared to govern the present situation. In these circumstances it is necessary to go back to first principles and analyse the requirements of a valid payment …
[12]… I am of opinion that the following principles are relevant to the Fairbar cheque of 27 May. First, it is necessary to keep in mind the elementary point that the purpose of payment is normally to discharge a debt, and nothing more. Consequently, there is generally no need to have regard to the wider context of the contract under which the debt arises; to do so would in my view introduce unnecessary complexity into what should be a very straightforward area of law. One exception exists, however; if the person paying the debt attempts to attach conditions to his payment, it may then be necessary to look at the wider contractual context.
[13] Secondly, it is common for payment to be made by someone other than the debtor in the relevant obligation. This is particularly true of members of a family where, for example, a husband may pay his wife's debt, or a wife her husband's. The same is true of groups of companies, where it is not unusual for one company in the group to pay a debt owed by another company to a person outside the group. The key to the analysis of such cases lies in my opinion in the concept of
[14] Thirdly, if the correct analysis is
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