Promises to Lend, Collateral Warranties, and Red Herrings
| Date | 01 September 2015 |
| Pages | 384-388 |
| Published date | 01 September 2015 |
| Author | |
| DOI | 10.3366/elr.2015.0299 |
The essential facts of the litigation were that the appellant, Mr Carlyle, a property developer, had requested the respondent, the Royal Bank of Scotland, to lend him the funds necessary to purchase and develop two plots of land near Gleneagles Hotel, the intention being that he would build on the land, briefly occupy the property so built, and then sell it on at a profit. Similar developments by the appellant had been funded by the respondent in the past. At a meeting between the parties in March 2007, Mr Carlyle's proposal had been discussed, and he had made it clear that he was seeking a full commitment by the bank to fund both the purchase of the land as well as the development of it: the funding of the purchase alone was of no commercial use to him, as he did not have sufficient capital of his own to allow him to develop the land. The bank staff at the meeting, who included a Ms Hutchison, had communicated their understanding of this point, and undertook to liaise with the bank's head office to seek approval of full funding. During a subsequent telephone call, Ms Hutchison had told Mr Carlyle that “You'll be pleased to know it's all approved, Edinburgh [i.e. the bank's head office] are going for it for both houses”. In the belief that the bank had thereby committed to providing the full funding being sought for the development, Mr Carlyle proceeded to conclude contracts of loan with the bank for the purchase price of the properties (but not, at that stage, for the development costs). Ms Hutchison subsequently left the employment of the bank, and Mr Carlyle later dealt with another member of staff who appeared to be unfamiliar with his request for full development funding. In August 2008 (after the onset of the banking crisis of 2007–8), Mr Carlyle was told that the Bank was unwilling to provide the funds for the development. It called up the loans of the purchase price (which had fallen due for repayment), and subsequently raised an action against Mr Carlyle seeking repayment of the sums lent, together with interest. Mr Carlyle counter-claimed, arguing that the undertaking to provide development funding made on the telephone by Ms Hutchison, acting as the bank's agent, had amounted to a “collateral warranty” of which the bank were in breach; and alternatively that, having relied on an assurance by the bank of development finding, the bank was personally barred from seeking repayment of the loan of the purchase price.
In the Outer House, following a proof before answer, the Lord Ordinary (Glennie) held
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