Royal Bank of Scotland v Greenshields
| Jurisdiction | Scotland |
| Judgment Date | 14 January 1914 |
| Docket Number | No. 35. |
| Date | 14 January 1914 |
| Court | Court of Session |
Lord Cullen, Lord President, Lord Johnston, Lord Mackenzie, Lord Skerrington.
Cautioner—Bank—Bank's duty to cautioner—Disclosure of principal's indebtedness.
H., whose bank account was overdrawn to the extent of about £300, and who was also indebted to the bank to the amount of about £1100 in respect of certain accommodation bills, requested G., an acquaintance who had no knowledge of his financial position and in particular of his indebtedness to the bank, to guarantee his account to the extent of £300. The latter expressed to the bank-agent his willingness to undertake a guarantee to that amount, and was informed by the agent that a guarantee of £300 might not assist the principal debtor, as that sum would be taken up by the bank. The agent, however, did not make any disclosure of the principal's further indebtedness of £1100 under the bills, and G., believing an overdraft of £300 to be the sole debt, granted a guarantee for £500.
The principal having failed to discharge his debt to the bank, G. resisted an action for payment under the guarantee, on the ground that he had been persuaded to undertake it under essential error induced by the failure of the bank-agent to discharge his duty of disclosing the existence of the principal's indebtedness under the bills.
Circumstances in which held (rev. judgment of Lord Cullen) that there was no such duty of disclosure, and decree for payment granted.
Observations, per the Lord President and Lord Mackenzie, on the circumstances in which a bank-agent might have a duty to disclose to an intending guarantor the state of the principal's indebtedness to the bank.
Cautioner—Bank—Verbal representations by bank-agent as to customer's credit—Mercantile Law Amendment Act, 1856 (19 and 20 Vict. cap. 60), sec. 6.
Opinion reserved, per the Lord President, as to whether section 6 of the Mercantile Law Amendment Act, 1856—which provides that representations as to a person's credit made for the purpose of enabling that person to obtain credit or money shall be of no effect unless in writing—applied to representations made by a bank-agent to an intending guarantor of the account of one of the bank's customers.
On 3rd August 1911 the Royal Bank of Scotland brought an action against James John Greenshields, of Kerse, Lesmahagow, in which the pursuers claimed payment of the sum of £500, being the amount alleged to be due by the defender in terms of a letter of guarantee, dated 5th November 1905, granted by him in favour of the bank. In the letter founded on the defender undertook a general guarantee of the indebtedness to the bank of John Hutchison to the amount of £500.
The estates of John Hutchison were sequestrated on 13th December 1909, and yielded a first and final dividend of 4d. in the pound, and thereafter the pursuers raised the present action.
The defender lodged a statement of facts, in which he averred:—(Stat. 1) ‘About the beginning of November 1908 John Hutchison applied to defender to become cautioner for him to pursuers to the extent of £300, in order that he might in future obtain greater facilities than he then possessed with pursuers for the profitable working of his business. Defender had met Hutchison as a boy on the occasion of defenders visits to his uncle at Kerse many years before, but at this date Hutchison was known to defender only through odd jobs which he had as a joiner done for defender, and from casual contact with him as a residenter in defender's locality. Defender told Hutchison that he would require to see Mr Allan, pursuers' agent at their branch bank at Lesmahagow, with regard to Hutchison's financial condition generally and his position with the bank, before undertaking any such guarantee. Defender was a customer of pursuers, and expected to receive full and correct information as to Hutchison's financial position, and to get every consideration and perfect fairness in the inquiries he was about to make. …’ (Stat. 2) ‘An interview followed between Mr Allan and defender on 3rd November 1908 in Mr Allan's private room at pursuers' branch bank at Lesmahagow. At said interview, in answer to defender's questions as to Hutchison's financial position and as to the extent of the risk he would run in guaranteeing Hutchison, Mr Allan represented to and assured defender that the risk was a fair one for the defender to undertake, and would involve no loss to him, that Hutchison required temporary accommodation with the bank merely in order to enable him to carry on his business on more profitable lines, that Hutchison was doing very well and was making money out of a contract in connection with the Abbey Green United Free Church at Lesmahagow, and that his family were now a help to him in his business instead of a burden on him. Allan represented and led defender to believe that there was nothing in Hutchison's transactions with pursuers which required to be disclosed to defender as material to the risk he was asked to undertake in guaranteeing Hutchison, that Hutchison's total indebtedness to the pursuers was less than £300, and that his affairs were in a prosperous condition. In view of the favourable report he had just received, defender assented to the latter's suggestion then made to increase the guarantee to £500, so that it would be of material assistance to Hutchison. Shortly thereafter the defender, in presence of Mr Allan, stated to Hutchison that Mr Allan had given him such a good account of his (Hutchison's) affairs that he would undertake the guarantee. To this statement Allan tacitly assented. Following upon this interview defender, on 5th November 1908, signed the guarantee for £500 now founded on by pursuers. In making said representations in course of said interview with defender Mr Allan was acting for and on behalf of pursuers, and within the scope of his ordinary duties as pursuers' agent. …’ (Stat. 3) ‘Defender has ascertained and now avers that at the date of said interview and of the signing of said guarantee Hutchison had, apart from current acceptances for ordinary trade debts, been accommodated by and was indebted to the pursuers to the extent of at least £1200, that he had been indebted in large sums to the pursuers for some considerable time prior to said interview, and that when said interview took place pursuers already held guarantees for £900 in the form of two promissory-notes, one for £500 granted by Hutchison and Mr A. L. Scott, boot manufacturer, Glasgow, and another for £400 granted by Hutchison and Dr Neil M'Coll Hutchison, Mount Florida, there. Said promissory-note for £400 was replaced by one for £500 shortly after defender signed said guarantee. The existence of this indebtedness of Hutchison to pursuers was well known to the agent Allan at the date of said interview but was not disclosed by Allan to defender. Defender further avers that pursuers had for some years prior to 5th November 1908 been aware of Hutchison's financial instability, and had called for statements of his affairs, and that it was after procuring said statements that they first insisted on Hutchison procuring personal security as a condition of their continuing to accommodate him, and obtained the guarantees of Mr Scott and Dr Hutchison. Further, the pursuers had shortly before said interview insisted on John Hutchison's finding further security for his increased indebtedness, and it was in consequence of the pursuers' pressure that Hutchison applied to the defender, although he concealed this fact from the defender. All the facts above stated were well known to Mr Allan as the pursuers' bank-agent. …’ (Stat. 4) ‘In these circumstances, the foresaid representations made by Mr Allan were false and unfounded. They were made by him fraudulently, and the true position of John Hutchison's financial affairs was fraudulently concealed by him from defender for the purpose of inducing defender to sign said guarantee, and so enabling the pursuers to obtain security for Hutchison's total indebtedness to them. Had defender been made aware of the true financial position of Hutchison, or of the extent of his indebtedness to the pursuers on 3rd November 1908, or of prior obligations having been undertaken by other third parties to pursuers on Hutchison's behalf, lie would have declined to sign said guarantee. He signed the same under essential error as to Hutchison's solvency, and his indebtedness to pursuers, induced by the misrepresentations and concealment of Allan as above set forth.’
The defender pleaded, inter alia;—(1) The defender is entitled to absolvitor, with expenses, in respect that (a) the defender having requested from pursuers' agent Allan information respecting John Hutchison's financial position, said agent failed in his duty to make full and fair disclosure to defender of the facts within his knowledge; (b) defender undertook the guarantee founded on by pursuers under essential error induced by material misrepresentations on the part of pursuers' said agent; (c) defender undertook said guarantee under essential error induced by the fraudulent misrepresentation and concealment of pursuers' said agent.
A proof was allowed and led. The Lord President summarised the effect of the evidence on the main questions of fact considered in the case in the following passage taken from his opinion:—
‘On that vital issue—as I take it, the only issue in fact in the case—the evidence of the defender, Mr Greenshields, is as follows:—He is speaking of the first interview that took place on the 3rd November between him and the bank-agent, and says “I then went on to the Bank and saw Mr Allan. I was shown into his private room. I told Mr Allan that Hutchison had applied to me for a guarantee for £300, and I asked him Hutchison's position. I am perfectly clear that I put that question. Mr Allan's reply was that Hutchison's position was a good one; that he had a contract for...
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