THE ROYAL BANK of SCOTLAND Ltd v BROWN
| Jurisdiction | Scotland |
| Judgment Date | 05 February 1982 |
| Docket Number | No. 16. |
| Date | 05 February 1982 |
| Court | Court of Session (Inner House - Second Division) |
SECOND DIVISION.
Lord Maxwell.
PrescriptionQuinquennial prescriptionCautionary obligationGuarantee of sums due by principal debtor to creditorGuarantors bound to make "full and final payment on demand"Whether prescription begins to run from date obligation first became enforceable against guarantors or from date on which payment first demanded from them by creditorPrescription and Limitation (Scotland) Act 1973 (cap. 52), sec. 6 (1), (3)1and Sch. 2, para. 2 (1), (2)2.
A company borrowed money from a bank. Two persons entered into a contract of guarantee with the bank, in terms of which they obliged themselves, jointly and severally, to make "full and final payment on demand of all sums and obligations due or to become due" to the bank by the company as principal debtor. Some years later the company went into liquidation, and in September 1969 the bank presented a claim in the liquidation, the company, at the time of liquidation, being indebted in a large sum to the bank. On 27th May 1974 the bank made written demands on the two guarantors for payment of the outstanding debt, and certain payments were made by them to the bank, still, however, leaving a considerable balance of the debt. On 23rd May 1979, the two guarantors having since died, the bank raised an action against their respective executors, heirs and representatives, for payment of the outstanding balance. The executors nominate of one of the guarantors defended the action, pleading, inter alia, that the action was irrelevant and should be dismissed. At procedure roll it
was contended that sec. 6 of the Prescription and Limitation (Scotland) Act 1973 had operated to extinguish the obligation to make payment in terms of the contract of guarantee, since that obligation had subsisted for a period of more than five years from the date upon which it had become enforceable, namely, September 1969, when the bank presented the claim in the liquidation, that being the "appropriate date" for the purposes of sec. 6 (1) of the 1973 Act. For the bank it was argued that the "appropriate date" was the date of the written demand for payment made to the guarantors on 27th May 1974. The obligation was one to which the provisions of para. 2 of Sch. 2 to the 1973 Act applied, the word "debtor" used there comprehending a guarantor. There being no stipulation within the terms of the contract of guarantee making provision for the date of repayment by the guarantors to the creditor, the date of repayment was as provided for in para. 2 (2) (b) of Sch. 2. If the obligation did not fall within the ambit of para. 2, then it must fall within that of Sec. 6 (3) of the Act, in which case the appropriate date was the date on which it became enforceable. The obligation did not become enforceable upon presentation of the pursuer's claim in the liquidation of the company, but when demand was made to the guarantors for payment. The use of the term "on demand" in the contract of guarantee was not otiose, but rather made demand a condition precedent to the obligation becoming prestable. The appropriate date was accordingly 27th May 1974, and the action had been raised within five years from that date. The Lord Ordinary (Maxwell) upheld the contentions advanced on behalf of the defenders and sustained their plea to the relevancy, dismissing the action. The bank reclaimedHeld, allowing the reclaiming motion, (1) that the word "debtor" had the same meaning in para. 2 (1) and 2 (2) (b) of Sch. 2 to the 1973 Act and referred to the principal debtor in the obligations described therein and did not comprehend a guarantor.
(2) That the words "on demand" in the contract of guarantee were not otiose, or mere words of style without significance, but created a condition precedent to the obligation becoming prestable and enforceable.
Wilson v. Tait (1840) 1 Rob. App. 137distinguished.
In Re Brown's EstateELR [1893] 2 Ch. 300 andBradford Old Bank Ltd. v. SutcliffeELR [1918] 2 K.B. 833considered.
(3) That accordingly the appropriate date for the purposes of sec. 6 (1) of the 1973 Act was 27th May 1974, and the action had therefore been raised within five years from that date.
The Royal Bank of Scotland Limited raised an action against the widow and only heir of the late Henry M'Callum Brown, the heirs executors and representatives whomsoever of the late Henry M'Callum Brown and the executors nominate of the late Robert Brown, concluding for payment of the sum of 53,800. Decree in absence was taken against the first and second defenders, and the action was defended by the third defenders. After a hearing on procedure roll the Lord Ordinary (Maxwell) sustained the defender's plea to the relevancy and dismissed the action.
At advising on 5th February 1982,
LORD JUSTICE-CLERK (Wheatley).The facts on which this action proceeds are set out in the Lord Ordinary's opinion which, under reference to the pleadings in the Closed Record, obviates the need for them being recited once again. To all intents and purposes the submissions made to this Court were with one exception those which were submitted to the Lord Ordinary who dealt with them fully in his opinion, and so once again I find it unnecessary to repeat them in extenso. This enables me to go straight to the outstanding issues.
The basic question is whether the obligation on which the pursuers found their action had been extinguished by the quinquennial prescription under section 6 of the Prescription and Limitation (Scotland) Act 1973 (hereinafter referred to as "the Act") before the action was raised on 23rd May 1979. The pursuers maintain that the terminus aquo the prescription ran was 27th May 1974 when they sent a letter to the guarantor which was in effect a demand for payment under the guarantee. The defenders submit that the terminus a quo was at least 1st September 1969 when the pursuers made a claim in the liquidation of the company for the sum then alleged to be due to them. The actual date, 1st September 1969, may be of doubtful accuracy, but it is agreed that that date is substantially correct and that any variation therefrom is of no significance or materiality for the purpose of the argument.
It was common ground...
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