John M'Dowal, Merchant in Glasgow, and Alexander Gray, W.S. Edinburgh v. Annand and Colhoun's Assignees, Merchants [1776] UKHL 2_Paton_387

UKHL
John M'Dowal, Merchant in Glasgow, and Alexander Gray, W.S. Edinburgh v. Annand and Colhoun's Assignees, Merchants
[1776] UKHL 2_Paton_387 · 1776-02-26
possession, were to be preferred to an arresting creditor. The oath of one of the bankrupts of the company allowed to be taken to prove that he had the bills returned to him, not for behoof of the company, but in trust for the guarantees.Two parties became guarantee for a company, on the latter depositing bills due to them in their hands as a security. This was done, and a list of the bills drawn out and handed over, and a receipt granted by the guarantees. They were immediately delivered to one of the partners of the company, who discounted and used some of them for company purposes. Held, on failure of the company, that the guarantees, though they had thus parted with

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Mr. Ebenezer M'Cullock and George Young carried on business as merchants in Edinburgh, under the firm of Ebenezer M'Cullock and Company.The appellant, M'Dowall, was married to M'Cullock's daughter, and Mr. Gray was the professional agent of the company.Dec. 3, 1768.In 1768, M'Cullock and Young were in difficulties for want of money to carry on their business; and, with the view of supporting their credit, they resorted to the plan of drawing and circulating bills, and proposed to M'Dowal and Gray, in the following letter from M'Cullock to the former, that they should be guarantees for the company:
“Mr.Young and I will have some £3000 or £4000 to meet, and for which, without discounting bills, we cannot make certain provision, unless we are at liberty to value upon London, and then it is customary to give a letter of credit. I wish to be in a capacity in either shape, and therefore would propose to ask the favour of you and my friend Alexander Gray, writer to the Signet, to give such a letter of credit in our favour to the house of Malcolm, Hamilton and Company, London, to the amount of £3000 and 4000. And, for your and Mr. Gray's security, I shall put an equal value in bills due to Mr. Young and me, (but at long dates,) into Mr. Gray's hands for your security .”

Dec. 15,——

Dec. 26,——

In answer to this, Mr. M'Dowal wrote:—

“If it can be of any service I am willing; and shall be satisfied with Mr. Alexander Gray's taking the needful from you and Mr. Young to make us safe.”

And the following letter was addressed and signed by both:—

“To Messrs. Malcolm, Hamilton and Co. Gentlemen,—Messrs. Ebenezer M'Cullock and Company have been, and are still, in the course of holding with your house an exchange account, by drawing bills and making remittances from time to time, as they have occasion, we, John M'Dowal, merchant in Glasgow, and Alexander Gray, writer to the Signet, do hereby oblige ourselves to see you duly reimbursed for such bills as these gentlemen have already drawn, or may have occasion to draw, to the extent of £5000 sterling. We are,”
&c.

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A parcel of bills was then brought, along with a particular list thereof, the names by whom due, the dates and time when payable. In this list were two bills, one due by James Murray, for £206. The other by D. M'llmun for £708; and another by same party, for £934. At the bottom of this list there was an acknowledgment signed by Gray, that the above bills in the list, sixteen in number, were lodged with him “in security of relief from the effect of a letter of credit subscribed by me and John M'Dowal, amount £5050.”These bills, however, were given back to Young, that he might keep them as trustee for Gray, and some of their contents were thereafter uplifted and appropriated in carrying on the company business by Young, with whom they were so deposited.In December 1769, M'Cullock and Company stopped payment, and the respondents, Annand and Colhoun, being creditors of the company in £6000, were involved and made bankrupts by that failure. They had previously used arrestments in the hands of M'Cullock and Company's debtors, to secure as much as they could, and among the sums attached by their arrestments, were the sum due by D. M'llmun of £879. 5s. 7d.—And the sum of £63, being the balance of the bill due to the company by James Murray of Leith, both mentioned in the above list.The appellants, Gray and M'Dowal, also arrested for relief of their guarantee; but seeing that they had no chance, in virtue of the arrestment, the respondents being prior in date, they claimed to be preferred to these two bills, on the ground that they were transferred to the appellants, Gray and M'Dowal, in security of their letter of guarantee, conform to the list and docquet above referred to. A competition thus arose in an action brought for the purpose, and a proof being allowed of the facts, it appeared that the bills were placed in the hands of Gray as a security, and afterwards returned by him to Young, to be kept by him, not in the company's counting house, but at his own house, in a particular repository, under the care of Mackie, a clerk, who had the key, and access to which was not allowed to the company. They were tied up by themselves, and backed, “Note of bills deposited with Mr. Alex. Gray.” The company had also a receipt signed by Mr. Gray, as having received those bills in security, and which receipt was put up along with the company's bills—that when the company were greatly pressed for want of money, Young yielded with

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Aug. 5, 1774.The Lords, of this date, found “that Messrs. Annand and Colhoun, and their assignees, have the preferable right to the sums in question, and therefore grant warrant to, and ordain the factor to pay the same to them and their attorney accordingly, with such interest as shall be due thereon, in terms of his factory, and decern;” and, on reclaiming petition, the Court adhered.Jan. 18, 1775.Against these interlocutors the present appeal was brought to the House of Lords.Pleaded for the Appellants .—The condition of the appellants' becoming guarantee for M'Cullock and Company to Malcolm, Hamilton and Company, was, that M'Cullock and Company should lodge or deposit, in Gray's hands, for their mutual security, bills equal in amount to the letter of credit they gave, so that they might operate their relief against these in case M'Cullock and Company failed to pay. They gave a letter of credit for £5000, in terms of M'Cullock's request, on the condition stipulated. This condition was complied with, and bills to the amount of £5050, due to M'Cullock and Company, but drawn at long dates, were handed to Gray “ in security of relief from the effect of a letter of credit ,” as the receipt expressly bore, besides further setting forth that “on your relieving us of that engagement, we are to return you the above bills.” So ran the receipt signed by Gray and M'Dowal, and such was the nature of the transaction between the parties. Looking, therefore, to the circumstances of the transaction, proved beyond all doubt—the treaty for depositing the bills—the indorsement and actual delivery of the bills to Gray by Ebenezer M'Cullock and Company—his granting a receipt for the same, setting forth that he held them in security of relief from the effect of a letter of credit granted by the appellants—the delivery of these bills by Gray to George Young, to be kept by him for the use and security of the appellants—the lodging of these by Young in his own private custody,

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Bank, vol. 2, p. 657.Ersk. Inst. p. 669.Pleaded for the Respondent .—The tendency of what the appellant contends for in this case, would be to open a door

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After hearing counsel, it was

Ordered and adjudged that the interlocutors of the 5th of August 1774, and 18th January 1775, complained of, be reversed , and that the interlocutor of the 7th of December

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Counsel: For Appellants, E. Thurlow, Ja. Wallace. For Respondents, Al. Wedderburn, Alex. Murray, Ar. Macdonald.Unreported in the Court of Session.