John Hamilton, Bleacher, Paisley v. James Watson, Cashier to the Glasgow and Ship Bank Company [1845] UKHL 4_Bell_67

UKHL
John Hamilton, Bleacher, Paisley v. James Watson, Cashier to the Glasgow and Ship Bank Company
[1845] UKHL 4_Bell_67
A bank requiring security for a cash credit is not bound to disclose voluntarily to the proposed surety the particular application intended to be made of the money to be advanced on the credit.In 1835, Peter Elles, merchant in Glasgow, obtained from Carrick, Brown, and Co., carrying on business as bankers in Glasgow under the firm of “The Ship Bank,” a cash-credit for 750 l ., on the security of a bond for that amount by himself, David Anderson, Alexander Dewar, and James Elles.On the 24th March, 1835, the whole of the credit was drawn out. Alexander Dewar having died, the bankers, in December, 1835, wrote Elles, requesting that “the credit might either be paid up, or renewed with additional security.” Some other communications took place in regard to additional security, which went off without anything having been done.In July, 1836, Carrick, Brown, and Co. made an agreement with the Glasgow Bank Company that the business of the two banks should be merged together, and carried on under the firm of “The Glasgow and Ship Bank Company.”This was accomplished by a deed bearing date the 19th of July, 1836, between Carrick, Brown, and Co., of the first part, and the Glasgow Bank Company of the second part, whereby it was agreed, among other things, as follows:—property, bonds, personal and heritable, deposit-receipts, bills, notes, and other obligations and securities, (under the exception, reservation, and provisions after mentioned,) together also with the good-will of their said banking business, and the whole rights, privileges, and advantages thereof, as presently enjoyed by the said first party as a banking concern, in any way or manner whatsoever; all to be henceforth enjoyed and peaceably possessed by the said second party, in terms of the contract of copartnership; with full power, warrant, and authority, to the said second party to re-issue the bank notes of the said first party, so long as they shall judge it expedient so to do, and to operate payment of the bonds, bills, and others due to the said first party, (under the provision after written,) as fully and freely in all respects as the first party could do themselves: And the said first party farther bind and oblige themselves and their foresaids to hand over the said bonds, bills, and others held by them, to the second party, and to indorse and guarantee the payment of such of them as the second party shall, within one month from the date of these presents, require them to indorse and guarantee; and likewise to grant, execute, and deliver such dispositions, conveyances, and other writings as shall be necessary for divesting themselves of, and for investing the said second party in the premises in the most ample manner.”
“In consideration of the sum agreed to be paid, and obligations undertaken by the said second party as after specified, the said first party bind and oblige themselves and their foresaids, to transfer and convey from them to the said second party, the whole banking business and establishment of the said first party, and their whole

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“In consideration of the obligations before-written, and as part of the stipulated price, worth, and value of the same, the said second party hereby bind and oblige themselves and their foresaids, at one and the same time with receiving the indorsations, transfers, and conveyances aforesaid, to grant, assign, and transfer to the said Michael Rowand, for himself, and as trustee for the other partners of the said company of Carrick, Brown, and Company, according to their respective interests in the same, as fixed by their present contract of copartnership; and failing the said Michael Rowand by death, to Alexander Galloway, Junior, accountant to the said Ship Bank Company,

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“The second party bind and oblige themselves and their foresaids, to take up, pay, and retire the whole notes, deposit-receipts, and other obligations of the said first party now current, as well as the sums at the credit of the individual partners of the said Ship Bank Company in their respective stock accounts, the particulars of the said obligations, sums, and others, and of the assets placed against the same by the first party, being stated in their balance sheet, docqueted by the said Michael Rowand and Robert Findlay as relative to these presents.”
“If the second party shall decline to accept any of the bonds, bills, and other obligations, due and indebted to the first party, and to be conveyed by them as aforesaid, at the full value of the same, such bonds, bills, and other obligations shall remain with the said Michael Rowand, failing whom the said Alexander Galloway, Junior, as trustee aforesaid, for the period of

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Part of this arrangement was, that Rowand, the secretary, and Galloway, the accountant of Carrick, Brown, and Company, should be continued in the service of the united company. The union of the two banks was intimated to the public by an advertisement in the public papers of the 30th July, 1836.On the 12th of August, 1836, a letter signed by Carrick, Brown, and Company, was sent to Peter Elles in these terms:—
“Sir,—It being deemed necessary, in consequence of the junction of this bank with the Glasgow Bank, that the bonds of credit, and other obligations with these respective establishments be either called up, or renewed in the name of the new firm, I am directed to intimate to you, on behalf of the Ship Bank, that no farther operations can be allowed on your cash-credit with them for 750 l ., and that the balance due by you under said credit, must be paid up, on or before the 1st September next. Waiting your reply, we are, &c.”
Elles answered this letter by proposing to give a new bond with the same sureties, substituting his brother Malcolm Elles, a merchant in Oporto, for Dewar, deceased. On the 25th of August, Elles received a reply in these terms:—
“I have submitted your letter of the 22nd to the bank company, and am desired to say that they decline at present giving the credit requested.”

Elles then proposed the addition of the appellant

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“Sir,—We beg to inclose statement of your cash-account with us under credit for 750 l ., balanced of the 24th instant by 817 l . 10 s ., in our favour, which we trust will be found correct; and as we observe that the interest due at last settlement has not been paid, we desire that it may be attended to, with the interest due at this time. We are, Sir, your mo. obt. St.”
The proposal for giving a bond with the substitution of Elles's brother at Oporto for Dewar, seemed afterwards to have been entertained by the Bank, under the firm of Carrick, Brown, and Co., for on the 2nd May, 1837, a letter from that firm was sent to Elles in these terms:—
“Sir, I desire to know whether you have got back the bond from Oporto, sent there for your brother's signature. A great deal of delay has taken place in getting this matter completed. Waiting your answer, we are, &c.”
On the 7th of May, 1837, Elles wrote to Galloway, that his brother declined to become the surety, and saying that he could find as good in Glasgow.On the 10th May, 1837, a letter signed by Galloway, for “Carrick, Brown, and Co.” was sent to Elles, in these terms:—
“Sir, I have submitted your letter of the 7th to the Bank Co., and am directed by them to say, seeing that your brother has declined signing the bond, that they will expect the amount of your credit to be paid up at the approaching term.”
Subsequently, a bond was prepared and sent to Elles, by a letter dated 23rd August, 1837, and signed by Carrick, Brown, and Co., in these terms:—
“Sir, We enclose the bond for signature; please get it signed at the pencil-markings, and, when finished, hand us a note of the dates of subscription, and designation of the witnesses. We are, &c.”

All the letters from Carrick, Brown, and Co., were written

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On the 6th of October, 1837, the bond, which was in favour of “the Glasgow and Ship Bank Co.,” was signed by Elles and his sureties, the appellant being of the number. Its recital was in these terms:—
“We, Peter Elles, manufacturer, Glasgow, sole partner trading there under the firm of Elles, Hutcheson, and Company, manufacturers, Glasgow; David Anderson, manufacturer, Glasgow; the Reverend James Elles, minister, Salt-coats; and John Hamilton, bleacher, Blackland Mills, near Paisley, considering that the company carrying on business in Glasgow as bankers, under the firm of the Glasgow and Ship Bank Company, have agreed to allow us credit on a cash-account, to be kept in the books of the said bank company at their office in Glasgow, in name of the said firm of Elles, Hutcheson, and Company, to the amount of 750 l . sterling, on our granting these presents.”
And it bound the parties to pay the sum of 750 l ., “or such part or parts thereof as shall appear to be due to the said Glasgow and Ship Bank Company, on the said cash-account to be kept in their books in name of the said firm of Elles, Hutcheson, and Company, as aforesaid, upon their drafts or orders on, or receipts to the said Glasgow and Ship Bank Company, or the cashier or cashiers, manager, or other officer or officers for the time acting for behoof of the said banking company, or upon the drafts or orders or receipts to the said banking company, or their cashier or cashiers, manager or other officers, of any person or persons having letter or other sufficient written authority of the said Elles, Hutcheson, and Company, in virtue of the aforesaid credit, and also such sum or sums of money as the said Elles, Hutcheson, and Company shall have become liable, or stand engaged for, or be indebted, resting, and owing to the said bank company, by or on account of any bills, promissory-notes, letters of credit, guarantees or other obligations,

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It appeared from evidence not disputed by either of the parties, that the Glasgow Bank Company, in exercise of the option given to them by the deed of arrangement with Carrick, Brown, and Company, had declined to accept of debts and obligations owing to the latter firm to the amount of 349, 961 l . 15 s . 6 d , and one of these debts was the amount owing by Elles upon the original cash-credit obtained by him from Carrick, Brown, and Company. The amount owing upon the credit, stated in Carrick, Brown, and Company's letter of 27th March, 1837, to be 817 l . 10 s ., continued owing, and, with the addition of interest to 13th October, 1837, was 838 l . 7 s . 1 d .On the 13th October, 1837, Elles drew out a draft for 750 l . upon the credit which he had obtained from the Glasgow and Ship Bank. This draft, together with a sum of 88 l . 7 s . 1 d . in cash, making together the balance due on the original cash-credit, he handed to the teller of the bank-office, in which the business of the Glasgow and Ship Bank was carried on. Entries of the transaction were thereupon made in the books of the Glasgow and Ship Bank, and of Carrick, Brown, and Co. In the former, Elles's account was debited with 750 l . as drawn out, and in the latter his account was credited with 837 l . 8 s . 1 d . as having been paid. And at the same time the original bond for the cash-credit with Carrick, Brown, and Co. was cancelled and delivered up to Elles.

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In November, 1840, the Glasgow and Ship Bank gave the appellant a charge upon the bond of the 6th October, 1837, for payment of 818 l . 7 s . 3 d. , principal and interest, which was subsequently restricted to 409 l . 3 s . 7 1/2 d ., in consequence of a payment of the same amount from another of the sureties in the bond.The state of the account by which the balance charged for was brought out, was shown by the following transcript of the account:Cr. £750.Dr. Messrs. Elles, Hutcheson, and Co., in Account with the Glasgow and Ship Bank Co. Cr.1837.1837.

Oct. 13. To cash, per dft. £750 0 0 Oct. 31. By cash, £200 0 0

Nov.2.

To

5000Nov.1.

By

90003.

To

2400020.

By

400021.

To

20001838.22.

To

2000

April

3.

By

150001838.

July

12.

By

40000

April

4.

To

1500018.

By

6000

July

13.

To

4000023.

By

900019.

To

6000Sept.18.

By

1700024.

To

700021.

By

1000026.

To

2000Oct.3.

By

5000Sept.19.

To

170005.

By

500022.

To

9000Nov.27.

By

10000Oct.9.

To

400030.By balance,7876710.

To

7000Nov.30.To interest,3767To cash, per dft.10000

£2,287

67

£2,287

67Nov.30.To balance,

£787

671839.1839.Jan.22.By cash.

£ 37

67Mar.5.To cash,15000Mar.4.

By

190006.

To

4000

April

19.

By

10000

April

To

10000By balance,81873Oct.15To interest,29621840.Oct.15.To do.,3911

£1,145

1310

£1,145

1310

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The appellant presented a suspension of the charge given him, in which he assigned the following reasons for the relief he asked:
“ Reas . 14. At the time the complainer was induced to sign the bond of caution, he was not aware that Peter Elles was indebted either to the Ship Bank, or the new concern, to any extent, and he was entirely ignorant that either of them had claims against him exceeding the amount of the credit for 750 l ., which had been long past due, and for which repeated demands had been made for payment, without effect. Neither was the complainer aware, at the time he signed the bond, that Peter Elles's brother had declined to become cautioner for him. The chargers concealed all those circumstances from the knowledge of the complainer; and had he been aware of them, he would not have become a party to the bond.
Reas . 15. By the terms of the bond, the complainer and the other obligants did not become bound, or intend to become bound, for the amount of any cash-account or other debt contracted by Elles previous to its date. On the contrary, the bond was granted merely as a security for new advances to be made to Elles by the Bank, to enable him to prosecute his business; and it was upon this understanding that the complainer was induced to become a party to the bond. The chargers never informed the complainer of the real object for which the cash-credit was intended to be applied by them; and had they made a full and fair disclosure of the nature of their claims against Elles, and the purposes for which the bond was to be applied, he would never have signed it.Reas . 16. All the correspondence and negotiations with Elles, as to the settlement of the old account, and the granting of the new credit, were conducted by Mr. Rowand and Mr. Galloway, and others acting for the new company as well as the old, in the premises in Glassford-street, where the business of the new company was carried on. The chargers had acquired right to the old account, and the business of the old company merged in the new concern.

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Reas . 17. Whether the chargers had or had not acquired right to the old account, they were well aware that the new credit was to be granted and taken for the purpose of paying off the old account, of which payment could not otherwise be got. Accordingly, the chargers at once placed the whole amount of the new account to the credit of the old account, or it was so placed with their knowledge and approbation, without the money ever having been paid to Elles. The object of the chargers in this transaction was to make the complainer liable, not for any new credit to be granted to Elles, but for an old debt due by him previous to the date of the bond. This was done without the complainer's knowledge or consent; and no intimation of any kind was made to him when the amount of the credit was exhausted by its being placed to the debit of the new account, and to the credit of the old. It was not till Elles had died insolvent that any communication was made by the chargers to the complainer; and the circumstances above condescended on as to the nature of their transactions with Elles have only recently come to the knowledge of the complainer.”The respondents, while they did not admit the appellant's allegations, did not allege that they had made any communication to him of any kind in regard either to the original cash-credit, or the granting of the new one.The appellant pleaded the following pleas in law:I. As Peter Elles was largely indebted to the bank under a former cash-account, and had been repeatedly called upon to make payment without effect, and as it was well known to the chargers that he was unable to discharge this debt, and that his brother had refused to become security for him, they were bound to disclose these circumstances to the complainer at the time he signed the bond charged on; and not having done so, he is entirely liberated from his obligation.

II. By the terms of the bond, the complainer and the

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III. At all events, as the complainer was induced to sign the bond, in the belief that Peter Elles was not indebted to the bank, and that the cash-credit was intended to be applied for new advances, to enable him to prosecute his business as a merchant, and as this was well known to the chargers at the time he signed the bond, they were bound to acquaint him with the nature of their claims against Elles, and the true purpose for which the credit was intended to be applied; and having failed to do so, they have no recourse against him.IV. The business of the Ship Bank having been merged in the new concern, who acquired their debts; and all the correspondence and negotiations as to the settlement of the old account and the granting of the new credit having been conducted by Mr. Rowand and others, acting on behalf of the new company as well as the old, the chargers are bound by their proceedings, whether the old account was transferred to, or acquired by the new concern or not.V. Generally, the claims of the chargers, so far as they are directed against the complainer, are illegal and unwarrantable; and the charge ought to be simpliciter suspended.”The respondents, on the other hand, pleaded as follows:
“I. The complainer, as an obligant in the cash-credit bond in question, is bound to repay the respondents whatever sums were drawn by Elles, Hutcheson, and Company under that bond.
II. The sum charged for having been de facto drawn by Elles, Hutcheson, and Company under the bond in question, the complainer is bound in reimbursement thereof.

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III. The plea stated by the complainer in defence against the charge, with regard to the application of the money after it was drawn by Elles, Hutcheson, and Company, is irrelevant and insufficient, inasmuch as this application, whatever it might be, would not affect the liability of the cautioner for sums actually drawn under the cash-credit.IV. The alleged application of the money is in itself of no force to affect the complainer's responsibility.V. There is no sufficient ground set forth on which the bond in question can be held to have become void against the complainer. At all events, any plea going to set aside the bond as from the first, could only be competently stated in a formal process of reduction.VI. Generally, there is no ground of defence against the charge given to the complainer, either relevantly stated or truly existing.”The Lord Ordinary ( Cockburn ), on the 1st March, 1842, pronounced the following interlocutor, adding the subjoined note:
“The Lord Ordinary having heard parties and considered the process, repels the reasons of suspension; finds the letters orderly proceeded, and decerns: finds the chargers entitled to expenses, appoints an account thereof to be given in, and when lodged, remits to the auditor of Court to tax the same and report.
Note .—There can be no doubt that the general rule is, that a creditor obtaining, and still more a creditor seeking caution for his debtor, is bound to behave fairly to the proposed cautioner. The question is, what is fair behaviour?Quoad the original debt the two banks were perfectly separate parties at first; and under their contract of union they remained separate, in so far as this debt was concerned , to the last.In this situation the chargers were not bound, before accepting of the suspender as cautioner, to let him know the

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Nor is it any objection that the creditor believes that the new loan is taken in order to pay a pre-existing debt , and that he does not tell this to the cautioner. Can a bank not grant a cash-credit without telling the cautioner that the credit is probably, or even certainly, taken with the view of diminishing the debts of the person who gets it. The creditor has nothing to do with the motives of the borrower.As little is it an objection that the bank saw the whole sum in the credit drawn out, and applied by the borrower, even under its own eye, and by a transfer in its own books, to pay the former debt. It has no concern with the use which the borrower may make of his own money.These circumstances, taken each by itself, therefore, or all jointly, will not liberate the cautioner. Accordingly the suspender does not merely state them as so many substantive facts; but, in argument , he employs them as evidence that the chargers knew the debtor was greatly embarrassed , and concealed this to his injury. But no case of such undue concealment is raised on the record. It is stated, (as in Reason 14th,) that the chargers failed to communicate certain detached proceedings which they knew had taken place between the debtor “and one of his creditors, viz., the Ship Bank; but there is no general charge of concealment of the debtor's being so distressed that his state should have been disclosed. Restricted as the charge of concealment is, to a failure to communicate the detached facts sets forth , the Lord Ordinary thinks it insufficient.

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The appellant reclaimed against this interlocutor, and on the 8th December, 1842, the Court pronounced the following interlocutor:
“The Lords having advised the reclaiming note for John Hamilton, the suspender, against the interlocutor of Lord Cockburn, dated the 1st day of March last, together with the additional documents since produced, and heard parties procurators thereon,—refuse the reclaiming note, and adhere to the interlocutor reclaimed against and decern: find the chargers entitled to the additional expenses incurred by them.”
The following opinions were delivered by the Judges at pronouncing this interlocutor:Loud Justice-Clerk .—The first matter in this case is to ascertain what are exactly the questions which are raised.These questions appear to me to be,—1. Whether the transaction for obtaining the new bond was managed by those for whose conduct the United Bank are in the circumstance liable, and whose knowledge must be regarded as the knowledge of the United Bank 2. Whether the true object of granting the new bond was not solely a device to obtain payment of the old debt, by getting the name of a new cautioner? and whether the bank sought the transaction, (to use a phrase of the Lord Ordinary,) in order to obtain payment of a bad debt? 3. Whether, on the part of the debtor, the old cautioner and

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I regard these as proper Jury questions. There have been many cases so disposed of in regard to the duties of creditors and cautioners. One extremely analogous to this was the case between General Duff and the trustees of the late Henry Erskine, sent to a Jury by Lord Mackenzie, as to the origin of the bond of caution granted to them by General Duff, which he averred was solely to pay off an existing debt,—the question between the cautioners for an officer of a Montrose bank, and the bank, as to negligence or concealment. There are various other instances. One and all of the four questions which I have stated are to be decided by inferences from facts,—from the conduct and acts of parties, their relative position, and motives and interests,—and, above all, on the view of what was just, honest, and fair in the dealings between the parties. On these matters, I think a Jury will come to a better conclusion than we can do, especially on the question, whether the conduct of the bank was fair and honest? I think the importance of so dealing with these questions arises eminently from the superior fitness of a Jury to say, whether the acts complained

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I think the common sense and feelings of right and wrong of a Jury will lead them in such a case to the truth much more safely than we are likely to arrive at it.But I must repeat, that their estimate of, and judgment on the case, I regard as a most important element in the right administration of justice in such a cause. In an action on the bond, this must have gone to a Jury in England, as Lord Ellenborough said to Lord Eldon, in the course of the case of Smith v. the Bank of Scotland ; and I shall regret if the same course is not taken here. If it is thought that we are to decide it, I must look at the facts and conduct of parties as a juryman, and judge for myself in the best way I can. Attending, then, to the facts so far as disclosed, it appears to me,—1. That the bank knew that Elles could not pay the debt under the

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“It being deemed necessary, in consequence of the junction of this bank with the Glasgow Bank, that the bonds of credit, and other obligations with these respective establishments, be either called up, or renewed in the name of the new firm, I am directed to intimate to you, on behalf of the Ship Bank, that no farther operations can be allowed on your cash-credit with them for 750 l ., and that the balance due by you under said credit must be paid up on or before the 1st September next. Waiting your reply, we are,” &c.
This renewal in the name of the new firm did not mean solely another paper signed by the same parties, that is plain; for, on the two preceding pages, there was the demand for a new cautioner, and proposals for a new obligant,—and so the answer shews that

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Then look to the result. As soon as the bond is signed, an operation goes on simultaneously in the books of the two banks, wiping the debt out of the one, and entering it in another account in the name of the New Bank against Hamilton, for whose obligation alone the whole thing was gone through. Is this honest? Is this fair and righteous? I think not. I think Hamilton was, by an act to which the New Bank were parties, of which, through their officers, they were cognizant, and in which a large portion of their partners had an interest, unfairly entrapped by undue concealment into a transaction, which, if he had not been deceived, he would not have entered into, and of which he ought to be relieved. As to the duty of communication, I apprehend the principle, so far as it need bo stated for this case, is very simple: That wherever there is, on the one side, an interest to conceal; wherever there is the knowledge of an unfair end by parties with whom the creditor is either identified, or whom he desires and has an interest to aid and favour,—there is also the duty of communication; and, on the other side, the right to expect such communication. The duty of communication is an obligation in point of fairness and honesty. That is its legal test in such a case as the present.I give no opinion on a variety of cases put to us, as to what might be competent as to paying off other debts by operations on new accounts. 1st, These cases are not before us. 2nd, The

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This leads me to advert to the point, much pressed upon us, as to the frequency among bankers of transactions said to be the same as the present. 1. I see no averment on record as to any practice of bankers on the subject; and it would have been very strange if there had. 2. If relevantly made, that ought to be the subject of trial, and cannot competently be introduced into the case in any other way. I think the whole matter is plainly irrelevant. The practice of bankers may be material as to the rules of business, the ordinary course of settling transactions, and many other questions, where they have no interest except perhaps that of convenience and regularity in business.But in a question as to the obligation by those taking such a bond towards cautioners, I deny that any practice could be appealed to in support of a transaction unfair in point of actual dealing and open conduct with the particular individual in question, or could affect the issue raised in the case.In such a case as this, I must regard as wholly inadmissible in judicial consideration, any practice, or rather I should say, practices of bankers. It would be most hazardous to admit questions of this character to be influenced by what bankers may do for their own interest, and to avoid loss. They have a great deal in their power in circumstances similar to the present: the parties are greatly under their control,—they run such risks that the temptations they are exposed to are

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I am very well aware that there was great room for the observation, in the House of Lords, that the Scotch Courts had mistaken some of the original observations made in that House as to the duties towards cautioners; and that some judgments had been pronounced which relieved the cautioner from the responsibility which he undertook, in truth, in the very cases for which his cautionary obligation was undertaken, viz., continued misconduct, negligence or embezzlement by the obligant.But the original case in the House of Lords, Smith against the Bank of Scotland, gave no countenance whatever for the mistake that certainly was fallen into; for Lord Eldon in that case, with his usual caution and great discrimination, drew the distinction most pointedly between the facts which occurred before the bond was granted, and during the period to which it applied. In that case he held it to be relevant, that, though the bond applied to past transactions, yet it was truly intended to apply to a debt previously due and known to the bank, but not stated to the cautioners.

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It is said that there is a great difference between this case and that of a bank dealing with the cautioners for a bank agent. I see none as to the principle applicable to the case, though great distinction in the facts that may prove a case against the bank. Wherever it is the interest on one side to conceal facts material for the other to know, and where, owing to such conduct, the party is led into an obligation which he would not otherwise undertake; there I think was the duty and necessity of communication, and there also was undue concealment.Accordingly, both Lord Eldon and Lord Redesdale decided the case of Smith on the broad ground of honest and fair dealing. And so, when it came ultimately before this Court on the last occasion, on the facts allowed to be proved by the first judgment of the House of Lords, in 1813, the Court proceeded upon the general ground I have stated, and not on the peculiarity that the bond was for an officer of the bank. The Lord Justice General held, that if the bond was truly intended for a past debt, it was relevant to inquire if that material fact was concealed. So also, in a very instructive opinion by Lord Pitmilly, he rests his judgment wholly on the principle I have stated. He says,— “The legal principles which must guide us in such a case, are very briefly and emphatically described in the judgment of the House of Lords. Is the bond liable to reduction, as “unduly obtained by concealment or deception?.” understanding by “concealment,” (as explained in the speech of the Lord Chancellor,) the concealment of facts which, with a view to the transaction in question, it would be for the advantage of the one party that the other was ignorant of. Let these principles be applied to the present case.” And in another part of his opinion, he quoted the well-known judgment of Lord Mansfield, in the insurance case of Carter v. Boehn , as stating the extent and nature of the duty of communication. No one is disposed to go farther than I am in holding, that,

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Whether there has been negligence on the part of the creditor, even after the bond was granted, and undue concealment of facts known to him during the currency of the obligation, which he ought to have communicated, may be very much an inference in point of law as to his duties and legal obligation. Yet, even that question, a much more delicate one than any which arises here, has been sent to be tried, as in the case of Hill v. Birnie , and other cases.But the question, whether the bond was at first unduly obtained by concealment or deception, is the most purely Jury question I can conceive, and one which I think a Jury are much better judges of than the Court. That question has been frequently entertained in a suspension.I am of opinion that this bond was unduly obtained from the reclaimer, by concealment or deception, to which the chargers were parties, and for which they are in law responsible.Lord Medwyn .—The view taken of this case by your Lordship makes it a most important case indeed. The facts are these.—( His Lordship recapitulated the facts of the case ).— The first bond obtained by Elles from Carrick, Brown, and Company, is delivered up; the balance under it is paid; there can be no longer any claim under it, and the objection that the last bond was not to cover any prior debt, but that it was for

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These two are the defences urged in the suspension against payment, and they must be disposed of according to their own merits, and not according to the private view taken of them by a party who may be in the same situation as the suspender. Now, it is not alleged that the new company insisted upon this sum being drawn out and applied to pay the sum due under the former bond. It is true that Carrick, Brown, and Company had applied to have the amount paid up, and afterwards renewed the cash-credit upon getting the additional security of the suspender for the new firm, the debtor apparently not being able to pay it up. But was there anything objectionable in Elles making this draft, and applying it to discharge the old debt? I cannot see that there was. It was said that the obvious meaning of such a transaction is to apply to future transactions for the benefit of the debtor, to be used by him as a fund of credit, which may enable him to carry on his business, and by his success in his future dealings, to afford the means of discharging the debt contracted under the cash-credit; and that a cautioner is entitled to presume that this will be the course of dealing under it. Now, I do not apprehend that there is any such understanding as to the use to be made of the credit obtained under such a cash-bond, that the party cannot apply the sum he may draw to pay off an old debt, or that it is illegal for him to do so, even if it be to pay an old debt to the bank who grants the credit, or if applied to pay a debt to a party connected with, or identified with the bank. If the cautioner wished to limit the application of the money obtained under such a bond, he would have to stipulate this with his principal, and secure himself by some private obligation or penalty against failure to comply with it. For I hold that the

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“But, again, it is said, that the bank did not give the suspender all the information they should have done; that they should have mentioned the particulars of his debt under the former bond. Now, with great submission, I do not hold that the bank was bound, or entitled even, to give such information to the proposed cautioner. A banker does not, and ought not to hold himself at liberty to give information of the state of any customer's transactions to any inquirer. And if any person should come to a bank, and state that he had been applied to

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The case of a bank agent is quite different from the present, and the principles which have been applied to that state of facts, and that relation between the parties, must not be held to regulate such a question as this. The bank agent is the servant of the bank, and in all the cases which have occurred where the cautioner has been liberated, the misconduct of the agent has been such that the bank ought to have dismissed

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“ Lord Meadowbank .—This opinion confirms the one which I before held. I cannot doubt that the interlocutor ought to be adhered to. Nothing can be more prejudicial than to upset the practice of traders as to matters of this sort. And I have not a doubt that, in ninety-nine cases out of a hundred where a bank credit is renewed, new co-obligants are never informed of the state of the principal's previous credits. Many traders never suppose that they are entitled to receive such informa- tion. When a bank writes to a customer that they will not allow him to draw further unless he grants a new bond, in most cases it is understood that this is for the purpose of pay- ing up the old bond. It would have made no alteration in my mind in the present case if it had been the same bank all along.”
“ Lord Moncreiff .—I will not say that there may not be ground for hesitation in this case, from the peculiar position of the parties. But I am of opinion that the interlocutor of the Lord Ordinary is right in principle, and that there would be great danger in departing from that principle.
The case is that of a simple bond of caution to a bank for a cash-credit. It is proposed to the bank that they should grant a credit to Elles and Company, upon certain security to be found. That bank, the new establishment of the Glasgow and Ship Bank, were asking nothing of Elles, but certainly nothing of Mr. Hamilton, the party here. He is proposed to them as a cautioner, or rather a co-obligant, by a third party, over whom they have no control, and they agree to accept of him, having no occasion to have any communication with or on account of him, except to ascertain that his credit is sufficient.

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The whole theory of the suspender was on the assumption that, in such a case, it was the duty of the bank specially to communicate with him, and to inform him of every difficulty in the circumstances of his principal, Elles. There is a radical fallacy in this reasoning. The bank had nothing to do with the suspender till he was proposed to them as a cautioner or co-obligant, and then it lay with him, not with them, to ascertain the state of his own friend, Elles, and if he saw cause, to make inquiry into his circumstances and his dealings with the bank. He was a stranger to the bank. But so was Elles in any legal sense, being no servant of the bank.I understand it not to be disputed, that the circumstance of the bank, or any of its partners, knowing that the person asking the credit has other debts, or even that he is taking the credit merely for the purpose of liquidating or managing them, would be no objection to the validity of the cautioner's obligation, though no communication had been made of the existence of such debts. The presumption is, that he inquires and is informed of all that is necessary for his guidance by the gentleman who tenders him as his cautioner. It would put an entire end to this branch of trade if such necessity were imposed on the bank. He is an adverse party negotiating with them, and in direct connexion with the principal obligant, and ought to satisfy himself of every such matter: and indeed it is obvious that the bank, imperfect as its information of the circumstances may be, would commit a great irregularity if it were officiously to intrude a communication on the subject on the friends of their customer, at least where no inquiry is made of them. If it were made, I doubt if they could without the consent of the principal.

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As this case stands, this is the real state of the matter. For it is quite clear, as matter of fact, that the prior debt, for paying which it is said this credit was asked, was not due to the new bank, the only party here, but to the Ship Bank, as a separate concern, and was never assumed as a debt by the United Bank; and it really evinces the consciousness of the defender of the importance of this fact, that, throughout the record, he tries to withhold any admission of it, and to insinuate that the debt was fully adopted, although it is now quite clear that it was not.But would it make any real difference if it were the case of a debt due to the bank itself? I think that it would make an important difference in the argument, as rendering the plea against the bank more plausible or probable. But I am far from thinking that, even in that case, it would be sound or conclusive; for I believe it to be not a very uncommon occurrence for a bank, who have gone on for a time giving credit to a customer, to require security before going further; and it would appear a strange thing to me that they should be made to forfeit the benefit of any security voluntarily tendered to them, merely because they do not ultroneously force upon the cautioner proposed a disclosure of all the dealings of his own friend, whose condition he is bound to know when he asks the bank, on his security, to give the credit asked. This is totally and fundamentally different from the case of an officer or servant of the bank itself. If such an officer has misconducted himself in a way which they know cannot be ascertained by other parties, they cannot, in dealing with others in regard to his responsibility, deceive them by the shew of confidence in still retaining him in their employment and credit. But in the other case, they are merely dealing with a customer in apparently solvent circumstances, and it lies with those who think him worthy of such trust and credit as to join in soliciting for him the aid of a bank for the time, to satisfy themselves

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The thing which was transacted in the present case is thought to be very extraordinary. It is no doubt a little peculiar, from the circumstance of the union of the banks, and the identity of some of the partners of the Ship Bank with those of the United Bank. But in itself—in its elements—it is a very ordinary case.To judge of this correctly, it is necessary to look closely to the record. There is no averment of fraud or deception. Not even that Elles was laid under any obligation to apply the money to be drawn on credit in any particular manner. Neither is it averred that Mr. Hamilton had any personal communication with the bank; that they made any positive representation to him, or that he made any inquiry of them. The utmost of the statement is in Articles 14, 15. In so far as these articles consist of proper statements of fact, they just amount to this, that the defender was ignorant that Elles owed a debt to the Ship Bank, and that the New Bank did not communicate the fact to him. There is indeed an additional averment, that the bank did not inform him that Elles's brother had declined to be cautioner. This appears to me to render the plea altogether extravagant. The bank would, in my apprehensien, have done a very improper thing if they had made any such communication. Mr. Elles was still in good credit, and carrying on an extensive trade, notwithstanding that he had not found it convenient to withdraw so much of his capital from the trade as to pay up the sum due to the Ship Bank. Was it for the bank to publish to the world what they might know of this friend or that, of such a trader, having for his own private reasons, (perhaps originating in his own circumstances, and not in any distrust of Elles,) declined to become security in such a credit? But above all, were they under a legal obligation to make such a communication under

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Mr. G. Turner and Mr. James Anderson , for the Appellant.— I. The partners and managers of Carrick, Brown, and Co. became partners and managers in the United Bank. These parties were cognisant of how the original credit had been acted upon, of the demand for payment on additional security, and that the brother of the debtor had refused to become such security.Moreover the business, including the winding up of Carrick and Co.'s affairs, was conducted in one and the same premises. For all purposes, therefore, the New Bank must be held to have been cognisant of what had passed in regard to the original credit from Carrick and Co., and of the application intended to be made with the money to be advanced upon the new credit. If this were otherwise doubtful, it is made certain by the letters addressed in the name of Carrick and Co., which ask for a renewal of the security for the new firm, and otherwise treating the old and the new firm as having one interest.

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II. The transaction to which the appellant was a party, was giving Elles a cash credit for the carrying on of his business, but the dealings between him and the bank show that this was neither done nor intended, and that the true object of the parties was to pay off what was owing on the original cash credit. The facts, in short, show a precontract between the Glasgow and Ship Bank and Elles, that the money advanced on the credit should be applied to payment of the pre-existing debt due by Elles to Carrick, Brown, and Co. Such a precontract was a perversion of the liability come under by the appellant and ought to have been communicated to him, that he might judge for himself whether he would be a party to it, but no such communication was made to the appellant.[ Lord Chancellor .—There is no averment on the record of any agreement as to the particular application of the money.]The averments are not very precise, but they are equivalent to such an averment; and the facts are proved from which such an agreement is to be deduced. On the 13th October, Elles drew a cheque for the whole amount of the new credit; that cheque he handed to the teller of the Glasgow and Ship Bank, through whom the amount of it was passed to the credit of Elles in the books of Carrick, Brown, and Co. It is impossible to suppose that the Glasgow and Ship Bank could have been ignorant of the intended application. Neither can it be said that they had no interest in the particular application; for looking at the very large amount of obligations which they had an option to adopt or reject as part of the assets of Carrick, Brown, and Co., the amount of which they had given credit for in account, it is evident that they had a very material interest to see to the realization of these liabilities; accordingly, Rowand, who was the manager of the new, as he had been of the old concern, asks a renewal of the security in the name of the new firm. It is proper, therefore, at least, that an inquiry should be allowed, to ascertain how far there was fraud in obtaining the new security

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In Pidcock v. Bishop , 3 Bar. & Cr. 605 , it was found that a stipulation, that part of the price of a sale should be applied to the discharge of a debt, owing by the purchaser to one of the vendors, vitiated the obligation of a surety for payment of the price. In the present case, assuming the two banks to be separate bodies, the new credit was for the purpose of paying off the debt of some of the partners. In Stone v. Compton , 5 Bing. N. C. 142 , it was held that a surety for payment of a sum to be advanced on mortgage, was liberated by the fact, that part of the money was, without his knowledge, retained by the lender in payment of a pre-existing debt; and upon the ground that, but for the misrepresentation that the whole money had been advanced, the surety would never have made himself liable; so here, if the appellant had known that his liability was not to benefit Elles in the carrying on of his business, which might or not be profitable, which was all that appeared on the face of the bond, but merely to enable him to pay off an old debt, non-constat that the appellant would have put his name to the bond. The principle is, that the surety must have an opportunity of judging for himself; and that in that view, it is immaterial whether the facts not communicated are of importance or not.

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[ Lord Campbell .—The case of an agent can have no application here.]

Lord Chancellor .—My Lords, I have already stated during the argument, that I considered that there was no averment as to the mode in which the money was intended to be applied; and I have stated the substance of the opinion which I entertain upon this point, that the mere circumstance of the parties supposing that the money was intended to be applied to a particular purpose, and that it was evidently intended to be so applied, does not appear to me to vitiate the transaction at all. If there was a stipulation that it was to be so applied, and these were the conditions upon which the money was advanced, it might have affected the transaction. But in order to raise that question, there should have been an averment upon the record that such an agreement had been entered into. In the absence of any such averment, I think the parties are not in a condition to rest their case upon such an agreement; and therefore I think the judgment ought to be sustained.Lord Brougham .—My Lords, I am of the same opinion, and I have never entertained any doubt from the beginning. It is neither averred, nor supposed to be averred, nor put so, and the party, the real creditor, the bank, in these circumstances was not bound to volunteer a disclosure of any transaction that passed between them and the other party.Lord Campbell .—My Lords, I am of the same opinion. Your Lordships must particularly notice what the nature of the contract is. It is suretiship upon a cash-account. Now, the

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Lord Brougham .—I am not at all clear, (though it is quite immaterial,) that the surety would have acted differently if he had known of it. That has been taken for granted all the while.Ordered and adjudged, That the petition and appeal be dismissed this House, and that the interlocutors therein complained of be affirmed with costs.Solicitors: Deans, Dunlop, and Hope—Grahame, Moncreiff, and Weems, Agents.