Cautionary Obligations

Question 1

Fortune v Young

Answer 1

• where a cautioner agrees to pay up to guarantee debts up to a certain amount, that is enforceable by anyone who lends money to the debtor

Question 2

City of Glasgow Council v Excess Insurance Co Ltd

Answer 2

• the obligation is conditional in its nature, on the debtor not paying their debt at the maturity of the obligation

Question 3

Scottish Provincial Insurance Co v Pringle

Answer 3

• Where there are co-cautioners, either all or none have to enter into the obligation, otherwise none is liable
• 3/4 signed, 4/4 was forged so none of them were bound

Question 4

Paterson v Bonar

Answer 4

• Improper cautionry occurs where all parties appear to be jointly and severally liable
• but the seeming jointly liable debtor is actually the cautioner
• happens from circumstances known to the creditor
• in this case they appeared to be jointly and severally liable but only one of them could operate the account, showed the others were cautioners

Question 5

Royal Bank of Scotland v Ranken

Answer 5

• Any misrepresentation by the creditor must be material, and also must induce the cautioner to enter into the obligation

Question 6

Smith v Bank of Scotland

Answer 6

Requirements set out by Lord Clyde in order to ascertain whether potential breaches of good faith by the creditor

Question 7

Barclays Bank v O’Brien

Answer 7

Changed the rule that creditors have to know about a debtor’s misrepresentation in order to be in breach of duty of good faith

Question 8

Braithwaite v Bank of Scotland

Answer 8

The cautioner must not only show that the creditor has breached his duty of good faith, but must also show that there has been an actionable wrong by the debtor, before the CO can be avoided

Question 9

Jackson v McIver

Answer 9

The cautioner’s liability can never exceed that of the principal debtor

Question 10

Smithy’s Place Ltd v Blackadder

Answer 10

The cautioner who has paid is entitled to recover the full amount paid plus expenses incurred from principal debtor

Question 11

Forsyth v Royal Bank of Scotland

Answer 11

The creditor can discharge the duty of good faith where the cautioner has a solicitor acting on their behalf
The creditor is entitled to assume that the cautioner will have received independent legal advice from that solicitor
They therefore won’t be liable for breach of duty where they haven’t given advice in this situation
Where they’ve had independent legal advice the duty is generally discharged

Question 12

Royal Bank of Scotland v Etruscan (No 2)

Answer 12

What is expected of the solicitor?

- it is not enough that they are satisfied that the

Question 13

Johnstone v Duthie

Answer 13

A cautioner is realised when the creditor gives time to the debtor, as it deprives him of the chance to consider whether he will have recourse to his remedy against the principal debtor or not

Question 14

Aitken’s Trustees v Bank of Scotland

Answer 14

Where the creditor releases the principal debtor without the cautioner’s consent, the cautioner is also released

Question 15

Clayton’s Case

Answer 15

If there is a bank account between debtor and creditor, the earliest debit items are set off against the earliest credit items

Question 16

Deeley v Lloyd’s Bank Ltd

Answer 16

Cautioner guaranteed the debtor’s overdraft up to £1,000
Debtor kept withdrawing and putting in money
Bank tried to make him liable after £1,000s built up
Cautioner nor liable as as soon as X had paid sums amounting to £1,000 into the account, the sums were applied to the earliest debit items, and so the accessory guarantee was extinguished with debt to that amount

Question 17

Johnstone v Duthie

Answer 17

Where a creditor ‘gives time’ to a debtor, the cautioner will be released from his obligation
That is because he is deprived of the chance to consider whether he will have recourse to his remedy against the principal debtor or not

Question 18

N G Napier Ltd v Crosbie

Answer 18

If the creditor and principal debtor agree to a material alteration of the contract without the consent of the cautioner, the cautioner is discharged from his obligations
Founded on equitable considerations

Question 19

Royal Bank of Scotland v Brown

Answer 19

If the debt is payable ‘on demand’, the prescriptive period starts running from when the demand was made