Sheriff finds company used as vehicle for loan by director entitled to demand repayment by homebuyer

About this case:

• Citation:
  [2025] SC KIL 16
• Judgment:
  External link
• Court:
  Sheriff Court
• Judge:
  Sheriff George Jamieson

New House Purchasers Ltd sought payment of £249,640 from Jay Steel as repayment of a secured loan advanced to her to enable the purchase of a property in Ayrshire, and interdict preventing her from letting or transferring her proprietary interest in the property without its consent. The defender contended that the sum was advanced in accordance with an agreement between herself and a director of the pursuer, rather than the pursuer itself.

The case was heard by Sheriff George Jamieson in Kilmarnock Sheriff Court. Hunter, solicitor, appeared for the pursuer and Fairbridge, solicitor, for the defender.

Payable on demand

It was not in doubt that a loan was advanced to the defender, nor that on 22 June 2022 the pursuer issued a written demand to the defender for repayment. On 17 April 2024 the pursuer issued a calling up notice to the defender in respect of the standard security granted over her property. In terms of the agreement between the defender and a director of the pursuer, Delia Berkley, the director agreed “through her company” to lend the money to the defender, with the defender bound to repay the loan “in such manner as may be agreed between the parties”.

For the pursuer it was submitted that there was no provision in the standard security as to when the loan fell to be repaid. As such, it was payable on demand. The standard security was absolute in its terms, requiring the defender to pay £250,000 to the pursuer without qualification of any kind. The agreement between the director and the defender was not binding on the pursuer, which was not a party to that agreement.

The defender contended that repayment was subject to the qualification in the agreement that the loan would be repaid “in such manner” as agreed between the parties to the agreement. Under the agreement, any dispute about the terms required to be submitted to the sheriff at Kilmarnock, which had not been done ahead of this action for payment. As a result, the pursuer’s action was premature.

It was noted that, as the original agreement was dated 7 November 2017, the Contract (Third Party Rights) (Scotland) Act 2017 did not apply to it. The ability of the pursuer to enforce the loan agreement and call up the standard security therefore depended on the common law rule of jus quaesitum tertio, and whether a JQT in favour of the director had been created requiring the pursuer to demand payment in accordance with the agreed manner.

Conferred no benefit

In his decision, Sheriff Jamieson began by noting: “The personal obligation undertaken by the defender to the pursuer in the standard security was conform to Form A of schedule 2 to the Conveyancing and Feudal Reform (Scotland) Act 1970 and was not qualified in any way. The defender was therefore obliged to repay the sum advanced to her by the pursuer ‘on demand’. This requirement was also conform to the general law of contract.”

He continued: “The pursuer was not a party to the agreement between the director and the defender. That agreement conferred no benefit on the pursuer; it could not competently impose a duty on the pursuer to submit differences between the director and the defender about repayment of the loan to the sheriff. The agreement was therefore not binding on the pursuer.”

Considering the pursuer’s crave for interdict, Sheriff Jamieson said: “Interim interdict was granted on 17 April 2024, on the basis the defender was proposing to rent the property through property agents in Ayr without the pursuer’s consent, contrary to standard condition 6 in schedule 3 to the 1970 Act. While the pursuer would be entitled to perpetual interdict based on a reasonable apprehension the defender sought to persist in this course of action, this, in my opinion, must be established at a proof.”

He concluded on this matter: “Breach of interdict would give rise to penal consequences for the defender and this amounts to a compelling reason not to grant summary decree in terms of crave 2 at this stage. Further, crave 2 seeks to prevent the defender from ‘otherwise transferring her proprietary interest or part thereof’ in respect of the property. The terms of such an interdict are too wide. They prevent the defender selling the property, as well as letting it out.”

The sheriff therefore granted decree for payment of £249,640, but dismissed the pursuer’s crave for interdict.