Lord Porter:-

The appellant company are incorporated in Gibraltar and carry on business as an investment company. The appellant, John Mackintosh, is a director of that company. In May 1935 the appellants were anxious to borrow a large sum of Spanish pesetas as they did not wish to convert English pounds sterling into that currency, and at that time the respondent had on deposit at Barclays Bank in Gibraltar a credit of over 500,000 pesetas standing in the names of Messrs. Carrara King and Marsh who were trustees of her late husband. The respondent is an old lady 82 years of age, whose business affairs were managed by her nephew one Eugenic Gross. Mr. King, who was a friend of both Mr. Mackintosh and the respondent, having heard that the appellants desired to borrow pesetas approached Mr. Mackintosh and arranged with him that the respondent should lend and the appellants borrow the sum of 500,000 pesetas at 3½ per cent. interest per annum. Accordingly the appellants executed a bond dated 22nd May 1935, whereby they bound themselves to pay the respondent the sum of 500,000 pesetas on 22nd May 1936, and meanwhile to pay interest at 3½ per cent. per annum by half-yearly instalments on 22nd November 1935, and the 22nd May 1936. Upon the execution of the bond, Mr. Pons, the accountant employed by the trustees, prepared and filled in a cheque for 500,000 pesetas drawn on Barclays Bank, Gibraltar, and the cheque was signed by the trustees in whose name the credit stood. The cheque was then handed to Mr. Mackintosh or to his secretary, Mr. Caston, and paid into the appellants' account at Barclays Bank. From time to time the appellants drew cheques varying in value between 6000 and 70,000 pesetas upon this account and the whole amount was so withdrawn by the appellants before the end of the year 1935. Meanwhile on 22nd November 1935, the half-year's interest was duly paid.

Before and up to 1898 Spanish peseta coinage was legal tender in Gibraltar, but by an Order in Council of 9th August of that year, sterling money of Great Britain became the only legal tender subject to certain exceptions not material to the present case. Nevertheless pesetas were in frequent use and were regularly given and taken as payment in commercial transactions in Gibraltar. The peseta was and remains the unit of Spanish currency. It is common ground that at all material times gold coins without limit and silver coins of 5 pesetas alone were legal tender in Spain. It is true that the Bank of Spain were authorized to issue peseta notes and that for certain purposes, e. g. the payment of sums due to the Government, those notes must be accepted, hut in ordinary transactions between individuals they could be refused. In practice, of course, they were accepted inasmuch as the Bank of Spain were under an obligation to meet their notes by providing gold or silver on presentation, but if a strict fulfilment of his obligations were insisted on, a borrower would not fulfil them by tendering notes - he must furnish gold or silver coin. In Gibraltar pesetas whether in the form of gold or silver or notes were not currency at all, they were a commodity which could be bought or sold like any other commodity. Up to March 1936, however peseta notes were commonly given and accepted both in Spain and in Gibraltar as the equivalent in value of the coinage they represented. By a Spanish decree of 1930 the export of silver from Spain was prohibited. Even before 1936, regulations had been made prohibiting the exportation of bank notes in excess of 5000 pesetas and on 16th March 1936 the Spanish Government, apparently perturbed by the fact that refugees leaving Spain were found to be taking with them a large number of peseta notes, enacted a further decree under which travellers were prohibited from exporting any notes of the Bank of Spain unless accompanied by an authorization called a "guia". These "guias"were issued by the Customs authorities who were required to send a daily report