Scottish Court of Session Decisions

This was an action at the instance of Andrew Heiton of Darnick Tower, Melrose, against the Waverley Hydropathic Company (Limited), registered under the Companies Acts of 1862 and 1867. The summons concluded for declarator that on the 25th May 1874 the defenders sold to the pursuer certain subjects, viz., a field and orchard immediately opposite the Hydropathic Establishment, and a park adjoining it; and that that sale should be found to be valid and effectual, and the defenders ordained to implement it.

In the beginning of 1874 the pursuer addressed a letter to the defenders relating to the proposed purchase of the subjects named. At an extraordinary general meeting of the Hydropathic Company, on 25th March 1874, “the meeting remitted the whole matter to the directors, with power to sell or not the ground, and if a sale be resolved on by them, the meeting unanimously empowered the directors to sell the ground at such a price and on such terms and conditions as they shall deem advisable.” Mr Ferguson and Mr Maughan, two of the directors, subsequently to this had several interviews with the pursuer, who eventually gave them power to communicate on his behalf an offer of £1650, subject to the condition that it should be at once accepted.

The following is an excerpt from the minute of a meeting of the directors held on 25th May:—“The sale of the fields to Mr Heiton was then brought under consideration, and after explanations received from Mr Ferguson on the subject, and his interview with Mr Heiton, the meeting agreed to sell the fields, and instructed the law-agents to enter upon negotiations with the view to protecting the company's interests, and appointed the finance committee to meet and advise with the law-agents anent carrying through a sale.”

A formal offer was transmitted by Messrs Freer & Dunn, Mr Heiton's agents, to Messrs Watt & Anderson, the company's agents, on 6th July, as follows:—“As we understand that the directors of the Waverley Hydropathic have agreed to sell to Mr Heiton the field he wishes, at £1650, and have minuted a resolution to that effect on his behalf, we now beg to offer that sum, the conditions to be afterwards arranged, and we shall be glad to have your acceptance of this offer in course, along with a draft of the conditions which it is proposed by the directors to attach to the purchase.”

The answer was dated 7th July 1874:—“The money consideration is not so important to our clients as the servitudes to be imposed over the field, to prevent its being used to the prejudice of the Waverley Hydropathic Institution and grounds, and it has been suggested to us, by one of the directors forming the committee having power to negotiate on this subject, that a meeting should be held with the committee and Mr Heiton, whereat the various conditions, burdens, and servitudes may be considered and disposed of.”

Freer & Dunn wrote to Watt & Anderson on 8th July 1874:—“Mr Heiton is quite aware of the nature of the restrictions to be attached to the purchase, and we do not think there should be either much trouble or correspondence necessary in the adjustment of the terms. Please therefore let us have your formal acceptance of our offer, and the draft for consideration.” And again, upon 17th July 1874:—“We have yours of yesterday, and understand from it that our offer of £1650 on behalf of Mr Heiton is accepted, on conditions to be afterwards arranged.”

Watt & Anderson wrote on 18th July 1874 to Freer & Dunn:—“We have your letter, and regret to say that your offer of £1650 has not been accepted. All we have informed you is, that until the committee meets and instructs us, nothing definite can be communicated. Our clients are divided in opinion about the propriety of selling the fields, and Mr Heiton must induce a sale against the disinclination of several. The committee entertain a different view regarding a meeting in the first instance with Mr Heiton, and every member of it to whom we have spoken about your present communications to us still thinks a meeting with Mr Heiton in the first instance necessary.” In Freer & Dunn's answer it was stated—“The price we hold fixed, the only point remaining being the technical one of the adjustment of the conditions, which is more a matter for the respective agents.”

Watt & Anderson again write to Freer & Dunn on 22d July 1874:—“The price may be regulated by Mr Heiton's acquiescence or refusal of the other terms of the sale, should it be effected—indeed every part of the bargain has still to be arranged,—and it was with the view of more expeditiously knowing Mr Heiton's willingness to consent to terms that our clients wished a meeting with him in the first instance. It was irregular for any of the directors to inform you what had taken place at their meeting, and until you receive official information they may alter or annul any resolution which they may form. We cannot agree with you therefore that the price has been fixed.”

Nothing further was done by the Hydropathic Company, and the consideration of the sale was postponed till a meeting of the directors, held on 29th September following. The following is an excerpt from the minutes of that meeting:—“The directors have agreed to sell the Darnick field to Mr Heiton at £1650, but the transaction has not been completed, as the servitudes to be retained in favour of the company have not yet been arranged.”

On 14th December following Watt & Anderson wrote to Freer & Dunn as follows:—“Referring to the meeting between the committee of the directors of the Waverley Hydropathic Company (Limited) and Mr Heiton, we are desired to obtain for the information of the directors before they resolve to sell the Darnick fields at the price of £1650, whether Mr Heiton is prepared to purchase them at that price subject to the following

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restrictions and burdens, viz.”—[ here followed the enumeration of the restrictions and servitudes.] A correspondence followed as to the servitudes, in the course of which, on 18th December, Freer & Dunn wrote to Watt & Anderson:—“We understand that in the event of the establishment changing hands, or being converted into other purposes, these restrictions would cease. After you have got the views of directors on these outstanding points, we will be glad to hear from you again, and to receive the draft agreement of sale for final revisal.”

The following is an excerpt from the minutes of meeting of the directors on 2d March 1875:—“The selling of the Darnick field to Mr Heiton of Darnick Tower was considered. The finance committee explained, that since it was remitted to them at last meeting they have had various meetings regarding the servitudes, and had got the company's agents, Messrs Watt & Anderson, to write terms to Mr Heiton's agents, Messrs Freer & Dunn, which said terms were read by the chairman to the meeting, with a letter from Messrs Freer & Dunn agreeing to certain alterations which had been suggested. When subjected to the said alterations, it was moved by Mr Ferguson, and seconded by Mr Ireland, that the field should be sold to Mr Heiton for the sum offered, viz., £1650, which was agreed to by a majority—Messrs Ireland, Philip, Scott, Carruthers, and Ferguson voting for the sale, and Messrs Davie, Maughan, Purves, and Robson voting against. The finance committee were then instructed to carry out the sale.”

On 6th March 1875 Watt & Anderson wrote to Freer & Dunn:—“In dealing with the conditions of the proposed sale, the company will consider that Mr Heiton is agreeable to purchase according to the terms contained in our said letter of 14th December last, taken in connection with this letter. All burdens, conditions, restrictions, and others shall be created in favour of the company, and of their successors and assignees, and also in favour of them and their foresaids, as proprietors of the Waverley Hydropathic Establishment, and of the grounds surrounding the same, and parts and pertinents.”

On 25th March Freer & Dunn wrote to Watt &Anderson:—“When Mr Heiton was here the other day, on his way to Edinburgh, we advised him to call on you and try and adjust in an interview the outstanding points, instead of prolonging a correspondence; and he writes us to-day that this has now been done. We will accordingly get the disposition prepared and sent for your revisal, and meantime you can be having the one to be granted by our Mr Freer to the company got ready for our revisal on his behalf.” Next day Watt & Anderson wrote in answer:—“We have your letter. Mr Heiton has given no acceptance of the terms of sale as contained in our several letters to you, and perhaps it will be better that a written acceptance be sent. You can, however, go on with the preparation of the draft-disposition by the company to Mr Heiton, and send it to us with the titles, in order that we may prepare the draft-disposition by you to the company. Of course until there be a written acceptance there cannot be a concluded sale.”

On 27th March Freer & Dunn wrote to Watt & Anderson—“We do not send a written acceptance of the terms of sale as asked for in your letter of yesterday, as we are not at one evidently as to the clause regarding the obligation to plant clumps of trees, having understood from Mr Heiton's last letter that the stipulation was departed from, and that all that our client was to be taken bound to do was to keep the obliquely shaded portion in permanent grass. We have written him on this point to-day, and meantime you can be revising our disposition and drafting your own.”

Mr Macpherson, the house steward of the Hydropathic Company, wrote on the 31st March to Mr Heiton:—“I had your letter offering the orchard to the Waverley Hydropathic Company for £7 per annum sent to me by Mr Ferguson, and requesting me, if thought we should have it, to write to you an acceptance for the company, which I now do. Of course we expect it will be properly fenced to keep out sheep.”

A correspondence then followed between Freer & Dunn and Watt & Anderson as to the delay in the revisal of the draft-disposition, in the course of which, on 20th April, the former said:—“The company have given him possession, and it is a little awkward that he should be possessing and going on with his improvements in planting, &c., without a title.” On 5th June Watt & Anderson wrote to Freer & Dunn:—“We return the whole titles and documents you sent us, and likewise draft disposition in favour of Mr Heiton and relative draft inventory revised. We stipulate, however, that the Waverley Hydropathic Company (Limited) shall still have an opportunity to go over and consider the draft disposition now returned before being extended, in case that we may have overlooked conditions which should be inserted in it.”

The, following is an excerpt from the minutes of meeting of the finance and works committee, held on 15th June 1875:—“Mr Davie then read and submitted to the meeting a requisition he had received from the following shareholders of the company, viz.—[ here followed the names of nine shareholders]—the said shareholders holding not less in the aggregate than 100 shares of the company, requesting the directors to call an extraordinary general meeting of the company, to consider the propriety of selling or not the Darnick fields, and, if necessary, to pass a special resolution on the subject. Mr Ferguson, after the agent of the company had read at Mr Ferguson's request the minute of the directors of 2d March last, agreeing to sell the fields and appointing the finance committee to carry through the sale, and after he, Mr Ferguson, had pointed out that the minute had been signed by the chairman, left the meeting at this stage, without giving any explanation. Mr Davie stated that trees had been planted in the Darnick fields, and that sheep had been grazing in them for several days, and considered that this use of the fields was illegal and without authority, because there was no concluded sale of them. Mr Maughan desired to be recorded in this minute that he protested and objected to the whole proceedings of Messrs John Ferguson and Thomas Ireland in connection with their negotiations subsequent to 2d March last, to sell the Darnick fields to Mr Heiton, as having been gone into by them without authority, and therefore being null and void. The meeting consider that as the servitudes had not been finally

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arranged, and that there was no sale of the fields, and also in respect of the foresaid requisition it would not be prudent to proceed further in the matter of the sale of the Darnick fields, and instruct the agents not to proceed further with the matter, and to write to Mr Heiton's agents that further negotiations are suspended in the meantime and calling their attention to the illegal conduct of Mr Heiton in planting trees and grazing sheep upon the fields, and requesting the immediate removal of the same. The meeting agreed that Mr Davie should forthwith call a meeting of the directors, to be held on Wednesday, 23d June current, to call an extraordinary general meeting of the shareholders, to consider the propriety of selling or not the Darnick fields, and to authorise the proposed additions and alterations to be made upon the company's establishment at Skirmish Hill.”

The following correspondence followed:—Watt & Anderson on 15th June wrote to Freer & Dunn—“With reference to the negotiations for the sale of these fields to Mr Heiton, we are instructed by a committee of the directors of the Waverley Hydropathic Company (Limited) to intimate, as we do, that in the meantime these negotiations are suspended. There was brought under the notice of the committee that trees have been planted and sheep grazing for several days in the fields. If such have been done by Mr Heiton's orders, the committee consider that he has acted very improperly at the present stage of the negotiations, and without authority from the company, and we have to request him to remove at once these encroachments and refrain from encroaching till arrangements are finally concluded.” Freer & Dunn wrote in answer:—“We have yours of yesterday, the meaning of which we are at a loss to understand.… Mr Heiton got possession of the ground as proprietor with the knowledge and consent of the company, and thereupon proceeded to let the fields and plant trees and make other improvements, in the belief that in due time the formal part of the transaction would be completed. If you refer to our letter to you, written so far back as the 20th April last, you will find from it that this is so—in fact we understand the company itself is one of his tenants, and has taken the orchard from him for the season at a certain rent. The dispositions were revised last week, and we were only waiting a sketch of the ground from Mr Heiton to return them to you for engrossment, with a view to their signature.” On 16th June Watt & Anderson replied:—“Mr Heiton had no right or authority to take possession of the fields. May we ask who gave him authority to do so? The company did not give it to him, and no one has been authorised by the company or the directors to give him possession. He has taken possession, if you be correct in what you say, at his own hands, and we must call on him at once to withdraw from it and remove his encroachments. The essential parts of the proposed sale, viz., the conditions, servitudes, &c., have not been considered by the company, and are not finally adjusted. How you can say that the formal parts of the sale have only to be adjusted we do not understand. The company, in general meeting, or by its directors, have not become tenants of Mr Heiton, and have not taken the orchard from him, as you allege. As to your statement that the draft disposition was revised, we have only to refer you to our letter returning it, and have to repeat that it must be returned to us before extension on stamp, in order that we may get the approval or disapproval of it by the company, or any alterations on it which the company may require.”

Freer & Dunn wrote on 17th June to Watt & Anderson—“We had certainly understood that Mr Heiton had got possession with the consent and knowledge of the company, as we formerly advised you, and that the latter had become his tenants of the orchard, but in the circumstances it will not be necessary to argue whether you or we are correct in these points. The committee of directors and Mr Heiton arranged the conditions of sale at their meeting at Melrose, and the draft disposition received from you expresses these in the main correctly enough. We return you both your and our draft dispositions and inventory of titles. If you accept our alterations, which we suppose you will do, as they are not in any sense important, but rather verbal—good and well; you can then get your draft engrossed for signature, and return us ours that we may do the same.”

At a meeting of the directors of the Hydropathic Company, held on 23d June, it was resolved that an extraordinary general meeting of the shareholders of the company should be held, in terms of a requisition by shareholders to that effect, “in order to consider the propriety of selling or not selling the fields of Darnick” to Mr Heiton. It was resolved that such a meeting of shareholders should be held “in terms of the requisition, and for the purpose of considering the proposed servitudes to be created in favour of the company over the Darnick fields.” Along with the circular calling the meeting there was distributed amongst the shareholders a statement detailing what had taken place in regard to the sale since the meeting of the directors on 2d March.

The following is an excerpt from the minutes of the meeting of 6th July—“Mr Maughan moved as follows, viz.—‘As the directors have been proceeding in the proposed sale of the Darnick fields without having first obtained the sanction of the shareholders, in the manner prescribed by the articles of association, I move that this meeting disapprove of the whole proceedings of the directors as to the fields in question, and also disapprove of the proposed servitudes as being insufficient, and hereby cancel all apparent authority under which they (the directors) have been hitherto acting, and instruct them to cease from all further negotiations with Mr Heiton.’ The motion was carried by a majority against an amendment.

Mr Heiton had planted trees and glazed sheep on the fields in question, and was forthwith called on to remove these encroachments, which was eventually done by the hands of the defenders' servants. He then removed from possession of the fields, reserving all rights.

Mr Heiton now brought this action for implement of the contract of sale, and, alternatively, for damages in respect of non-implement.

The defenders averred that the resolution passed at the extraordinary general meeting of the company on 25th March 1874, held under sections 50 and 51 of the Joint-Stock Companies Act 1862,

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empowering the directors to negotiate a sale of the subjects libelled was illegal. The meeting could only be held after giving the shareholders due notice of its purposes and the business to be brought before it. The articles of association of the company also provided, with reference to the proceedings at general meetings of the company, under section 36 thereof, “that five days' notice at least, specifying the place, the day, and the hour of meeting, and in case of special business the general nature of such business, shall be given to the members;” and under section 40 thereof, that “all business shall be deemed special that is transacted at an extraordinary general meeting.” The notices given to the shareholders made no mention of any proposal by the pursuer as to the sale of the fields in question to him, or that the sale of the fields was to be under consideration, and such business was not in contemplation at the time when the notices were despatched to the shareholders. The directors had no power under the articles of association of the company to sell, dispone, and convey any part of the heritable property of the company except with the consent of the shareholders at a general meeting specially called for that purpose, and such meeting was never called, and such consent was never obtained from any general meeting called specially for that purpose.

The defenders alleged that there was no concluded contract of sale, and further stated that any possession the pursuer might have obtained was taken by him at his own hand, and without the knowledge, authority, or consent of the company, or directors, or committee of directors. Under the draft disposition, as prepared by his own agents, the term of entry was proposed to be the last day of signing the extended disposition.

The pursuer, inter alia, pleaded—“(1) In respect that there was a concluded and valid agreement for the sale and purchase of the lands in question, as between the pursuer and the defenders, they are bound to grant a conveyance in his favour in terms thereof. (2) Separatim, the contract of sale libelled is validated rei interventu. (3) The defenders having agreed to sell the said lands at the price offered by the pursuer, on the footing that the terms of servitudes should be afterwards arranged, and there being no dispute between parties regarding these terms, the pursuer is entitled to decree in terms of the first conclusion of the summons.”

The defenders, inter alia, pleaded—“(3) The resolution with reference to the fields in question, adopted at the meeting of the company on 25th March 1874, having been passed in violation of the provision of the statute and the articles of the association, anything done under the remit contained therein was ultra vires of the directors and committee of directors, and is not binding on the company. (4) No concluded contract or agreement of sale having been entered into between the pursuer and defenders at the date libelled or any other time, the action is groundless, and cannot be maintained. (5) The pursuer is not entitled to found to any extent or effect on any alleged possession of the said fields on his part, in respect 1, that there was no concluded contract or agreement between the parties, and 2, that such possession was taken by him at his own hand, and without the knowledge, authority or sanction of the defenders.”

The Lord Ordinary allowed both parties a proof of their averments, but upon a reclaiming note the First Division recalled that interlocutor, and allowed the pursuer a proof before answer of his averments relating to possession, and to the defenders a conjunct probation.

The result of the proof sufficiently appears from the Lord Ordinary's judgment, and from the opinions delivered by the Court subsequently.

The Lord Ordinary pronounced an interlocutor sustaining the defences, and assoilzieing the defenders from the conclusion of the summons. The following note was appended:—

“ Note.—The proof which was allowed by the Court by the interlocutor of 18th July last related only to rei interventus, and as it was before answer; all the pleas on the record have till now been left untouched. The Lord Ordinary consequently felt a disinclination to deal with the constitution of the alleged contract as evidenced by writs which were founded on, although technically not proved. But his hesitation yielded to the desire expressed by both parties that the value of the writs referred to should be judged of; on the assumption of their authenticity.

“1. The first question naturally is the relevancy of the pursuer's averments to set up independently of rei interventus a concluded contract. The Lord Ordinary thinks that these, read in the light of the relative documents, are insufficient. In the first place, it is not said that the minute of directors of 2d March 1875, which in the end came to be relied on, was intimated to the pursuer; and, in the second place, it is plain that there were things, and material things too, upon which at the date of that minute parties were not agreed.

“2. The next thing is the question whether there is a concluded contract? That there were negotiations, and that in some things there was an agreement, is undoubted, but it is at least as clear that upon other things neither at 2d March 1875 nor at any time afterwards was there an agreement. What are called ‘servitudes’ remained matters of controversy. The ground in question had been bought by the defenders for the amenity of their establishment, and if they were to sell, it was of vital importance that conditions by which that amenity would be secured should be made articles of the contract. These, in truth, were more important than a little more or a little less in the way of price. Consequently, they were always in the front, and the very first letter which was written by the agents of the defenders to the agent of the pursuer, after receiving instructions consequent upon the proceedings of 2d March 1875, recapitulated the conditions upon which the defenders were to insist. That the matter was then open both the agent of the pursuer and the pursuer show in their subsequent letters, and before there had been an agreement the shareholders interfered and put an end to the negotiation. These things, the Lord Ordinary thinks, are demonstrated by the documents, and hence the relative finding in his interlocutor.

“3. The pursuer founds on his alleged possession for two purposes. The first of these is to make out that even if at the middle of March 1875, when, as he says, he began to act as proprietor of

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the ground, some of the conditions as to servitudes had not been arranged, these are to be held as swept away by the fact that he got possession. Whether the relaxation for which he asked, or whether the restrictions on which the defenders insisted, are the things to be thus got rid of was not explained to the Lord Ordinary; but this omission is immaterial, because both parties so conducted themselves in their subsequent communings and correspondence as to show that the pursuer had not taken, and certainly had not been given, possession on the assumption that thereby everything hitherto unsettled was determined. This is one of the things which distinguishes the present case from Colguhoun v. Wilson's Trustees, 22 D. 1035. The Lord Ordinary may add that there is another distinction afforded by the warnings repeatedly given by the agents of the defenders that till there was an official intimation that the contract had been concluded, or, to use the words which occur in a subsequent letter, till there was a written acceptance of the terms offered by the defenders ‘there cannot be a concluded sale.’

“As regards the exclusion of locus penitentiœ, which is the purpose for which the efficacy of rei interventus is usually invoked, the Lord Ordinary thinks that the so-called possession is unavailing in the circumstances of this case. The want of form or authentication in the writings might be made up by rei interventus, but the want of consent necessary to the completion of a contract could not be thus supplied.”

The pursuer reclaimed, and argued—It was enough for him to show that the agreement as to the subject, price, servitudes, and restrictions was complete. If rei interventus were distinct and unequivocal, it went a long way to complete a contract. The facts of possession, of the letting the fields, the planting, and other alterations, were proved, and amounted to rei interventus. The possession was well known also to the other contracting parties. Every material condition of the sale was agreed to in writing, and the controversy was rather about the form of words in which effect was to be given to it. The possession further showed acquiescence. With reference to the defenders' third plea in law, a resolution of the directors would bind the company in a matter with third parties, though they might be liable in damages to the shareholders for the consequences of its informality.

Authorities— Colguhoun v. Wilson's Trustees, March 20,1866, 22 D. 1035; and (with reference to the legality of the resolution at the extraordinary general meeting of the company); Royal British Bank v. Turquand, June 2, 1855, 6 Ellis and Blackburn 327, 24 L. J., Q.B., 327; Agar v. The Official Manager of the Athenœum Life Assurance Society, 3 Scott's C.B. Reps., N.S., 725, 27 L.J., C.P. 95; Prince of Wales Assurance Society v. The Athenœum Life Assurance Society, 3 Scott's C.B. Reps., N.S. 756; ex parte Eagle Insurance Company, 1858, Kay and Johnson's Reps. 549, 27 L.J. Ch. 829.

Argued for the defenders—(1) There was here no completed contract. Rei interventus could not be pleaded here to any extent, because there was no consensus ad idem between the parties. (2) The resolution passed at the extraordinary general meeting empowering the directors to sell was invalid, as no notice of the motion had been given to the shareholders. It was true that in so far as a power was given to the directors by the articles of association to be exercised under conditions, third parties dealing with the company were entitled to hold that these conditions had been complied with. But wherever the power was not authorised by the articles of association, and was unusual, it was different. It would be dangerous if the directors could bind a company where the articles of association required the consent of an extraordinary general meeting called after due notice. There was no ground for sanctioning so great a departure from the rule that an agent's powers are limited by his mandate.

Authorities— Ernest v. Nichol, 1858, 6 Clark's H. of L. Cases 401; Burns v. Pennell, 2 Clark's H. of L. Cases 497; Darsey v. Tamar, Kit. Hill, and Callington Railway Company, June 8, 1867, L.R., 2 Exch. 158.

At advising—