Scottish Court of Session Decisions

This action was raised in the Sheriff Court at Elgin by Alexander Grigor Allan, William Charles Young, and James Hutcheson, the individual partners of the firm of Grigor & Young, solicitors, Elgin, as trustees for behoof of the firm and the partners thereof, against Robert Urquhart, James Hamilton, and Alexander Cunningham, trustees nominated by and acting for the Forres, Burghead, and Findhorn Permanent Investment Company, registered under the Acts of Parliament relative to friendly societies, to recover the sum of £200, or such other sum as might be due on fourteen shares of the company, which had been assigned to the pursuers by Arthur Duffies, solicitor, Forres, in security of a loan. The amount claimed was afterwards restricted to £128, 15s. 2d., exclusive of interest, as the sum due in respect of the shares.

The facts of the case were these—By bond and assignation in security, dated 18th July 1882, and registered in the Books of Council and Session 5th November 1885, Arthur Duffes, solicitor, Forres, granted him to have instantly borrowed and received from the pursuers as trustees, the sum of £300, which sum he bound and obliged himself to repay to them at the term of Martinmas 1885, with interest and penalty in case of failure, as therein stipulated, and for the further security of the pursuers, and more sure payment of principal, interest, and penalty, he assigned, bargained, transferred, and conveyed to the pursuers, as trustees, inter alia, fourteen shares standing in his name in the defenders' company. The sum sued for was the balance of this loan remaining unpaid,

The shares were of the value of £25 each. With regard to four of the shares assigned it appeared in the course of the action that they belonged to Mrs Duffes, and any claim to them was given up. The amount at the credit of

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Duffes at the date of the assignation, in respect of the remaining ten shares, was £77, 0s. 10d. Duffes was the manager of the company and also the clerk, treasurer, and law-agent down to 8th December 1885, when he resigned. No intimation of the assignation was made to the directors of the company. In October 1885 Duffes showed Mr Grigor Allan, one of the pursuers, his pass-book with the company, which was balanced as at 18th May 1885, bringing out a sum of £128, 15s. 2d. as then due to him. On 25th November 1885 Mr Grigor Allan called on Duffes at his private office and asked him if he had entered any note of the assignation in his books, and, on learning that he had not, said it would be better to do so. Duffes then altered the heading of the account for the ten shares in question in the ledger of shareholders, so that as altered it read thus—“ Arthur Duffes, solicitor, Forres, now in name of Alex. Grigor Allan, William Charles Young, and James Hutcheson, Solicitors, Elgin, for behoof of the firm of Grigor. & Young, Solicitors, Elgin, conform to assignation intimated to me. “ Arthur Duffes, Manager,

“25th Nov. 1885.”

This ledger was the only register of the company. At the same time Duffes handed to Mr Allan a letter in these terms—

“Messrs Grigor & Young, Solicitors, Elgin.

“ Forres, 25 th Nov. 1885.

“ Dear Sirs,—I acknowledge intimation of bond and assignation by myself as an individual to your firm of fourteen shares in the Forres, Burghead, and Findhorn Permanent Investment Company, of date 18th July 1882, and recorded 5th November 1885.—Yours truly,

“ Arthur Duffes,

Manager of the said

Forres, Burghead, &c., Co.

“ P.S.—The said shares have been transferred to your name. “ Arthur Duffes, Manager.”

Mr Grigor Allan paid Duffes another visit on 13th January 1886, when he examined the ledger, and was satisfied that it was then all right. Subsequently, however, this entry was made in the ledger in Duffes' handwriting—“Drawn £100.” The sum at his credit was then altered to £23, 19s. 7d. This sum of £100 had been paid by the directors to Duffes on 18th July 1884, as part of the subscriptions at the credit of his shares. Criminal proceedings were taken against Duffes in connection with the affairs of the company, and he absconded.

The rules of the company bearing on the present question were as follows:—

“IV.— Subscriptions.—… The directors shall furnish the shareholders with pass-books (at the shareholder's expense) in which all payments made to this company shall be signed or marked by the manager, or such other party as may be authorised to receive the money, and which receipt alone shall be binding on the company. The pass-book may be required by the directors to be sent into the manager to be laid before them or the auditors when necessary. The company's books shall be held legal evidence in all cases of dispute.

VII.— Balance of Books and Division of Profits.—The books of the company shall be brought to a balance, and the profits ascertained as on the 30th day of May in each year, and the said profits shall be credited in the books of the company to each shareholder according to the number and value of shares held by him, whether he shall hold advanced or unadvanced shares. So soon as the sum standing in the books of the company at the credit of any shareholder shall amount to £25 for each share he or she may hold, the amount of such share or shares if unadvanced shall be paid over to such shareholder, who shall then cease to be a shareholder in so far as regards such paid-up shares.… It is, however, specially provided that any shareholder withdrawing before the subscriptions and the profits credited thereon have accumulated to the full amount of £25 per share, shall have no claim on the company but for the amount of subscriptions paid by him, and simple interest thereon, in terms of rule eighth.

VIII.— Shareholders withdrawing: Sale and Transfer of Shares.—Any shareholder not having received an advance of money, or whose advance shall have been repaid, shall be allowed to withdraw from the society on giving written notice to the manager, and shall be entitled to receive, at the end of three months from the receipt of such notice, the full amount of his subscriptions, together with Savings' Bank interest thereon; provided always that it shall appear from the company's stock, as ascertained at the preceding annual balance or by special minute of the directors, that such payment shall not exceed the value at the time of such shares so withdrawn; and it is specially provided that, notwithstanding the value of said shares so withdrawn shall, with the profits credited thereon, as by rule seventh, exceed the amount of subscriptions paid by the shareholders withdrawing, and simple interest thereon as aforesaid, the shareholder so withdrawing previous to his shares being fully paid, as stated in rule seventh, shall have no farther claim than for said subscriptions and simple interest as aforesaid, or for the value of such shares, should the value be less than said subscriptions and interest. Any shareholder shall be allowed to sell or transfer his shares to any other person, whether a member of the Society or not; provided always that in the case of a sale or transfer, a transfer fee of threepence per share shall be paid to the company at the completion of the transfer, over and above the legal expenses of the same, if any, and that all arrears, fines, penalties, or sums otherwise due to the company, shall be paid previous to the transfer being registered.”.…

There was no provision made by the rules of the company for a member mortgaging shares held by him.

The pursuers pleaded—“(3) The transfer of said shares being in competent form, and duly intimated to the company, the pursuers are entitled to decree as craved. (4) The alleged payment of £100 to the said Arthur Duffes being ultra vires of the company, and in violation of its rules, cannot be pleaded as a set-off against the pursuers' claim.”

The defenders pleaded—“(1) The pursuers not being shareholders of the said company have no title to sue for payment of sums due under shares belonging to or in name of a shareholder of the company. (2) No intimation of the bond and assignation in security in question having been made to the defenders, or to the president,

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vice-president, and directors of the said company, the present action is unfounded, and ought to be dismissed, with expenses. (3) The said Arthur Duffes being himself the manager of the said company, while at the same time he was the cedent and debtor of the pursuers, intimation to him alone was insufficient, and such intimation, in order actually to reach the proper parties, should have been made to the defenders, and the president, vice-president, and directors of the company. (4) There having been no absolute sale or transfer of the shares held by Duffes in the said company to the pursuers duly completed, they are not entitled to insist in the present action.” The defenders also pleaded (5) that they were creditors of Duffes for a much larger sum than ever stood at his credit in connection with the shares in question, and that they were entitled to set off this sum against the pursuers' claim.

On 9th April 1887 the Sheriff-Substitute ( Rampini) pronounced this interlocutor:—“Finds that by bond and assignation in security for £300, dated 18th July 1882, and registered in the Books of Council and Session 5th November 1885, Arthur Duffes, solicitor, Forres, conveyed to the pursuers, inter alia, fourteen shares of the defenders' company in security of the said advances made by the pursuers to him: Finds that the said assignation was not duly intimated to the defenders: Therefore sustains the defenders' 1st, 2nd, 3rd, and 4th pleas-in-law: Dismisses the action, and Finds the pursuers liable in expenses, &c.

“ Note.—It appears to the Sheriff-Substitute that there are two questions on which his decision is required—(1) Were the shares assignable? and (2) Was the transference completed? These questions arise only as to the shares held by Duffes in his own name. It is admitted that the pursuers have failed to establish any claim to the four held by Mrs Duffes.

“1. It is not disputed that as a general rule, independent of any authority to this effect in the regulations of the company, shares in a benefit society like the present are assignable. But it is objected that the rules do not authorise an assignation in security. This is true so far as the letter of the regulations go, but by rule 8 it is provided, that ‘Any shareholder shall be allowed to sell or transfer his shares to any other person whether a member of the society or not.’ And in the opinion of the Sheriff-Substitute not only (1) must the greater right hereby conferred be held to include the less, but (2) so far as the company is concerned, the transfer, if a transfer actually took place, was out and out an absolute one. But

“2. Was the transference actually completed? The pursuers' argument is, that if there was no formal intimation, there were at least the equipollents of intimation. And here it is important to keep in view that this is not a case of competition between the assignees and third parties claiming under a duly intimated assignation, but between assignees and the common debtors as creditors of the cedent. It is plain that unless the pursuers can show a completed transference of the cedent's right, they cannot claim to be considered as shareholders of the company, and this they do (1) by asserting private knowledge on the part of the debtor. They allege that the cedent was, if not actually the company,—at least the company's principal officer, and this may be held as proved. But admitting this, is private knowledge on the part even of the principal officer of a company sufficient to do away with the necessity of intimation or its equipollent. The Sheriff-Substitute has been unable to find any authority for this proposition. It may be that private knowledge will raise a personal exception to the debtor paying the cedent, but, as the Sheriff-Substitute thinks, this question does not arise here. In the Facuity of Advocates' case (M. 866) private knowledge was found insufficient without a promise to pay, and Dickson's case (M. 873) was corroboration of his doctrine. If this view is correct, then there was here no intimation unless (2) the alteration in the ledger and the letter No. 22 of process, both of date November 25, 1885, can be held to have been equivalent to intimation.

“This leads us to consider Duffes' position quoad the company, and with regard to this the Sheriff-Substitute only desires to say that the directors, against whose bona fides there is not the slightest imputation, undoubtedly erred in judgment apart from any question as to the violation of the rules, in sanctioning the accumulation of the offices of manager, clerk, and law agent, on one person, and they have themselves to blame if, as it has turned out, they have been made the victims of their misplaced confidence. But it does not follow that they were in mala fide in making the payment of £100 to Duffes in July 1884, or that even if they had paid away the amount of these shares after the 25th November 1885, they could have been found liable in repetition. The alteration of the heading in the ledger was made by Duffes in his private office (the company's office being apparently the Mechanics' Institute), where also the letter No. 22 of process was written by him in Mr Allan's presence. Was it sufficient to constitute knowledge on the part of the company that Duffes signed this letter and made this alteration in his private office, and added to his signature the word ‘manager?’ The Sheriff-Substitute thinks that in their own interests, having the suspicion of Duffes which they had, the assignees ought to have taken further steps to have informed the company of this transaction, the more so that this is not one of those cases where the legislation has provided a statutory mode of intimation. In Keir's case (M. 738) there was both arrestment and intimation. “3. It is plain that if the Sheriff-Substitute is right in holding that even at the 25th November 1885 the pursuers were not shareholders of the company, and that they are not so even yet, it is unnecessary to refer to the payment of £100 made to Duffes, very irregularly it must be admitted, in 1884.

“The result, therefore, at which the Sheriff-Substitute has, after a careful consideration of the evidence and the authorities, arrived at, is that in his opinion the pursuers were in error in assuming that no intimation was necessary, and that they have by so doing deprived themselves of a right which would otherwise have been undoubted. It was plain to the Sheriff-Substitute from the first that whichever way this case was decided, hardship would ensue to one or other of two innocent parties. And though, perhaps, if it had been possible to have invoked equity, it would have been more in accordance with the

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justice of the case that the directors, who have in so many respects neglected the observance of their own regulations, should have been the sufferers, still as he reads the law on the subject the Sheriff-Substitute has no option. Comment, it appears to the Sheriff-Substitute, is unnecessary upon the entirely unprincipled conduct of the cedent Duffes.”

The pursuers appealed to the Court of Session, and argued that there had been what was equivalent to intimation to the company. There was no direct intimation to the directors, because the cedent was the manager, and his private knowledge was a sufficient intimation to the company. In the ordinary course of business the knowledge of the manager was the knowledge of the company. The company ought, therefore, not to have paid the £100 to Duffes. Duffes could not have drawn out this money in respect of his shares, as it was provided by the rules that a shareholder could only draw out a share or shares, whereas it did not appear that Duffes had done this. After November 1885, if intimation was necessary to complete the pursuers' right to the shares, it was then completed, because then the heading in the share ledger had been altered from Duffes' name to theirs. The share ledger was the only register of shares possessed by the company, and such an entry was quite good, as shewn in the City of Glasgow Bank cases. There was, therefore, at least £23 due to the pursuers.— Bradford Banking Co. v. Briggs, Son, & Co., Dec. 7, 1S86, L. R., 12 App. Cases 29; Bell's Conveyancing, 315, 317; Watson v. Murdoch, Nov. 19, 1755, M. 850; Faculty of Advocates v. Sir Robert Dickson, July 25, 1718, M. 866 ( Murray v. Pinkett, Aug. 13, 1846, 12 Clark & Fin. 764; Gale v. Lewis, Nov. 5, 1846, 16 L.J, Q.B. 119; Bindley on Partnership, pp. 684, 685, 1151.

The respondents argued that it was certain that no intimation had been made to the company, and the private knowledge of the manager was not equivalent to intimation to the company. By the law of Scotland intimation was necessary for two reasons—first, to put the debtor of the cedent in bad faith to deal with anyone but the assignee, and secondly, for the divestiture of the cedent. The transfer here was never completed by intimation. It was not in the power of an official to dispense with the condition precedent to a transfer, namely, the payment of the money due upon the shares, so that no transfer could have taken place.— Adamson v. Mitchell, 1624, M. 859; Westran v. Williamson, &c., 1626, M. 859; Hill (Alexander's Trustee) v. Lindsay, &c., Feb. 10, 1846, 18 Jur. 218; Lindley on Partnership, 686.

At advising—