Scottish Court of Session Decisions

This was an action brought to operate total relief against the principal defender Loudon, and proportional relief against Robert Shand, William Cushnie, Charles Mackenzie, William Carmichael, and Robert Forrest, of payment of calls made by the liquidators of the City of Glasgow Bank on the pursuer Curror and the defender Shand as trustees holding stock in that bank in the following circumstances, set forth in the note to the interlocutor pronounced by the Lord Ordinary (Adam)—“The Scottish Friendly Protection Investment Company was on the 4th of August 1873 declared, in terms of the 31st rule of the company, to be at an end, the objects for which it had been instituted having been accomplished, and the funds were directed to be distributed among the shareholders.

“The defender Ebenezer John Loudon was a shareholder in the company, and was entitled to a payment of £450 from the funds of the company.

The defenders Robert Shand, William Cushnie, and Charles Mackenzie were, along with the pursuer and the now deceased Alexander Hay, the trustees of the company.

Page: 150↓

The defender William Carmichael was the president, and the defender Robert Forrest was the treasurer and secretary of the company.

By the rules of the company (17) it was directed that all moneys belonging to the company should be lodged in the bank in the name of the trustees, and that all payments which the board might order on behalf of the company should be made by cheques on the company's bankers, signed at least by two of the trustees, and countersigned by the president or vice-president and treasurer and secretary.

The trustees were not members of the board, and had no concern with the management of the company. Their duty was simply to sign cheques on the company's bank account on being satisfied that the particular payments had been ordered by the board.

A cheque in favour of Mr Loudon for the sum of £450 to which he was entitled was drawn on the company's bank account. It was signed by two of the trustees, Mr Shand and Mr Mackenzie, and countersigned by Mr Carmichael and Mr Forrest in terms of the rules.

This cheque was on the 7th August 1873 sent by Mr Forrest to Mr Loudon, and was duly received by him. Mr Forrest had suggested that the money might be temporarily deposited with another property investment company of which he was treasurer, and for that purpose the cheque was indorsed by Mr Loudon, and, as he believes, posted on the same day to the address of Mr Forrest. But it was never received by Mr Forrest, and has since been amissing.

In the beginning of October 1873 Mr Shand purchased, on behalf of Mr Loudon, £200 stock of the City of Glasgow Bank at £217, 10s. Mr Loudon intended to pay for this stock with the money in question, and accordingly applied to Mr Forrest for it. It was then discovered that the cheque had been lost, and that the money was still in the hands of the company's bankers.

Mr Loudon applied to the trustees to grant another cheque for the amount. This they agreed to do on the conditions specified in the following extract from a minute of meeting of the trustees held on 24th October 1873:—‘In these circumstances Mr Loudon applies for another cheque from the trustees; and he proposes that in order to create a tangible security which would be available for the protection of the trustees in case they should issue such duplicate cheque, the transfer of stock should be completed in the names of two of the trustees, to be held in trust either until some light be thrown on the missing cheque, or till the lapse of such a period as will reasonably satisfy all that it has most probably been destroyed and will never be again heard of—Mr Loudon and his nominee receiving the dividends as declared. The trustees acceded to Mr Loudon's proposal, the transfer of the stock being taken in name of Mr Shand and Mr Curror as trustees for all concerned—the trust continuing till the trustees under it were satisfied there was no risk in transferring the shares to Mr Loudon or necessity for continuing it longer.’

A duplicate cheque was then issued by the trustees. It was signed by all the trustees, and countersigned by Mr Carmichael and Mr Forrest.

The transfer of the stock was also completed in the names of Mr Shand and Mr Curror, and the dividends were paid to Mr Loudon.

So matters remained until the month of February 1878, when Mr Shand suggested that the time had come when the stock should be transferred to Mr Loudon. Mr Curror concurred in this view, but Mr Mackenzie would not consent, and desired that they should wait for another year before transferring the stock. The trustees thereupon declined to transfer the stock. This result was communicated to Mr Loudon and acquiesced in by him.

This was the position of matters in the month of October 1878 when the City of Glasgow Bank closed its doors.

Two calls have been made by the liquidators upon Mr Shand and Mr Curror as the registered owners of the said stock. The first of these calls for £1000 has been paid by Mr Shand and Mr Curror equally between them. They are arranging with the liquidators as to payment of the second. It is for relief of these and subsequent calls, if any, that the present action has been brought.”

The defender Shand brought a similar action concluding against Curror as a defender for proportional relief. This action was sisted till decision in Curror's action should be given. Mackenzie admitted liability and did not defend either action.

The Lord Ordinary ( Adam) allowed a proof before answer, and on a reclaiming note for the defender Forrest the Second Division adhered.

Thereafter after proof an interlocutor was pronounced finding Loudon bound to relieve the pursuer of the liabilities incurred by him through his acceptance of the transfer, and of all calls made and to be made by the liquidators, and ordaining him to pay the half of the amount of each call to the pursuer, and further finding each of the defenders Shand, Cushnie, and Mackenzie bound to relieve the pursuer of all liabilities incurred by him through his acceptance of the transfer, but only to the extent that there should be equal liability resting on the pursuer and these defenders; and assoilzieing Carmichael and Forrest from the conclusions of the action. He added this note:—

“ Note.—[ After stating the facts]—As regards the defender Mr Loudon, the Lord Ordinary does not think that there is any doubt that he is bound to relieve the pursuer of the calls in question. He was the owner of the stock, which was held by the pursuer and Mr Shand for him and solely for his convenience. It was maintained by Mr Loudon that in respect the pursuer and Mr Shand had in February 1878 unreasonably refused to transfer the stock to him at his request, they thereafter held it for their own advantage and at their own risk, and that he was free from further liability. Mr Loudon, however, had agreed that the trustees should hold the stock until they were satisfied that it was no longer necessary to hold it, and he acquiesced in their resolution to hold it for another year.

As regards the liability of the trustees of the company, Mr Shand, although nominally a defender, has of course the same interest as the pursuer to fix liability on Mr Loudon and their two co-trustees, and he is insisting in an action against them with that object.

Mr Mackenzie does not defend this action, and admits his liability, so that the question only arises with the fourth trustee, Mr Cushnie.

Page: 151↓

The Lord Ordinary thinks that if Mr Loudon is unable to meet all the calls, and if any loss arises in consequence, the loss must be borne equally by all the trustees. They were all parties to the arrangement by which it was agreed that the transfer of the stock should be taken in name of the pursuer and Mr Shand. It was so taken for their protection in case any loss should arise in consequence of their having issued the duplicate cheque. The pursuer and Mr Shand, therefore, held the stock in trust for them to that effect, and must therefore relieve them of a proportional share of the loss, if any.

The case as regards Mr Carmichael and Mr Forrest appears to the Lord Ordinary to be different. It was to the trustees to whom Mr Loudon applied to issue a duplicate cheque. The stock was to be taken in the pursuer's and Mr Shand's name ‘in order to create a tangible security which would be available for the protection of the trustees.’ It was the trustees who acceded to Mr Loudon's proposal. The trust was to continue until the trustees under it were satisfied that there was no risk in transferring the stock, and accordingly when the proposal was made in February 1878 to transfer it, it does not appear to have occurred to any person that it was necessary to consult either Mr Carmichael or Mr Forrest on the subject. They no doubt countersigned the duplicate cheque, but they did so merely for the purpose of marking it as a cheque on the company's funds. Whether they ran any risk in so doing it is not necessary to inquire, because the Lord Ordinary is satisfied that neither of them desired to be protected from any such possible risk, or that they were parties to the arrangement by which it was agreed that the stock should be held in trust. The Lord Ordinary thinks that Mr Carmichael's evidence as to the signing by him of the minute of 24th October 1873 may be quite relied on.”

Cushnie and Loudon reclaimed, and argued—1. There could be no recourse against anyone whose name was not on the first cheque. The sole object of the minute was to provide against the contingency of the cheque at any time turning up in the possession of an onerous holder. The words in the minute, “trustees for all concerned,” must refer to those “concerned” by having their names on the first cheque, viz., Messrs Shand, Mackenzie, Carmichael and Forrest. Waterston v. City of Glasgow Bank, Feb. 6, 1874, 1 R. 470, showed that a cheque differed from a bill in laying no nexus on the drawer's funds till presented at the bank. The first cheque therefore might have been stopped by notice to the bank, and the bank might have paid the money on the second cheque, leaving a personal remedy against Shand, Mackenzie, Carmichael, and Forrest to any bona fide onerous holder. They therefore alone were interested in the arrangement made by the minute. 2. The trust was kept up an unreasonable time. The shares should have been transferred to Loudon in February 1878, when he asked a transfer. Those therefore who unnecessarily kept up the trust must bear the loss.

Counsel for the respondents were not called upon.