Scottish Court of Session Decisions

On or about 19th March 1885, Ritchie & Hardie, stockbrokers, Edinburgh, sent an order to Mackenzie & Aitken, stockbrokers, Glasgow, to buy ninety shares of the Swan Land and Cattle Company (Limited). Eighty of these shares were for W. J. Dundas, who had requested Ritchie & Hardie to procure them for him.

On 19th March Ritchie & Hardie were advised by Mackenzie & Aitken as follows:—“We beg to advise having bought as undernoted, by your order, and on your account, subject to the rules and practice of the Glasgow Stock Exchange, for settlement 27th inst., 90 shares Swan Land and Cattle Coy., @ 6 1 2;, £585, 0s. 0d.” On the same day Ritchie & Hardie sent to Mr Dundas a copy bought-note, bringing out the amount due for eighty of the above shares, including stamps, commission, &c., and after crediting the coming dividend, which the purchaser was entitled to receive, as £477, 12s. 6d. The transaction was for settlement on 27th March. In accordance with the usual practice, Mackenzie & Aitken were advised, a day or two before settling-day, that Mr Dundas was the purchaser. This was done in order that the purchaser's name might be entered in the transfer. Upon either the 27th or the 28th of March, the transfer, signed by the seller, was sent by Mackenzie & Aitken to Bitchie & Hardie, along with the usual form of letter sent by them on such occasions, of which the following is a copy:—“Herewith we beg to hand you certified transfer for;, the receipt of which please acknowledge by signing and returning to us the enclosed form.” Ritchie & Hardie acknowledged receipt as follows:—“Received from Messrs Mackenzie & Aitken (80) eighty shares of the Swan Land and Cattle Company.” On 28th March Mr Dundas gave Ritchie & Hardie his cheque for £477, 12s. 6d., and in exchange therefor got the transfer. On the same day Ritchie & Hardie sent their cheque for £500 to Mackenzie & Aitken.

On 28th March Ritchie & Hardie's cheques were dishonoured at their bank. The cheque granted by Mr Dundas had not been cashed by them, nor had they in any way mixed it with their own funds.

The firm of Ritchie & Hardie were thereafter sequestrated and J. A. Robertson, C.A., was appointed trustee.

Mackenzie & Aitken claimed a preferable ranking for the sum of £477, 12s. 6d. The trustee rejected their claim to a preference, but ranked them as ordinary creditors for £477, 12s. 6d.

This was an appeal to the Lord Ordinary on the Bills by Mackenzie & Aitken to have the trustee's deliverance set aside, and to obtain a preferable ranking in terms of their claim. The trustee lodged answers. Proof was led in which the facts above stated were brought out. The appellants founded upon the following rule of the Glasgow Stock Exchange—“(4) The legal rights and obligations of constituents between themselves, for completion of transactions made on their account by members, and the legal recourse of constituents against each other, between themselves, as well as the legal recourse of members respectively against the constituents of each other, for completion of transactions as aforesaid, are hereby strictly reserved.”

The appellants pleaded—“(1) The said cheque for £477, 12s. 6d., and the sum therein contained, having been in the hands of the bankrupts at the date of their stoppage, in trust for, or as agents for, the appellants, the same formed no part of their estate at the date of their sequestration, and the appellants are now entitled to have the said sum paid over to them. (2) The said cheque having been given in exchange for the transfer obtained by the appellants for Mr Dundas, and the sum therein contained having been appropriated to payment of the shares thereby transferred, and having been at the time of the bankrupts’ stoppage in their hands in forma specifica, and not mixed with their general funds, the appellants were and are entitled to obtain payment of the said sum.”

The respondent, at the suggestion of the Lord Ordinary, lodged a minute stating that he consented to the question whether the appellants were entitled to the sum of £477, 12s. 6d. in dispute being disposed of as if it were under a petition under section 104 of the Bankruptcy (Scotland) Act 1856, presented by the appellants to the Lord Ordinary praying to have this sum taken out of the sequestration.

At the proof the appellants sought to establish that the bankrupts were merely acting as their agents and correspondents, and not principals, in the transaction.

The Lord Ordinary ( Trayner) on 9th December 1885 found that the appellants were not entitled to payment of, or to be ranked preferably for, the sum of £477, 12s. 6d., sustained the trustee's deliverance, and dismissed the appeal.

“ Opinion.—On or about 19th March 1885 the bankrupts, who were stockbrokers in Edinburgh, sent to the appellants (stockbrokers in Glasgow) an order to purchase the ‘Swan’ shares referred

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to on record. Of same date the order was executed, and the appellants by contract-note intimated to the bankrupts that the shares had been bought ‘by your order and on your account.’ The price of the shares, along with the amount of the brokerage, was at once debited to the bankrupts in the appellants' books, and credited to the appellants in the books of the bankrupts. The settling-day for said transaction was 27th March, and on the day preceding the bankrupts forwarded to the appellants the name of the person for whom they had ordered the purchase, and in whose name the transfer was to be taken. The transfer was obtained in name of Mr Dundas, and forwarded to the bankrupts on the 27th.

On receipt of the contract-note on 19th March the bankrupts sent a similar note to Mr Dundas, intimating that they had bought for him the ‘Swan’ shares, and giving him a note of the price, commission, &c., payable therefor.

When the transfer reached the bankrupts on the 28th March, they delivered the same to Mr Dundas, and received from him his cheque for the amount payable. On same day they granted their own cheque for a sum in excess of the price of the shares transferred to Mr Dundas, but having chiefly reference to that transaction, the excess being in diminution of any balance at that time standing against them in the appellants' books. The bankrupts’ cheque was dishonoured, and they knew on that day, not sooner, that they would require to suspend payment. Their affairs were put into the hands of the respondent at once, for behoof of their creditors, and he found the cheque granted by Mr Dundas among the bankrupts’ papers, the bankrupts having properly determined not to cash the same or to meddle with their estate in any way so soon as they found that they were not in a condition to meet their obligations.

The appellants contend that Mr Dundas's cheque should be given to them; or rather, that the amount for which it was granted is due and should be paid to them as the price of said shares, on the ground that the transfer was sent to the bankrupts for collection, and that it was in their hands merely as agents for the appellants. If this contention was well founded in fact, I think the appellants would be entitled to prevail in their demand. But I think they were wrong upon the fact. In the transaction in question, as in the whole course of dealing between the appellants and the bankrupts, it appears to me to be plain that the appellants looked to the bankrupts as principals. I do not find that in any case where an order was transmitted by the bankrupts to the appellants to purchase shares, that the appellants asked for the name of the person on whose behalf or for whom the shares were being purchased. The name of such purchaser was sent on ‘name day’ no doubt, but this was simply for the purpose of having that name put into the transfer instead of the bankrupts’; such name was not sent as a disclosure of the principal for whom the bankrupts were acting as agents or brokers. That the appellants treated the bankrupts as principals is fully borne out by the facts I have stated. It was to the bankrupts that the appellants sent the contract-note, to the effect that they had bought on the bankrupts’ order and account; it was to the bankrupts that they debited the amount of price and brokerage; it was from the bankrupts that they received payment of the price and brokerage either in cash or in account. The transfer was sent to the bankrupts in completion of the transaction commenced on 19th March, not merely for collection, and it was to the bankrupts the appellants looked for payment of the amount due to them.

In dealing with Mr Dundas the bankruptsacted again as principals. They had received his order for the shares, they had fulfilled his order, they delivered him the transfer, they received from him the price, Mr Dundas's cheque was in my opinion a payment to them of money he owed them on a transaction in which he knew none other than themselves as parties. That cheque appears to me to have become part of the bankrupts’ assets from the moment they received it. They were debtors to the appellants in the amount of their accounts, but were not custodiers of any particular cheque or sum of money as agents for the appellants.

It is not of any consequence to inquire what the appellants' rights would have been against Mr Dundas directly under the rules of the Glasgow Stock Exchange or at common law, if these rights had been asserted before the transfer was sent to the bankrupts, and before Mr Dundas had paid them the money. Whether Mr Dundas was principal in the transaction or not with the appellants is a question which it would not have then been necessary to decide. The appellants, with the transfer in their hands, would have been entitled to exercise a seller's lien, and hold the transfer till the consideration had been paid. But after Mr Dundas had paid the price and received the transfer, it is clear no further claim lay against him.”

The appellants reclaimed, and argued—The appellants and respondents dealt with each other as agents, the true principals being, on the one side the buyer in Edinburgh, and on the other the seller in Glasgow. There was no general account between Mackenzie & Aitken and Ritchie & Hardie, as the respondents maintained, but each transaction was settled separately, which showed that Ritchie & Hardie were merely agents in getting the money. Besides, in this case there had been a payment in forma specifica by means of a cheque, which should have been handed over direct to the appellants—Bell's Comm. i. (5th ed.) 265; Matthews v. Auld & Guild, July 18, 1874, 1 R. 1224; Semenza and Others v. Brinslay and Another, 34 L.J., C.P. 161; Macadam v. Martin's Trustee, November 5, 1872, 11 Macph. 33.

The respondents argued—There were here two distinct contracts, and there was no contract between the buyer and the Glasgow broker. The rule of principal and factor could not apply here. The case of Matthews v. Auld & Guild was just the converse of the present. The bankrupts were in the position of principals throughout; they never held the money as agents for Mackenzie & Aitken, and were only under an obligation to account. Any claim that the appellants might have had against Dundas was now barred, because they had elected to proceed against the respondents— Ferrier v. Dods, February 23, 1865, 3 Macph. 561.