Scottish Court of Session Decisions

Falkner, Bell, & Company, merchants, San Francisco, raised actions against the Scottish Pacific Coast Mining Company (Limited), for payment of three bills of exchange for £1000, £2000, and £3000, drawn by the pursuers and accepted by the defenders in June 1884.

The Scottish Pacific Mining Company then brought a suspension as of a threatened charge by Falkner, Bell, & Company on the £1000 bill, and the actions were conjoined.

The main question between the parties was as to the right of the Scottish Pacific Company to retain as against Falkner, Bell,& Company on the ground that the latter had taken benefit to a greater extent than the amount sued for from a sum alleged to have been illegally paid to J. D. Walker, a partner of the firm, and a director of the company, by C. Sutherland, the vendor of the properties acquired by the company.

The Scottish Pacific Coast Mining Company (Limited) had been incorporated on 8th March 1881. It went into liquidation, and on 18th February 1885 Mr Francis More, C.A., was appointed liquidator. Falkner, Bell, & Company were the agents and managers of the company in San Francisco.

The statements in the process of suspension were as follows—The complainers averred—“(Stat. 7) The prospectus of the company issued in January 1881 set forth that the company was proposed to be formed for the purpose of acquiring certain gold drift claims in Sierra County, California, shown on an accompanying map, and proposed in the provisional agreement of 13th January 1881 to be purchased by the company for 400,000 dollars, about (£83,000), provided the statements contained in the prospectus were reported to be correct. The prospectus contained a variety of statements regarding the situation, nature, and extent of the mines, and that the company would not be incorporated until these statements, which were made on the authority of the vendors, were confirmed by Mr Thomas Price, mining engineer, San Francisco, who had been employed to report thereon. The prospectus also bore that the capital of the company was to be £100,000 in 10,000 shares of £10 each, and gave the names of the provisional directors, including that of James D. Walker, of the respondent's firm of Falkner, Bell, & Company, San Francisco, and stated that it was proposed that he should be managing director in California, and also that his said firm and other parties in San Francisco would subscribe £10,000. The respondents, and in particular their partner James D. Walker, took an active part in the promotion of the said company, and in the preparation and issue of the said prospectus, and they also took an active part in the negotiations with the vendor of the said mines.” The respondent's answer was—“Explained that Mr Walker, although named therein as a provisional director, never possessed the necessary qualification of 50 shares in terms of article 76 of the articles of association, and by the provisional agreement between the vendor and the provisional directors Mr Walker was excluded from taking any part in considering whether the American property should be purchased or not, and as to what reports and evidence of value should be obtained. In point of fact it was intended that Mr Walker should be merely managing director or manager, and it was not necessary that to hold that office he should be a member of the company. He never was, and, as

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above explained, was not qualified to be a director in the ordinary sense of that term.”

The provisional agreement of 13th January 1881, which was made between Charles Sutherland of San Francisco, and certain persons who afterwards became directors of the company, of whom Mr Walker was one, was disclosed in the prospectus as the only one entered into on behalf of the company. By the agreement (1) Sutherland agreed to sell to the projected company the various mining claims and other subjects for the price of 400,000 dollars to be paid by the company simultaneously with their acquiring a title; (2) Sutherland agreed that before paying the price the second parties should employ an engineer to report on certain matters, and a lawyer to report to them whether a good title could be obtained. It was provided (3) that if favourable reports were got the company should be formed with the specified capital, and that the parties subscribing should take the amount of stock set opposite their names; and (4) that the parties therein named, being the provisional directors named in the prospectus (other than James D. Walker), should have the sole right to determine whether the investigation had so resulted that the company should be formed, and if so, should adjust the articles and incorporate the company, which should in that case pay the price stipulated.

The complainers averred—“The investigation proved satisfactory, and the company was incorporated on 8th March 1881, the provisional directors, including the said James D. Walker, being appointed in the articles of association the first directors of the company. The said James D. Walker was and acted from the first as a director of the company. The firm of Falkner, Bell, & Company (the respondents) throughout acted as the agents, managers, and factors of the company at San Francisco. Following on the formation of the company the provisional agreement with the vendor was confirmed, and the stipulated price of 400,000 dollars was by or with the authority of the directors paid to or on account of the vendor.”

The respondents denied that Mr Walker ever was a director of the company, or ever acted as such.

The complainers averred—“(Stat. 10) Notwithstanding the stipulation that the price was to be 400,000 dollars, the sum which was actually paid for the mines, &e., to the owners was 330,000 dollars; and it was agreed between Charles Sutherland, the vendor, and the respondents Falkner, Bell, & Company (of which firm Mr James D. Walker, who was a promoter and director of the company, was a partner), that the balance of 70,000 dollars (upwards of £14,000), should be divided as commission between them, the said Charles Sutherland and the respondents Falkner, Bell, & Company. The said arrangement was known to Mr J. D. Walker, but was not disclosed nor known to the board of directors, nor to the company or its shareholders. (Ans. 10) Denied that Mr Walker was a party to the agreement here mentioned, or knew that it was to be made. Explained that it was made in America between Mr Sutherland and Mr Thomas Menzies, a member of the respondents' firm, before Mr Sutherland came to this country to try and dispose of the mining properties he had for sale. Mr Walker knew nothing of said agreement till after Mr Sutherland came to London. It is denied that the arrangement as to the respondents receiving a share of Mr Sutherland's profit on the sale of the mines was not disclosed or known to the company. The provisional directors and other gentlemen were made aware of the arrangement at a meeting or meetings held preliminary to the purchase of the properties. The amount remitted to California in payment of the mines, according to the entries in the company's books, was 350,000 dollars; 20,000 dollars of this sum was paid to Sutherland, as mentionedby the complainers instatementll. Quoad ultra deniea. (Stat. 11)The division of the 70,000 dollars was made as follows 20,000 dollars were paid to Charles Sutherland in cash, and the balance, 50,000 dollars, was placed to the credit of the respondents in the books of the complainers' company. It was agreed between Charles Sutherland and the respondents that they should take between them 1000 shares in the company, and the first call of £8, 10s. per share, amounting to 41,225 dollars was debited, leaving a balance of 8755 dollars at the credit of the respondents' account with the company. The secretary of the complainers' company on 9th June 1881 intimated to the respondents that the said balance was at their credit, and that they could take credit for it in their next account, which was done. (Stat. 12) Of the said 1000 shares the respondents agreed to take 700, and Sutherland 300, and the respondents, writing from San Francisco on 16th August 1881, instructed the secretary of the complainers' company that ‘the 700 are for our account, to be registered in the name of Mr H. D. Harrison,’ a partner of the pursuers' firm in London,’ and 300 for Mr Sutherland, to be registered in his name.’ … The said shares were accordingly registered, 700 in the name of Mr Harrison and 300 in name of Mr Sutherland, and the respective certificates were sent to them in September 1881.”

The complainers pleaded—“(3) The sum of 35,000 dollars, equal to £7000, or thereby, being a payment obtained by the respondents—the firm of a promoter and director of the complainers' company-out of the price of subjects sold to the company, falls to be credited to the complainers in account with the respondents. (4) In any event, the complainers are entitled to retain the amount of the said bill in extinction pro tanto of the said debt due to them.”

The respondents pleaded—“(5) No part of the sum of £7000 mentioned in the complainers' third plea having been paid to or being in the hands of the respondents, the complainers' pleas of compensation and retention are excluded.”

A proof was taken, from which the following facts appeared-On 1st December 1880 Mr Thomas Menzies, one of the partners of Falkner, Bell, & Company, wrote to Mr Walker, who was then in London, asking the latter if he could place the Bonanza Mine on the London market, and that if he thought it could be placed, the holder of the bond over the mine would go to London and arrange with Walker about it. On 7th December 1880 Mr Charles Sutherland, the holder of the bond referred to, wrote to Falkner, Bell, & Company, mentioning that as arranged he would go to London and co-operate with Mr Walker there in disposing

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of the mines. He also stated that it was agreed that the profits, after paying the bonds, &c., were to be divided between himself, a Mr Ralston, and Falkner, Bell, & Company, the latter to get half of the profits. T. Menzies wrote to Walker informing him of this agreement with Sutherland on 8th December 1880, and subsequently sent him a copy of the agreement between Sutherland and Falkner, Bell, & Company.

On 31st December 1880 Walker wrote to Mr W. J. Menzies, W.S., Edinburgh, mentioning that T. Menzies had given a letter of introduction to Sutherland to him (Walker); that Sutherland was coming to London to offer a gold mine for sale, and asking if Mr W. J. Menzies thought that such a property could be floated in Edinburgh, and that Falkner, Bell, &Company would act as agents.

In the beginning of January 1881 a meeting took place in London, at which were present Mr Walker, Mr Sutherland, Sir George Warrender, and Mr W. J. Menzies. Mr Sutherland at this meeting gave the gentlemen present information about the mine. Subsequent meetings took place in Edinburgh between Mr Thomas Nelson, Mr J. D. Lawrie, stockbroker, and Mr E. L. I. Blyth, C.E., Messrs Walker and Sutherland being present at some of these meetings.

A provisional agreement dated 13th January 1881 was then entered into between Sutherland of the first part and those who agreed to take shares when the company was incorporated of the second part.

The first clause was an agreement on the part of Sutherland to sell to a company to be named the Scottish Pacific Coast Mining Company the mines, &c., for the price of 400,000 dollars.

The second head of the agreement provided that before the price was paid the second parties should get a report from an engineer, and also a report from a lawyer as-to the title to the mines.

It was provided in the third place that if the reports above referred to were favourable the company should be incorporated.

The fourth clause was—“The following parties, Sir George Warrender, Baronet, Mr Edward Lawrence Ireland Blyth, Mr Thomas Nelson, Mr James D. Lawrie, and Mr William John Menzies, shall have the sole right to determine whether in terms of this agreement the investigation made by the second parties has so resulted that the company ought to he incorporated, and if they so determine they shall adjust the terms of the articles of association and incorporate the company, and the company in that case shall pay the price above stipulated.’ In witness whereof,” &e. Mr Walker, as one of the second parties, signed this agreement. On the same date Mr W. J. Menzies sent Falkner, Bell, & Company, letters of instruction to an engineer and solicitor to report on the matters submitted to them. On the 15th of January 1881 Mr Menzies also sent them two printed copies of the provisional agreement, and on 18th January 1881 a proof of the prospectus was sent.

The prospectus was issued on 21st January 1881. The capital was to be £100,000 in 10,000 shares of £10 each-£4, 10s. per share to be called up not sooner than 1st March, and £4 not sooner than 1st May following.’ Among the provisional directors was James D, Walker, of the firm of Falkner, Bell, & Company, San Francisco.

The prospectus, after referring to the objects of the company and the mines, inter alia, stated—“It is proposed that if the company be incorporated Mr James D. Walker, of the well-known firm of Falkner, Bell, & Company, San Francisco, should be managing director in California. His firm and other parties in San Francisco will subscribe £10,000”

A meeting of the committee under the provisional agreement was held on 25th February 1881, at which were present all the persons mentioned in the provisional argeement, to whom the question whether the company should be incorporated was finally left, with the addition of Mr Walker. The report of the engineer proving satisfactory the committee agreed that Falkner, Bell, & Company, on being satisfied that the title was good, were to be authorised to draw on the company for the price. Another meeting was held on 5th March 1881, at which Mr Walker was not present, which authorised the company to be registered, which it was on 8th March 1881. In the memorandum and articles of association which Mr Walker signed, his name appeared as one of the ordinary directors. Falkner, Bell, & Company took as part of their commission 700 shares of the company, £8, 10s. of which had been previously paid up, and they were accordingly entered on the register at their request in name of Mr H. D. Harrison, one of the partners, for behoof of the firm.

As all the shares were not taken up by the public, a syndicate was formed among the directors to take up the shares in order to float the company. Mr Walker was asked by Mr W. J. Menzies to allow the balance of the commission due to Falkner, Bell, & Company, viz., 8775 dollars or £1809, to be applied to this fund, and Mr Walker, in a private letter in answer, agreed to this on behalf of his firm. The sum first mentioned was paid over or put to the credit in an account in name of Mr W. J. Menzies, who represented the syndicate. This exhausted the whole commission of 50,000 dollars due to Falkner, Bell, & Company.

Sir George Warrender, Mr Blyth, and Mr Nelson all denied that they knew that Walker had any interest as a vendor in the purchase of the mines, and the three former said they only became aware of the fact for the first time in 1884. Mr W. J. Menzies admitted that he was cognisant of the agreement between Walker and Sutherland as to the commission, but he could not say that the other directors knew of this.

Walker, on the other hand, and Sutherland, both swore that at the meetings in London and Edinburgh in January 1881, referred to above, full information was given concerning the commission and its division.

As to Walker's name being omitted from the committee mentioned in the provisional agreement, the evidence was as follows—Sir George Warrender's explanation was that Mr Walker was recommending the purchase of the mine, and that the others, who knew each other better, determined to consult together. Mr Blyth said—“It was a mere suggestion on my part that Mr Walker's name does not appear in the last paragraph of the provisional agreement, because he was expected to be out of the

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country before Mr Price's report came.” Mr Lawrie could not suggest any reason why Mr Walker's name was omitted, unless it was that he was not to be in this country at the time. Mr Nelson could not speak positively on the subject. Mr Walker said on this point—“A provisional committee was appointed. I was not allowed to be a member of it; I was especially debarred from it on the ground that I was an interested party. It was left to that committee to settle the question whether the report of the expert would justify the purchase of the property, and whether the property should then be purchased or declined. My interest, on account of which I was debarred from the committee, was that I was a member of the firm of Falkner, Bell, & Company, which was to receive one-half of Mr Sutherland's profit;” and he went on to say that there was no foundation for the suggestion that his name was excluded because he was leaving for San Francisco, as in point of fact he did not leave till the beginning of March. Sutherland also said that he thought Walker's name was omitted because he was an interested party. Mr W. J. Menzies said he thought that the omission was owing to Walker being the introducer of Sutherland the seller.

Both Messrs Blyth and Nelson stated that the fact of Falkner, Bell, & Company subscribing £10,000, as stated in the prospectus, influenced them in joining the company.

Mr H. D. Harrison and Mr T. Menzies, both partners of Falkner, Bell, & Company, who were examined on commission, denied that they ever gave instructions for placing the £1809 to the account of Mr W. J. Menzies.

The Lord Ordinary ( Kinnear) on 24th June 1887 pronounced this interlocutor:—“Sustains the respondents' and pursuers' claims upon the bills libelled (i.e., the £1000 and £3000 bills), but in respect the complainers' and defenders' counter claim exceeds the amount thereof in the suspension and interdict, interdicts and suspends as craved; and in the action for payment, assoilzies the defenders from the whole conclusions of the action: … Finds the Scottish Pacific Coast Mining Company (Limited) entitled to expenses in both actions, and in the conjoined actions, &c.

“ Opinion.— … [ After stating his opinion that the pursuers had no title to sue on the £2000, and that the defenders were liable on the bills for £1000 and £3000], Assuming the sums contained in the bills to be due, the next question is, whether the liquidator of the defenders' company is entitled to retain, and the ground on which he claims to do so is, that the pursuers' firm has taken benefit to a greater extent than the amount sued for, from an unlawful agreement between one of its partners and the directors of the defenders' company, or some of them. The facts upon which this claim arises do not appear to me to be doubtful.

The company was formed for the purpose of acquiring and working certain mining properties in California described in a provisional agreement mentioned in the published prospectus. The nominal vendor of these properties was a Mr Charles Sutherland of San Francisco, and the provisional agreement was made between him and certain gentlemen, who afterwards became directors of the company, and one of whom was the pursuers' partner Mr Walker. But before any negotiation had taken place between Mr Sutherland and the promoters, other than Mr Walker, a prior agreement had been made between him and the partners of the pursuers' firm in San Francisco, by which it was agreed that if the pursuers should by their introduction enable Mr Sutherland to find a purchaser for the mines in this country, one-half of the profit which Mr Sutherland might make upon the transaction was to be paid to their firm. In pursuance of this arrangement Mr Sutherland was introduced by the pursuers' partner Mr Walker to the gentlemen who promoted the company, and an agreement was made by which the mines were purchased for the company for 400,000 dollars, of which 330.000 dollars went to certain prior owners or bondholders on the property, and the remaining 70,000, which represented the vendor's profit upon the sale, was to be divided according to their previous arrangement between Mr Sutherland and Falkner, Bell, & Company. It was subsequently arranged that Falkner, Bell, & Company should take their share of the profit in shares, paid up to the extent of £8, 10s. on £10 shares. The agreement was carried out after the formation of the company by payment of 350.000 dollars in cash, of which 330,000 was paid to the original owners, and 20,000 dollars to Mr Sutherland. This left 50,000 dollars of the price, and in June 1881 that sum was put to the credit of Falkner, Bell, & Company in the company's books, and in their current account with the company, and on the same day they were debited with 41,000 dollars odds, which represented £8,10s. per share on one thousand shares. Seven hundred of these shares were registered at the pursuers' request in name of one of their partners; Mr Harrison, and three hundred in name of Mr Sutherland. This left 8775 dollars at the credit of Falkner, Bell, & Company. But in May 1882 certain of the gentlemen interested in the company formed what is called a syndicate for the purpose of taking up the shares which had not been taken up by the public. Mr Walker agreed that he should contribute to the purposes of the syndicate the sum with which his firm was credited, and accordingly that sum was paid over or put to the credit of Mr Menzies, as representing the syndicate. Theresult is that apart from this last transaction Falkner, Bell, & Company have received seven hundred partly paid-up shares as their portion of the price of the mines. There is no question that this arrangement was made for them by their partner Mr Walker, and it is equally certain that at the time it was made and carried out Mr Walker stood in a fiduciary relation towards the company, both as a promoter and a director. His name appears, with a statement of his position as a partner of Falkner, Bell, & Company, of San Francisco, in the published prospectus as one of the provisional directors; his name is in the list of original directors in the articles of association, and although it appears to have been dropped out from the list published in 1881, it reappears in the following year, and he continued in fact to be a director in 1884. He put himself therefore in a fiduciary position towards the company. As a provisional director he held himself out to intending shareholders as one of the persons who had undertaken the duty of considering the expediency of the purchase on behalf of the company, and as an acting director when

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the company was formed he undertook the duty of carrying out the contract of purchase and sale in their interest, while at the same time he was truly in the position of a vendor, because he was receiving a considerable portion of the purchase money, and contributing nothing to the purchase money as a buyer. There can be no doubt whatever, if that were all, that a transaction made by him in these circumstances for the benefit of his firm could not be sustained as against the company. But that is not all, because the intending shareholders were not only entitled to rely upon his services as a director bound to consider their interest alone in making the purchase, but they were specially invited to rely on his special knowledge and experience, and on the material interest which he and his firm were to have in the company as considerable contributors, because it is set forth in the published prospectus that if the company is incorporated it is proposed that Mr James D. Walker, of the well-known firm of Falkner, Bell, & Company, of San Francisco, should be managing director, and that his firm and other parties in San Francisco will subscribe £10,000. And therefore the public are invited to have confidence in the adventure, because Mr Walker is to be a director, and his firm with others is to subscribe £10,000, although at the time when this prospectus is published there is a concealed agreement between him and certain promoters that he and his firm are to subscribe nothing but the company's money, which is to be paid to them as a commission on the sale. He represents himself to be acting for the buyers, and to be one of their number, and he invites the public to have confidence in the purchase upon that account, while at the same time he is really identified with the vendors, contributing nothing of his own to the purchase money, and taking for himself and his firm a share of the price. It is said that he was not in a fiduciary position when the provisional agreement was made. That would be of no consequence if he was a party to a wrongful agreement after he became a director. But he did more than that, because he made himself a party to the representations in the prospectus upon which the public were invited to take shares. I think it right to say, however, because questions of this kind involve character, that 1 do not suppose Mr Walker intended to wrong the shareholders. I do not doubt, upon consideration of the evidence, and of a very voluminous correspondence which I have read, that he believed the adventure to be a promising one, and his part in the transaction to be perfectly legitimate. His error was that he mistook his position. But acquitting him of any wrongful intention, the fact remains that while he was charged as a director of the company with the duty of protecting their interests, he made a contract on their behalf for the purchase of a property, having at the time when he made it an agreement with the vendors to receive a portion—amounting to 35,000 dollars—of the price. The case appears to me to be a very clear one for the application of the rule which is established by many decisions, and which is thus stated by Lord Young in one of the most recent—‘Whenever it can be shown that the trustee has so arranged matters as to obtain an advantage, whether in money or money's worth, to himself personally through the execution of his trust, he will not be permitted to retain it, but will be compelled to make it over to his constituent.’— Huntington Copper Company v. Henderson 4 R. 299.

It is said that the whole transaction was made known to all the directors. This would be of no consequence if it were not made known to the company—that is, to the shareholders, and to the public who are invited to take shares. But I see no reason to distrust the testimony of those directors who have been examined, and who depone that they knew nothing of the matter. The active conduct of the company's affairs seem to have been left almost entirely to Mr Menzies; and there can be no doubt that the arrangement between Sutherland and Falkner, Bell, & Company was perfectly well known to him, or that, failing to advert to Mr Walker's fiduciary position, he supposed it to be a legitimate arrangement, and accordingly consented to it, and carried it into effect. But he is unable to say that he explained the matter to the other directors, and they in the witness-box have distinctly denied all knowledge of it. There is a conflict between their evidence and that of Messrs Walker and Sutherland. But it is quite impossible that they should be mistaken on such a point; and on the other hand, it is by no means improbable either that Messrs Walker and Sutherland, in speaking at this distance of time to what took place in conversation, may not have a perfectly accurate recollection of the part taken by particular gentlemen, or that they may have supposed without sufficient ground that what was known to Mr Menzies was known to his co-directors also. It may be, also, that things may have been said in the presence of the other directors which, if they had had the key to them, might have shown that there was some arrangement with Mr Walker or Falkner, Bell, & Company. But, however the discrepancy is to be accounted for, I prefer the evidence of the directors who were examined, both because they are perfectly clear and positive in their statements on the subject, and because, while there is a possibility of honest error on the other side, I think there is no such possibility on theirs. The question, however, is not material to the present action, because if all the directors had known of the transaction their knowledge would not have bound the company.

The remaining question is, whether assuming the illegality of the' transaction by which Falkner, Bell, & Company have been benefited, the liquidator is entitled to the remedy which he maintains against them. It is said that he cannot retain the money due to the firm against the liabilities of one of its partners; that the firm cannot be made liable in damages for the wrong done by a partner, so as to bring the case within the rule of M'Kay's case, 2 Ch. Div. 1, and Pearson's case, 5 Ch. Div. 336; and that, although they might be bound to account for any benefit which had been communicated to them by their partner, they have in fact received no benefit except in the shape of a transfer of shares, and their liability will therefore be satisfied if the shares are re-transferred. I cannot assent to this argument. I do not think it doubtful that the firm must refund whatever 1 benefit they have taken, just as Mr Walker

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must have done so had he been acting for himself alone, and I do not think their liability will be satisfied by a re-transfer of the shares.

“It is clear upon the evidence and the correspondence that they were acquainted with the whole transaction from first to last. The two bargains which Mr Walker made for them, first for a portion of the price, and secondly, for a certain number of shares, were made with their authority; and they accepted and ratified both by directing the shares to be registered in the name of their nominee Mr Harrison. But they were aware at the same time of Mr Walker's fiduciary position, because they were the agents of the company, and knew that he was a managing director. In these circumstances the doctrine laid down by the House of Lords in the Imperial Mercantile Association v. Coleman, 6 E. and I. App. 203, appears to me to be applicable. The other partners, as the Lord Chancellor says in that case, are ‘parties to and implicated in the breach of trust;’ with the knowledge they had their ‘liability cannot be separated from that of’ Mr Walker, and they are liable to refund to the liquidator whatever he could have been compelled to refund if he had been the sole partner of his firm.

But if that be so, I think they are liable on the authority of Hay's case, 10 L.R., Ch. App. 593, for the whole amount which was put to their credit in the books of the company, and applied in the purchase of the shares which stand registered in the name of Mr Harrison. They have contracted to become shareholders in respect of these shares, and ex facie of the transaction they have paid for them by applying a sum of money which did not belong to them, but to the company, and which they would undoubtedly have been compelled to refund in full if it had been applied for their benefit in any other way. On the authority of the case cited I think the liquidator is entitled to say that the transaction must be treated in one or other of two ways—The shares held for Falkner, Bell, & Company stand in the books as paid up to the extent of £8, 10s. They must either be treated as already paid for, but paid for with the money of the company, and in that case Falkner, Bell, & Company will be liable to refund the money which has wrongly been applied for their benefit. Or they have not been paid for, and then the shareholders will be liable as contributories for the unpaid calls.

In either view the liquidator is in my opinion entitled to retain as against the claims made in these actions.”

Falkner, Bell, & Company reclaimed, and argued—The first question was as to Mr Walker's position prior to the formation of the company. The provisional agreement and the committee appointed under it deprived Walker of any fiduciary position. Every shareholder got a copy of the agreement, and therefore knew that Walker had no right to determine whether the property was to be bought or not. To make such an agreement illegal there must be actings both on behalf of the sellers and the buyers, and Walker here had no say in the matter of determining the question of purchase. The matter of the commission was known to the directors. The letters to the company contained the information about the commission, and therefore there was a strong onus on the directors to show that they did not know of it. The documents clearly proved that Walker was not allowed to act as agent for the buyers. The memorandum of association showed that Walker was merely to act as the executive in California, and the directors themselves confirmed this. The other side to succeed must show that Walker was in a position of trust at the time of the purchase of the mines. In point of fact the provisional committee did authorise the formation of the company, Walker being absent. There was no case where a promoter or director had been held liable, unless at the time when the alleged agreement was made he was in a position of trust. Walker joined the board after the formation of the company. This was different from the case of the Huntington Copper Company v. Henderson, 4 R. 299, because Walker was excluded from the provisional committee. The complainers could not succeed unless they showed that Walker had a legal duty of advising the board in the purchase-Buckley on the Companies Acts (4th ed.) 363. Duty to the company was the basis of all the decisions— Erlanger v. New Sombrero Phosphate Company, July 31, 1878, 3 L.R., App. Cas. 1218; Bagnall v. Carlton, August 8, 1877, 6 Ch. Div. 371, Cotton, L.J., 407; Arkwright v. Newbold, February 28, 1881, 17 Ch. Div. 301, James, L. J. 319; Lydney and Wigpool Iron Ore Company v. Bird, June 1886, 33 Ch. Div. 85. The important question was, whether the directors or shareholders understood that Walker was to have a say in determining whether the purchae was to be gone on with? The five persons on the committee were provisional directors quoad hoc. Under the agreement they had an absolute discretion after the reports were got. If there was no discretion the fourth article had no meaning—[ Lord President — It is a very important fact that Mr Walker is one of the purchasers]. It was not conceivable that Walker's advice would be asked as to whether the purchase should be made. Even if he were a provisional director, he was not in a fiduciary relation to the company.

Assuming, however, that the case as against Walker was well founded, the firm, i.e., Falkner, Bell, & Company were not liable for Walker's wrongdoing. It was not part of the business of Falkner, Bell, & Company that Walker should be a director of the Scottish Pacific Coast Mining Company. The case of The Imperial Mercantile Association v. Coleman, 6 E. & I. App. 203, was a very different case, because here Falkner, Bell, & Company never got any of the money. In that case, also, the other partner knew what was going on. Here one of the partners, Harrison, said he did not know of the arrangement as to commission till after the formation of the company. There was no suggestion that Falkner, Bell, & Company authorised Walker to become a director of the company. They only saw the provisional agreement and the prospectus. They were entitled to presume that Walker held no fiduciary position. The provisional agreement showed them that Walker was debarred from acting on the committee, and they also saw that W. J. Menzies knew of the commission. Whatever, therefore, might be Walker's position, the sum in question could not be set off in a question with Falkner, Bell, & Company— Hay's

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case, July 19,1875, 10 Ch. App. 593. This was an action against a firm for malfeasance of a partner not known to the firm. The case of in re Cape Breton Company, May 4, 1885, 29 Ch. Div. 795, applied. When Falkner, Bell, & Company entered into the contract with Sutherland, they had nothing to do with the Scottish Pacific Coast Mining Company. The Cape Breton Company's case had been followed in The Ladywell Mining Company v. Brooks, April 2,1887, 35 Ch. Div. 400. It showed that the point of time to look at was the date of the agreement, and if this was so, then the date in the present case was 1880, and Falkner, Bell, & Company could not be in a fiduciary relation towards the mining company at that time. [ Lord President—If after getting the promotion money they put themselves in a fiduciary position towards the company, the principle of the Huntington Copper Company applies], In any view, Falkner, Bell, & Company could not be treated as contributories. The only agreement was that they were to get so many paid-up shares, and therefore the case of Hay, supra, did not apply— Carling's case reported under Hespeler and Walsh's cases, November 12, 1875, 1 Ch. Div. 115. There might have been a claim for damages under the 165th section of the statute— Coventry v. Dixon's case, May 1, 1880, 14 Ch. Div. 660. [ Lord President—Suppose the agreement is held to be illegal, then Falkner, Bell, & Company are on the register without any qualification]. In Hay's case Sir John Hay was in the position of an ordinary applicant for shares. But here it is admitted that Falkner, Bell, & Company never agreed to take shares— De Ruvigne's case, February 8, 1877, 5 Ch. Div. 306; Gover, December 1, 1875, 1 Ch. Div. 182. As to the sum of £1809, it had never been paid to anyone. It was still in bonis of the company, and yet they still asked to get credit for it just as if they had paid it away.

The complainers and defenders (respondents) replied— Prima facie, looking at the documents, Walker did occupy a fiduciary position. He took part in framing the prospectus, and was one of the provisional directors therein mentioned. It was said the fourth article of the provisional agreement took away any fiduciary position he held towards the company. But the fact of there being this committee did not alter the relations of the directors towards the public through the prospectus. It still remained for the provisional directors, including Mr Walker, to settle the expediency of going into the purchase, assuming the report obtained was favourable. A trustee was bound to give his whole judgment in any matter in which he was concerned— Bennett ex parte, Feb. 11, 1805, 10 Vesey, 380, Eldon, L. C., 393. Walker, by holding the position first as a provisional, and then as an ordinary director, put himself before the public as being in a fiduciary position. [ Lord Adam — Even supposing he was never an ordinary director, is it not enough for you that he was a provisional one?]. That was so. The law went further than the case of the Huntington Copper Company. It was not necessary that the person who took the benefit should be a director of the company— Lydney Wigpool Iron Ore Company v. Bird, June 24, 1886, 33 Ch. Div. 85. The question was, whether he was a promoter in the sense of bringing the company into existence? If he was, then he became liable to refund as a constructive trustee. Walker assumed a fiduciary position from the earliest period of the company's history. In the provisional agreement he appeared as a purchaser, and he could not deny he was a party to the incorporation, because he signed both the memorandum of association and the articles. Even if he was not at first in a fiduciary position, he was so when the company was formed. The Cape Breton Company's case, cited by the other. side, did not apply, because the mines in the present case did not belong to Falkner, Bell, & Company. The agreement was that Walker should create a company, and in point of fact he did so. This was a case for the ordinary application of the rule laid down in the Huntington Copper case, supra.

The next question related to Falkner, Bell, & Company's position. If a firm took the benefit of constructive fraud on the part of one of its partners, the firm was liable apart from all questions of cognisance— Blackie, 1 Macq. 477. But here there was no attempt made to prove Falkner, Bell, & Company's ignorance. The matter was initiated by Falkner, Bell, &Company through Mr T. Menzies, one of their partners. What Walker did was communicated to the firm. Not only was no objection taken, but the shares were registered in name of one of the partners—Mr H. D. Harrison-after communication with the firm. Falkner, Bell, & Company therefore adopted what had been done by Walker. The respondents were therefore entitled to retain— Imperial Mercantile Association, supra. In Lydney's case the partner did not know of the profit being got, and so that case did not apply. There was a contract on the part of Falkner, Bell, & Company with the Pacific Mining Company to take the shares, as appeared from the prospectus. That contract was to be fulfilled by a payment in money. The shares were paid for with the money of the Pacific Company, and Falkner, Bell, & Company were bound to refund it. If there was no such contract, then the other alternative put by the Lord Ordinary applied. It was said there was simply an undertaking to take paid-up shares. The class of cases relied on by the other side applied only where there was no such contract as in the present case. Hay's case was the same as the present. Falkner, Bell, & Company became shareholders. Carling's case, relied on by the other side, was peculiar, because the vendor in that case had got paid-up shares, and the contract was registered under the 25th section of the Act of 1867, and therefore the company were barred from maintaining that the contract was illegal. The sum of £1809 was placed to the credit of Falkner, Bell, & Company at their own request.

At advising—