Scottish Court of Session Decisions

The Lord President said—It appears that the late Mrs Lothian had ten shares of the Carron Company, which had belonged to her first husband, Mr Caldwell. These she held by herself and her trustees till her death in 1846. She was all that time the registered owner in the books of the company. In 1828 she married Mr Lothian, when a contract of marriage was executed by which the shares were conveyed to trustees. Mr Lothian's jus mariti and right of administration were excluded, and the dividends were to be paid over to Mrs Lothian herself. The trustees had power to give Mr Lothian such part of these dividends, not exceeding one-fifth, as they should think proper. There was a clause of pre-emption in the contract of the company in its favour, and in 1847 the company agreed to purchase Mr Lothian's shares for £6800. Mr Lothian afterwards married a Mrs M'Fie, and she, as his executrix, raised an action against the company to have the sale reduced, on the ground of the company's fraud, and this action the company compromised by a payment to Mrs M'Fie or Lothian of £11,000, she granting an assignation of all her rights. The pursuers in this action say that the first Mrs Lothian was cheated during her life, and that no discharge has been granted for what she was defrauded of betwixt 1824 and 1846. It is maintained, on the other hand, that what was transferred to Mr Lothian by his wife's codicil was ten shares of what the company had to divide, and that the defenders have satisfied his executrix by the payment made to her. The question is whether the pursuers have still a title and interest to sue this action. I think there is an interest to make out that certain sums were not paid to Mrs Lothian, which, if the contract had been honestly acted on, would have been paid to her. I think it would be premature to dismiss the action without inquiry. There must be some inquiry as to how the profits were laid aside instead of being divided. If this was honestly done in order to increase their stock or otherwise, I don't see how the pursuers can complain; but the contrary is averred, and I am not for excluding light from the transactions.

Lord Curriehill said—The pursuers are not here claiming damages, but an accounting on the footing that they are the parties to whom the profits in question still belong. In considering the pleas before us, we must, of course, assume the pursuers' statements to be true. On the other hand, we must keep in view the nature and extent of their allegations. Now, it is not alleged that the profits were purloined by those conducting the business. On the contrary, it is said that the profits have been accumulated. Nor is it alleged that any of the conditions of the contract of copartnery have been contravened. It is only said that there was concealment. In order to ascertain whether the pursuers have a title to sue we must attend to the history of these shares. This his Lordship proceeded to narrate; and then put the question—Suppose a multiplepoinding were raised as to the right to the profits in question, whether would Mr Lothian's executrix or Mrs Lothian's representatives be preferred? Undoubtedly the former. The trustees had divested themselves in favour of Mr Lothian. They say that they only transferred the stock. I think that is not only erroneous in law, but inconsistent with what I gather to have been the intentions of the parties. If the other party were preferred such a result would be very startling on all the stock exchanges of the country, where it has always been understood that a transference of stock includes a transference of all accumulated profits which have not been set apart as dividends. These accumulations are always dealt with as accessories to the capital. This was illustrated by considering the respective rights of fiars and liferenters. A fiar has right, as accretions to the capital, of all profits not made during the liferenter's life. This was ruled by the House of Lords in the case of Irving v. Rollo, 27th July 1803 ( 4 Paton 521 and M. 8283); and where a dividend is declared during a liferenter's life, but is not payable till after his death, it belongs to the fiar. This was decided in the case of Thomson v. Lyell, 18th November 1836 ( 15 S. 32). Mrs Lothian's trustees were bound to know, and plainly did know, that the profits were, under the contract, to be appropriated in part to increasing and extending the company's business: and the benefits of this they were to reap not by increased yearly dividends, but by the gradual increase of the value of the shares. Accordingly, Mr Lothian sold his shares to the company for £680 a share. I think therefore that, had matters remained as they were, the pursuers would have had no title. But the state of matters is not now the same. Mr Lothian's executrix has raised her action for the remedy which she was advised to ask. This action she has compromised, and, in addition to the £68oo paid to Mr Lothian, she received from the company £11,000 for stock, the original value of which was only £2500. She granted a discharge to the company in the most comprehensive terms. I think, therefore, that if any claim ever existed it has been extinguished and discharged. I am therefore of opinion that the Lord Ordinary's interlocutor should be altered and the defenders assoilzied.

Lord Deas concurred with the Lord President. In reference to the cases cited by Lord Curriehill, he said they were cases where everything had been fairly and honestly done. But if there is fraud, the cases don't apply. Here it is alleged, and must admittedly be assumed. The fraud alleged is the fraud of the managers of the company, who are said to have committed it for their own personal benefit, and these parties are all made parties to this action. They took advantage of the clause of pre-emption in the contract in order that they might acquire the shares, and so reap the benefit of their own fraud. The dividends prior to 1846 were not made over to the Carron Company by Mr Lothian, and it was not the intention to do so. His executrix in the former action did not assert any right to these dividends, and she did not by the compromise discharge any claim to them. Then Mr Lothian's representatives are made parties to this action, and they do not even yet make any claim to them. It would therefore be extremely hazardous to dismiss the action at this stage.

Lord Ardmillan concurred with the majority.