Scottish Court of Session Decisions

The late Colin Thomson was a partner of the house of George and Robert Dennistoun and Co. of Glasgow, which was engaged in very-extensive mercantile transactions. By the contract of copartnery it was stipulated that “in case of the decease, bankruptcy, or insolvency of any of the partners during the subsistence of this contract, the trade, stock, and estate of the company shall devolve upon, and are hereby assigned and made over to the surviving and solvent partners, exclusive of the successors of the deceasing, or creditors of the insolvent or bankrupt, partner; and it shall be in the option of the said surviving and solvent partners, either to make payment of the value of such deceased or bankrupt partner or partners' share and interest in the concern to those having right thereto, as the same shall be ascertained by the docqueted balance, entered in the sederunt-book, immediately preceding such death or bankruptcy, and that by eight equal annual instalments, from the date of such death, bankruptcy, or insolvency, with interest from the date of such cash-balance, till payment of each instalment; or to wind up the affairs of the company, upon giving information to the said successors of the deceased, or creditors of the insolvent or bankrupt partner, of their intention so to do, within three months after the date of such death or insolvency.”

In 1817 a bond was granted to the Commercial Bank of Scotland for a cash-credit to the amount of £2000, in favour of G. and R. Dennistoun and Co. This bond was signed with the firm of that house, and not by the individual partners, but it set forth, in gremio, the whole of the partners including Colin Thomson. Two cautioners signed the bond, one of whom was Colin Campbell, then a partner of the house of Campbell, Rivers, and Co., which was also extensively engaged in commercial dealings.

Colin Thomson died on Feb. 12, 1819. For some time before his death he had been affected with mental derangement, and Archibald M'Lauchlan, merchant, Glasgow, was appointed his curator bonis. At the date of Colin Thomson's death, there was a balance of £90 in favour of G. and R. Dennistoun and Co. on their account with the Commercial Bank. On March 22, 1819, the balance in favour of G. and R. Dennistoun and Co. was £795. For some time subsequently it occasionally shifted so as to be alternately in their favour and against them; and as late as November 2, 1825, there was a balance of £360 in their favour.

In 1816, Colin Thomson had executed a trust-settlement, conveying his whole estate, heritable and moveable, to Colin Campbell, Archibald Wallace, merchant in Glasgow, and others, and the survivor of them, as trustees and sole executors. It was a family trust, and was entirely gratuitous. The trust-deed contained no clause of immunity, protecting the trustees from liability for omissions, or otherwise; and no clause specially empowering the trustees to name a factor. The 1st trust purpose was that the trustees “shall sell and dispose of my said estates in such a manner as they may think proper, and uplift, receive, and discharge the whole debts and sums of money due to me, and apply the same, in the first place, in payment of any debts due by me.” The 2d, 3d, and 4th purposes, were to pay certain legacies and liferent annuities, &c. chiefly to near relations of the truster. The 5th purpose was, to hold the residue of the estate for behoof of the truster's brother, Henry Thomson, residing in Glasgow, and his children, to the effect of paying over to Henry Thomson one-half of the residue, when realized, and securing the other half for him in liferent only, and for his children in fee.

Two of the trustees only accepted, Colin Campbell and Archibald Wallace. In the inventory given up by them, the funds left by the deceased, situated in Scotland, amounted to £23,019; and the funds in England, to £10,254. The debts of the deceased amounted to £2827, and his legacies, besides certain annuities, to £8784. The realizing and management of the trust-estate required both time and labour, and the trustees appointed a factor, through whom the business of the trust was carried on. They selected for this purpose, Archibald M'Lauchlan, who had been curator bonis to the deceased, and who was named one of the trustees of the deceased, but declined to act as such. He was then habite and repute solvent, and the choice was made with the approbation of Henry Thomson, the brother of the deceased, who, along with his children, had the whole interest in the residue of the estate.

On April 20, 1819, G. and R. Dennistoun and Co. sent notice to Colin Thomson's trustees, that “we beg leave to intimate to you, that it is our intention to pay out the interest held in our house by the late Mr Colin Thomson, agreeable to the last docqueted balance of our books, and we shall be ready to settle with you, or any one of your number, accordingly.” A meeting of the trustees was held on 22d April, and, their minute of that date, bore that, on considering the above intimation, “they desire Mr M'Lauchlan, their factor, to obtain a copy of the docqueted balance referred to, and a copy of Mr Thomson's account-current with the company, in order that the trustees may see the exact state of Mr Colin Thomson's interest in the said concern. It will be necessary also that he see the contract of copartnery by which Mr Thomson's interest in it as a partner is regulated.” G. and R. Dennistoun and Co. accordingly furnished an account-current as between themselves and Colin Thomson, closing at Thomson's death; and also an account-current as between themselves and Thomson's trustees. They also furnished a state of the value of Colin Thomson's share in the company, in terms of the last docqueted balance, according to which it was valued at £14,700, for which they proposed to grant bills payable in successive years, in terms of the contract of copartnery.

On December 28, 1819, Henry Thomson wrote to the trustees requesting that, as he had so large an interest in the trust-estate, he might be consulted in the management, and might be allowed to see the accounts furnished by G. and R. Dennistoun and Co. as the basis of a settlement with their house. He also requested that, when bills were obtained from that house for their eight annual instalments, one-half thereof should be indorsed over to him, as in right of one-half of the residue of the estate. The trustees, at a meeting on January 4, 1820, took into consideration this letter, and the accounts furnished by G. and R. Dennistoun and Co. as also an alteration on these accounts now proposed by that firm, and the minute of the trustees instructed their agent “to send to Mr Henry Thomson the accounts which have been now produced, and if he shall approve of and docquet the same, they will settle with Messrs G. and R. Dennistoun accordingly. But as Mr Henry Thomson and his children have the substantial interest in the residue of the defunct's estate, they do not consider themselves warranted to admit the alteration upon the accounts without his express authority.” The accounts and proposed alteration being shown to Henry Thomson, he subjoined to each account this docquet:—“This accompt examined and approved of by me, as residuary legatee of the deceased Mr Colin Thomson. Henry Thomson. 26th January, 1820.” The trustees had, in the mean-time, obtained the series of bills for £14,700, from G. and R. Dennistoun and Co., and they now indorsed one-half of these to Henry Thomson, retaining the other half in their own hands. On the day after Henry Thomson docqueted the accounts, the trustees, through their factor, settled the balances on the two accounts-current above-mentioned, by taking payment from G. and R. Dennistoun and Co. of £479, being the amount there appearing to be due to the trust-estate.

No mention was made of the bond to the Commercial Bank in any of the documents left by Colin Thomson, relative to his affairs; nor in the balance-sheet, according to which the value of his interest was struck; nor in any of the communications which G. and R. Dennistoun and Co. made to the trustees; nor in any of the accounts exhibited by that company. And it did not appear that Henry Thomson, though in frequent communication with the house of G. and R. Dennistoun and Co. had known of this bond, or at least had called the attention of the trustees to it. That house was in high credit for a considerable number of years after the death of Colin Thomson. In 1822 Henry Thomson signed, as cautioner, a bond for a cash credit of £5000 by the Royal Bank in their favour. He died in 1824, leaving two children, a son and daughter, both in pu-pilarity, and he appointed Archibald M'Lauchlan as one of their tutors and curators. The bills granted by G. and R. Dennistoun and Co. for the sum of £14,700, were retired, annually as they fell due, until their failure, which took place on 8th February, 1826. Colin Campbell was then a creditor of theirs for £3431. At the date of their failure, there was due by them to the Commercial Bank, the sum of £2128, consisting of the principal sum on the bond for the cash-credit, and certain interest. The trustees of Thomson were required to pay this amount, as the bond had remained operative and undischarged, and no steps had been taken by them to liberate the trust-estate from its original liability. They paid the amount accordingly.

The trustees continued to manage the estate through the instrumentality of the factor, M'Lauchlan, till 1831, when he, being insolvent, resigned his situation, and another factor was appointed. At this date M'Lauchlan had a balance of trust-funds in his hands amounting to £596. This balance was not recovered by the trustees. The management of the trust-estate went on till 1834, when an action of count and reckoning was raised in name of John Thomson, son of Henry Thomson, against Colin Campbell, and the children and representatives of Archibald Wallace, who was now deceased. The defenders produced their accounts, and the only discussion between the parties, now requiring to be noticed, arose out of objections stated by the pursuer to two items for which they took credit. These were, 1st, the balance of £596, amounting with interest to £665, unrecovered from the factor, M'Lauchlan; and 2d, the contents of the bond paid to the Commercial Bank.

In support of the first objection, the pursuer pleaded, that, as the trust-deed gave no power to the trustees to name a factor, they were necessarily liable for the actings of any factor whom they chose to appoint, and authorised to intromit with the trust-funds. It was in their power to protect themselves sufficiently by requiring the factor to find caution for his intromissions, and if they chose to dispense with that precaution, the risk must be with them, and not with the trust-estate. If the approbation of the late Henry Thomson was given to the appointment, it could not affect the interests of the pursuer who was a minor, and whose share of the estate was placed by the truster, not under the control of his father, but exclusively under the control and protection of the trustees, on whom alone the responsibility of accounting for it, now lay.

The defenders answered. From the nature of the trust-estate, much time and labour were required in order to realize and manage it. The trustees were merely gratuitous and friendly trustees, and although the trust-deed contained no express clause empowering the trustees to appoint a factor, yet they were entitled, both on principle, and according to general practice, to devolve the task of managing it upon a factor, duly remunerated for his services. This, in truth, was merely imposing upon the trust-estate the expense of its own administration, of which an efficient factorial management was both a beneficial and necessary part. As to the factor's not being required to find caution, it was accordant with general practice in such matters, that, if the factor was habite and repute solvent, the trustees, acting bona fide, incurred no personal responsibility though they did not require him to find caution. And in this case the person selected was not only habite and repute solvent, and approved by Henry Thomson, but had enjoyed the confidence of both Colin Thomson and Henry Thomson so much that the former named him as one of his trustees, and the latter named him one of the tutors and curators to his children, the pursuer and his sister. And the balance which remained in his hands, at the close of his factory, was not greater than was reasonable in reference to the exigencies of the administration of the trust-estate. There were thus the strongest grounds for justifying the conduct of the defenders in not requiring caution from him, even if the practice, on the subject, had been less decidedly in their favour than it was.

2. In regard to the second objection, as to the bank bond, it was, on the one hand, averred by the pursuer, that not only the defender Campbell who signed that bond as cautioner, but also his co-trustee Wallace, knew of its existence all along. It was averred by the defenders on the other hand that Wallace never knew any thing of the bond; and that Campbell had totally forgotten it, so much so, that it was only by going to the bank, after the failure of G. and R. Dennistoun and Co., and seeing his name at the bond, that he could be satisfied of having signed it. The Lord Ordinary allowed a diligence to the pursuer to recover evidence to prove that the bond was known to the trustees, defenders, “at or about the time of the truster's death, or before the failure of G. and R. Dennistoun and Co.” No evidence was recovered by the pursuer under this diligence.

In support of this objection the pursuer, at first, pleaded that the whole liability incurred by Colin Thomson, under the bond, ceased at his death, and, as the bond was then fully paid up, and the balance at the bank stood in favour of the house of G. and R. Dennistoun and Co., no new liability attached to the estate of Colin Thomson when the sum in the bond was afterwards drawn out; and therefore the trustees, on paying that bond, had paid what was not due, and had done so for the purpose of protecting one of themselves (Campbell) from his liability as a cautioner at the bond. The pursuer afterwards, however, lodged a minute, expressly withdrawing that plea, and maintaining, that the trustees were personally liable in respect of their neglect of duty. He then pleaded, 1st, In the trust-deed no clause of immunity was inserted in favour of the trustees, either exempting them from liability for omissions or otherwise. They were therefore liable not merely if guilty of culpa lata, but if they failed to act with ordinary prudence and diligence. And the liability attached to them jointly and severally. 2d, But even if liable only in respect of culpa lata, their conduct was such as to subject them. They either actually knew, or must be dealt with as if they knew, the existence of the bond to the bank, all along from the date of Colin Thomson's death in 1819. This was clear as to Campbell who had signed the bond in 1817 as one of the cautioners. And the situation of Wallace could not be distinguished from his. It was one of the first and most important duties of a trustee to ascertain the liabilities affecting the trust-estate. And if any sufficient, or reasonable degree of investigation had been made as to the liabilities affecting the estate of Colin Thomson, the existence of the bank bond must have been ascertained. ¹ The failure to make such inquiry was in itself culpa lata; and the least unfavourable view for the trustees, truly was, to deal with them on the footing that they were duly aware of the existence of the bond. But if so, it was a gross neglect on their part, and amounting to culpa lata, that they did not take the requisite steps for liberating the trust-estate from that liability. As the trust-estate could gain nothing from the sequent profits of G. and R. Dennistoun and Co., it ought not to have been allowed to remain liable, under this bond, to be affected by its subsequent losses. The house was in good credit for several years after Colin Thomson's death, and its failure did not occur for seven years after that date. And both because it was in the ordinary course of business, so to exonerate the trust-estate from future liability under the bank-bond—and also, because the balance of the bank-account was repeatedly in favour of G. and R. Dennistoun and Co., in the interim, and was so, as late as November 1825, it was in the power of the trustees to have freed the trust-estate by due intimation to the bank, without hurting the credit of G. and R. Dennistoun and Co. in the slightest degree. Their failure in this respect amounted to culpa lata, and they should be held personally responsible accordingly.

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¹ Paterson, July 5, 1808 (F.C.); 1 Bell, 369, 370; Spiers, June 22, 1822 (ante, I. 516; or new ed. 478).

The defenders answered, 1st, As they were gratuitous trustees and executors they were not personally responsible unless for such misconduct as amounted to culpa lata, although no clause of immunity was inserted in the trust-settlement. ¹ And any liability which attached to them was not of a joint and several nature, but pro rata only. ² 2d, Neither Campbell, nor his co-trustee, Wallace, were actually aware of the existence of the bond in point of fact, or were culpably ignorant of it. As to Wallace, he had no means of knowledge excepting qua trustee, and it appeared that in the whole communications with G. and R. Dennistoun and Co. at settling for Colin Thomson's share, no reference whatever was made to the bank-bond. By the terms of copartnery, the representatives of a deceased partner were bound to accept of his share “as the same shall be ascertained by the doqueted balance, entered in the sederunt-book, immediately preceding.” The trustees of Colin Thomson were thus barred from making any ulterior inquiry into the affairs of the house, and the balance-sheet itself did not, in point of fact, make any reference to the bond. Besides this, Henry Thomson, the party chiefly interested in the trust-estate, who examined and docqueted the accounts, and who was in frequent communication and correspondence with the house, never referred to such a bond as in existence. And the pursuer, after taking a diligence to recover evidence of the trustees' knowledge of the bond, had failed to produce such evidence. In these circumstances the trustee, Wallace, must be regarded as neither having known of the bond, or been culpably ignorant of it. And the only difference, between the defender Campbell, and him, was, that, two years before Colin Thomson's death, he had signed as one of the cautioners to the bond. But Campbell was himself engaged in extensive mercantile transactions. At the date of signing that bond, the house of G. and R. Dennistoun and Co. was in the highest credit, and Campbell, who considered that he incurred no risk by signing, took little thought of the matter, at the time of doing so, and none at all, afterwards, as he never heard more of the bond, until after the failure of G. and R. Dennistoun. In these circumstances there was no evidence to prove (against the averment of Campbell), that he was aware of the bond when he entered on the management of the trust-estate, or was at all in a different position in this respect from Wallace. But even if it were to be held that one or both trustees should be dealt with, as if they were all along in the knowledge of the bond, still they ought not to be subjected. They acted in perfect bona fides, the credit of G. and R. Dennistoun and Co. having remained good until the very eve of bankruptcy, and the defender Campbell relying on it so entirely that he was a creditor of theirs for £3431, at their failure. But farther, the liability

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¹ 3 St. 8, 64.

² 3 St. 8, 78; 3 Ersk. 3, 33; Halliday, Feb. 20, 1617 (14687); M'Mitchell, Jan. 13, 1625 (14687); Peacock, July 16, 1628 (2189).

of Colin Thomson's representatives for the operations on the bond, subsequent to his death, was not a liability generally known and esta-bushed, at the date when the trust began; and accordingly, even in this action, the pursuer had at one time maintained that no such liability existed. The trustees were therefore excusable in being ignorant of the risk incurred. And besides this, the position of the trust-estate, in reference to the house of E. and R. Dennistoun and Co. was very peculiar. The trust-estate was entitled to draw £14,700 from that house, by eight equal annual instalments. This was a pecuniary interest greatly exceeding the amount of the bank-bond. No loss could happen through the bank-bond, which did not equally befal the sum of £14,700, because no risk could occur to either, excepting through the insolvency of G. and R. Dennistoun and Co. It was therefore an act of prudent administration, or at least it was within the discretion necessarily belonging to the trustees, to allow the bond to lie over at the bank, without intimating that the trust-estate was not to be liable for future operations on it, because mercantile credit was always extremely delicate, and the credit of the house of G. and R. Dennistoun and Co. might have been affected by such intimation to the great injury of the trust-estate. In the whole circumstances therefore, the trustees being free of culpa lata, and having acted in perfect bona fides, the objection to their taking credit for the bank-bond in their accounts was ill-founded.

The Lord Ordinary “repelled the objections” ^* above specified, and appointed certain ulterior procedure as to other objections.

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* “ Note.—The first objection mentioned in the interlocutor was originally maintained on two grounds,—First, that the trustees had a good defence against the bank, and that they collusively departed from it; and, secondly, that they ought to have had a good defence against it, if they had done their duty, by intimating to the bank at the date (of the death) of the truster, that the liability of the trust-estate for the subsequent operations on the cash-credit, was withdrawn. The first ground of objection was given up, and with good reason, for it was neither supported by proof, nor the slightest show of probability. On the second, the objector took a diligence to recover evidence to show that the bond of credit to the Commercial Bank was known to the trustees at or about the time of the truster's death, or before the failure of Dennistoun and Company. No evidence to that effect was obtained, and the term was circumduced for not reporting the diligence.

“But even if the knowledge of the trustees had been proved, the Lord Ordinary, considering the nature of the case, particularly the general belief of the responsibility of the house of Dennistoun and Company, and the intimate connexion existing between that house and the trust-estate during the period within which the instalments of the share of the deceasing partner were made payable, does not think that their failure or omission to withdraw the liability of the estate for the cash-credit, can justly be held such a breach of duty as to render gratuitous trustees under a family settlement, personally liable in the consequences.”

The Note, after adverting to an objection which was not discussed in the Inner House, proceeded, as to the objection respecting the factor's balance, in these terms:—“This objection truly resolves into the proposition, that the trustees are personally liable for the balance in the hands of Mr M'Lauchlan, amounting to £665. Keeping in view the nature of the duties of the trustees, which rendered the appointment of the factor unavoidable, the known respectability of the person appointed, and the amount of the balance, in reference to the exigencies of the administration of the trust estate, the Lord Ordinary does not think that there are any grounds for holding the trustees personally liable. They might, indeed, have required the factor to find caution; but there is, to say the least, no such general practice in that particular, as to support a charge of breach of duty against family trustees, for omitting to take that precaution.”

The pursuer reclaimed.

In regard to the liability for the factor's balance, it was observed by