Scottish Court of Session Decisions

This was an action brought by the Huntington Copper & Sulphur Company (Limited) against William Henderson, chemical manufacturer in Glasgow and Irvine, for the sum of £10,000, with interest from 1st April 1872, in the following circumstances:—

The Huntington Company was incorporated and registered under the Companies Acts of 1862 and 1867, upon the 1st of April 1872, with a nominal capital of £200,000 in 20,000 shares of £10 each. The Company was formed for the purpose of adopting and carrying out a contract, dated 25th and 26th March 1872, between John

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George Long, of Lombard House, London, on behalf of himself and other vendors, of the one part, and James Henderson (nephew of the defender), of the other part, for the purchase of the Huntington Copper Mines, in Canada.

The pursuers averred—“(Cond. 2) Early in the year 1872 the Honourable Lucius Seth Huntington of the city of Montreal, in the province of Quebec, in the Dominion of Canada, advocate and Queen's Counsel, came from Canada to England, and arranged with Alexander M'Ewen, then of Lombard House, London, merchant or financial agent, for promoting a joint-stock company for the purpose of purchasing certain mining properties in the township of Bolton, Canada, belonging to a company called the Huntington Mining Copper Company of Canada (Limited), and also certain lands belonging to himself as an individual, adjoining the said property of the said Company. The said Lucius Seth Huntington was a shareholder in and director of the said Huntington Mining Copper Company of Canada. (Cond. 3) The said Alexander M'Ewen and the said Lucius Seth Huntington, or one or other of them, applied to the defender to become a director of the said proposed company. The defender had previously been acquainted with the said Lucius Seth Huntington, and was himself a shareholder in the said Huntington Mining Copper Company, or, at all events, was possessed of full information regarding the said Company and their mines. Messrs Huntington and M'Ewen, in order to induce the defender to become a director of the Company and allow his name to appear on the prospectus as a director, which, it was supposed, would induce the public to take shares in the Company, and to use his influence to obtain gentlemen of position to join the board of directors, offered to pay him the sum of £10,000 out of the purchase-money to be obtained by the sale of the said mining properties to the Company. The defender accepted the said offer, and agreed, in consideration of the said sum of £10,000, to become a director of the said Company, to allow his name to appear as a director in the prospectus, to obtain other gentlemen of influence to become directors, and otherwise to aid Messrs Huntington and M'Ewen in promoting and establishing the said Company. It was further arranged between the defender and Messrs Huntington and M'Ewen that Mr James Henderson, a nephew of the defender, who was also a shareholder of the Huntington Mining Company of Canada, should be interim secretary of the proposed company, and that the defender's office in Glasgow should be the temporary office of the new Company.”

The pursuer further averred that in pursuance of the said arrangement between the defender and Messrs Huntington and M'Ewen, a prospectus, in which the defender's name alone appeared as a director, was prepared and printed and sent to several gentlemen whom it was thought it would be advantageous to obtain as directors of the proposed company. The defender further used his influence to obtain gentlemen of position to become directors of the Company, and ultimately certain gentlemen well known in Glasgow and the neighbourhood consented to become directors. Each of these gentlemen received from Messrs M'Ewen and Huntington sums of £500 or £1000 each. After the Company was registered, these gentlemen were formally appointed directors.

The shares were allotted, and the purchase-price of the mine, which amounted to £125,000, was paid by instalments.

The Company not having proved successful, a committee of investigation was appointed in 1875 to inquire into the state of the Company's affairs, and it was then discovered for the first time that the defender had received the said sum of £10,000. The defender was accordingly asked to pay over to the Company the said sum of £10,000, with interest at 5 per cent. from the date of receipt till payment. This the defender refused to do, and the present action was accordingly brought against him.

All the other gentlemen who had received promotion-money had paid it to the Company, with interest.

The material statements in defence were contained in the defender's answer to article 3 of the condescendence, and in article 2 of the defender's statement of facts, which were as follows:—(“Ans. 3) Admitted that Messrs M'Ewen and Huntington applied to the defender to become a director of the said proposed company. Admitted that it was agreed between them and the defender that the latter should receive £10,000 out of the sum to be paid by the proposed company to the vendors. Admitted also that the defender's nephew was appointed secretary to the Company, and that the defender's offices were used as the temporary offices of the Company.” “(Stat. 2) In consideration of the sum of £10,000, agreed to be paid to the defender by Messrs M'Ewen and Huntington, the defender undertook to perform a variety of services which lay entirely out with the ordinary duties of a director of the Company, and which were necessary to be performed in the interest both of the vendors and of the Company, and, in particular, he undertook to experiment upon the ores proposed to be worked, to procure and train suitable managers, chemists, &c., to design the works, furnaces, &c., to be erected, and, if necessary, to go out to Canada and set the Company's works agoing. All the services thus agreed to be rendered the defender duly rendered to the vendors and the Company. In particular, and inter alia, he bought with his own funds fifty-two tons of the Huntington ores, and had the same taken to his works at Irvine and there experimented on in great detail and at considerable cost, in order to determine the form of apparatus and the particular modification of his patented processes which were best suited for working the said ore. He also selected two managers for the Company's works, and had them, one for some months and the other for some weeks, at his works at Irvine, instructing them in the details of his processes. He further furnished plans and designs, and made a journey to Canada in order to set agoing the Company's works. Apart from any allowance for his own time and trouble, he expended in the performance of these and the other services rendered by him in consideration of the said sum of £10,000 a sum not less than £8000. In the result the defender has derived no profit whatever from or under the said agreement with Messrs M'Ewen and Huntington.”

The pursuers pleaded—“(1) The defender is bound to pay to the pursuers the said sum of £10,000, in respect that the said sum was stipulated for by the defender, and received by him from

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Messrs Huntington and M'Ewen, the vendors, under the arrangement and upon the considerations stated in article 3 of the condescendence, without the knowledge or sanction of the pursuers, and contrary to the duty which he owed to them as their director and agent. (2) The defender is bound to exhibit and produce a full and particular account of, and pay over to the pursuers, all payments, premiums, or other considerations, benefits, or advantages received by him when acting as their agent, without their knowledge and sanction, and contrary to his duty to them as aforesaid. (3) The actings of the defender condescended on having been illegal, and contrary to his duty to the pursuers, they are entitled to decree in terms of the conclusions of the summons, with expenses.”

The defender pleaded—(1) The averments of the pursuers are irrelevant, and insufficient to support the conclusions of the action. (2) The averments of the pursuers being, so far as material, unfounded in fact, and, in particular, the only sum received by the defender from Messrs M'Ewen and Huntington having been received on the footing set forth in the defender's statement, the defender is entitled to absolvitor. (3) Separatism, the defender is entitled to absolvitor, in respect that no benefit or profit has accrued to him under the said agreement between him and Messrs M'Ewen and Huntington.

A proof was allowed, and the material portions of the evidence were as follows:—

The defender deponed—“I was acquainted with Alexander M'Ewen, at one time of Glasgow, and afterwards of London. I knew him for a number of years. He was associated with me in Tharsis matters. In the autumn of 1871 he wrote me with reference to the Huntington mine, in Canada, proposing to bring that mine out as a company. I had previously experimented on the ores from that mine, but I did not know much about it except from report. It produced copper and sulphur. Mr M'Ewen consulted me as to bringing it out, and a good deal of correspondence passed between us on the subject. … My advice was taken as to whether it should be brought out. The first step I took in order to enable me to give this advice was to assure myself that the mine was a good mine, by getting Mr Charles Robb, a thoroughly competent person in Canada, recommended by Sir William Logan, to examine it and report to me. Specimens of the ore were brought to me by Robert M'Ewen, and I took extra precautions to satisfy myself that it was a good mine. I made experiments on these specimens, and arrived at the conclusion that the ores could be worked satisfactorily in Canada. Besides communicating with Alexander M'Ewen on the subject, I saw Mr Huntington, the principal owner of the mine, once or twice. When he came to me I was working out further processes to utilise not only the copper but the sulphur, which was a very important element in it, and I had taken out several patents and was working them on a large scale at my works at Irvine; and unless I had seen my way to utilise the sulphur I did not see that the copper would be a very successful affair. They bargained with me to get the benefit of these new processes which I was working out along with my partners at Irvine. They did not come to me to bring out the company, but to ask me if I would undertake to erect works and see that they were properly managed to use up all the constituents which the ores contained. This was to be done for a company which they proposed to bring out.… After communings with Mr M'Ewen and Mr Huntington, I entered into an arrangement with them, by which I was to assist them in putting up works at the mine for extracting the copper from the ores by my old process, which had lapsed; that I was further to give them the benefit of all the improvements which I was then working at Irvine for the utilisation of the sulphur, and any other improvements which I might make during the existence of the company they were to have the benefit of without any further payment. In return for that I was to receive £10,000. The company which was to be formed was to have the benefit of my patent processes without any license duty, for ever. I was also to undertake to see the processes started at the mine, and to superintend the working of them—to go out to Canada if necessary, or, if anything went wrong, I was also to train and send out a manager, and I did train a manager, who was sent out. I promised also to bring home some of the ores to experiment upon them at my own works, so as to make quite certain that no mistake was made. These were the things which I undertook for the £10,000. (Q) After the company was formed did you proceed to fulfil the arrangement which you had made with the vendors.—(A) I did. I prepared plans and specifications for the works, and I superintended the making and shipping of them, and seeing that everything was sent away which was necessary to start the works successfully. I also continued my experiments on the ores at Irvine. No charge was made by me for the work just mentioned, except some trifling amount for extra draughtsman necessarily employed to hurry the work forward. I engaged two managers, one to look after the works by night and the other by day, and had them under training at my works for a considerable time. One of them was there for two or three months, and afterwards his father was there for a shorter time.… After the works of the Huntington Company were set agoing, it was found that they were not getting on well, and I was asked by the directors to go out and put things right. I did so; my travelling expenses were paid, but I got nothing more.… (Q) Did Mr M'Ewen say to you that it would be of great importance for getting the Company floated that you should become a director?—(A) No, he did not say anything of the sort; he asked me to assist him and give my services in working the thing out. He asked me to become a director. I don't know when I agreed to become a director. It must have been immediately before the first prospectus was printed. (Q) With whom was the arrangement which you have spoken of made?—(A) With Alexander, M'Ewen and Mr Huntington—with both of them. It was made about the end of 1871. (Q) Was it made at one meeting or more? —(A) They were staying in Glasgow for a few days at that time, and I saw them more than once (Q) Why was it not reduced to writing?—(A) I never have any written agreements with Mr M'Ewen.… (Q) Did you make charges to the Huntington Company for analysing ores?—(A) Yes, after the Company was at work. (Q)

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Was the £10,000 only for analysing the ores before the Company was at work?—(A) No; there were regular samples sent down for analysis after the Company was commercially at work. (Q) The £10,000 had nothing to do with analysis of ores? —(A) Nothing to do with the usual charges for working the mines. (Q) Did you make the usual charges for analysing ores for the Company that you would have made to anybody else?—(A) No; these charges are just one-half of what the Company could have got them done for anywhere else.… (Q) The agreement of the vendors was to allow you £10,000 off the price when they received it? —(A) They were to give me £10,000; that was all the bargain they made with me. (Q) Whether they sold their works or not?—(A) No; if they required my assistance in working out the processes at the mine. (Q) Were they to give you £10,000 whether they sold their works or not?—(A) They were not to give me £10,000 unless the Company was formed and the works established. (Q) And then they were to give you the £10,000 off the price?—(A) Well, it would naturally be off the price. (Q) You were to get £10,000 off the price if the Company was formed and the works sold to the Company?—(A) I was to get £10,000 from them if these things were carried out, but I cannot say it was ever mentioned that it was off the price. They might have worked the mines themselves. (Q) Then they were to pay you the £10,000 whether they sold them or not?—(A) Yes, if the works were put up and the process carried out in Canada, I was to get £10,000 in lieu of royalty. (Q) Was such a thing spoken of between you?—(A) For a long time Mr Huntington said it would be a Canadian Company. At first he did not intend to make it an English Company; he intended to extend their own capital and put up the works himself; that was the shape the negotiations took to begin with. (Q) Then you were to get £10,000 whether they sold the works or carried them on themselves?—(A) Yes. (Q) And it was in contemplation that they might either sell them or carry them on themselves?—(A) Yes. (Q) Was the £10,000 for services rendered or to be rendered?—(A) For services to be rendered. No services had been rendered at the time they agreed to pay me the money. The services to be rendered were that I was to give them license to use my patent processes without duty, to instruct and send out skilled managers, and to provide the necessary plans and specifications. (Q) Then it was prepayment of patent license duty and of instructing skilled managers to use the patents? —(A) Exactly. (Q) At that time had you any patents which required your license to use the processes in Canada?—(A) I was about to take out patents. (Q) At that time had you any?—(A) No. (Q) Did you thereafter take out any patents requiring licenses to use them in Canada? —(A) No. (Q) Then, so far as the patents were concerned, you never either gave, or were in a condition to give, any return whatever for the £10,000?—(A) If they bad demanded it of me, I would have immediately patented the processes in Canada, and they would have had them then.” Mr Morton, one of the original directors, deponed—“I was informed that Mr Henderson was to be a director. I was not acquainted with Mr Henderson then, but I knew generally that he had been prominent in connection with the Tharsis Company, which had been very successful, and I was told that through him and his patents the Huntington would become a second Tharsis, and as wealthy, or more so. It was Mr Alexander M'Ewen who told me this. He said that Mr Henderson being a director would give to the Company the benefit of his knowledge and experience, that his processes had made the Tharsis Company so wealthy, and that the same processes carried out on the Canadian ores would make this Company equally wealthy. … (Q) Was it explained to you on what footing Mr Henderson was to give his services and professional skill to the Company?—(A) On the same footing as myself, with this difference, that he was a practical chemist, understanding the processes and able to give effective aid, while I was not so, and could not give much aid.”

Mr Jamieson deponed—“I was one of the original directors of the Huntington Company, formed in 1872. Mr William Henderson first spoke to me about it. I was aware of his connection with the Tharsis Company, by which he had earned a considerable reputation. He told me that he was going to take a leading part in the management of the Huntington concern, by which I understood that his practical knowledge of chemistry and of mining was to be made available to the Company as managing or leading director. He led me to suppose that he would look after the practical affairs of the Company in detail. I thought this would be of very great value to the Company. Without this I would not have considered the Company a valuable thing to go into.”

Mr Alexander M'Ewen deponed—“I arranged with Mr Henderson that he was to assist me in bringing out the Company to buy the mines, and that he was to have a share of the profits in consideration of his doing so. He was to judge, in the first place, of the desirability of purchasing the mines and bringing out the Company. He was to analyse the samples of ores, and report whether they were suitable for his process. He was to become a director of the Company, so as to enable him to assist in the application of his process to the ores. I considered the application of his process as an essential part of the success of the Company. I would not have gone into it at all without securing Mr Henderson's assistance.… The services Mr Henderson was to render were in my opinion well worth the share I was to give him in the profits. That share was fixed at £10,000. I requested him to become a director. It did not occur to me that in any other capacity he could render the same services. I would have been quite willing to pay him the same amount had he consented to become manager. I don't think consulting engineer would have been sufficient. He is not an engineer. The £10,000 was given to him for the services he was to render to the Company, and to me in assisting to bring it out.… I could not have secured his services otherwise than as director or manager. I have said that I would not have brought out the Company without securing Mr Henderson as director. I did not think of Mr Henderson as anything else but as a director. I considered his being a director essential to the success of the Company, and as likely to induce the public to take shares in it. That was because he was inventor of the process which had made the Tharsis mine a great success.”

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It further appeared that in the first prospectus (mentioned above) in which the defender's name alone appeared as director, the following clause occurred:—“It is proposed to utilise the whole of the sulphur in the ores worked in the Dominion, and arrangements have been made with Mr Henderson and his partners to adopt the most improved processes for this purpose when fully developed at Irvine, which, it is anticipated, will very much increase the profits of the Company. The products being bleaching powder and alkali, which command high prices and a ready sale in both Canada and the United States.” In the prospectus as ultimately issued, the clause ran thus:—“It is proposed to utilise the whole of the sulphur contained in the poorer ores treated at the mine, and arrangements will be made with Mr Henderson and his partners to adopt the most improved processes for this purpose when fully developed at Irvine, which will very much increase the profits of the Company.” In the contract of sale between Long and James Henderson, the following clauses occur:—The vendor shall sell, and the Company shall when incorporated purchase, &c. and “This agreement shall not be binding until adopted by the Company.”

The pursuers further put in evidence receipts granted by the defender for payments of from one to five pounds made to him by the pursuers for analysing work done for them.

The Lord Ordinary ( Young) pronounced the following interlocutor:—

“22 d June 1876.—The Lord Ordinary, having considered the proof, record and productions, and heard counsel thereon, Repels the defender's pleas, and decerns against the defender to make payment to the pursuers of the sum of ten thousand pounds, with interest thereon at the rate of 5 per cent. per annum from the 31st day of August 1872 till paid, being the date of payment of the last instalment of the purchase money; and, in respect the pursuers do not insist in the remaining conclusions for accounting and payment, finds it unnecessary to dispose of these conclusions:—Finds the defender liable in expenses, and remits the account thereof, when lodged, to the auditor to tax and report.

Opinion.—The relevancy of the pursuers' case as stated was not disputed in argument, notwithstanding of the plea of irrelevancy on record; and I am of opinion that it is clearly relevant. The relevancy of the defence, or its legal sufficiency as an answer to the action, might, I think, have been reasonably questioned, but the pursuers, no doubt advisedly, abstained from doing so as an objection to proof, although before the commencement of the evidence they contended that, having regard to the defender's admissions, which they represented as sufficient prima facie to entitle them to judgment, the defender ought to begin. This course was in accordance with my own impression, and was not resisted by the counsel for the defender. It was, however, understood that the course so taken should be without prejudice to the pleas of parties on the whole case when the proof was concluded.

The facts of the case as established, and indeed substantially admitted, are very simple. Mr Huntington of Montreal, being interested in a copper mining company in Canada called after his own name, and whose property he had authority to sell, and being himself proprietor of certain lands adjoining the company's mine and works, which he wished to dispose of, came to this country in order to effect a sale of the whole for the company and himself. His first communication, so far as we know, was with Alexander M'Ewen of London, a gentleman of experience in promoting the formation of companies to purchase such properties as Huntington wished to dispose of. In the result Huntington and M'Ewen together applied to the defender for his aid in the matter, which was no doubt important, or thought to be so, to the success of the scheme, for they on the part of the proposed vendors offered him £10,000 for it, or, (adopting the expression in the defender's answer to condescendence 3), agreed that he “should receive £10,000 out of the sum to be paid by the proposed company to the vendors.” The defender agreed to these terms after, (as he says, no doubt truly), satisfying himself by enquiry that the property was valuable, and that the concern was likely to prosper in the hands of a joint stock company. The agreement being thus made, the defender set about the performance of his part of it, by assisting in the preparation of a prospectus for a company, which was printed and circulated with his name as sole director, the purpose of it being apparently to induce other gentlemen of probable influence to allow their names to be added to the direction, with a view to a further and more complete prospectus. The measure was successful to the extent of inducing five gentlemen to join and add their names to the direction. They were no doubt influenced by the confidence which they not unreasonably reposed in the defender, being ignorant of the terms upon which his aid had been purchased by the vendors, though four of them had some reason for suspicion from the circumstance of bribes being promised, and in the result paid, to themselves for the use of their names as means of promoting the interests of the vendors. The bribes promised and eventually paid to these gentlemen were of less amount than that for which the defender had agreed, but were, I think, of exactly the same character. The result was, that of the six provisional directors who had been selected because of the influence which their names were likely to carry with the public, five had been induced to give the use of their names by bribes to the aggregate amount of £13,000, promised on the part of the vendors speculating on the advantageous sale which they hoped to effect through the influence thus procured. On 25th and 26th March 1872, the contract whereby the sale was made to the intended company was executed by a Mr John George Long on the part of the vendors, and by the defender on the part of the intended company. By this contract, which is set out in condescendence 5, it was agreed that “the company shall, when incorporated, purchase” the property specified “for the sum of £125,000,” payable as therein mentioned. This contract was necessarily conditional on the formation and incorporation of the projected company, but the condition was immediately thereafter, viz., on 1st April 1872, purified by the registration of the company. For all legal purposes the contract may be taken as effected by the directors of the company, (including the defender), immediately after the regisration whereby its incorporation was effected.

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It has since been implemented by a conveyance of the property and payment of the agreed on price. The vendors have also kept faith with the defender, and those of his co-directors with whom they had agreements, by payment of the rewards promised to them for the services which they received at their hands, and to which no doubt the advantageous sale which they effected through their means is greatly attributable.

Had the company prospered nothing might ever have been heard of the manner in which the directors who were charged, indeed had charged themselves, with the company's interests in the matter of the purchase, had been seduced or at least greatly tempted by the vendors whose interests were necessarily opposed to those of which the directors were the guardians. But the company having proved unfortunate, and a committee of investigation having been appointed, the facts came to light. The defender's brother directors who received money from the vendors have seen fit to pay to the company what they so received, with interest. Their view seems to have been that the price agreed to by them for the company may be considered as having been higher by at least that amount than it would otherwise have been, but the defender declines to take even this apparently moderate view, and insists on retaining what he has got. Hence the present action.

The view of his position or of the agreement between him and the vendors under which he was to “receive £10,000 out of the sum to be paid by the proposed company to the vendors,” as urged at the debate, is distinctly enough stated in his agents' letter, quoted in cond. 12: ‘For the advantages accorded by him to the company, and for the benefits the company would derive from his technical skill and experience, (which we would remind your committee have been unceasingly devoted to the company,—quite distinct from the duties of a director,—at great inconvenience, with very considerable loss of time, and without any other remuneration), the vendors paid Mr Henderson £10,000.’

I cannot assent to this view. The import of it is, that by the contract of March 1872 the vendors, for the agreed-on price of £125,000, sold and agreed to transfer, not only the property therein carefully specified, but also the defender's services as a skilful and active director, together with some undefined right to use his peculiar processes, for which they had prepaid him £10,000. But there was no contract between the vendors and the defender the benefit of which was capable of being sold and transferred to the company, and in the contract between them and the company there is no allusion to anything of the kind.

But laying aside this view as untenable, the rule of law applicable to the case is, I think, not doubtful. It is the simple and familiar rule of trust law, that a trustee (using the term in its largest sense), shall not without the knowledge and consent of his constituent make profit of his office, or take any personal benefit from his execution of it. It is not a different rule, but merely a development and instance of the same rule, that a trustee shall not be permitted to do anything which involves or may involve a conflict between his personal interest and his trust duty. The rule is not confined to particular cases which are capable of being enumerated, but is commensurate with the large and important principle on which it rests. That principle is, that a person who is charged with the duty of attending to the interest of another shall not bring his own interest into competition with his duty. It is immaterial, as many cases illustrate, what may be the particular relation which raises the duty, provided only it raises a duty, as on reposed trust, of which the law takes cognisance. The remedy for a breach of the rule depends on the circumstances of the particular case, and is, to some extent, in the option of the person who has suffered thereby, either actually or in presumption of law. I say in presumption of law, for it very well settled that remedy under the rule is not confined to cases of established injury, and that the law presumes an injury wherever the rule has been violated. But without speculating on the remedy in general, it is, I think, firmly established that wherever it can be shewn that the trustee has so arranged matters as to obtain an advantage, whether in money or in money's worth, to himself personally, through the execution of his trust, he will not be permitted to retain it, but be compelled to make it over to his constituent. It is unnecessary to express such limitations as must tacitly accompany so general a proposition; as, for example, by excluding cases of fraud practised by a trustee for his own benefit on a third party with whom he was dealing for the trust, and in which, no doubt, the remedy would be to the party defrauded.

Applying the rule to the case in hand, it appears, and so I hold in point of fact, that the defender, being a director of the pursuer's company, and so charged with the duty of attending to their interests, made on their behalf a contract for the purchase of certain specified property at the price of £125,000, having at the time when he made it a secret agreement with the vendors to receive to himself £10,000 out of that price. The company implemented on their part the sale so made for them, by paying the price, and accepting a conveyance of the property, and the defender received back from the vendors £10,000, which he has retained. Assuming the facts to be so, the case seems to be prima facie an exceptionally clear one for the application of the rule of law to which I have adverted.

The first point which the defender makes in answer to it is, that when he made his bargain for the £10,000 he was in no trust relation, and that there was nothing to hinder him accepting the vendors' offer of that sum for his services in aiding them to sell their property to advantage. To this I agree, provided the proposition does not extend to the case that the services were to be given by first bringing about the constitution of a trust relation between the defender and a contemplated purchaser, and then effecting the sale through the medium of that relation. But I must exclude that case from my general assent, for I think an agreement to that effect would be an agreement to commit a fraud, of no importance truly if the contemplated fraud was not in the result actually perpetrated, but very important, even in its character of a preliminary agreement, if the fraud was afterwards in fact perpetrated in pursuance of it. Now this is precisely what I must, on the evidence, hold to be the fact here. Nor would it signify, in my opinion, that the agreement between the defender and the vendors

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might have been otherwise implemented, as, for example, by procuring a purchaser to whom the defender did not stand in any trust relation. I think it was in fact implemented exactly as contemplated and intended from the first, but it would not affect the result in my opinion had this been otherwise. The defender being a trustee did in fact purchase for his constituent from a vendor who agreed to pay and did pay him £10,000 for his services in the matter, and the date or the terms of the preliminary agreement or understanding according to which he was to receive the money are, I think, altogether immaterial, except as bearing on a question of personal integrity, which need not be decided.

The next point the defender makes is, that the Company was not incorporated when the sale was concluded, and that the present members, or the great body of them, joined subsequently. But, 1st, I think it clear that the purchase was made on behalf of the incorporated Company, and by the defender acting as a director of the incorporated Company. From the necessity of the case, or at least quite naturally and in ordinary course of business, the contract was made provisionally, before the incorporation: But it was made in contemplation of that event, and in terms dependent upon it, so that on the incorporation, a few days thereafter, it became eo instanti a contract of the Company, made for them by the directors, and as such accompanied by all the ordinary legal rules and incidents applicable to it and to the conduct and responsibility of the directors in making it, notwithstanding that the directors and the contract were alike originally provisional, and remained so till the incorporation. 2nd, The ordinary rules of law apply to an incorporated company, and to the relations between it and others, including its directors, without regard to changes in the membership. Further, apart from this rule of law as I regard it, and looking only to the reason and justice of the thing, I must hold that members joining an incorporated company at any time after its incorporation are entitled to rely upon it that all subsisting contracts have been made by the directors in the due discharge of their duty as governed by the rules of law, and on finding the fact to be otherwise are entitled, through the ordinary vital action of the company itself, which they have power to set in motion, to all the remedies which the law may allow to the company in the circumstances which may be established. Nor, for the reasons which I have indicated, can I distinguish in the matter between provisional contracts which became absolute by the incorporation, and those made subsequently to the incorporation, and so absolute from the first.

The last point the defender makes is of this nature. He says there is no evidence that the price agreed to be given for the property was extravagant or unfair, and contends that when the price, thus assumed to be fair, was actually paid to the vendors the money became theirs to dispose of as they pleased, and that if they were pleased to give £10,000 to the defender that was their affair and no concern of the Company's, who, on the assumption, had only paid a fair price for the property they acquired. This, which was the burden of the defender's argument, I must regard as altogether unsound, for it ignores the rule of law to which I have already sufficiently adverted, and a host of cases by which it has been illustrated. According to the view of the law thus maintained, an agent or trustee purchasing a property may take any sum he pleases from the seller as a personal gratification to himself, without any remedy to his constituent, except on proof that the price was extravagant or unfair. Or an engineer or architect may, without violation of duty, take gratifications from the contractors employed by him for his principal, in recognition of his patronage, and the principal will have no remedy except on proof of extravagant prices. The law, as I understand it, is otherwise. When an agent or other trustee takes money from a person with whom he contracts for his constituent, the law assumes that he takes it at the cost of his constituent, and admits of no evidence to the contrary. To hold otherwise would greatly defeat the wholesome object of the rule, by exposing those who sought a remedy under it to litigation about values to determine whether or not abatements, for the trustee's personal gratification, had been made from fair prices and fair profits, and so really at the sacrifice by the third parties of what they were reasonably entitled to for their goods or services, without real injury to the constituent who got his money's worth. The law avoids all this by holding firmly to the rule, that a trustee or agent shall have no benefits except what the law allows or his constituent knowingly agrees to, and that if he receives more he receives it unfairly, at his constituent's expense. The rule is founded on good sense, and the mischief of any other would be incalculable. Thus, to instance in the case of sale, it seems only reasonable to assume that a vendor will not subsidise a buyer's agent for merely performing faithfully his duty as such. But if not, what is the conclusion when such a subsidy has been given? Simply, that which every man forms who hears of it, that the interest of the buyer has by his own agent been sacrificed to that of the seller, and that this is precisely what the seller has paid for. The law, so far as it can, protects principals against the danger of having their interests so sacrificed, by prohibiting agents from taking any benefit whatever in this manner without their knowledge and consent, and by taking from agents, without further inquiry, the fruits of any violation by them of this prohibition.

The defender attempted to make a point of the circumstance, that it did not appear that the £10,000 which he received was part of the very money which the vendors had from the Company. It was probably, or even certainly, no part of it. All the payments together may have been by cheques or bills, or even, so far as the defender was concerned, by credit, in accounts between him and the vendors. The identity of the money is of no importance, nor would it have affected the application of the rule on which I decide the case had the gratification by the vendors to the defender been not in money but in money's worth, as by a conveyance or delivery to him of heritable or other property here or in America.

I have, I hope and believe, made it sufficiently clear that I decide the case on a general rule of law; the application of which does not imply any imputation to the defender of fraud, in the sense that he bought the property in question for the company solely because of the benefit he was personally to receive from the vendors, and without

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believing that the property would be worth to the company for which he acted the price he agreed to pay for it, although that did necessarily include the large amount which he had agreed with the vendors to receive out of it on his own account. So far from this, it is according to my conviction of the fact, on the evidence, that he believed, as the result of his inquiries and the exercise of his judgment, that the company which he was so instrumental in calling into existence would be successful, and that there would be no reason to regret the purchase. He, no doubt, also thought that in the event of the success which he anticipated he ought to have some gratification for bis skill and active services in originating the concern, and setting it a-going, beyond a mere participation in the profits according to his shares. Nor could there have been any objection to an arrangement between him and the company whereby he was to be remunerated as the originator and most active director, in such manner and to such extent as they mutually agreed on, and that either absolutely and in any event, or conditionally on success and according to profits. Such agreement might indeed have formed part of the articles of association, and appearing there would necessarily have been binding on the company incorporated according to these articles. This was the obvious, familiar, and above-board course if the defender meant that the company should remunerate him for his services, and the only objection to taking it apparently is that it might have formed an obstacle to the successful creation of the company, for men might not have been willing to join on such terms. But having, for whatever reason, omitted to take this course, the defender was, I think, clearly without any resource except an appeal to the Company after its incorporation. It is therefore impossible, in my opinion, to defend the payment which the defender obtained from the vendors on the ground that it was only an indirect way of obtaining from the Company payment for his services as the originator, promoter, and active director of the concern. That the vendors should, out of the proper price of their property, pay the defender for these services to the Company is simply ridiculous, although it is conceivable that they might have lent themselves to such a device as is suggested by the great stress laid by the defender on these services in his argument, provided the price was increased beyond what they were content to receive to themselves by such amount as the defender wished to receive to himself out of the funds of the Company. I need hardly say that no court of law could for a moment countenance such a proceeding.

The case is important as disclosing proceedings which there is reason to believe not unfrequently attend the genesis of joint-stock companies; and, being of opinion that they are of an illegal and mischievous character, I have considered and dealt with the case in all the aspects of it which were suggested in argument, or have occurred to myself, in order that I might distinctly express and explain the grounds of that opinion. The length at which I have entered on the case is not, however, to be taken as any indication of doubt or difficulty on my part, for, indeed, I regard the case as a very clear and even gross case for the application of a familiar and well-settled rule of law. And with respect to the remedy (which I have here given to the extent asked), I desire to say that I am not of opinion that the law affords no larger and more complete remedy than depriving the trustee of the profit which he has personally made. If a private individual should discover that his factor or agent had betrayed him into the purchase of a property, effected on his advice and through his instrumentality, in pursuance of a secret agreement with the seller to share the price with him, I am not of opinion that the remedy is confined to compelling such factor or agent to give up so much of the price as he had received. On the contrary, I incline, as at present advised, to think that any one who discovers that he has been thus defrauded, may, if so minded, repudiate the purchase altogether, and seek complete redress against both the seller who seduced his agent and the agent who faithlessly yielded to the seduction. A company is in no different position with respect to its directors, and if it should appear that a party having property to sell tempted the directors of a company by personal bribery to buy it for the company, I cannot permit myself to doubt that the company might, on discovering the fraud, repudiate the transaction and seek complete redress against all concerned in it.”

The defender reclaimed, and the arguments submitted for him sufficiently appear from Lord Young's judgment, and from the opinions of the Judges of the First Division.

Authorities cited— In re Canadian Oil-Works Corporation ( Hay's case), 10 L.R., Ch. 593; Carlung's case, 20 L.R., Eq. 580; Parkes v. M'Kenna, 10 L.R., Ch. 96; York Buildings Company v. Mackenzie, 13th May 1769, 3 Pat. App. 378; Aberdeen Railway Company v. Blaikie Brothers, 20th July 1854, 1 Macq 461; Tyrrell v. Bank of London, 10 H. of L. Cases (Clark's) 26; Act 30 and 31 Victoria, chap. 131, sec. 38.

At advising—