Scottish Court of Session Decisions

James Bell, iron merchant, Coatbridge, being insolvent, granted on 15th March 1884 a trustdeed for behoof of his creditors, in favour of John Wallace, accountant, Coatbridge.

The estates of Edward Mather Bell, tinplate manufacturer, Coatbridge, father of James Bell, were sequestrated in bankruptcy in June 1884, and Robert Sharp, iron merchant, Coatbridge, was appointed trustee thereon.

At the date of his granting the trust-deed James Bell's name stood on the register of the Coatbridge Tinplate Works (Limited) as owner of forty shares in the company. Those shares had been transferred to him on December 22, 1876, by the trustees of a Mr Campbell deceased. The transfer bore that the granters, “in consideration of the sum of £2625 sterling, paid to us as trustees foresaid, by James Bell, Esquire, residing at Cuparhead House, Coatbridge, do hereby transfer to the said James Bell the shares numbered 21 to 36, 331 to 342, and 403 to 414, all inclusive” [being those here in question], “standing in our names as trustees foresaid in the books of the Coatbridge Tinplate Works Company, Limited, to hold unto the said James Bell, his executors, administrators, and assigns, subject to the several conditions on which we held the same at the time of the execution hereof.”

The certificate for those shares was dated December 29, 1876, and was in name of James Bell.

At the date of Edward Mather Bell's sequestration this share certificate in name of his son James Bell was in his (Edward Mather Bell's) possession and custody, into which it had been put from the time when the shares were transferred to James Bell. At Edward Mather Bell's sequestration it was taken possession of by Sharp as his trustee.

Wallace, as James Bell's trustee, raised the present action in the Sheriff Court of Lanarkshire at Airdrie against Sharp, as Edward Mather Bell's trustee, for delivery of the share certificate.

He averred that James Bell was the owner of the shares enumerated in the certificate, and that the certificate had been held by Edward Mather Bell on James Bell's behalf, and that he, as his trustee, was in right of the shares and entitled to possession of the certificate.

The defender denied that James Bell was the owner of the shares, and averred that they were bought and paid for by Edward Mather Bell and put by him in his son's name in trust for himself and for the purpose of enabling James Bell to attend and vote at the meetings of the company; that the transfer to James Bell was gratuitous.

The pursuer pleaded that he being, as James Bell's trustee, in right of the shares, was entitled to delivery of the certificate.

The defender pleaded: — “(2) The shares having been placed in name of James Bell in trust for the bankrupt, the defender is entitled to absolvitor. (4) The transfer to the said James Bell being a gratuitous alienation to a conjunct and confident person in defraud of prior creditors, is null and void under the Act 1621, c. 18. (5) The said shares having been bought and paid for by the bankrupt, and not having been validly or irredeemably conveyed away by him, form part of his estate, and now belong to and are vested in the defender as trustee thereon in virtue of the Act and warrant in his favour.”

The defender produced the following letter by James Bell to Mr Wyllie Guild, C.A., who

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had in March 1884 been making an examination into the affairs of Edward Mather Bell:—“ Coatbridge, 10 Mar. 1884.—Dear Sir,—In reply to your enquiry as to the forty shares in the Coatbridge Tinplate Co. (Limited), standing in my name, I have to explain that I paid nothing for them, and that they are held practically in trust for my father. I undertake that I shall not transfer them to anyone without your knowledge. —Yours truly, James Bell. The date (10th March 1884) was only five days before he signed his trust-deed. It was signed by James Bell himself, but the body of it was written by Mr Guild's clerk.

It appeared from the share ledger of the company (which comprised also the register of members, register of transfers, and annual list of shareholders) that the transfer of the forty shares in question in favour of James Bell was made on 29th December 1876, and that his name alone appeared in the list of members as holder of these shares for 1877, and every year thereafter down to 1884. It also appeared from the minute book of the company that James Bell was present at most of the meetings of the company from 1877 to 1884. It also appeared from the company's books that James Bell had drawn the dividends and obtained certain sums as interest on capital, and had granted receipts for interest and dividends.

Edward Mather Bell deponed—He acquired a number of shares from Mr Campbell's executors. The titles of these shares were taken in his own name and in the names of his two sons, James being one. Being asked what his intention was in taking these shares in the name of James, he further stated—“They were bought as an investment, and at the same time it was to give these young lads a holding in the company, and give me a power of voting. Did you give him these shares as his own absolute property?—Undoubtedly they would remain his property. After the transfer of these shares was registered the certificates were put into a safe at home. Were all the certificates handed to you, or were the certificates for the shares sent to the parties in whose respective names they were done?—…. I could not say who they were delivered to. They might be posted and they might not. All the certificates lay in my safe in my own house. They never were taken out till my sequestration. … It was from a general interest that I wished my son to hold shares. I always meant that he should be connected with the place. He did not pay any part of the price. …. You were examined in your sequestration on 20th June of this year, and you then said, ‘The intention was that he was to get them in the event of my decease. While I lived I was to have the control of them if I needed them.’ Is that correct?—That was my interpretation of the position certainly, but if the works had gone on prospering I have no doubt but that they would have been his property absolutely. Before your decease?— Quite so…. Did you consider after these shares were transferred to your son that you had no further hold upon or right to them?—Well, I would say that, for instance, if he had attempted to sell them I certainly would have objected and tried to oppose it, but I do not say but what he could have sold them. Why would you have objected?—Because they were purchased for the general good of the family interest.”

James Bell deponed—He was living in his father's house when he acquired the shares in 1876. He had possession of the share certificate when the transfer was accepted. He handed it to his father for safe custody, to be kept in the safe in his house. He had no other property except these shares. He received profits out of the company in respect of them as long as the company continued to pay dividends. “I got the money, and from first to last I got the interest myself, and applied it to my own purposes. The shares were my own.”

In regard to the expressions used in the letter to Mr Guild he stated—“It is not correct to say that they were practically in trust for my father. On what footing were they placed in your name? —My own. They belonged to me. My father did not reserve any right in them at all. I could have sold them if I had liked What do you mean by the use of the word trust?—I did not mean to use the word trust. Trust was used. What did you understand to be the meaning of it?—Trust was talked about; but I did not understand, and do not rightly know yet. I know now, but I did not rightly understand what a trust was. I did not know that by using the word trust I was handing away a thing I had no right to do.”

He further stated that he was sent for to come to Mr Guild's office in Glasgow, and there he signed the letter. It was at Mr Guild's suggestion that he did so. Mr Guild dictated the letter, and be signed it, but no pressure on him to do so was used. At the time his father gave him the shares he did not limit him in any way in regard to the use of them. He made no stipulation in regard to disposing of them. When he started in business for himself in 1879, and arranged a cash-credit, he had no doubt that he was absolute owner of the shares. He told his cautioners that, and they knew that he had no other estate.

The Sheriff-Substitute ( Mair), after finding that the shares were transferred to James Bell in terms of the transfer above quoted, found as follows:—“(2) That the sum of £2625 [the price of the shares] was advanced by Edward Mather Bell, father of the said James Bell, that at the date of the said advance the said Edward Mather Bell was solvent, and that therefore the advance by him on the said transfer was not to the prejudice of his prior creditors; (3) that notwithstanding that the consideration for the said shares was advanced by the said Edward Mather Bell, the shares were transferred absolutely to the said James Bell, and in his own right, and were not held in trust by him for Edward Mather Bell, and that the said James Bell has exercised all the rights of a shareholder of the said Coatbridge Tinplate Works Company down to the present time: Therefore repels the defence, and decerns in terms of the prayer of the petition, &c.

“ Note.—… The first question then to be considered is, whether the shares were placed in name of James Bell in trust for his father Mr Edward M. Bell? On 22d December 1876 the trustees of the deceased Thomas Buchanan Campbell, by deed of transfer, in consideration of the sum of £2625 paid to them by James Bell, transferred to him ‘the shares numbered 21 to 36, 331 to 342, and 403 to 414, all inclusive,’ standing in their names

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as trustees in the books of the Coatbridge Tinplate Works Company, ‘to hold unto the said James Bell, his executors, administrators, and assignees, subject to the several conditions on which we held the same,’ and the transfer is signed by James Bell as agreeing to take the shares subject to the same conditions.

This was an absolute transfer to James Bell of the shares. James Bell was, in virtue of this transfer, duly entered in the register of members or shareholders, and in the books of the company, as the absolute proprietor of these shares. He was regularly entered in the same way in the annual lists of members or shareholders of the company, and his name appears in the list for the present year, 1884, as such shareholder. James Bell has since the transfer drawn on his own account the dividends or interests accruing on his shares, and attended meetings of the shareholders, and he has, in short, all along exercised all the rights and privileges of a shareholder of the company. So far, therefore, it cannot be said that the shares were ‘placed in name of James Bell in trust’ for his father Mr Edward M. Bell. The written evidence to which I have referred shows the contrary. But it is said that the consideration for these shares was advanced by Mr Edward M. Bell, and that is true. But the mere fact of this being done would not of itself create a trust. If the father is otherwise solvent, there is nothing to hinder him advancing money to his son to enable him to purchase shares in a company, especially in one in which the father himself has an interest. There have been cases where this has been done to enable the son to obtain a franchise qualification. It is said, however, that a donation is not to be presumed, and this is also true. But the best proof in support of the donation is (1) the absolute character of the transfer itself; and (2) the fact that all along James Bell enjoyed all the rights and privileges of a shareholder of the company. All this, however, does not exclude the defender, if he can, establishing by the writ or oath of James Bell that he (James Bell) held the shares in trust for his father. This is the only mode of proof allowed by the Act 1696, c. 25. James Bell has been examined, and he has sworn that the shares in question were transferred to him absolutely—that they were his own property, and that they were not held in trust for his father.

But it is said that on 10th March 1884 he signed a letter addressed to Mr Wyllie Guild, accountant in Glasgow, acknowledging that the shares were held in trust for his father. This letter is as follows: [ letter above quoted.]

Now, down to the date of this letter there is not the slightest trace of a trust, and the date of it is just five days prior to James Bell granting the trust-deed for behoof of his creditors. James Bell was examined with reference to this letter, and it appears from his deposition that at the date of it his father's affairs were in the hands of Mr Wyllie Guild; that he was sent for to go to Mr Guild's office; that the letter was dictated by Mr Guild to a clerk in his office, and that it was at his suggestion James Bell signed it; that he did not understand the letter before he signed it; and that he did not understand he was signing away the shares. In the circumstances I cannot hold that this letter was, in the sense of the statute, an acknowledgment of trust on the part of James Bell. The letter itself must, in my opinion, be taken with the qualification or explanation given by James Bell in his oath. The letter, however, has some peculiarities. It is dated ‘Coatbridge,’ although written in Glasgow, and bears to be ‘in reply’ to some inquiry which does not seem to have been made. Besides, it is ambiguous in its terms. What do the words ‘practically in trust’ mean? They might mean something different from an absolute trust for the father. It is to be kept in view that at the time James Bell acquired the shares in the Tinplate Company his other brother also acquired some shares, his father in like manner advancing the money for him. The father was himself a large shareholder in the company at the time, and according to his evidence his object was to give his sons an interest in the company and at the same time to have their votes in matters concerning the company. Keeping all this in view, the words in the letter ‘practically in trust’ may have a meaning altogether different from that put upon them by the defender. It may be that what was meant by these words was, that although James Bell was the absolute proprietor of the shares, it was understood that he was not to part with them, but that he was to give his father the benefit of his vote as occasion required; accordingly, what follows in the letter to Mr Guild is quite consistent with this idea-—‘I undertake that I shall not transfer them (the shares) without your knowledge.’ Now, it seems somewhat strange if these shares were all along held really in trust by James Bell, that instead of taking the letter from Mr James Bell Mr Guild did not get him to execute a transfer of them then and there for the benefit of the father's creditors. The inference to be drawn from his not getting this done is that if such a thing had been proposed to James Bell he would not have agreed to it. But assuming for a moment that the letter was unambiguous in its terms as to a trust in the person of James Bell, I have grave doubts as to whether it can be founded on by the defender. Previous, and down to its date, there can be no doubt James Bell was the reputed owner of the shares. If the effect of granting the letter was to take these shares from him, the fact of his granting a trust-deed five days afterwards for behoof of his creditors shows that the granting of that letter was to the prejudice of his creditors. In short, James Bell was then, or thus became, insolvent, and it is trite law that from the moment of constructive bankruptcy the debtor can do no act by which the situation of his creditors may be altered, even to the effect of establishing equality amongst them. At the very best, James Bell's father was in the position of a creditor of his son, and the effect of granting the letter within sixty days of the son's bankruptcy was to give a preference over his other creditors. In this view the letter was null and void.

But on the whole matter, on this question of trust, I am of opinion that the defender has failed in his contention.” …

The defender appealed to the Court of Session, and argued—He did not propose to contest the Sheriff-Substitute's judgment on the question of the solvency of Edward Mather Bell at the time the shares were transferred. He had in the letter of James Bell, which was a distinct acknowledgment of a trust already existing, a writ which proved the trust he alleged. As such

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it was not struck at by the Act of 1696. It was not permissible within the sixty days to create a new debt, but it was permissible to acknowledge a debt previously constituted— Matthew's Trustees v. Matthew, June 28, 1867, 5 Macph. 957. Besides, he was not limited to writ for proof— Wink v. Speirs, December 3, 1867, 6 Macph. 77. It could not be taken from James Bell that he did not know what he was writing when he wrote “trust.” The pursuer could base no intelligible argument on the use of the word “practically.” The evidence of Edward Mather Bell, who had no interest whether the money went to his son's creditors or his own, was clear in favour of trust. A man did not borrow, as he said he did, in order to make a donation to his son.

The pursuer replied—All the documents were in favour of out-and-out ownership of the shares by James Bell, at least till the date of the letter, which, if anything, was an attempt to constitute a trust within five days of bankruptcy, and therefore illegal. The letter not being sufficient to do so, a previously existing trust could not be set up by parole evidence. The circumstances were not parallel to those of Matthew's case, for no preexistent debt had been shown here. The use of the word “practically” was inconsistent with the idea of a trust in the legal sense, and showed the truth of James Bell's evidence when he said he understood that the shares were his own.

At advising—