Scottish Court of Session Decisions

James Macpherson, C.A., Edinburgh, trustee on the sequestrated estate of James Gibson Dougan, lately residing at 66 Elm Row, Edinburgh, conform to act and warrant in his favour dated 11th April 1899, raised an action against John Dougan, consulting engineer, Glasgow, in which he concluded for the reduction of (1) a pretended offer dated 12th April 1898, and a pretended acceptance thereof dated 19th April 1898, bearing that the said James Gibson Dougan offered to sell, and the defender purchased, at the price of £400 sterling, the interest of James Gibson

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Dougan in the estate disposed of by the antenuptial contract of marriage of their parents John Dougan, surgeon, Glasgow, and Mary Gibson or Dougan, his wife, dated 14th October 1850, and also in the estate disposed of by the said John Dougan, surgeon, Glasgow, by his will and codicil thereto, dated respectively 21st February 1881 and 12th February 1884; and (2) an assignation dated 16th January 1899, whereby, James Gibson Dougan pretended to convey to and in favour of the defender all rights and claims of every description then competent, or which might at any time thereafter belong or be competent to him under the said contract of marriage, so far as relating to the estate thereby conveyed by the said Mary Gibson or Dougan, and in particular his share or shares of the feu-duties and of the other subjects vested in the trustees now acting under the said contract of marriage, and derived from or through the said Mary Gibson or Dougan; as also all claims competent to him through or on account of the death of his said father and mother; as also with consent and concurrence of Mrs Jamesina Williamson or Dougan, his wife, and the said Mrs Jamesina Williamson or Dougan with consent and concurrence of her said husband—a certificate or policy of assurance on the life of the said James Gibson Dougan, granted by the Standard Life Assurance Company in favour of her the said Jamesina Williamson or Dougan, marked No. 42, 319 H, and dated 15th July 1892, for the sum of £1600 sterling, and held by the Standard Company in security of the bond mentioned infra; or, as an alternative to the reductive conclusions applicable to the offer and acceptance, for declarator that the offer and acceptance did not constitute a competent or valid contract binding on James Gibson Dougan or the pursuer as his trustee, and that the pursuer's claims to the estate falling to the bankrupt under the contract of marriage and will and codicil above mentioned were not excluded or affected by the said offer and acceptance.

The pursuer pleaded (1) that the offer and acceptance should be reduced, or otherwise decree of declarator should be pronounced upon various grounds which he stated; and also pleaded as follows:—“(2) The pretended assignation should be reduced in respect that ( a) it formed a part of a scheme to defraud the creditors of James Gibson Dougan, and was entered into by him and by the defender in the knowledge of that fact; ( b) it was entered into by the defender when a trustee under the estates condescended upon, with James Gibson Dougan, a beneficiary under the said estates, and was to the advantage of the former; ( c) it is contrary to the provisions of the Act 1621, c. 18.”

The defender admitted that the offer and acceptance did not form a contract between the parties to the same.

The defender pleaded, inter alia—“(4) The assignation sought to be reduced being a valid assignation, decree of reduction thereof ought to be refused, with expenses.”

Proof was led which disclosed the following facts:—James Gibson Dougan had been for years in a state of continuous impecuniosity. In 1893 a decree of cessio was awarded against him and the trustee therein was still in office. His sole estate consisted of his interests under the marriage-contract of his parents and the will of his father mentioned in the summons. The defender was a trustee under both the marriage-contract and the will. No right vested in James Gibson Dougan under either of these deeds until the death of his mother on 17th April 1898. On that date there vested in each of James Gibson Dougan, the defender, and the four other children of the marriage, one-sixth share of the trust-estates under the deeds, which estates consisted chiefly of properties in Great George Street and Great Western Road, Glasgow, and feu-duties from properties in Great Kelvin Terrace, Glasgow Street, Smith Street, and Bank Street, and other places there. As early as 1893 James Gibson Dougan attempted to sell his spes successionis but without result. In 1897 an abortive attempt was made to sell it to the defender, who admitted that he was anxious to secure it. In 1898 negotiations were resumed on the basis of the defender taking over the debts in the cessio and certain other debts and paying down a sum in cash. These resulted in the offer of 12th April 1898 specified in the summons, in which the sum to be paid by the defender in cash was stated at £400. This offer was accepted by the defender on 19th April; but in the meantime, on 17th April, the mother had died and the expectancy had been converted into an undoubtedly vested right. Thereupon James Gibson Dougan refused to carry out the transaction. The defender at first tried to hold his brother to his offer, but after taking counsel's opinion and being advised that it was not binding he desisted from the attempt. About this time the defender wished a loan over his own one-sixth of the trust estates, and a valuation of his share was obtained from Messrs Binnie & Sons, valuators, Glasgow, on behalf of the proposed lenders. Messrs Binnie & Sons’ valuation dealt with the whole of the feu-duties and properties belonging to the trust estates. One-sixth of the net value as shown by this valuation, being the defender's share, and also James Gibson Dougan's share, amounted to £3518. This valuation was communicated to the defender, but the defender never made it known to James Gibson Dougan. On 12th January 1899, James Gibson Dougan being in greater pecuniary straits than ever, again approached the defender's agents, Messrs Clark & Macdonald, S.S.C., with a view to having the transaction carried out. They advised him that he must have an agent of his own and recommended a friend of their own, Mr Robert Fleming, S.S.C., Edinburgh. James Gibson Dougan went to Mr Fleming and told him of the offer and acceptance and said he wished to make the best of it. Mr Fleming acted on the understanding that he had been employed simply to carry

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out a transaction settled with the defender's agents on the terms of the offer and acceptance, except that if possible he was to get a larger sum in cash. The sum ultimately fixed was £450. Mr Fleming deponed that when he agreed to the terms he understood that John Dougan would make a profit of £200 or £300. The result was that on 16th January 1899 the assignation now sought to be reduced was executed, and £450 in cash was handed over to James Gibson Dougan. The assignation was granted in consideration of (1) the cash payment of £450, and (2) the defender freeing and relieving James Gibson Dougan of ( a) the sums contained in a bond and disposition and assignation in security dated 3rd August 1892, granted by James Gibson Dougan to the Standard Life Assurance Company, which sums amounted to £1600 or thereby; ( b) all debts due as at 12th April 1898 by James Gibson Dougan to Mr St Clair Swanson, writer, Glasgow, which debts amounted to £200 or thereby; and ( c) all debts due by James Gibson Dougan under the cessio above mentioned. After receiving the £450, James Gibson Dougan left the country, leaving debts amounting to about £200 unprovided for. His estates were sequestrated on 20th March 1899, and the pursuer was appointed trustee on 11th April 1899. Although the trustee was the nominal pursuer, Messrs St Clair Swanson & Manson, who had an untaxed account of £136 or thereby against the bankrupt, being practically domini litis, had agreed to pay the expenses if the action was unsuccessful. Evidence was led for the pursuer to show that if Messrs Binnie & Sons’ valuation was accepted as correct the value of James Gibson Dougan's share, less the amount of the debts to be paid by the defender, as at 16th January 1899 was about £1100. Two valuators were also examined as witnesses for the pursuer, who deponed that Messrs Binnie & Sons’ valuation of the feu-duties and properties was too moderate, and that James Gibson Dougan's share was worth over £100 more than the value brought out by Messrs Binnie's valuation. On the defender's behalf evidence was led to show that feu-duties were an investment liable to depreciate, that they were falling in market value, that too high a value had been placed on them by Messrs Binnie & Sons, and by the valuators examined for the pursuer, that there were certain other debts which the defender would require to pay if the assignation was held valid; that these had not been taken account of by the pursuer's witnesses, and that James Gibson Dougan's share of the trust estates was only worth £2133, while the consideration given by John Dougan under the assignation, including the £450 paid in cash, amounted to £2846.

The defender in cross-examination deponed, inter alia, as follows:—(Q) When you heard of your mother's death did you think that the interests of the beneficiaries sustained any change?—(A) I did not consider the question. (Q) Did you know that till your mother's death vesting did not take place in the beneficiaries?—(A) That was the only disputed point. When I offered the price of £500 in August 1897 it was in the knowledge of that disputed point. I have no doubt that I received the offer of 12th April 1898 in due course. I did not accept it till the 19th. I cannot remember if there was any particular reason why I did not accept it sooner. When I heard of my mother's death I was anxious the offer should be accepted without delay. (Q) Why?—(A) So as to get the transaction completed. (Q) Why did you want it completed?—(A) Because there was an offer made. (Q) Didn't you realise that the death of your mother made a great difference in James’ interest?—(A) Certainly not; I understood the offer was open under any circumstances till the 2nd of May. On 18th April I telegraphed to my agents that Mrs Dougan had died yesterday—‘Complete payment immediately.’ (Q) Why were you in such a hurry that you telegraphed to Clark & Macdonald in these terms?—(A) To get the transaction finished; I was at liberty to close it any time before the 2nd of May. (Q) Was the reason simply this, that you knew your mother's death increased enormously the value of James’ interest?—(A) It changed a reversion to a certainty, and did away completely with the speculative element. (Q) You knew that? (A) Yes; everybody would know that. I understood that the offer was open till 2nd May under all circumstances irrespective of my mother's death.… As regards the price which I was to pay for the reversion, I knew generally what debts I undertook to pay. I understood the value of James’ interest to be about £3000. The sum was payable immediately upon realisation, but the properties have not yet been realised. I had Mr Binnie's valuation before me. I had no reason to doubt it was correct. (Q) Is it the case that you have made a profit of between £800 and £900 out of the transaction?—(A) I am not aware. I am afraid I willmake no profit—absolutely none. When I concluded the bargain I estimated that I would make a few hundred pounds. I was taking a considerable risk because it was unvested property. At the date of the assignation I thought I would make perhaps £200 out of the transaction. (Q) If you were told it was between £800 and £900, would that alter your opinion as to its fairness? (A) I simply would not believe it. I do not see that fairness has anything to do with it; if a man sells at his own valuation, and another man buys, it has nothing to do with fairness. James was not an executor under our father's settlement or a trustee under the marriage-contract. I did not personally at any time submit to him a statement of his interest under either deed; I was not called upon to do so, because I was never asked. (Q) Didn't you think it was a duty upon you as a trustee, and holding a fiduciary relation to your brother, to disclose to him the extent of his interest in the trust-estate?—(A) Certainly not, when he could get all the information from the law-agent of the trust.”…

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On 18th July 1900 the Lord Ordinary ( Stormonth Darling) pronounced the following interlocutor:—“Finds that the transaction complained of was entered into by the defender when a trustee on the estates condescended on with James Gibson Dougan, a beneficiary on the said estates, and was to the material advantage of the defender: Finds therefore that on repayment to the defender of the sum of £450 the pursuer will be entitled to decree of reduction as concluded for,”&c.

Note.—“This is an action by the trustee on the sequestrated estates of James Gibson Dougan against the brother of the bankrupt, and the purpose of it is to reduce a transaction whereby the bankrupt conveyed to his brother his whole rights under the marriage-contract of his father and mother and under the will of his father. The interests represented by the pursuer cannot be described as very substantial, because he is truly only the hand of a firm of solicitors who have an untaxed account against the bankrupt of £136. There are a few other creditors in the sequestration whose claims are of trifling amount, but Messrs St Clair Swanson & Manson are admittedly the true domini litis. At the same time the title of the pursuer is undoubted, and I cannot say that the questions involved are without importance in the eye of the law.

It appears that the bankrupt has for many years been in a state of chronic impecuniosity. He has in his time played many parts, from that of medical student to that of tramway car conductor. In 1893 a decree of cessio was awarded against him, and the trustee is still in office. His sole estate consisted of his interest under the marriage-contract of his parents and under the will of his father, who was a surgeon in Glasgow. But counsel agreed in representing that no right vested in him under either of these instruments until the death of his mother on 17th April 1898. The defender is a trustee both under the marriage-contract and the will. As early as 1893 the bankrupt seems to have endeavoured to sell his spes successionis, but at first without result. Again in 1897 an abortive attempt was made to sell it to the defender, who admits that he was anxious to secure it. In 1898 negotiations were resumed on the basis of the defender taking over the debts in the cessio and some other specified debts, and paying down a sum in cash. These resulted in an offer by the bankrupt on 12th April 1898 in which the sum to be paid in cash was fixed at £400. This offer was accepted by the defender on 19th April, but in the meantime ( i.e., on 17th April) the mother had died and the expectancy had been converted into a vested right. In these circumstances I am not surprised that the bankrupt refused to carry out the transaction, and it is undoubtedly an ugly feature of the case that both the defender and his agent Mr Watson, contrary to what I should have thought the most obvious notion of fair dealing, maintained that the contract was binding on the bankrupt until they were advised by counsel that it was not. Some months passed, and the bankrupt being in greater pecuniary straits than ever, again approached the agents for the defender with a view to having the transaction carried out. They properly enough advised him that he must have another agent, and they recommended a friend of their own, Mr Fleming. I have nothing to say against his part in the affair except that the relation of the parties as trustee and beneficiary ought to have put him on his guard, and to have led him to scrutinise the transaction with more than ordinary care in the interests of his client. His own view of his duty was simply that he had been employed to carry out a bargain, the heads of which had already been arranged, and all he did was to obtain for the defender an increase of £50 in the sum to be paid in cash. The result was that on 11th January 1899 the assignation now sought to be reduced was executed, and the cash consideration of £450 was paid to the bankrupt, who immediately absconded with it. His estates were sequestrated on 20th March following.

I have come to the conclusion that this transaction cannot stand; but I do not thereby affirm all the grounds of reduction stated on record, some of which I think have been put forward rather recklessly. There is nothing to show that the defender had any idea of the bankrupt's intention to leave the country, or that he conspired with him to defraud his creditors. It is proved, I think, that the two brothers, so far from being in each other's confidence, were on rather distant terms, and all that can fairly be charged against the defender is that he took advantage of his brother's urgent necessities to make a decidedly advantageous bargain for himself.

The first ground of challenge—that of fraud at common law—is therefore, in my view, disproved. The second is laid on the Act 1621, cap. 18, but that also fails. Some of the conditions required by the Act are no doubt present. The grantee of the deed was a conjunct person; the granter was insolvent at the date of raising the action; and upon this latter fact being proved there arises a legal presumption that he was insolvent at the date of granting the deed. But that is a presumption which is capable of being rebutted by proof, and here such proof is clearly forthcoming. James Dougan's financial position is of course to be tested as at the time when the transaction was completed, and undoubtedly the transaction left him with £450 in his pocket, and debts to pay of certainly not more than £200. That being so, it is of no consequence, so far as the Act of 1621 is concerned, whether the price was a just one or not, because a solvent man is perfectly entitled to make as bad a bargain as he likes.

But then the third ground of challenge is that the transaction was one between a trustee and beneficiary, and that such a transaction cannot stand if it is materially advantageous to the trustee. Now, I quite concede that there is no ground for charging the defender with having taken advantage of his position as a trustee to misrepresent anything or to conceal anything

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with reference to the condition or value of the estate. I think that James Dougan had full opportunities of knowing, and did know, the nature of the estate and the approximate value of his interest in it. If there had been either misrepresentation or concealment the transaction could not have stood even as between strangers. But the position of a trustee towards a beneficiary is a fiduciary one, and the law views with extreme suspicion any transaction whereby the trustee acquires the interest of the beneficiary in the estate. There are cases, no doubt, in which such a transaction may be upheld, as where the beneficiary has urged it upon the trustee, and has received a full and fair consideration. But I think all such cases postulate not only that the parties are dealing with each other at arm's length, but that they stand upon an equal footing. If the trustee takes advantage of the known necessities of the beneficiary to procure from him a bargain which is prejudicial to him and correspondingly advantageous to the trustee, the transaction must, I think, be condemned by the law.

Now in this case it is not denied by the defender that he expected to make ‘a few hundred pounds’ out of the transaction. He estimated his brother's share as worth £3000; I think, on the evidence, it was worth about £3250. He knew that the consideration which he was giving, over and above the £450 paid down, fell considerably short of £3000; I think, on the evidence, it fell short of the true value of the share by not less than £500. The share was not only fully vested, but it was capable of being realised in the ordinary course of administration at an early date; yet James Dougan was so absolutely reckless of his own interests, owing to his impecunious condition, that he was willing to sell an interest of that kind for substantially the same price as that at which a few months before he had offered to sell his share when it was only an expectancy. If the defender had realised the fiduciary relation in which he stood he could not have agreed to enter into such a bargain. The truth is that he did not realise it. Even at the proof he remained so completely unconscious of it that, in answer to a question in cross-examination, he said—‘I do not see that fairness has anything to do with it; if a man sells at his own valuation, and another man buys, it has nothing to do with fairness.’

I have said that the interests represented by the pursuer are not very substantial. I regret to add that I cannot applaud the conduct of the persons for whose behoof the action is truly raised. Messrs St Clair Swanson & Manson apparently saw no objection to a transaction between a trustee and a beneficiary when they had only the interests of their client to protect, but the moment that their own interests became involved they discovered that the transaction was objectionable. I cannot, however, on that account refuse to sustain a plea which is, I think, well founded on law and salutary in its effect.

I shall therefore find that the transaction complained of was entered into by the defender when a trustee on the estates condescended on, with James Gibson Dougan, a beneficiary on the said estates, and was to the material advantage of the defender. Of course (as the pursuer's counsel admits) decree of reduction cannot be pronounced except upon condition of the pursuer repaying to the defender the sum of £450, and I shall find that upon this being done he will be entitled to decree of reduction as concluded for. The reduction when pronounced will include the offer and acceptance of April 1898 as well as the assignation of January 1899, because although the offer and acceptance were really superseded by the assignation, still the latter deed ratified and homologated the former.”

The defender reclaimed, and argued—There was no good reason for reducing the assignation. The pursuer had admittedly failed on two of his grounds of challenge, viz., that the transaction was fraudulent and that it was contrary to the Act 1621, c. 18. His third ground of reduction, viz., that it was entered into by the defender when he was a trustee was also inadequate. Notwithstanding that one of the parties to a transaction of this kind was a trustee and the other a beneficiary, the transaction would stand if it were shown that a fair price had been paid. It was not necessary to prove that the highest price possible had been paid for the subject—Bell's Commentaries, 7th ed., ii. 179. The present transaction was a perfectly fair one. On both occasions the bankrupt had come to the defender, and at no time had any pressure been put on him. The two were on the same footing and had the same means of acquiring knowledge. The defender had kept back no knowledge that he had acquired in his capacity as a trustee. It was no reason for reduction that the bankrupt was in distressed circumstances at the date of the transaction. Even if the price paid were held to be inadequate, mere inadequacy of price had never been held to be a sufficient ground for reduction— Buckner v. Jopp's Trustees, July 16, 1887, 14 R. 1006; Coles v. Trecothick, 1804, 9 Vesey 234—opinion of L. C. Eldon, 246; Morse v. Royal, 1806, 12 Vesey, 355; Luff v. Lord, 1864, 34 Beavan 220.

Argued for the pursuer and respondent—The defender, before he could succeed in maintaining the transaction sought to be reduced must show (1) that he had paid a fair or adequate price, and (2) that the bankrupt was not insolvent at its date. (1) The defender had wholly failed to discharge the onus on him to show that the transaction was fair and proper. Indeed, the proof disclosed that the price paid was quite inadequate, that the defender had his brother completely at his mercy—as on account of the offer and acceptance and the attitude taken up by the defender no-one else would purchase the bankrupt's share; that although it was the defender's duty to communicate all information to

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the beneficiary, and give him every possible security and advantage, he concealed from him the valuation of Messrs Binnie & Son, which would have disclosed to the bankrupt that at least double the amount of cash should have been paid by the defender. The price being inadequate, there being special knowledge on the part of the trustee, and the beneficiary being penniless, powerless, and at the mercy of the trustee, the transaction must be held invalid— Denton v. Donner, 1856, 23 Beavan 285; Tate v. Williamson, 1866, L.R., 2 Ch. Ap. 55; Gibson v. Jeyes, 1801, 6 Vesey 266. (2) The defender had also failed to prove that James Gibson Dougan was solvent at the date of the assignation. The Lord Ordinary no doubt said that James Gibson Dougan received £450, and that his debts amounted to not more than £200, and that therefore he was solvent, but he had neglected to consider what James Gibson Dougan might have done with the money. He might have paid off some of his debts with it, so that his solvency at the date of this transaction was not a certainty. On both grounds reduction should be granted.

At advising—