Scottish Court of Session Decisions

This was a sequel to the case of Stewart v. Bruce's Trustees, June 10, 1898, 25 R. 965, 35 S.L.R. 780.

In that action Mrs Stewart (the pursuer of the present action) sought reduction of a deed whereby she had accepted the provisions in her favour contained in the settlement of her former husband Mr William Keiller Bruce. Decree of reduction was pronounced on 10th June 1898, and the trustees thereafter by order of the Court lodged a note of the jus relictæ.

In this note the amount of the moveable estate was stated to be £18,368, made up chiefly of 1249 shares in James Keiller & Son, Limited, which the trustees estimated at £15,612, or £12, 10s. per share, and the amount of the jus relictæ was consequently brought out at £6122.

The pursuer lodged objections to this account and averred that the shares were worth £50 each, and that the jus relictæ amounted to £21, 733. The pursuer offered to accept a transfer of one-third of Mr Bruce's shares in payment pro tanto of her jus relictæ, but questions were raised as to the right of the trustees to pay her otherwise than in money, and also as to the pursuer's right to be registered as a shareholder.

With the object of having these questions determined it was agreed that the trustees should transfer one share to the pursuer to account of her jus relictæ, and the Lord Ordinary of consent of parties pronounced an interlocutor ordaining the trustees to transfer to the pursuer one ordinary share in the company. In pursuance thereof the trustees delivered to the pursuer on 25th March 1899 a transfer of a single share.

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The directors of the company, as stated in their minutes of 4th April 1899, “unanimously decided to decline to register the above transfer in accordance with the powers held by them through article 33 of the articles of association, and Mr James Boyd, the chairman, having intimated his willingness to purchase the said share at the price at which the ordinary shares have been valued under article 113 of the articles of association, viz., £20 sterling, the board duly appointed him as purchaser of the said share.”

Mrs Stewart was already registered as a shareholder, being one of the original shareholders of the company.

The pursuer raised the present action against James Keiller & Son, Limited, in which she concluded for decree ordaining the defenders to register the said transfer dated 25th March 1899.

The summons contained certain alternative conclusions, the nature of which sufficiently appears from the first opinion of the Lord Ordinary, infra.

The pursuer contended that the defenders were bound under articles 36 and 37 (quoted in the rubric) to register the transfer de plano, and that article 33 had no application to such a transfer. She averred further—“(Cond. 8) Even on the assumption that article 33 of the defenders' articles of association applied to the transfer in the pursuer's favour, the directors did not exercise the power thereby conferred upon them in good faith or for the benefit or supposed benefit of the company. The pursuer was already a member of said company, and there was no reason why she should not have been permitted to acquire a single share more. In passing the resolution of 4th April 1899 the directors abused the fiduciary power said to be vested in them under said articles 33 and 113, for no other reason than to enable one of their own number to acquire the said shares at an illusory price.” With reference to the valuation of the shares the pursuer averred that the value of each share was at least £50, and that the defenders' valuation of £20 was illusory and fictitious and bore no relation to their real or intrinsic value, and that the defender's valuation involved a fraud on the rights of the pursuer and her children to the extent of £37,000.

The pursuer pleaded—“(1) It being the duty of the defenders James Keiller & Son, Limited, to register the transfer of one share specified in the summons, decree against them should be pronounced in terms of the first conclusion of the summons. (2) The defenders are not entitled to found upon the pretended valuation of said shares, in respect that ( a) the said pretended valuation is illusory and fictitious and bears no relation to the real and intrinsic value of the shares. … (3) The resolution of the said directors of 4th April 1899 not being the result of a bona fide exercise of the directors' powers under the said articles of association, but of a device on their part to enable one of their own number to acquire the said share at an illusory price, the said resolution is illegal.”

The defenders pleaded—“(2) The directors of the defenders' company having power by their articles of association to decline to register any transfer of the ordinary shares of their company, and having competently refused to register the transfer in favour of the pursuer, are entitled to absolvitor. (3) Standing the report of the directors fixing the value of said shares, which was duly laid before the meeting of the company, and the minute of the directors declining to register the transfer in pursuer's favour, the action cannot be maintained. (4) The directors having in good faith valued the said shares, and their proceedings being in order, the defenders are entitled to absolvitor from the conclusions of the summons.”

On 20th March 1900 the Lord Ordinary ( Kincairney), after hearing parties in the procedure roll, pronounced an interlocutor whereby he repelled the third plea-in-law for the defenders; found in point of law that article 33 of the articles of association applied to the question as to the registration of the share, and that article 37 did not apply, and allowed the pursuer a proof of her averments in regard to (1) the refusal of the company to register the transfer in her favour, and (2) the valuation of the shares under article 113.

Opinion.—“The pursuer Mrs Stewart was widow of William Keiller Bruce, who died on 19th March 1895 survived by two children who at present are minors. He left a trust-disposition by which he made provision for his widow, and directed his trustees to hold the residue of his estate for his children until the death or second marriage of his wife and until his youngest child should attain majority. The pursuer has married again, and she has elected to claim her legal rights, and is therefore now entitled to her jus relictæ out of her husband's moveable estate. That estate consists in part of sums in policies of insurance on his life, of the value of his furniture and other items amounting to between £6000 and £7000, under deduction of debts exceeding £4000. But the bulk of his estate consists of 1249 ordinary shares in the firm of James Keiller & Son, Limited, which he empowers his trustees to retain unrealised and to hold as investments under his trust.

The amount of the pursuer's jus relictæ has not yet been ascertained, and an important difference exists between her and the company as to the value of the shares. The pursuer avers that the intrinsic value of each share is £50, while James Keiller & Son will allow no more than £20 per share. According to the one estimate the total value is £62,450, and according to the other £24,980. The difference is £37,470, making a difference in the jus relictæ of above £12,000. Mrs Stewart is of course desirous to secure the benefit of the higher valuation, and to that end she desires either (1) to be entered in the register of the company as holder of one-third of her husband's shares; or (2) that Mr Bruce's trustees should hold them for her; or (3), as I suppose, that her jus relictæ should be computed on the footing that the value of each

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share is £50. But she in no case wishes the shares realised.

She has, however, encountered these difficulties—(1) That the trustees hold that she is not entitled to demand from them her jus relictæ in the form of shares, and that they are not bound and not entitled to pay her jus relictæ except in money; (2) that even if they do pay her in shares the company have refused or will refuse to enter the transfers to her in their register; and (3) that the value of the shares is at present fixed under certain provisions in the articles of association at £20.

I understand that this action is an attempt to solve these difficulties or some of them. It relates in fact to one share only. But the pursuer's idea was that a decision as to one share might possibly apply to the whole of the jus relictæ, an idea which I fear is hardly well founded.

Mr Bruce's trustees, shortly after his death, made up a title to the shares by confirmation, and on 22nd June 1895 they were registered in the books of the company as owners of them, and by arrangement they transferred one share to the pursuer, which the company have declined to register, and which enables her to raise this action. The conclusions of the action are that the company should be ordained to register this transfer, or alternatively to pay the pursuer £50 or the value of the share, as it may be determined, or as the damage arising from refusal to register, or otherwise the action concludes for decree of declarator that Mr Bruce's trustees hold this share for the pursuer.

My judgment cannot travel beyond these conclusions and must be confined to the single transfer which has been granted. The action does not raise, at least directly, the question whether the pursuer is entitled to receive her jus relictæ or the greater part of it in the form of shares; and while it does raise the question whether the company are bound to register this one transfer, it is possible that that may not determine their obligation to register transfers of 416 shares, which is the number she claims. Strictly speaking, perhaps, there is no other question raised by this action except the question whether the company are absolutely bound to register this transfer, as appears from the consideration that if the company should agree to do so no question would remain in the action.

After careful consideration of the argument I think this is the only question which can be decided without enquiry. But it is a question of importance, and I think it will be convenient that I should decide it so as to enable the parties to obtain the judgment of the Inner House upon it. It depends on the articles of association, and there are four articles—33, 36, 37, and 113—which are of importance. Article 33 provides, inter alia, that the board of directors may decline to register any transfer ‘made to any person who in the opinion of the directors should not be admitted as a member of the company, or who, being a member of the company, should not in the opinion of the directors be allowed to acquire or possess more ordinary shares or stock.’ The 36th section provides that the executors or administrators of a deceased member shall be the only persons recognised by the company as having any title to his shares; and article 37 provides that ‘any person becoming entitled to a share or shares in consequence of the death or bankruptcy of any member, or the marriage of any female member, may be registered as a holder of such shares upon such title and evidence being produced as may from time to time be required by the company.’

The pursuer maintains that it is section 37 which applies to this case, and that under it she has an absolute right to registration, and that the company has no power to rerefuse registration. The company contends that article 33 applies, and that the company is thereby empowered to refuse to register at its discretion. The question is of considerable difficulty, but I have formed the opinion that it is article 33 and not article 37 which applies. Article 33 applies to the registration of transfers, which is this case; and construing it according to the natural meaning of the words, it applies to all transfers without regard to the nature of the transferee's title. I think it must necessarily be construed as applying to the transfer in question, unless some exception to its general terms is introduced by article 37. Articles 36 and 37 apply where there are no transfers; article 36 applies to the case of the death of a shareholder, which is also this case, and it seems to give aright of registration to the shareholder's executor or administrator. Now, that section has received effect and has been exhausted by the registration of Mr Bruce's trustees, and the declaration that the executors or administrators of a deceased shall be the only persons recognised by the company as having any title to his shares seems to negative any obligation on them to recognise anyone else in that case, such as a beneficiary, or children in right of legitim, or a widow in right of her jus relictæ. Article 37 certainly applies to an executor, who is a person becoming entitled in consequence of death, but the right to registration in that case being conferred by article 36 cannot be held to be also conferred by article 37. I read article 37 as, in the case of the death of a shareholder, referring to the evidence of title to be produced to the company. I think it does not refer to anyone else but an executor as becoming entitled in consequence of death, and cannot do so consistently with article 36, unless indeed article 37 be read as permissive or empowering, which is a possible construction, but which would not assist the pursuer.

The contention of the pursuer on this point was that the right of a widow to her jus relictæ was not of the nature of a succession—which may be admitted—but rather of a right of property dormant during marriage but coming into active and separate existence at its dissolution—which must, I think, be denied; but it was contended that the widow might properly be said to become entitled to her share of

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the goods in communion on her husband's death. It was, as I understood, contended that jus relictæ differed from legitim as partaking more of the nature of property and less of a right of credit. The pursuer's counsel referred to Stair i., 4, 21, and iii. 4, 24; Ersk. iii., 9, 15, 19, 30; Breadalbane, May 26, 1844, 4 D. 1259; Ross v. Masson, February 3, 1842, 5 D. 483; Gilchrist v. Gilchrist's Trustees, July 19, 1889, 16 R. 1118. Dalhousie v. Crokat, May 26, 1868, 6 Macph. 659; and M'Intyre's Trustees v. M'Intyre, July 9, 1865, 3 Macph. 1074. But I have not been able to discover in these authorities any satisfactory distinction in this respect between jus relictæ and legitim, and considering that each is a third of the moveable estate I do not think there can be any—see M'Laren on Wills, vol. i. 133, note 9—and I think it now well settled that the children and the widow are alike creditors of the executor for their several rights of legitim and jus relictæ. The more important decisions have referred to legitim, but they apply in principle to jus relictæ.—See Fisher v. Dixon, April 6, 1843, 2 Bell's App. 63; M'Murray v. M'Murray's Trustees, July 17, 1852, 14 D. 1048; Dalhousie v. Crokat, May 26, 1868, 6 Macph. 659; Ross v. Ross, June 16, 1896, 23 R. 802; and Fraser on Husband and Wife, 976. The pursuer founded somewhat specially on the opinion of Lord Cowan in M'Intyre's Trustees v. M'Intyre, where jus relictæ is spoken of as a right of property. But I think that his Lordship merely desired to distinguish the right from a right of succession, and if it was meant to designate the right as one of absolute property over the whole or any part of the moveable estate I venture to think that the accuracy of the expression may be questioned.

I have, however, been considering the pursuer's argument only in its application to article 37 of the articles of association, and all I mean to decide is that that argument does not seem to me to displace the grounds of my opinion that article 33, not article 37, applies.

I am far from affirming that either legitim or jus relictæ can never he paid except in money, or that in this case it is necessary to realise the estate in order to pay the jus relictæ. If it be true, as probably at this stage of the argument and before inquiry is to be provisionally assumed, that a share is worth £50 or thereby, it may be that the trustees would be entitled, possibly would be under obligation, to pay the widow's jus relictæ in large part by a transfer of shares, and I do not at present see that it would injure the children to do so. There is not a great deal of authority on this point in our decisions, but it is referred to by Lord Fraser in Tait's Trustees v. Lees, July 8, 1886, 13 R. 1104, at 1107. But I have made these remarks only to prevent misunderstanding and to reserve my opinion; for, as I have already said, the question is not really raised, the trustees having granted the transfer to which this case relates.

Had I been able to hold that article 37 applied there would of course have been no more to be said. But as I have not been able to do so, it becomes necessary to consider the pursuer's right under article 33; and as to that there arise two questions—first, in regard to the extent to which the resolution of the directors to refuse to register can be examined; and secondly, as to the fulfilment of the condition attached to their right. On the former point I have to observe that the power of the directors does not seem to be absolute, but that the ground of rejection must apparently be something personal to the transferee. It is debateable that the reason for which rejection is admitted is not a reason connected with general policy or management, but rather a personal objection, although I do not mean to express a final opinion on that point. The company gives no reason either in their minutes or on record for the rejection. I do not say it was bound to do so. But having regard to the view which has always been held, at least in English cases, that such a power must be exercised fairly and reasonably, and not to the unnecessary injury of the transferee and having regard to the averment of the pursuer as to the value of the shares, I think inquiry on this point is necessary if the company is to continue its declinature— Penney re Gresham, 1872, 8 Ch. Ap. 446; Bell Brothers, Limited, October 1891, 7 T.L.R. 689, 65 L.T. 245; Buckley, Companies Act, 1862, Par. 22.

The condition which qualifies the power of refusal to register conferred by article 33 is this—that they shall only be entitled to exercise this power of declinature ‘on condition that they name a person or persons willing to purchase the shares or stock at the prices at which they were valued under article 113.’ It is averred that they have not fulfilled this condition, inasmuch as there was no fair valuation carried out as the articles of association direct. I do not find the averments on this point very satisfactory, but I think they cannot safely be set aside without inquiry.

I therefore propose to find in point of law that article 33, and not article 37, applies to the question as to the registration of the transfer; and further, to allow the pursuer a proof of her averments in regard to the refusal of the company to register the transfer, and as to the valuation of the shares of the company under section 113.”

Proof was thereafter led. With reference to the defenders' refusal to register the transfer, James Boyd, managing director of the company, a witness for the defenders, was asked in cross-examination to state the reasons why the directors refused to register the transfer. He at first declined to do so, but the Lord Ordinary ruled that he was bound to answer the question. Mr Boyd then deponed—“(A) I may mention that when Mrs Bruce was admitted to the membership of the company she was the wife of a respected director. Very shortly after her husband's death she married, and in our opinion her husband had no interest in the business of the company. Moreover, she brought an action which exposed the whole affairs of the company, much to its prejudice, in my

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opinion, in the eyes of the public. That is to say, the whole private affairs of the company through this action were brought out. Moreover, she wanted to purchase shares through her trustees with the view to selling them to the public, and thus further increase the membership, a thing which was against the idea of the vendor and those who bought the shares. In fact her whole object appears to be to try and get the company made a public company, and thus defeat the object of the vendor. There is another thing; in making a transfer we must consider whether the transferee is to be of some advantage to the company. Now, in my opinion, with all deference, a married lady is very likely to be very little help in the management of the company. Moreover, she herself signed the articles of the company, and now she apparently wants to defeat those very articles. It appears to me that if she were to get a further increase there would be a constant agitation to get the company thrown on to the public at its inflated value. My idea is that if we do make a transfer it should be to someone who is to help in the management of the company; and I believe that was the only reason why my sons were admitted as shareholders of the company. I think that is all I have to say. (Q) Have you now stated all the interests of the company which would be affected in your opinion? (Question objected to.)—(A) Yes. (Q) Were these the grounds in respect of which you refused to registration of the transfer? (Question objected to.)—(A) These are the main grounds. (Q) Are there any others which you can state? (Question objected to.)—(A) I don't think so; there might be others if I were to think over them, but these are sufficient.”

With regard to the valuation of the shares it appeared from the proof that the directors had annually, in pursuance of article 113, valued the shares of the company, and that the valuation had been increased year by year, from £10, at which it was fixed in 1894, to £20, at which it had been fixed in 1899. The valuation for 1899 was the valuation applicable to the transfer in dispute.

Mr John Scott Tait, C.A., Edinburgh, a witness for the pursuer, deponed that in his opinion the true value of a share was £50, having regard to the profits earned by the company. The company had paid an average dividend of 14 per cent. Their profits would in his opinion have justified them in paying a dividend of 29 per cent.; but he reached this result without making allowance for reserve, for depreciation or fluctuation in the price of raw material, and without taking into account the restriction on transfer of the shares under article 33. Other witnesses for the pursuer concurred with Mr Tait.

Mr Richard Brown, C.A., Edinburgh, a witness for the defenders, deponed that in his opinion the valuation made by the defenders, viz. £20, was a fair valuation, having regard to the character of the company's business and to the restriction upon transfer of its shares. Similar evidence was given by other witnesses for the defenders.

On 30th September 1901 the Lord Ordinary pronounced this interlocutor:—“The Lord Ordinary having considered the proof, productions, and whole cause, Finds (1) that on 25th March 1899 the executors of the deceased William Keiller Bruce, who were shareholders in the firm of James Keiller & Son, Limited, executed a transfer of one ordinary share in said company in favour of the pursuer Mrs Stewart; (2) that the pursuers transmitted said transfer to the said James Keiller & Son, Limited, in order that it might be entered in the register of said company; (3) that on 4th April 1899 the directors of the said company declined to register the said transfer, and the defender Mr James Boyd then intimated his willingness to purchase said share at the price of £20 per share; (4) that said declinature to register and said intimation by said James Boyd bore to be in compliance with the powers conferred on said directors by the 33rd article of the articles of association of said company and with the provisions of said articles: (5) Finds that the pursuers have failed to prove that the said declinature was corrupt or fraudulent, or that it was not within the powers conferred by said article: and (6) Finds that the condition annexed to the power of declinature by said article was implemented: Repels the first, second, and third pleas-in-law for the pursuer: Sustains the second and third pleas-in-law for the defenders James Keiller & Son, Limited; assoilzies the defenders the said James Keiller & Son, Limited, from the first conclusion of the summons, and decerns: Reserves expenses, and appoints the cause to be put to the roll for further procedure: Grants leave to reclaim.”

Opinion.—[ After stating the facts]—“The pursuer contended that the questions depended on article 37 of the articles of association. But in my previous judgment I repelled that contention and found that article does not apply, and I do not therefore require to refer to it. In my opinion the powers of the directors depend primarily on articles 33 and 113.”

These articles are as follows. [ His Lordship quoted the articles.]

There are two observations which may be made at the outset on these articles—the first is that they are contained in the contract embodied in the articles of association, to which contract the pursuer Mrs Stewart, as an original shareholder, was and is a party. The second is that the shares of a joint-stock company are moveable property, prima facie transferable, unless the contrary is provided by the contract by which the shares are created.

The first and chief question is, whether the refusal by the directors to register the transfer was in bona fide and done honestly and without any corrupt motive within their powers, and the second question is whether, if it was so, they fulfilled the condition provided at the close of article 33. To solve these questions it is necessary to

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consider very carefully the true construction, object, and effect of section 33. I have found these questions, except the question as to the good faith of the directors, to be of extreme difficulty. The cost of this litigation must have been very great, and I cannot but regret that a compromise has been found impossible.

The 33rd section is very peculiarly, perhaps unfortunately, expressed, and requires to be considered with attention. It is divisible into three parts, of which the first relates to transferors or shareholders, the second to transferees. The power of refusal to register on account of considerations relating to the transferors is by no means absolute, but is on the contrary distinctly defined and limited. The power in the second clause in reference to the rejection of transferees is much more general; and the third and concluding clause seems introduced in order to mitigate the severity of the second clause by providing that a transfer shall not necessarily fail because of refusal to register the transferee, but may be completed in favour of some other transferee on specified terms. This is a clause in favour of transferors, that is shareholders, towards whom the relation of the directors is fiduciary, and not of the transferees, with whom as such the directors had no such relations. One would not go far wrong if it were surmised that one of the chief objects of this article was to enable the directors to preserve the private and domestic character of the company.

The provision immediately in question is this, that the directors may decline a transfer in favour of any member of the company if in the opinion of the directors such member should not be allowed to acquire or possess more shares. The power is not exactly absolute, but it is limited only by reference to the opinion of the directors.

Now the directors have professed to exercise this power, and the question is whether this proposed exercise of their power should not receive effect. If the act of the directors was within their power and was honestly done, it must receive effect—and if it was not, the Court will declare it ultra vires and ineffectual. If it appears that the directors rejected the transfer because they were of opinion that Mrs Stewart should not hold more shares, then their rejection will hold good, whatever idea may be entertained of their opinion; but if it appeared that they rejected the transfer not for that reason but for some other and different reason, then the transfer must be supported.

I think it appears from some of the English cases which were quoted that the onus in this question is on the pursuers challenging the act of the directors, and that their power will be held to have been duly exercised unless the contrary be proved.

But there is a preliminary question, because the defenders argued that their rejection was final, and that the reasons could not be examined, and that the directors were entitled to refuse to give their reasons. In support of this contention reference was made to Pentland v. Brand & Co., November 9, 1865, 4 Macph. 10; Houldsworth & Brand's Trustees, May 18, 1875, 2 R. 683; Breadalbane v. Whitehead, November 16, 1873, 21 R. 138; Guild v. M'Lean, November 20, 1897, 25 R. 106; and Bell's Comm. i. 74. These authorities related to questions between landlord and tenant as to the landlord's consent to an assignation or sublease or to the landlord's dissatisfaction with the tenant's conduct. In such cases the decision of the landlord has been held absolute and conclusive. But it appears to me that these cases cannot be safely applied to a question about the transfer of personal property, the transference of which cannot be readily interfered with. The defenders referred to another class of cases which related certainly to joint-stock companies. These were Penney, December 30, 1872, 8 Ch. 446; Coalport China Co., 1895, 2 Ch. 404; and Hannan, November 23, 1898, 14 T.L.R. 314. But these were cases of a different kind from the present. They were applications under section 35 of the Companies Act 1862 for rectification of the companies' registers, and I think that all that they decided is that in such applications the onus of showing that the entries in the registers were wrong lay on the applicants, and that in the absence of proof to the contrary they must be presumed to be right. I think there was no proof led in these cases.

In this case the question as to the obligation of the directors to give the reasons for their decision came up in the evidence of Mr Boyd. I allowed the examination. There is no provision to the contrary in the articles as there has been in some of the other cases. Mr Boyd submitted himself as a witness, and it was not easy to see how he could avoid cross-examination, and he had already entered on the question in his evidence in the previous action, and it seemed necessary that if his reasons were given at all they should be complete. Further, the averments of the pursuers on record are such as to render some investigation into the matter imperative.

I think, however, that the directors' grounds for their decision can be examined only to a limited extent. What has to be ascertained is only whether the grounds of rejection were legitimate, and not whether they were well-founded and satisfactory and in themselves conclusive, and I could not disregard the directors' decision merely because I differed from it. The power to decide as to registering a transfer is given to the directors, not to the Court.

On this point the pursuers, as I understood, maintained that the only ground on which the decision of the directors could be maintained under the articles was that they were of opinion that Mrs Stewart should not possess more shares, and they maintained that that was not and could not have been their opinion. No one, it was said, could possibly have held an opinion so ahsurd as that a lady who held one share should not hold a second, seeing that an additional share could not affect her position. But I think that that seems hardly

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to treat the matter fairly. It is true that I cannot deal at present with anything but this one share, but I do not think that the directors in considering the situation were in the same position. I think they were entitled to look beyond this single share and deliberate on the footing that the granting of the transfer of a single share savoured of a device which might be repeated, and that it was reasonable in them to regard the pursuer's application as if it referred to the 416 1 3 shares which she had claimed from the trustees. Further, they might think it debateable that if a transfer of 416 1 3 shares was objectionable a transfer of one share was objectionable also although in a less degree.

The pursuers have averred not only that the directors did not act on the reason suggested, but that they acted on another and totally different reason. The pursuers aver in Condescendence 8 that ‘the directors abused the fiduciary power vested in them under said articles 33 and 113 for no other reason than to enable one of their own number to acquire the said shares at an illusory price.’ Now, that was certainly a most relevant statement, which absolutely necessitated a proof, and perhaps necessitated the evidence of Mr Boyd. If it had been proved the decision of the directors would have been disregarded as utterly corrupt and ultra vires. But the singular thing is that the pursuers, after having made this formidable averment, closed their proof without having led a word of evidence about it, and having heard the whole evidence I have no doubt that it is quite unfounded. It is possible that Mr Boyd may derive some small advantage from this transaction. Perhaps he may not. I do not know. But I feel sure that the prospect of any such advantage formed no part of his reason for declining to register the transfer.

The pursuers maintained on this point that the power of the directors was a fiduciary power conferred on the directors by the company and its shareholders, and that they were bound to exercise it fairly and with due regard to the interests of the company. I agree that that was so, and that the directors in dealing with the transfer were acting as trustees or agents of the company and its shareholders, including Bruce's trustees, the transferors. But neither the company nor Bruce's trustees are challenging the act of the directors. Bruce's trustees as a body have not, except by delivering the transfer, supported the pursuer's case. I do not see that in this transaction the directors acted as trustees or agents for the transferee as such, and I cannot see that the circumstance that Mrs Stewart was a shareholder makes any difference.

1 am satisfied on the proof that the directors, when they declined to register the transfer, did not do so from any dishonest or corrupt or merely personal motives. I am equally satisfied that their reason was not any personal objection to Mrs Stewart. They said nothing against her. What then were their motives? They may have acted without very clear reasons, but not without a motive. I believe that they had the opinion that it would injure the business if her holding were increased. It may be matter for regret that they held that view. Perhaps it was. Not improbably if they had agreed to register her share and any others which the trustees might allot to her they would have found that no harm had been done. But they were wedded to the view that the privacy of the company should be retained if possible, and they deprecated any considerable influx of new shareholders. They held that the management required to be in few hands and in experienced hands. There were trade secrets. The business, it was thought, was of a very delicate character and might suffer greatly from any change of policy or change in management. They thought, besides, that if they were to transfer the shares of a business man like Mr Bruce they ought if possible to have a man of business or influence in his room who would strengthen the company. These or some such reasons seem to have moved the company to reject Mrs Stewart's transfer. I am not saying that they were good reasons, only that I have great difficulty in thinking that they were not reasons which the directors might consider without going beyond their powers, and on the whole I incline to think that I have not heard reasons sufficient for disturbing the directors' decision.

There was quoted for the pursuers a case having a considerable resemblance to this, in which Justice Chitty, in a motion to enforce the registration of a transfer which had been rejected by the directors of the company, sustained the motion to enforce the registration. The judgment of Justice Chitty is very elaborate and important, but the case was in many particulars very special and complicated. There seems to be no doubt about the soundness of the judgment, because it was clear that the conduct of the directors or of some of them had been undoubtedly corrupt. At the same time, having studied the opinion, I confess that there are passages in it which I would have great difficulty in adopting,

On the whole matter I am of opinion that the pursuers have not succeeded in proving that the directors were not within their duty in refusing to register.

But the section requires that when directors refuse to register a transfer they must name a person willing to purchase the shares. What the minute bears is, that Mr Boyd having intimated his willingness to purchase the shares the board duly appointed him as purchaser. That is not expressed in the same language as the section, which speaks only of a person willing to purchase and not of a purchaser, but I suppose that this minute was not intended to constitute a contract of purchase and sale binding the trustees, but to submit to the trustees an offer which it was open to them to accept.

The pursuers say that this offer and minute did not amount to due implement of the condition required by article 33,

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under which alone the directors were empowered to decline to register the transfer, that therefore the declinature was altogether bad, and that the pursuers were entitled to insist on registration. This consequence is not perfectly obvious, but I will assume it to be sound.

The pursuers' objection is two-fold. First, they say that Mr Boyd was disqualified as an offerer, and secondly they say that the valuation at £20 was illusory and fictitious and at least much under the true value. There has been an immense amount of skilled evidence on the latter point, with which I think it impossible to deal with any advantage in this opinion, already too long; and I think it will be sufficient to indicate my opinion with much greater brevity. Although the first point, namely, that Mr Boyd was disqualified as a buyer because he was a director, and qua such a trustee was fully argued, I do not find any plea applicable to it. As before noticed, if he was a trustee he was a trustee for the transferors, not the transferee. The transferors have not taken the objection that Mr Boyd cannot purchase, and indeed it was out of the question to suggest that there was any doubt or difficulty about a director of a joint-stock company purchasing shares in it. It is done every day, and no doubt if the trustees should accept his offer there will be no difficulty about completing the transaction. It is said that there was an antagonism between Mr Boyd's trust duty and his individual interest. His trust duty, it is said, was to consider the application for registration without bias or prejudice. His interest was to refuse to register, because then he might get the shares for himself at an illusory or favourable price. This last alternative seems unsound, because the refusal to register gave him no right except the right to offer. Possibly it might have been as well, although it would have been the same thing practically, had the directors put forward some other nominee. But what was done was precisely what the articles required, and I think there was no illegality or breach of duty in the transaction. If it could have been shown that Mr Boyd was influenced in his judgment as a trustee by his expectation of getting this single share there might be something in the argument. But that suggestion is preposterous, and short of it there seems to be no ground for the objection, and, as already noticed, there is no plea.

The pursuers' next objection is more complicated; it was that the condition was not fulfilled, and could not be, because there had been no true valuation of the shares under article 113. The objection is a head of the objection under article 33. Prima facie there is no doubt that the condition was implemented in its terms, because his offer was to pay the price at which the shares were valued under article 113, and there had certainly been a valuation or what purported to be so. I am disposed to think that that offer was sufficient implement of the condition if there had been a bona fide valuation, whether it was right or wrong, whether the calculations were correct or incorrect, and whether the principle of valuation was sound or not. But the pursuers have maintained that they can displace the valuation, and that if they do so they will get rid of Mr Boyd's offer.

A number of formal objections to the valuation are stated on record, but I think that the only objections insisted in were these:—(1) That the valuation was not made by the directors but by the auditors; (2) that it proceeded on a wrong principle; and (3) because in any case it was totally erroneous, and the price of £20 put on the shares was totally inadequate.

There is no direct evidence at all in support of the first point. No witness affirms it or can possibly affirm it. It is positively denied by Mr Monfries and Mr Boyd. Of course they relied very much on the reports of the valuators; but if they are to be believed, and I believe them, they carefully considered the question themselves. They were very familiar with the business and quite able to do so. It is clear, therefore, that this first objection is not proved, all the evidence being the other way.

The second objection is that the valuators and directors went wrong in point of principle. I do not know that it matters whether they did or not, because their valuation, whether sound in principle or not, was what the articles provided for.

The point is this. In consequence of the clauses restricting the freedom of sale of the shares it was impossible to get the company put on the Stock Exchange, and it was said that that was a disadvantage which, by narrowing the market, reduced or tended to reduce not the value of the shares but their market price. The valuators and the witnesses for the defenders admitted that in making their valuations they considered that these restrictions were disadvantageous, and that they made allowance for the disadvantage and valued the shares at a lower sum than they would have reached had there been no such restrictions. Counsel for the pursuers insisted that this was wrong and that they ought to have ascertained what the pursuers called the ‘intrinsic’ value of the shares, whatever that might mean, on the assumption that there had been no such restrictions. The defenders maintained that the principle on which the auditors had proceeded was sound; that the only intelligible meaning of value was value for sale or market value; and that it was right to value the shares as they were, with whatever disadvantages might arise from any of the conditions of the articles of association. I entirely assent to the defenders' view on this question, and think that a valuation in the manner suggested by the pursuers would have been false in principle, and probably erroneous in result. I am of opinion that the defenders' contention was correct.

The third objection to the valuation was that, in any view, it was grossly under the true value, whether the intrinsic or market value.

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Here again I think it would have been sufficient to say that the valuation was bona fide whether it was right or wrong. The pursuers' case seems to be that the valuation was so far wrong that it could not have been bona fide, but was fictitious; and if the pursuers had made out that, which is their case on record, they might perhaps succeed. It is to this part of the case that the greater part of the evidence has been directed, and accountants of the highest reputation have been examined on both sides, with the usual result of expert evidence.

I cannot think that it would do any good at all to discuss this expert evidence (it is chiefly evidence of experts) in this note. I think that no such discussion would assist any court of review, and I must leave the matter over for verbal debate, to which I can give no real assistance should the case go fnrther. My own impression is for the defenders, and I will content myself by making one or two observations of a general, not a technical, kind. Firstly, I do not think it would be sufficient for the pursuers to prove only that the shares were or ought to have been valued at a rate higher than £20. They must prove that the valuation was not a real one, or at least that the error was very gross. The chief elements in the calculation seem these two—(I) the earning power of the company, and (2) its stability, which latter is matter for speculation and conjecture, and which cannot depend only on the previous history of the company, but on various facts, circumstances, and considerations, commercial and political, as to which an accountant has no special knowledge. The gradual annual increase in the valuations impresses me with the conviction that they have been annually and carefully considered, and I do not see any reason to think that these successive valuations were prejudiced or were made with the intent to show an under-valuation. It can hardly be doubted that in this case the defenders' witnesses have much the better knowledge, although it may be suggested that they are not so impartial. No witness on the pursuers' side can possibly be nearly so familiar with the affairs of the company as the auditors must have been, and nobody examined by them can be nearly so able to forecast its chances in the future as these auditors and Mr Boyd and Mr Monfries. I admit that on this point the evidence led by the pursuers has been forcible, weighty, and plausible. It has been met by evidence which may be described in the same language, and I cannot think it sufficient to disprove the valuation by the auditors and directors, and it seems altogether absurd to speak of these valuations or any of them as fictitious or illusory. I think the valuation on which Mr Boyd's offer proceeded must be regarded as a bona fide valuation.

I am therefore of opinion that the case of the pursuers as regards this condition fails, and that the decision of the directors must therefore be sustained, and that the defenders must be assoilzied from the first conclusion.

I think it better to decide nothing more at present until I am informed as to the views of the parties. Nothing, I think, was said at the debate about the second conclusion, and of course nothing was or could have been said about the third, because the action has been sisted against the trustees, against whom that third conclusion is directed.”

The pursuer reclaimed, and argued—1. The Lord Ordinary was wrong in holding that article 37 did not apply to the case of the pursuer. She was “entitled to a share or shares in consequence of the death of a member,” and therefore under article 37 the directors were bound to register her. That consequence followed from the nature of jus relictæ, in virtue of which she claimed. Where the bulk of the estate could be divided without realisation, which was the case here, the widow's right was to a third of the corpus of the estate, and was not a mere claim of debt against the executor—Stair i. 4, 21, iii. 4, 24; Ersk. Inst., iii. Tit. 9, 15, 19, 30; Bell's Prin., 1591; Fraser, Husband and Wife, 973, 982; Ross v. Masson, February 3, 1843, 5 D. 483; M'Intyre v. M'Intyre's Trustees, July 9, 1865, 3 Macph. 1074; Tait v. Lees, July 8, 1886, 13 R. 1104, per Lord Fraser, at p. 1106, 23 S.L.R. 782; Naismith v. Boyes, July 28, 1899, 1 F. (H.L.) 79, per Lord Watson, at p. 82, 36 S.L.R. 973. Although the executors here were registered as holders of the shares, they were under no obligation to go on the register—Companies Act 1872, section 75. They might instead have conveyed the shares directly to the pursuer and her children, according to their respective interests; surely then the pursuer would have been entitled to demand to be registered— Bentham Mills Spinning Company, (1879), 11 Ch. D. 900. 2. But assuming that the pursuer was not entitled to registration under article 37, and that her right depended on article 33, the directors were bound to exercise their right to refuse registration fairly and not corruptly. The directors occupied a fiduciary position not only towards the company but also towards the transferor and transferee. It was clear from the evidence of Mr Boyd that the directors had acted solely in the interests of the company and without regard to the pursuer's interests; and further, that the reasons assigned for their refusal to register the pursuer's share were in truth vindictive and therefore corrupt— Penney (1872), L.R. 8 Ch. 446; Moffatt v. Parker, (1878), 7 Ch. D. 591; Coalport China Company (1895), 2 Ch. 404; Hannan (1898), 14 T.L.R. 314; Bell Brothers (1891), 65 L.T. 214; Huntington Copper Company v. Henderson, January 12, 1877, 4 R. 294, per Lord Young, at p. 299, 14 S.L.R. 219. 3. Further, the condition on which the defenders were entitled to refuse registration had not been implemented. The valuation made by the defenders was grossly inadequate. Looking to the profit-earning capacity of the company, they could have declared an average dividend of 29 per cent. instead of 14 per cent.; and further, they had made a large and quite illegitimate

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discount in respect of the restriction upon the transfer of shares. While that might affect their market value, it was not a fair element in the valuation of the shares as between partners in the company.

Argued for the defenders and respondents—The Lord Ordinary was right. 1. Article 37 conferred no right on a person in the pursuer's position; articles 36 and 37 both had reference to the case of executors, whom alone the company were bound to recognise; and article 37 dealt merely with the production of an executor's title. The pursuer's argument, founded on the alleged right of a widow to claim a third of the corpus of the estate, was ill-founded. Her right was no more than that of a creditor for a third of the realised estate, and was not different in its nature from legitim—Fraser, Husband and Wife, 976; M'Laren on Wills, 133; Dalhousie v. Crokat, March 26, 1868, 6 Macph. 659, at p. 666, 5 S.L.R. 406; M'Murray v. M'Murray's Trustees, July 17, 1852, 14 D. 1048; Gilchrist v. Gilchrist's Trustees, July 19, 1889, 16 R. 1118, 26 S.L.R. 639; Ross v. Ross, June 16, 1896, 23 R. 802, 33 S.L.R. 765; Maben's Widow v. Maben's Executor, March 20, 1901, 8 S.L.T. 390; Inglis v. Inglis, January 28, 1869, 7 Macph. 435, per Lord President Inglis, at p. 437, 6 S.L.R. 271. The doctrine maintained by the pursuer would be unworkable where the estate consisted of shares in many companies or of pictures, &c. 2. If the pursuer had no right under article 37 then her claim must be dealt with under article 33. Under that article, which was a condition of the pursuer's contract with the company, for she was already a shareholder, the directors had an absolute right to refuse registration. No doubt they must have formed the opinion that the pursuer ought not to possess more shares, but the Court could not inquire whether that opinion was well founded— Houldsworth v. Brand, May 18, 1875, 2 R. 683, 12 S.L.R. 450; Guild v. M'Lean, November 20, 1897, 25 R. 106, 35 S.L.R. 97. The pursuer must not only aver but prove corruption before she could call on the defenders to give their reasons for refusing to register— Penney, supra. But the reasons had been given, and they were legitimate reasons for the defenders' refusal. 3. The pursuer's attack on the defenders' valuation of the shares had failed. The question of valuation was eminently a matter of opinion. The valuation of the pursuer's witnesses was vitiated by the admission that they took no account of the restriction upon transfer. The only sound principle was to endeavour to ascertain what was the market value of the shares, and it was obvious that shares that were subject to such a restriction had a much lower market value than shares that could be freely exchanged. But even if the valuation had proceeded on a wrong principle the Court could not review it.

At advising—