Scottish Court of Session Decisions

On 31st December 1906 Messrs Robertson, writers, Glasgow, and the individual partners thereof, raised an action against Beatson, M'Leod, & Company, Limited, wine merchants, Kirkcaldy, in which they sued for payment of a business account amounting to £19, 12s. 2d. with £11, 1s. 1d. of outlays.

The defenders pleaded no employment. The circumstances out of which the action arose are stated in the opinion of the Lord Ordinary ( Johnston), who, on 6th June 1907, after a proof, granted decree as craved.

Opinion.—“I do not think it necessary that I should take time to consider this case, because it appears to me to be a fairly simple one. I agree with counsel on both sides in regretting the necessity that has caused it, because it is clear that one or other of the parties to it must suffer for what I cannot characterise as other than the fraud of the agent Fulton, ( v. infra), who came between them. Mr Fulton's position it is hardly possible to understand. But that he has defrauded one or both of the parties is perfectly clear. That leaves it, therefore, necessary to determine the legal rights of the parties irrespective of any question of hardship, because hardship must fall on one or other of them.

“The circumstances out of which the case arose are these—Messrs Beatson, M'Leod, & Company, of Kirkcaldy, are wine merchants, carrying on a limited liability business in Kirkcaldy. Mr Fulton was their auditor. Messrs John Taylor & Company, also a limited company, and carrying on a business something of the same character in Glasgow, were apparently not very prosperous; and, inasmuch as Mr Fulton was also their auditor, and therefore knew the circumstances of both businesses, he, very likely in concert with the managing director of Taylor & Company, brought before Beatson, M'Leod, &

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Company a proposal that they should acquire the business of Taylor & Company. That resulted in certain negotiations, the details of which are not very clearly proved or necessary to be proved, but they ended in heads of an agreement being adjusted. These are not dated, but we are told that they were prepared by Mr Fulton in conjunction with the managing director of Taylor & Company, and that they embody the heads on which the managing parties in both these companies were prepared to entertain the suggested acquisition, which resulted in course in the amalgamation of the two companies. These two companies were both private limited companies, and I think it is pretty clearly to be inferred that the real interest in them was in the managing officials. Matters having got this length, it is admitted by Mr Beatson that this is what ensued. Mr Fulton as, whatever you like to call him, general agent, or middleman, or broker, who brought the parties together, who had been a party to the adjusting of the above mentioned heads of agreement, was told to carry through the amalgamation, and he did so. He became, as it seems to me, the general agent of both these limited companies, and he occupied what I may call, to borrow a phrase from conveyancing, the position of a general special agent. He had a special mandate to carry through this particular piece of business, which was the amalgamation of these two small private limited companies, but he had a general mandate to do what was necessary for the purpose.

Now if it had not been for a term in the agreement I think that Messrs Robertson, who did some work under Mr Fulton's employment, would have had to sue both parties to the amalgamation. But I think I have already said that the Court never favours circuity in litigation, and that inasmuch as Messrs Beatson, M'Leod, & Company have, by a term of the agreement, undertaken to pay the whole expenses of the amalgamation, it is quite proper to allow the action to proceed against Messrs Beatson, M'Leod, & Company alone, without calling Messrs Taylor & Company, to whom they are liable in relief.

Now the position of an agent who is appointed for a special purpose, without terms or conditions qualifying the appointment, appears to me to be perfectly soundly stated in ‘Evans on Principal and Agent.’ I think, unless there is any special restriction in his appointment, that he has the powers necessarily incident to proper performance of the business that is confided to him, and, as Mr Evans says, ‘Amongst such powers are those which enable the agent to employ all the necessary and usual means of executing the principal authority with effect.’ Now I ask, first, what was the thing he was set to do? To carry out the amalgamation of the two companies. That is not just such a simple thing as Mr Beatson, the managing director of one of these companies, seems to have thought. First of all, in ordinary practice, and I think necessary practice, when you are dealing with companies, one of which is to be wound up and the other has to issue shares in payment to the first, and so on, a formal written agreement is required. I do not see how the transaction can be carried out otherwise. Inter alia, I do not see how the proper stamp duty can be adjusted. And, moreover, it involves the keeping the two companies straight in matters of company law in carrying out the details of such a transaction. I do not think there can be a better example of the necessity than the way in which the managers of Messrs Beatson, M'Leod, & Company have carried through this matter, so far as they acted by themselves and without taking proper advice. The resolutions which they proposed to their shareholders are totally inconsistent with the situation which they were attempting to create, and show that they were ignorant of the methods of company amalgamation, and lead to the conclusion that they would have done well to have put themselves more instead of less under legal guidance.

Mr Beatson's position as secretary would warrant one to suppose that he was sufficiently familiar with company law to enable him to carry through such a matter. But it is quite evident that in a small company such as this the secretary and managing director may be a practical man, carrying on the business efficiently, and yet knowing little or nothing about company law. Accordingly, there is a discrepancy between the draft heads of agreement, the final agreement, and the resolutions of the company, which ought to have been resolutions approving of a provisional agreement, but which, instead of that, are resolutions offering the terms contained in an agreement which the directors had already signed on the same day as a final agreement.

Well, now, if it was natural and proper that a written agreement should be entered into, and that what had to be done in fulfilment of that agreement should be carried out in proper formal order, is it the business of the company promoter—if you choose to call him so—to carry it through at his own hand without any legal advice? I think it is not. I think that what was committed to him in the carrying out of this amalgamation justified and necessitated that at the proper point he should take the proper assistance. I think that in applying to Messrs Robertson's firm he did nothing it was outwith his duty to do, and that if in carrying out the amalgamation he had—either in the agreement or in the necessary subsequent steps—made mistakes, he would have been responsible for not having got the proper advice. Messrs Robertson's position is perfectly above board in this matter. Mr Fulton applied to them, first of all, to put the heads of agreement into a draft agreement; and further, to put the adjusted draft into an extended agreement, which they did; and, moreover, to attend to the matter of the stamp duty. I do not think that a company promoter would be justified in adjusting the stamp duty on the transfer of its business by one company to another without legal advice. That is perhaps the

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most important matter that Mr G. W. T. Robertson, of the firm of Messrs J. M. & J. H. Robertson, had to do. But I should gather that he had further to give Mr Fulton, if I may judge of his capacity from his appearance in the box, a good deal of further assistance.

Now Mr Fulton undoubtedly employed him. Mr Fulton's shifty conduct afterwards may lead to surmising as to what was in Mr Fulton's mind when he did so. But if the mandate to employ was given him, the shifty nature of Mr Fulton's mind can in no way affect the rights of the person employed. The person employed did the work, and the work done was brought under the notice of Messrs Beatson, M'Leod, & Company, because it is impossible for Mr Beatson to say that the agreement bearing Messrs Robertson's name, and accompanied by the usual schedule for execution, was so like the draft heads of agreement that he could suppose that the one was just a transcript of the other. There are changes; and although it was not a difficult deed to draw, it is a deed which is put into legal form, and there is a considerable difference between it and the draft heads. The deed is signed, and the deed is acted upon, and it has been so adopted that at the present moment it must be taken to be a binding agreement between the two companies.

If that is the case, then let us look at Mr Fulton's conduct subsequently. After a bit he gets £200 to cover his charges, expenses, and outlays. That £200 unquestionably covered Messrs Robertson's account. But then that is behind the back of Messrs Robertson, and the fact that Mr Fulton had himself been paid, and has to a certain extent misapplied the payment to him in respect that he has not used it to pay charges in connection with this amalgamation, does not in any way preclude Messrs Robertson from going direct to the disclosed principal with their accounts. It appears to me Mr Fulton began by deceiving Messrs Robertson by leading them to assume that the amalgamation was hanging fire, and that the agreement, although signed, was not being carried through; and then taking advantage of this deception to lead them to offer to take their mere outlays; and then, when they had done so, he went to Messrs Beatson, M'Leod, & Company and got from them a cheque to pay Messrs Robertson's outlays, which cheque he never transmitted to Messrs Robertson, but appropriated to his own use. Messrs Robertson have stood for four or five years without obtaining any remuneration for their services, and it seems to me that in such circumstances they are entitled to go for payment of their accounts direct against Mr Fulton's principals.

It is to be regretted that Messrs Beatson, M'Leod, & Company should be called upon to pay, if I may say so, three times over. They have already paid £200, which ought to have covered this claim; they have paid the ten guineas which was remitted by them for the purpose of paying Messrs Robertson's outlays; and they have now to pay again their whole account. But I am afraid the results of Mr Fulton's fraud must fall somewhere, and in my opinion the law requires that they should fall upon Messrs Beatson, M'Leod, & Company.

In the matter of expenses, of course, Messrs Robertson must have their expenses. I admit they were quite entitled to come here for judgment; but I think that the case was one which might have properly been disposed of otherwise, and when I see the account of their expenses as taxed I may consider it proper to make some modification. I shall find them entitled to expenses as taxed, reserving the question of modification.”

The defenders reclaimed, and argued—The defenders had not employed the pursuers. The pursuers had been employed by Fulton, and they should have sued him. No question of “general” agency arose; this was a case of “special” agency; and Fulton accordingly had no general mandate—Evans on Principal and Agent, p. 122. The defenders' contract with Fulton was one of “hire,” and not one of “mandate.” A company promoter (such as Fulton was here) was not entitled to employ law agents at his clients' expense.

Argued for respondents—The Lord Ordinary was right. The respondents had been employed by an agent who had implied authority to do so. Fulton was a chartered accountant and not familiar with legal work. His employment of the respondents, therefore, was both reasonable and necessary—Bell's Prin. 225; Robertson v. Foulds, February 9, 1860, 22 D. 714; Black v. Cornelius, January 24, 1879, 6 R. 581, 16 S.L.R. 475. This was the case of a disclosed principal. The defenders were aware of the pursuers' employment. Moreover, the defenders had availed themselves of the pursuers' work, and they were therefore liable in reasonable remuneration—Bell's Prin. 539.

At advising—