Scottish Court of Session Decisions

The Mercantile Law Amendment Act (Scotland) 1856 (19 and 20 Vict. cap. 60), section 6, enacts—“… All representations and assurances as to the character, conduct, credit, ability, trade, or dealings of any person made or granted to the effect or for the purpose of enabling such person to obtain credit, money, goods … shall be in

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writing and shall be subscribed by the person … making such representations and assurances, or by some person duly authorised by him or them, otherwise the same shall have no effect.”

John Irving, plumber, pursuer, Glasgow, brought an action in the Sheriff Court at Glasgow against Charles T. Burns, C.A., Glasgow, defender, for payment of £164, 13s. 8d.

The following narrative of the facts is taken from the opinion of Lord Salvesen, infra—“The defender was the secretary of a company known as “The Langside Picture House, Limited,” and he is sued by the pursuer for payment of certain plumbing work which the pursuer did for the company under a contract entered into between him and the defender as secretary. The Langside Pictures, Limited, was a private company incorporated on 14th December 1911. The defender appears to have been the chief promoter, as he and his clerk are the only persons who sign the memorandum and articles of association. The history of the company as disclosed in the minutes of its directors might well afford a warning to investors. Such a company does not require to issue a prospectus, although the company in question appears to have issued two, the terms of which are not before us. It may be assumed, however, that there was no condition that the company would not start business unless a considerable proportion of its capital was subscribed. The nominal capital was £4500, but in the course of its brief and inglorious existence only a fraction of the capital had been subscribed; and in some cases shares were issued not in respect of money but in respect of services alleged to have been rendered to the company. Of the small capital available £300 was paid away to vendors and £60 for preliminary expenses, leaving the company substantially without capital. Nevertheless contracts were entered into to the amount of £2500 for building a picture house on a site which the company had secured on lease. After these contracts had been partially implemented the company found itself unable to meet its liabilities, and eventually the directors renounced the lease, and the proprietors are now in possession of the ground and the buildings that had been so far erected upon it. The company has no assets, and the pursuer has not received a penny to account of the contract work which he did to an amount which he estimates at the sum of £164, 13s. 8d. It is not surprising that in these circumstances he should have looked about for some person who could be made responsible to him for payment of his account. The minutes of the directors display an absolute disregard of the articles of association and of the Companies (Consolidation) Act 1908, which they partially incorporated. Of the four directors named in the articles two obtained an allotment at an early stage, the remaining two—Mr Lucas and Mr Lloyd—did not obtain share certificates in their favour for any shares until 14th May 1912, five months after the company was registered. During the first two months they were entitled to act in respect of their being nominated in the articles; but as they did not then obtain the necessary qualification shares (which in this case amounted only to £25) they both vacated office in terms of section 73 (1) of the 1908 Act, and became incapable of being reappointed until they had obtained their qualification. Nevertheless these two gentlemen transacted most of the business of the company. On many occasions they were the only persons present at the meetings of directors, and on one occasion the meeting consisted of only one director. The 1908 Act provides that where a quorum is not fixed by the articles of association it shall consist of three directors where there are more than three holding office. This provision was habitually disregarded.”

The pursuer averred, inter alia—“(Cond. 5) In or about the middle of February 1912 the pursuer received from the said company through George C. Cumming, 45 West Nile Street, Glasgow, who had been appointed measurer for the said company, a schedule inviting the pursuer to give in an estimate for executing plumber work, &c., for the said Langside Picture House, Limited, in connection with a hall or theatre which the said company were erecting or about to erect. (Cond. 6) The pursuer, who did not know the defender, and who knew nothing concerning the alleged company known as the Langside Picture House Company, duly filled up the said schedule and offered to execute the said work at the price of £312. (Cond. 7) On or about 26th March 1912 the pursuer received a letter from the defender as secretary of the said company requesting the pursuer to call at 133 St Vincent Street, Glasgow, on the following day, and intimatiug that the pursuer might have to take a small part of the contract price in shares of the company. (Cond. 8) In response to said letter the pursuer on 27th March 1912 called upon the defender at his office. At the meeting then held it was arranged that as the price of materials had risen since the date of pursuer's estimate, and as the pursuer was to take a portion of the price in shares, the price of the work to be executed should be increased to £330, and that of this sum 10 per cent. should be taken in shares of the company, to be deducted from the final payment. At said meeting the pursuer asked what security there was that payment of the estimate prices would be made. The defender replied that the pursuer's money would be all right, that the company had plenty of money, that £3000 of the capital of the company had been subscribed, and that in addition the directors of the company would provide security. The pursuer's offer as altered was accepted, and a formal acceptance was sent to him on 28th March 1912. At said meeting the defender urged the pursuer to hurry on with the work so as to have it finished within two months. The pursuer believes and avers that Henry Dewar, architect, Glasgow, who on defender's express instructions sent to pursuer a formal acceptance of his offer, only did so when the defender assured him (Dewar) that he had seen his directors and obtained their

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authority to accept pursuer's contract. It is further averred that the defender falsely and fraudulently represented to Dewar that he had obtained such authority from his directors, whereas in point of fact he had not. At the date when defender accepted the pursuer's estimate and instructed the pursuer to proceed with the work, and also on the date when the defender caused a formal acceptance to be sent to the pursuer, the defender had no authority from the company or the directors to accept the pursuer's said estimate or to contract with the pursuer. Further, at the date when the defender's actings are alleged to have been ratified and approved there was no quorum of directors as required by the articles of association qualified to act or to give the defender authority. These facts were well known to the defender. The defender, however, warranted his authority, and induced the pursuer to believe that he had the authority of directors of the company qualified to act as such.… (Cond. 12) The pursuer has ascertained and avers that at no time were more than 945 shares of the company, the shares being of £1 each, applied for or allotted. At 27th March 1912, the date defender made the false and fraudulent representations to the pursuer, only 875 shares had been applied for or allotted. Of said 875 shares only 450 had been allotted for cash. The remainder have been allotted to the holders in return for services or for considerations other than cash. The only money which the company had at its disposal was thus a sum of £450, and of this sum £300 had been paid away to vendors. The preliminary expenses amounted to £60, thus leaving a balance of not more than £90 to meet all expenditure in connection with the buildings of the company. The liabilities of the company on or about said 27th March 1912 amounted to not less than £3522, and taking into consideration the shares which the various contractors had agreed to accept as in part payment of their charges for work, there was a shortage or deficit of at least £2677. Of these facts the defender was well aware.”

The pursuer pleaded, inter alia—“(1) The pursuer having been induced to enter into the said contract, and to execute the work as certified in the measurer's certificate in consequence of the false and fraudulent misrepresentations of the defender as condescended on, and having suffered loss and damage thereby, the defender is bound to pay him the amount of his loss, and decree should be granted as concluded for, with expenses. (2) The defender having falsely professed to have the authority of the directors of the company to contract with the pursuer and to accept the pursuer's offer, and having thus induced the pursuer to believe he had such authority, the defender is personally responsible for the loss suffered by the pursuer, and decree should be granted as craved.”

The defender pleaded, inter alia—“(1) The averments of the pursuer being irrelevant and insufficient to support the crave of the initial writ, the action should be dismissed, with expenses. (1 a) The false and fraudulent representations alleged to have been made by the defender not having been made in writing and subscribed by him, are by section 6 of the Act 19 and 20 Vict. cap. 60 ‘of no effect.’ [ 1 a added by amendment at the hearing in the Second Division of the Court.]

On 11th February 1914 the Sheriff-Substitute ( Boyd) repelled the first plea-in-law (No. 1) for the defender and allowed a proof.

Note.—“The pursuer is a plumber in Glasgow, and he sues Charles T. Burns, a chartered accountant there, for £164, 13s. 8d. as the value of the work he executed on a picture-house in Langside on the employment of the defender as secretary of a private limited liability company who owned this place of entertainment. The company was registered on 14th December 1911. The capital was £4500 in an equal number of £1 shares. The articles state that the directors were W. L. Lucas, T.W. Richardson, Samuel Lloyd, and R. T. Walker. The qualification was and is 25 shares. The pursuer states that Lucas was the only person who qualified, but he did not do so till 25th March 1912 and Lloyd on 15th April 1912, on which date Richardson resigned. The pursuer states that the defender conducted several meetings without the necessary quorum. The first meeting was upon the 15th December 1911, and the defender was appointed secretary. Lucas, Richardson, and Lloyd were present as directors, which was a competent quorum. On 27th December a meeting was held at which Lucas presided and was the only director. The minutes contain, inter alia, the statement that the directors instruct the secretary to write the architect to proceed with the erection.

On 18th day of January a meeting of directors was held, when Lucas and Richardson were the only directors present. As at this time there were four directors it is plain that there was not a quorum present. On 4th March at another meeting there were only two directors present and no quorum.

The articles of association provide, No. 14, that the office of director shall be vacated if the director ( a) ‘ceases to be a director by virtue of section 73 of the Companies (Consolidation) Act 1908.’

Section 73 provides that the office shall fall if the holder does not within two months obtain his qualification.

On Monday, 25th March, a meeting of directors took place when Lucas, Walker, and Richardson were present. The pursuer avers that Lucas had ceased to be a director but Walker and Richardson were qualified, and this was the only meeting held under a quorum.

The minutes of this meeting contain the following:—‘The secretary resubmitted the estimates, but it was unanimously agreed that nothing could be done in the meantime, and that a meeting of directors was to be held on Monday, 1st April 1912, to reconsider same, and also to report steps taken to raise further capital for the company.’

About the middle of February 1912 the pursuer says he got through the measurer of the company a schedule to offer for the

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plumber work which he filled up, and on 26th March on the invitation of the defender the pursuer called upon him, and in spite of the decision of the last meeting of directors the defender arranged the terms on which the pursuer was to work for the company and directed him to proceed. The pursuer asked what security there was that payment of his estimate prices would be made. The defender replied that the pursuer's money would be all right, that the company had plenty of money, that £3000 of the capital of the company had been subscribed, and that in addition the directors of the company would provide security.

The pursuer's offer was accepted on 28th March 1912, and he started work and continued until 7th June. He says the former assurances of the defender were repeated to him in May 1912, and that far from this statement being true when these representations were made, the company had only issued 875 shares of which only 450 were for cash; £300 of this sum was paid to vendors; the preliminary expenses amounted to £60, and the balance of £90 was all that was available for the construction expenses, which by March 1912 amounted to upwards of £3000.

The defender maintained that his dealing with the pursuer had been ratified by a meeting on 15th April, but the pursuer replies that there were no directors present.

I think the pursuer's statements are relevant, and that there must be inquiry.”

The defender appealed to the Sheriff (Gardiner Millar), who on 27th March 1914 adhered to the interlocutor of the Sheriff—Substitute, with this variation, viz., that the proof should be before answer.

Note.—“This case was very fully and ably argued by both counsel who appeared at the debate, but I have come to be of opinion that the case cannot be decided without inquiry into the facts, and, accordingly, I think the interlocutor of the learned Sheriff-Substitute should be affirmed. With regard to the first plea-in-law for the pursuer, counsel for the defender founded very strongly upon the case of the Clydesdale Bank v. Paton, 23 R. (H.L. 22). He said that the representations were no more than a representation and assurance with regard to the credit of his principal and must therefore be in writing, otherwise it had no effect in terms of section 6 of the Mercantile Law Amendment Act (Scotland), 1856, but I think Mr Fenton's answer is well founded when he says that these false and fraudulent representations were made by the company itself through their servant the defender, and are not of the class referred to in the statute. Of course this will depend on the facts as disclosed in the case. The other question that was raised was with regard to the second plea-in-law for the pursuer. Mr Burns stated his argument as being that the defender was represented by the pursuer as having guaranteed the authority of his directors. But if the facts show that he never had the authority of his directors to enter into the contract, and therefore never had a principal, then he may make himself liable personally. It is contended by the pursuer that at the meeting of 25th March 1912 there was a quorum of directors present, and, according to the minute, the defender was directed not to enter into the contracts until a meeting should be held on the 1st of April, when authority could be given. The pursuer undertakes to prove that there was no meeting of duly qualified directors subsequent to that date at which the defender received authority to enter into this contract. I do not see how this question can be decided until after the facts are inquired into. On the whole matter I agree with the learned Sheriff-Substitute that there should be a proof, but I think it should be before answer.”

The defender appealed, and argued—1. With regard to the pursuer's first plea—in-law. It was founded on four alleged misrepresentations, viz., (1) “that the pursuer's money would be all right,” (2) “that the company had plenty of money,” (3) “that £3000 of the capital of the company had been subscribed,” and (4) “that in addition the directors of the company would find security.” The representation (4), even if it was proved, was irrelevant. It was not a statement of fact at all, but merely a promise for whose non—fulfilment the pursuer was alone to blame. The other representations—(1), (2), and (3)—might be relevant, but section 6 of the Mercantile Law Amendment (Scotland) Act 1856 (19 and 20 Vict. cap. 60) applied to them, and they were of no effect unless proved by writ— Clydesdale Bank, Limited v. Paton, May 12, 1896, 23 R. (H.L.) 22, 33 S.L.R. 533; De Colyar, Law of Guarantees (3d ed.), p. 43. In Royal Bank of Scotland v. Greenshields, 1914 SC 259, 51 S.L.R. 260, and in Devaux v. Steinkeller, 1839, 6 Bing. (N.C.) 84, under Lord Tenterden's Act (9 Geo. IV, cap. 14), section 6, questions were raised as to the special relationship of the person making the representations to the person about whom the representations were made, but in the present case no such question could arise, because the pursuer's whole case on record was that the defender was acting on his own authority when he made the representations. Henderson v. Lacon, 1867, L.R. 5 Eq. 249, was distinguishable because it dealt with a misrepresentation in a prospectus, and there were special statutory provisions as to prospectuses—cf. Penang Foundry Company, Limited v. Gardiner, 1913 S.C. 1203, 51 S.L.R. 3. 2. With regard to the pursuer's second plea—in-law, admittedly, if an agent had no authority to make a contract he was liable on his implied undertaking that he had authority—Bell's Prins., section 225—but in order to make him liable it was necessary to aver (1) that the contract was made by the defender acting for an undisclosed principal, (2) that there was no contract with that principal, and accordingly (3) that the pursuer must rightly have recourse against the agent— i.e, that the principal repudiated the contract. But in the present case the pursuer had not made these averments. The pursuer had not relevantly averred (1). “A secretary is a mere servant.… No

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person can assume that he has authority to represent anything at all”— per Lord Esher (M.R.) in Barnett v. South London Tramways Company, 1887, L.R., 18 QBD 815, at 817. In point of fact, the invitation to contract came from the measurer, and it was the architect who actually made the contract. Nor had the pursuer relevantly averred either (2) or (3). It did not appear that the defender lacked the necessary authority. The contract had been ratified by the company. The qualification of the directors was immaterial—Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), section 74; and there was a sufficient quorum—Buckley, Companies Acts (9th ed.), pp. 169 and 646; County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Company, [1895] 1 Ch 629, per Lindley (L.J.) at 636; British Asbestos Company, Limited v. Boyd, [1903] 2 Ch 439; Firbank's Executors v. Humphreys, 1886, L.R., 18 QBD 54. In the present case the public could not know of the absence of a quorum.

Argued for the respondent—1. With regard to the pursuer's first plea-in-law. The representations were fraudulent, and accordingly the defender, who made them, was liable as well as the company—Bell's Prins., section 224 ( b); Cullen v. Thomson & Kerr, July 28, 1862, 24 D. (H.L.) 10, per Lord West—bury (L.C.) at 12; Houldsworth v. City of Glasgow Bank, July 4, 1879, 6 R. 1164, per Lord President (Inglis) at 1168, 16 S.L.R. 700, at 703, aff. March 12, 1880, 7 R. (H.L.) 53, 17 S.L.R. 510; Henderson v. Lacon ( cit.); Hirst v. West Riding Union Banking Company, [1901] 2 KB 560; Stainbank v. Fern-ley, 1839, 9 Sim. 556; Ferguson v. Wilson, June 4, 1904, 6 F. 779, 41 S.L.R. 601; Adam v. Newbigging, 1888, L.R., 13 A.C. 308. The Mercantile Law Amendment Act (Scotland), 1856, section 6, did not apply to a case like the present, where the person who made the representation was merely the mouthpiece of the person who benefited. Under section 6 of Lord Tenterden's Act the words “any person” meant an independent third party, and it was the intention of the Legislature to bring the law of Scotland into line with that of England by virtue of section 6 of the Mercantile Law Amendment Act (Scotland) 1856. In any event the Mercantile Law Amendment Act (Scotland) 1856, section 6, did not apply to mere statements of facts such as that contained in representation (3)— Bishop v. Balkis Consolidated Company, 1890, L.R., 25 QBD 512; cf. Lyde v. Barnard, 1836, 1 Meeson and Welby, 101; Campbell, Shearer, & Company v. Gillies, June 1, 1901, 9 S.L.T. p. 33. 2. With regard to the pursuer's second plea-in-law. The defender had no authority to make the contract for the company, and the company did not ratify it, because the directors were not qualified, and there was not a quorum of them. Therefore the defender was liable for the loss caused to the pursuer by the implied warranty that he ad authority to make the contract—Bow-stead on Agency (5th ed.), p. 410; Moncreiff on Fraud, p. 57; Collen v. Wright, 1857, 8 Ellis and Blackburn 647; Smout v. Ilbery, 1842, 10 Meeson and Welby 1, per Alderson (B.) at 9; Firbank's Executors v. Humphreys ( cit.), per Lord Esher (M.R.) at 60; Morrison v. Statter, June 23, 1885, 12 R. 1152, 22 S.L.R. 770.

At advising—