United Kingdom House of Lords Decisions

The Carron Company was established in the year 1760, and it received a grant of a royal charter in 1773. At that time, and from that time onward, it was regulated by a contract of copartnery, which was dated in the year 1771. As to the constitution of the Company, it is sufficient for the present purpose to say that it was a company of the nature of an incorporated joint stock company. The shares were transferable; but before any transfer or sale they had to be offered to the Company, which might, on certain terms as to price, become the purchasers of the shares. Provisions were made as to the capital and stock of the company, and as to the mode of ascertaining and declaring the dividend; and other provisions such as are usual in similar cases.

In the year 1828 there was a Mrs Caldwell, a widow, who held ten shares in this Company. She was about to be married to Mr Lothian, and by her marriage-contract these ten shares were settled, in substance, upon her for liferent, and then upon her husband for liferent, then upon the children of the marriage, if there should be any; and failing children, one-half of the corpus or fee in the shares was to belong to her husband, and the other half was to go as the widow, Mrs Lothian, should dispose of by instruments of the kind described in the contract. In pursuance of this marriage-contract, and of the power contained in it for Mrs Lothian, she made a settlement in the year 1837, and by that settlement, after giving various specific benefits to different persons named in it, which were to be satisfied out of her property, as to the residue of her property she expressed herself thus—I “direct and appoint my trustees to invest the whole residue of my means and estate remaining, after satisfying each and all of the foregoing provisions and appointments, in heritable bonds or such other securities as they may approve of, and that for behoof of my sister Mrs Mary Hunter or Philp, spouse of Charles Philp, merchant, Bonnington, in liferent, for her liferent use allenarly, exclusive of the jus mariti of her present or any future husband; and to Charles, Mary, and Jane, the children procreated of my said sister, equally amongst them in fee.” Under this residuary gift the respondents in this appeal claim.

To this settlement by Mrs Lothian she added a codicil in the year 1843; upon the construction of which the question in the present case in a great measure turns. In that codicil she made this provision for the benefit of her husband, Mr Lothian. “In the third place, as my said husband

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thinks highly of the stock of the Carron Company, whereof I hold ten shares, my title to which was completed by confirmation expede by me before the Commissaries of Edinburgh, of date the 29th day of November 1824, I do hereby direct and appoint my said trustees, survivors, or survivor, to allow my husband the option of taking, if he pleases, said ten shares as part of his provitions under said marriage-contract, such ten shares to be estimated to him as not exceeding in value the sum of £6000 sterling, and my said trustees being at the whole expense of completing his title to the same. And in order that the title of the said trustees nominated in said marriage-contract, survivors or survivor, may be complete, I do hereby assign and convey said ten shares over to them in trust for the ends, uses and purposes specified in said marriage-contract, and in these presents, declaring that in the event of the said Carron Company insisting on their right to have the first offer of these shares, any increased price which may be got by said trustees therefor beyond said sum of £6000 shall belong as a gift to my said husband, and that whether he takes said shares or not; and, to carry out my intention, said shares shall, if necessary, be offered to said Company at the market price of the day, or at such price as my said husband shall consider them to be worth. And I do hereby declare that the provisions herein contained in favour of my said husband are in addition to and over and above those previously conceived by me in his favour, and that the same shall be considered preferable to all other provisions made or to be made by me in favour of other parties.”

Mrs Lothian, who made this codicil, died in the year 1847. The shares were proposed to be taken by her husband under the codicil, but, the Company electing to become the purchasers, they were sold to the Company for the sum of £6,800, and a tripartite contract was executed between Mr Lothian in his own right, the trustees of his wife, and the Company, dated in the year 1847, by which the shares and all interest in them were conveyed, so far as the parties to the contract could convey them, to the Company.

The question now arises, under these circumstances, between the residuary legatees of Mrs Lothian, taking under her settlement, who are the respondents in the appeal, and the representative of Mr Lothian (who is dead) whose representative is the appellant in the appeal. The way in which the question arises between these parties is this—It appears that in the progress of this Company very large profits were made from time to time beyond those which were acknowledged and brought into the balance sheet and divided among the shareholders. These profits are alleged, as to part, to have been concealed among the assets of the Company, and not brought to light or laid before the shareholders, and, as to the other part, to have been misappropriated and fraudulently abstracted from the funds of the Company. This is alleged to have been done by persons who were agents of the Company, and done by them for their own objects. The funds have since been brought back, and may now be taken to be in the possession and control of the Company. These funds, either in whole or in part, if they had been known at the time at which they came into existence, ought to have been brought into the balance sheets of the Company, and ought to have been, and beyond all doubt would have been divided in the shape of dividends among the shareholders. In point of fact, whatever was the position formerly taken up by the Company in this respect, the Company itself now agrees to this view of the case. They agree, further, that in consequence of these funds having been concealed, they became the purchasers from Mr Lothian of the ten shares in question at what was an under value. They agree further, that they must make good the difference in value between what was paid for the shares and what ought to have been paid for them. And they allege (and this indeed is not disputed) that this they have already done—that they have paid, by way of compromise to the representatives of Mr Lothian, the additional value which ought to have been placed on the shares. On the other hand, the respondents, the residuary legatees of Mrs Lothian, allege that they are the persons to whom the payment and satisfaction ought to have been made. They allege that these profits were obtained during the lifetime of Mrs Lothian, while she was life-rentrix of the shares, and that her representatives and residuary legatees, and not those who represent her husband, are now entitled to the dividends that would represent her share in those profits. It is assumed in the following judgment that if these funds had been known as belonging to the Company they would have been paid, as the respondents insist they ought to have been;—the declaration of the dividend and its payment being prevented by the fraud of the agents of the Company;—that, in consequence of the dividend not having been declared, the Company remained the possessor of those funds, or of a great portion of them; and that the Company must make good these funds to the persons who are entitled to them. The question remains, To whom are they to be made good?

The First Division ( Lord Curriehill dissenting) held that the pursuers of the action, Mrs Lothian's representatives, had a sufficient title to sue, and appointed issues to be lodged.

The defenders appealed.