Scottish Court of Session Decisions

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^* “To explain the grounds of this judgment, it is necessary to premise a short summary of the case.

“At the period of the sequestration, in May 1881, the bankrupt held a lease of his manufacturing premises, current till 30th June, 1838. The rent, which was payable on 30th December and 80th June, was £360 per annum, and no arrear was then due, except for the current year. In January preceding, the bankrupt had intimated to the proprietors (the pursuers of this action) that unless the rent was lowered he must abandon the lease, and probably submit to sequestration at the ensuing term; and a similar statement was afterwards made on the 8th of February, by a committee of his creditors, in which the present defender (now the statutory trustee) concurred. The pursuers did not admit his right to leave the possession at that time, but agreed immediately to look out for another tenant, reserving the rights of all parties entire. The sequestration followed on 18th May; and the Lord Ordinary thinks it clearly established, that, at that period, and for a considerable time after, it was the understanding of all parties, that the creditors were not to go on with the lease (which it was in their option to do, as it was granted to assignees), but to cede possession to the proprietors on the 30th of June, 1831. There is accordingly a long correspondence about a proposed sale by the trustee of the utensils and small machinery, which ends in the proprietors agreeing to withdraw their hypothec over those articles, on consignment of the current rent; and even to allow them to remain on the premises for such reasonable time after the 30th of June as might be necessary to bring them advantageously to sale, provided the trustee would engage to remove them at any time upon fifteen days' notice by the proprietors; and on this footing, evidently contemplating the immediate resumption of possession by the proprietors, things are substantially settled in the latter end of June, 1831. Very soon after, however, a disagreement arises, from the trustee claiming the property of a steam-engine, and certain fixed or massive machinery (called the great gearing), as belonging to the sequestrated estate, although the whole had been sold, along with the buildings, to the proprietors in 1823, and were per expressum included in the lease as a part of the subject let, and for the use of which rent had accordingly been stipulated and regularly paid. The claim was of course resisted, and the trustee required to cede possession of every thing included in the lease. This he positively refused; and, founding partly on the terms of a claim which the proprietors bad by this time lodged in the sequestration, but chiefly on his alleged right to those disputed articles, he insisted on keeping possession of the whole premises, as the only effectual security for the vindication of this right; and shortly after raised a process of declarator, in which he not only claimed the property of the steam-engine, &c., but repetition of a large proportion of the rents actually paid by the bankrupt for several preceding years, as having been erroneously exacted for the use of subjects which did not truly belong to the owners of the soil. In this process, Lord Mackenzie decided against him on all the points, with full expenses, and his interlocutor having been afterwards unanimously adhered to by the Second Division, was then carried to appeal by the trustee; and It was not till 14th August, 1834 (being nine months after the present action was instituted), that the matter was finally settled by the affirmance of those judgments, and an award of £200 of farther expenses against the appellant.

“During all this time the proprietors were entirely excluded from the use of their property; and though they made repeated and urgent applications, either to be admitted to it, or at least to have the premises let, reserving the claims of all parties, these were uniformly objected by the trustee; till, in the end of September last, after the judgment of the House of Lords, he did give up the possession, under mutual reservation of their respective claims in the present action, which bad been raised in December, 1833, and concluded, 1st, For the full rents due under the lease for the whole period of its currency; and, 2d, For such damages as might not be covered by any decreet for rents which could be obtained under the first conclusion. The Lord Ordinary, after hearing parties very fully, disposed of the case by the preceding interlocutor, of which it will now be very easy to give the grounds and reasons.

“The main defence originally relied on is at an end, by the judgments in this Court and the House of Lords, in the trustee's declarator; so that he is now obliged to fall back upon that founded on the terms of the pursuers’ original claim in the sequestration, to which, it appears plain to the Lord Ordinary, that he attached no importance at the beginning. The scope and substance of that defence was, that the terms of the claim so made, not only entitled, but compelled him to retain possession of the premises for the benefit of the creditors, for the whole period of the lease; and yet, upon the first remonstrance of the proprietors, in July, 1831, he agreed at once to give up carrying on the manufacture; and states in a letter of the 13th of that month, that, to avoid liability for rent, he will stop the work, and remove the utensils and small machinery, ‘but cannot give up the possession of the steam-engine and great gearing, the question regarding them being still in dependence;’ and after a warning addressed to him on the 18th, as to the probable consequences of thus excluding the proprietors from access to subjects which he did not mean to use for his own purposes, he again writes, on the 19th, that though he is willing to remove the stock and utensils on the requisition of the proprietors,‘the trustee must at the same time retain possession of the premises, wherein the steam-engine and machinery are, until the question of right of property in them is decided; and if they are found to belong to the trust-estate, the trustee is not afraid of any claim for rents during the time he is obstructed in the removal or occupation of them.’ These passages, written within a month after the claim in question was lodged for the proprietors, seem to demonstrate, that the trustee had then no reliance on the right which he now says that claim conferred on him, to keep and use the whole premises for the benefit of the creditors, and joined to the fact, that from and after the 19th of July, he never did so use them, but rested his retention of the works entirely on his claim to the steam-engine and large machinery, and voluntarily ceded possession as soon as that claim was finally negatived by the judgment of the House of Lords, afford conclusive evidence, that the defence to which he has now betaken himself, was not then considered as maintainable; and the Lord Ordinary is of opinion that this was a much sounder view of the matter than that which has since been asserted.

“This defence is, that the proprietors having, on the 10th of June, 1831, lodged a claim as creditors for the whole rents to fall due under the lease, till its expiration in 1838, had thus recognised the right of the trustee and creditors to hold possession of the subjects for all that period (since they could not have both the rents and the property), and that after receiving that claim, the trustee was both entitled and obliged to keep possession, for the benefit of the creditors.

“To make good this defence, the defender is plainly bound to show that the claim could have no other meaning than is here put on it, and that it was intended by the proprietors, and understood by him, to import that the possession was to be given up to the creditors, not for payment of the full rent, as in ordinary cases, but for a mere composition, or dividend on the rent, out of the sequestrated estate. Now, when it is considered that this estate has as yet yielded no dividend (as was admitted at the debate), and was never expected, and is not now likely to yield sixpence in the pound, it seems plain enough that there could have been no such intention or understanding in the mind of any rational being. But when it is farther recollected, that even before the sequestration, the bankrupt and creditors had intimated that the premises were to be given up at the end of the current half year, and that negotiations about removing and selling off the stock and utensils were in progress at the very time the claim was given in, and actually concluded at the distance of weeks thereafter, without the slightest reference to its terms, it is manifest that, in point of fact, there was no such intention. The words, indeed, of the claim are far from necessarily importing the absurdity which is ascribed to them by the defender. If the premises, though given up to the owners, could not be let or turned to any profitable use, for the remainder of the lease, then the whole rents would be reclaimable from the sequestrated estate, although the claimants were in possession of the subjects, and it was probable, to meet this possible case, that the claim was made so ample. But the conclusive answer to the whole of this pleading is, that whatever ambiguity might have existed in this first claim, given in on the 10th June, 1831, and given in expressly ‘without prejudice to its being afterwards corrected,’ it was completely removed, and the plain meaning of the parties demonstrated by a corrected claim, lodged within six weeks after the first, and before the election of commissioners, in which the utmost possible amount of the claim is stated exactly as before, but ‘deducting the value of the possession of the premises for the remaining seven years of the lease.’ After this claim was received and ranked, it is a mere absurdity in the trustee to say that he understood that the possession was to be given over to him, and the claimants to rank merely for a dividend.

“The only point on which the Lord Ordinary had a doubt was, whether the trustee and creditors should not have been found directly liable for any deficiency of rents which may occur from the 30th December current to the end of the original lease, instead of a right being merely reserved to the pursuers to rank for such deficiency on the bankrupt estate. If he could hare believed the trustee, when he said that he retained possession, because he thought he was entitled to it for the benefit of the creditors, he would undoubtedly have found him and the creditors so liable. Since a trustee, who thus adopts a lease, and takes possession under it, is as much bound by it as if he had himself been the original tenant, and must answer as such for the consequences of his desertion. But believing, as he does, that the trustee never really ascribed his possession to such a title, as is indeed demonstrated by the fact that he never did attempt to use the subject profitably for the creditors, and spontaneously gave it up as soon as his claim to the steam-engine, &c., was finally negatived, he must consider it as a mere undue retention of the subject in security of that claim, which, though eminently unreasonable and unjust, is quite different from an adoption of the lease as tenant, and creates an equivalent responsibility only for the time the retention was maintained.

“There are various proposals in the correspondence not very consistent with the claims now maintained by the pursuers: But as these were all made conditional, on an instant restoration of the possession, to which the trustee would never consent, the Lord Ordinary does not consider them as standing in the way of the just rights of the parties.”