Scottish Court of Session Decisions

By deed of entail and trust-disposition, dated in 1814, the late Richard Howat of Mabie, after disposing of his heritable estate, assigned his whole moveable property to certain trustees and executors, 1st, for payment of debts and expenses of management; 2d, for payment of certain legacies and provisions, and interest thereof, as the same falls due; 3d, to employ and lend out, from time to time, such of the proceeds of the moveable estate as may be equal to the payment of certain annuities; and “after the death of the whole of the said annuitants,” the executors were to employ “the whole capital sums and free residue” of the executry, in the purchase of lands in Kirkcudbright or Dumfries-shire, the titles and conveyances to be taken to and in favour of the heirs of tailzie. By a codicil dated in 1826, the provision as to the purchase of lands was altered as follows:—“And lastly, it is my desire that my said assignees and executors shall employ all the residue of my personal estate and effects, after satisfying all the foresaid provisions, legacies, and annuities, in the purchase of lands, in the stewartry of Kirkcudbright, or shire of Dumfries, so soon as they can meet with a purchase of an estate they think eligible; or if previous to the free residue being ascertained, they shall think proper to purchase such lands to the extent of the ready funds at the time, they are hereby empowered to do so; but keeping this in view, that it is my opinion that it will be more advisable to purchase an estate without a mansion-house upon it than with one, because it is, I think, a disadvantage to have two mansion-houses, and I would wish the heir to said estate to reside at Mabie; and in the event of all the free residue of my funds and effects being applied in such purchase, then and in that case, the heir of tailzie shall be bound to make payment of the several provisions, legacies, and annuities before specified, and shall be taken bound to do so in the disposition and other titles to the lands that may be purchased as aforesaid; it being my intention, that so far as my personal estate falls short of satisfying my just and lawful debts, the said provisions, legacies, and annuities, and expenses, the heir succeeding to the said estate shall be bound, from the first and readiest of the rents thereof, to satisfy and pay the deficiency, and my said executors and assignees shall be entitled to enforce payment thereof.”

Richard Howat died in December, 1834, and was succeeded by the claimant Robert Kirkpatrick Howat as heir of tailzie and provision under the above-mentioned deed of entail. The accepting trustees and executors proceeded to execute the purposes of the trust, and paid off all the legacies from the funds in their hands. In October, 1835, they employed £24,500 in the purchase of a landed estate, which they entailed as directed by the testator; about the same amount of money remaining in their hands still uninvested. The only two annuities payable at the death of the testator were secured on the lands thus purchased, forming a burden on the rents due to the heir out of those lands.

With the view of disposing of certain questions arising as to the balance remaining in their hands, the trustees brought a process of multiplepoinding against R. K. Howat and the substitute-heirs of entail. In this process Howat claimed the interest and dividends accruing upon the trust-funds in the hands of the trustees since the death of the entailer, and until these funds should be invested upon lands in the manner directed by the deed. He also claimed that the interest and produce so payable to him should not be diminished by any deduction on account of the general expenses of the trust or of the present action, nor of any expenses except such as might be incurred in its own collection.

In support of this claim it was pleaded;—The trustees are directed to employ merely capital in the purchase of lands. There being no direction to accumulate interest or invest any portion thereof, however small, in such purchase, while entails are not to be reared up by implication, the trustees are not entitled thus to employ any part of the interest, and are therefore bound to pay it to the heir in possession, as contemplated by the trust-deed: he being the party who, in the first place, is to derive benefit from these funds, is entitled to such interest or produce from the period of the entailer's death until they are so invested. ¹

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¹ Campbell, May 17, 1836; ante, XIV. 770. On the second branch of this case being remitted to the Lord Ordinary for farther consideration, his Lordship, in conformity with the intimation of opinion by the Court, pronounced an interlocutor (June 1, 1836), finding, inter alia, “that no part of the rents, profits, and proceeds (of the clear residue after paying debts, legacies, &c.) is to be accumulated or added to the capital in the bands of the said trustees, for the purpose of being invested in lands to be entailed.”

For the substitute-heirs it was pleaded in answer;—The heir in possession is not entitled to the interest on the capital till twelve months after the death of the entailer, when the interest of this period, after defraying expenses of collection and application, also becomes capital; the present case falling within the rule of the case of Stair. ²

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² 2, W. and S. 614.

The Lord Ordinary pronounced the following interlocutor, adding the note subjoined: ^*—“Finds, Imo, That according to the true meaning and

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* Note.—“According to the original deed of 20th July, 1814, the residue was not to be ascertained or invested, till after the death of the last annuitant; but by the codicil of 20th September. 1826, the period of investment is left entirely in the discretion of the trustees; and they, as well as all the other parties, have (very properly), agreed to hold this as equivalent to an express direction to make such investment, as soon after the death of the truster as possible; and the purchase of lands, and the consequent creation of the heir's right to the rents, may therefore be taken as having been a duty exigible from them, from the period of the death, and only practically postponed (but without prejudice to the heir's right), by the difficulty of at once finding an eligible investment. It is upon this specialty (or principle) that the leading finding of the interlocutor is rested; and when it is considered that there is not only no such direction to invest, not merely the capital as at the death, but generally, ‘the whole interests and proceeds thereof,’ as occurred in Lord Stair's deed; but that, on the contrary, the only profits and proceeds here directed to be invested, are specially limited and described as those which may be due at the period of my death, (See printed deed, p. 11) the Lord Ordinary cannot but think that the finding is sufficiently justified, and will not be thought inconsistent with any of the final decisions in that case of Lord Stair.

“The main point there adjudicated, indeed, was one generally favourable to the finding in question, the import and result of it being in substance, that the general Words in Lord Stair's deed, already referred to, as to investing interests and proceeds, should not be held as applying to such interests or proceeds, as might accrue up to the time of actual (or due) investment, but only to such as either had accrued prior to the truster's death, or might accrue after that time, but during the first year of the trust administration, or such other period as the law of Scotland might hold to be the proper period which should he allowed to the trustees, for ingathering and ascertaining the liabilities of the estate. The Court here hail twice found, that the words in that deed had a larger application; and that the profits were to be accumulated, either till lands were actually bought, or till some undue delay had occurred in making the investment; and upon this ground they sustained the defences of the trustees; 1st, against an action brought within five months of the truster's death, and concluding for interests from the death itself; and 2d, against another action brought three or four years after, concluding only for the profits and proceeds accruing one year after the death. The House of Lords affirmed the first judgment; but with a strong intimation of opinion, that the grounds on which it had been rested in this Court, could not be sustained; and though the claim made by the heir was premature, and the trustees were entitled to some reasonable time for ascertaining the condition of the estate, still they were bound to communicate the proceeds to the heir, as soon as the residue to be invested for his benefit was ascertained; and had no right to accumulate them to increase the amount of this postponed investment; and accordingly, when this Court adhered to their former opinion in the second action, they substantially reversed the judgment, and found the heir entitled to the profits after the expiration of one year from the death of the truster.

“In so far as it settled the right of the heir to the profits of the uninvested residue, as a surrogatum for the rents which he would have derived from the investment, the Lord Ordinary holds this judgment to have fixed the law for all such cases; and has conformed himself to it accordingly, in the interlocutor he has now given; but in so far as it found that the trustees were entitled to accumulate these profits to the capital, for the period of a year, he is humbly of opinion, that it was intended to apply to the circumstances of that case only, and that it ought not to be regarded as laying down a rule of universal application. In reality, as no more was asked in the second action than the profits after one year, the Court of review could have granted no more. But the terms of their former judgment, and the opinions delivered on both occasions, make it sufficiently plain that they were of opinion that, in that case, a year ought to be allowed; and it is necessary, therefore, to advert to the circumstances which are conceived to have then led to that determination.

“In the first place, the whole discussion in that case arose upon the general words of the deed, already referred to; which evidently contemplated the consolidation of some interests and profits with the capital existing at the death of the truster; and accordingly, in suggesting the period of one year (on the analogy of certain recent decisions in the law of England), as a proper limit to such consolidation, it was expressly stated, both by Lord Eldon and Lord Redesdale (See Wilson and Shaw's Appeal Cases, p. 620, 624), that in the circumstances of that case, it seemed necessary to allow this, or some other reasonable period, ‘to satisfy the general direction,’ as to investing interests and proceeds, as well as principal, which was distinctly expressed in the deed, and could not be altogether disregarded.

“In the second place, the question was admitted all along to be a question as to the true intention of the truster; and in fixing on the period of one year as that during which accumulation might in that case be allowed, though to the prejudice of the heir, no little stress was laid on the specialty, that the greater part of the truster's personal estate was situated in England, and had been disposed of by an English will of equal date, by the terms of which the larger legacies there bequeathed, were held to be payable only at the end of a year after the death.

“Now, neither of these grounds of decision occur here. There is no general direction to the trustees to invest interests and proceeds as well as principal; or rather the only profits and proceeds they are directed to invest, are these only which might be due at the testator's death, and truly formed part therefore of the capital of his succession; and on the other hand, there was no English will; but only a few Scotch legacies, expressly declared to bear interest from the first term after death; and, therefore, neither requiring nor admitting of any reference to an indefinite or equitable period for winding up the affairs. It is easy to see, therefore, that in construing the deed of Lord Stair, by the cardinal rule of probable intention, it might be just and right to hold that, as the general direction to invest interests and proceeds must be satisfied by allowing some accumulation, and as the legal term for payment of the English legacies indicated what period was probably in the testator's contemplation, it was reasonable to restrict the heir's general right to the profits previous to investment, by the allowance of one year for this purpose, as the least possible interference with this general right; while all such restrictions might, with perfect consistency, have been refused, where there were no such words to be satisfied, and no analogous provision to raise a presumption that such was the intention of the truster.

“At the same time, it is impossible for the Lord Ordinary to disguise from himself, both that there seems to have been, in the minds of the noble and learned persons who gave their opinions in this case of Lord Stair's, on the appeals, a strong impression, that whenever the period for investment was not precisely fixed in the deed, it was just and expedient that some period should always be allowed to the trustees, during which the accruing profits and interests should be accumulated to the capital; and that there are traces of a similar impression in the opinions of the two learned Judges, who dissented in this Court from the last judgment taken to appeal; and on which opinions, their Lordships, in the Court of Review, appear to have placed very great reliance. So strong indeed was this the impression of the present Lord Ordinary, and such his deference to the weight of those opinions, that when the case of Campbell came before him in February, 1836, he gave way to the notion that a year's accumulation was to he allowed, in all cases, where there was no express provision to the contrary; and directed such an accumulation in that case accordingly; but when the matter was brought before the Second Division, on 17th May, 1836 (14th Shaw, 770), their Lordships, while they adhered to all the rest of the interlocutor, recalled that part of it, and remitted to the Lord Ordinary for farther consideration; and the result was, that after hearing a full argument, an interlocutor was pronounced on the 1st June thereafter, by which it is found, inter alia, ‘that no part of the rents, profits, and proceeds (of the clear residue after paying debts, legacies, &c.), is to be accumulated, or added to the capital in the hands of the said trustees, for the purpose of being invested in lands to be entailed;’ and in this deliverance all parties acquiesced.

“As a judgment, the Lord Ordinary is aware that this decision is of little authority, never having been taken to review. But the doubts expressed by the Court on the former occasion, and the ultimate acquiescence of the parties interested to oppose it, are of some importance; and, at all events, it is a precedent, so far as regards the notion of the judgment in Lord Stair's case being of universal application, which he individually could not well have disregarded, without inconsistency.

“In looking again to the reasoning in the opinions, already referred to, in favour of allowing, in all open cases, a certain period of accumulation, the Lord Ordinary must say that, with all possible deference to those opinions, he is unable to perceive any real weight or force in it. He entirely agrees that trustees ought to have a certain reasonable time allowed, before the expiration of which they should not be liable actually to pay or perform, any thing as to which no specific time of payment is provided in the deed; and, on this account alone, the action originally brought, in Lord Stair's case, within five months of the death, for actual payment of the accruing interests, might have been properly dismissed as premature. But the claim now is, not for actual payment wthin the year, or any other reasonable time, but only a claim brought, four years after the death, for payment on ultimate settlement of accounts, of what can now be shown to be interests and profits actually drawn after the death, and not exhausted by any preferable application; a mere declarator, in short, or competition upon principle, between the heir entitled to the lands, on the one hand, and the unknown body of future substitutes, on whose account, it is said, that these free profits are to be accumulated during one year, though confessedly due to the existing heir alone, for all years following, up to the time of actual investment. To maintain, in a competition like this, brought at the most convenient season, and when the trustees know perfectly the amount of the first year's interests, and are themselves requiring the judgment of the Court as to the way in which they should now apply them, that it is fair and reasonable that they should be allowed a year to ascertain the real condition of the estate, and not be precipitately called on to pay, or to answer, or account to any one (the heir any more than the legatees), before the elapse of that time, does seem to be a strange misapplication of a sound principle, and to afford a singular instance of paralogism in a legal argument. Though trustees are not to be prematurely disturbed by demands, either for payment or for accounting, before they are presumed to have ascertained the condition of the estate, this can surely be no reason for preventing them, when they are ready and willing both to account and to pay, from now paying or accounting to the party, who, but for this consideration, is allowed to have the preferable right.

“With regard, again, to the case of legatees, who are held not entitled to payment (where no day is fixed in the deed), till a year in England (and six months in Scotland), after the death of the testator; it does appear to the Lord Ordinary that, so far from affording any analogy in favour of the accumulation now insisted for, it makes strongly against it. That postponement of the rights of legatees is wholly in favour of the residuary or universal disponee. He represents the defunct; and is held as eadem persona with him. The whole estate, in fact, is his property, under burden of the debts and legacies; and where no precise time is fixed for paying the gratuitous part of those burdens, it has been thought fit and reasonable that he should have the indulgence of such an interval. But the heir of the free residue is, in this case, himself the representative and universal disponee of the truster; and is entitled, in so far at least as this analogy goes, to the most favourable construction in all unsettled questions or competitions with other parties. But while he is thus, beyond all dispute, the persona predilecta under the deed, the only other parties for whose benefit it is proposed to restrict his just right to the profits of the uninvested residue, are the unknown and contingent body of substitutes, who may happen in their order to succeed to the entailed lands.

“As to the case of trustees, tutors, and judicial factors, referred to in the opinions of Lords Eldin and Alloway, as only bound to charge themselves with interest on the sums in their hands, one year after they are received, it is humbly thought that the case has no sort of hearing on the present; first, because the regulation is plainly made out of personal indulgence and consideration to those public officers themselves; the rule being, that they shall not be sooner accountable for legal interest to any body; not that they shall accumulate that first year's interest, to the prejudice of the person alone entitled to the principal, and to all other interests; and at the same time account for it to some other person; which is the case here; and second, because the rule itself is palpably misrepresented, and would indeed be in itself unjustifiable, and even corrupt, if it were held to mean any thing more than that they should not account for full legal interest, or the best interest that could be got on a judicious investment, till after the lapse of a year. For the whole profits and interests actually made, it is conceived to be now settled, that they must account, from the day of payment, and of course to the very same persons to whom they must afterwards account, for an improved rate of interest.

“The principle, in short, upon which the Lord Ordinary proceeds is simply this, that, whenever it is the duty, or within the competence of the trustees, to vest the free funds in land quam primum, it is equally their duty to account to the party to whom they must have conveyed the lands, for the termly interests and proceeds which may accrue upon the funds so to be invested, while they remain in their hands waiting an eligible purchase. If, having taken their measures before hand, they had actually made the investment the week after the truster's death, the heir, of course, would have had right to the rents to that day downwards, and there could have been no pretext for keeping him out of the benefit of the succession for a whole year; and if his condition is not to be made permanently worse (as is now conceded), because several years may elapse before an investment is made, upon what intelligible principle is a distinction to be taken between the first year of this accidental delay, and any subsequent year? According to the terms of the codicil of 1826, the trustees had full power to invest the whole personal estate in lands to be entailed, even before paying or providing for any of the legacies or annuities, so that they made all those real burdens upon the lands and the successive heirs; thus showing, that from the moment of the truster's death, every thing he had in the world, with all its interests and profits, was to be held by them on account of the heir, subject only to the burden of those debts and legacies. In point of fact, they did actually so invest one-half of the funds within seven months of the death; and that too without providing for the annuities, otherwise than by making them a burden on the lands purchased; and though they have not yet found a proper investment for the other half, the whole debts and legacies being now paid, can it be doubted that the heir is entitled, in the mean-time, and from the very beginning, to the free interests and profits that have accrued on the free capital so held for his exclusive benefit?

“The subsequent findings of the interlocutor are of less importance, and are conceived to be sufficiently borne out by the terms of the trust-deed itself. The sum to be invested for the benefit of the heir, is ‘ the free residue of the executry, or personal estate,’ after paying debts, legacies, and expenses (see p. p. 11 and 12 of printed copy), and this is again repeated in the codicil of 1826 (p. 17), though a discretionary power is there given to employ the whole free residue (that is, after payment of debts only), in the purchase of land, provided the unpaid legacies, annuities, and expenses, are made burdens on the lands so purchased, a power which was actually exercised, in so far as regards the annuities, as to which a question of some nicety might have otherwise arisen. There might also have been some difficulty as to the expenses of management, had not the deed expressly provided (p. 11) that all such expenses shall be paid, or provided for, out of the gross funds of the trust, ‘in the first place,’ and before any free residue is constituted for investment.

“The Lord Ordinary observes, that in his ultimate deliverances in the case of Campbell, he has expressed himself in a different form as to some points analogous to those now decided. But the substance and result of the judgments will be found to be the same; at all events, he has now given that which, upon the best construction, appears to him to be just.”

just construction of the trust-deed libelled, and codicils thereto annexed, no part of the interests, dividends, or proceeds of the free personal, or moveable estate thereby conveyed, accruing subsequent to the death of the truster, is to be accumulated by the trustees, to increase the amount of the capital, or free residue, of the said estate, to be by them invested in land, and that there is no room in this case for taking any distinction between the interests, dividends, and proceeds so accruing, within the first year after the death of the said truster, and those accruing in any subsequent year. Finds, 2do, That the whole debts due by the said truster, and the legacies left by him, as well as the general expenses of management, are to be paid or provided for by the trustees, out of the gross capital or amount of the whole moveable estate, as it stood at the death of the truster, and deducted accordingly from such gross capital, before any free residue on which interest can accrue, can be constituted, or taken into estimation; but that no part of the said debts, legacies, or expenses, can be laid on the interests, arising on such free residue, when once so constituted and ascertained; the whole of which interests must be accounted for, as hereinbefore and after provided, to the heir. Finds, 3tio, That it might have been a question, whether the annuities left by the said truster might not have been charged against, or deducted from the interests or proceeds of the said residue; but, in respect that it is now admitted by both parties, that the only two annuities payable at the death of the truster have been secured on the lands already purchased, to the satisfaction of all parties, and now form a burden on the rents due to the heir out of those lands, finds, that it is not necessary to decide that question, and that no deduction can now be made on this account, from the interests and dividends to be accounted for: Finds, 4to, That the actual expenses of collecting, discharging, and paying over to the heir the said interests, are to be deducted therefrom: Finds no expenses hitherto incurred in this action chargeable by one party against the other; but finds, that those of the trustees may be charged by them against the capital of the trust-estate; and before farther answer, appoints the cause to be enrolled, that parties may state whether any other points remain to be decided, before adjusting the terms of a decree giving effect to those findings.”

The substitute-heirs reclaimed.