Scottish Court of Session Decisions

The late Archibald Campbell, of Blackhouse, by trust-deed of settlement conveyed all his property, heritable and moveable, to trustees for the following purposes, viz.:—In the first place, That the trustees should, from the produce of the means and estate, pay all his just and lawful debts; 2dly, That they should make payment of the several legacies therein particularly enumerated, and of all such legacies or sums of money as he might appoint to be paid by any codicil thereto, or by any memorandum of his will, though not formally executed; all which legacies were made payable to the legatees who were of age, six months after his death, or as soon after as could be done, bearing interest after six months; and, lastly, ‘That my said trustees shall pay over the whole free residue and remainder of my means and estate above disponed, to Alexander Campbell, my son, and his heirs, executors, and successors, hereby declaring my will to be, that my said trustees shall entail the whole amount on the heirs-male of the said Alexander Campbell; whom failing,’ on certain other heirs. ‘And I do hereby direct and give full power to my said trustees, and survivors or survivor of them, as soon after my death as they may judge proper and expedient, and for the interest of all concerned, to sell and dispone of my whole lands and estate, heritable and moveable, above conveyed to them, and that either by public roup or private bargain, as my said trustees shall think best, in order that the same may be converted into money, for answering the several purposes of the trust, and converting the free residue, after paying the legacies mentioned in this will, and any future memorandum, into lands to be entailed as above-mentioned.’

Campbell died in 1825. The legacies left by him amounted to £35,200, and the annuities to £323 yearly. From some of the legatees not being of age, and other causes, the legacies could not be paid within six months of the truster's death, and they were gradually liquidated during a succession of years, the last being paid in 1834. The trustees, in 1829, had purchased lands to be entailed to the extent of £70,000, and they subsequently expended considerable sums upon them in the erection of new buildings, and other meliorations. In 1834, the trustees brought a multiplepoinding, in which they called the claimants, Alexander Campbell (the institute) and James Archibald Campbell (the next substitute), together with the other substitutes of entail, with a view to have certain questions decided as to the terms of the entail, and also to have determined the amount of the balance in their hands which was to be deemed part of the residue, and so liable to be invested for behoof of the heirs of entail. In regard to this latter point the main question was, whether any, or if any, what part of the interest accruing on the funds was to be accumulated for investment for behoof of the heirs of entail. The Lord Ordinary, considering that the rule adopted in the case of Lord Stair's trustees applied, found (February 24, 1836) “that the free annual profits and proceeds of the trust-estate, from and after one year subsequent to the death of the truster, and till the actual investment of the free capital or residue in lands to be entailed as directed by the said trust-deed, must be accounted for to, and be at the disposal of Alexander Campbell, the proposed institute, individually; and that in the event of his death before the final investment of such capital, the free annual proceeds of any part of the said capital that may remain so uninvested, must, in like manner, be accounted for, and be at the disposal of the heir next appointed to succeed to the said lands or residue. No part of the said free annual profits or proceeds accruing subsequent to one year after the death of the truster, being to be accumulated or added to the capital in the hands of the said trustees, for the purpose of being vested in lands to be entailed.”

Against this interlocutor, in so far as it allowed the first year's interest to be added to the residue to be entailed, Alexander Campbell, the institute, reclaimed. The Court (May 17, 1836) recalled his Lordship's interlocutor, and remitted to hear parties further. ¹ Thereafter, his Lordship pronounced the following interlocutor (June 1, 1836):—“Finds,

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¹ Ante, XIV., 770.

lmo, That in the due execution of the trust of which they have accepted, the pursuers must be held to have applied such of the trust-funds as they had realized at the end of six months from the death of the truster, and especially, and in the first instance, the whole of the rents, profits, and proceeds which had accrued thereon during that period, towards payment of the legacies and annuities, directed to be paid or to bear interest at and from that time: Finds, 2do, That the said pursuers must, in like manner, be held to have applied the whole of the said rents, profits, and proceeds, which accrued subsequently to the said six months, along with such capital sums as might be realized from the said estate, but always as the first and readiest part of such realized sums, in payment of the said annuities, and of such of the said legacies and interests thereon as might remain unpaid subsequent to the said period: But finds, 3tio, That the said pursuers are bound to account to the claimant, Alexander Campbell, for the whole surplus, or free rents, profits, and proceeds of the said estate, which might remain after the said annuities and interests on the said unpaid legacies were satisfied therefrom, or after the principal sums of the said legacies had been satisfied, from the said proceeds and the other realized funds of the trust-estate taken together; and that no part of the said rents, profits, and proceeds are to be accumulated or added to the capital in the hands of the said pursuers for the purpose of being invested in lands to be entailed, and directs the accounts of the said pursuers to be made up with a view to their final exoneration, in conformity to these findings: Finds, also, that the whole expenses hitherto incurred in this process may be charged against the trust-estate.” ^*

This interlocutor was acquiesced in; and some questions having arisen as to particular items of expenditure by the trustees, whether or not they were to be paid out of the residue, these were disposed of by an interlocutor

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* “ Note.—The Lord Ordinary thinks it clear, according to the conception of this trust-deed, that the legacies and annuities must be paid or provided for, before any residue is held to arise, and has no doubt, therefore, that the rents, profits, and proceeds accruing before such payment must be preferably applied to that purpose. At the same time ho is satisfied that, after that purpose is answered, they belong to the persons interested for the time in the residue, and cannot be accumulated in the hands of the trustees, to add to the principal sum directed to be invested in lands. The case of Stair is an authority a fortiori for this. If there had been no legacies, the Lord Ordinary is far from thinking it so clear as the claimant, Alexander Campbell) represents it, that the rents and profits might not have been accumulated for one year after the truster's death. But as it never could have gone further, and as the legacies (which are taken to be preferable) far exceed the possible profits for a year, it is not necessary to determine that question. The result contemplated by the interlocutor might have been attained perhaps more directly, by merely finding that, in the circumstances of the case, no part of the rents and profits should be accumulated to increase the sum for investment in land; but that the legacies and annuities were preferable upon such rents and profits to the claims of those entitled to the residue. With a view, however, to the shape and immediate object of the process, and as a more precise directory for the trustees in the accounting, it has been thought better to make the findings more specific.”

of date July 5, 1836, as follows:—“Finds, lmo, That though the trust-deed now in question does not expressly bear that the legacies, &c., are only to be paid, and the residue invested, after the necessary expenses of making up titles in the persons of the trustees and of management are satisfied, a provision to this effect is implied in the nature of all such instruments, and that effect must therefore be given to it in the present case, as fully as if it had been expressed in the body of the deed; and therefore finds, that whatever disbursements on the part of the trustees would have been preferable to the claims of legatees and annuitants, must also be preferable to the claims of those interested in the residue, and chargeable as such upon the rents, profits, and proceeds of the whole trust-estate in the first instance: But finds, 2do, That all expenses incurred in the actual investment of the free residue itself, or in the spontaneous, extraordinary, and permanent improvement of the lands, in which such residue has been invested, are to be charged in the final accounting against the capital constituting such residue, and not against the annual profits and proceeds thereof; the whole of which, after the said residue is once liquidated and ascertained, by paying or providing for all preferable charges, are to be paid over entire to the persons interested therein, and not accumulated or applied to increase, directly or indirectly, the amount or value of the said residue or investment itself; and appoints the accounts of the said trustees to be made up in conformity to those findings, as well as to those of the former interlocutor of 1st June last; and, for this purpose, remits the same to Mr Alexander H. Sinclair, accountant, with power to him to take the assistance of Lorne Campbell, Esq., chamberlain at Roseneath, with the view of ascertaining what part of the outlays in said accounts appear to fall under the description of spontaneous, extraordinary, and permanent improvement of the lands, and to report to the Lord Ordinary.” ^*

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* “ Note.—The Lord Ordinary conceives that these findings will be sufficient for the guidance of the trustees and their accountant, and thinks there can be no difficulty in understanding the principle on which they proceed. The intended heirs are to hare the residue only, or rather the annual or termly proceeds of that residue, in the shape of rents, after it is invested in lands, and in the shape of interests, or other proceeds, until it is so invested. By the express terms of the deed, debts, legacies, and annuities are to be paid (or provided for) before the residue emerges. But there are certain charges, preferable even to legacies and annuities—or plainly in pari casu—which, though not expressly mentioned in this deed, must in like manner be satisfied or provided for, before there can be any residue. Of the particulars specified in the minute, some are proper debts on the truster's estate—such as his funeral expenses, and the fine stipulated by his onerous contract for the lease of Finlsyston, The monthly payments to poor people, again, are evidently annuities, or identical and on the same line with annuities. The expenses of making up the trustees’ titles are also evidently preferable and preliminary expenses, which must be defrayed from the funds before any legacies or annuities can be payable, and would justify a rateable abatement from those legacies, if the whole funds should have been insufficient. Being in this way preferable to the legacies, it seems to follow, that they must be preferable to the heir's claims on the proceeds of the residue, which cannot come into existence till both these and the legacies are provided for. To the Lord Ordinary it appears clear that the ordinary expenses of management, though a much more considerable article, are precisely in the same situation; and that if these, though reduced to the most economical scale, left no free fund for the whole legacies and annuities, the last must suffer a proportional abatement. It may also be observed, that the annual expenses of management are natural burdens on the annual profits and proceeds; and as they must be defrayed out of these proceeds, after the residue is finally made over to the heirs, it would be truly absurd to hold that they were not to be burdens upon it, while it was still necessarily left with the trustees. The expense of selling such parts of the trust-estate as require to he sold, is obviously a part either of the expense of management, or of making up titles.

“On the other hand, however, it seems to be equally plain, that after the residue is once liquidated and ascertained, by the discharge of those preferable charges, no part of its annual or periodical rents or profits is to be applied for increasing its value or amount; and that, in substance and effect, it is exactly the same thing whether a large amount—say £10,000, for example—of such rents or profits is accumulated to buy an additional estate for the successive heirs, or employed in such extraordinary improvements as would give an additional value to the same amount to that originally purchased. Ordinary and necessary repairs, calculated not to increase, but only to keep up the value, or merely to preserve the property, are expenses of ordinary management, and properly to be charged against the income before that property is actually conveyed to the heir, as they obviously must be after such conveyance. There may be a little more doubt as to the actual expenses of the investment and conveyance itself. But, on the whole, the Lord Ordinary thinks these should be charged on the capital. After all preferable charges are satisfied, the residue, ex hypothesi, is liquidated and ascertained, has a definite existence, and is yielding profits for the heir, though still uninvested. If it be right, therefore, to hold that all these profits belong thenceforth to the heir, and cannot be taken from him to increase the value of the capital, it would seem that they ought not to be withheld or intercepted from the heir, to whom they belong, merely to prevent the capital or residue itself from being somewhat diminished, in being put into the form required by the truster; though it must be confessed that the point is not without difficulty, in consequence of this investment or change of form being a necessary part of the trustees’ management.”

In proceeding to prepare a state of accounts for the purpose of ascertaining the residue, the accountant adopted views as to the construction of the Lord Ordinary's interlocutor, thus stated by him in an interim report to the Lord Ordinary. These were,—

“1. That by the interlocutor of 1st June, 1836, it seemed to be distinctly found, that the whole of the rents, profits, and proceeds of the trust-estate, accruing previous to the payment of the legacies and annuities bequeathed by the truster, were to be held as applied towards payment of those legacies and annuities, and of the interest of the legacies, while they continued unpaid.

“2. That by interlocutor of 5th July, 1836, it was found, that the truster's debts, sick-bed and funeral expenses, the expenses of completing the trustees’ title, and the general expenses of management, were preferable even to the legacies and annuities upon the rents and profits; and,

“3. That it therefore appeared to the reporter, that so long as the debts and preferable charges, joined to the legacies and annuities paid in any one year, exceeded the amount of rents and profits realized, no part of the latter could be held as belonging to the heir, Mr Alexander Campbell.”

According to these views, the reporter stated that, down to the year 1832, no part of the rents and profits would be available to Alexander Campbell, the institute, who claimed the whole rents and profits of the residue as at the time of the truster's death, ascertained by deducting from the whole trust-fund the debts, legacies, and preferable charges, minus, of course, the yearly annuities. The adoption of this principle, it was stated by the reporter, would make a difference to the institute of between £10,000 and £15,000.

To the views adopted by the accountant, Alexander Campbell objected on the grounds that the Court had on his reclaiming note, recalled, as too unfavourable to him, the former interlocutor of the Lord Ordinary, which only withheld from him the yearly proceeds of the residue for one year, and that it was impossible the Lord Ordinary could have intended to put him in a worse situation than under the interlocutor which he had obtained to be recalled, and instead of one, to withhold from him about seven years’ rents, &c.; that on the principles now recognised as settled, ¹ he was clearly entitled to the rents and interests of the residue from the death of the truster; that such was the true import of the Lord Ordinary's interlocutors, and that any parts of them apparently capable of a different construction had reference not to the ultimate settlement, but merely to the payment, in the first instance, of the debts or charges referred to.

On the other hand, James Archibald Campbell, the next substitute, maintained that under the words of the Lord Ordinary's interlocutors, which were long since final, the accountant's construction was the only construction that could be put on them.

In order to have the judgment of the Lord Ordinary on this point, the accountant made to his Lordship an interim report of his views, with the objections taken, and the answers made.

The Lord Ordinary, after again hearing parties, pronounced the following interlocutor (March 10, 1838), to which he added the note subjoined:— ^* “Finds that the meaning of the final interlocutors of 1st June

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¹ Howat's Trustees, Feb. 7, 1838, ante p. 623.

* “Suppose the whole sum left to the trustees had been £100,000, and the legacies, &c. £20,000. If the whole estate was in ready money, and the legacies payable quamprimum, the residue to be invested in land, would be precisely £80,000, and the interest of that sum—say £4000 (deducting ordinary charges of management) would be payable to the intended heir, till the investment could be effected. But suppose the funds bad been lent on bonds not payable for three or four years, and the legacies, of course, not capable of being paid out of the capital till then; and that the trustees were accordingly drawing interest during that period, at the rate, not of £4000, but of £5000 per annum, could it be doubted, 1st, That the legatees would be entitled, in the first instance, to have those interests applied pro tanto in payment of their legacies; and, 2d, That in the ultimate accounting, the heir could claim credit, not for £5000 per annum, the sum actually drawn as interest, but for £4000 only, the sum truly arising from the residue of £80,000, to which alone, and in any shape, he ever had any title? This is merely a pure case to illustrate the principle referred to in the interlocutor; and the Lord Ordinary thinks there will be no difficulty, after this explanation, in giving effect to it in the present accounting.

“He sees with regret that there are various expressions in his former interlocutors and notes, which it may not be very easy to reconcile either with what has been now said or with each other; and unfortunately he cannot now recal to his recollection the particular impressions under which he was led so to express himself. He has a strong conviction, however, that after getting over the authority in Lord Stair's case, he only intended to declare the legacies, &c. preferable to the heir's claims for the interests, &c. in the first instance, and had always in view to give him the same right to the actual proceeds of the true residue before its investment in land, as after.

“He is quite aware that he has no power now to alter, even under the pretext of explaining his former interlocutors, and is sensible that what he has now found may be complained of as incompetent by the substitutes, if it appear to them really to go beyond the bounds of a fair explanation. On this account he hesitated for some time whether he ought, or whether it was legally in his power, to make any deliverance whatever on this interim report, with the objections and answers, and he has only been induced to do so from a feeling that these documents truly amounted to a voluntary reference for his opinion; upon which it would not be becoming in him to decline acting. He has certainly no desire, however, to press this deliverance on the parties, as of binding authority, if they are not inclined to acquiesce in it; and he conceives that the question of the true meaning of his interlocutors (now the only question that can be raised any where—for there is no power now to alter them, even by appeal)—may be brought before the Court by declarator, although the interlocutors themselves are long ago and absolutely final.”

and 5th July, 1836, is best expressed in the introductory part of the note annexed to that last interlocutor, where it is distinctly stated that the whole preceding findings proceed upon the ‘principle,’ that by the true construction of the deed of settlement, ‘the intended heirs are to have the residue only, or rather the annual or termly proceeds of that residue, in the shape of rents after it is invested in lands; and in the shape of interests, or other proceeds, until it is so invested;’ and that it would not be to give effect to this principle in the ultimate accounting, either, on the one hand, to allow (as the objector appears to claim) the whole interests and proceeds of the gross succession, while debts, legacies, annuities, and other preferable charges were unpaid, to be credited to the heir; or, on the other hand, to allow no part of the said interests and proceeds which had been de facto applied at the time in payment of such debts, legacies, annuities, and preferable charges to be brought back to his credit, but that the true way to give due effect to the said principle will be, 1st, To ascertain what is the total amount of the whole debts, legacies, annuities, and preferable charges which must be satisfied before any disposable residue arises for investment; 2d, To deduct this total from the gross amount of the succession or estate conveyed to the trustees, and so to ascertain the true amount of the residue for investment; and, 3d, To credit the heir in the ultimate accounting with the interests or actual proceeds of the said residue, but with nothing more, from the time of the testator's death; and remits of new to the accountant to give effect to this principle in making up his final report and state of accounts.”

James Archibald Campbell reclaimed; but