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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Tennent v. Tennent's Trustees [1868] ScotLR 5_514 (22 May 1868)
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Cite as: [1868] ScotLR 5_514, [1868] SLR 5_514
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SCOTTISH_SLR_Court_of_Session
Page: 514↓
Court of Session Inner House First Division.
v.
Facts:
G. R., a partner along with his father and brother in a mercantile firm, having incurred considerable debts, signed a deed in 1858, whereby, in respect of payment of these debts by the father, G. R. gave up his interest as a partner. The father retained power to repone G. R If not reponed, G. R. was to receive a certain sum of money by instalments, and although he was reponed, his brother might dissolve the partnership, paying G. R. a certain other sum. G. R. sued for reduction of the deed of 1858 on the grounds of inadequacy of consideration, undue influence, and false and fraudulent misrepresentation. He also pleaded that he had been reponed; and, alternatively, that the deed of 1858 had never been acted upon. After a proof, reasons of reduction repelled. ( Lord Ardmillan diss.) and defender assoilzied. Opinions as to effect of inadequacy of consideration as an element in reduction of a deed. Question, on the defender's plea that the pursuer's case resolved into an allegation of trust, as to the application of 1696, c. 25.
In this case there were two conjoined actions The pursuer in both was Gilbert Rainy Tennent of Wellpark Brewery, Glasgow, and the defenders were the trustees of the late Hugh Tennent and Charles Tennent of Wellpark Brewery, the father and brother of the pursuer. The object of the pursuer was to inforce the provisions of a deed of agreement executed by Hugh Tennent, and by the pursuer and his brother in 1855, and to vindicate his rights as a partner of the firm of J. & R. Tennent, and otherwise under that deed. In the first action he sought to have it found that he had right to half of the profit of the business, along with his brother Charles, since 1st September 1855, and in time coming. Charles having died soon after the first action was raised, the pursuer brought the second action, asking to have it found that he is now, in terms of the agreement, the sole partner for behoof of himself and the representatives of Charles. The original defenders were the pursuer's father and brother, but they having both died are represented by their trustees. By the deed of 1855, Hugh Tennent, who was the sole partner, made over to his two sons and the survivor, for behoof of himself and the representatives of the predeceaser, the whole business and assets of the firm, and his whole estate, with certain exceptions. The value of the whole was fixed by the deed at £214,403,10s. 9d. The sons bound themselves to pay him the profits, deducting 20 per cent. for maintenance and enlargement of the works, and their personal expenses, till four-sixths of the sum should be paid to him. They also undertook to pay interest, and to pay one sixth of all legacies bequeathed by their father, not including provisions to his sons and daughters then alive, or their descendants. They renounced legitim in favour of their father. Subsequently, in 1856, they were retrocessed into their right to legitim, and assigned it to him and his trustees and executors. The pursuer avers that his position as partner under this deed was very lucrative, the profits in 1856–7-8 amounting to about £14,000, £28,000, and £39,000; and also that very large profits had subsequently been realised. On 11th January 1858, a new deed of agreement was made, which the defenders say put an end to the pursuer's rights under the deed of 1855, and removed him from the position of a partner. The pursuer says this deed was the result of certain unfortunate speculations which he had entered into, and which had involved him in debts, a statement of which he laid before his father and brother. By that deed the father bound himself, out of his own proper funds, to pay the pursuer's debts; and, in consideration of this payment, which was held to be the value of the pursuer's interest in the business, he ceased to be a partner, and renounced his rights under the deed of 1855. But there was reserved to the father the assignation of legitim. All the pursuer's rights and obligations under the deed of 1855 were transferred to Charles S. Tennent, who took on himself the whole obligations which by that deed he and the pursuer had undertaken to their father. Power was given to the father, after two years, to repone the pursuer in his former position, and the deed bears that it was the father's wish and purpose to do so if circumstances warranted him in so doing. Should the pursuer not be reponed, Charles became bound to pay him £35,000 by instalments, under certain deductions. It was to be in Charles' power, even if the pursuer were reponed, to dissolve the partnership, keeping the whole assets of the firm, but paying the pursuer £40,000 instead of 35,000. By relative memorandum, the pursuer accepted that sum as in full of his whole interest in his father's succession; and he was also to give the firm his services for a salary of £200 a-year, having received a salary of £600 before 1855. The pursuer seeks to reduce the agreement of 1858, as granted for a grossly inadequate consideration, and under undue influence used by the other parties to it, who stood in confidential relations to him. He also alleges as a ground of reduction that the deed was impetrated by false and fraudulent representations to him by his father and brother, to the effect that it was to be kept in reserve and to be used only, if necessary, for the protection of the firm against interference by his creditors. The other grounds of action assume that the deed is to stand unreduced. The pursuer pleads that his father must be held to have exercised the powers reserved to him, of reponing the pursuer into his former position; or alternately, that the deed of 1858, not having been delivered, and not having been acted on, but having been merely deposited with Hugh Tennent for the special purpose referred to, and to meet the special event referred to, the pursuer was entitled to decree in terms of the conclusions of declarator and count and reckoning. The Lord Ordinary ( Barcaple) sustained the pleas against the relevancy of the action except so far as the pursuer's case was founded on averments that the deed of 1858 had not been acted on, and that the previous one had been reverted to, in regard to which his Lordship reserved consideration of the pleas against the relevancy. The pursuer reclaimed. A proof was taken, and the case was argued.
Lord Advocate ( Gordon), D.-F. Moncreiff, Fraser and Shand for pursuer. The following authorities were cited:—Corp. Jur.; Dig. lib. 45, t. 1, sec. 36. Kames' Prin. of Equity, book 1, part 1, chap. 1, sec. 3, art. 1, 2. Mackie v. Maxwell, 24th November 1752. Brown v. Muir, 1736, Elchies' Pact. Illicit., No. 8; Elchies' Notes, p. 310. King v. Ker,
Page: 515↓
Young, Clark, Gifford, A. Moncrieff and Lorimer for defenders. The following authorities were cited:—Erskine's Institutes, 3, 3, 10. Bankton's Institutes, 1, 19, 3. Provost of Queen's College v. Buccleuch, 1545, M. 8021. Fairie v. Inglis, 1669, M. 14,231. Maitland v. Ferguson, 1729, M. 4956; aff. Craigie and Stuart, 73. Hamilton v. Chiesley, 1675, M. 53. Gordon v. Ross, 1729, M. 4956; Folio Dictionary, 1, 336. Smith v. Napier, 1697, M. 4955. Scott v. Wilson, 1825, 3 Murray, 518–526. M'Kirdy v. Anstruther, 1839, 1 D. 855. Clunie v. Stirling, 1854, 17 D. 15. Tweddell v. Tweddell, 1822, 1 Turner and Russell (Lord Eldon, 13). Bellamy v. Sabine, 1835, 2 Phillip's Chancery Reports, 425 (Lord Cottenham, 438–440). Hoghton v. Hoghton, 1852, 15 Beavan, 278 (Sir John Romilly, M.R.), p. 300, et seq., and cases there cited by him. Hartopp v. Hartopp, 1855, 21 Beavan, 259. Dimsdale v. Dimsdale, 1856, 3 Drewry's Chancery Reports, 556. Story's Equity Jurisprudence, §§309a, 296–8. Lubbock v. Potts, 1806, 7 East. 449. A. v. B., 21st May 1816, F.C., and 2 Bligh, 196. M'Ghie v. Butter, 1829, 7 S. 797. Duggan v. Wight, 1797, M. 12,761; 3 Paton, 610. Anstruther v. Mitchell, 1857, 19 D. 647–685.
At advising—
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The brewery business at Wellpark, near Glasgow, was established about a hundred years ago by the grandfather and granduncle of the pursuer. The firm was John and Robert Tennent, and that has been still continued. The late Hugh Tennent died at the age of eighty-six in 1864. The pursuer was his third son, and is now his second surviving son; the defender, the late Charles Tennent, was his fifth and youngest son. The two eldest sons, Robert, who died in 1854, and William who survives, were not in the copartnery; nor was the fourth son, Hugh, who still survives.
In 1855, Hugh Tennent, the father, was the sole partner of the firm, which was a very prosperous concern. On 12th September 1855 this old gentleman, Hugh Tennent, retired from the firm, and made over to his two sons Gilbert and Charles, and to the survivor for behoof of himself and the representative of the predeceaser, the whole business, stock, and assets of the firm, and also his whole estate and effects, heritable and moveable, with certain specified exceptions. The value of the whole was fixed, by the deed executed to carry out this arrangement, at £214,403, 10s. 9d. The two sons became bound to pay to their father the profits of the concern, under deduction of 20 per cent for maintenance and enlargement of the works, and for their personal expenses, until four-sixth parts of the sum so fixed as the value should be paid up to him. The two sons renounced their legitim in favour of their father; but thereafter, in order more effectually to secure the legitim to their father, they assigned it to him and his trustees and executors.
Under this agreement the pursuer and his brother Charles were the sole partners of the firm, with equal shares; but, of course, under burden of the obligations to their father. The interest of Gilbert in this concern was very valuable, even in 1855, and in 1858 it had become much more valuable, as the profits in the intervening years had been very large. The whole sum due to Hugh Tennent, the father, under the deed of 1855, was, out of the profits of the business, paid with interest by March 1862.
The claim of the pursuer Gilbert Tennent is founded on this deed of 1855. He alleges that he is still a partner along with Charles (or his representatives), and equal with Charles in this concern; and he seeks to enforce his claim by the present action. This is entirely an action inter familiam et inter socios. No interest of third parties is involved. If this deed of 1855 is to receive effect, and if the rights of the parties to that deed are to be regulated thereby, there cannot be a doubt that the pursuer is entitled to succeed in this action, and to be declared a partner, and an equal partner, with Charles. The deed of 1855 is not liable to any objection, and none has been stated. It is clear in its terms; it is not unnatural, nor unreasonable, nor unfair; and, if it is still in force, it is conclusive of this case.
But the plea for the defenders is, that the deed of 1855 has been put an end to by a new deed of agreement in 1858, which had the effect of annulling and destroying all the pursuer's rights under the deed of 1855, and of removing him at once and entirely from his position as a partner.
It thus appears that the pursuer's case rests on the deed of 1855, to the extent and effect in which it can be viewed as still in force. The defenders' case rests on the deed of 1858, which they produce and found on, and which they allege to have been acted on from its date. They aver expressly that from its date the pursuer ceased to be a partner in the firm. It is true that there is in the deed of 1858 a power of reponing the pursuer, to which I shall afterwards advert; but the intent and effect of the deed is averred by the defenders to be that, from its date, and unless and until reponed, the pursuer ceased altogether to be a partner, and became a clerk on a salary of £200 a-year. The deed of 1858 is interposed by the defenders as a shield to protect them against the demand by the pursuer for equal rights as a partner under the deed of 1855. To meet the defence thus set up, and to open the way to his claims under the deed of 1855, the pursuer seeks to reduce the deed of 1858.
It is not necessary for me to enter on any detailed explanation of the provisions of the deed of 1858. They have been already noticed by your Lordships; and they are clearly and accurately explained in the note of the Lord Ordinary. It is enough to say that before that deed the pursuer was an equal partner with Charles in that great concern, and that when, under the immediate pressure of pecuniary difficulties, he appears to have surrendered his whole rights and interests as a partner, and as a son, in return for the payment by his father of his debts, amounting to under £11,000, and for payment to him by Charles of the difference between that sum of debts paid and £35,000, payable by instalments of such amounts, and at such dates, as his father should fix. A power of reponing is reserved to the father, and if the pursuer should be reponed, then it was to be in the power of Charles, after payment to his father of the sum due under the deed of 1855, to dissolve the partnership, retaining to himself the whole assets of the firm, and paying to Gilbert £40,000 instead of £35,000. The deed further provided that the pursuer should continue to give his services to the firm for a salary of £200, while he had received the salary of £600 before he became a partner in 1855.
It is clear that, according to the provisions of this deed, the two brothers, who had been equal partners, were placed in very different positions. On the one hand, the younger brother Charles obtained the power of becoming, under any circumstances, the sole partner, either by payment to Gilbert of £35,000 (by instalments of such amounts, and at such dates, as his father should fix) in the event of of Gilbert not being reponed, or in the event of Gilbert being reponed, then by paying him £40,000; in both cases under deduction of the advances to pay Gilbert's debts, amounting to under £11,000. On the other hand, Gilbert, the elder brother, whose services as a clerk, before the partnership of 1855, had been secured by a salary of £600 a-year, and who was undoubtedly an intelligent and assiduous man of business, sacrificed everything for the considerations
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The grounds of reduction of this deed of 1858 are set forth on the record, and have been very ably and elaborately maintained in argument, and may be thus stated:—
1. Great inadequacy of consideration and consequently great lesion to the pursuer;
2. Undue influence arising from the relation of the parties to each other, taken in combination with great inadequacy of consideration and great lesion to the pursuer; and
3. A fraudulent scheme, prosecuted by means of false representation and use of undue influence, whereby the pursuer was induced to sacrifice his rights and interests for a grossly inadequate consideration, and to his great loss and injury.
I do not advert to the pursuer's separate plea that he was actually reponed; because I agree with your Lordships that there are no sufficient grounds for sustaining that plea as a separate ground of action.
I shall now endeavour as briefly as possible to state my view of the principles of law involved in these grounds of action, before proceeding to consider the facts of the case disclosed by the proof, to which these principles of law must be applied.
In regard to the first ground of action, I concur in the opinion expressed by the Lord Ordinary and by your Lordships, that mere inadequacy of consideration does not of itself furnish sufficient ground for setting aside a transaction. But then gross inadequacy of consideration is a circumstance not to be lost sight of in judging of the transaction, when challenged on other grounds. It is an element of importance to be weighed with all the other circumstances, and if, in the relations, or the conduct, of the parties, there are any suspicious circumstances, then gross inadequacy of consideration may reasonably furnish what the English lawyers call “a vehement presumption of fraud.” The fact that a transaction is unequal, extortionate and unfair, can not be left out of consideration in conducting the inquiry whether it was fraudulent. There have even been cases in which the inadequacy has been so gross and unconscionable as not only to suggest but to demonstrate some deception or imposition, or some undue influence (Story's Com. on Equity and Jurisprudence, 8th ed., p. 239, 251, 295, &c).
Mr Erskine leaves no doubt of his opinion on this point. He says (book iv, tit. 1, sect. 27) “all bargains which from their very appearance discover oppression, or an intention in any of the contractors to catch some undue advantage from his neighbour's necessities, lie open to reduction on the head of dole or extortion, without the necessity of proving any special circumstance of fraud or circumvention on the part of that contractor: so also, in Erskine's Principles, in which it has long been understood that our Scottish law is very accurately, though briefly, explained, it is thus stated—Yet where the deed itself discovers oppression, or a catching an undue advantage from the necessities of our neighbour, dole is said in esse in re, and so requires no extrinsic proof.” There are many clear and authoritative statements by learned judges in England to the same effect. Lord Hardwicke, in a celebrated case to which all the more recent English authorities refer ( Chesterfield v. Janseen, 2 Vesy, 155), lays it down that a court of equity has undoubted jurisdiction to relieve against every species of fraud; and then, enumerating the different kinds of fraud, he proceeds to state that fraud may be actual, arising from facts and circumstances of imposition, which is the plainest case; or it may be apparent from the intrinsic nature and subject of the bargain itself, such as no man in his senses and not under delusion would make on the one hand, and no honest and fair man would accept on the other—inequitable and unconscientious bargains; and of such even the common law has taken notice. The law has been laid down to the same effect by many other eminent English jurists; and, if I may presume to express an opinion in regard to the manner in which inadequacy of consideration is dealt with by the law of England, I should say that it is not materially different from our own. Inadequacy alone is not, in the general case, a sufficient ground for setting aside a transaction. But gross inadequacy—showing the bargain to be extortionate and unconscionable—is an element, in point of fact, from which fraud may bo reasonably and legitimately inferred; and when, from the relations of the parties, or the conduct of the parties, other inferences of fraud arise, then the gross inadequacy of the transaction becomes most important, and augments the composite force of the combined inferences.
On the question of law, therefore, involved in the first ground of reduction, I shall only add that this agreement in 1858 between the two brothers and partners and their old father, who, though not himself a partner, retained a great interest and took a leading part in the arrangement, was one in which equity should have presided, and fair dealing should have been maintained. If it shall appear that there was gross inadequacy of consideration, great inequality in the bargain, and thus the violation of the equity which ought to have presided, then if I find, either in the relations or the conduct of the parties, an undue influence, or an unfair dealing, I am prepared to set aside the agreement.
On the point of law raised under the second ground of reduction, viz., undue influence arising from the relation of the parties to each other, I shall next offer a very few remarks.
I do not think that in this case the relation between the parties is such as to afford of itself a sufficient ground either for setting aside the transaction at once, or for a direct inference and presumption of fraud sufficient to sustain the conclusion for reduction, unless the defenders redargue the presumption.
The parties to the deed of 1858 were an old man of 76 and his two sons, the pursuer being above 40 years of age, a man trained to the habits and practice of business, and well acquainted with the particular business of the copartnery with which he was dealing. It does not appear to me that, out of these relations between the parties, there arises that dominion on the one side, and that subjection to influence on the other side, which the law can hold sufficient to create a presumption of fraud so as to throw on the defenders the burden of overcoming the presumption. But here again I must guard my opinion by saying that, while I do not deduce from the relation of the parties a presumption of fraud sufficient to sustain the pursuer's claim, I feel that the relation of the parties is an
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A donation or quasi donation to a person in a position of dominion or ascendant influence, by one subject to that dominion or ascendant influence, is held in England to be presumably granted in consequence of the exercise of such influence; and, unless the presumption is overcome, the donation will be set aside. Whenever a transaction between such parties is unequal and unfair, it is considered to be quasi donation, or, as the English lawyers call it, “a transaction of bounty,” and it is liable to the presumption which I have mentioned. The rule is not limited to the particular relations enumerated, such as parent and child, guardian and ward, agent and client, &c.; but it extends to all relations where influence may be exercised and confidence reposed. I remain of the opinion I expressed in Campbell v. Connell's Trustees, referred to at the bar; and I am prepared again to enforce the English equitable rule in so far as it is applicable to the facts. In the celebrated argument by Sir Samuel Romilly in the case of Huguenin v. Bazely,—so clear and cogent, that, although only a pleading, it has been accepted by the highest authorities as a statement of the law,—that learned and distinguished gentleman brings out clearly the proposition, that where there is between the parties contracting a relation of confidence on the one side and influence on the other, and where there is inadequacy in the consideration and inequality in the transaction, then, adds Sir Samuel Romilly, speaking in the Chancery Court,—then “if there be the least scintilla of fraud, this Court will and ought to interpose.” Lord Eldon decided the case in accordance with this argument; and Lord Cottenham, in the case of Dent v. Bennet, expressed his entire approval of it. To the same effect Lord Campbell and Lord Brougham have recorded their opinions.
I have already said that I cannot reduce this deed merely because of the relation between the parties as creating a presumption of undue influence. But if, in addition to the fact of gross inadequacy of consideration, there is also the fact of confidence reposed and advantage taken, then these facts must be put together, and, in their combined force, must be carried along with us to the consideration of the remaining ground of action—involving the question of fraud. The whole circumstances must be considered together in judging of the evidence of fraud; and if there is really great inequality and gross inadequacy of consideration, with confidence and influence arising from the relation of parties, these facts must have great weight as elements of proof.
There is no such special question of law directly raised under the third ground of action as to require particular remark in addition to what I have stated. It cannot be doubted, that if in point of fact there was frand in the inception of this agreement of 1858—if that agreement was adjusted and procured by Charles Tennent, in prosecution of a fraudulent scheme to obtain an unfair advantage, then, in point of law, the agreement cannot stand.
It may be difficult to bring within any special or definite category of nominate fraud the course of procedure by which the pursuer alleges that he was deceived and wronged. But if, on examination of the evidence, written and parole, I arrive at the conclusion that the pursuer reposed confidence, and that confidence was abused; that the pursuer, under the pressure of urgent but temporary necessities, was induced by his brother and his father, and their agent, to enter into an agreement clearly and greatly to his injury, and under an apprehension of its import and object different from that entertained by those who induced him to sign it; and if I find that this agreement was not acted on from its date as truly meaning and involving the tremendous sacrifice now declared by the defenders to have been its intent, and sought to be enforced as its result, but was acted on in a manner more consistent with the pursuer's own understanding of its intent; then, whether I can bring the form of fraud within any definite category in legal nomenclature, I am prepared to reduce the deed as unjust and extortionate in its nature, and procured by an unfair and deceitful device. It js on the proved existence of fraud and deceit, and not on the niceties of legal definition, that a case like the present must be decided. This Court is a court at once of law and of equity, and I cannot suppose that any form of detected fraud can be beyond the reach of justice.
I am not quite prepared to adopt to their full extent the views expressed by Lord Kames in the first book of his Principles of Equity, which have been urged for the pursuer. They are very broadly and unqualifiedly put; and I think they have not been altogether recognised as law, but have been subjected to some qualifications. Still there is much truth and power in many of the remarks of Lord Kames on the great principles of justice according to which the law reads all contracts. I agree with Lord Kames, that deceit in every form must be repressed by courts of justice, otherwise “the grossest frauds would become too stubborn for law.” Accordingly, we find that in England, where courts of equity are separate from courts of common law, it is laid down by Lord Coke that “all covins, frauds, and deceits, for which there is no remedy at common law, are, and were, always redressed in the Court of Chancery.” In Scotland, where there is no separation of the courts, such redress can be given in this Court, and in my opinion cannot be justly withheld.
Coming now to the questions of fact as applicable to these grounds of reduction, it is not my intention to enter into the details of the proof, which, however, I have very carefully considered. I shall, as shortly as possible, state the conclusion at which I have arrived on the leading points involved.
First, That there was great inequality in this
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This was certainly a very great sacrifice. It is natural to ask why was it demanded? Why was it made? No other reason is given than that Gilbert had incurred debts to the extent of about £11,000, and was under temporary pressure for money. The whole sum of debt was much less than his share of profit in any one year after 1856, and not half his share of the average annual profit during the next ten years. That seems to be a very insufficient reason for such a sacrifice. Yet none other has been stated, and no reason is given except these debts for turning Gilbert out of the partnership. It is not said that he was weak or unfit for business. On the contrary, it is put as part of the defender's case, that he was in full possession of his faculties; and he is proved to have been a steady, diligent, and good man of business. It is not proved—it is not even suggested—that he was intemperate or disreputable; the contrary is the fair inference from all the evidence before us; and it appears that, after the date of the agreement of 1858, his father continued to consult him and respect him, and intrust to him the management of most important business, such as the purchase of the estate of Errol, and he made him one of his trustees in December 1861. Apart from that moderate sum of debt, and the temporary pressure arising therefrom, there was no ground for the removal of Gilbert, or for his entire surrender of his interest. No explanation of this great sacrifice, which the pursuer says was not intended, but which the defenders are enforcing, has been suggested, except the consideration set forth in the deed, and that consideration is, in my opinion, clearly and grossly inadequate.
Not on this ground alone could I set aside this deed; but I carry over the fact of gross inadequacy of consideration as an element in dealing with the questions which afterwards arise.
On the matter of fact involved in the second ground of action, I may say that I do not look on the case in the precise light in which it has been by either party presented to us. The great age of Hugh Tennent, and the mature years and business habits of Gilbert Tennent, would go far to exclude the ordinary presumption of undue influence arising from the relation of the parties. I am disposed to think that this case is, on the facts, not so much a case of confidence and influence implied in the relation of the parties, as a case of confidence proved to have been reposed by a son and a brother, in the trustfulness of a son's and a brother's reliance, and proved to have been taken advantage of unfairly, to the great injury of the confiding party.
It is sufficiently proved that Charles Tennent had won his father to his side, and that he and old Hugh Tennent had consulted together, and were of one mind, and acted together, apart from and exclusive of Gilbert, in the whole arrangement and preparation. of this deed of 1858. The cooperation and the influence of the father was given to Charles to promote his views, and used to induce Gilbert to sign the deed. Of that there is no doubt. The old man—imperious in temper, and dominant in will, with his influence over his family rather increased than impaired by the great age which claimed reverence—threw his strength of purpose and authority into the scale on the side of Charles; and Gilbert, urged by father and brother, and confiding in their honour, signed reluctantly.
The only living witnesses who have been examined on this matter are Gilbert Tennent himself, and Mr Hugh Lyon, who was the agent employed by Hugh and Charles Tennent in the matter. Mr Lyon was not employed or instructed by Gilbert; and, acting for Hugh and Charles, he certainly did all he could to serve those who did employ him, by advising and urging Gilbert to sign the deed, and to trust to the honour of his father and brother.
The pursuer declares, as a witness, that the arrangement and agreement in 1858 was a mere temporary arrangement to meet the old gentleman's fear and dislike of the interposition or inquiries of strangers in regard to the business, and that he, the pursuer, signed it in that belief. Mr Lyon appears to me to give strong confirmation to this statement, for he represents Hugh Tennent as peculiarly and even morbidly close and secretive in business, and as desiring the deed on that very ground; and, indeed, Mr Lyon's testimony leaves no doubt in my mind that, at the time, he considered that the deed of 1858 was executed in order to prevent the intrusive and unwelcome inquiries of strangers and creditors into the brewery business. If that was the intention of the deed, then it was acted on so long as any necessity for acting on it existed. But the defenders say that the intent and meaning of the deed was, that the pursuer Gilbert should surrender his whole rights and interests, and should cease altogether to be a partner from its date. They say that, to that effect—as instantly terminating Gilbert's right, interest, and character as a partner, and reducing him to a clerk on a salary of £200 a-year—the deed of 1858 was acted on from its date.
To my mind, one of the most important questions in this cause is—which of these statements is true? Was the deed acted on from its date, to the effect only of satisfying the old gentleman by interposing if necessary, for a time, a barrier to the inquiries of Gilbert's creditors? Or was that deed acted on from its date, to the effect of terminating at once and conclusively the rights and status of the pursuer as a partner? This last proposition is put as their case by the defenders—put as matter of fact on the record, involved in their pleas in law, urged on us in argument from the bar, and, if I mistake not, assumed by some of your Lordships to be correct.
As the result of an anxious study of the evidence, I have come to be of opinion—clearly of opinion—that this proposition of the defenders is without foundation. I think that the deed of 1858 was not acted on from its date, to the effect of terminating at once the pursuer's rights and status as a partner.
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I shall immediately proceed to explain, very shortly, the grounds on which I have formed the opinion which I have expressed on these opposing propositions.
Meantime, before passing from the second ground of action, I must say that I think, as indeed one of your Lordships has already said, that the testimony of the pursuer is creditable to him. It is intelligent, clear, and candid. It is, in its general scope, and in important particulars, corroborated by the evidence of Mr Lyon, and by the writings in process. I cannot say that the deed was executed by one under dominion, or subject, in the ordinary sense, to the pressure of undue influence; but I think that the deed was granted for grossly inadequate consideration, by a man in distress and depression, and in great temporary embarrassments, with no separate agent to guide him, under the urgent advice of his father, his brother, and their agent, who acted in concert, and without taking him into their councils, and in confiding reliance on the honour and affection of his near kinsmen.
Taking with me this view of the facts in regard to the relation of the parties, I shall now consider the pursuer's allegation of a fraudulent scheme on the part of Charles Tennent to obtain this confidence in him as a brother, and then to take unfair advantage of that confidence to the grievous injury of his confiding brother.
I have arrived at the conclusion, from the evidence, that at an early period in this family history, Charles Tennent formed a plan for getting his brother Gilbert out of the business. This can be traced from the preparation of the first draft in 1857, which Mr Lyon, acting for Charles and Hugh, prepared without any communication with Gilbert. That agreement was not executed; something “more stringent,” as Mr Lyon expresses it, was desired. But even in that first draft we see the purpose of Charles, and we also see the germ of the device, afterwards developed in the clause about reponing, of inserting a stipulation “just for appearance sake” (Lyon's Letter, Pur. Print, p. 12). A further stage in the development of this device of double-meaning and of double-dealing is to be observed in Mr Lyon's letter of Jan. 1, 1858 (p. 25). I think that Charles took occasion and advantage of the temporary embarrassment of Gilbert in 1857 to carry out that plan,—that he obtained the concurrence of his old father, and the powerful aid of his paternal influence; that he availed himself of the agency and co-operation of Mr Lyon; that he framed, with Mr Lyon's assistance, a “more stringent” deed of agreement, so expressed as to amount to a total sacrifice and surrender of all Gilbert's rights and interests as a partner, to his grievous injury; that the arrangement, and the deed, were represented to Gilbert as suited to a temporary exigency, and, having only a temporary effect, as implying a suspension only, not a destruction of his rights; that the clause of reponing was cunningly introduced to reconcile Gilbert to that view of the deed, while that clause, except as to £5000, was of little real avail to him, since it left him absolutely at Charles' mercy, who, in any event as to reponing, could turn him out at pleasure; that he obtained Gilbert's signature to the deed on the footing, and in the belief, on Gilbert's part, that it was a temporary arrangement, and in confiding reliance on Charles' honour; and that the enforcement of that deed of 1858 as a total surrender of all Gilbert's rights and interests in the copartnery, is not according to the footing and meaning of the arrangement as represented to Gilbert at the time, nor according to the good faith of the transaction.
If this be so, then the deed ought not to be permitted to stand as an interposed obstacle to the pursuer's claims as a partner under the previous deed of 1855.
As already stated, I think that the manner in which the deed of 1858 was acted on when its intent and meaning was fresh in the mind of the parties, and while the old man retained a kindly feeling to Gilbert, is of the greatest importance; and I am of opinion that it certainly did not immediately terminate the partnership. It certainly was not acted on from its date to the effect and intent now contended for by the defenders. I think that Gilbert acted as a partner, signed as a partner, paid as a partner, and was recognised by his father and brother as a partner, after the date of the deed which is said to have terminated at once his rights and status as a partner. I have detained you too long to state fully the evidence on this important point; but I shall mention a few of the particular facts from which I have been led to come to this conclusion.
There is evidence that Gilbert was considered and dealt with as a partner; and the testimony of William Tennent, of Andrew Neilson, of Robert Munro, of Thomas Williamson, is not without importance.
But, more particularly, I notice the following points:—
The deed of 1858 was not executed in duplicate, as the deed of 1855 had been. It remained in the hands of Hugh Tennent, and was not delivered, nor was a copy furnished to any one. It is true that delivery is not necessary to the validity of a mutual deed; but the fact of non-delivery, of no duplicate, and no copy, is not unimportant on the present point.
Previous to 1855, the pursuer, before he became a partner, received a salary of £600. Of course, that ceased after 1855, when he became a partner. According to the contention of the defenders, and to the words of the deed of 1858, he returned to his position as a clerk. If the deed was meant to terminate his status as a partner, a salary-account should have been opened, and he should have drawn £200 a-year in name of clerk's salary, as he had done previously, and as other clerks did. But this was not done. He never received a salary No salary account was opened. He did not resume the position which he held before 1855. He continued, as he had done since 1855, to draw from his account to the extent of about £600 a-year.
Again, it had been arranged in 1855 that all new subscriptions for charitable purposes should be divided between Hugh Tennent himself and the firm of J. & R. Tennent. This was done from 1855 to 1858. According to the defenders' present contention this must have stopped, in so far as regarded Gilbert, in 1858, when it is said that Gilbert ceased to be a partner. But it was not so. After 1858 the subscriptions were paid and charged as formerly, and in 1861, and subsequently, Hugh Tennent writes to Gilbert about these subscriptions; and in one of these letters he says to Gilbert, “if you and Charles think of giving him (Rev. Mr Stevenson) anything, you can charge me one-half,” and in another letter he says, “if yourself and Charles
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Again, in the course of a negotiation in October 1861 in regard to the Liverpool agency of J. & R. Tennent—a matter of great importance, as about £5000 a month were received for sales there—Hugh Tennent writes to Gilbert as, I think, clearly on the footing of Gilbert being still a partner, and not a mere clerk. One of the letters, dated October 11th 1861, is quoted in the 26th article of the condescendence. In that letter Hugh alludes to the interest of Gilbert as well as Charles in the concern, and says that a certain arrangement will be for the security of “yourself and Charles.” This cannot mean anything but a recognition as a partner. No intelligible attempt has been made to explain it otherwise. The defenders' answer to this article of the condescendence is, that the letter of Hugh Tennent is addressed to Gilbert as the corresponding clerk of the firm.” To my mind this answer is very unsatisfactory. I think it is not true. Gilbert was not acting as a clerk, nor paid as. a clerk, nor written to as a clerk on that occasion.
It is abundantly proved that, with the single exception of cheques on the bank—an exception explainable on the footing of a temporary suspension for a temporary cause—Gilbert signed letters, bills of lading, and a great variety of other documents for and on behoof of the firm, after 1858, just as he had done before. In like manner, the transfer of the profits to Charles' credit made for a few years after 1858 in the books kept under Charles' directions is explained on the same ground. The large sum due to Hugh Tennent was in the course of being paid till the spring of 1862. During that period the book entries in regard to profits were not inconsistent with the pursuer's view of the special object and temporary character of the arrangement. These book entries were made by Charles' directions, and all that can be said in regard to Gilbert is, that he did not complain.
Again, it was necessary in order to meet the requirements of the revenue laws of America, that in the case of shipments to the United States an affidavit of value should be made by the manufacturer. None but a partner could make these affidavits. The affidavit of a clerk was not sufficient. The making such affidavit was an act of partnership. Now they were made by the pursuer Gilbert Tennent both before and after the deed of 1858—made with the knowledge of his father and brother, and made necessarily as a partner.
Yet again, apprentices were taken by the firm in 1857, and again in 1861. The indenture on the first occasion, dated in December 1857, is signed “John and Robert Tennent” by Hugh Tennent. The indenture on the second occasion, dated 3d January 1861, is signed first by Hugh Tennent himself, and then “John and Robert Tennent” written by Hugh Tennent. In both of these indentures, the one being before the deed of 1858, and the other after it, the sons of “Hugh Tennent” are specially mentioned as in the business, this including Gilbert.
There are other instances on which I need not dwell, of the acting and the recognition of Gilbert as a partner after the deed of 1858. But a still more important particular, showing that Gilbert was recognised as a partner after 1858, remains to be noticed.
Hugh Tennent had retired from the business in 1855, but had not advertised to the public that he had ceased to be a partner. His name was accordingly given up as a partner to the Commissioners for Income-tax. A letter was prepared by Mr Lyon, dated 11th March 1859, which I need not quote; it is on page 40 of the pursuer's print. It refers to these returns, and to the state of the partnership, and it bears to be an undertaking by Charles and Gilbert Tennent, as partners, to relieve their father of payment of income-tax. The document is quoted in the 24th article of the condescendence. It bears the signature of Charles as well as of Gilbert; it bears to be an obligation as a partner by Gilbert as well as by Charles, and it is dated more than a year after the deed of 1858. In the defender's answer to this article, it is denied that this letter “was delivered to Hugh Tennent,” as the pursuer alleges. It is not, however, disputed that it is signed by Charles, and it distinctly recognises and binds Gilbert as a partner. It is the obligation of a partner, and it was taken from Gilbert by Charles. But further, Gilbert's own name was, after January 1858, returned as a partner to the Commissioners of Income-tax, and the returns were signed by his father, Hugh Tennent. That is not disputed, and indeed is proved, for Charles in a letter to Mr Lyon, on 17th February 1862, says, “these returns having been made since 58, and were signed by my father.” This return of Gilbert's name as a partner has been felt by the defenders to be a matter so important that some explanation of it has been thought necessary. This is attempted, first by production of an alleged copy of a letter by Charles to Gilbert, dated 9th September 1861, page 58 of pursuer's print of documents, to the following effect:—
“ Well Park Brewery,
Glasgow, 9th September 1861.
My Dear Gilbert,—In the return of the income-tax schedule which was made on the 7th of this month, and also in that which was made in 1859, under the three years' contract, it is stated that you are a partner in the firm of J. and R. Tennent; this you are aware of was not the case at either of the above mentioned dates (of course dependent on whatever arrangements may be made hereafter), this entry being made with the view of keeping business arrangements private, which, at the sametime, it may be said to be a correct statement, as whatever funds may pertain to you are the funds of J. and R. Tennent.”
The date of the returns is stated to be in 1859 and 1861. This letter never was sent to the pursuer. It has no signature, but is a mere copy, or it may be a draft, and it has certainly not been proved to have been posted or sent, and it is denied that it was received by the pursuer. Accordingly, it is not evidence. It is next attempted to explain the return of Gilbert's name as a partner by the production of a letter bearing to be addressed by Hugh Tennent to Charles, and to be dated 19th January 1858. That letter is in the following terms:—
“19 th January 1858.
My Dear Charles,—In the returns made for income-tax, now and formerly, I wish your concurrence, permitting your brother Gilbert's name, and at his own request, to be inserted as a partner in
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Hugh Tennent.”
The letter is contained in an envelope addressed, “Mr Charles S. P. Tennent.” The first time this letter was ever heard of was in February 1862, just as the time was approaching when, the whole debt to Hugh being paid off, the great prize seemed to be within reach of Charles. He was then seeking private and confidential communication on the subject with his agent Mr Lyon; he was bringing the deed of 1858 specially under Mr Lyon's notice; he was told by Mr Lyon that, on his reading of it, Gilbert had ceased at the date of the deed to be a partner, and that he could not prove that he was a partner. Then these returns of Gilbert, as a partner, to the income tax, signed by Hugh Tennent, occurred to the mind of Charles, and he mentions them to Mr Lyon; and he encloses to Mr Lyon the letter dated 19th January 1858, which I have just read. Mr Lyon received the letter, and returned it to Charles, pointing out the important fact that the letter is dated “eight days after the agreement.” The letter and envelope were produced together, and were both shown to Mr Lyon, and, I think, identified. No doubt has been raised, and no doubt can exist, that if the letter bearing date 19th January 1858 was written and sent by Hugh Tennent, it was, when written and sent, enclosed in that envelope. Now, the important question is, when was that letter written; does it bear a true date? or has it been written ex post facto, and ante-dated in order to afford some explanation of the return of Gilbert's name as a partner? No one saw it, or heard of it, for four years. It is not alluded to by Charles himself till 1862, though in 1861 he signed a document as a partner along with Gilbert, and binding Gilbert as a partner, relating to these returns. It is not even mentioned in Charles' private memorandum, which, though not dated, refers to events in October 1858, and in the spring of 1859. There is some intrinsic evidence in the terms of the letter itself opposed to the truth of its date. The words “now and formerly” in this letter, if it bears a true date, have no intelligible meaning, because the returns were after the date of the letter, viz., in 1859 and 1861, and because up to the 1st January 1858, Gilbert was a partner; but these words are quite intelligible if it was written in 1862, and ante-dated. There is, however, another piece of evidence on this subject which is conclusive of the date of the envelope, and, as I think, of the false date of the letter. It is proved by the clearest evidence that the paper of the envelope of that letter was not made for two years after the date of the letter. I need not read the evidence of this. It is uncontradicted and complete. The fact is beyond dispute. The envelope had no existence in 1858, and the letter with its false date was, at the most critical point of time, and when his mind was troubled by these returns, sent by Charles to Mr Lyon as an explanation of the returns,—the importance being, as Mr Lyon at once perceived, that the date of the letter was only “eight days after the agreement.” I do not wish to press this point too far. I only say that the important fact of Gilbert's name being returned by his father as a partner after 1858 is left without any true or fair explanation, while the only explanation attempted is of the opposite character. So left, it is inconsistent with the defenders' averment that the pursuer ceased to be a partner from the date of the deed. There can be no doubt that the pursuer was in many ways and on many occasions treated and recognised as a partner after the date of the deed.
If, between 1858 and 1863, an action had been brought by a creditor of Gilbert to prove him a partner of the company, I cannot imagine that such an action could have failed. Neither Hugh nor Charles Tennent could have maintained a defence against such action. Their recognition of Gilbert as a partner would have been fatal to their defence.
Then suppose that the company which has prospered so remarkably had been unfortunate, but that Gilbert was rich, can it be doubted that the creditors of the company could have proved Gilbert to be a partner? I think not a doubt can exist on this matter. These points are clear. They were suggested in the course of the argument. I did not understand them to be disputed. I assume them to be conceded. But, if so, how can it be maintained that, from the date of the agreement in 1858, the status of Gilbert as a partner ceased? Yet that is the defenders' case.
I have now stated the grounds on which I hold that this agreement of 1858 was not acted on, as alleged by the defenders, from its date; and never was acted on to the effect of terminating the pursuer's rights and status as a partner until the time when, in 1862–3, Charles proceeded to carry out to its completion the scheme which he had formed for extruding his brother from the concern. In my opinion the scheme so formed and executed was unfair and fraudulent, in breach of faith, and deeply injurious to the pursuer.
If I am right in holding that this deed was not acted on to the effect of removing the pursuer from the partnership, it cannot sustain the defence now maintained.
I observe that the Lord Ordinary, who had no opportunity of judging of the evidence, considered this point important.
Now that we have the evidence, its importance is still more manifest.
There remain to be considered two pleas raised by the defenders, and urged as a reply to the pursuer's demand, even on the assumption that he has made out his case on the facts.
The first is, that to view the deed of 1858 as a temporary arrangement for protecting the copartnery estate from inquiry by Gilbert's creditors, would be to set up a pactum illicitum. I do not think this plea well founded. First, the pursuer is not founding on the deed of 1858. He is seeking to enforce his claims under the deed of 1855. The defenders plead the deed of 1858. If, on the proof, it appears that the deed of 1858 was granted for an illegal purpose, then the defenders cannot set it up as a protection against the pursuer's action. If the truth of the case be, that this deed, prepared by the defenders, was for an illegal purpose, then the deed had no legal existence. But the deed is required for the defenders' case, not for the pursuer's, since, without the deed, the defenders have no answer to the pursuer's claim. Secondly, the deed provides for the payment of the creditors, and thus did them justice. No wrong is done, no creditor is said to have been left out, no claim by a creditor is said to have been refused, and no one has complained. Third, the deed inter socios could not really exclude inquiry by creditors
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The second of these pleas is, that the pursuer's case resolves into an allegation of trust, and can only be proved by writ or oath. The disposal of this plea is attended with difficulty. It is settled law, under the Act 1696, that, in a proper action of declarator of trust, the allegation of trust cannot be proved otherwise than by writ or oath. It has also been decided, and I think rightly, that when the action is in its nature and substance truly an action for constitution of a latent trust, then the legal limitation of proof cannot be avoided merely by altering the form of the action. But, looking to the nature of this action, as brought to enforce rights under the deed of 1855; and concluding for reduction of the deed of 1858 in order to remove it out of the way on the head of fraud, and looking to the ascertained facts which, in my view, support the charge of fraud, I do not think that this plea on the Statute 1696 is well founded. It is true that the pursuer says that he confided, and that his confidence was taken advantage of and abused to his injury: But if such averments are held to imply an allegation of trust, so as to limit the proof to writ or oath, then no case of fraud, in which good faith was broken and confidence violated, could be fully investigated. Here, fraud in the inception of the transaction—fraud in the scheme prosecuted to completion by the preparation and execution of the deed—is alleged; and of such averments proof at large is competent. The gates of Justice are opened wide in the tracing of fraud. It is quite contrary to the equitable spirit of our law to separate and eliminate a question of quasi trust out of the body of a case for investigating a course of fraud, and then to limit the inquiry to writ or oath of party. The violation of confidence, the breach of faith, is an incident and an element in the fraud, and an aggravation of it. Shall it be held to exclude or limit inquiry—to shut out the testimony of witnesses, and the real evidence afforded by the conduct of parties? I think not. The ascertainment of truth, and the doing of justice, is the great end of law. The door cannot be closed against inquiry on a fine-drawn distinction such as this. The present case is not the sort of case to which the Act of 1696 legitimately applies; and the truth could not be reached without a full and complete inquiry. I do not speak of form only when I say that this is not an action of declarator of trust. It is an action between partners of a mercantile company, on the head of fraud.
I know of no authority for holding that a reduction on the ground of fraud can be met by the plea that the pursuer's case discloses a breach of confidence, and therefore resolves into an allegation of trust. In the case of Anstruther v. Mitchell, 10th March 1857, which has been referred to, there was “no averment of fraud against the defenders”; and Lord Cowan says “no fraus dans causam contractui is alleged.” That case is not in point. Nor is there any decision to support, in this case, the exception to the general rule, that proof prout de jure is open to a party alleging a wrong inflicted by force or fraud in the inception of the contract.
Therefore, I think that, from inquiry into the merits and facts of the case, the defenders cannot escape on this plea; and, on the merits, my opinion is in favour of the pursuer.
Lord President—The question in this case is one of very great importance to the parties, because it involves very large pecuniary interests. It is also of very considerable importance as requiring the consideration of certain legal principles, which in their application are of the greatest possible delicacy. It depends, I think, upon the answer that we give to three questions, and three only. In the first place, whether the deed of 1858 is liable to challenge or reduction upon any of the grounds alleged by the pursuer; in the second place, whether, assuming that the deed is not to be reduced, it never was used or acted on as a deed for dissolving the partnership created in 1855, or for excluding the pursuer from a share in the partnership of the concern, but was used merely as a blind to exclude inquiry on the part of the pursuer's creditors; and, in the third place, whether, upon the same assumption that the deed is not reducible, the pursuer was reponed by his father in the exercise of the powers reserved by the deed itself? With regard to the second and third of these questions, it is not my purpose to offer any observations. They appear to me to resolve entirely into questions of fact, and I am quite satisfied with the exposition of the evidence as applicable to these questions of fact that has been given by my brother upon the right hand (Lord Curriehill). I shall only say with regard to the second that, as I understand the question, it raises no difficulty at all under the Act 1696, because the question, whether this deed, although in form a deed to put an end to the partnership and to exclude the pursuer from the concern, was never used for that purpose, is a question of fact to be proved by parole evidence, and is a different question from that which would fall under the Act 1696, whether it was in its constitution a trust and not an absolute deed. I confine myself, therefore, in the observations I have to offer, to the first question only. I have no intention of entering into the details of the evidence even as regards this question; but there are some facts in the case that appear to me to be entirely beyond dispute, which enter very largely into the grounds of my opinion, and I shall endeavour to state them as shortly as I can. At the date of that deed of 1858 the pursuer was a man in the prime of life—he was certainly of more than average intelligence; he had received a regular education as a lawyer, and he had been a legal practitioner himself for some years. It is not suggested that there was any temporary weakness of mind or even impaired bodily health, rendering him at the time more than ordinarily liable to circumvention or undue influence. He says, indeed, he was in low spirits or a state of depression in consequence of his embarrassments; and that was not surprising. Any man who was considerably in debt in the year 1857 or 1858, and had no means of liquidating his debts, could not but be in very low spirits and in a state of depression; and I am afraid if we were to hold that every man in that condition is in a condition equivalent to “facility” as known in law, a very large number of gentlemen at that time would have been in that sense incapacitated from attending to their own interests. But
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The Court accordingly repelled the reasons of reduction, sustained the defences, and assoilzied the defenders from the whole conclusions of the conjoined actions.
Solicitors: Agent for Pursuer— Adam Morrison, S.S.C.
Agents for Defenders— Maitland & Lyon, W.S., and Campbell & Smith, S.S.C.