Scottish Court of Session Decisions

This was a Special Case under the Act 19 and 20 Vict. cap. 56, in which the question submitted for the opinion and judgment of the Court was, Whether.an annuity provided under a certain marriage-contract was chargeable with succession duty?

The following were, inter alia, the facts as stated:—“By indenture, dated 2d February 1821, made between certain parties (being articles for a settlement made in contemplation of the marriage then intended to be and afterwards duly solemnised between the Marquess of Salisbury and Frances Mary Gascoyne), certain hereditaments and real estates, forming part of the fortune of the said Frances Mary Gascoyne, were covenanted to be settled, inter alia, upon trust for raising, by the means therein mentioned, out of the estates thereby covenanted to be settled, portions for the younger children of the said intended marriage, in manner following:—That is to say, if there should be one child, the sum of £10,000; if two or more such children, the sum of £15,000; if three or more, the sum of £20,000,—the said sum or sums of money intended for the portions of such children (being more than one) to be shared and divided between or among them in such parts and proportions and in such manner as the said Marquess of Salisbury and Frances Mary Gascoyne should direct or appoint; and in

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default of such direction or appointment, then as the survivor of them should direct or appoint.” And upon 23d October 1824 that provision was carried out, and an indenture of settlement in the English form was executed settling the subjects named in terms of the direction. The Marchioness of Salisbury died in October 1839 without having exercised the joint power of appointment which she had with her husband in regard to the provisions of the younger children. Five children of the marriage survived its dissolution and attained majority. One of the younger children was Lady Blanche Mary Harriett Gascoyne Cecil, afterwards Lady Blanche Balfour.

“By contract of marriage, dated the 10th, 14th, and 15th August 1843, entered into between James Maitland Balfour, Esquire, eldest son of James Balfour, Esquire of Whittinghame, in the county of Haddington in Scotland, on the first part; the said James Balfour, Esquire of Whittinghame, for himself, on the second part; and the said Lady Blanche Mary Harriett Gascoyne Cecil, the younger daughter of the said Marquess of Salisbury, with consent of the said Marquess, and the said Marquess for himself, on the third part,—the said James Balfour in contemplation of the marriage then about to be and shortly thereafter actually solemnised between his son, the said James Maitland Balfour, and the said Lady Blanche Mary Harriett Gascoyne Cecil, bound and obliged himself and his heirs and successors, with all convenient speed to dispone, convey, and make over to himself, and after his decease to the said James Maitland Balfour and the heirs-male of his body to be procreated of the said then intended marriage, whom failing, to the other heirs therein specified, inter alia, certain lands then belonging to him in fee-simple, and now known as the Whittinghame estates, and that in the form of strict entail according to the law of Scotland, ‘which entail should debar and exclude the wives and husbands of the said James Maitland Balfour, and the heirs of tailzie substituted to him, from all right of terce or courtesy of or upon the said lands, baronies, and others.’” &c. Power was reserved to the heirs of entail to provide their wives and husbands in liferent provisions out of the entailed lands by way of annuity, under the provisions of the Act 5 Geo. IV. cap. 87.

James Balfour further obliged himself to entail certain other lands called Strathconon, belonging to him, in the same terms as the Whittinghame estates, and he transferred to trustees securities to the amount of £150,000 to be entailed in like manner, declaring that until that sum was so laid out James Maitland Balfour, failing himself, should have right to the proceeds of it. He also bound himself to pay an annuity of £3500 to James Maitland Balfour during their joint lives.

“By the said contract of marriage, and in further contemplation of the said then intended marriage, the said James Balfour and the said James Maitland Balfour thereby bound and obliged themselves, and the said James Balfour bound and obliged the heirs of entail succeeding to him in the said lands, baronies, and others, to make payment to Lady Blanche Balfour of an annuity, in name of pin-money, of £500 sterling per annum, out of the rents of the foresaid lands, baronies, and others, during all the days of her life, ay and until her annuity or jointure of £3000 per annum, thereinafter provided to her, should become payable; but declaring always that during the lifetime of the said James Balfour the interest to become due upon the sum of £10,000 sterling, being the fortune hereinafter mentioned of the said Lady Blanche Balfour, should be paid and applied, and be taken and held as payment pro tanto of the foresaid annuity of £500, and that the said James Balfour during his lifetime should only be bound to make payment of such sum or sums of money in addition to said interest as would be sufficient to make up the full annuity of £500, as the same falls due. The contract of marriage also contained the following clause:—“As also the said James Balfour hereby binds and obliges himself, and the heirs of entail succeeding to the foresaid lands, baronies and others, to make payment to the said Lady Blanche Mary Harriett Gascoyne Cecil during all the days of her lifetime from and after the decease of the said James Maitland Balfour, her promised husband, in the event of her surviving him, of an annuity or jointure of three thousand pounds sterling per annum, payable at two terms in the year, Whitsunday and Martinmas, … which annuity of three thousand pounds, interest to become due thereon, and penalty above mentioned, are hereby expressly conditioned and declared, and shall be so declared, in the deed of entail to be executed by the said James Balfour of the foresaid lands, baronies, and others, to be a real burden upon the said lands, baronies, and others during the continuance of the said annuity.”

These provisions were the whole provisions of the contract of marriage conceived in favour of Lady Blanche Balfour by James Balfour or James Maitland Balfour; and the contract contained a clause stating that these “provisions before written, conceived in favour of the said Lady Blanche Mary Harriett Gascoyne Cecil, she hereby, with consent foresaid, accepts of in full satisfaction of all terce of lands, third or half of moveables, and of everything else which she can ask or claim by and through the death of the said James Maitland Balfour before her, or which her executors or nearest-in-kin can ask or demand out of his estate in the event of her decease before him, excepting only mournings and a suitable allowance for her maintenance from the day of her husband's death until the first term's payment of her jointure or annuity of three thousand pounds above mentioned, to all which she shall have right in the event of her surviving her said husband.”

There were also the following clauses:—“For which causes, and upon the other part, the said Marquess of Salisbury hereby binds and obliges himself, and his heirs, executors, administrators, and assignees, to grant a bond or other deed or deeds required by the laws of England, and in the English form, for payment of the sum of ten thousand pounds sterling on the fifteenth day of May eighteen hundred and forty-four, to bear interest at the rate of four pounds per centum per annum from and after the celebration of the said marriage, to certain trustees therein named.” The third purpose of the (trust, which alone it is necessary to state), was, in the event of Lady

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Blanche Balfour surviving her husband, to make payment of the interest of the sum of £10,000 to her during her life in addition to the annuity or jointure of £3000 above provided to her.

Before his death, which occurred on 19th April 1845, James Balfour had executed a disposition and deed of entail of the Whittinghame estates, proceeding on the narrative of the contract of marriage, and in terms of it. The annuity of £3000 to Lady Blanche Balfour was made a real burden upon the entailed estates. James Balfour was survived by James Maitland Balfour, who succeeded to the entailed estates, and by Lady Blanche Balfour.

From the date of the marriage between James Maitland Balfour and Lady Blanche Balfour down to the 20th day of February 1860 the Marquis of Salisbury paid his daughter the interest at four per cent. on the sum of £10,000, being £400 per annum, which interest was, in terms of the contract of marriage, held to be a payment to account of the £500 per annum of pin-money provided to her under her said marriage-contract, the balance being paid by James Balfour down to his death; thereafter James Maitland Balfour paid the whole annuity of £500, and the interest of the £10,000 was payable to him. He died on 23d February 1856, on which date the provision of £500 per annum as pin-money to Lady Blanche Balfour ceased, and the interest of the £10,000 became payable to her. She also then became entitled to the annuity of £3000 provided to her in terms of the marriage-contract and deed of entail, and she enjoyed that until her death in May 1872.

Under Lady Blanche Balfour's will, her daughter (the defender in this action) Mrs Eleanor Mildred Balfour or Sidgwick, wife of Henry Sidgwick, of Trinity College, Cambridge, was sole executrix.

The Lord Advocate maintained that under the Act 16 and 17 Vict. cap. 51, the foresaid annuity of £3000 was a succession derived by Lady Blanche Balfour from James Balfour upon the death of her husband, and as such was liable in succession-duty at the rate of one per cent.: That the marriage of his son with Lady Blanche was the consideration on account of which James Balfour granted the annuity in question; and marriage, although a valuable consideration, was not a valuable consideration for money or money's worth in the sense of the Succession-Duty Act: That neither of the spouses conferred any provision on James Balfour; but he, besides the annuity of £3000 in question to Lady Blanche, granted to James Maitland Balfour an annuity of £3500 during their joint lives, and obliged himself to grant entails of Whittinghame and Strathconon, in which James Maitland Balfour was the substitute immediately after himself, and gave him the same position and right with reference to the £150,000 and the lands to be acquired with that sum: That the reciprocal provisions by the spouses in favour of each other could not be regarded as valuable consideration in money or money's worth to James Balfour, and they were not such with reference to the spouses themselves in the sense of the Succession-Duty Act.

The defender maintained that the annuity was not chargeable with succession-duty in respect (1) That it was settled for valuable consideration in money or money's worth in the sense of section 17 of the Act 16 and 17 Vict. cap. 51, such valuable consideration being, first, the settlement of £10,000 for the purposes of the marriage-contract, and, second, the discharge by Lady Blanche Balfour of terce and jus relictœ; and also in respect (2) that the payment of the foresaid annuity was an obligation undertaken by the said James Maitland Balfour in favour of his wife under the foresaid disposition and deed of entail, and as such was not liable in succession-duty.

The Lord Ordinary in Exchequer Causes ( Curriehill) found that the annuity was not chargeable with succession-duty. The following was the note to his Lordship's interlocutor:—

“ Note.—One of the grounds on which the defendant maintains that the annuity of £3000 provided to Lady Blanche Balfour in her marriage-contract is not liable to succession-duty is, that the payment of said annuity was an obligation undertaken by her husband James Maitland Balfour in favour of his wife. But I do not think that the obligation was either in form or in substance an obligation of that character. It is true that James Maitland Balfour, by taking possession of the estate of Whittinghame on the death of his father James Balfour, accepted the disposition and deed of entail thereof executed by his father, and thereby became bound to pay the said annuity as heir of entail. But the obligation was truly the obligation of James Balfour, and became prestable by his son only as heir of entail. Had the latter predeceased his father, the annuity would have been payable to Lady Blanche by James Balfour, not under the deed of entail, but in virtue of the personal obligation undertaken by him in the contract of marriage, and after his death it would have been payable by the next succeeding heir of en ail, under an obligation imposed, not by the husband, but by James Balfour in the deed of entail. And if the defendant's case had depended soely upon the contention now under consideration, I should have had great difficulty in sustaining her claim for exemption from succession-duty.

“But I think the defendant is entitled to prevail on the other ground pleaded by her, viz., that the annuity was settled for valuable consideration in money or money's worth in the sense of section 17 of the Act 16 and 17 Vict. c. 51. The part of the section on which this argument, is based is expressed as follows, viz.:—‘No bond or contract made by any person bona fide for valuable consideration in money or money's worth—for the payment of money or money's worth after the death of any other person—shall create the relation of predecessor and successor between the person making such bond or contract and the person to or with whom the same shall be made.’ The meaning of that section has been considered in various cases in England. In the case of Floyer v. Bankes, 9 Jur. (N.S.) 1256, which was cited for the Lord Advocate as his leading authority, the Lord Chancellor (Westbury)said—‘The essential requisites of a contract which is not to create a succession are clearly defined by the 17th section. First, it must be a contract by one person to pay money or money's worth to another; secondly, it must be made bona fide for valuable consideration existing in money or money's worth, the contract creating personal liability between the contracting parties; and,

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thirdly, such a contract is prevented from creating a succession only as between the contracting parties, for all that the 17th section does is to declare that there shall be no relation of predecessor and successor between the person bound to pay and the person entitled to receive.’ Adopting this as the sound construction of the statute, I am of opinion that in the present case all these essential requisites are to be found. In the first place, there is a contract by James Balfour to pay money to another (Lady Blanche) on the death of a third person, viz., James Maitland Balfour. In the second place, the contract is made undoubtedly bona fide for the valuable consideration of £10,000 settled by the lady and her father, and it creates personal liability between James Balfour and Lady Blanche; and, thirdly, the annuity on which succession-duty is claimed is, according to the Lord Advocate's own contention, a succession between these two contracting parties, viz., the person bound to pay and the person entitled to receive, but as between such parties the statute declares that there shall be no relation of predecessor and successor.

“It is indeed maintained on behalf of the Lord Advocate that in the present case no valuable consideration in money or money's worth was given for the annuity. It is unnecessary in the view which I take of the case to hold that either the marriage itself or the renunciation by Lady Blanche of her terce and jus relictœ constituted a valuable consideration in money or money's worth. The husband had apparently at the date of the contract no estate, heritable or moveable, and in that respect the case closely resembles the case of Floyer v. Bankes, in which Lord Westbury, reversing the judgment of the Master of the Rolls, expressly decided that neither the marriage nor the renunciation by the wife of a possible dower out of estates which her husband might never possess could be held to be considerations in money's worth. But in the present case I think it must be held that a valuable consideration in money was given for the annuity by the settlement in the marriage-contract of £10,000 by the Marquis of Salisbury for behoof of his daughter Lady Blanche and her husband J. M. Balfour and the children of the marriage. It is said that neither the said sum of £10,000 nor any other sum of money was paid or provided to James Balfour; but that is not an accurate statement, because the said sum of £10,000, which included the fortune to which Lady Blanche was absolutely entitled under the marriage-indenture of her own parents, was settled in such a way that during the lifetime of James Balfour the interest of that sum was to be paid and applied as payment pro tanto of an annuity of £500 which in the contract he had undertaken to pay to Lady Blanche in name of pin-money. James Balfour thus to that extent did unquestionably receive personally a valuable consideration in money's worth. And further, after James Balfour's death the interest of the £10,000 was to be paid to his own son J. M. Balfour during the subsistence of the marriage, and was to be continued to him during his lifetime in the event of the dissolution of the marriage by the death of Lady Blanche without issue. James Balfour thus obtained for himself and for his son an annual payment of the interest of £10,000, and for the children of the marriage he obtained the capital. It appears to me to be immaterial that the provisions made by James Balfour in favour of Lady Blanche were of greater actual value than those made by Lady Blanche and her father. The statute does not require the money or money's worth to be equivalent in amount or value to the money or money's worth provided in the contract. It is enough if the contract be made bona fide for ‘valuable consideration in money or money's worth.’ And it appears to me that it would be an abuse of terms to hold that a substantial provision of £10,000 settled by or on behalf of one of the spouses in this marriage-contract was an elusory consideration, or anything but a valuable consideration in money or money's worth for the annuity, especially as the annuity, though undoubtedly of considerable amount, was only contingently payable, and would never have been paid at all in the event of Lady Blanche predeceasing her husband.

“I have only to add that in the case of Floyer v. Bankes, although one of the grounds of judgment was that no valuable consideration in money's worth was given for the provision in favour of the lady on which succession-duty was claimed, the Lord Chancellor proceeded mainly upon the ground that the provision was not in the shape of a personal contract by anyone to pay money to her on her husband's death, but was a mere exercise by the father and brother of the husband of an heir-apparent to a rent-charge over a family estate. In the present case both of the essential requisites are found which were wanting in the case of Floyer v. Bankes. I am therefore, on the whole matter, of opinion that the annuity in question is not liable for succession-duty.”

The Lord Advocate reclaimed, upon leave being granted, and argued—To found the ground of exemption sustained by the Lord Ordinary there must (1) be a direct money consideration given by the person entitled to the annuity, who was termed “successor” in the Act. James Balfour was the “predecessor,” and Lady Blanche Balfour the “successor.” It was the directly contracting parties only who were exempted. But here Mr James Balfour and the Marquis of Salisbury were the true parties to the contract, and they could not so contract without the duty being exigible. (2) The marriage was the only true consideration; there was none in money or money's worth. The annuity would fall to be paid even though the alleged consideration for it, viz., the payment of the £10,000, should fail.

Argued for the defender-There was here a valuable consideration personally received by James Balfour. The £10,000 was “money or money's worth,” and was no illusory provision. It did not detract from its value that it occurred in a marriage-cantract. The marriage was not the only consideration in the contract, and if the annuity was given for money or money's worth, it did not matter that the motive was marriage. The cases cited showed that general views of the meaning and object of the transaction were not to be looked at so much as the precise words of the Act and its strict interpretation.

Authorities— Floyer v. Bankes, 3 De Jex, Jones, and Smith, 306, 37 L.J., Ch. 1; in re Ramsay's Settlement, 30 Beav. 75, 30 L.J., Ch. 849; Jenkinson, Jan. 14, 1857, 24 Beav. 64; Inventory Duty Cases, viz., Hagart v. Hagarl's Trustees, Dec. 24,

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1870, 9 Macph. 58, H. of L. May 2, 1872, 10 Macph. 62; Moir's Trustees v. Lord Advocate, Jan. 7, 1874, 1 Rettie 345; Lord Advocate v. Robert's Trustees, Jan. 26, 1858, 20 D. 449; Marshall's Executors v. Lord Advocate, March 20, 1874, 1 Rettie 847.

At advising—