Scottish Court of Session Decisions

By lease dated in December 1863 Lewis Potter, merchant in Glasgow, let to William Bertram certain lands of the farm of Greenfield for nineteen years from Martinmas 1863 at an annual rent of £190. By lease dated in January 1874 Mr Potter let to the same tenant certain lands of the farm of Burnbank for nine years from Martinmas 1873 at the yearly rent of £100. Both leases contained clauses (in slightly different terms) by which power was reserved to the landlord to resume possession of any part of the lands so let, inter alia, for sale or feuing, or for any other purpose for which the landlord might desire or require the same, compensation, however, being always to be allowed to the tenant for any land so resumed and for any damage he might sustain in consequence of such resumption, the amount of such compensation, as fixed in the manner and at the rate per acre specified in the leases, to be paid annually from the time of resumption during the remainder of the lease. In virtue of this power Mr Potter from time to time resumed considerable portions of land on both farms for the purposes of feuing, and on an adjustment of claims as at Martinmas 1877 it was round that the amount of compensation money payable annually by the landlord to the tenant exceeded the amount of the rent payable by the tenant, to the extent, in the case of Greenfield, of £99, 16s., and in the case of Burnbank, of £54, 1s. 3d. Thereafter additional portions of the farm of Greenfield were resumed by the landlord, and the compensation due by him in respect thereof was by agreement between the parties, dated February 5, 1878, fixed at £78, 9s. annually during the currency of the lease. The land resumed by the landlord was feued out by him for feu-duties amounting in all to about £1000.

Mr Potter's estates were sequestrated on 1st November 1878, and Mr James Wyllie Guild, C. A., was appointed trustee thereon. Mr Bertram lodged a claim to be ranked as a preferable creditor in the sequestration for the sum of £1196, 8s. 9d., this total being composed of (1) £891, 5s., being compensation money at the rate of £178, 5s. per annum from Martinmas 1878 to the termination of the lease as at Martinmas 1882, in respect of land resumed on Greenfield farm; (2) £270, 6s. 3d., being compensation at the annual rate of £54, 1s. 3d. during the same period in respect of land resumed on Burnbank; and (3) sums in respect of compensation for unexhausted manure, amounting to £34, 17s. 6d.

The trustee rejected the claim for a preferable ranking, but admitted it to an ordinary ranking for the sum of £1078, 13s., and rejected it in toto for the remaining sum of £117, 15s. 9d., in respect that no deduction had been made from the sums claimed for interest thereon from date of sequestration until due. The tenant appealed against this deliverance.

He averred—“The respondent, as trustee foresaid, is vested in and in right and possession of the whole property of the said Lewis Potter, including the said lands of Greenfield and Burnbank, and he has also, as trustee foresaid, adopted the contracts of lease between the appellant and the said Lewis Potter, and the feu-contracts or charters into which the said Lewis Potter entered with reference to the lands so resumed by him as aforesaid, and has exacted the feu-duties payable thereunder.”

He pleaded—“(1) The respondent, as trustee foresaid, being vested in and in right and possession of the whole property of the said Lewis Potter, including the said subjects, and having adopted the contracts of lease and feu mentioned or referred to in the condescendence, the appellant is entitled to the preferable ranking claimed by him.”

The trustee pleaded—“(1) The appellant being, in respect of the contracts referred to, an ordinary creditor of the said Lewis Potter, is not entitled to a preferable ranking. (2) In any view, the appellant is not entitled to be ranked for interest which has accrued since the date of sequestration.”

The Lord Ordinary on the Bills ( Lee) pronounced this interlocutor and note:—

“5 th June 1880.—The Lord Ordinary having considered the debate and whole process, together with the copy leases now produced, Recals the deliverance of the trustee appealed from in so far as the same rejects the appellant's claim to a preferable ranking: Finds that the bankrupt's obligation under the leases referred to in the affidavit and claim, that the appellant should be allowed or paid annually during the remainder of the lease compensation in respect of land of which the tenant might be deprived of possession by resumption on the part of the landlord in manner therein provided, is a condition of said leases and of the trustee's possession of that part of the bankrupt's estate possession of which was resumed in terms thereof: Therefore remits to the trustee to rank the appellant preferably in terms of his claim, but under deduction of the sum of £117, 15s. 9d. of interest on sums claimed from the date of sequestration until due, as to which sum affirms the trustee's deliverance and dismisses the appeal, and decerns: Finds the appellant entitled to expenses.

Note.—The only point upon which the trustee's deliverance was questioned is that relating to the preferable ranking claimed by the appellant, and with reference to this the facts are not in dispute. The amount of the appellant's claim (apart

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from the deduction made by the trustee on account of interest) is admitted, and it was not maintained that, if entitled to a preference at all, any part of it was in a worse position than the rest… ….

The estates of the proprietor were sequestrated on 1st November 1878, and the respondent as trustee in the sequestration has entered into possession of these estates and is vested in them, of course under the burden of existing leases. He has admittedly adopted the feu-contracts granted by the bankrupt, which appear to have been taken up on terms favourable to the estate in any view of the appellant's claims; and has uplifted the feu-duties payable for the lands resumed and feued under the reserved powers in the leases.

The question which now arises is, Whether the tenant is entitled in the bankruptcy of the landlord to rank preferably for the compensation payable to him under his lease? It is not disputed by the trustee that the appellant is entitled to set off the compensation in extinction of the rent payable by him. But it is contended that quoad the excess the appellant's claim is entitled to no preference, but is that of an ordinary creditor.

On the other hand, it is maintained on the part of the appellant that the landlord's obligation to pay compensation ‘annually during the remainder of the lease’ is an inherent condition of the resumption of possession, and must be fulfilled by the landlord or anyone who in his right takes the estate. It is urged that the trustee on the landlord's sequestrated estate takes it (and especially the ground feued) subject to the conditions of the lease, of which the annual payment of this compensation is one, and that he is not entitled to keep the appellant out of possession for any year of the leases’ endurance without fulfilling that condition.

The Lord Ordinary has found the question to be attended with difficulty. His first impression (formed before seeing the leases) was that the exercise of the reserved power of resumption might be viewed as having the effect of taking the land resumed out of the lease, just as if it had never been included in it, and of leaving the tenant's claim of compensation in the position of an ordinary debt. But on examination of the leases he has come to be of opinion that the contract in each case must be regarded as a whole, and as a real right, continuing in its entirety during the whole period, subject only to the qualification that if the reserved power shall be exercised, the condition of payment for the land resumed shall be accepted by the tenant in place of the land of the possession of which he is deprived. The leases bind the tenant to accept the stipulated annual payment, but this is annually enforceable; and if the landlord had resumed the land for his own personal occupation the Lord Ordinary is of opinion that his trustee could not have let the land to another tenant or sold it without fulfilling the condition of annually paying the value to the present agricultural tenant. It was argued in support of the trustee's deliverance that no preference had been stipulated, and nothing had been done to constitute a preference. But if the Lord Ordinary's view be correct, no special stipulation was requisite, and nothing needed to be done. The appellant's claim arises out of the fact that the trustee takes the property of the bankrupt under the burden of the lease and of all the conditions of the lease—at least all lawful conditions. Of the legal result of taking up the property of a bankrupt, held by him under contract involving obligations which form a condition of his right, the Lord Ordinary does not imagine there is any doubt— Cuthill v. Jeffrey, Nov. 21, 1818, F.C.; Kirkland v. Gibson, May 17, 1831, 9 Sh. 596, aff. 6 W. and S. 340, also 16 Sh. 860; Stewart v. M'Sa, Nov. 12, 1834, 13 Sh. 4, and Stewart v. Campbell, ib. 7; Marquis of Abercorn v. Grieve, Dec. 16, 1835, 14 Sh. 168; Dundas v. Morison, Dec. 4, 1857, 20 D. 225. The only question is, whether this particular claim forms an essential condition of the lease attaching to the subject as taken up by the trustee? Upon this point the only authority cited was the case of Arbuthnott v. Colquhoun, M. 10,424. But the present case seems to be still clearer. The Lord Ordinary is of opinion that in this case it is impossible, with a due regard to the meaning of the contract, to separate the obligation arising from the landlord's exercise of the power of resumption from the tenant's real rights under the lease. He considers that the trustee, as in a question with the tenant, must be held to possess the ground resumed and feued by virtue of the reserved power, and under the condition attached to the exercise of that power. It seems to him to be a fair test to suppose that the ground had been resumed by the landlord for his own occupation, and in that state of matters he cannot doubt that the trustee could not have been permitted to continue the occupation year by year during the remainder of the lease, to the effect of keeping the appellant out of possession of a part of the subjects let, without fulfilling the condition of payment annually of the ground so taken.

On these grounds the Lord Ordinary is unable in this case to sustain the deliverance of the trustee.”

The trustee reclaimed, and argued—The appellant had no real right in the lands. He had merely a personal claim. The trustee had not adopted the contracts of lease; he did not represent the bankrupt in his liabilities. Even adoption by the trustee would not give right to a preferable ranking, but only to a personal action against the trustee. The trustee in cases of lease had never been found liable beyond the amount of rents drawn by him, and here there were no rents to draw.

Argued for the respondent—The tenant's right under a lease was a real right, available even against singular successors. A trustee in a sequestration was less favoured, since he took the estate only tantum et tale as it stood in the bankrupt. The trustee admitted on record that he had adopted the contracts of lease; he was therefore bound to fulfil all the obligations in the leases, just as he could enforce the prestations in favour of the landlord. While the property of the lands in question was vested in the trustee in respect of the feudal title and the sequestration, the right to possess the resumed lands during the remainder of the leases could only be claimed by the trustee in respect of the leases. The trustee had adopted the contracts of feu by which the resumed lands had been feued out, and drew the large feu-duties derived therefrom. He was thus lucratus by a sort of civil possession of said lands.

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The feu-duties were truly a surrogatum for the lands, and the claimant had thus a quasi real right therein.

Authorities— Maclean's Trustee v. M'Lean of Coll's Trustee, Nov. 21, 1850, 13 D. 90; Lindsay v. Webster, Dec. 9, 1841, 4 D. 231; Thomson v. Terney, May 13, 1791, Hume 780; Myles v. City of Glasgow Bank, Feb. 28, 1879, 6 R. 718; Harvie v. Haldane, July 2, 1833, 11 S. 872.

At advising—