Scottish Court of Session Decisions

The pursuer in this case was the trustee on the sequestrated estate of James Nicol Fleming; the defenders were Mr Fleming's marriage-contract trustees. The following were the material averments of the pursuer:—In 1859 James Nicol Fleming, merchant, Bombay, then residing in Glasgow, was married to Miss Elizabeth Galbraith, daughter of John Galbraith, merchant, Campbeltown. Prior to their marriage an antenuptial marriage-contract was executed on 26th October 1859. By that deed Mr Fleming bound himself, in the event of his predecease, to pay his wife a free yearly annuity of £1000 (restricted to £500 in the event of her entering into a second marriage), payable half-yearly, at Martinmas and Whitsunday, with interest and penalty; also £50 as an allowance for mournings, and interim aliment at the rate of £1000 per annum, from the date of his death till the first term of Martinmas or Whitsunday thereafter. The contract then provided that “for the more effectual securing of the punctual payment of the above provisions in favour of his said intended wife, the said James Nicol Fleming obliges himself, within three months from the date of these presents, to assign, transfer, and make over to” certain persons as trustees—first, “Fifty shares in the Borneo Company, Limited, now belonging to, or which the said James Nicol Fleming has arranged to acquire, and to pay them on or before the 31st day of October 1859 the sum of £4000 in so far as is not already paid; and in the second place, and within twelve months from the date of these presents,” Mr Fleming bound himself to effect an insurance on his life for £5000, and to assign the policy or policies to the trustees. He also bound himself to pay all calls or dividends on the Borneo Company shares, and to pay the premiums so as to keep the policy or policies of insurance in force during his life. The contract further contained the following provision in regard to the income of the trust funds:—“And with regard to the dividends, bonuses, or annual profits that may be derived from the said Borneo shares, or others, the same are to be allowed to accumulate in the hands of the said trustees during the life of the said James Nicol Fleming, as an additional and further security for the payment of the provisions hereby made in favour of the said Elizabeth Galbraith; with power, however, to the said trustees, if they think it right and proper or necessary, with consent of the said James Nicol Fleming, to pay to the said Elizabeth Galbraith, during the subsistence of the said marriage, the said dividends, bonuses, or annual proceeds arising from said shares or others, by way of alimentary provision, and exclusive always of him, the said James Nicol Fleming.” The following provision related to the disposal of the trust-funds:—“And further, and with regard to the application of the sum or sums to be derived by said trustees from said Borneo Company shares or others, and to the sum or sums which may be received by them under the said policy or policies of insurance, it is hereby declared that the said trustees and their foresaids shall apply the same and interest, bonuses, dividends, and annual profits to be derived therefrom, and remaining in their hands—first, in the securing payment to the said Elizabeth Galbraith of the annuity and other provisions hereby conceived in her favour; and second, the balance, if any, after setting aside a sum sufficient for securing payment of the said annuity, and other provisions conceived in favour of the said Elizabeth Galbraith, shall, at the death of the said James Nicol Fleming, survived by his said intended spouse, be paid, assigned, or disponed to the issue of the said intended marriage, in such shares or proportions as he may direct by any writing under his hand, which failing, equally share and share alike, if more than one, and if only one, then the whole to such one child.” There was a similar provision

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in regard to the part of the trust-funds set apart to meet the annuity when the same should be set free by the death of Mrs Fleming. In the event of her predeceasing her husband and there being no issue, the Borneo shares and the policies of insurance were directed to be paid to Mr Fleming and assignees. The provisions were declared to be in full of the wife's legal claims, and in full satisfaction to the children of legitim, bairns’ part of gear, executry, and everything else they could by law claim through their father's and mother's death. The contract gave “full power to the said trustees to invest the sums that may come into their hands either on heritable or personal security, and to call up and again re-invest the same when they think fit;”—it being also “specially provided and declared that it shall be in the power of the said James Nicol Fleming, with consent of the said trustees and their foresaids, to sell and dispose of the said Borneo shares, and to invest the proceeds thereof in such stocks, shares, or other securities as they the said trustees may think fit.”

The fifty shares of the Borneo Company, Limited, then worth about £2500, were transferred to the trustees. These shares yielded large dividends, and from the revenue of the trust the defenders on 14th May 1863 purchased £1000 Glasgow and South —Western Railway stock at 107 3 4 per cent., amounting with charges to £1088, 10s. 3d. In September 1864 the defenders invested the balance of trust-funds then in their hands in the purchase of two hundred shares of the Great Western Railway Company of Canada, then worth £1900. Mr Fleming advanced what was required to make up the price thereof, about £1347, 12s. 10d., receiving the dividends on the Borneo Company's shares towards repayment.

In 1865 Mr Fleming purchased the estate of Keill, near Campbeltown, at the price of £8680, and it was agreed that the title should be taken in name of the trustees as further security to them for implement of his obligations under the marriage-contract, that the Glasgow and South-Western Railway stock and the 200 shares of the Great Western Railway of Canada should be made over to Mr Fleming, and that the trustees should give him a lease of Keill at the rent of £250 per annum during his life. Mr Fleming also agreed to keep an account with the trustees, and to put to the credit thereof this rent and the dividends of the Borneo shares till the rest of the price of Keill should be paid to him. It was averred, but not admitted, that the total price came to be paid in 1876.

Immediately on obtaining possession of Keill in 1865 Mr Fleming began to lay out large sums in permanently improving the estate. In 1873 he began to build a large mansion-house and to lay out grounds around it. This expenditure continued down to the stoppage of the City of Glasgow Bank in 1878. In 1865, when Mr Fleming began this expenditure, he was believed to have been solvent and possessed of considerable wealth, but extensive speculations led to his insolvency; and in 1871 he was insolvent, as appeared from a balance of his books made by himself as at 31st January 1871. From that date his insolvent condition became worse, but was not publicly known till the failure of the City of Glasgow Bank on 2d October 1878. Mr Fleming's debit balance with that bank steadily increased from 1870, when it was £433,475, to the stoppage of the bank, when his unsecured debit balance was £1,259,546, 16s. 10d. The securities held by the bank had never during any part of that period approached the amount of the debt. Mr Fleming was sequestrated on 13th November 1878, and the pursuer was appointed and confirmed trustee on his estate on 6th January 1879. The defenders were, it was alleged, well aware and approved of the expenditure made by Mr Fleming.

The value of Keill in January 1871 was about £11,000. Between January 1871 and December 1876 the sum of £3917, 19s. 9d. was paid to Mr Fleming from the income of the trust-funds in repayment of the price of Keill. On the other hand, Mr Fleming expended large sums in carrying out improvements at Keill, and after crediting the income of the trust-estate between 1874 and 1878 (including the rent of Keill), amounting to about £2000, the amount expended by him between 1871 and 1878, during all which time, it was alleged, he was and knew himself to be insolvent, was upwards of £28,000, exclusive of interest. The estate of Keill, in the hands of the trustees was increased in value according to the pursuer's estimate to the extent of £10,000 by reason of the expenditure so made upon it between the years 1871 and 1878. This expenditure was accordingly now challenged as having been made by Mr Fleming to conjunct and confident persons, without just, true, and necessary cause, and after the contraction of lawful debts from true creditors. The said payments, the pursuer alleged, were in violation of the Statute of 1621, cap. 18, and were also made fraudulently to disappoint the just rights of prior creditors.

On these averments the pursuer concluded—“(1) It ought and should be found and declared, by decree of the Lords of our Council and Session, that the defenders, as trustees foresaid, are vested in and hold All and Whole the lands of Keill, in the county of Argyll, in trust for behoof of the pursuer, as trustee foresaid, to the extent of £10,000 sterling, or such other sum as may be ascertained in the course of the process to follow hereon to be the extent to which the said lands were improved and the value thereof increased by expenditure made thereon by or on behalf of the said James Nicol Fleming, from and since 31st January 1871; (2) it ought and should be found and declared, by decree foresaid, that the said sum of £10,000 sterling, or such other sum as may be ascertained as aforesaid, forms a real lien and burden in favour of the pursuer as trustee aforesaid, and his successors in office and assignees, upon All and Whole the twenty-shilling land of Kilcolmkeill, lying in the parish of Kilcolmkeill, lordship of Kintyre, and sheriffdom of Argyll, with the mansion-house called Keill or Kilcolmkeill, and the whole houses, biggings, yards, mosses, muirs, grazings, sheillings, and whole parts, pendicles, and pertinents of the same, and shall be inserted or validly referred to in all future deeds, writs, decrees, and instruments relating to or affecting the said lands and others, or any part thereof, otherwise such deeds, writs, decrees, and instruments shall be void and null; (3) or otherwise, in the event of the pursuer not obtaining

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decree in terms of the second conclusion hereof, the defenders ought and should be decerned and ordained, by decree foresaid, to make payment to the pursuer of the said sum of £10,000 sterling, or such other sum as may be ascertained as aforesaid, with interest thereon at the rate of five per centum per annum from the date of citation hereto till payment.”

Pleaded for the pursuer—“(1) the trust-estate held by the defenders prior to 1871 having been more than sufficient to secure Mr Fleming's obligations under the marriage-contract libelled, the subsequent expenditure by him on the estate of Keill, while to his own knowledge insolvent, is an alienation struck at by the Statute 1621, cap. 18, and a fraud against Mr Fleming's creditors at common law. (2) The pursuer, as trustee on Mr Fleming's estate, and representing creditors prior to 1871, is entitled to declarator as libelled, and to decree under one or other of the remaining alternative conclusions of the summons, with expenses.”

The defenders did not admit the averments of insolvency in and after 1871, and explained “that Mr Fleming was ostensibly solvent, and in particular was held and reputed by the defenders and others to be solvent until the stoppage of the said bank.” They further admitted that Mr Fleming expended considerable sums on the estate of Keill, but they averred that “the value of Keill has not been enhanced by the expenditure in question to the amount alleged, or to any appreciable extent. The new mansion-house is out of proportion to the size of the estate, and diminishes its marketable value. The estate now in the hands of the defenders is inadequate to meet the purposes of the trust.”

The defenders pleaded—“(1) The averments of the pursuer are not relevant or sufficient to support the conclusions of the summons. (2) Separatim, No action lies upon the grounds alleged while the defenders are vested in the estate for the purposes of the trust. (3) The expenditure libelled not having been an alienation without true, just, or necessary cause in the sense of the Act 1621, cap. 18, the defenders should be assoilzied. (4) The expenditure libelled having been for behoof of the bankrupt himself as tenant foresaid, the action cannot be maintained. (5) The value of the estate of the defenders not having been increased by the said expenditure, the action cannot be maintained. (6) The material averments of the pursuer being unfounded in fact, the defenders should be assoilzied.”

The Lord Ordinary ( Rutherfurd Clark) assoilzied the defenders and added the following note:—“The estate of Keill is held by the defenders in trust—first, in security of the provisions in favour of Mrs Fleming and her children, contained in the antenuptial contract of marriage between her and her husband James Nicol Fleming, the bankrupt; and secondly, for behoof of James Nicol Fleming and his heirs and disponees.

“Keill was bought by Fleming in 1865. He laid out large sums in improving it. He was insolvent it is said, in 1871, and the pursuers aver that his expenditure on Keill after that date increased its value to the amount of £10,000. That expenditure, it is further averred, was contrary to the Act of 1621, as having been made in favour of conjunct and confident persons, to the defenders, as trustees for the wife and children of the bankrupt; but it is not said that the trustees or the wife and children were in any way parties to the fraud or knew of Fleming's insolvency.

The purpose of this action is to have it declared that the defenders hold Keill in trust for the pursuer to the extent of £10,000, being the extent to which it was improved by Fleming's expenditure, and to have that sum declared a real burden in favour of the pursuer. There is a petitory conclusion against the defenders for payment of £10,000, but it was not insisted on.

The pursuer does not disguise that his object is to establish a preferable claim over Keill to the extent of £10,000. This, indeed, as it seems to the Lord Ordinary, is the true meaning of the summons; for if the £10,000 were declared to be a burden on Keill, the necessary consequence would be to give it a preference over the purposes of the trust.

At the same time, the pursuer does not dispute that the trust was validly constituted, so as to secure the provisions in favour of the wife and children. His case is that the augmented value should form a prior charge.

To the Lord Ordinary it seems that the case of the pursuer is not well founded. The trust forms the first charge on the estate of Keill, and the bankrupt had a right of reversion only. The trust may not be entitled to the benefit of the increased value, out that is no reason for creating a prior charge in favour of the pursuer. The illegal expenditure which the bankrupt is said to have made cannot destroy the preference which is created by the trust, though it is possible that the defenders cannot take benefit by that expenditure. The right of the pursuer seems to be to prevent his reversion from being unduly encroached on—not to establish a preference.

It is said by the pursuer that the interests of the children may fluctuate according to the value of the estate of Keill. This is denied by the defenders. But whatever be the merits of that question, it seems to the Lord Ordinary that it is not raised for decision in this action. The pursuer may take the necessary proceedings to fix the limit of the marriage-contract provisions. The Lord Ordinary decides nothing more than that he is not entitled to the preference which he claims.”

The pursuer appealed, and argued —The result of the expenditure by Fleming was to enhance the value of the marriage-contract property. That at all events was what the pursuer averred, and what he desired to prove. Therefore, in so far as the expenditure was made after that Fleming knew that he was insolvent, it was a fraud against his creditors and entitled them to a remedy. Now, the pursuer did not desire to establish a preference—that was not what the first conclusion of the summons asked for, and the Lord Ordinary was wrong in supposing that the only object of the action was to establish a preference. A proof ought to be allowed.

Replied for defenders—The only practical effect of giving effect to the pursuer's demand was to establish a preference in his favour, and to this he was not entitled. If that was not what he

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desired, it was impossible at present to determine whether he was entitled to anything. If he did not desire to obtain repayment, or security for the £10,000 alleged to have been expended, but only for the increased value of estate, how was the fact and the amount of that increased value to be ascertained except by the sale of the estate; and the trustees could not be compelled to sell.

Authorities— Selby v. Jollie, June 5, 1795, M. 13,438; Buchnan v. Stewart, Nov. 10, 1874, 2 R. 78; Watson v. Grant, May 14, 1874, 1 R. 882; Bell's Comm. ii. 177 (189).