Scottish Court of Session Decisions

John M'Knight was proprietor of a mineral field in Ayrshire named Plann. By minute of lease between himself on the one part, and himself and W. C. M'Knight, “sole partners of John M'Knight & Company,” as trustees for that company and partners present and future thereof on the other part, he let the coal (under a certain exception) and the fireclay and fireclay works, with machinery and plant, for twenty-five years

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from 26th February 1874, to the second parties, but excluding assignees and sub-tenants, legal and conventional, without the first party's consent in writing. M'Knight had borrowed money on the security of his lands, and granted bonds and dispositions in security therefor. In virtue of the powers of sale contained in these bonds the property was exposed for sale by auction at Glasgow on 25th March 1885, when John Stevenson junior, writer in Kilmarnock, became the purchaser on behalf of James Walker junior, Mauchline, Ayrshire.

Walker and Stevenson agreed to take up the purchase, one-half to each, and took the disposition from the bondholders who sold the property in their favour to the extent of one-half each pro indiviso. They raised the present action for declarator of property of one-half pro indiviso of Plann, and that by the sequestration of John M'Knight & Son, and the partners thereof, the lease became null and void, and for decree of removing against the defenders the two M'Knights, and John M'Knight & Son, and the trustee on their estates, and for £1000 as damages for refusal to cede possession.

The pursuers founded on the following provision in the minute of agreement and lease—“That as from and after the 26th February 1874 the first party has let and hereby lets to the second parties, but excluding assignees and subtenants, legal and conventional, without the consent in writing of the first party;” that they were now in right of the first party; and that they had not consented, and did not intend to consent, in writing or otherwise, to the assignees or subtenants of the second parties acquiring right to the said lease or subjects thereby let.

The estates of John M'Knight & Son, and of John M'Knight and W. C. M'Knight, as partners thereof, and as individuals, were sequestrated on 14th May 1885.

John M'Knight and W. C. M'Knight lodged defences. They averred that the pursuers knew of the existence of the lease at the time when they purchased the subjects. They also alleged that during the currency of the lease they (the defenders) had laid out not less than £6280 in certain specified meliorations, of which meliorations they claimed that they were entitled to the value.

The pursuers pleaded—“(2) The said lease having determined and come to an end, the pursuers are entitled to decree of declarator and removing as concluded for. (3) There never having been a firm of John M'Knight & Company, the bankrupts cannot maintain possession on the footing of a lease in favour of that firm. (4) Esto, that there was such a firm of John M'Knight & Company, it never having had or obtained possession under the said lease, its title to possess is inept against the pursuers as singular successors in the title.”

The defenders pleaded—“(2) The lease in question being a valid and subsisting one, the action is groundless, and decree of absolvitor should be pronounced, with expenses. (3) In any event, the pursuers are not entitled to decree without making payment of the cost or value of permanent buildings and other meliorations erected or made by the lessees on the faith of the lease enduring for twenty-five years.”

On 13th January 1886 the Lord Ordinary ( Fraser) pronounced this interlocutor:—.. . “Finds that there was no company carrying on business in existence at the time of the said minute under the name of John M'Knight & Company, but the said lease was in favour of the defenders John M'Knight and William Crichton M'Knight, who carried on business in partnership under the firm name of John M'Knight & Son, and that the said lease was truly a lease in favour of John M'Knight & Son: Finds that the estates of said firm of John M'Knight & Son were sequestrated on 14th May 1885, and that the partnership thereby came to an end; and that in consequence of the pursuers (who are now proprietors of the subjects of the said lease) refusing to give consent to the assignees of the partnership to acquire right to the lease of the subjects let, the said lease has come to an end, and the pursuers are entitled to decree of declarator and removing as concluded for: As regards the conclusion for damages, appoints the case to be put to the roll in order that it may be stated how far this claim, in regard to which no proof has been led, is to be insisted in, &c.

“ Opinion.—John M'Knight, the proprietor of the minerals let to the firm of John M'Knight & Son, had granted bonds and dispositions in security over the property, and in virtue of the powers of sale contained in these bonds the property was exposed for sale by auction at Glasgow on the 25th day of March 1885, when the pursuer John Stevenson junior offered the upset price of £11,500, and was preferred to the purchase as the only offerer. He thereupon declared that he made the offer on behalf of the other pursuer James Walker junior, who consequently enacted himself as purchaser, and bound himself to implement the articles of roup. Both the pursuers signed the minute of enactment. The pursuers afterwards agreed to take equal shares, and therefore, at the request of James Walker, the disposition subsequently made out was to the pursuers to the extent of one-half pro indiviso each, and their respective heirs and assignees whomsoever.

The pursuers having thus become proprietors of the subjects, now insist upon the firm of John M'Knight & Son removing, and to have declarator that the lease is at an end on account of the bankruptcy of the partnership. The lease is in favour of John M'Knight & Company, but it was clearly proved that although persons dealing with the firm sometimes wrote letters to them under that name, they never carried on business except under the name of John M'Knight & Son. Now, it is the law that the bankruptcy of a partnership tenant of heritable subjects puts an end to a lease, as was decided in the case of Campbell v. The Calder Iron Co., December 11, 1805, reported by Professor Bell in 1 Com. p. 82, and accepted as law by all subsequent writers who have referred to the point, and this because sequestration dissolves a partnership, and so there being no longer a partnership, there is no tenant. The case of Campbell also is useful, as showing that although the lease here was in name of John M'Knight & Company, if it turns out, as it has turned out, that it was a lease for John M'Knight & Son, the misnomer in the lease would be treated as of no moment. In the case of Campbell the lease was in favour of David Muschet of the Calder Ironwork, for himself and partners, but the lease was granted to ‘David

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Muschet and his heirs, secluding assignees, legal or voluntary, and all sub-tenants.’ On the bankruptcy of the company the Court found that the lease had determined, though Muschet himself was not bankrupt, and this on the ground that it was truly granted to the company, and not to Muschet as a private individual.

The defenders plead in defence that the pursuers in any event ‘are not entitled to decree without making payment of the cost or value of permanent buildings and other meliorations erected or made by the lessees on the faith of the lease enduring for twenty-five years.’ And in support of this plea they have a statement of facts shewing permanent improvements upon the premises of the value of £6280. It is said that if this sum or any other sum should be recovered for permanent improvements it would go to the creditors of the bankrupts, and this is quite true. But the trustee, who has been called as a defender to this action, has not appeared, and has made no claim. The bankrupts in these circumstances are entitled to go on with the action in order to vindicate property which may ultimately leave a surplus after paying all the claims of creditors. Of course if the pursuers demanded it the defenders could not maintain such pleas without finding caution, but no such caution has been asked for.

But there is another and a complete answer to this claim of the defenders. It falls directly under the case of Scott's Executors v. Hepburn, June 14, 1876, 3 R. 816, where the Court determined that the tenant whose lease was prematurely brought to a close had no claim for compensation for improvements by which the landlord had been lucratus.

The claim of £1000 for damages inconsequence of the retention of possession by the defenders was not insisted in before the Lord Ordinary, and no proof in regard to it was led. But still it has not been expressly given up, and therefore the case has been ordered to the roll, that the pursuers may have an opportunity of stating what they intend to do with regard to this claim.”

By a subsequent interlocutor the Lord Ordinary granted decree of declarator and removing against “the compearing defenders John M'Knight and William Crichton M'Knight, in terms of the conclusions of the summons for declarator and removing: Assoilzies said defenders from the conclusion of the summons for damages, and decerns: Finds said defenders liable to the pursuers in expenses,” &c.

The defenders reclaimed, and argued that looking to the peculiar language of the lease, it was not cut down by the sequestration of the firm of John M'Knight & Son. While bankruptcy terminated a copartnery, it did not necessarily end a lease in a question between the tenant and the landlord, provided he could fulfil the requirements of the lease. The lessees here were really trustees for future partners, and fairly read this was not a lease excluding assignees. They were not excluded from their claim for meliorations by the case of Scott v. Hepburn ( supra cit.)

Authorities—1 Bell's Com. 82 (5th ed.); Bell on Leases, 150; Hunter on Landlord and Tenant, ii. 585; Gillespie v. Clark, November 22, 1821, 1 S. 160.

Replied for pursuers—Bankruptcy ended a copartnery. Here not only was the company bankrupt, but each of its partners was in the same condition. The question of meliorations was decided by the case of Scott.

Authorities cited above, and Bell's Prin. 377; Lindley on Partnership, 224 and 1111.