Scottish Court of Session Decisions

This was an action at the instance of William Binnie and others, the children of the deceased John Binnie, wright and builder in Glasgow, against David Broom, house-agent, 75 Bath Street, Glasgow, as an individual, and as sole surviving trustee nominated and appointed by the trust-disposition and settlement executed by John Binnie on 24th October 1856, and against Mrs Binnie and others, the trustees who had been assumed, and also against the testamentary trustees of those of John Binnie's trustees who were deceased.

The conclusions of the action were directed against David Broom, as an individual and as trustee, and against the other defenders, as trustees, for an accounting in connection with the intromissions of the trustees with John Binnie's trust-estate, and for payment of £20,000.

William Binnie died on 7th October 1857, leaving the trust-disposition and settlement above mentioned, and survived by his widow Mrs Jane M'Dougall or Binnie and by the pursuers.

By his trust-disposition and settlement the testator directed his trustees, in the first place, to make “payment of all my just and lawful debts, deathbed and funeral expenses, and the expense of executing this trust.” In the second place, he appointed his trustees to pay all such legacies, gifts, or provisions as he might appoint to be paid under any codicil, writing, or memorandum clearly expressive of his will and intention and in the third place, he appointed them to “pay, assign, and dispone to the said Jane M'Dougall or Binnie, in case she should survive him, in liferent for her liferent use allenarly, the rents, interests, dividends, and annual profits of the free residue of my estate, after paying all annuities, legacies, or other charges and burdens, but that only to the extent, for the periods, and at the terms as follows, viz.:—During the first three years after my death, one-fourth part on the elapse of three years after my death, and during the next succeeding seven years, one-third part or share and on the elapse of ten years from the period of my death, in the event of the said Mrs Jane M'Dougall or Binnie remaining then unmarried, but not otherwise (except as after provided), one-half of the rents, interests, dividends, and annual profits of the free residue of my estate.” He further declared that in the event of Mrs Jane M'Dougall or Binnie marrying after she became entitled to the increased allowance of one-half as above mentioned, then the same should be reduced and restricted to one-third part of the rents and others. In the fourth place, he appointed his trustees, “from the rents, interests, dividends, and annual profits of the free residue of my estate, as before mentioned,” to pay, assign, and dispone to and in favour of his children therein named—of whom the pursuers were three —and any other to be thereafter born, in liferent for their liferent use allenarly, the following provisions “for the purpose of their education, upbringing, and support, to be divided amongst them, share and share alike, during the periods and at the terms after specified, viz.—During the first three years after my death, one-fourth part after the elapse of the said three years, and during the succeeding seven years after my death, one-third part, and on the elapse of ten years from the period of my death, the allowances to my said children shall be increased to one-half of the said rents and others;… declaring that the said respective provisions to them shall continue to be paid to them or for their behoof until my youngest child shall attain thirty years complete.” This period had not arrived at the date of the action

In the seventh place, William Binnie directed his trustees to apportion and divide the free residue and remainder into two equal parts or shares, .and to lay out and invest one

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part or share in the purchase of lands and heritages, and to dispone and convey the same to and in favour of Mrs Jane M'Dougall or Binnie in liferent for her own liferent use allenarly, and to the children in fee, equally among them, share and share alike “and with regard to the other half, or, in the event of the marriage of the said Mrs Jane M'Dougall or Binnie, the remaining two-thirds of the free residue and remainder of my estate and effects, heritable and moveable, above conveyed (excepting in the case of her separation from her husband, as before provided, or of her said husband predeceasing her), I appoint my said trustees to pay, assign, and dispone the same to and in favour of” the children equally between or among them, share and share alike, in liferent for their liferent use allenarly, and their lawful issue respectively in fee. He further nominated and appointed the trustees to be tutors and curators to his children.

In Cond. 4 the pursuers averred that the personal estate of the truster as contained in the inventory given up by the trusters amounted to £1904, 17s. 9d. “The heritable estate consisted of property situated in Argyle Street, Hope Street, and Oswald Street, Glasgow, which was of the value in 1858 as ascertained by the trustees of £42,980, and which when subsequently sold realised about £42,000. That property was subject to a heritable debt created by the truster; of £12,000, while his personal debts amounted, as ascertained and stated by the trustees, to £15,000. The “free residue” of his estate after paying or making provision for said debts, amounted at the date of the truster's death to and was estimated by the said trustees at £17,880, or thereby.” They then averred that the trustees in place of paying off the trustee's debts as directed, wrongfully proceeded to raise a loan on the security of the trust-estate, that they obtained from the Royal Bank of Scotland a loan of £26,000, and with consent of Mrs Binnie for her right of liferent, granted a bond and disposition in security over the whole of the heritable property, which was recorded on 24th November 1858 and further, that they borrowed from the National Bank of Scotland at ordinary cash account rates the sum of £2250, and for this advance authorised their factor to grant a promissory-note.

Under the trust-deed the trustees had no power either to sell or to borrow on the security of the trust-estate.

The defenders in answer to this statement admitted that the personal estate amounted to about the sum stated, but that it consisted to a considerable extent of household furniture, liferented by the widow. Explained that the valuations of the heritable properties were based on increased rentals expected to be obtained after further outlay on the property that the truster's personal debts amounted to £24,613, and that the bond for £26,000 included the heritable debt of £12,000 created by the truster, and that the sum borrowed was applied in paying off the truster's debts. They averred—“The truster left no funds or estate sufficient for the payment of his debts, without realising or borrowing upon the security of the said heritable property.” They stated that they had acted upon the opinion of counsel, and in the honest discharge of their duty.”

In Cond. 5 the pursuers averred that in borrowing this money, and in granting the bond and disposition in security, the trustees had wrongfully engaged in a speculation and undertook the risk. “It was their duty to have realised such portions of the estate as were necessary for paying off the trustee's debts as directed by him, and had they done so there would have remained a surplus or free residue of the value of £16,000 or thereby.” They also stated that the money might have been borrowed at a lower rate of interest than that charged by the bank. “On an average the interest paid exceeded reasonable secured rates by from 2 to 2l 1 2 per cent. and from this cause alone the estate was wasted to the extent of between £7000 and £8000. The above-mentioned maladministration by the trustees was ultra vires, wrongful, and recklessly improvident.”

The defenders stated in answer that the loan could not be obtained on easier terms that when it was arranged the creditors were pressing for payment, and the trustees had to find funds to meet the debts and that in consequence of the great depression in Glasgow at that time, in consequence of the failure of the Western Bank, any realisation of the heritable properties would have been very unwise.

In Cond. 7 the pursuers averred that the trustees had disregarded the terms of the settlement and paid annually to Mrs Binnie sums of money out of the estate in excess of what she was entitled to, and that shortly before her second marriage in 1861 they had paid her a capital sum of £400 that during the years when these payments were being made the interest due to the bank was simply allowed to accumulate. “The said trustees in failing to pay off the truster's debts as directed by him, in borrowing on heritable security as already mentioned, in making the extravagant payments alleged, and in allowing the the interest on the said loan to accumulate, as hereinafter mentioned, acted ultra vires, wrongfully, in a grossly negligent and culpable manner, and in manifest breach of duty.”

In answer the trustees stated that under the trust-deed they had power to increase the provisions to the children, and pay these to Mrs Binnie for their aliment and education, and that the sum of £400 paid to Mrs Binnie was a compromise of her claims under a postnuptial settlement by which she was entitled to an annuity of £100 a-year.

Mrs Binnie's second husband died in 1865.

In Cond. 8 the pursuers averred that as a result of the wrongful conduct and actings of the trustees, there was no surplus left to pay the interest on the heritable bond, which was allowed to accumulate to over £9000, and that from a minute of the trustees, of date 19th April 1866, it appeared that the “rental of the properties was insufficient to meet the interest on the heritable debts in consequence of the high rates charged by the bank.”

Sequestration of the trust-estate was accordingly applied for by the trustees on 17th June 1867, with concurrence of the marriage-contract trustees of Mrs Isabella Binnie or Aitken, who had a claim for £1159, 2s. 3d., which had not been paid, and sequestration was awarded.

The defenders in answer stated that attempts had been made to sell the heritable properties, but that they had only been able to sell part of

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the Hope Street property for £7000, which had been applied in paying the truster's debts. To fortify the title, premonition had been given under a bond granted by Mr Binnie's father, and the subsequent sale was made under this bond. With regard to the rest it had either been impossible to find a purchaser, or difficulties were raised in regard to taking a title from the trustees, and that in these circumstances realisation could only be effected through sequestration.

In Cond. 9 the pursuers averred that Mr Wyllie Guild, the trustee in the sequestration, sold the rest of the heritable property for £34,900, which he applied in paying £29,287, 9s. 8d. to the Royal Bank, and £2640, 3s. 3d. to the National Bank, as preferable creditors, and with the balance that he paid his own commission and the law-agents' accounts, and divided a balance of £988, 10s. among other creditors. In 1871 the trustee was discharged.

The pursuers pleaded—“(4) The trustees having acted wrongfully, in disregard of the terms of the trust-deed, and in contravention of their duty as trustees, are bound to make good to the pursuers the loss occasioned thereby, and decree falls to be granted against them under the alternative conclusion of the summons, with expenses.”

The defenders pleaded—“(3) The pursuers' averments are irrelevant and insufficient to support the conclusions of the action. (7) The trustees having acted within their powers, and separatim having acted in bona fide and under advice of counsel in the transactions condescended on, the defenders are entitled to absolvitor.”

On 16th February 1887 the Lord Ordinary ( M'Laren) allowed a proof before answer.

“ Opinion.—This is an action instituted by beneficiaries against a trustee, and the representatives of other trustees, claiming compensation for the loss of the trust-estate, which they say was caused by the trustees first allowing the interest of debt to accumulate at bank discount rates, and then throwing the estate into sequestration, and allowing it to be sacrificed with a view to their own exoneration from the personal responsibility which they had incurred to the banks.

“It is with some reluctance that 1 have decided to make an order for proof, because the sequestration was applied for in 1867, and when a claim of this kind is made twenty years after the event it is natural to suppose that there is not much substance in it. Lapse of time, however, is not an absolute bar to an action for enforcing accountability it is a circumstance to be weighed along with the other elements of fact, when these have been ascertained.

In the argument on relevancy it was contended with much anxiety on behalf of the trustees, that from the nature of the instructions which they received from the truster they could -not do otherwise than borrow from the banks, and continue borrowing from year to year to make up the annual deficits. Under such a mode of administration bankruptcy is of course inevitable, and the period of its occurrence can be calculated in advance with reasonable certainty. Nevertheless the thing must be done, because it is the will of the truster; this is the proposition that is masked by the eloquent argument addressed to me in defence of the trustees' administration. Now, I think it is very likely that the trustees may be able to show that they were justified in borrowing from the banks to pay off unsecured debts, but it could not be sound administration to retain the heritable property and to continue the system of borrowing after it became clear that the interest of debt and necesssary expenses were permanently in excess of the rents. Their duty under such circumstances would be to realise the estate, and to invest whatever residue it might yield for the truster's family.

I have difficulty in accepting the statement that it was impossible for the trustees to sell until the estate became insolvent. Under such circumstances as I have supposed the trustees might have obtained a declaratory judgment affirming their power of sale; at all events, they might have tried. Other modes of solving the difficulty may be suggested. And it may be noticed that when the trustees wanted to sell a part of the property they did so (through the intervention of an heritable creditor) without raising any question regarding their powers.

Therefore, while very sensible of the inconvenience of such an inquiry as is proposed after such an interval of time, I cannot say that on the facts as stated, the action of the trustees is so clearly right as to render all inquiry superfluous. The evidence I suppose will be mainly documentary, and all the defenders' pleas are of course reserved entire.”

The defenders reclaimed.

On 3rd March 1887 the Court recalled the Lord Ordinary's interlocutor and remitted to Mr James A. Robertson, C.A., Edinburgh, to inquire into the amount of the trust-estate from the date of the truster's death, the amount of debts due by the truster and paid by the trustees, and the yearly income and expenditure of the trust, and to report.

On 17th January 1888 Mr Robertson lodged his report, in which he estimated the amount of the trust-estate at the date of the trustee's death at £43,035,18s. 10d., and the amount of debts due by the truster, and paid by the truster's, at £32,685, 17s. 2d. The total income of the trust from 7th October 1857 to 15th May 1870 was £17,518, and the total expenditure for the same period £22,165. The personal property of the truster was estimated by the reporter at £1135, 18s. 10d., and the heritage at £41,900, being the estimated value of the property at the date of the truster's death. Upon this property there was a heritable debt of £12,000. After payment of the various debts of the truster, including the debts paid by the trustee in the sequestration, and the inventory duty of the personal estate, there remained on the showing of the reporter a surplus of £7132, 4s. 7d. This surplus, as explained in the report, was disposed of in various ways, partly in meeting excess of expenditure over income, partly in making payments to the widow and children of the truster, and partly in paying the expenses of the sequestration; but after all these disbursements had been made there still remained, in the opinion of the accountant, a sum of £2180, upon which the question of liability for holding the heritable property depended.

Argued for the reclaimers (the defenders)— The valuation of the heritable property upon

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which the accountant proceeded was utterly fallacious. Such a price could not have been obtained at the time of the truster's death, nor at any time thereafter, till the sale under the sequestration. The trustees throughout acted in bona fide, and to the best of their judgment, though when looked back upon their actings might not have been the most advantageous for the trust- estate yet in borrowing on this property rather than selling a portion of it, the trustees acted under the advice of counsel, and for the best, and they were advised that in acting as they did they were within their powers. It was maintained that the creditors might have been sooner urged to force a sale, but it could not be suggested as a ground for rendering the trustees personally liable that they did not urge third parties to act against the express purposes of the deed. The pursuers had to show not only mismanagement on the part of the trustees, but that they had suffered loss thereby, and in that they had failed— Kinloch, Petitioner, December 7,1859, 22 D. 174 Hay's Trustees v. Hay Miln, June 13, 1873, 11 Macph. 694 Weir's Trustees, June 13, 1877, 4 R. 876.

Replied for the respondents (the pursuers)— The whole actings of the trustees were reckless and ultra vires. What the pursuers objected to was the burdening of the estate, and the borrowing from the bank upon such ruinous rates of interest. Until the Trusts Act of 1867 no such power existed as that of borrowing upon the security of the trust-estate, and no case could be shown in which this was done— Erskine's Trustees, May 13, 1829, 7 S. 594 Graham v. Graham's Trustees, December 21,1850, 13 D. 420 Whyte, Petitioner, March 7, 1855, 17 D. 599. The duty of the trustees in such a case was to have sold a portion of the trust-estate, and not followed the course they did, which was too speculative. There should have been a sale for every year that the expenditure exceeded the income. Further, from the first, the trustees violated the trust by allowing to the widow and children an allowance far in excess of what the trust-deed permitted. Had the trustees come to the Court and got authority to sell, the sequestration and all that followed would have been unnecessary— Henderson v. Somerville, June 22, 1841, 3 D. 1049. By their actings the trustees had rendered themselves personally liable.

At advising—