Scottish Court of Session Decisions

William Spence Smith let four pieces of land to A. H. Harrison & Company, fishcurers, upon one of which the latter put up certain buildings.

On 30th November 1889 Harrison & Company granted a trust-deed for behoof of their creditors in favourof James Hutcheon. At this date the leases in Harrison & Company's favour had each several years to run.

On 13th January 1890 Hutcheon, who wished to surrender the leases, wrote to Smith as follows—“Referring to our conversation of Saturday, what I have to propose is that—(1) The loss to the end of the respective leases on the three stations I intend to give up be estimated by two valuators mutually chosen, and if no agreement can be arrived at, let the matter be referred to an oversman. (2) That the erections and improvements on the fourth station be taken over by you at mutual valuation, with reference to oversman, if need be.” …

Smith replied on 23rd January, agreeing to the above proposal on condition that the loss or gain on the fourth station should also be determined by the valuators, and this condition was accepted by Hutcheon.

Valuators were accordingly appointed to value the buildings erected by Messrs Harrison & Company, and to estimate the rents probably obtainable for the stations during what remained of the various leases.

The valuators issued their award on 1st November 1890. They found that the loss on the leases amounted to £406, 17s. 6d., and that the value of the buildings on the fourth station was £175. They deducted the latter of these sums from the former, and stated that the amount for which the proprietor would rank was £231, 17s. 6d.

Smith thereafter brought an action in the Sheriff Court at Lerwick against Hutcheon, craving the Court to find (1) that the loss sustained by the pursuer on the respective leases renounced by the defenders amounted to £406, 17s. 6d.; (2) that the value of the erections taken over by the pursuer was £175, as the same had been fixed by the valuators, and to grant decree ordaining the defender to pay the pursuer £231, 17s. 6d., or otherwise to rank him therefor as a creditor on the estate of Harrison & Company.

The pursuer averred that £231, 17s. 6d. was the sum due by the defender under the agreement.

The defender stated, inter alia—“The defender, as trustee foresaid, was entitled, subject to any right of hypothec competent to the landlord, to sell and dispose of the buildings, and rank the pursuer as an ordinary creditor for the present value of the loss of future rents under the leases subsequent to the date of abandonment of the leases taking effect. He, as trustee foresaid, entered into negotiations with the pursuer, with the result that it was agreed that … in place of his (the defender) selling and removing the buildings, the pursuer undertook to take them over and pay for them the sum which the arbiters might fix as their value. It was also thereby agreed that the arbiters should fix the estimated amount of the future rents which the subjects let might be expected to bring during the currency of the leases.” He offered the pursuer a ranking for £406, 17s. 6d., but objected to his imputing the value of the buildings, viz., £175, pro tanto, in extinction of the debt due to him for loss under the leases.

He pleaded that the arbiters had acted ultra vires in setting off the one sum against the other.

After protracted proceedings in the Sheriff Court, in the course of which the parties lodged revised pleadings by order of the Sheriff ( Thoms), the Sheriff-Substitute ( Shennan) on 4th October allowed parties a proof of their respective averments.

The defender appealed, and argued—1. The pursuer's case was laid on the agreement, and the Court was excluded from considering the question of compensation on its merits. As the agreement gave the pursuer no right to set off his claim for loss of rent against the trustee's claim for the value of the buildings, his case failed. 2. If the question of compensation were to be considered on its merits, the pursuer's claim to compensate could not be given effect to. The landlord's claim for loss of rent arose out of the lease owing to the tenant's failure to fulfil his obligations. But the debt by the landlord arose subsequent to the bankruptcy, and was due to the trustee, who was under no obligation to transfer the buildings to the landlord, but might have removed them and realised them elsewhere. If the parties had not transacted, therefore, the one would and the other would not have been an existing claim. The result was that the concursus debiti et crediti necessary to found the right of compensation did not exist— Taylor's Trustee v. Paul, January 24, 1888, 15 R. 313; Davidson's Trustee v. Urquhart, May 26, 1892, 19 R. 808.

Argued for the pursuer—The Court were not debarred by the form of the pleadings from considering the real question between the parties, namely, the question of compensation, on its merits. The agreement provided for the ascertainment of the amount of the landlord's loss and the value of the buildings, but was silent as to whether the one sum might be compensated by the other. The legal rights of parties consequent on the agreement must be decided by a consideration of their antecedent rights, and the case might be taken on the footing that the buildings

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were of a kind which the tenant was entitled to remove. In any case, however, being called buildings by the defender, they must have become partes soli, and the landlord had the right to retain them until the tenant's obligations under the lease were fulfilled— Brand's Trustees v. Bain, 1876, L.R., 1 App. Cas. 762. A concursus therefore existed between the claim for loss of rent and the counter claim for the buildings, and the landlord was entitled to set-off the latter against the former. The case of Taylor's Trustee was different, for there the debt due by the landlord arose from his taking over various articles from the trustee, to whom they belonged not as representing the bankrupt but as himself tenant.

At advising—