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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Dempster's Trustees v. Dempster [1898] ScotLR 35_657 (10 March 1898)
URL: http://www.bailii.org/scot/cases/ScotCS/1898/35SLR0657.html
Cite as: [1898] SLR 35_657, [1898] ScotLR 35_657
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SCOTTISH_SLR_Court_of_Session
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Court of Session Outer House.
[
v.
Facts:
A wife who had conveyed her whole estate, including acquirenda, to marriage-contract trustees, became entitled to a one-seventh share of a certain trust-estate. Part of that estate consisted of heritable property which was not realisable, and the trustees accordingly entered into possession and paid to the marriage-contract trustees the one-seventh share of the rents and profits arising therefrom. In estimating the amount of such rents and profits which ought to be allocated to capital and income respectively, held that a sum should be ascertained, which, put out at a reasonable rate of interest at the death of the testator, would, with accumulation of interest, have equalled the amount ultimately realised, together with the rents and profits received, and that the sum so ascertained should be treated as capital and the residue as income. Held further, that when a liferent to the widow of the testator was provided, the sum should be ascertained as if invested at the date of the death of the liferentrix, and not at that of the testator.
By antenuptial contract of marriage Mrs Jessie Louisa Hickey or Dempster conveyed to trustees all and sundry lands and heritages, goods, gear, debts, sums of money, and generally the whole property, heritable as well as moveable, then belonging to her, or that should pertain to her during the subsistence of her marriage. One of the purposes of the trust was for payment to her of the free interest or annual proceeds thereof during all the days of her life. Part of the property thus conveyed consisted of Mrs Dempster's interest, to the extent of one-seventh, in the trust-disposition and settlement of the late Dr George Playfair. Dr Playfair died in 1846, and his widow, who had a liferent of his estate, in 1862. Part of this trust-estate consisted of real property in Calcutta,
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which Dr Playfair's trustees were unable to sell. They, however, entered into possession of the subjects and drew the rents, a seventh part of which they remitted to Mrs Dempster's marriage-contract trustees, or the share falling to her. In their accounts the marriage-contract trustees treated these payments as capital. The property was ultimately sold, and the amount realised divided among the beneficiaries. In 1897 the trustees under Mrs Dempster's marriage-contract presented a petition for authority to resign, for exoneration and discharge, and for appointment of a judicial factor. On the petition being remitted to the Accountant of Court he expressed doubts as to whether the amounts received from Dr Playfair's trustees prior to the property held by them had been rightly treated as capital of the marriage-contract trust. A minute was accordingly lodged for Mrs Dempster, praying that the accounts be re-stated.
On 10th March 1898 the Lord Ordinary (
“ Opinion.—This question arises in proceedings for the discharge of the trustees under the antenuptial marriage-contract of Captain and Mrs Dempster.
By that contract, dated in 1863, Mrs Dempster conveyed to the trustees the whole property, heritable and moveable, then belonging or resting—owing to her during the marriage, to be held by them for payment of the interest to herself for life, and afterwards to her husband; and on the death of the survivor the estate was to be made over to the children of the marriage.
Among the property thus assigned to the trustees was Mrs Dempster's right of fee in one-seventh share of the residue of the estate of her grandfather Dr Playfair.
Dr Playfair had died in 1846, leaving a will by which he conveyed his estate to trustees, directing them as soon as might be expedient after his death to convert the whole of his estate into good and available securities. The whole income was to be paid to his wife, who survived him and died in 1862, whereupon his residue became divisible. His trustees proceeded to divide the estate, excepting certain items, one of which stood in a peculiar position, and gives rise to the present question.
Some years before his death Dr Playfair had entered into possession of certain real property in Calcutta, by virtue of a mortgage over it to which he had acquired right. This state of matters remained at his death, and was continued by his trustees. Shortly after Mrs Playfair's death in 1862, Dr Playfair's trustees attempted to realise the property; but after taking advice they decided to hold it until the lapse of a period which, according to Indian law, would fortify their title. This period expired about the year 1894, when they realised this asset and made a final distribution of Dr Playfair's residue. While the trustees were so holding the property they drew the rents and made payments therefrom to the residuary legatees from time to time on account of their shares. The payments, both interim and final, effeiring to Mrs Dempster's one-seventh share, were made to her marriage trustees, who treated them all as capital of the marriage trust, paying her only the income thence arising.
Mrs Dempster now claims that the trustees' accounts should be re-stated, on the footing that they ought to have treated the Calcutta rents as income, and paid them over to her. She founds this contention on the alternative ground that these rents being in themselves of the nature of income did not fall within the assignation in her marriage-contract; and that even if they did, the trustees should immediately have handed them on to her as being truly income of a part of the trust fund which had not yet been realised.
This contention appears to me to be contrary to the facts. In the first place, Mrs Dempster and her trustees had no right in or claim against the Calcutta rents as such. Their right consisted in a claim against Dr Playfair's trustees for one-seventh of the net residue. Then again, it is only in an inaccurate sense that the rents of security subjects uplifted by a mortgage in possession can be regarded as income. They are in a sense taken in lieu of interest on the debt; but they may be large enough to extinguish part or the whole of the principal debt, and the creditor in possession remains (until the requisite steps are taken) liable in an accounting. It matters little whether they are truly income or not so long as the creditor is alive, but as soon as it becomes necessary to distinguish between capital and income of his estate or of any share in it, it would be obviously erroneous to pay away the accruing rents as income.
The true position was this. Dr Playfair's trustees postponed the realisation of this asset for the benefit of the estate under their charge and of all concerned in it. The
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On the other hand, neither are they all capital. They are the proceeds of one of Dr Playfair's investments which his trustees might, if so advised, have realised at once after his death for what it would fetch. Had they done so and invested the price it would have been an income-producing subject. It does not necessarily cease to be so because in the course of judicious realisation they hold it for years. The aggregate of the sums received by the marriage-contract trustees, that is to say, the total product of the investment so far as regards their one-seventh share, must be apportioned on some fair principle between capital and income.
I am not aware that this question has been presented for judicial decision in Scotland. But I was referred to some English cases which furnish a rule reasonable in itself, and not inconsistent with any of our authorities— Earl of Chesterfield's Trusts, 1883, 24 Oh. Div. 643; in re Foster, 1890, 45 Ch. Div. 629; in re Hubbuck, 1896, 1 Ch. 754. The total amount received in the realisation is treated as if it had been the product of a sum invested as at the testator's death at a reasonable rate of interest accumulated to the date or respective dates of receipt. That sum—the sum required to produce the amount in hand under those conditions—is credited to capital and the remainder to income. It may be that this rule would operate harshly in certain cases and would require to be modified; but for the average case no fairer rule occurs to me or was suggested in argument.
It is not however applicable here in terms, for Mrs Playfair survived her husband for sixteen years and (it is supposed) received the rents from the Playfair trustees as income. The parties here do not desire to go back into that period, and unless that is done it would be obviously unfair to take the date of Dr Playfair's death as the date from which the theoretical accumulation is to run. As between the present parties, it seems fair to take the death of the liferentrix as the terminus.
It follows from what I have said that the circumstances of this case exclude the application of the case of Boyd's Trustees v. Boyd, July 13, 1877, 4 R. 1082, and the decisions which have followed upon it.”
Counsel for the Petitioners— W. L. Mackenzie. Agents— W. & F. Haldane, W.S.
Counsel for the Minuter— Grainger Stewart. Agents— Sibbald & Mackenzie, W.S.