Scottish Court of Session Decisions

On the 21st September 1886 the trustees of the late James Scott, Brechin, exposed to public roup the property forming Nos. 51, 53, and 55 High Street, Brechin, and the subjects were sold to William Scott, grocer, Brechin. By disposition granted in November 1886 the trustees, on the narrative that since the date of the purchase William Scott had declared that it was made “for and on behoof of” George Ritchie, grocer, Dundee, and with the consent and concurrence of William Scott for all his right, title, and interest, disponed the subjects to George Ritchie and his heirs and assignees whomsoever, heritably and irredeemably.

A back-letter dated 18th and 19th November 1886, and recorded in September 1896, was granted by George Ritchie to William Scott, on the narrative that “whereas, notwithstanding the disposition granted by the former proprietors of said subjects, bears that I the said George Ritchie paid the foresaid price of £1326, and is in its terms granted ex facie absolutely in my favour, yet said price was truly paid by or on behalf of you, the said William Scott, and said disposition was truly granted in my favour in security as after mentioned; and whereas it is proper I should grant these presents in manner underwritten: Therefore I hereby acknowledge and declare, ( First) That the foresaid property is to be held by me in security and for repayment of all advances and outlays made and to be made by me to you, or on your behalf, excluding sums due or to become due by you to me for the price of goods supplied in the course of business, but including feu-duties, casualties, taxes, and public burdens, improvements, and repairs, insurance, and generally all charges and expenses incurred and to be incurred by me in connection with the foresaid property, and interest at the rate of five per cent. per annum on all such advances and outlays from the date when the same shall be made by me, until complete repayment thereof, and said property shall likewise be held by me as a security for my relief of all cautionary obligations undertaken or to be undertaken by me on your behalf; ( Second) I shall at any time be entitled to enter into possession of the foresaid subjects, draw the rents thereof, and apply the same in and towards payment of the foresaid advances, outlays, and interest, and in and towards discharge of the foresaid cautionary obligations; ( Third) On repayment of the whole of said advances, outlays, and interest, and my total relief of said cautionary obligations, I shall be bound to convey the foresaid property to you and your heirs and assignees, with warrandice from fact and deed under exception of all securities granted by me over said property with your consent; ( Fourth) Upon the lapse of five years from the date hereof, I or my representatives shall at any time be entitled to demand that the whole advances, outlays, and interest as foresaid, then due by you to me shall be repaid, and that all cautionary obligations undertaken by me on your behalf, shall be discharged, and if at the end of three months after intimation of such demand shall have been made by registered letter posted and addressed to you at your last known place of residence, the said advances, outlays, and interest shall remain unpaid, or any such cautionary obligation shall remain undischarged, I, or my representatives, shall thereupon be entitled (1) to use all manner of action, diligence, and execution, real and personal, against you, or your representatives, for recovery of said advances, outlays, and interest, and for my relief of said cautionary obligations; and (2) and without prejudice to said right of action, diligence, and execution, I, or my foresaids, shall thereupon also be entitled to sell the foresaid subjects either by public roup or private bargain in whole or in lots, and at such price or prices as I or they may think proper, and thereafter to apply said price or prices, primo loco, in payment of the whole expenses attending the sale of the foresaid subjects, and, secundo loco, in repayment to me of the foresaid advances, outlays, and interest and discharge of the foresaid cautionary obligations.”

The letter, which contained a consent to registration for preservation, was recorded in the Books of Council and Session on 3rd September 1896. The letter was signed by Mr Scott in token of his approbation. To enable him to meet the price of the property William Scott borrowed £900, and in accordance with the terms of the back-letter Mr Ritchie agreed to become cautioner for the amount, and a bond and disposition in security of the subjects was granted to the lender. The bond was granted quoad the personal obligation therein contained by Mr Scott and Mr Ritchie, and Mr Ritchie with consent of Mr Scott, “for all and any right, title, and interest competent to me in the premises,” granted a disposition in security of the subjects.

Mr Scott, who had been in occupation of No. 55 High Street as a tenant, and had carried on a licensed grocery business there, continued in possession of the whole subjects

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down to the year 1896. His name throughout that period appeared in the valuation roll as proprietor of the subjects, and he let the subjects, received the rents, and paid the taxes, feu-duty, repairs, &c.

In July 1896 Mr Scott granted a trust-disposition and conveyance for behoof of creditors in favour of Mr William M'Inroy Vallentine, bank-agent, Brechin, whereby he disponed to him his whole estates, heritable and moveable, and substituted him “in my full right and place of the premises,” with full powers to relet the premises or keep them in his own hands. The trustee took posession of the property and carried on the licensed grocery business for the behoof of creditors. After sundry negotiations as to the sale of the property, on 9th September 1896 Mr Hugh M'Gregor, grocer, Brechin obtained from Mr Scott and Mr Vallentine a lease of the premises for ten years at a rent of £32, on paying £210 for goodwill and fittings. Under the lease it was contracted and agreed “between William Scott … heritable proprietor of the subjects, with the consent and concurrence of William M'Inroy Vallentine, so far as it is competent for him to do so, or he has interest therein,” that the premises should be let to Mr M'Gregor on conditions which it is unnecessary to specify.

An action was raised by Mr Ritchie against Mr Scott, his trustee, and Mr M'Gregor, concluding for declarator that Mr Scott “has not and never at any time had any right of property and was never feudally vested “in the subjects in question,” and for reduction of the lease of September 6, 1896. There was a further conclusion for payment of £1000 by way of damages.

The pursuer averred that he had taken objection to the granting of the lease, stated specific objections to its terms, and maintained that it was invalid ab initio, seeing that the defender William Scott had never had any title to the subjects leased, and further, had granted the trust-deed for behoof of creditors two months prior to the granting of the lease.

The defenders averred that the pursuer had assented to the realisation of the licensed business, for which it was necessary to give a lease of the premises to the purchaser.

They pleaded—“(2) The title held by the pursuer to the property in question being in security merely, and the defender Scott, and the trustee, under his trust-deed, having been allowed to possess the subjects, and to act as proprietors thereof, they were entitled to grant leases of the subjects for reasonable rents.”

The Lord Ordinary ( Pearson) on the 5th January 1898 allowed the parties a proof. The result of the proof so far as is necessary for the decision of the case sufficiently appears in the opinion of the Lord Ordinary infra.

The Lord Ordinary on 4th April assoilzied the defenders from the conclusions of the summons.

Opinion,—“In this action the pursuer, who is a wholesale grocer in Dundee, seeks to set aside a lease of premises in the High Street of Brechin, which has been granted by the defender William Scott and his trustee in favour of the defender Hugh M'Gregor.

The pursuer is infeft in the subjects, and has been so since 16th November 1886. Neither William Scott nor his trustee was ever feudally vested in the subjects; but William Scott was in uninterrupted possession of them from a period prior to the pursuer's infeftment until July 1896, and his possession was continued by his trustee until the lease now challenged was granted.

The pursuer's objections to the lease are two:—(1) That Scott never having been proprietor of, nor feudally vested in the subjects, neither he nor his trustee was entitled to exercise any right of ownership therein; and (2) that the lease was granted illegally, and in pursuance of a collusive scheme as condescended on, the new tenant being in full knowledge of the position of parties.

The subjects let have been occupied by the defender William Scott as a licensed grocery since 1883. At that time the property No. 51, 53, and 55 High Street, Brechin, of which they form part, belonged to James Scott's trustees, from whom William Scott obtained a five years' lease of the shop in question. The property includes another shop, let to a chemist, and two dwelling-houses, one of which was converted from a stable.

William Scott had been in the employment of the pursuer Mr Ritchie, and from the time he obtained the five years' lease of the shop in 1883 the pursuer furnished him with goods and cash advances.

In 1886, before that lease ran out, Scott represented to the pursuer that it would be desirable to acquire the property which was about to be exposed for sale, and the pursuer assented. Scott attended the roup, and was preferred to the purchase at the price of £1326. But having declared that the purchase was made by him for and on behalf of the pursuer Ritchie, the disposition was granted by the exposers with consent of Scott in favour of Ritchie, who took infeftment.

Two days later Ritchie granted a back-letter addressed to William Scott, which narrated that Scott had purchased the property, and that notwithstanding the disposition bore that Ritchie had paid the price and was granted ex facie absolutely in his favour, ‘yet said price was truly paid by or on behalf of you the said William Scott, and said disposition was truly granted in my favour in security as after mentioned.’ The letter bore that the property was to be held by Ritchie in security, and for repayment of advances and outlays, with certain exceptions, and in relief of cautionary obligations. It stipulated that Ritchie should ‘at any time be entitled to enter into possession of the foresaid subjects, draw the rents thereof, and apply the same’ towards the said advances and obligations; and that on

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repayment and total relief as aforesaid, Ritchie should be bound to convey the property to Scott and his heirs and assignees, with warrandice from fact and deed, under exception of all securities granted by Ritchie over the property with Scott's consent. It was further declared that upon the lapse of five years from the date of the letter Ritchie should at any time be entitled to demand repayment of all advances and discharge of all cautionary obligations; and failing such repayment and discharge at the end of three months after intimation, he should have right of action and diligence, and power of sale. The letter, which contained a consent to registration for preservation, was signed also by Scott ‘in token of his approbation.’ It remained unrecorded until 3rd September 1896, when it was registered in the Books of Council and Session for preservation.

To enable him to meet the price Scott borrowed £900 from a Mr Birrell. For this a bond and disposition in security was granted, the personal obligants being Scott and Ritchie (the latter as cautioner and full debtor); while Ritchie, with consent of Scott, disponed the said High Street property in security. This loan subsists to the extent of £800.

It was one of the main objects of these arrangements to maintain Scott in the possession of the licensed grocery business, Mr Ritchie getting at the same time an outlet for his goods and securities for his advances. He continued to supply Scott with goods and money, and Scott remained in undisturbed possession, acting in all respects as if he were owner, for a period of nearly ten years. His possession was not limited to his own shop. So far as that is concerned, his then subsisting lease, which had two years to run, merged in the ownership; and from that time he paid no rent to anyone. But he also acted as owner of the whole property. He did all the ordinary repairs and unkeep. He uplifted the rents of the chemist's shop, accounting to no one for them; and when the chemist's lease ran out he renewed it for five years at an increased rent. He was entered in the valuation roll as proprietor, and paid the owner's rates and taxes. He altered the stable in the back premises into a dwelling-house at a cost of £200 or £300, and obtained the necessary warrant from the Dean of Guild on a petition in his own name as proprietor.

No doubt he was frequently in communication with the pursuer about these matters or some of them. The pursuer was financing him, and when money was required some explanation of the proposed outlay had to be given; but the pursuer never took any step, either under the clause in the back-letter authorising immediate entry, or under the clause providing for three months' premonition, with a view to sale.

In 1896 Scott's affairs became embarrassed. The pursuer was by far the largest creditor; and in July of that year Mr Vallentine, bank agent, Brechin, whose bank was also a creditor, suggested to the pursuer that Scott should sign a trust-deed. This was finally arranged with Scott at a meeting in the pursuer's office, and Scott signed the trust-deed on 15th July, Mr Vallentine being the trustee. It is admitted (Stat. III.) that ‘on the granting of the trust-deed the trustee took possession of the property and carried on the licensed grocery business for behoof of the creditors until it was realised by the sale to the defender M'Gregor.’

Mr Vallentine set about calling a meeting of creditors, and inquiring as to claims. He was in confidential communication with the pursuer both before and after the trust-deed was signed; but neither he nor his law-agent Mr Steedman knew of the terms of the back-letter until some weeks later. They knew generally that the pursuer was a large creditor, and that he was to some extent secured by having the property vested in him.

Accordingly, Mr Vallentine all along recognised that if the property came to be sold they must take the pursuer along with them. Thus, in writing to the pursuer on 15th July intimating the first meeting of the creditors and asking for a note of his claim, Mr Vallentine says—‘Do you think the property ought to be advertised for sale at once? If you do, perhaps you would send on the titles, holding this letter as a guarantee that I would account to you for the proceeds up to the amount of your claim on Scott's estate. If I am to sell, it must be done with your consent as nominal owner.’

But the property has not been sold, although at least one offer for it was entertained. What has been sold is the licensed grocery business, and this only as incidental to a ten years' lease of the shop. The defender M'Gregor obtained from Scott and his trustee a lease of the shop for that period at a rent of £32 on paying £210 for goodwill and fittings; and that is the transaction which is now challenged.

The pursuer's first plea-in-law raises, as it appears to me, the very question which was decided in the case of Abbot v. Mitchell ( 1870, 8 Macph. 791). There a person vested in heritable property under a disposition ex facie absolute, but truly in security, had allowed the true owner to continue in the possession and administration of the subjects for two years. It was held that a lease granted by the latter, without the concurrence of the former, was valid.

I think that case rules the present so far as regards the first plea-in-law, unless some workable distinction can be suggested. (1) It is urged that here Scott never was feudally vested in the subjects; that his possession began in 1883 on a title of tenancy, and was continued from 1886 on no title except an unrecorded back-letter. But in a question with Ritchie I regard that as quite immaterial. It is plain on the face of the transactions of November 1886, and specially on the terms of the back-letter, that Ritchie was content to take the position of creditor, and acknowledged that he held for Scott as the true owner. If Scott had at any time tendered to Ritchie the amount of his debt and a valid discharge of the cautionary obligations, Ritchie would have been bound, not to reconvey, but to convey the property to Scott. I do not see

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how, in a question between the principal parties, it can make any difference that the title was taken (as it was) direct to Ritchie with Scott's consent, instead of passing through Scott as feudal proprietor. (2) Even if Scott's position was only that of a factor or mandatory, the powers and rights of parties depended on the back-letter; and Ritchie did not put in force either of the clauses which empowered him to resume possession, the one peremptorily, the other on three months' notice with a view to sale. The pursuer's agents did indeed intimate to the trustee on 31st August that he would not homologate any sale or lease not submitted to him for approval; but by that time there was a binding bargain with M'Gregor, although the lease was not signed. (3) It is suggested that while an ordinary lease might have been unchallengeable, there was here in addition a sale of the goodwill; and that as the goodwill was inherent in and inseparable from the heritable subject, this was truly a partial realisation of the subjects held in security. Now, I assume that it would have been beyond Scott's power to sell or burden the security subjects in whole or in part without the creditor's concurrence. But then these are acts which can only be done effectually by a person who is either infeft or holds an express mandate from one who is infeft; and they are in no sense acts of ordinary administration. Here it is obvious that a lease could hardly have been negotiated without the goodwill being transferred as incidental to it. For one thing, the licence clearly belonged to the trust-estate, and the power to withhold a transfer of it gives the holder a commanding position in the case of a sale or lease of the premises. It is another question whether the terms obtained here were fair. But assuming that the lease is not otherwise challengeable, it does not appear to me to be fatal to it that the bargain included a sum in name of goodwill. It may be observed that in Abbot v. Mitchell a large sum had been paid for stock and goodwill, but it does not seem to have been suggested that that formed a good objection to the lease on the part of the security-holder.”

The pursuer reclaimed, and argued—1. This case was clearly distinguishable from that of Abbot v. Mitchell, May 25, 1870, 8 Macph. 791, upon which the Lord Ordinary based his judgment. Scott had never had any feudal title at all; all that he had was a jus crediti under a personal contract, in respect of which he could demand a conveyance from the pursuer on discharging the whole of his obligations. In Abbot v. Mitchell, on the other hand, the granter of the lease was infeft in the subjects under burden of a heritable security. See also Union Bank v. Mackenzie, March 27, 1865, 3 Macph. 765. Moreover, in Abbot v. Mitchell there were special circumstances in the possession from which the authority to grant a lease might be inferred. Here, however, the lease had not been granted by Scott while in possession, but by his trustee, and it was impossible to hold that even if he had an implied authority from the pursuer to grant a lease, such authority was delegated to his trustee. The only ground for holding that there was such implied authority was Scott's possession, and when that terminated the supposed authority must necessarily terminate also. It was perfectly clear from the evidence that the pursuer had objected to the granting of the lease. 2. The pursuer was entitled by way of damages to recover the equivalent of the 2 1 2 years' occupation of the shop, i.e., £90, or alternatively the interest on the money owed to him, which he would have recovered had the property been sold.

The respondents argued—1. Scott had been left in precisely the same position as the granter of the lease in Abbot v. Mitchell, which case must rule the present one. He had been treated as the actual proprietor, and was in point of fact the person with the radical right acting as owner. He and the trustee were accordingly entitled to grant the lease without any consultation with the pursuer, who was merely the security-holder. 2. No harm had accrued to the pursuer from the granting of the lease, and he could only prove damage if he could show that the value of the shop was less if it were let, which there was no evidence to show.

At advising—