Scottish Court of Session Decisions

On 22nd January 1894 Mr William Thomson, engineer, Glasgow, entered into an agreement with his two sons by his first marriage, William Thomson jun. and John Thomson, and his son-in-law Charles Davidson, in the following terms:—“Whereas the first party has for a number of years carried on the business of an engineer at 57 Smith Street, Kinning Park, Glasgow; and whereas the first party has resolved to hand over said business, and whole stock, funds, assets, rents, and goodwill thereof, and machinery and appliances used in connection therewith, to the second party, on the terms and conditions after specified: Therefore the parties have agreed, and do hereby agree as follows, videlicet Clause First.—The first party hereby assigns and transfers, as at the date hereof, to the second party, equally among them, the said Charles Davidson, as representing and for behoof of his said wife Marion Stark Thomson or Davidson, the business of engineer presently carried on by the first party at 57 Smith Street aforesaid, whether in his own name or under the style or firm of William Thomson & Company, and the whole stock, funds, assets, rents, and goodwill thereof, together with the whole machinery and appliances in said premises, whether fixed or unfixed, belonging to the first party. Ctause Second.—. … The first party shall, however, remain as consulting engineer in connection with the business, at such salary as may be agreed upon from time to time; and the second party shall be bound to take the advice of the first party on all points connected with the practical management and development of said business, as well as the ordering of all material and plant necessary for the carrying on of said business, and the engaging and dismissing of employees; but the first party shall not be responsible in any way for the advice so given, and he shall only give such time and attention to such points as he may think proper. Clause Third.—The second party bind and oblige themselves to pay the whole debts and obligations of the first party in connection with said business at the date hereof as the same mature, and to free and relieve and harmless and scatheless keep therefrom the said first party in all time coming. Clause

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Fourth,—In respect of the assignation of said business, and stock, funds, assets, rents, and goodwill thereof, and machinery and appliances, the second party hereby bind and oblige themselves, jointly and severally, and their respective heirs, executors, and representatives whomsoever, to pay to the first party an annuity of £250 sterling per annum during all the days and years of his life, which annuity shall be strictly alimentary, and free of all burdens and deductions whatsoever, and shall not be arrestable or affectable by his debts or deeds, or by the diligence of his creditors … and so forth half-yearly and termly thereafter, during the lifetime of the first party. … Clause Fifth.—In the event of the said annuity remaining unpaid at any time for the period of six months, it shall be in the power and option of the first party, on giving one month's previous notice in writing by registered letter posted to the last known addresses of the second party, to enter into the possession and management of said business and stock, funds, assets, rents, and goodwill, and machinery and appliances, as if these presents had never been granted; and to call upon the second party, at their expense, to retransfer the same to him as received by them under these presents, conform to balance-sheet at present being made up, ordinary tear and wear and working requirements excepted, free of all debts and liabilities in connection therewith. But notwithstanding the first party exercising such option, he shall be entitled to call upon the second party to pay the arrears of annuity and all expenses incurred by him in connection with the recovery of the same, and entering into the possession and management of said business and others. Clause Sixth.—The second party shall not be at liberty to dispose, sell, or transfer said business, or any portion of the plant or stock and others, during the lifetime of the first party, nor shall it be in the power of the second party to assume a partner or partners without making provision to the satisfaction of the first party for payment of said annuity.”

At the date of the agreement Mr Thomson held the premises under a lease from his wife, but thereafter she granted to him a formal conveyance of the premises. An action was raised by him against his sons and son-in-law concluding to have them ordained to flit and remove from the premises.

The defenders pleaded, inter alia—“(10) This action at the instance of William Thomson senior is against the good faith of the agreement between him and defenders and the actings of parties subsequent thereto.”

The Lord Ordinary ( Stormonth Darling), after a proof, on 14th July 1896 pronounced an interlocutor, whereby he sustained the tenth plea-in-law for the defenders, and in respect thereof assoilzied them from the conclusions of the summons.

The pursuer reclaimed, and the First Division, on December 18th 1896, varied the interlocutor reclaimed against by deleting the words “sustains the tenth plea-in-law for the defenders, and in respect thereof,” and quoad ultra adhered and refused the reclaiming-note.

The defenders continued to occupy the premises and to pay the pursuer the annuity.

An action was raised by Mr Thomson in the Sheriff Court of Lanarkshire against the same defenders, concluding for payment of £106, 17s., being the balance of the half-year's annuity due on 15th May 1898.

The defenders averred—“Explained that on 19th March 1898 a serious fire occurred at the defenders' works, which stopped the business till 30th May 1898. Averred that defenders are not liable to pursuer for any annuity during the stoppage of the works through said fire. Pursuer, being proprietor, had insured or could have insured, against loss by fire the said buildings, including the amount of a year's rent to cover said annuity. In any event he is bound to give the defenders credit for the amount of rent recovered by him for loss by fire. The fire being damnum fatale, the principle of res perit suo domino applies, and the loss is thrown on the pursuer and defenders according to the dominus of interest. The time taken to restore the buildings was, through the fault or omission of the pursuer, the proprietor, unnecessarily long, as said buildings could have been restored within a month at most instead of the actual period.”

They tendered the sum of £69, 10s. 5d., which they averred to be the amount due to the pursuer up to March 19th 1898, less the sum of £18, 3s., the amount of an account due by him to them.

The Sheriff-Substitute ( Balfour) on 31st October 1898 pronounced the following interlocutor:—“Finds the defenders liable to the pursuer in the sum of £18, 3s. 3d., and decerns against them, jointly and severally, for payment of said sum: Finds no expenses due between the parties.

Note.—“This is a peculiar case, and it is a continuation of unfortunate differences which have subsisted between the pursuer and his sons. By an agreement dated 22nd February 1894 the pursuer made over his business to the defenders, and the subjects transferred were described as the business itself, along with the stock, funds, assets, rents, and goodwill thereof, and the whole machinery and appliances in the premises. In respect of the assignation the defenders undertook to pay to the pursuer an annuity of £250 during his lifetime, and they took over the whole debts and obligations of the business. The pursuer was not at the date of the agreement the proprietor of the premises, but he afterwards obtained a title to them.

The pursuer in June 1895 instituted legal proceedings to have the defenders removed from the premises, and in these proceedings a judgment of the Court of Session was pronounced on 18th December 1896 ( 24 R. 269), the effect of which was that the agreement was held to import a lease of the premises during the pursuer's life, the rent,

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though not specifically stated, being covered by the annuity, and the defenders were assoilzied.

Another dispute has now arisen between the parties on account of a fire which occurred in the premises on 19th March 1898, and which is said to have stopped the business till 30th May 1898, and in answer to the present claim for the pursuer's half-yearly annuity, which fell due at 15th May 1898, the defenders maintain that they are not liable for the annuity during the stoppage of the works, and that as fire is a damnum fatale the loss must fall upon the pursuer, and that they are entitled to an abatement from the rent.

There would be no difficulty in entertaining the defenders' claim if this were an ordinary case of a lease with a definite rent fixed, in which case the defenders would be entitled to an abatement during the temporary stoppage of the works from fire, But a difficulty presents itself in dealing with the agreement in question as an ordinary lease, and also in defining what the pursuer's interest is in the subjects as landlord. The agreement is a compound one, and not only gives the defenders a right to occupy the works, but it transfers to them the stock and goodwill of the business and the machinery and appliances in the premises, whether fixed or unfixed; and it follows that a considerable part of the annuity represents not the rent of the heritable subjects, but the price payable for the stock and goodwill of the business, &c. The difficulty which the Court of Session encountered in deciding the case was that no rent was fixed in the agreement, but they got over the difficulty by holding that the agreement imported a lease of the premises, and as in a question with the pursuer the rent formed part of the sum agreed to be paid by way of annuity. Lord Adam (who gave the leading judgment) stated that if it had not been intended that the business and premises should be inseparable during the currency of the agreement there would have been a separate sum stipulated for as the rent of the premises.

It was stated by the defenders' agent in this case that the rent of the premises in the valuation roll is £115, and the difficulty which I have had to encounter is, whether under the peculiar circumstances I should fix any rent in respect of which the defenders should receive an abatement. It would hardly be fair to the defenders to find that, as the rent is not specified, and as the arrangement is of an inseparable character, they were not entitled to any abatement whatever. The fairer thing to do is to take a reasonable sum as rent, and to allow them a corresponding abatement. It would not be satisfactory to have a proof on the subject of rent, because the value of the plant and stock, &c., as at January 1894 would be so difficult of ascertainment that the proportions of the annuity respectively applicable to the plant &c., and to the rent could not be easily got at. The most satisfactory mode of solving the difficulty is to take the rent in the valuation roll and allow the defenders a proportion of the £115 from 19th March to 15th May 1898. The figures would then stand as follows:—

Proportion of annuity from 11th November 1897 to 19th March 1898	£87	13	5
Less account against pursuer	18	3	5
Interim decree for	£69	10	5
Proportion of annuity from 19th March 1898 to Whitsunday 1898	£37	6	7
Less proportion of rent for same period at £115 per annum	19	3	4
	£18	3	3

The pursuer has received payment of the sum of £69, 10s. 5d., and I have given decree for the proportion of the annuity from 19th March, less the proportion of rent, leaving the foresaid balance of £18, 3s. 3d.

It is not of any importance that the pursuer has conveyed the subjects to his daughter. It is not only difficult to treat her as a singular successor, but the fact remains that the annuity is payable to the pursuer, and that rent must be held to be included in the annuity, and if an abatement is made for fire it must be from the pursuer.

The defenders further maintained that they were not the absolute proprietors of the subjects assigned, and that the loss by fire, quoad even the moveable subjects, should fall on the pursuer, and in support of this argument they founded upon the sixth clause of the agreement. The effect of that clause clearly is to prevent them selling the business or plant or stock without making provision to the pursuer's satisfaction for payment of his annuity.

The averments with regard to the pursuer's insuring the building and to his obstructing the restoration of them appear to me to be irrelevant.”

The pursuer appealed to the Court of Session, and argued—The terms of the agreement showed conclusively that the rights of the parties were not those of landlord and tenant. The Court had not decided in the former case that there was a lease, and had not sustained the defenders' plea to that effect. They had merely assoilzied the defenders, holding that the pursuer had no power to remove them. The agreement was lacking in all the characteristics of a lease; there was no clause of warrandice, nothing against singular successors, no fixed rent, and no obligation on the defenders to remain on the premises. The agreement must be read as a whole, and it showed that the defenders were bound to pay the whole annuity without taking into account the occurrence of risks such as fire, which were incidental to their business.

Argued for respondents—The agreement had already been construed by the Court, and the appellants' contention was an attempt to review the judgment. The import of that judgment was that the

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agreement constituted a lease quoad the premises, the rent being covered by the annuity, and accordingly the respondents were entitled to make this deduction. The fact that it was not stipulated in so many words what part of the annuity was to be considered as rent in no way detracted from the plain import of the agreement.