Scottish Court of Session Decisions

By a contract of copartnery entered into between William Hay, fish merchant, Tarbert, and others, dated 21st March 1887, the parties agreed to be copartners in establishing an oyster fishery in Loch Tarbert.

In July 1888 a lease of the fishery was obtained from the Crown in favour of the copartners, trading under the name of William Hay & Company, by which it was provided, inter alia, that assignees and sub-tenants were excluded except with the explicit consent of the Crown. The copartnery entered into possession of the fishery and carried on business for a number of years in terms of the contract of copartnery.

In December 1896 William Hay being in embarrassed circumstances called a meeting of his creditors, at which it was resolved that, “provided the pursuer could get the necessary money within a fortnight from this date to enable him to pay the creditors a composition of 2s. 6d. per £ in cash, said composition should be accepted in full settlement, and absent creditors were strongly recommended to concur in the proposed arrangement.”

Among the creditors present was William Rafferty, fish salesman, Glasgow, who was entered as a creditor to the amount of £600. After the meeting Mr Hay granted the following assignation in favour of Mr Rafferty—“I, William Hay, fish merchant, Greenock, and residing in Brisbane Street, Greenock, in consideration of the sum of eight hundred pounds, formerly paid to me by William Rafferty, fish salesman, Glasgow, and residing at three Princes Square, Strathbungo, Glasgow, do hereby assign my whole right, title, and interest in all and whole a lease, dated the 30th July and 22nd day of August Eighteen hundred and eighty—eight, and recorded in the Register of Sasines for the county of Argyle the day of Eighteen hundred and, granted by the Crown in favour of myself, and also of Robert Hay, fish merchant, Tarbert, and John Black, fish merchant there, of all and whole the ground situated in West Loch Tarbert, parishes of Kilcalmonell and Kilbery and So. Knapdale, and county of Argyle, occupied by me and them as oyster fishings, under the name or firm of William Hay & Company, oyster and mussel fishers, West Loch Tarbert; with entry as at Martinmas last Eighteen hundred and ninety-six.”

This assignation was intimated to the Crown, who accepted Mr Rafferty as a tenant under the lease. On 3rd May 1897 Mr Hay wrote the following letter to the firm of William Hay & Company— “Dear Sirs,—I have assigned to William Rafferty, Esq., of Messrs M'Kinney & Rafferty, Great Clyde Street, Glasgow, my whole interest in the lease of West Loch Tarbert Oyster Fishery, and in the copartnery of William Hay & Co., which carries on the same, and I shall be obliged to you for accepting this intimation, and holding him entitled to my place and share in the firm.—Yours truly, William Hay.” Thereafter the remaining partners assumed Mr Rafferty as a partner in the firm.

An action was raised by Mr Hay against Mr Rafferty concluding for a reduction of the assignation, and also for accounting of his intromissions with “the assets of the foresaid copartnery.

The pursuer averred that the defender had offered to advance him the money to pay the composition to his creditors if he would transfer in security of the advance his ‘interest in the fishery business, and that the statement in the assignation that the consideration was a payment of £800 formerly made was false and fraudulent.

He averred—“(Cond. 11) In point of fact, no sum other than defender's own share of the said composition was due by the pursuer to the defender, and no consideration was given by defender for said assignation. The pursuer signed said assignation under essential error, and in the belief, induced by the statements of the defender at the time, that it was made and executed merely for the purpose of giving security to the defender for the amount of the composition which he was to advance, viz, £191, 0s. 6d. This was the representation made by the defender at the time, and on the faith of which pursuer's signature was obtained. There was a very large number of blanks in the assignation which pursuer signed, and at the time he was in total ignorance of its true import and effect, but his signature was obtained thereto under the influence of the pressure of the defender as pursuer's creditor, and trusting to the false and fraudulent representations made to him by the defender at the time. The said assignation, further, is void from uncertainty. It is improperly stamped, and the agreement which it sets forth is, in any event, a pactum illicitum, which can be set aside. The pursuer wished that said document should be examined by his agents, the Messrs Shearer, but he was dissuaded from informing them on the matter by the defender, who represented to the pursuer that this might prevent the composition arrangement being carried through.”

The pursuer pleaded— “(1) The pretended assignation libelled in the summons ought to be set aside in respect ( a) It is void from uncertainly; ( b) That in conjunction with the composition arrangement it sets forth a pactum illicitum; ( c) That it was signed by the pursuer under essential error, or in consequence of the fraudulent misrepresentations of the defender, and decree of reduction ought to be pronounced in terms of the conclusions of the libel. (2) The defender having received the pursuer's share of the profits in the said fishery partnership, is bound to hold just count and reckoning with the pursuer thereanent and pay him the balance due.”

The defender admitted that the terms of the consideration clause were not strictly accurate, but averred that the £800 represented the pecuniary liabilities which it

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was roughly estimated he was undertaking for the pursuer.

He pleaded, inter alia— “(6) The defender having materially altered his position, and having incurred serious liabilities on the faith of the assignation sought to be reduced, and restitutio in integrum being neither offered nor possible, the defender should be assoilized.”

The Lord Ordinary ( Kincairney) on 26th May 1899 pronounced the following interlocutor:— “Finds that the averments of the pursuer are irrelevant to support the conclusions of the summons: Finds further that in respect the pursuer does not offer, and is not in a position to make, restitution in integrum, he is not entitled to decree of reduction: Therefore repels the first plea-in-law for the pursuer: Sustains the sixth plea-in-law for the defender: Assoilzies the defender from the conclusions of the summons, and decerns: Finds the defender entitled to expenses,” &c.

Opinion— “This is an action of reduction of a deed of assignation by the pursuer, which bears that in consideration of £800 ‘formerly paid’ to the pursuer by the defender, he, the pursuer, assigned his interest in a lease granted by the Crown in his favour, and in favour of Robert Hay and John Black, ‘trading as William Hay & Co.,’ of the rights and interests of the Crown in the West Loch Tarbert Oyster and Mussel Fishery. The action concludes also for an accounting by the defender for his intromissions with ‘the assets of the foresaid copartnery,’ meaning, I suppose, William Hay & Company, and with the profits received by him in virtue of the assignation. There is an apparent want of connection between these two conclusions, because the assignation is not of the pursuer's interest in the copartnery but of his interest in a lease. But the action proceeds on the footing that the lease was the only asset of the copartnery; that the copartnery existed merely in order to work the lease; and that an assignation of a share in the lease was equivalent to an assignation of a share in the copartnery. I am not prepared to negative that view.

I have found the case exceedingly confused, and have followed the statements of both parties with much difficulty. A large part of the record appears to be totally irrelevant; but after the best consideration I have been able to give I have found myself unable to sustain the relevancy of the action.

It is important to have in view that the primary conclusion is for nothing but reduction. There is no conclusion for damages; and, what is more important, there is no conclusion for declarator that the assignation was in security or in trust. It would be totally inconsistent with the action to hold that it was so. The action is for absolute reduction, and seeks to set aside the assignation altogether. It is an action concluding for restitution in integrum.

There are three grounds for reduction— (1) uncertainty, (2) essential error or fraudulent misrepresentation, and (3) pactum illicitum; and it will be convenient to deal with the grounds of reduction in that order, although it is not the order in which the pursuer has stated them in his pleas.

The reason why the assignation is challenged on the ground of uncertainty is that no assignee is expressly mentioned. There is an assignation but it is not said to whom. I am of opinion, however, that there is nothing in this objection, because it is absolutely certain that the defender was the assignee intended, and that the omission of his name was a mere careless blunder which gives rise to no uncertainty. Had the deed been a disposition of heritage there might have been a difficulty of a formal kind in making up a title; but there is no difficulty of that kind in this case.

The main ground of reduction is what I have stated as the second, which the pursuer thus expresses in the third branch of his first plea—‘That it was signed by the pursuer under essential error, or in consequence of the fraudulent misrepresentations of the defender.’ The averments on which that plea is based are all contained in condescendences 10 and 11, and the two objections which are there taken to the assignation seem to be that the statement that the consideration was a payment of £800 formerly made is false, and that the assignation is absolute and not in security. It is not said that there was any error in the assignation. It is not disputed that the purpose of the deed was, and was known to be, the assignation of the pursuer's interest in the lease. The pursuer alleges that ‘he signed said assignation under essential error, and in the belief, induced by the statements of the defender at the time, that it was made and executed merely for the purpose of giving security to the defender for the amount of the composition which he was to advance, viz., £191, 0s. 6d. This was the representation made by the defender at the time, and on the faith of which pursuer's signature was obtained.’ The composition here referred to was a composition on the pursuer's debts.

The deed was the pursuer's deed, signed by himself, although prepared as he alleges by the defender's agent. He does not allege that he signed it without reading it, or that he did not know the contents of it. What he does say is that he was in total ignorance of its true import and effect. In the absence of these essential averments I must hold that he did read the deed and knew what was in it, whether he understood it or not. Now, if it be meant to be averred that the assignation, although ex facie absolute, was truly in security, that would be quite an intelligible averment which might receive some support from some of the other statements, and might have been of importance had there been a corresponding conclusion in the summons. But there is not; and such an averment would be wholly irrelevant in this action for total reduction of the deed. It is said that the statement of the consideration was false, and it may have been so—apparently it was—but it is the pursuer's own statement. He does not aver that the defender falsely stated to him that he had

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advanced £800, and that he, the pursuer, believed that false statement, and was induced by it to grant the assignation. Nothing of that kind is said. On the contrary, the pursuer says that he understood the assignation was a deed in security of an advance of £191, 0s. 6d., or was intended for that purpose, so that it does not appear that he was at all misled by the erroneous statement of the consideration, or that he ever imagined that the defender had advanced £800. He may possibly mean to say that he was induced to sign one deed when he was informed and believed that he was signing a totally different deed. But I think that if he meant that, it is irrelevantly averred, and cannot be relevantly averred so long as there is no averment that he did not read the deed or hear it read, and that he did not know what it contained.

He does not dispute that he knew it was an assignation of his interest in the lease; only he says that the consideration is overstated. But that is really of no consequence if he did not believe the statement, and was willing to make the assignation in respect of the consideration which he actually received. On the whole, I cannot find in the faulty and confused averments of the pursuer any statement of a case on which the conclusion for reduction can be supported on the ground of essential error or of misrepresentation.

It is true that the defender was obliged to admit that the statement of the consideration for the deed was erroneous or inaccurate, and his explanations about the true consideration were, in my opinion, far from satisfactory. The pursuer argued that the admission of the inaccuracy of the consideration stated entitled him to disregard the deed, and to lead a proof at large as to the true nature of the transaction; and he referred to Miller v. Faulds, 7th February 1843, 5 D. 856, and Grant's Trustees v. Morrison, 26th January 1875, 2 R. 377, in support of that contention. I do not think these cases apply. They were not reductions. I think they amount to this, that when it was admitted that the consideration for a deed was incorrectly stated in the deed, the true consideration could be ascertained by proof. If the question here were as to the amount which the defender had advanced in consideration of the deed, these cases might be of importance. But that is not the nature of the present case.

The pursuer further pleads that the deed should be set aside as pactum illicitum. I think the condescendence does not contain any relevant averment of pactum illicitum. It is pleaded on record in the barest possible manner without any explanation; and I hardly know what kind of pactum illicitum is intended. I gather that it is meant that the defender obtained an illegal preference; but I do not think that that is intelligibly averred. The pursuer does not allege that he was a party to a pactum illicitum. There was no pactum illicitum in the agreement which he alleges, and apparently there could not be a pactum illicitum unless he was a party to it. There may be much that is unsatisfactory in the defender's explanations about the consideration, but I am unable to see how that difficulty can be said to be one of the grounds of reduction.

For these reasons I am of opinion that the pursuer's averments in support of the conclusions of reduction are insufficient and irrelevant.

But the defender maintains further, that even if the pursuer's grounds for reduction were valid, the remedy of reduction is not open to him, because he does not tender and cannot make restitution in integrum. I am of opinion that this defence is well founded, and may be sustained on the pursuer's admissions and without inquiry. I think the case is one to which the rule applies, that there cannot be reduction where a change of circumstances has made restitution impossible. Addie v. Western Bank, 20th May 1867, 5 Macph. (H.L.) 80.

In this case no restitution is offered. The pursuer does not tender repayment of the sum advanced by the defender for payment of the composition to his creditors. Further, it is clear that while this assignation stood unchallenged, the condition of matters was totally changed, and that by the act of the pursuer. For it appears that on 3rd May 1897, half a year after the date of the assignation, the pursuer intimated to the other partners of the firm of William Hay & Company that he had assigned to the defender his interest in the lease and in the copartnery, and requested them to hold him ‘entitled to my place and share in the firm’; and it also appears that these partners had agreed to assume the defender as their partner. It is said, besides, that the defender made certain payments to the other partners in consideration of his assumption as a partner; but these payments are not admitted, and of course cannot be considered at this stage. But it sufficiently appears that if this assignation were reduced the pursuer would not be replaced in the position in which he stood before it was granted; for he would be subject to contractual obligations towards the other partners of William Hay & Company, and also to obligations to the Crown under the lease. It may be also that the interests of those partners and of the Crown (none of whom are called as defenders) might be affected.

The pursuer seems to explain that his letter to the partners of William Hay & Company was written to make his security title, as he expresses it, effectual. But by this action he seeks to get rid of the title altogether, whether absolute or in security. I think that his own act has put this out of his power. Therefore, even if the pursuer's grounds of action or any of them could be otherwise supported, I apprehend that the remedy of reduction must be refused.

I have indicated that the defender's explanations about this transaction do not appear by any means satisfactory; and it may be that the pursuer may have some other remedy if he has been over-reached

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or has suffered wrong. All that I decide is that he cannot obtain reduction on the averments in this record.”

The pursuer reclaimed, and argued—(1) There was contained in Cond. 10 a relevant averment of misrepresentation inducing essential error, there having been a false and fraudulent statement as to the consideration. (2) The assignation constituted a pactum illicitum, the result of it being that a creditor who had accepted a composition obtained the benefit of property belonging to the bankrupt, in which the other creditors did not share. It accordingly fell to be set aside— Bank of Scotland v. Faulds, July 8, 1870, 42 J. 557. The pursuer was entitled to found on this fraud, the Court regarding the creditor as the defrauding party who should get no benefit therefrom— Arrol & Cook v. Montgomery, Feb. 24, 1826, 4 S. 499. (3) It was true that the pursuer did not offer to make restitution in integrum, but he had nothing to do with the actings of the defender after the assignation. There was nothing for him to restore, for he averred that the defender was largely indebted to him. (4) In any view, he was entitled to an accounting, since the defender admitted that the consideration stated in the assignation did not represent the true consideration, or what actually took place— Miller v. Faulds, Feb. 7, 1843, 5 D. 856; Grant v. Mackenzie, June 7, 1899, 1 F. 889.

Argued for respondent—(1) There was no relevant averment of error or misrepresentation, the pursuer not having stated that he was ignorant of the terms of the assignation. (2) The pursuer was not entitled to recover his property by pleading that he had been a party to a pactum illicitum— Macfarlane v. Nicoll, Dec. 14, 1864, 3 Macph. 237. But in point of fact there had been no pactum illicitum; the transaction had been quite a legitimate one; and, moreover, it had been homologated by the pursuer after the composition had been paid. (3) In any event, the pursuer had not offered, nor would he have been able to effect, restitution in integrum, and the effect of granting the reduction would be to leave the defender under obligation to the other parties, and to remove from him this asset in the partnership.

At advising—