Scottish Court of Session Decisions

George Denholm and Mrs Sarah M'Laren or Denholm, his wife, on 10th November 1891, executed a mutual settlement. By it the husband conveyed his whole estate to trustees for various purposes, of which the fourth was as follows—“I empower my trustees after my death, as they may think proper, and as they may find expedient, to realise my whole estates: And in the event of my said wife surviving me my trustees shall pay to her as an alimentary allowance for herself and our children during the whole days of her life the net income of my estates … and my trustees are hereby authorised to pay over to her from time to time for her own use such portion or portions of the capital of said residue as my trustees may deem necessary, or which they think she may require, she being always bound to maintain our said children, and that until they are capable of maintaining themselves, and to educate them in a manner befitting their station: And in the event of my said wife predeceasing me, and on her death if she shall survive me, my trustees shall hold my said estates or the residue thereof, or what may remain thereof after her decease, and pay or apply the income thereof to or for behoof of William Benjamin Liddall M'Laren, my stepson, Alice Anna Mary Denholm, my daughter, and any other child or children who may be procreated of the marriage between me and the said Sarah Louisa Liddall M'Laren or Denholm, and the survivors of them equally, and on each child attaining the age of twenty-five years complete, or in the case of daughters on being sooner married, my trustees shall pay over to him or her his or her share.…”

The provisions made by the wife were as follows—“And in like manner and in consideration of what is before written, I, the said Sarah Louisa Liddall M'Laren or Denholm, do hereby give, grant, assign, and dispone to and in favour of the said George Denholm, my husband, in the event of his surviving me, all and sundry my whole estates, heritable and moveable, real and personal, of whatever description, together with the whole writs, titles, vouchers, and instructions thereof, but under burden always of paying” ( debts and various annuities) …. “also under burden of maintaining my whole children, including the said William Benjamin Liddall M'Laren, until they are capable of maintaining themselves, and of educating them in a manner befitting their station, with full power to my said husband to consume such parts or portions of the capital during his lifetime as he may find or think necessary, and also power to him to realise, sell, and dispose of my said estates, heritable and moveable, by public roup or private bargain, as he may think proper, and in general to deal and intromit therewith as freely as I could have done myself; and in the event of his surviving me, I appoint my said husband to be my sole executor, and to be tutor to the said William Benjamin Liddall M'Laren should he be in minority at the date of my decease: And upon the death of my said husband if he should survive me, or upon my own death if I should survive him, I give, grant, assign, and dispone to and in favour of” ( trustees named) “all and sundry my said estate, or such portion as may be unconsumed by my said husband, but that in trust only for the uses and purposes following.… (Third) That my trustees shall hold and invest the residue of my said estate, and pay or apply the income thereof to or for behoof of my whole children born or to be born, and the survivors of them equally, and on each child attaining the age of twenty-five years complete, or in the case of daughters on being sooner married, my said trustees shall pay over to him or her, his or her share.…”

The settlement contained the following clause as to revocation—“And we hereby reserve full power at any time during our joint lives, by writing mutually executed, to alter or revoke these presents, and also with full power and faculty to the survivor of us to alter or revoke these presents, but only in so far as regards our separate estates, but in so far as not altered or revoked as aforesaid the same shall remain effectual.”

Mrs Denholm died in 1893. Mr Denholm, who contracted a second marriage, died in 1905 leaving a will in favour of his stepson and two daughters, executed in 1902, by which he revoked all former testamentary writings, including the mutual settlement. The will contained the following provision—“… Further, I specially declare that in the event of my daughters, or either of them, or my stepson, the said William Benjamin Liddall M'Laren, raising any question with reference to the distribution or division of the trust estate, or taking exception or making any objection to my power to revoke said mutual settlement, or claiming that any part of the trust estate falls thereunder or is thereby in any way regulated,

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or raising any question with reference to the distribution or division of the estate left by their mother, my wife, or taking exception or making any objection to the amount thereof, as the same may be set forth in any statement subscribed by me, they or any of them raising such questions regarding such distribution or division or taking exception or making any objection or claiming as aforesaid, with reference either to the trust estate or to the estate of their mother, shall forfeit right not only for themselves, herself or himself, but also for their, his, or her issue, in and to any share of or interest in the trust estate as aforesaid, which shall thereafter accresce to the other beneficiaries in their order under and in terms of this my will and any codicil thereto.”

The following statement (No.10 of process) was found in the deceased's repositories

“Statement under the hand of the late George Denholm of the net amount of the Estate of the late Mrs Denholm.

I. Heritable property—

1. 43 Manor Place, Edinburgh, sold at	£3700 0 0
Deduct—Bond—	£1000 0 0
Expenses of repayment	2 4 0
Completion of title	7 7 0
	1009 11 0
	£2690 9 0
2. One half of 92 South bridge, sold at	£1500 0 0
Proportion of rent to date of death, less taxes, &c.—	6 0 0
	£1506 0 0
Deduct expenses of completion of title and sale	23 14 1
	1482 5 11
3. One half of 287 High Street, Edinburgh, sold at £	600 0 0
Proportion of rent to date of death, less taxes, &c.—	2 5 0
	£602 5 0
Deduct expenses of completion of title and sale	22 5 0
	580 0 0
	£4752 14 11
II. Debt due upon bond and disposition in security granted by Mr Denholm, in favour of his late wife, over estate of Press, dated 15th and recorded 22nd both days of May 1890	6000 0 0
III. Balance of jus relictœ from estate of Mr W. A. M'Laren	306 7 4
IV. Paraphernal effects	44 2 0
	£11,103 4 3
Deduct—Debts, Government duties, and executry general expenses	1003 4 3
	£10,100 0 0

The above is as near as possible a correct statement of the estate of my late wife at the date of her death, and is engrossed here with reference to the directions expressed in my will, dated 17th April 1902.

The above adopted as holograph.

(Signed) George Denholm.

(Signed) William Dickison, witness,

Cashier to George Denholm.”

Early in 1906 the trustees appointed by Mrs Denholm, and acting under the mutual trust-disposition and settlement, brought an action against the trustees appointed by Mr Denholm, and acting under his trust-disposition and settlement of 1902, concluding (1) for declarator that a bond for £6000 (item No. II. in the above statement) formed part of Mrs Denholm's estate, and for delivery of the bond; (2) that the defenders should be ordained to produce accounts of the whole intromissions of George Denholm as trustee or executor of his wife under the mutual trust-disposition and settlement with the means and estate of his wife whereby the true amount due by him at the time of his death to the pursuers might be ascertained.

The pursuers pleaded, inter alia—“(2) The said deceased George Denholm having intromitted with the estate of his wife the said deceased Mrs Denholm, the defenders, as his trustees and executors, are bound to count and reckon to the pursuers for his intromissions.”

The defenders pleaded, inter alia—“(4) The defenders are under no obligation to account to the pursuers, …. in respect ( a) that under the mutual settlement of the late Mr Denholm and his first wife he took a full vested right in and to her whole estate. ( b) That the whole of the said estate was consumed by him within the meaning of the said settlement.”

On 5th June 1906 the Lord Ordinary ( Dundas), finding that Mr Denholm did not take a full vested right in and to the whole estate of his wife, repelled head ( a) of plea 4 for the defenders, and quoad ultra allowed a proof. This interlocutor was on November 7th affirmed by the Second Division. [The case is reported, 1907, S.C. 61, 44 S.L.R. 42.]

A proof was taken by the Lord Ordinary, prior to which, however, the defenders admitted that the bond for £6000 belonged to Mrs Denholm, and handed it over to the pursuers.

The following facts, in addition to those already narrated, appeared from the proof:—Mr Denholm was a stockbroker, and prior to 1894, had also had an insurance agency. He kept business books, but no private accounts. He had several bank accounts, and was in the habit of transferring money from one to another as suited his convenience. His professional income appeared to amount to about £2000 a-year, but he was given to speculation, and in all probability it varied considerably. At a date considerably prior to his wife's death he was shown to have had capital amounting to £5000, and in February 1899 he succeeded to a sum of £27,000 under the will of a Mrs Booth. At his death his estate amounted to some £40,000. The whole of his wife's estate, with the exception of the bond for £6000, was realised by him during his life—the Manor Place house in 1895, the South Bridge property in 1899, and the High Street property (compulsorily taken by the Corporation of Edinhurgh) in 1900—and the proceeds were at once carried into one or other of his bank accounts, and

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became immixed with his own funds on which he drew for his ordinary expenditure and other purposes. All the accountants examined at the proof were unanimous in stating that it was impossible to trace the money which had belonged to Mrs Denholm or to distinguish it from the rest of Mr Denholm's estate. It was proved that Mr Denholm was fully aware of his powers of consumption under the mutual settlement.

On 22nd February 1907 the Lord Ordinary ( Dundas) prouounced the following interlocutor: “… Finds that the whole estate of the said Mrs Sarah Louisa Liddall M'Laren or Denholm, with the exception of the said bond and disposition in security, was consumed by the late George Denholm, her husband, during his lifetime within the meaning of the mutual settlement referred to on the record; Assoilzies the defenders,” &c.

Opinion—“On 5th June 1906 I decided that upon a sound construction of Mr and Mrs Denholm's mutual settlement, Mr Denholm did not take a full vested right in and to the whole estate of his deceased wife; and quoad ultra I allowed a proof. In the opinion then delivered I pointed out that I did ‘not propose at present to attempt to define the limits of the restriction upon Mr Denholm's right of fee, or those of his power to ‘consume’ his wife's estate.’ On 7th November 1906 the Second Divison adhered to my interlocutor. The case is reported in 44 S.L.R. 42. All, therefore, that was determined up to that point was that Mr Denholm's right was not one of full fee; its precise nature and extent have now to be considered. It may be well to recall the terms of the sixth purpose of the mutual settlement. The words used at the outset of the clause were, standing by themselves, sufficient to confer upon Mr Denholm an absolute fee in his wife's estate. The clause continues ‘with full power to my said husband to consume such parts or portions of the capital during his lifetime as he may find or think necessary, and also power to him to realise, sell, and dispose of my said estates, heritable or moveable, by public roup or private bargain, as he may think proper, and in general to deal and intromit therewith as freely as I could have done myself.’ Mrs Denholm proceeded to appoint her husband to be her sole executor; and upon his death, if he should survive her, she assigned to trustees (who are now represented by the pursuers) ‘all and sundry my said estate or such portion as may be unconsumed by my said husband’ in trust for the purposes thereafter specified. It seems, therefore, that what would have otherwise been an absolute fee in Mr Denholm is limited by the destination to other parties of so much of the wife's estate as might be ‘unconsumed’ by him at his death. In Lord Stormonth Darling's words ( 44 S.L.R. at p. 45) Mr Denholm had ‘a right limited to sale, administration, and consumption during his lifetime.’ To attempt a closer definition of his right one must, I apprehend, study the clause as a whole and endeavour to give due weight to all its parts. On the one hand I think that the wide expression ‘and in general to deal and intromit therewith as freely as I could have done myself’ must be read so as to harmonise with the power to ‘consume such parts or portions of the capital during his lifetime as he may find or think necessary’; and, on the other hand, the latter phrase must be taken in conjunction with the wider words. The result in my judgment is that Mr Denholm was undoubtedly entitled to ‘consume’ the whole of his wife's estate during his lifetime—though he might not dispose of it by mortis causa deed—subject to the rather unsubstantial qualification that he himself should ‘find or think’ it necessary to do so. The word ‘consume’ has no special or technical signification. The main idea etymologically is, I think, that of taking complete possession. Dr Johnson defines it as ‘to waste; to spend; to destroy.’ The ‘unconsumed’ portion, if any, of Mrs Denholm's estate must therefore in my judgment be represented by what now remains extant and can be identified as having formed part of it. I was referred to cases in which clauses more or less similar to the present were construed by the Court. The light to be derived from these is at best indirect. It may be sufficient to allude quite briefly to two of the decisions. In Reddie's Trustees, 1890, 17 R. 558, a surviving widow had power under a mutual settlement ‘to use or encroach on the funds, means, and estate hereby conveyed on either side.’ The Court held that these words must be ‘read in a reasonable sense’; that the widow was not entitled to give the estate away without consideration; but that in so far as necessary for her maintenance she might encroach upon the capital, ‘only for herself and not for anyone else.’ The language of the deed in Reddie's case was obviously much more restricted than that here under consideration. A case more nearly resembling the present is Sprot, 1855, 17 D. 840. There a husband declared that his wife, if she survived him (which she did), should ‘be at liberty to appropriate out of the stock of my said trust estate such sum or sums, from time to time, as she may find needful for her own use, over and above the free income, or as she desires to have for her own purposes and disposal, without limitation as to the amount of such sum or sums.’ It was held that the widow was not entitled, as in exercise of this power, to dispose of the whole estate by mortis causa deed. The Lord Justice-Clerk (Hope) pointed out that the ‘appropriation out of the stock … clearly refers to an act of the wife in her lifetime taking the sums herself for her own use. Her deed of settlement is not such an act at all. She has appropriated nothing out of the stock;’ but his Lordship also made it plain that the widow could during her life ‘have gone any length in the way of expenditure.’

Subject, then, to the views which I have expressed, the question that arises

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seems to be one of fact, viz., what if any ‘portion’ of Mrs Denholm's estate can be shown to have remained extant and ‘unconsumed’ by Mr Denholm at the time of his death? It is now admitted by the defenders—although they disputed it down to the date of their letter of 21st January 1907—that one such portion of the estate remains ‘unconsumed,’ namely, a bond in Mrs Denholm's favour for £6000 over the estate of Press, which is described in the summons and condescendence. But it appears that the whole rest of her estate was realised by Mr Denholm during his life, and its proceeds immixed with his own funds so as to make it impossible to identify them or trace their subsequent history. Mr Denholm was a stockbroker, and prior to 1894 had also an insurance agency. His business books were kept with regularity; but he seems to have made no private record at all of the income and outgoings either of his own means or of his wife's estate. He had several bank accounts, and would shift money from one to another of these. When he realised successive portions of his wife's heritable estate he immediately placed the proceeds in one or other of these accounts, immixed them with his own funds, and went on drawing upon the account for his ordinary expenditure and other purposes. Upon this general sketch of the situation a question as to onus probandi arises. The pursuers' counsel argued that it was for the defenders to prove ‘consumption’ by Mr Denholm so far as they could do so; that to ‘immix’ is not necessarily to ‘consume’; that as Mr Denholm had kept no private accounts it was impossible for the defenders to prove that any definite portion of his wife's estate had been ‘consumed’ by him; and that the pursuers were therefore entitled to receive and administer the amount of her estate as known to exist at the date of her death. I think that this argument is erroneous. It lies, in my opinion, upon those who seek to administer ‘such portion’ of Mrs Denholm's estate ‘as may be unconsumed by’ her husband to identify the whole portion of it which they say is unconsumed, as they have succeeded in identifying the bond for £6000. It is true that Mr Denholm was his wife's executor, but he was also the fiar (subject to the qualifications already explained) in her estate. He was not, I apprehend, under any obligation to keep account of that estate though it would have been more regular to do so. He intromitted with her estate and mixed it with his own, and if the pursuers are in these circumstances unable—as I think they are—to trace or identify it (with the exception of the bond) they fail, in my judgment, to discharge the onus of proving that it remained ‘unconsumed’ at Mr Denholm's death. Now, the nature and value of Mrs Denholm's estate at her death are shown in a statement to which I shall afterwards have to allude more particularly. The correctness of the statement is impugned upon certain heads by both parties, but may be held as sufficient for present purposes. If one discards the bond for £6000, which remains ‘unconsumed,’ a balance of jus relictce from the estate of Mrs Denholm's former husband, and ‘paraphernal effects’ of trifling value, it appears that that lady's estate consisted at her death of three heritable properties. The first of these—a house in Manor Place—was sold by Mr Denholm in 1895, and the price placed immediately in one of his bank accounts. I may observe in passing that I think the pursuers have failed to prove in fact that a part of these proceeds was used in paying off a bond for £917 or thereby upon another property belonging to Mr Denholm; and further, that even if the alleged application of this money had been established, I should have been disposed to hold that Mr Denholm had ‘consumed’ it within the meaning of the settlement. In 1900 the subjects in High Street were acquired by the Corporation of Edinburgh, and the property in South Bridge had been sold by Mr Denholm in the previous year. In both of these cases, as in that of Manor Place, the price was placed by Mr Denholm in bank and immixed with his other funds. In my opinion Mr Denholm thus ‘consumed’ his wife's estate (except the bond), according to the ordinary use of the word, and its meaning in the mutual settlement. But the pursuers' counsel argued that it would be little short of absurdity to say that Mr Denholm could ‘find or think’ it necessary to ‘consume’ the whole of his wife's estate—excepting the said bond. It was, they urged, proved that he had a stockbroking business worth not less than £2000 a-year, besides heritable properties of his own, and in 1899 he succeeded to a fortune of about £27,000 under the will of a Mrs Booth. I think that Mr Denholm's professional income is overstated at the above figure; but the truth is that, as Mr Cockburn Miller frankly puts it, ‘it is somewhat difficult to determine accurately the position of a man who has not made a balance-sheet showing his own affairs, and I do not know if we have knowledge of all his assets or liabilities. Further, it appears to be at least highly probable that when Mr Denholm sold the Manor Place house in 1895 he might ‘find or think’ it necessary to use and consume the price for his own purposes, because his assets consisted chiefly of heritage, and of certain bank stock which he utilised as cover against overdrafts on his account. A similar observation may, I think, be fairly made as to the sales of Mrs Denholm's other two properties and the ‘consumption’ of their prices by Mr Denholm, for he had not, it seems, actually received any part of his succession from Mrs Booth's estate until after the completion of these transactions. There is at all events no evidence to show that Mr Denholm did not find or think it necessary to consume the estate which he had in fact mixed with his own funds. The pursuers' counsel presented a further argument, based upon the statement to which I have already referred. This statement is contained in Mr Denholm's ledger, and is signed by him as being as near as possible a correct statement of

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the estate of his late wife at the date of her death, ‘and is engrossed here with reference to the directions expressed in my will, dated 17th April 1902.’ This will is a very lengthy document, and seems to have been the outcome of deliberations between the testator and his law agent, extending over a series of years. It contains a clause of forfeiture directed against his two daughters and his stepson in the event (which has not occurred) of any of them raising questions, inter alia, ‘with reference to the distribution or division of the estate left by their mother, my wife, or taking exception or making any objection to the amount thereof as the same may be set forth in any statement subscribed by me.’ The pursuers' counsel maintained that Mr Denholm's subscription, coupled with the clause just quoted, sufficiently instruct an intention on his part that the amount or value of the estate belonging to Mrs Denholm at her death should, upon his death, pass to the trustees of her own will, for the purposes expressed by her in the mutual settlement, notwithstanding his intromissions with it during his life. I leave out of account entirely such fragments of oral testimony as exist in the proof as to Mr Denholm's expressions of intention in regard to his wife's estate. Such passages, if competent—which I doubt—are quite vague and inconclusive. In my opinion, the documents founded upon are not sufficient to rebut the strong presumption, arising from the facts of the case, that Mr Denholm intended to consume, as, in my judgment, he actually did consume, during his lifetime, the whole of his wife's estate, except the bond for £6000. The evidence discloses that Mr Denholm was made fully aware by his successive law-agents, Mr Dalziel and Mr Kerr, of his powers of consumption, and that he deliberately abstained from putting his wife's estate beyond those powers by creating a separate trust. Further, it is made clear by Mr Kerr's evidence that the purpose for which the statement was prepared and subscribed was not that which was suggested in the argument for the pursuers. Mr Kerr states that he had no knowledge of Mr Denholm's dealings with his wife's estate; but that he advised him to put upon record a definite statement of the amount of it, as received by him at her death, ‘to prevent any question when he was dead. The real purpose was to fix the amount of the estate as at her death as received by him, so that there might be no question by beneficiaries coming forward and saying “this is far more than the sum our mother left.” ‘I confess that I am unable to understand from Mr Kerr's evidence—the truth of which I accept implicitly—the precise idea which he had in mind in so advising Mr Denholm; but whatever the idea may have been, Mr Kerr's statements establish beyond question that it was not in order to secure that the original amount of Mrs Denholm's estate should be taken out of Mr Denholm's estate, so as to be made subject to the trust purposes of her settlement. I may add that in considering the case doubts have occurred to my mind as to the admissibility of Mr Kerr's evidence upon this matter, though no objection to its competency was suggested by the pursuers' counsel either at the proof or in his speech at its conclusion. But, for the reasons stated, I should arrive at the same result apart altogether from Mr Kerr's evidence. Upon the whole matter, therefore, I think that the pursuers are entitled to decree substantially in terms of the conclusions of the summons for declarator and delivery; and that quoad ultra the defenders are entitled to absolvitor.

I have not found it necessary to advert in detail to the evidence given by the accountants engaged on either side. But I may say that these gentlemen appear to have gone into the whole case, upon such materials as were available, with great ability and industry; and I have not failed to study carefully their oral evidence and the numerous ‘states’ which they produced as explanatory of and relative to the same.

The pursuers reclaimed, and argued—The Lord Ordinary's main error consisted in holding that the onus of proof lay upon the pursuers, whereas it lay wholly upon the defenders. Mr Denholm (now represented by the defenders) was, as regarded his wife's estate, in the twofold position of trustee and beneficiary, and qua trustee was bound to account to the ultimate beneficiaries for the whole of it in so far as not “consumed” by himself during his lifetime, and the legal presumption was that nothing had been consumed except what he could prove he had consumed. There was no such proof. The mere conversion and immixture of funds, or their transference from one account, or from one investment, to another, was not consumption; consumption here meant use for definite and personal purposes—cf. in re Thomson's Estate, 13 Ch. D. 144; Reddie's Trustees v. Lindsay, March 7, 1890, 17 R. 558, L.P. at 564, 27 S.L.R. 514; Sprot v. Pennycook, June 12, 1855, 17 D. 840, at 850 and 853. Further, consumption was only permitted if in Mr Denholm's opinion it appeared necessary. Accordingly qua trustee he was bound to satisfy the other beneficiaries both as to how and why he had made advances to himself as beneficiary. The real evidence in the case was all in favour of the pursuers. Mr Denholm's will of 1902, read along with the signed statement of the amount of Mrs Denholm's estate relative thereto, amounted to an acknowledgment by Mr Denholm that in 1902 £10,100 of his wife's estate was then unconsumed. If unconsumed in 1902, after all the immixture, &c., founded on by the defenders had taken place, by what process of reasoning could it be maintained that it had been consumed by 1905? It was also a material point that the settlement was a mutual settlement which ought, so far as possible, to be interpreted so as to render the provisions made by husband and wife in favour of each other counterparts of each other. The corresponding provision by the husband was that by which he authorised his trustees to pay over to his

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wife from time to time such portions of the capital as they might deem necessary—a provision under which the wife could by no possible means appropriate to herself the whole of her husband's estate by a mere stroke of the pen, as it was now contended Mr Denholm could do as regarded the estate of his wife.

Argued for the respondents—The Lord Ordinary was right. The whole onus was upon the defenders. Mr Denholm's position was not that of a trustee but of a beneficiary. The true test was, whether he was bound to keep accounts of his wife's estate; obviously he was not, seeing that he was entitled to consume as much or as little as he pleased, he being the sole judge of whether the consumption was necessary— Houldsworth v. Brand's Trustees, May 18, 1875, 2 R. 683, at 690, 12 S.L.R. 450. That being so, his trustees could be under no obligation to account to his wife's trustees for anything except what the latter could identify as having formed part of her estate (e.g., the bond for £6000). There was no difficulty, however, in showing that he had consumed it. Consumption as applied to money meant conversion, appropriation, and change of identity. By making her estate irrecognisable he had appropriated and consumed it. Further, in view of the fact that at times he was in embarrassed circumstances the presumption was strong that the consumption had been “necessary.” No inference could be drawn from the will of 1902 and the relative statement. All that the latter purported to be was a statement of what the wife's estate had amounted to at the time of her death.

At advising—