Scottish Court of Session Decisions

On 1st March 1907, John King, 5 Burnbank Road, Hamilton, and Mrs Helen Robb or King, his wife, with his consent, raised an action against (1) George Readman, advocate, Edinburgh, (2) the Rev. Wm. Johnston, minister of Uphall, and Mrs Johnston, his wife, and others, in which they sought (1) declarator that the real burdens of £350 each, with interest and penalties, created by two bonds and dispositions in security granted by Robert Riddagh, builder, Airdrie, in favour of James Aitken, writer, Glasgow, dated 11th and recorded 13th June 1892, over the subjects therein specified, were as of 9th May 1903 extinguished, and that the said subjects were not affected by any assignations of said two bonds granted subsequent to 9th May 1903, and that the bond and disposition in security granted by Riddagh in favour of the pursuers for £1070 dated 14th and recorded 17th March 1903 created a real burden over the said subjects preferable to the real burdens created by the said two bonds; (2) declarator that five ground-annuals created by contracts of ground-annual between Riddagh and Aitken dated and recorded various dates in 1901 and 1902 were so far as real burdens on the subjects extinguished as at 9th May 1903 to the extent that they were then held by Aitken, or alternatively extinguished subject to a bond and disposition in security for £125 in favour of Catherine Storrie or Cation, and that the subjects were not affected by any assignations of the said ground-annuals subsequent to 9th May 1903.

The pursuers pleaded, inter alia—“(2) The real burden for the two sums of £350 constituted by the two bonds and dispositions in security first set forth in the summons having been ipso jure extinguished confusione, decree of declarator should be pronounced as first concluded for. (3) The five ground-annuals set forth in the summons having to the extent foresaid been ipso jure extinguished confusione, decree of declarator should be pronounced as second concluded for.”

By disposition dated 11th and recorded 13th December 1901, James Aitken, writer, Glasgow, proprietor of certain subjects in Bell Street, Airdrie, having divided the subjects into plots or building stances, disponed plot 1 to Robert Riddagh, builder, Airdrie, under burden of a feu-duty of £2, 5s. 4d., which was the amount formerly exigible from the whole subjects. By five contracts of ground-annual dated in 1901 and 1902 Aitken disponed to Riddagh five other plots of the subjects under burden of the ground-annuals mentioned in conclusion (2) of the summons, amounting in cumulo to £22, 10s. Thereafter Riddagh proceeded to raise money on the security of the said six plots of ground, and granted, inter alia, the two bonds and dispositions in security, mentioned in conclusion (1) of the summons, for the sum of £350 each, dated 11th and recorded 13th June 1902, in favour of Aitken, over plots 3 and 4 respectively of the said subjects. On March 14, 1903, Riddagh granted over the whole six plots the bond and disposition in security for the sum of £1070 in favour of the pursuers. This bond was recorded on 17th March 1903. By disposition dated 8th and recorded 9th May 1903, Riddagh disponed the whole six plots to Aitken. This disposition though ex facie valid was qualified by a back-letter, in which Aitken acknowledged that he held the subjects in security of advances made and to be made by him, and bound himself to reconvey on repayment of said advances. The back-letter was not recorded. By assignation dated 1st and recorded 3rd October 1904 Aitken assigned the two bonds of £350 each to Readman, who, by assignation dated 9th and recorded 15th November 1905, assigned them to the Johnstons, who appeared as defenders.

The five contracts of ground-annual were also assigned by Aitken, but were subsequently acquired by the trustee in his sequestration, Robert Reid, C.A., who was

Page: 534↓

called for any interest he might have, and who appeared.

The pursuers' averments also contained allegations of fraud against Aitken, with which this report does not deal.

The Lord Ordinary ( Guthrie) on 30th December 1907 pronounced this interlocutor:—“(1) With respect to the two bonds for £350 each mentioned in the summons, finds that the said bonds did not become extinguished confusione in the person of James Aitken, on the subjects and others embraced in said bonds being conveyed to him in absolute terms by Robert Riddagh, the disposition thereof being qualified by back-letters to the effect that the said James Aitken held the subjects merely in security of advances: Therefore finds that the pursuers' bond for £1070 is not a preferable security over the subjects contained in the foresaid two bonds for £350 each, and assoilzies the defenders the Reverend William Johnston and Mrs Eliza Arbuckle or Johnston, his wife, from the conclusions of the summons, and decerns … (2) With respect to the five ground-annuals mentioned in the summons, finds that the same were similarly not extinguished confusione in the person of the said James Aitken on his acquisition in absolute terms of the subjects over which these ground-annuals were created: Quoad ultra allows the pursuers a proof of their averments of fraud … and the defender Reid a conjunct probation.”

Opinion.—“The pursuers are heritable creditors for £1070 over certain subjects in Airdrie. If these subjects are burdened by the two bonds and the ground-annuals mentioned in the summons, the pursuers' bond, looking to the value of the subjects, is believed to be valueless. The pursuers seek declarator that the defenders' bonds and ground-annuals were extinguished confusione.

“The pursuers' bond for £1070 is dated 17th March 1903. At that date Robert Riddagh was proprietor of the subjects and the bond was granted by him.

Prior to 17th March 1903 the bonds for £350 were granted by Riddagh in favour of James Aitken. Subsequently to 17th March 1903, namely, on 9th May 1903, Aitken acquired the subjects over which both sets of bonds were placed in security by an ex facie absolute disposition under back-letters. The pursuers say that the £350 bonds were extinguished confusione in Aitken's person on 9th May 1903. These bonds were assigned between 1904 and 1906 to Mr George Readman, who assigned them to the defenders, the Rev. William Johnston and his wife.

The ground-annuals mentioned in the summons were created for Aitken by Riddagh in 1901 and 1902. The pursuers say that they were also extinguished confusione in Aitken's person when he acquired the subjects, although only in security, on 9th May 1903. These ground-annuals are held by the defender, Aitken's trustee, free of any security other than the Cation bond for £125, which is excepted from the conclusions of the summons.

The defenders deny confusion, because (1) Aitken did not acquire the subjects on 9th May 1903 as absolute proprietor but as a trustee for Riddagh; (2) so far as the ground-annuals are concerned, because ground-annuals cannot like bonds be extinguished confusione; and (3) because it must be presumed that Aitken's intention when he got the conveyance of 9th May 1903 was to keep alive both the bonds for £350 and the ground-annuals.

I. The pursuers admit that if, as in a question with them, the back-letters must be recognised, then their case fails. To operate confusion one and the same person must become both debtor and creditor. But if the back-letters receive effect, while Aitken at the date of the conveyance was absolute creditor under the bonds, he did not become absolute debtor under the bonds in respect of the conveyance, but only trustee for the debtor. That this was in fact his position is admitted. If so, it does not matter whether the back-letters were recorded or not. The pursuers' rights were fixed on 17th March 1903. At that date the bonds for £350 each and the ground-annuals existed as prior rights coming before the pursuers' security. Apart from the question of fraud, which will be dealt with later, it must be held to have been their own fault if the pursuers did not know about the bonds which were recorded, and about the ground-annuals which were mentioned in their bond. The pursuers' security might have been improved at any time by Aitken becoming absolute proprietor of the subjects. But he never did become absolute proprietor, but by a transaction with which the pursuers had nothing to do he came into the position of a heritable creditor with an ex facie absolute disposition qualified by back-letters. I therefore sustain the defenders' contention.

II. The defenders say that so far as the ground-annuals are concerned there could be no confusion, because confusio does not operate to extinguish ground-annuals. On this matter, in the case of Murray v. MacEwan, 1890, 18 R. 287, opposite opinions were expressed by Lord Rutherfurd Clark, who thought that confusio might operate extinction of a ground-annual, which is ‘nothing more than an obligation for payment of an annuity secured over the heritable estate,’ and by Lord Kinnear and Lord Trayner, who thought that ground-annuals being ex facie irredeemable rights in land completed by infeftment, cannot be extinguished confusione. I take the same view as that expressed by Lord Rutherfurd Clark. In a question of extinction it is significant that in ground-annuals as distinguished from feu-duties the real security is destroyed by the negative prescription if the ground-annual is omitted from the title for forty years.

III. Aitken's alleged intention cannot enter into the disposal of this part of the case. The pursuers alleged fraud against him.… It would be out of the question to have a proof as to what was in point of fact the intention of this alleged fraudulent agent.…”

Page: 535↓

The pursuers reclaimed, and brought under review the first portion of the Lord Ordinary's interlocutor.

Argued for the reclaimers—It was admitted that if the disposition of 9th May 1903 had been in fact as well as in form a valid irredeemable disposition of the subjects, confusio would have taken place, and there could have been no subsequent assignation of the prior bonds. Where the disposition was ex facie valid and irredeemable, though qualified by a back-letter, the result was the same, so long as the back-letter was unrecorded, quoad any party in ignorance of the existence of the back-letter. The disponee was the feudal proprietor— Scottish Heritable Security Company, Limited v. Allan Campbell & Company, Limited, January 14, 1876, 3 R. 333, 13 S.L.R. 207; Union Bank of Scotland, Limited v. National Bank of Scotland, Limited, December 10, 1886, 14 R. (H.L.) 1, 24 S.L.R. 227; Lord Blantyre v. Dunn, July 1, 1858, 20 D. 1188, per Lord Mackenzie (Ordinary), at p. 1193; Hogg v. Brack, December 11, 1832, 11 S. 198. The pursuers were entitled to rely on the records, and ex facie of the records, at 9th May 1903, Aitken was absolute owner of the security subjects, and therefore the two bonds in his favour were at that date extinguished. The effect of an unrecorded back-letter was only to create on the party who was ex facie of the records absolute owner a personal obligation to reconvey. The back-letter, therefore, did not prevent the extinction of the security constituted by the two prior bonds, and the effect of the titles as appearing on the records could not be in any way affected by the intention of the parties— Bald v. Buchanan, 1787, 2 Ross L.C. (Land Rights) 210. The case of Mackenzie v. Gordon, March 26, 1839, M'L. & R. 117 ( aff. 16 S. 311), mentioned by Lord Ardwall, was distinguishable, because (1) a trustee was interposed in that case, (2) the question there dealt with was the extinction of the debts and not of the securities, and (3) the party pleading confusio was not in ignorance of the facts, but was in the position of a purchaser who has private knowledge of something not on the records. The records could therefore in that case not be founded on— Petrie v. Forsyth, December 17, 1874, 2 R. 214, 12 S.L.R. 157; Stodart v. Dalzell, December 16, 1876, 4 R. 236, 14 S.L.R. 164.

Argued for the defenders (the Rev. William and Mrs Johnston)—In order to operate extinction confusione the same party must be absolute creditor and absolute debtor in the same capacity—Bell's Prin., sec. 580. Here, Aitken was absolute creditor in his own right, but had never become absolute debtor, for he only became proprietor of the subjects in trust not in his own right. The effect of the back-letter was to make his ex facie irredeemable property merely a right in trust—Bell's Lect., 3rd ed., p. 1173. Trust might be proved by reading several writs together, and was sufficient to distinguish the capacity in which the property was held— Lawrie v. Donald, December 7, 1830, 9 S. 147. Further, confusio did not operate where the party in whom there was an alleged concursus debiti et crediti had an interest to keep up the debt— Fleming v. Imrie's Trustees, February 11, 1868, 6 Macph. 363, 5 S.L.R. 242. Aitken here had an interest to keep up the bonds, which represented cash to him, while qua owner he was only trustee. Murray v. Parlane's Trustees, December 18, 1890, 18 R. 287, 28 S.L.R. 223, was mentioned as referring to the question of ground-annuals, which was not before the Court.