Scottish Court of Session Decisions

John Stewart Menzies Pender-Small of Dirnanean, with consent and concurrence of James Stewart Robertson and another, testamentary trustees of the late James Small of Dirnanean, pursuer, brought an action against (1) William Joseph Starkey Barber-Starkey of Aldenham Park, Shropshire, and another, marriage-contract trustees of Sir John and Lady Kinloch, defenders, and (2), for any interest they might have, the Free Church of Scotland and others, and also (3), for any interest they might have, the General Trustees of the United Free Church of Scotland, concluding for decree that “(first) it ought and should be found and declared by decree of the Lords of our Council and Session that the real burden created on all and whole these four-sixth parts of the lands of Bellaty, one of which is commonly called Wester Neids, … as also all and whole that other sixth part of the lands of Bellaty … of old within the barony of Glenisla and now within the barony of Lundie, parish of Glenisla and sheriffdom of Forfar, by a heritable bond of annuity by the trustees of the late Thomas Rattray, dated 10th May and recorded in the General Register of Sasines 19th December 1866, for payment of the sum of £50 sterling yearly on the 15th day of March in each year to the treasurer for the time to the association in the parish of Glenisla in connection with the congregation of the Free Church of Scotland in Glenisla, to be by the said treasurer paid to John MacDonald, Esquire, general treasurer of the Free Church of Scotland, or to the general treasurer of the Free Church of Scotland for the time of the Sustentation Committee of the General Assembly of the Free Church of Scotland, so long as there shall be a church in Glenisla parish in connection with the Free Church of Scotland, had already lapsed as at 11th November 1903, and has lapsed and ceased to be effectual or exigible to any extent in all time coming; and (second) that the said defenders William Joseph Starkey Barber-Starkey and Archibald Hamilton Donald, as trustees foresaid, ought and should be found liable, by decree of our said Lords, to pay to the pursuer the sum of £1666, 13s. 4d. sterling, with the legal interest thereon from 11th November 1903 until payment.”

The facts of the case were—The late Thomas Rattray, proprietor of the lands of Bellaty in the county of Forfar, died in 1856, leaving a codicil to his trust-disposition and settlement in the following terms:—“I specially declare that the annuity of £50 bequeathed to the Sustentation Fund of the Free Church of Scotland in Glenisla shall not be postponed, but that payment thereof shall be made by my trustees to the treasurer for the time to the association in the parish of Glenisla in connection with the congregation of the Free Church of Scotland in Glenisla, to be by the said treasurer paid to John MacDonald, Esquire, general treasurer to the Free Church of Scotland, or to the general treasurer of the Free Church of Scotland for the time of the Sustentation Committee of the General Assembly of the Free Church of Scotland; and I declare that

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payment of said annuity shall commence on the first 15th day of March which shall happen after my death, and shall continue to be paid yearly on the 15th day of March so long as there shall be a church in Glenisla parish in connection with the Free Church of Scotland.… The said annuities shall be created real burdens on a portion of my heritable estate sufficient to secure payment thereof for the objects for which they are intended, the title to be taken to the said real burdens in the name of any person or persons whom my trustees shall select, and I direct the title to be taken as soon as may be convenient to my trustees after my death.” His trustees, in fulfilment of the provisions of the codicil above quoted, executed a heritable bond of annuity, dated 10th May and recorded 19th December 1866, over all and whole the lands of Bellaty in favour of the Earl of Dalhousie and others, the general trustees of the Free Church of Scotland, binding themselves and Patrick William Small and his successors in the lands to make payment “of the said annuity of £50 yearly on the 15th day of March in each year so long as there shall be a church in Glenisla parish in connection with the Free Church of Scotland.” Thomas Rattray further bequeathed the residue of his estate, including the lands of Bellaty, to Patrick William Small. To him the trustees conveyed the said lands under burden of the bond of annuity by disposition dated 26th February and registered 14th March 1867. Patrick William Small died on 25th September 1870, and was succeeded by James Small, who died in 1900, leaving a trust-disposition and settlement under which James Small-Pender succeeded to his estates, including the lands of Bellaty. The trust-disposition and settlement empowered the trustees therein appointed to sell the heritable property of the said James Small, and by minute of sale dated 3rd and 7th November 1903 the trustees sold the lands of Bellaty under burden of the annuity to the defenders.

The minute of sale provided—“ First. The price shall be £7000 sterling, payable by the [defenders] at Martinmas (11th November) 1903, which shall be the term of their entry to the subjects, with interest at 5 per cent. per annum from the said date of entry till paid, which price shall include all trees, shrubs, woods, and plants at present growing on the said farms and lands hereby sold, and also all fixtures, fittings, and other property belonging to the [trustees] upon the farms, if any, hereby agreed to be sold as aforesaid.… And the [trustees] shall purge the records of all incumbrances affecting or which may be found to affect the said subjects or the successive proprietors thereof excepting a heritable bond of annuity for the sum of £50 per annum granted by the trustees of the late Thomas Rattray in favour of the trustees of the Free Church of Scotland for behoof of the Sustentation Fund of the Free Church in Glenisla, dated 10th May and recorded in the General Register of Sasines 19th December both in the year 1866, which annuity capitalised at 33 1 2 year's purchase shall be imputed to account and form part of the said purchase price of £7000.”

The disposition in implement of the minute of sale set forth—“We … the trustees of the said deceased James Small … and as such trustees heritable proprietors of the lands subjects and others hereinafter disponed, in consideration of the sum of Seven thousand pounds sterling as the agreed on price of the said lands subjects and others sold by us to … the [defenders]. … of which price the sum of Five thousand three hundred and thirty-three pounds six shillings and eight pence has been instantly paid to us as trustees foresaid by the [defenders] … whereof we as trustees foresaid hereby acknowledge the receipt and discharge them, and the balance of the said price, being One thousand six hundred and sixty-six pounds thirteen shillings and four pence, is the capitalised value of the annuity aftermentioned affecting the portion of said subjects hereinafter disponed in the first place (primo), which annuity is to remain a burden on the said subjects, do hereby sell and dispone to and in favour of the said … trustees and trustee foresaid and the assignees whomsoever of the said trustees or trustee heritably and iredeemably All and Whole … the lands of Bellaty … And we as trustees foresaid grant warrandice from our own facts and deeds only, and we bind the trust estate under our charge in absolute warrandice but excepting therefrom (First) a bond of annuity affecting the subjects hereinbefore disponed [being the bond of annuity above referred to]… .”

James Small Pender died on 4th January 1914 without having received a conveyance of the subjects from James Small's trustees, but leaving a trust-disposition and settlement under which the pursuer succeeded to him. James Small's trustees made up a title to the heritable property and conveyed it so far as unsold to the pursuer.

The pursuer averred—‘(Cond. 14) On 30th October 1900 the majority of the members of the General Assembly of the Free Church entered into an incorporating union with the United Presbyterian Church under the name of the United Free Church of Scotland. A minority of the members declined to enter into the said union, and on 14th December 1900 a summons at their instance was signeted by which declarator was sought that the minority legally represented the Free Church of Scotland as it existed prior to 30th October 1900, and as such were entitled to all the property held by or for behoof of that Church at that date. The summons was called before Lord Low, who after sundry procedure decided on 9th August 1901 that the pursuers were not the ‘Free Church of Scotland,’ and therefore dismissed the action. This judgment was appealed to the Second Division, who on 4th July 1902 granted absolvitor to the defenders the United Free Church of Scotland. Thereafter the case was appealed to the House of Lords, who on 1st August 1904 decided that the pursuers in the case lawfully represented the Free Church of Scotland as it existed prior to 30th October 1900

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and so were entitled to all property held by or for behoof of that Church at that date. (Cond. 15) The minority of the members of the Free Church of Scotland was so small that it could not adequately administer the property which it took under this judgment, and by the Churches (Scotland) Act 1905 a Commission was set up for the purpose of allocating the property belonging to the old Free Church as at 30th October 1900 between those who had entered the union and those who had not done so. The church buildings in Glenisla were all along occupied by the supporters of the union—the minority being so far as is known unrepresented in the district—and on 14th July 1908 the Commissioners issued an order formally allocating the church buildings in Glenisla to the trustees for behoof of the United Free Church of Scotland congregation there. (Cond. 16) On 9th December 1909 the Commissioners also made an allocation of the funds and assets held by the general trustees, together with the whole revenue accrued or to accrue thereon, and among the assets conveyed by that order to the United Free Church was the above-mentioned bond of annuity. The order was declared to take effect as from 30th October 1900.… (Cond. 18) There was in 1903, the date of the purchase of the said lands of Bellaty, no church in existence in Glenisla parish in connection with the Free Church of Scotland, and there has been no such church in the parish ever since. The said burden or annuity had accordingly then lapsed and has finally lapsed, and the pursuer asks declarator to this effect in the first conclusion of his summons. (Cond. 19) At 11th November 1903 the said real burden or annuity having already lapsed and ceased to exist, the consideration in respect of which the said sum of £1666, 13s. 4d. was retained by the defenders out of the agreed-on price of £7000 did not exist. Both parties to the said agreement, whereby it was arranged that the said sum of £1666, 13s. 4d. should be retained out of the purchase price of the said lands by the defenders in respect of the said burden affecting the lands, were under mutual and essential error. Both parties then believed that the said burden at the date of the purchase was a subsisting and exigible burden affecting the said lands. Since the date of said sale no payment of said annuity has been made. The said balance of the price of £7000, namely, £1666, 13s. 4d., is accordingly now payable by the defenders to the pursuer with interest, and as the defenders first called refuse or delay to pay said sum the pursuer is obliged to sue therefor in terms of the second conclusion of the summons.”

The pursuer pleaded, inter alia—“1. There being at 11th November 1903 no church in Glenisla parish in connection with the Free Church of Scotland, and there having been no such church ever since, the said real burden had then already lapsed and has finally lapsed, and the pursuer is entitled to decree in terms of the first conclusion of the summons. 2. The said sum of £1666, 13s. 4d. having been retained by the defenders as part of the agreed-on price for the lands of Bellaty in respect of the supposed burden upon part of the said lands to pay the said annuity, and said annuity having lapsed prior to the purchase of the said lands by the defenders, and being then no longer exigible, the pursuer is entitled to decree in terms of the second conclusion of the summons. 3. The agreement condescended on whereby the said sum of £1666, 13s. 4d. was retained by the defenders out of the purchase price of the said lands having been entered into under mutual and essential error the pursuer is entitled to payment of the sum so retained.”

The defenders pleaded, inter alia—“2. The action being incompetent should be dismissed. 3. The pursuer's averments being irrelevant and insufficient to support the conclusions of the summons the action should be dismissed.”

On 24th February 1916 the Lord Ordinary ( Hunter) sustained the second plea-in-law for the pursuer and granted decree in terms of the first conclusion of the summons, and with regard to the second conclusion found the defenders liable to the pursuers in payment of the sum of £1666, 13s. 4d. with interest thereon at 3 per cent. per annum from 11th November 1903 until payment.

Opinion.—“This is an action brought for recovery of the sum of £1666, 13s. 4d. in somewhat unusual and peculiar circumstances. The pursuer in the action is the party vested in the residue of the estate of the late James Small. The trustees of that gentleman acting under his trust-disposition and settlement consent to the action. In the year 1903 they effected a sale to the defenders of a portion of James Small's estate. The part of the estate sold was sold for the price of £7000, and it was provided with reference to that price that £5000 odd should be paid, and as regards the balance of the price, namely, £1666, 13s. 4d., it was to be retained by the defenders as representing the capitalised value of an annuity of £50 over the estate. The disposition describes the annuity as an annuity which is to remain a burden upon the subjects. The annuity to which reference is made was an annuity granted by a former proprietor of the estate burdening the estate with a sum of £50 a-year in favour of the Free Church of Scotland “so long as there shall be a church in Glenisla parish in connection with the Free Church of Scotland.” The position of the Free Church and the United Free Church, the litigation between them, and the adjustment of their rights following upon the decision of the House of Lords in 1904, are referred to on record. I need not mention these matters in detail. Suffice it to say that on the statement of these facts I am satisfied now that as at the date when the disposition was granted by the late Mr Small's trustees there was no annuity in existence for the reason that there was not a church in Glenisla in connection with the Free Church of Scotland. Had there been any question of fact with reference to this matter that would have thrown light upon it I should have allowed a proof, but neither party asked a proof, and I do not understand that the defenders

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really disputed any of the averments made by the pursuer. The situation therefore is that at the date of the disposition there was no annuity which burdened the estate that was sold. What then are the rights of the parties? The pursuers claim that they should get payment of this sum that was retained by the defenders as part of the purchase price on the ground that it was retained in respect of a consideration that did not exist. The defenders maintain with some force—although neither side in the course of the argument cited any authority, but left me to decide the question upon principles of law to which each side appealed—that the transaction is to be looked at as a whole, and that so looked at what they purchased was an estate for the sum of £5000 odds and an undertaking to pay a burden which appeared upon the record. They maintain that a petitory action is an incompetent form of process under which to recover this sum of £1666, 13s. 4d., and that the remedy, if any, that is open to the pursuers was a reduction, although I think they admitted, as they were bound to admit, that a reduction had very little chance of success in the present instance where the estate had passed into the hands of the defenders and had been possessed for many years by them. I do not think that the defenders' pleas are really sound. No doubt I must look at the transaction as a whole, but then the transaction was a sale for a price of £7000. As regards the portion of this price retained by the defenders for a specific purpose, as it turns out that there was at the time no burden over the estate there appears no reason in law why the pursuers should not recover that part of the price; otherwise the defenders will simply get this estate at a very much less price than they agreed to pay and that although there never was an existing effective annuity over the estate. The situation would be different if the annuity had been in existence for some time, however short, after the transaction and had then terminated. The defenders would then get the benefit of what was to them a good bargain. But I do not think that is the situation here, because both parties contemplated, as shown by the terms of the disposition, that the annuity was valid and in existence at the time. That was a mutual error on the part of both with reference to the retention of the price, and it can be set right now by the defenders paying the part of the price they retained to meet the annuity. I see no technical difficulty in the way of giving effect to this claim, which appears to me to be founded on equitable considerations. The defenders will not really suffer because of their having a defective title. Neither of the Churches concerned makes any claim to this annuity. The defenders have never had to make any payment of the annuity, and the effect of my judgment giving effect to the conclusions of the summons will be to preclude the possibility of either of the Churches laying claim to this annuity.

In one respect I think the defenders are entitled to consideration, and that is as regards the interest on the sum claimed. The pursuers ask for payment of the principal sum with 5 per cent. interest since 1903. They have been a considerable time making this claim, and although that does not bar their claim I think there should be a modification of what is looked upon as the legal interest of 5 per cent. In a case in the House of Lords where there had been considerable delay a rate of 3 per cent. was sanctioned, and I think in the present instance that rate would be a fair rate to allow. I shall therefore give decree for the sum concluded for with interest at the rate of 3 per cent. from 1903.

In the special circumstances of this case I shall find no expenses due to or by either party.”

The defenders reclaimed, and argued—The action was laid upon mutual error but there was no relevant averment of error. There was no error as to the subject-matter or the price; both parties knew the subjects sold were subject to the bond, and it was expressly excluded from the warrandice clause; neither party was in error as to the capitalised value of the annuity. Further, both parties knew at the date of the sale that the question between the Churches was sub judice, and they took the risk of the decision being one way or another. An error in fact was impossible, for the fact only became known after the decision in the Churches' case. The pursuer's estimate of the probabilities of which he took the risk had not turned out as he expected. But that was not an error which in law could give him the remedy he sought— Boyd & Forrest v. Glasgow and South-Western Railway, 1915 SC (HL) 20, 52 S.L.R. 205; Izzat-un-Nissa Begam v. Kunwar Pertab Singh, L.R., 1909, 36 Indian Appeals 203; Soper v. Arnold, 1889, 14 A.C. 429. There were not two separate bargains. The whole was one and indivisible; the price paid was £7000 minus the annuity, and the reference to the annuity in the consideration clause was solely to satisfy the requirements of the statutory laws. Like the bond, the feu-rights and leases were excluded from the warrandice clause, and if a feu-right or a lease turned out to be invalid the whole transaction could not be opened up. Each party took the risk of the result of the Churches' litigation and of what might follow upon that, and neither knew what would happen. The defenders were not free from risk, and it was even yet impossible to say what may happen. There might again be a Free Church at Glenisla, and in that case the defenders' liability might be revived. Free Church of Scotland v. Macknight's Trustees, 1913 S.C. 36, 50 S.L.R. 55, was referred to. The remedy sought was incompetent. The only competent remedy, if it were possible, was recission of the contract, but what the pursuer sought was reformation of the contract, for he sought to recover part of the price without reduction of the contract. But recission of the contract was impossible for restitution was impossible. The defenders stipulated to get £1666, 13s. 4d. at 3 per cent. in perpetuity. They could at the date of the contract have

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got that otherwise than from the pursuer but they could not do so now for the current rate of interest was 5 per cent. In any event, if the pursuer succeeded thedefenders' property must be effectively disburdened, and that could not be done in an action in which the creditors in the annuity had not appeared.

Argued for the pursuer (respondent)—Reformation of the contract was admittedly incompetent, but there were two separable bargains, one was the sale of the lands for £7000, the other was superimposed upon the former and was the agreement as to the annuity. The latter was void from essential error— Stewart's Trustees v. Hart, 1875, 3 R. 192, 13 S.L.R. 105. The error consisted in the fact that both parties believed that in 1903 there was a congregation of the Free Church of Scotland in Glenisla whereas as a matter of fact there had been no such congregation since the union in 1900, for that was what was declared by the House of Lords in 1903. The fact was that the parties knew of the dispute and considered it was irrelevant for they chose a particular annuitant and no such annuitant existed. There was always an implied condition non subesse. Even if there might again be a Free Church in Glenisla the annuity would not revive, for it had ceased to exist in 1900— Bannerman v. Bannerman's Trustees, 1896, 23 R. 959, 33 S.L.R. 695. The words “so long as there shall be” meant during the existence of what then existed, and were not equivalent to “whenever there may be from time to time.” Had that been intended it would have been expressed.

At advising—