Scottish Court of Session Decisions

At advising on 7th November 1975,—

LORD PRESIDENT (Emslie).—By Missives dated 30th July and 1st August 1974 Mr Gibson, the first party, offered to buy, and the second party, a limited company, agreed to sell, subjects consisting of a plot of land and a dwellinghouse to be erected thereon. The company is now in liquidation. It was a condition of the missives that 5 per cent of the price should be paid over within a week and this was duly done. So far as the balance of the price was concerned the missives expressly provided that it should be payable at the date of entry which was to be, at the latest, seven days after intimation to the purchaser that the dwellinghouse had been Completed. Such intimation was made on 15th October 1974, the balance of the price was paid on 31st October 1974, and the purchaser entered into occupation of the subjects.

The good and marketable title which the sellers were under the missives obliged to give to the purchaser was a feu disposition which required to be executed both by the sellers and, as consentors, by the holders of a standard security over the plot of land. Execution of the engrossed feu disposition by the sellers took place on 30th October 1974. While it was in the hands of solicitors acting for the holders of the standard security a petition was presented to the Court on 13th November 1974 for the winding up of the company, the sellers under the missives. The feu disposition was, on 15th November, executed by the consentors. It has, however, not been delivered to the purchaser. On 3rd December 1974 a winding up order was made by the Court.

The question which has in these circumstances arisen between the purchaser and the company in liquidation is whether, at the commencement of the winding up of the company on 13th November 1974, the subjects of sale remained part of the property of the company. This question is of importance because of the statutory effect of the winding up. The relevant provision is to be found in section 327 (1) (b) of the Companies Act 1948 (cap. 38) which enacted, inter alia, that the winding up, as at the date of commencement of winding up, shall "be equivalent to a decree of adjudication of the heritable estates of the company for payment of the whole debts of the company … accumulated at the said date."

For the first party the contention that the subjects did not form part of the heritable estates of the company at the commencement of winding up was presented in the first place upon the proposition that property in the subjects had passed by that date to the purchaser by virtue of the missives, payment of the price and actual entry.

Although I have every sympathy with the purchaser in the events which happened, I have not the slightest doubt that his first argument is without substance. In the law of Scotland no right of property vests in a purchaser until there has been delivered to him the relevant disposition. On delivery of the disposition the purchaser becomes vested in a personal right to the subjects in question and his acquisition of a real right to the subjects is dependent upon recording the disposition in the appropriate Register of Sasines. Putting the matter in another way the seller of subjects under missives is not, in a question with the purchaser, divested of any part of his right of property in the subjects of sale until, in implement of his contractual obligation to do so, he delivers to the purchaser the appropriate disposition. Until the moment of delivery the purchaser, even if he has paid the price and obtained occupation of the subjects, has no more than a right under the contract of sale, the missives, to demand performance by the seller of his contractual obligation to convey. Such right as the purchaser has, accordingly, is no more than a jus crediti until delivery of the disposition for which he contracted has been made to him. In this case the purchaser's entry before the passing of any right of property was expressly provided for in the missives and his occupation of the subjects thereafter was ascribable to the terms of the contract and to nothing else.

The alternative submission for the first party was that as from the date of entry when the price was paid the whole beneficial interest in the subjects of sale had passed to the purchaser and the seller thereafter held the right and title to the subjects as trustee for the purchaser in whose favour he was bound to denude. If this proposition is well founded then it could not be disputed that the subjects were not part of the property, and, in particular, not part of the heritable estates, of the company at the commencement of winding up.

In my opinion this alternative argument is equally without substance. Two well-known cases illustrate perfectly the distinction between a trust and a mere personal obligation under contract. The first of these is Heritable Reversionary Co. Ltd. v. Millar (1892) 19 R (HL) 43 in which it was held that heritable property to which a bankrupt has an ex facie absolute title but which does not belong to him does not vest in his trustee. The fact was that the bankrupt had bought the subjects in question on behalf of the appellants. Having taken the title in his own name he then executed a declaration of trust which did not enter the Register of Sasines. In the course of his speech Lord Herschell at p. 44 said this:

"I have thought it well to dwell on these considerations, because it appears to me that there has been some confusion between the case of heritable property held upon a latent trust of which the owner appearing on the register is a bare trustee, and that of heritable property as to which the owner has come under some contractual obligation. The latter was the case in Wylie v. Duncan 1803, M. 10,269. Archibald was there the owner of the property, not a mere trustee; he had bound himself on certain conditions to re-dispone to Wylie, from whom he took the subjects. But this was a mere personal contract. If he had sold the property and disposed of the proceeds he might have rendered himself liable to legal proceedings on the ground that he had put it out of his power to fulfil his obligation, but he would not have been guilty of a breach of trust, or brought himself within the reach of the criminal law."

Lord Watson at p. 51 made the distinction even more pointed in these words:

"I have already stated what I believe to have been the import of the judgment in Wylie v. Duncan and similar cases, and I have only to remark further that a personal obligation to convey heritable estate, undertaken by one who is the beneficial as well as the feudal owner, does not, according to the law of Scotland, denude him of his beneficial interest, or confer upon the person to whom it was contracted either the character or the rights of a trust beneficiary."

The second of the cases was Bank of Scotland v. Liquidators of Hutchison Main & Co. 1914 SC (HL) 1 which, distinguishing Millar's case, held that a company which had come under a contractual obligation to assign a debenture to a bank did not hold it for the bank, and thus remained beneficially interested in it at the date of its liquidation. Now it is perfectly plain that the obligation of the sellers, the second party, to convey the subjects was a personal obligation to convey heritable estate undertaken by them as beneficial as well as feudal owners. This personal obligation clearly did not make, nor did it purport to make, the sellers at any tune before completion of the contract trustees of the subjects for the purchaser, or confer upon the purchaser the character or the rights of a trust beneficiary. There is, in short, in the special case no evidence whatever of the constitution of a trust, and in the absence of authority, and there is none, it is impossible to entertain the suggestion that mere entry to the subjects and payment of the price, both unequivocally referable only to the terms of the missives, in some way instructed the existence of a trust pending delivery of the disposition.

Upon the whole matter I propose to your Lordships that we should answer the first question in the case in the affirmative and the second and third questions in the negative.

LORD CAMERON .—In this special case the first party entered into missives dated 30th July and 1st August 1974 for the purchase from the first named second party, a company known as Hunter Home Designs Limited, subjects comprising ground and a dwelling house to be erected thereon known or to be known as 3 Milesmark Court, Dunfermline, at a price of £19,750. For the sake of convenience I shall refer to the first named second party hereafter as "the second party." The solicitors for the first party paid to the solicitors of the second party a deposit amounting to 5 per cent of the purchase price as stipulated in the missives on 1st August 1974. The house was built and a certificate of completion issued by 15th November. The balance of the purchase price was paid on 31st October and in return the first party received the keys and thereafter entered into possession. On the same date the second party's solicitors granted a letter of obligation to deliver a duly executed feu disposition of the subjects within one month thereafter. The feu disposition which had been adjusted by the respective solicitors of the parties was executed on 30th October 1974 and sent along with the principal sum to release the security held by a concern known as Lombard North Central Limited, secured inter alia on the area of ground on which the house occupied by the first party had been erected. The feu disposition was executed by the Lombard North Central as consentors on 15th November 1974 but has never been delivered to the first party.

In the meantime the second party had been subjected to a winding up order on the petition of creditors. The petition for winding up was presented on 13th November and the winding up order pronounced on 3rd December. The effect of that order was to draw back the commencement of the winding up to 13th November, at which date the feu disposition had still not been executed by the holders of the standard security over the subjects. Consequently although it had been executed by the disponers it had never been delivered to the disponee. The position of the first party therefore was clear. He had no feudal title to the subjects but certain contractual rights under the missives. All that had been done up to 13th November including his entry upon and physical occupation of the subjects and of the house had been done presumably pursuant to and in precise accordance with the missives. It is in these circumstances that questions have arisen between the parties as to whether the dwelling house and ground which were the subjects of the missives form part of the property of the second party at the commencement of its winding up of 13th November and whether the first party is entitled to call for delivery of the executed feu disposition. Three questions of law are presented. They are: (1) Did the said subjects form part of the property of the company for the purposes of the Companies Acts at the date of the commencement of the winding up of the company? or (2) Were the said subjects the property of the first party at the date of the commencement of the winding up of the company? (3) Are the second parties now bound to deliver to the first party the said executed disposition of the subjects in favour of the first party?

The effect of the winding up order was clear. It brought into play section 327 (1) (b) of the Companies Act 1948 which provides that it shall be the equivalent of a decree of adjudication of the heritable estates of the company being wound up for payment of the whole debts of the company subject to the preferable heritable rights and securities. A decree of adjudication has the legal operation and effect of a conveyance in ordinary form of the lands adjudged which thus enables the adjudger to complete a feudal title thereto, but an adjudger takes the subject tantum et tale as it is vested in the person of the debtor and subject to all the conditions and qualifications attaching to it. But this equivalent only applies to real conditions affecting the subjects itself and not to any personal obligations under which the debtor has come with regard to it. Thus if the debtor is the beneficial owner his personal obligation to convey the subjects to a third party even for onerous causes will not affect an adjudger. Even if the obligation has been so far implemented as by delivery of a conveyance or disposition, an adjudger infeft before the disponee will be preferred. (See Graham Stewart on Diligence, pp. 620, 621.)

In the present case the first party did not obtain delivery of the feu disposition prior to the commencement of the liquidation nor has it yet been delivered, so far as the case discloses. Consequently, all that the first party would appear to be able to found upon are his contractual rights under the missives. In these circumstances it was manfully argued for the first party that the subjects in question were not part of the "property" of the company as that word was used in sections 227, 243 and 244 of the Act. The "property of the company" was a term necessarily wide enough to cover the heritable estates of the company but where, as here, all that remains to the company in respect of the subjects in question was a bare title subject as it was to the contractual obligation arising out of the missives, the subjects no longer formed part of the property of the company. The liquidator could acquire no higher right than the company enjoyed at the date of the liquidation and in these circumstances there was nothing which truly answered the character of "property," that is, an asset of value which could be taken into the custody of the liquidator for the benefit of the creditors. Thus this "bare title" did not form part of the heritable estates of the company and therefore could not lye the Subject of a decree of adjudication. It was said that transfer of property had taken place at the point of time when the price was paid and occupation given to the person who had paid that price, and so the purchaser's rights against the seller were complete, and he enjoyed a beneficial right of property which had been transferred from the seller to him. It was also maintained that as the purpose of the process of liquidation was to preserve the insolvent estate and its assets for the benefit of the creditors, they already enjoyed that benefit in that the price for the subjects had been paid and received and so had been merged in the assets of the company. But this argument seems to assume (without justification in fact whatever its merits in law) that the price of the subjects is still available for creditors and if so would be an effective legal surrogatum for the subjects themselves. No authority was cited for this ingenious proposition. No doubt the second party got the money from the first party for the subjects covered by the missives, but it does not at all follow that the money was still there and was available to meet the claims of creditors, at the time of the commencement of the liquidation. Indeed the case demonstrates that at least part of it had already been paid away to the security holders. I do not think that these submissions however formulated are soundly based. There was in law no passing of the property in the subjects. All that was done was to permit occupation thereof under the terms of the contract contained in the missives. Any rights which the first party enjoyed as at 13th November 1974 were rights in personam under contract only. The fact remains that the second party was still heritably vest in the subjects at the commencement of the liquidation and therefore these subjects at that date, i.e., 13th November, were capable of being effectively disposed of for onerous consideration to a third party who was not aware of the earlier transaction, leaving in such circumstances the first party to operate such remedy arising out of his contract as he might have against the second party. Should, however, the third party be aware of the earlier contractual obligations undertaken by the seller he is put on his inquiry, and if he fails to make that inquiry he is in mala fide and the transaction cannot stand. See Marshall v. Hynd 6 S 384, Rodger (Builders) Limited v. Fawdry & Ors 1950 SC 483 per Lord Jamieson at p. 499. The inference to be drawn from this case as well as from the leading case of Heritable Reversionary Coy. v. Millar (1892) 19 B (H.L.) 43, is, I think, clear enough. The subjects in question formed part of the heritable assets of the company and therefore, unless it could be established that the second party held them truly in trust for the first party, they formed part of the property of the company in liquidation and subject to the operation of section 327 (1) (b). Conscious of this difficulty, counsel for the first party endeavoured to escape the consequences which would otherwise follow by contending that if the second party were still heritably vest in the subjects nevertheless a trust had been created in favour of the first party so that, applying the principles affirmed in Heritable Reversionary Coy. v. Millar the subjects did not fall into the custody and control of the liquidator by operation of the winding up order for the benefit of the creditors of the company. Of course, if such a trust could be established the desired result would follow, but I cannot find any material in the case from which it could be established that from the date at least of occupation, far less earlier, the second party held the subjects in trust for the first party. It is no longer open to doubt since Allan's Trustees v. Lord Advocate 1971 SC (HL) 45 that a truster can put his own funds into a trust of which he himself may be the sole trustee, but there must be some identifiable declaration of trust and intimation of the fact of the trust and its tenor or delivery of the trust deed: otherwise, as Lord Reid pointed out in that case, it would lie in the power of a truster to manipulate the trust as a puppet at discretion to defeat, it may be, the just, or at least the lawful, claims of the revenue authorities or his creditors. It is also clear enough from the decision in the case of Bank of Scotland v. Hutchison Main (in liquidation) 1914 SC (HL) 1 that a "declaration of intent" will not be accepted as a sufficient compliance with the requirements of the law, but that there must be a clear and identifiable declaration of trust; and the setting up of a trust can only be established by writ or oath. The critical question therefore is where is the writ on which the first party can found? In my view there is none. All that was done by the parties was in fulfilment of the obligations mutually undertaken in the missives and solely referable thereto. Nor could counsel suggest that there was other writing available upon which this argument could be founded. The missives themselves when examined contain no provision or language which could be construed as sufficient to set up the existence of a trust in favour of the first party. Indeed it may be noted that if that was so there was little point in the granting of the letter of obligation by the solicitors of the second party to which I have already referred. But it may be that any remedy which the first party may have for the awkward situation in which he finds himself lies against the grantor of the letter of obligation. That, however, is a matter on which I express no opinion. If there is, as I think, no legal foundation for the argument that a trust was constituted in the second party in favour of the first party the result cannot be in doubt. The questions must be answered as your Lordship in the chair has proposed.

LORD JOHNSTON .—I agree with your Lordship in the chair and there is nothing I can usefully add.