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Cite as: [2004] ScotCS 173

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Pelosi & Ors v. Luca & Anor [2004] ScotCS 173 (08 July 2004)

OUTER HOUSE, COURT OF SESSION

OPINION OF LORD McEWAN

in the cause

(FIRST) GERARD PELOSI, (SECOND) NINETTE PELOSI, (THIRD) ADRIAN PELOSI and (FOURTH) ANTHONY PELOSI

Pursuers;

against

(FIRST) TINO LUCA and (SECOND) MICHAEL ANDREW LUCA

Defenders:

________________

Pursuers: Bennett: Bennett & Robertson

Defenders: Johnstone; Davidson Chalmers

8 July 2004

[1] For many years, generations of people in Edinburgh and Musselburgh have enjoyed Luca's ice cream. The successful business under the name of S. Luca has been conducted in both places for years. Sadly the case before me has now highlighted a dispute. It arises in this fashion, according to the Closed Record.

[2] Ida Luca was a partner in the business. She died in 1994 and the compearing two defenders are her executors. Elvira Pelosi, whose executors are the pursuers, died in 2001. She, in 1994 was one of a number of beneficiaries in Ida's share of the business, left by her Trust Disposition and Settlement. The share in the partnership was of capital, stock in trade, assets, goodwill and profits under burden of the normal debts and liabilities. The precise terms of the Trust Deed are not before me, but the partnership itself provided for payment-out to representatives in the event of dissolution by death. It is averred there was a Memorandum of Agreement between the partners and the precise terms are quoted between letters C/D on page 6 of the Record. Inter alia they provide for payment out over five years and for such payments to include interest at a certain percentage on outstanding balances.

[3] In their answers the defenders aver that Elvira was paid sums of money from Ida's share in the business until December 2000 when she granted a discharge of Ida's executors, acknowledging she had received payments in terms of the Executory Account prepared by them. In the Record, at the start of the debate the Executory Account and the Discharge were "referred to for their terms beyond which no admission was made". That went no further than to admit their existence. (See Widdop v Hay 1961 S.L.T. (notes 35). In a case seeking an accounting and reduction of a discharge that is not satisfactory. Nothing at all is averred to criticise the accounting as being for example, insufficient, erroneous, careless, false or fraudulent. Counsel for the pursuers was allowed to amend his pleadings at the bar to admit the discharge only. The amendment, as allowed, offered no criticism of the accounting.

[4] It is clear from the Record (p.6A) that the complaint is that in her lifetime Elvira was not paid interest as the Partnership Memorandum provided. It is not, however, said how the accounts have failed to state this or that it has in some way been concealed or omitted.

[5] In seeking reduction of the discharge at the instance of her executors it is said that Elvira was in ignorance of her legal rights and was, in particular, unaware of the meaning of the Clause in the Partnership Agreement which provided for the interest payments. It is not said that she was unaware what a discharge was or that it contained any false particulars. Nothing is said of the circumstances surrounding the granting of the discharge. It is not averred on Record what relationship Elvira had to Ida the partner in the business (though I was later told she was also a partner). It is not expressly admitted that Elvira got a copy of the Executory Account. It is not said that any third party was the cause of Elvira's ignorance of her legal rights. On the face of the pleadings the error is that of Elvira; it is unilateral and uninduced.

[6] I was referred to a number of authorities in the argument and I will deal with these in due course.

[7] Counsel for the defenders moved me to dismiss the action. He said the pleadings were self contradictory. The pursuers sought an accounting when it was not seriously disputed that one had been provided. What had been done was not criticised and the pursuers were not entitled to any further accounting without averring more. There were no relevant averments to support the reduction of the discharge. Ignorance of her legal rights and the meaning of the Memorandum would not suffice. She was after all a partner (as I was told). There were no averments of misrepresentation or any mutual error. She had failed to aver that she did not know the nature of the document granting the discharge or was in ignorance of its terms. There were no future payments due, only that more had been due in the past. The rules for reducing discharges could not differ from other deeds. Apart from the cases to follow, counsel referred me to McBryde: Contract (2^nd Ed. 2001) 15-41 and Gloag: Contract (1929) 454/5.

[8] For the pursuers Mr Bennett referred me to a number of authorities which, he said, allowed for a discharge being reduced in the present circumstances. Interest was never paid and it was not necessary for him to aver what was defective about the accounting already done which was the basis of the discharge. That was a matter for proof. The discharge here was of valuable rights and was gratuitous. The pursuers had offered to prove that Elvira did not know she was entitled to interest. Further in Answer 3 it was irrelevant for the defenders to aver that the firm should be asked to pay the interest. That was a matter for Ida's executors and they must recover it.

[9] Dickson v Halbert (1854) 16 D 586 was referred to by both sides. Gloag at 455 refers to the case as one of mutual error in law. The case is not easy to follow but what seems to have happened is this. A brother John Lowther and his two sisters Elizabeth and Jane had an interest in the estate of their deceased rich uncle Tristram Lowther. John died in 1842. Elizabeth, who had married the defender, died in 1844. Jane ultimately became a Mrs Bogie. The defender and Elizabeth had executed in 1836 a mutual disposition in each other's favour with a proviso that if the defender survived and remarried he should pay John and Jane equally one half of what his wife had already received or may yet receive from her late uncle's estate. In November 1846 the defender had paid the pursuer a sum of money under the obligation. Jane at that date discharged him "of all sums due or claim competent to" (her) under the obligation for sums before the discharge reserving all claims competent on account of (future) sums.

[10] The original action by Jane sought one half of the sum of about £1,300 the defender had received in 1848 since his second marriage. The defence to that was the discharge. The defence was sustained and the pursuer sought to reduce the discharge. She pleaded ignorance of her rights and fraud. It appears that the error made by both parties was over their claim on the share which would have accrued to John Lowther had he survived. With that in mind it is plain from the opinion of Lord Ivory at 597 that as a matter of construction the words of the discharge did not cover future intromissions. Ultimately (600) reduction was allowed as both parties were in the same error.

[11] In my view this case is correctly looked at as one of mutual error together with the speciality of the deed under construction. It is not the same as the present case where there are no averments of mutual error.

[12] McCaig v Glasgow University Court (1904) 6 F. 918, concerned an action for reduction of a deed. The pursuer's brother had conveyed his whole estate in trust to the University for certain charitable purposes. The sister being desirous that her brother's wishes be carried out granted to the trustees a deed of assignation and corroboration conveying away any rights she had in her brother's estate. A year later she sought to reduce the deed upon the basis that she believed she had no interest in her brother's estate. In fact the brother's settlement was open to challenge on the grounds of uncertainty. Her error was unilateral and based on a mistake in law, allegedly induced by her brother's solicitor. The Lord Ordinary allowed issues and a reclaiming motion failed.

[13] It should be noted that the Lord Justice-Clerk emphasised that the deed in question was gratuitous and that the form of issue raised the questions of whether the error had been induced.

[14] In Macandrew v Gilhooley 1911 S.C. 448 the facts were rather special. The discharge was gratuitous and the respondent was disabled by his accident, unable to read or write and was described as being "... of a very low mental type ...". Also, the case was decided after proof and the very document contained some false particulars. In my view the case is not in point.

[15] Ross v McKenzie (1842) 5 D. 151 is a somewhat complex case, made more so since the action had to be laid against a cautioner who himself sought relief from two third parties. However, the basis of the action was an earlier action of reduction brought by a surviving daughter in respect of a claim of legitim. It is quite clear from pages 152/3 that the discharge was not granted by the pursuer and that fraudulent misrepresentation and error by more than one party was involved. The Note by the Lord Ordinary makes it clear that both these matters were considered important by him. They are absent from the averments in the present case.

[16] Purdon v Rowat's Trs. (1856) 19 D. 206 is not a simple case of unilateral error. Close examination shows that the error was deliberately induced by the fraud of a third party (see 219).

[17] Mercer v Anstruther's Trs. (1871) M. 618, properly understood, is a case of mutual error where both a father and daughter were in error as to whether there had been vesting. That is very clearly stated at page 653.

[18] McLaurin v Stafford (1875) 2 R. 265 was a dispute between a daughter and her elderly parents. The father was deaf and spoke mainly Gaelic. The mother was illiterate. It is quite clear from the averments quoted at 267/8 that the mother did not know or understand what the disposition was and that fraud was also in issue. Once again the facts are very far from the present case.

[19] I was also referred to in re Brogden (1886) 38 Ch. D. 546 relating to the duty of Trustees to enforce payments of trust funds. It was cited to criticise the last sentence in Answer 3 where the defenders direct the pursuers to seek payment from the firm and not the defenders. I do not think this point really arises in view of the general way the pursuers' fourth plea-in-law is framed, and my overall view of the pleadings.

[20] McCallum v Soudan 1989 S.L.T. 522 was also briefly referred to. That is an Outer House decision in which it was held that unilateral error would not allow reduction.

[21] In my opinion the pursuer has not set forth a relevant case. An accounting has already been given, and is the basis of the discharge now sought to be reduced. Nothing is said about what was defective, if anything, about the accounting. In my view without any such criticism the case on this point is irrelevant.

[22] The argument about the discharge also fails to persuade. Gloag makes clear that unilateral error uninduced leaves the contract valid. McCallum is recent authority for this. All of the cases cited to me contain matters beyond simple unilateral error. Many are examples of mutual error eg. Mercer; others show some kind of intellectual impairment eg. McLaurin, Mcandrew; and many show elements of fraud or inducement eg. Purdon, Ross.

[23] That is enough for disposal of the case and I express no concluded view on the pursuers' argument on their own relevancy plea, as it now does not arise. In the result I will sustain the defenders' first plea-in-law and dismiss the action.