Scottish Court of Session Decisions

Subject_1 COMPENSATION - RETENTION.
Subject_2 SECT. I.

Nature of Compensation.

Campbell
v.
Carruthers

Date: 21 July 1756
Case No. No 8.

Compensation operates not retro, unless where it can be pleaded by either party against the other.

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In the year 1718, Graham of Longboddom set a 21 years tack of certain lands, for 300 merks of rent, to his brother William Graham, who, anno 1723, conveyed the same to William Carruthers. Of the same date with the assignment, Longboddom granted an heritable bond to the said William Carruthers for 4200 merks, made payable at the expiration of the tack, being Whitsunday 1739; obliging himself to infeft the creditor in an annualrent of 210 merks out of the lands of Longboddom, of which the lands in the tack made a part. Then follows a clause, declaring, “That it shall be lawful for William Carruthers to retain the said yearly annualrent of 210 merks out of the first and readiest of the said 300 merks of tack-duty contained in the said tack.” By this transaction, Carruthers, on the one hand, was secure of drawing his interest yearly, and, on the other hand, Longboddom, during the endurance of the tack, was secure that the sum in the heritable bond could not be drawn out of his hands; and consequently, that Carruthers could not, upon the pretext of compensation, retain any more of the rent than what answered the interest of his money.

Longboddom's affairs going into disorder, his estate was vested in trustees for behoof of his creditors, and a very confused management was carried on for many years. Carruthers paid his surplus rents whenever they were demanded. But, at the long run, a considerable arrear remaining in his hands, an argument was built upon it to cut down the heritable bond by compensation; it being urged that the bygone rents must impute for extinction of the said heritable bond from time to time as they became due. This was accordingly found. But, upon a petition and answers, the interlocutor was altered, and the compensation found to have no retro operation, upon the following ground; the equity of making compensation operate retro arises from this circumstance, that compensation may be pleaded by both parties; so that if either make a demand, the other can retain by the exception of compensation. Thus both of them being equally secure that the money cannot be drawn out of his hands, each has the full use of the others money from the time of the concourse; and hence it follows, in equity, that both ought to pay interest, or neither. If the one is entitled by paction to have interest, he in effect receives that interest by having the use of the others money. But this holds only where the privilege of compensing is mutual. This was not the case of Carruthers. He was bound to pay the surplus tack-duty regularly; because, not to mention the transaction which entitled him to retain for payment only of his interest, he had in truth no claim against Longboddom upon which he could found a defence of compensation; the payment of the sum in the heritable bond being suspended during the currency of the tack. In this situation, it would be gross injustice to oblige Carruthers to pay interest for rents that he must hold in his hand ready to be paid upon demand; and it would be equally unjust to cut down the heritable bond gradually by these rents, which comes to the same with making them bear interest.

Sel. Dec. No 112. p. 158.