Scottish Court of Session Decisions

John Smyth, Esq. of Balhary, died in the year 1819 without issue. He left a disposition whereby he conveyed his whole estate to the heirs of his own body, whom failing to his brother Robert Smyth and the heirs of his body, whom failing to his sisters and the heirs of their bodies successively. Robert expede a general service as heir of provision in general to him, and also a general service as his heir in general.

Robert Smyth died without issue on 6th October 1855. At that date his only surviving relatives were Sir George Kinloch of Kinloch, son of his sister Helen, who had married Mr Kinloch of Kinloch; Mrs Lingard Guthrie, daughter of a sister of Sir George Kinloch; Mrs Whitson, a sister of his own; Miss Cecilia Kinloch, a sister of Sir George Kinloch; and Miss Anne Oliphant Kinloch, another sister of Sir George. Of these there were alive at the date of this Special Case only the two first named and their children. Mrs Whitson died without issue in 1866, and her estate, which was destined to various charities, was managed by Mr C. W. W. Thomson, C.A., as judicial factor. Robert Smyth left (1) a deed of settlement of his heritable estate, (2) a settlement of his moveables, and (3) a trust-disposition and settlement dated 16th October 1854, registered in the books of Council and Session 16th October 1855. By this last mentioned deed, under which alone the questions proposed to the Court in this Special Case arose, the truster, on the narrative of his succession to his brother John Smyth of Balhary, and of the title which he had made up to him, conveyed to trustees, whom the first parties to the Special Case represented, the estate of Balhary and others to which he succeeded as heir of his brother John Smyth. The settlement contained a detailed description of the Balhary estate, lying in the counties of Perth and Forfar, and also a special assignation of three heritable bonds for the cumulo sum of £13,250, and a general conveyance “of all and sundry other lands and heritages to which I have succeeded as heir of my said deceased brother.” The deed by its second and third purposes provided for payment of certain annuities to the children of the truster's nephew Sir George Kinloch till they should be of full age, when the trustees were directed to pay to each of them the sum of £2000, being the sums of principal that the truster had become bound to pay them on their coming of age. The truster directed that his trustees should “apply £8000 of the sums contained in and due by the bonds and dispositions in security before conveyed for that purpose in the first instance, or if the sums due by the said bonds and dispositions in security shall have been paid up or otherwise disposed of before that time, in terms of the powers hereinafter contained, then my said trustees are hereby directed to sell lands in Glenisla belonging to me, or as much thereof as may be sufficient to produce the said sum of £8000, or what part of it may be required, for the purpose of paying the said provisions of capital sums to the children of said George Kinloch, or such part as may be required for that purpose; but if the sum required to pay off all the children of the said George Kinloch shall exceed £8000, then the remainder of the sums required

Page: 784↓

to pay said children shall not be paid out of the capital or stock of the trust-estate, but shall be made up by my trustees by a saving from the rents or income of the trust of not less than £200 yearly for each child who has to be paid off more than the £8000 will pay: Declaring that as each child comes of age he or she shall, in his or her order, be entitled to receive payment of his or her provision or capital sum out of the said sum of £8000, as far as the said sum will go: Declaring farther, that my said trustees shall, according to circumstances and in their discretion, decide when it may be necessary to set apart any savings for the above purpose.” The fifth purpose of the deed directed the trustees “to lay out such part of the rents of my estates as may be required for executing such improvements as they may consider necessary on the estate, such as repairing or rebuilding farm-steadings when necessary or proper in whole or in part, in draining lands,” &c., “at their discretion, in so far as the free rents can easily admit of.” Thereafter, by the eighth purpose, after a recommendation to have a state of the trust-funds made up from time to time by a professional accountant, he directed “that if it shall appear from the accountant's report that there is any free annual residue out of the revenue of the trust funds arising from the funds or annual proceeds thereof, then in that event my said trustees shall have full power to pay over such part thereof as they may in their discretion consider proper, and as they have funds for, subject to the declaration after mentioned, to the said George Kinloch, Esq. of Kinloch, my nephew, annually during his life, to be applied by him for behoof of himself and family as he sees fit, but with this restriction, that my trustees may direct a part of the said annual residue to be paid to the child of the said George Kinloch who may be heir-apparent to the estate of Balhary at the time, under the terms of this trust-deed, for the proper aliment, education, and maintenance of said heir: Declaring always that during the lifetime of the said George Kinloch the sum to be paid to him annually out of the said free annual residue, including the allowance or payment to the child who may be heir-apparent to the said estates under these presents as aforesaid, shall not in any year exceed the sum of £1000 sterling; and which annual sum to said George Kinloch and said allowance to the heir-apparent shall be paid at such terms or periods as my said trustees may find convenient.” The ninth, tenth, and eleventh purposes of the deed were in these terms—“ Ninth, As there will be a surplus of the heritable debts conveyed by this trust-deed after paying such provisions to the children of the said George Kinloch as are hereby appointed to be paid out of them, I do hereby direct my said trustees, when opportunity offers, to apply such surplus in the purchase of other lands as near to the lands of Balhary as can conveniently be got; and as it would be desirable to sell off the most detached parts of my property, and to employ the price or prices in the purchase of other lands more conveniently situated for the estate of Balhary, I do hereby recommend to and give full power and authority to my said trustees to sell all or such parts of my lands and heritages lying in the parish of Glenisla and shire of Forfar as they may consider proper and necessary, and to apply the price or prices to be got for the same in the purchase of other lands nearer to or more convenient for the estate of Balhary and mansion-house thereof, either jointly with the balance of the money due to me on heritable securities hereby conveyed, or separately, with power to them also with the proceeds of said sales or part thereof, if they shall deem it advisable, to pay off debts that may be due by them as my trustees, it being my intention and wish that if a property comes into the market which my said trustees shall consider a desirable acquisition for the estate of Balhary and mansion-house thereof, that they shall purchase the same, which they are hereby authorised to do; and to facilitate that object I authorise my said trustees to borrow the whole or any part of the money necessary for that purpose on the security of my trust-estate, or such part thereof as they may consider proper to burden with such loan till they can conveniently collect any money that may be due to them under this trust, or accumulate savings, or sell land in Glenisla sufficient to pay off the price of any land that may be so purchased: But my trustees shall not denude of the trust till all sums so borrowed shall be fully paid off and the said lands and estates fully and effectually disburdened thereof, as well as of any sum or sums which may be borrowed by myself for any such purpose and remaining a charge upon the lands and others hereby conveyed at my death, if there shall be any. Tenth, In the event of the death of the said George Kinloch, my nephew, while his children are under age, or any of them, I appoint my said trustees to lay out such portion of the free rents of the trust-estate as they may consider proper on the education and maintenance of his child who may be heir-apparent to me under the terms of this trust-deed, and to accumulate the remainder till such child is of age, and after the heir is of age, if the trust shall be in that state that the trustees shall not consider it proper or expedient to denude of the trust, then and in that event my said trustees are authorised to continue the trust, and they may give the whole free income, or such part thereof as they may see proper, to the child entitled to succeed, until the time when they find that they can properly and expediently denude of the trust. Eleventh, After the death of the said George Kinloch, Esq. of Kinloch, and when the other purposes of the trust are all accomplished, and the annuities payable out of my estate are expired by the death of the respective annuitants, or at least reduced so as that the sum payable out of the estate to such annuitants as may be surviving shall not exceed £400 sterling in the total yearly amount, I authorise, appoint, and direct my said trustees or trustee to denude of the lands and estates hereby conveyed in trust (excepting always such parts as may be sold under the powers hereby conferred), and of such other lands as they may purchase and acquire under the powers herein contained, and that by executing a disposition and deed of entail thereof disponing and conveying the same to and in favour of George Washington Andrew Kinloch, second son of the said George Kinloch, Esq. of Kinloch, and the heirs whatsoever of his body (the eldest heir-female when more than one daughter always succeeding without division), whom failing to any other younger son or younger sons of the said George Kinloch that may yet be born, in the order of the priority

Page: 785↓

of their birth, and the heirs whatsoever of their bodies respectively.” The deed then directed the entail, in case of the failure of the sons of Sir George, to be made in favour of his daughters in their order; and that the entail to be granted should contain all clauses necessary to a strict entail by the law of Scotland; and that it be so made as that the estates of Kinloch and Balhary be kept separate so long as there should be two descendants of the truster's sister Helen Kinloch in existence at the time.

Sir George Kinloch had eight children. There was thus a sum of £16,000 to be provided to them under the second purpose of the deed. The trustees made the annual outlay on improvements and repairs entirely out of revenue. The rental of the estate was thereby greatly increased. The trustees paid to Sir George Kinloch and his family an annual allowance, beginning with £530 the first year, and gradually increasing till in 1863 it rose to £1000, the maximum sum contemplated by the deed, which sum he thereafter regularly received. The trustees also put aside out of revenue from time to time £12,000 for provisions to Sir George's children under the second purpose, and the six elder children were paid their provisions therewith. During the first twenty-one years of the trust the trustees at various times purchased land which they thought desirable additions to Balhary, to the amount of £35,460. This land was paid for mainly from two sources—the sale of the heritable lands belonging to the trust-estate, and a loan of £21,500 (afterwards reduced to £15,500 by the sale of lands in Glenisla) over the lands of Balhary and part of the lands which they acquired. In October 1876, on the expiry of twenty-one years from the date of commencement of the trust, the estimated free rental of the trust-estate was £3000. The debt on the trust-estate was the sum of £15,500, borrowed as above mentioned over Balhary to pay the price of one of the properties acquired by the trustees, and the further sum of £4000, being the amount of provisions to Sir George's two younger children which were still unpaid—in all £19,500. Deducting from this a sum of £3648, 6s. which the trustees had in hand, the total debt due by the estate was £15,581, 14s. A question arose whether the free annual revenue accruing after 6th October 1876, being twenty-one years after the truster's death, did not fall under the operation of the Thellusson Act (39 and 40 Geo. III. c. 98), which enacts that “no person or persons shall after the passing of this Act” (28th July 1800), “by any deed or deeds, surrender or surrenders, will, codicil, or otherwise howsoever, settle or dispose of any real or personal property so and in such manner that the rents, issues, profits, or produce thereof shall be wholly or partially accumulated for any longer term than the life or lives of any such grantor or grantors, settler or settlers, or the term of twenty-one years from the death of any such grantor, settler, devisor, or testator, or during the minority or respective minorities of any person or persons who shall be living or in ventre sa mere at the time of the death of any such grantor, devisor, or testator, or during the minority or respective minorities only of any person or persons who under the uses or trusts of the deed, surrender, will, or other assurances directing such accumulations, would for the time being, if of full age, be entitled unto the rents, issues, and profits, or the interest, dividends, or annual produce so directed to be accumulated; and in every case where any accumulation shall be directed otherwise than as aforesaid, such direction shall be null and void, and the rents, issues, profits, and produce of such property so directed to be accumulated shall, so long as the same shall be directed to be accumulated contrary to the provisions of this Act, go to and be received by such person or persons as would have been entitled thereto if such accumulation had not been directed: (2) Provided always, and be it enacted, that nothing in this Act contained shall extend to any provision for the payment of debts of any grantor, settler, or devisor, or other person or persons, or to any provision for raising portions for any child or children of any grantor, settler, or devisor, or any child or children of any person taking any interest under any such conveyance, settlement, or devise, or to any direction touching the produce of timber or wood upon any lands or tenements, but that all such provisions and directions shall and may be made and given as if this Act had not passed.” This Act was extended to Scotland by 11 and 12 Vict. c. 36, sec. 41 (Rutherfurd Act).

Assuming that the Thellusson Act applied to the trust, the question arose—Who was entitled to the accumulations of income? The accumulations were claimed by Sir George Kinloch as heir in heritage at Robert Smyth's death, under the destination of John Smyth quoted supra, or alternatively as heir-at-law of Robert Smyth as at 6th October 1876, when the twenty-one years expired. They were also claimed to the extent of one-half by Mrs Whitson's factor, she having been along with Sir George Kinloch one of the heirs-portioners of Robert Smyth at the date of his death on 6th October 1855. They were also claimed by George Washington Andrew Kinloch, the second son of Sir G. Kinloch, and as such heir-presumptive to Balhary, who claimed them on the ground that he was the person in whose favour the entail was to be made, the accumulations being directed for the sole purpose of purchasing additional lands to be entailed on him and his heirs. G. W. A. S. Kinloch, who had come of age on 30th November 1874, also demanded that the entail should be now made in his favour, he having attained majority and the accumulations being stopped, the trustees retaining in their hands a sufficient portion of the estate to pay off the two provisions to his brothers which were still unpaid, and to pay his father's and the other annuities. The trustees considered that they had no power to make the entail until the debt should be cleared off; the annuities should cease to be paid to Sir George Kinloch and the other annuitants; and the provisions to Sir George's two other children not yet paid should be paid. In these circumstances this Special Case was presented. The first parties were Robert Smyth's trustees, the second party was Sir George Kinloch, the third party was George Washington Andrew Kinloch, and the fourth party C. W. W. Thomson, C.A., judicial factor on Mrs Whitson's estate.

The questions proposed to the Court were—“(1) Whether the Thellusson Act applies to the trust, and if so, from what date? (2) Assuming that the Thellusson Act is applicable, to whom does the surplus income from the date

Page: 786↓

at which the Act applies belong? (3) Are the trustees legally entitled now to execute the entail; and if not, at what period can they do so? (4) Are the trustees entitled to pay the two remaining provisions to Sir George Kinloch's children out of income accruing since 6th October 1876; and if not, are they entitled to borrow on the security of, or must they sell any part of, the trust-estates for that purpose? (5) Are the trustees entitled to borrow on the security of, or to sell, the lands of Wester Leitfie, or the lands in Glenisla, so as to replace the income accruing since the expiry of the twenty-one years, which was applied in the purchase of Wester Leitfie? (6) Are the trustees bound to sell land in Glenisla to pay off the debts of the trust, so as to entail the residue free of debt, or can they execute the entail subject to the debts?

Argued for Sir George Kinloch (second party)—There were two main questions in the case—(1) Did the Thellusson Act apply? and (2) If so, who was entitled to the accumulations? (1) The debt of £15,500 was trustees' debt, not the truster's. It was settled in Lord v. Colvin, December 7, 1860, 23 D. 111, that though the accumulation be not expressly directed, the Thellusson Act applies when accumulation would be the practical result of conveying out the settlement. To incur debt within the twenty-one years and pay it out of revenue after the twenty-one years is just to accumulate per ambages. It has the effect of keeping the annual produce from the person who but for the illegal direction would be entitled to it, and that is what the Act strikes at. The doctrine of Lord v. Colvin was again applied in Mackenzie v. Mackenzie's Trustees, June 29, 1877, 4 R. 962; and Maxwell's Trustees v. Maxwell, November 24, 1877, 5 R. 248; Lewin on Trusts, p. 85; Bourne v. Buckton, 2 Simon's Reps. (N.S.) 91. (2) As regarded this question, the case of Maxwell's Trustees was conclusive between Sir George and his eldest second son. The principle there is that he who has no present gift cannot take the accumulations. Now, the second son as heir-apparent to Balhary had no present gift. Not only had he no present interest, but the vesting of his right to the estate was dependent on his being the second son at Sir George's death; therefore the entail could not yet be made. The accumulations, on the doctrine of Lord v. Colvin, fall into intestacy, and the question is, who is heir ab intestato? The Act just blots out the direction to accumulate. The property therefore not effectually disposed of goes to Sir George as heir under the still standing investiture of John Smyth, because everything of which Robert Smyth had not altered the destination must be ruled by John Smyth's deed.— Keith's Trustees v. Keith, July 17, 1857, 19 D. 1040; Talbot v. Jevers, June 1, 1875, L.R., 20 Eq. 255; Weatherall v. Thornburgh, March 11, 1878, L.R., 8 Ch. Div. 261. As between Sir George and Mrs Whitson's factor, so far, but so far only, as the testator had altered the destination for an illegal purpose his deed was null. The rents belonged to the heir of John Smyth's investiture, which was unchanged.— Keith's Trustees v. Keith, supra.

Mrs Whitson's factor (fourth party) adopted the argument of Sir George Kinloch (second party) as to the applicability of the Thellusson Act. On the assumption that the Act applied, he claimed half the accumulations as representing Mrs Whitson, heir-portioner, along with Sir George, of Robert Smyth at the date of his death. Argued for him.—Robert Smyth's deed evacuated the standing destination of John Smyth, and the existing investiture was in his deed. His conveyance to trustees, with a direction, failing the persons named in his deed, to entail the estate on “his own nearest heirs and assignees whomsoever,” showed plainly that he intended to cut off the old destination. Besides, the mere conveyance to trustees of subjects held under a destination is sufficient to cut off that destination. Thus, a conveyance of such subjects to trustees for a purpose to be afterwards named creates a resulting trust for the heir-at-law if no subsequent deed of directions is executed. In like manner, if Robert Smith had simply conveyed to himself and his heirs and assignees, that would have altered the destination, as in the case of Molle v. Riddell, December 13, 1811, F.C.; Stair, ii. 3, 43; Duff's Feudal Conveyancing, 331; M'Leish's Trustees v. M'Leish, May 25, 1841, 3 D. 914; Boyle v. E. of Glasgow, May 14, 1858, 20 D. 925; cases collected in Maclaren on Wills, ii. 90, as to resulting trust for heir-at-law.

Argued for third party (G. W. A. S. Kinloch)—The truster had authorised his trustees to borrow money over the estate for the purchase of land. The debt thus incurred was indirectly the truster's debt, and fell under the exception in the Thellusson Act in favour of accumulation for the payment of the debts of the settler or any other person.— Barrington v. Liddell, November 24, 1852, 2 De Gex, Macnaughton, & Gordon, 480 (opinion of Lord St Leonards, 496); Varlo v. Faden, July 27, 1859, 27 Beavan 255, affirmed December 17, 1859, 29 L.J., Ch. 230. The case of Bourne quoted for Sir George Kinloch had been overruled, the debt having been incurred within the twenty-one years in a due administration of the trust; the case of Varlo showed that money might be accumulated to meet it. Assuming the application of the Act, the accumulations must go to the third party, the institute in the entail which Mr Smyth had directed. He is the person entitled to the fee, and the result of the Act being simply to blot out the illegal direction to accumulate, the rents must go to him.—Lord Westbury in Plean v. Gascoigne, quoted in Maxwell, supra. The principle of Mackenzie's case was, that where there is a direction to entail, and also a direction to accumulate for more than twenty-one years, the rents illegally directed to be accumulated go to the institute in the entail. There was a vested interest in the third party, and he was institute of entail in the sense of the Rutherfurd Act. The entail might therefore now be made.

At advising—