Scottish Court of Session Decisions

This was an action of count, reckoning, and payment at the instance of George Morrison, John Morrison, Mrs Margaret Jane Morrison or Allan, and Robert Morrison, children of the deceased Mrs Margaret Walker or Gerrard, by her marriage with the deceased John Morrison, shipmaster in Banff, and John Alexander Scott, the only child of the deceased Mrs Ann Morrison or Forbes or Scott, another daughter of the said Margaret Walker or Gerrard, and wife of John Scott, and the said John Scott, as curator and administrator-in-law for his said son, against John Allan, solicitor in Banff, as sole trustee under the trust-deeds after mentioned, and also as an individual.

John Morrison died in 1848, and Mrs Morrison was married in 1862 to George Gerrard, then a farmer at Lichnet, in the county of Banff. There were no children of that marriage. In 1864 Mrs Gerrard succeeded to property which had belonged to her brother of the value of £7774, 9s. 11d., or thereby. In 1867 the estate of Hayfield, in the county of Aberdeen, was purchased by Mr and Mrs Gerrard for the sum of £4250. The disposition bore that the price was paid by Mr Gerrard, and the conveyance was taken to and in favour of George Gerrard and Mrs Margaret Walker or Gerrard, formerly Morrison, his spouse, in conjunct fee and liferent, and to the heirs of the said Mrs Margaret Walker or Gerrard, formerly Morrison, heritably and irredeemably, the deed being recorded in these terms. Notwithstanding the narrative in the disposition it appeared from the evidence before the Court in this case that the funds applied in the purchase of Hayfield were derived from the estate to which Mrs Gerrard had succeeded, from her brother.

“By trust-disposition dated 14th April 1868, Mrs Margaret Walker or Gerrard, formerly Morrison, wife of George Gerrard, farmer, Lichnet, and the said George Gerrard, disponed to him, the said George Gerrard, in liferent, but for his liferent use allenarly, and to the defender John Allan, solicitor, Banff, and to such other persons as

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should be named or assumed to act in the trust thereby created, and to the acceptor or survivor in fee, heritably and irredeemably, the estate of Hayfield, in trust for the purposes therein written. The purposes of the trust were ( first) for payment of the expenses of the trust, ( second) for payment to Mrs Gerrard during all the days of her life if she should survive her husband, of the free rents and profits of the lands, in such sums, at such times, and in such manner as the trustees should think best for her welfare, and ( third) that the trustees should, on the death of the longest liver of them, sell the lands and from the free proceeds of the sale purchase an annuity of £50 during the life of Robert Morrison, Mrs Gerrard's son by her previous marriage, the annuity to be payable to the trustees and to be applied by them for the maintenance and support of the said Robert Morrison in such manner as they should see best for his comfort and welfare, and should divide the free residue of the proceeds of the said lands equally among George Morrison, seaman, Banff, Mrs Ann Morrison or Forbes, John Morrison, seaman, then at sea, and Margaret Jane Morrison, then residing with them, the other children of Mrs Gerrard by her previous marriage, share and share alike; but it was declared that if the said Robert Morrison should predecease the time for the provision of the said annuity to him, the funds directed to be so applied should be divided equally among his brothers and sisters, and that the whole provisions therein should not become vested interests in the said George Morrison, Mrs Ann Morrison or Forbes, John Morrison, and Margaret Jane Morrison, until the term of payment thereof; but on the death of any of them before the said term of payment, the provision of any of them so dying, leaving lawful issue, should be divided equally among his or her issue alive at the time of payment, and failing such issue, should belong to the survivors of the said George Morrison, Mrs Ann Morrison or Forbes, John Morrison, and Margaret Jane Morrison, and their issue, equally among them per stirpes. It was further declared that the provision to Margaret Jane Morrison should not be actually paid over to her by the trustees at the said term of payment, but should be retained by them, with the interest and profits thereof, for her behoof, and should be paid to her in such sums and at such time and in such manner as the trustees should think best for her welfare, and it was further declared that the provisions, in so far as in favour of females, should be exclusive of the jus mariti or right of administration of any husbands they might marry. The deed also contained a power to the trustees to sell any part of the lands.”

The defender John Allan accepted of the trust and entered into possession of the trust-estate. The trust-disposition was on 16th April 1868 duly recorded in the register of sasines in Aberdeen on behalf of the said George Gerrard and the defender “for their respective rights of liferent and fee.”

On the same date, viz., 14th April 1868, the spouses executed a trust-disposition and assignation by which they conveyed to the defender, as trustee for the ends, uses, and purposes therein specified, sums amounting to about £2000. The defender accepted of this trust also and managed the trust-estate. The action of accounting included the defender's intromissions with this trust. The only question of importance arising in regard to it is stated in the opinion of Lord Trayner, infra, and in that of Lord Shand.

Mr Allan administered the estate of Hayfield until it was sold in 1873 at the price of £4178, and thereafter administered the proceeds of the sale.

Mrs Gerrard died on 1st October 1875, and Mr Gerrard on 20th June 1881. On the death of Mr Gerrard the provisions in favour of the pursuers under the Hayfield Trust then became payable, and this action of accounting was raised against Mr Allan to account for his intromissions with the trust-estate.

From the report of Mr Hugh Blair, chartered accountant, to whom a remit was made to examine the defender's accounts, it appeared that the defender had made payments to or on account of Mr and Mrs Gerrard, the liferenters, which was chargeable to revenue, of £2467, 13s. 6d., whereas the total revenue received by the trustee down to the date of Mr Gerrard's death on 20th June was only £768, 15s. 7d., leaving thus an over-payment of revenue of £1698, 17s. 11d. The defender lodged objections to the accountant's report, in which he maintained that he was entitled to take credit for the amount in accounting with the beneficiaries, on the ground that the granters of the trust-deed had not divested themselves of the fee of the subjects, and that therefore the sum was a proper charge against the capital of the trust-funds.

On this point the defender made the following averment in his statement of facts—“The trust-deeds referred to were not granted for any onerous cause, or in terms of any agreement or arrangement, but were purely gratuitous and voluntary. The purpose for which they were granted was to impose some impediment on Mr Gerrard's dealing with and disposing of the means and estate referred to. The said deeds were not intended to divest, and did not divest, Mr and Mrs Gerrard of the fee or capital thereof. It was expressly declared by the said deeds that the provisions therein contained in favour of Mrs Gerrard's children should not become vested interests till the death of the survivor of the spouses. The said deeds remained undelivered during the lifetime of the spouses and of the survivor.”

The defender pleaded—“(3) On a sound construction of the trust-deeds referred to, the defender is not bound to account to the pursuer for the capital of the trust funds expended by Mr and Gerrard.”

The Lord Ordinary ( Adam) on 1st April 1884 repelled this plea.

“ Note.—[After narrating the terms of the trust-disposition.]—It appears that the defender during the lifetime of Mr and Mrs Gerrard made advances to them out of the capital of the trust-estate, and paid debts incurred by them to the amount, as appears from the accountant's report, of £1698, 17s. 11d., and the question has arisen whether he is entitled to credit for these payments in his accounts with the beneficiaries. That question depends upon whether or not, by the trust-disposition of April 1868, the granters divested themselves of the fee of the lands, or (the lands having been sold) of the proceeds derived from their sale, and it appears to be desirable that this question should be disposed

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of before the other questions in the accounting are taken up. There is no doubt that ex facie of the deed there is a de prœsenti conveyance of the lands to the trustee, to be held by him for the purposes of the trust, and that by these purposes the granters were only entitled to the liferent of the lands, while the fee was directed to be held for the children and their issue.

It is said, however, that the trust-disposition is a purely voluntary and gratuitous deed, and that no doubt is true. But if it was the intention of the trusters, as expressed in the deed, that the fee should be held for the children and their issue, and if, as was the fact, the deed was immediately delivered to the trustee, and acted on, it will not make the gift of the fee to the children revocable, because it was gratuitous. The object the trusters had in view in granting such a deed probably was to protect themselves and the property from the consequences of their own acts. Whether that be so or not, they have effectually done so, the Lord Ordinary thinks, by vesting the fee in a trustee for the benefit of the children and their issue.

It is further maintained by the defender that no right to the estate vested in the children or their issue during the life of the granters, or either of them, and therefore that the deed was revocable at any time during their lives. It is true that the right of any particular child to a share of the estate was contingent on his or her surviving the period of payment—that is, the longest liver of the granters. But it appears to the Lord Ordinary that the gift was not the less a gift that it was contingent, or conditional on the survivance of the child. If the condition had not been fulfilled, had all the children and their issue failed, the trustee would then have held the estate for the trusters, but there has been no failure of the trust purposes, and it appears to the Lord Ordinary that the defender, as trustee, was bound to protect the contingent interest of the beneficiaries.

Nor does the Lord Ordinary think that the deed is in any sense testamentary. It is a de prcesenti conveyance, not of the granters’ whole estate, but of a particular subject in favour of existing children or their issue. It was delivered to the trustee, and came into immediate operation. It appears to the Lord Ordinary that the case falls under the principle of Turnbull, 1 W. & S. 80, and Smitton, 2 D. 225.

The Lord Ordinary was also referred to the cases of Spalding, 2 R. 237; Forrest, 4 R. 42; Mackenzie, 5 R. 1027; and Mackie, March 9, 1883, 10 R. 746, reversed 6th March 1884 [21 Scot. Law Rep. 465].”

The defender further maintained in his objections to the accountant's report, that certain sums forming part of the said £1698, 17s. 11d. were in a special position, one of these being a sum of £553, 11s. 3d. which was expended by Mr Gerrard on improvements on Hayfield out of funds supplied to him by the defender. By minute of admissions the parties admitted that this sum had been expended on Hayfield during the lifetime of Mr and Mrs Gerrard. A proof was led in regard to the facts in connection with this expenditure, the import of which is given in the opinion of Lord Shand infra.

On 24th June 1885 the Lord Ordinary ( Trayner) pronounced an interlocutor by which he found that the defender was not entitled to take credit in his account of intromissions as trustee (first) for the sum of £553, 11s. 3d., the amount said to have been expended in the improvement of Hayfield.

His Lordship also decided that Mr Allan, the defender, had lent £1000 of the trust money on an inadequate security (know as Dallas's bond), and had failed to take proper means to ascertain whether the investment involved more than ordinary risk, and was therefore liable to account for that sum.

“ Opinion.—.. . (1) The defender claims, in accounting for his intromissions, the right to credit himself with the sum of £553, 11s. 3d. expended by the trusters Mr and Mrs Gerrard on the house at Hayfield. He says that this sum was expended subsequent to the execution of the trust conveyance, that it added to the permanent value of the property, and is therefore chargeable against the beneficiaries. I disallow this claim. I think it is scarcely open to doubt that the alterations and improvements made on Hayfield by Mr and Mrs Gerrard added to its value; but there is no direct evidence, or even definite opinion, to be found expressed in the proof as to the extent to which the value of the house was increased. But assuming the value to have been increased to the extent of the sum now claimed credit for by the defender, I do not see on what title he can claim it. He does not represent the liferenter, who is said to have made the repairs. The liferenter himself made no such claim, and never intimated any intention to make such a claim. It rather appears to me that when the trust-deed was executed it was intended that it should carry the house of Hayfield in its improved condition to the beneficiaries—(1) because the state of the specifications relative to the improvements shews that they were in contemplation before the trust conveyance was executed; and (2) because there is ground for believing that the money with which such repairs were actually made was part of Mrs Gerrard's money, and not of her husband's.. .. .

3. Dallas Bond.—The defender lent £1000 of the trust funds under his charge to a Mr Dallas, on the security of two heritable properties. The properties will not now realise anything like the sum lent, and the question is, whether the defender is personally liable for the £1000 so lent, on the ground that he accepted an insufficient security. The pursuers aver that at the time the bond was granted, Mr Dallas was in pecuniary difficulties, that his bankers had closed his account, and had called upon him to pay up a large debt which he owed them, and that to extricate Mr Dallas from this pecuniary pressure the defender lent him the £1000 in question. These statements are all disproved, and are without foundation. The question still remains, however, whether the defender did lend the money in question on a security which was inadequate. I think he did. There are several witnesses examined on this subject, and there are just about as many opinions as witnesses. But none of them say that they would have lent £1000 on the security taken by the defender. Without going into the details of the evidence, I may say that it appears to be proved—(1) that property in Macduff is of about the same value now as it was in 1868, when the loan was granted; (2) that

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the property over which the loan was secured is now valued at such a sum as to make it quite insufficient as a security for £1000; (3) that the principal property is of such a character as to make it very doubtful whether a purchaser or tenant could be got for it, if the proprietor Mr Dallas left it, and that therefore as a marketable subject (and consequently as a security) it was attended with more than ordinary risk. The defender, however, pleads the clause in the trust-deed as exempting him from personal liability. That clause provides that the trustee shall not be liable for investments made by him if ‘the investments are made bona fide, and without knowledge of more than ordinary risk.’ I have no doubt Mr Allan made the investment in good faith. But the clause quoted will not relieve him of responsibility if he made an investment in the knowledge that it involved ‘more than ordinary risk,’ and if he failed to take the ordinary and proper means to ascertain whether the investment involved more than ordinary risk, he will in my opinion be equally liable. The clause must be strictly construed against Mr Allan. He prepared that clause himself in a conveyance to himself as sole trustee, the granters of the deed having no advice thereanent except from Mr Allan.

Now, I think Mr Allan did not take the ordinary or proper means to satisfy himself that the properties over which the loan was to be secured were sufficient as a security, or that the proposed transaction did not involve more than ordinary risk. He proceeded entirely on his own knowledge of the subjects, and his own opinion of their value, along with two certificates or valuations by a Mr Dawson. These two certificates represent the subjects over which the security was taken at an aggregate value of £1525. This valuation is condemned by everybody as too high, but I do not go much upon that. It is more material to notice—(1) that the certificates or valuations were made in 1867, a year before the transaction in question, and therefore not made as a valuation with regard to this loan; (2) that they were not got by the defender from Mr Dawson, but were got by Mr Dallas himself; (3) that it does not appear Mr Dawson knew he was valuing the properties as for a security; and (4) that when the valuations were sent by the defender to a correspondent, in order to get the loan of £1000, the loan could not be got. It should be added that Mr Dallas was the client of the defender, who was therefore in the transaction in question acting both for borrower and lender,—a position which placed on him the duty of more than ordinary care. I cannot help thinking that if Mr Allan had been acting only for the lenders he would have been more particular about the security.”

On 14th May 1886 the Lord Ordinary ( Trayner) pronounced an interlocutor in terms of a report by Mr Baxter, Auditor of the Court of Session, qua auditor and accountant, giving effect to this and other findings.

The defender reclaimed, and argued—(1) Under the trust-disposition there was no vesting in the children, so that the estate was open to the grantor's debts. The rights of creditors created prior to vesting in the children were preferable. The trust was postponed, and therefore not good against creditors. The destination in the conveyance of Hayfield showed that Mr Gerrard was the fiar originally, and he was not divested by the trust-deed— Forrest v. Robertson's Trustees October 27, 1876, 4 R. 22; Mackenzie v. Mackenzie's Trustees, July 10, 1878, 5 R. 1027; Mackie v. Gloag's Trustees, March 9, 1883, 10 R. 746, rev. March 6, 1884, 11 R. (H. of L.) 10; Spalding v. Spalding's Trustees, December 18, 1874, 2 R. 237. The deed was not delivered, because the mere fact of infeftment was not enough unless it could be shown that it was taken with the object of effecting delivery— Burnet v. Morrow, March 26, 1864, 2 Macph. 929. (2) Even if the estate was not to be held to be open to the debts of the trusters, the defender was entitled to take credit for the amount of the improvement expenditure, on the ground of recompense. Mr Gerrard would have had a claim against the fiars, and the rights of the defender who had advanced the money were the same— Nelson v. Gordon, &c., June 26, 1874, 1 R. 1093; Reedie v. yeaman, 1875, 12 S.L.R. 625; Ersk. Inst. ii. 9, 60; Bell's Prin. sec. 1063; Paterson v. Greig, July 18, 1862, 24 D. 137; Fernie v. Robertson, Jan. 19, 1871, 9 Macph. 437; Buchanan, Nov. 10, 1874, 2 R. 78; M'Millan v. Armstrong, Dec. 6, 1848, 11 D. 191.

The pursuers replied—(1) In order to take advantage of the case of Forrest the defender must show that Mr Gerrard was the fiar. But he was not. The fee was in Mrs Gerrard, because the estate was paid for with her money, and her heirs were preferred in the destination—Ersk. iii, 8, 36. Even if Mr Gerrard was originally the fiar he was divested by the trust-disposition, and the trustee was not entitled to advance him any of the capital— Turnbull v. Turnbull's Trustees, Nov. 12, 1822, 2 S. 1, rev. April 15, 1825, 1 W. & S. 80; Smitton v. Tod, Dec. 12, 1839, 2 D. 225; Allan v. Kerr, &c., Oct. 21, 1869, 8 Macph. 34; Somerville, May 18, 1819, F.C. (2) The claim by the defender to take credit for the sum of £533, 11s. 3d. was founded on the doctrine of recompense. But that principle could only apply when there had been loss. But Mr Gerrard suffered no loss, for the money so expended was in substance money belonging to the persons whose property was ameliorated. The claim was never made and met during Mr Gerrard's lifetime. The general rule that a temporary possessor is held to make improvements for the period of his own possession should apply. The case of Nelson v. Gordon, supra cit., was not in conflict with Reedie v. Yeaman, supra cit.