Scottish Court of Session Decisions

Miss Mary Munro and Andrew Spence were married on 21st October 1862. An antenuptial contract of marriage was executed by them of the same date. There was an obligation in it by the husband to pay his wife, in the event of her survivance, a free yearly annuity of £100, but there was no conveyance of any property by him to the trustees. By the fourth clause of the contract Mr Spence bound and obliged himself, within three months from the date of the contract, to effect an insurance upon his life with the Colonial Life Assurance Company, for £600, in name of the marriage-contract trustees; “and the said A. Spence hereby binds and obliges himself and his foresaids to make payment to the said Assurance Company, regularly as the same falls due, of the sum of £13, 13s. 6d. as the annual premium on the said policy, or of such other sum as may annually be necessary for keeping the same in force, and to report to the said trustees the receipt thereof, and in the event of the said trustees finding it necessary at any time to advance and pay to the said Life Assurance Company any sum or sums on account of the said premium, the said A. Spence binds and obliges himself and his foresaids to make payment to them or their foresaids of each sum as the same may be instructed by the company's receipts therefor, with interest of such sum or sums at the rate of five per centum from the time at which the same falls due and till payment,

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and a fifth part more of liquidate penalty in case of failure, which policy of insurance, and the price and proceeds thereof, the said trustees shall hold in trust for behoof of the said Mary Munro in liferent, for her liferent use allenarly, free of all rights of every description competent to her said intended husband, or any husband she may marry, and unaffectable by his debts and deeds, and they shall pay over to her the annual proceeds of the sum or sums to be recovered under the said policy, which annual proceeds shall be received by her in payment and satisfaction pro tanto of the annuity hereinbefore provided, declaring that the receipt of the said Mary Munro shall be sufficient without the consent of her husband: And upon her death the said trustees or trustee shall hold the said policy, and the price and proceeds thereof, for behoof of the issue of the said marriage, and failing issue for behoof of the nearest heirs or assignees of the said A. Spence, declaring the said intended spouses or survivor shall have the power of regulating the shares of such issue, and the period or periods of division.”

Mrs Spence conveyed to the trustees the whole heritable and moveable estate and effects then belonging or that might belong to her during the subsistence of the marriage, in the first place for her liferent use allenarly, declaring that the jus mariti and all other rights of the husband were thereby excluded, and that the same should not be affectable by his debts or deeds; in the second place, for the liferent use allenarly of her husband in the event of his survivance; and in the third place, for behoof of the issue of the marriage, and failing issue for her heirs and assignees. The trustees were empowered “to advance to the said Andrew Spence out of the said trust-estate a sum not exceeding £600 sterling upon his own personal security, if they are of opinion he can make advantageous use of it in his business or otherwise.” The original trustees were David Munro, residing in Madeira Street, North Leith; David Munro junior, residing in Madeira Street, North Leith; James Laurence Boyd, of Leith, S.S.C.; John Sheppard Shields, wine merchant, Leith; John Drever Spence of the Scottish Widows Fund and Life Assurance Society, Edinburgh; and Pillans Scarth, W.S., Leith.

A policy of insurance for £600 was effected with the Standard Life Assurance Company in accordance with the terms of the marriage-contract, and was taken in name of the trustees. After the marriage the trustees advanced to Mr Spence the sum of £600 under the authority given to them by the marriage-contract. Mr Spence not long afterwards became bankrupt.

Owing to Mr Spence's bankruptcy he was unable to pay the premiums of insurance upon the policy for £600, and in order that the policy should not lapse the trustees, paid the half-yearly premiums as they fell due out of the income of the estate conveyed to them by Mrs Spence down to the year 1877. On 5th April 1878 a letter was written by Mrs Spence, with concurrence of her husband, to James Laurence Boyd, then the sole surviving trustee, in which they requested and authorised him to sell the policy of insurance, and to retain the proceeds “as forming part of the trust funds under your management, of which I am entitled to enjoy a mere liferent, and I undertake if and when required by you to grant a deed of exoneration in your favour in respect of the sale now authorised by me.” The liferent of the estate had by this time been assigned by the spouses in security of advances, and the concurrence of the assignee was obtained to this proposal. The policy was accordingly sold, and realised the sum of £113, which was added to the capital of the trust.

In 1887 Mr and Mrs Spence raised an action against James Laurence Boyd, the sole surviving original trustee under their marriage-contract, as trustee, and also as an individual, for payment of the sum of £306, being the amount, with interest, of the premiums of insurance paid halfyearly out of Mrs Spence's liferent from 1865 until 1877. There were also called as defenders—J. H. Jamieson, W.S., and J. D. Kelly, S.S.C., who had been assumed as trustees, and also J. Hastie, S.S.C., the assignee of the pursuers' liferent for their respective interests, but decree was only asked against them in the event of their appearing to oppose the conclusions of the summons.

The pursuers pleaded—“(1) The defender Boyd having paid the said premiums out of the pursuer, the said Mary Munro or Spence's said life interest in breach of his duty as trustee and agent as condescended on, is bound to repay to her these sums, with interest as concluded for.”

The defenders pleaded—“(2) All parties not called. (3) The defender Mr Boyd being only one of a number of trustees, is not in any event liable in solidum. (5) The trustees having acted within their powers in paying the said premiums of insurance out of revenue, for the purpose of keeping the said policy in force, should be assoilzied, with expenses. (7) The pursuers having authorised, or at least homologated, the payment of the said premiums out of the said revenue, the defenders are entitled to absolvitor, with expenses.”

On 12th March 1887 the Lord Ordinary ( M'Laren) sustained the defenders' second plea- in-law, and sisted process to enable the pursuers to raise a supplementary action.

“ Opinion.—I think I must sustain the second plea-in-law for the defenders.

The action is no doubt a personal action in this sense, that the trustees are said not to have fully accounted for the income of the lady's property; that they have debited her with payments which were really payments on account of the husband. Now that is nothing but an action founded upon accountability. My view is that trust is a joint office, a joint estate, a joint power of administration, and a joint obligation to account; and where there is no allegation of fraud or other wrong, but a claim to have items of credit disallowed, it is necessary to proceed against all the trustees. I think that this is not a mere technical view, because where the obligation to account is joint, then if any of the defenders is unable to perform his share of the obligation or pay his share of the money, that is a loss to the pursuer.

I shall therefore sustain the second plea, and sist process until the other trustees or their representatives are called.

I am inclined to think that it is a case that falls under the rule, that where the party has

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been unsuccessful, the auditor may disallow the expenses of the part of the case in which he is unsuccessful. Expenses reserved.”

Upon 31st May 1887 the pursuers raised a supplementary action in which they called the representatives of the deceased trustees for their interest, but no decree was sought against them, unless they appeared to oppose.

Defences in this action were only lodged for J. L. Boyd, J. H. Jameson, and D. Kelly.

The Lord Ordinary conjoined the actions and allowed a proof.

From the proof it appeared that the capital of the trust-estate was originally about £1600. On the bankruptcy of Mr Spence, Mr Scarth, one of the trustees, paid the insurance premiums out of his own pocket, and the only minute of the trustees bearing on the matter stated that “The trustees instructed Mr Boyd to pay to Mr Scarth the premiums which he had advanced to keep Mr Spence's life policy in force, and to deduct the same from this term's interest.” This minnte was dated 24th March 1864, and there were present at the meeting Messrs Shields, Spence, Munro, and Boyd. Mrs Spence's evidence was to the effect that her consent was never asked as to the policy of insurance being kept up out of her liferent interest. She received accounts from time to time showing the state of the trust funds, and noticed from them that the premiums were deducted from her liferent interest. Throughout her evidence she insisted upon the fact that it was only because Mr Boyd told her that the trustees had power to pay the premiums out of the interest due to her that she permitted the premiums to be so paid. At that time Mrs Spence had no independent legal adviser. In 1871 Mrs Spence borrowed money on the security of her liferent, and it was in 1875 that she first consulted a separate solicitor, Mr J. B. M'Intosh, S.S.C., in regard to her affairs. Mr M'Intosh indicated to her that there might be a question as regards the payment of the premiums by the trustees out of her liferent, and on his advice she wrote a letter to Mr Boyd, dated 7th February 1878, in these terms—“You are aware that for a considerable number of years (12 or 13 I am sure) the premiums of the insurance on Mr Spence's life have been paid out of my income, and as there are now additions amounting to upwards of £100 added to the policy, I think I am not unreasonable in requesting that some arrangement should now be come, to, either to pay the premium or part of it out of these profits, or, as it is not at all probable I shall ever derive any benefit from it during my lifetime, that these profits should be given to me now. I am most unwilling that the insurance should lapse, but under present circumstances I cannot sanction that any further payments of the premium shall be paid out of my income.” Some correspondence followed between Mr M'Intosh and Mr Boyd's firm, as the result of which the policy was sold as above stated. It was not until 1885 that Mrs Spence's attention was again directed by Mr Hastie, the assignee, to the question whether the trustees were entitled to pay the premiums, and she then intimated a claim against Mr Boyd.

Mr Boyd deponed—“After Mr Spence became bankrupt the trustees, finding it impossible to get him to pay the premiums, paid them out of the liferent funds coming into their hands.

(Q) Did you explain to Mrs Spence that this was being done?—(A) That was done under instructions of the whole trustees, among whom was Mr Pillans Scarth, and I told Mrs Spence what the trustees' views were as to their duties. She acquiesced in everything being done throughout. I may say that I never received any employment as agent for Mrs Spence, and never made any charge against her. I had no reason to think that I was advising her, and she had no call to consider that I was doing so. I simply told her what were the trustees' views of their duties, and what they were doing.”

On 17th December 1887 the Lord Ordinary pronounced this interlocutor:—“ Having considered the conjoined actions, for the reasons stated in his opinion, sustains the defenders' seventh plea-in-law in the original action, and assoilzies the defender James Laurence Boyd from the conclusions of both actions as against him, and decerns: Quoad ultra in respect there are no conclusions against the other defenders unless they appear and oppose, dismisses both actions as against them, and decerns: Finds the defenders who have appeared entitled to expenses so far as regards their outlay out of the trust funds, &c.

“ Opinion.—I have no doubt as to what my decision should be in this case, and never had although I was anxious to hear argument upon it in case there might be more in the case than at first appeared to me.

It is a claim by a married lady against trustees to repay money which strictly speaking ought to be paid to her, but which was applied to her benefit in a somewhat different way—that is to say, the lady's husband's life being insured for her benefit the trustees, instead of paying over to her the whole life interest in terms of the marriage-contract, paid out of her income the premiums due on the husband's policy of assurance from which she was eventually to derive benefit.

Now, it is clear enough that Mr Boyd, who took the chief management of the trust, explained this from the very beginning to Mrs Spence, and that she was throughout perfectly aware that a part of her income was applied towards keeping up the policy. And I am not sure that if she had been told that this application of the money depended on her assent she would have refused her assent, because it was obviously an arrangement for her interest and that of her children. But it certainly was not explained to Mrs Spence that her assent was needed. I think that Mr Boyd was himself under the belief that the trustees had the power of making this application of the money, and, being in that belief, it was not likely that he should convey any different impression to Mrs Spence than was in his own mind. One argument submitted to me was that it was the duty of every beneficiary to know his rights under the trust-settlement. That view can only be received with very large qualifications. It is certainly held to be the business of every man to possess such knowledge of the civil law as is necessary to regulate his conduct in any business in which he may be engaged. A merchant must understand the law of contracts and bills.

A shipowner must understand maritime law, and if either makes a mistake he must suffer for

it.

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He cannot throw the loss upon any other party. But in matters between trustees and beneficiaries, where trustees have no interest distinct from that of the beneficiary, I should not hold that the beneficiary is barred from having the mistake in law—if there has been such—put right. It would obviously depend to some extent upon the consideration whether matters could be put right without detriment to other interests. But in the view I take of this case it is not necessary to consider such questions, because when Mrs Spence came to borrow money upon the security of her beneficiary interest, she employed an independent agent, Mr M'Intosh, a gentleman of ability and experience in his profession. He, going into the whole question of her rights under the settlement, clearly raised the point whether the trustees were entitled to appropriate his client's money to paying premiums, and the trustees were informed that Mrs Spence would not consent to a further appropriation of her money towards such purposes. It is, however, clear to my mind that if Mrs Spence was entitled to prevent the trustees from further payments she must be entitled to hold them responsible for former payments. That was the time to raise the question as to their appropriation of the estate. But this was not done. On the contrary, there being naturally some demur on the part of the trustees to the course of administration, it was eventually agreed as a fair arrangement between the parties, recognising that they were dealing with a point of some difficulty, that the policy should be sold so as to relieve Mrs Spence from the burden of paying the premiums. But with the view of protecting the children the proceeds were to be invested and held to be part of the trust-estate. Now, I hold that this was an arrangement entered into on behalf of Mrs Spence by an agent duly authorised, and certainly not exceeding the powers of an agent in family matters. Under that arrangement Mrs Spence brought forward all the claims that she intended to make against the trustees. They assented to her wishes so far as they thought it their duty, and that was an end of the matter. It is quite contrary to sound policy and legal principle that a party who, in full knowledge of her rights, has come to an arrangement with trustees should be allowed to re-open that question.

“In that view I have no hesitation in dismissing the personal conclusions against the trustees.

With regard to the claim to be repaid the policy money out of the trust-estate, I think it must be held that Mrs Spence has irrevocably appropriated that money to the purposes of the trust. Even if the children were represented in the action I have great doubt whether the Court could hold that that money could be taken from them. Most certainly not in an action where the children were not represented. Therefore, on the other view of the case, I must come to the conclusion that the claim is not supported. I shall therefore assoilzie from the conclusions of the action generally.”

The pursuers reclaimed, and argued—There was here a clear breach of trust on the part of the trustees. The two. trusts which were constituted by the antenuptial contract of marriage were intended to be kept quite distinct, and only funds supplied by the husband were to be used in keeping up the policy; indeed the trustees had been appointed in order to protect the wife from her husband's actings. They had, however, taken the money which was meant for her aliment, and used it for keeping up the husband's policy. It was said that the wife had homologated the actings of the trustees in this matter, but that was not so. The only information and guidance she got was from the trustees themselves, and she was led by them to think that they had the power to apply the income of the trust-estate to this purpose apart from any consent given by her. The trustees were themselves under that opinion; they acted upon it, and impressed it upon her. She was led astray by the trustees, who were acting in breach of their duty, and where that was the case the trustees were answerable— Douglas v. Douglas' Trustees, June 30, 1859, 21 D. 1066, July 20, 1864, 2 Macph. 1379; Saunders v. Saunders' Trustees, November 7, 1879, 7 R. 157. The letter of 5th April 1878, founded upon by the defenders to show that Mrs Spence had authorised the sale of the policy, did not bar her from now claiming the amount of the premiums paid by the trustees in breach of their trust from 1865 until 1877. This case was different from that of Kippen v. Kippen's Trustee, July 10, 1874, 1 R. 1171, as there the trust had been wound up for some time before the question was raised, and legacies had been paid, but in this case there were no interests of third parties to be considered. In regard to the manner in which the original and supplementary action had been brought the pursuers had followed the authorities— Houston's Factor v. Houston's Trustees, January 29, 1868, 6 Macph. 286.

The respondents argued—Mr Boyd and the other trustees had paid these premiums under the powers conferred by the trust-deed. Even if they were wrong in this view, they could not be held liable for what they had done as trustees in the exercise of their discretion, and with the bona fide belief that they were doing the best for the beneficiaries. The marriage-contract must be looked at as a whole. On the one hand Mr Spence insured his life for £600, and on the other, Mrs Spence, by means of her trustees, lent £600 to her husband. That policy was the only provision for the wife and children, and the trustees were entitled to keep up the policy by means of the liferent income so long as Mrs Spence did not object. She was fully cognisant of what was being done, and made no objection. Therefore she had homologated the actings of the trustees. [ Lord Rutherfurd Clark—She made no objection because she was told by the trustees that they could apply the money in that way if they thought proper without her sanction.] Assuming that was so, the trustees were under that belief themselves; that was an error in law, and according to the opinion of the Lord Justice-Clerk in the case of Kippen, an error in law would not avail to set aside an agreement or contract— Graham v. Jolly, June 29,1831, 5 W. S. 280. Mrs Spence was barred by the terms of her holograph letter of 5th April 1878 from claiming repetition of the premiums previously paid. The action was not properly brought, as the pursuers had selected one trustee only without

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calling the representatives of the others. Then, when the Lord Ordinary had sustained the plea for the defenders of all parties not called, the pursuers had brought what they called a supplementary summons, which was not a summons at all, as it had no conclusions. The pursuers had not yet complied with the terms of the Lord Ordinary's previous interlocutor.

At advising—