Scottish Court of Session Decisions

By lease dated 5th February 1880 John Henderson Milne of Craigellie let to James Jaffray the farm of Mosstown of Craigellie, Lonmay, for nineteen years, with entry at Whitsunday 1880, at the yearly rent of £56, 10s. on the terms stipulated in the lease, and under the general regulations and conditions of the estate of Craigellie prefixed thereto.

By No. 2 of the general regulations and provisions it was provided—“In the event of the tenant's bankruptcy or public insolvency, he shall, in the option of the heritor, forfeit his lease, so far as unexpired at the time, and shall he bound to remove when required. It is also declared that if the tenant shall fail to make payment of any of the half-year's rent within six months after the term of payment, so that one year's rent shall be due and unpaid at one time, the lease shall thereupon, in the option of the heritor, become null and void, and the tenant shall be bound to remove when required. In the event of the heritor availing himself of these options, he shall be bound to settle with the tenant as if the lease had naturally expired, under deduction of damages, in the event of the possession being re-let by the heritor on less favourable terms No. 10. The outgoing and incoming tenants must settle between themselves regarding the payment of crop, manure, and other things, without any responsibility on the heritor, unless the heritor choose to interfere.”

By the lease it was further expressly stipulated that “With regard to houses, &c., the said James Jaffray binds himself to relieve the heritor of all claims of the outgoing tenant for meliorations, and in particular for—[ here followed a specification of the meliorations]. And at the expiry of this lease the said James Jaffray shall be entitled to payment in like manner for the said meliorations as the same may then be valued, but not exceeding the value paid by him for the same at their own entry. And if the mason-work belonging to the heritor shall be deteriorated, the tenant must pay for the deterioration as the same may be determined by valuation.”

By a further provision of the lease the tenant was prohibited from removing the dung or straw.

On 19th July 1895 the landlord brought an action against the tenant in the Sheriff Court at Peterhead for sequestration for the years rent of £56, 10s., for summary removing, and payment of arrears of rent amounting to £215, 12s. 6d., in terms of the irritancy under the lease.

On 6th August 1895 the tenant, having become insolvent, granted a trust-deed in favour of John Whyte, decorator, Aberdeen, for behoof of his creditors.

After the granting of this deed, by joint-minute and under a separate agreement between the landlord and the trustee, it was arranged that decree should pass, which was accordingly passed for £197, 12s. 6d. as arrears of rent, and that the landlord should receive payment of everything secured under the sequestration, and that no further proceedings should be taken under the sequestration.

Thereafter the trustee entered into the possession and management of the tenant's estates for the purpose of winding them up, and distributing the proceeds among the creditors.

In November 1895 the defender entered into a minute of reference with the pursuer for the purpose of valuing the machinery and buildings, and the straw, dung, &c. upon the farm. Under the reference the sum of £125, 4s. was fixed as the value of the meliorations, &c., and £63, 17s. as the value of the dung, straw, &c.

The landlord maintained that he was entitled to set off the arrears of rent amounting to £56, 10s. and £197, 12s. 6d. against the amount of these valuations. The trustee refused to agree to this, and raised an action against him in the Sheriff Court at Aberdeen for £189, 1s.

The defender pleaded, inter alia—“(5) The defender is entitled to set off against the sums sued for the sums due to him under the lease.”

On 5th December 1896 the Sheriff-Substitute ( Brown) pronounced an interlocutor, in which, after finding facts as above stated, he found in law “that the defender the said John Henderson Milne is entitled to compensate the sums due by him to the pursuer as trustee foresaid under the valuations, by the arrears of rent due to him by the pursuer as trustee foresaid: Therefore sustains the fifth plea-in-law for the defender John Henderson Milne: Assoilzies the defender from the conclusions of the action.”

Note.—“… The ultimate question in the case is a very simple one, and, in my opinion, is conclusively determined in the landlord's favour by the judgment of the Court in Davidson's Trustees v. Urquhart, May 26, 1892, 19 R. 808.

The agreement was between the landlord and the outgoing tenant to ascertain their respective rights and obligations under the lease, and was nothing more.

The trustee was in possession of the estate no doubt, but before he entered on that the lease had been irritated, and he expressly admits on record that his possession was solely for the purpose of winding-up the bankrupt estate; there was no agreement within the meaning of Taylor's Trustee v. Paul, January 24, 1888, 15 R. 313—an authority on which the pursuer laid particular stress, and there could be none such, because there was no covenant of any kind under the lease between him and the incoming tenant or between the incoming tenant and the landlord.…

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It is admitted that a year's rent, for which sequestration was used, is due preferably, amounting to £56, 10s., the valuations amounting to £189, 1s., being what the landlord is bound to pay under the lease, and on the principle of balancing accounts in bankruptcy, which I think clearly governs the case, the landlord is entitled to compensate what is due by him under the lease by what is due to him under the lease, viz., arrears of rent, amounting to £197, 12s. 6d., and on the one obligation being set off against the other leaves the landlord still a creditor of the tenant or of the trustee representing him. It follows that he must have absolvitor from the action.”

Against this interlocutor the pursuer appealed to the Court of Session, and argued—In a question of this kind the granting of a trust-deed acted in the same manner as bankruptcy— Mill v. Paul, November 22, 1825, 4 S. 219. After the date of such a deed there could be no concursus debiti et crediti— Meldrum's Trustees v. Clark, December 13, 1826, 5 S. 122. The landlord must be held to have acceded to the trust-deed as he entered into a minute of reference with the trustee. No preference was constituted by a landlord's right under a lease to buy stock or take over dung or straw at a valuation at the termination of the lease— Maclean's Trustee v. Maclean of Coll's Trustee, November 23, 1850, 13 D. 90 (opinion of Lord Cuninghame, p. 97). The dung and straw were the moveable property of the tenant, unsecured to the landlord in any shape, and never in his possession. A creditor who poinded the crop had been held to have a preference over the landlord even although there was a stipulation in the lease against the removal of the crop before payment of the rent— Stewart v. Rose, February 2, 1816, Hume's Dec. 229; Dunn v. Johnston, January 28, 1818, Hume's Dec. 451. A trustee under a trust-deed granted for behoof of creditors to which the landlord had acceded was in the same position as a poinding creditor. Until the landlord declared his election to settle with the tenant for meliorations and the value of the dung and straw, the debt due by him had not been incurred, and as this was done after the granting of the trust-deed, such a debt could not be compensated by the arrears of rent due by the tenant prior to the trust-deed— Taylor's Trustee v. Paul, January 24, 1888, 15 R. 313. The landlord must therefore rank as an ordinary creditor.

Argued for the defender—The judgment of the Sheriff-Substitute was right. There was no poinding creditor or trustee in bankruptcy here; there was only a voluntary trust to which the landlord had never acceded. The cases quoted did not therefore apply. As regards the meliorations they were made on fixed property belonging to the landlord, and the claims of the tenants, both with respect to them and with respect to the dung and straw, arose out of the lease— Smith v. Harrison & Co.'s Trustee, Dec. 22, 1893, 21 R. 330. The claims of the landlord for arrears of rent arose out of the same contract, and there was no reason why the two sets of claims should not be set off one against the other.

At advising—