Scottish Court of Session Decisions

Thomas Smith, merchant in Dundee, died on 7th August 1885, leaving a trust-disposition and settlement and relative codicil dated respectively 22nd March 1883 and 29th February 1884, whereby he gave, granted, assigned, and disponed his whole estates and effects, heritable and moveable, real and personal, to the trustees, and for the trust purposes therein mentioned.

By this trust-disposition and settlement he provided, inter alia, as follows:— “( Sixthly) I direct and appoint my trustees to ascertain as nearly as may be the amount of the residue of my trust-estates, …. and to divide the same into two portions, which portions (hereinafter called first portion and second portion respectively) shall be of the amounts following, that is to say, the first portion shall be of such amount as shall be sufficient to yield a free annual income of £1500 a-year, and the second portion shall consist of the remainder of my trust estates, excepting my said property of Ashwood, and the said two portions, along with my said property of Ashwood, shall be administered and disposed of as follows, viz., the nett revenue of the first portion shall be paid to my said wife during her life as an alimentary fund or provision to her, and that half-yearly as the revenue arises, and she shall also get the use and enjoyment during her life of my said property of Ashwood.” With regard to the “second portion,” the testator directed that it should be divided into shares equal to the number of his children, that each of his sons should be paid one of these shares, subject to repayment to the trust estate of whatever debt they might respectively be owing to the testator, and that one of the remaining shares should be held in trust for each of his daughters and their issue, the revenue as an alimentary provision for the daughter, and the capital for her issue. With regard to the “first portion” the testator directed ( seventhly) that on the predecease or death of his wife it should be divided, administered, and applied for behoof of his children including sons, and the issue of such children, in the manner directed with regard to the shares of the “second portion” destined to and for behoof of daughters and their issue.

The testator was survived by his wife and by eight children, two sons and six daughters. Both the sons married and both had issue. Three of the daughters married and two of them had issue.

By minute dated 19th August 1885 the trustees resolved and directed as follows:—“In terms of the settlement the trustees resolved to set apart a portion of the trust estates of such amount as should be sufficient to yield a free annual income of £1500 a-year to Mrs Smith. They accordingly resolved and directed that the following should be so set apart, viz.— (1) The Panmure Street property. (2) Shares to the par value of £8000 of the First Scottish American Trust Company, Limited. (3) Shares to the par value of £8000 of the Second Scottish American Trust Company, Limited. (4) Shares to the par value of £3000 of the Third Scottish American Trust Company, Limited. But declaring that should the annual income or revenue of said portions of the trust estate exceed in any year the sum of £1500, the excess shall fall into the income of the remaining estates, and that should said annual income or revenue in any year be less than the sum of £1500, the deficiency shall be made up from the income or revenue of the said remaining estates.” The trustees passed no further or other resolution as to the division of the estate into two portions than that above recited.

By the trust-disposition and settlement the trustees had power, inter alia, “to continue as investments of and under the trust the whole or any of the investments belonging to me at the time of my death.” Hence they kept on as investments the shares above mentioned.

In accordance with the trustees' resolution the property and shares mentioned in the minute were set apart in the trust accounts as the “first portion.” From the commencement of the trust the annual income from the investments so set apart very considerably exceeded a free annual income of £1500 a-year—indeed the free annual income derived from the said “first portion” had nearly every year exceeded £1900. The surplus was year by year transferred to the income of the “second portion” in terms of the declaration.

Mrs Smith, the liferentrix, died on 17th May 1899. During her lifetime no difficulty arose. Payment was made to her of £1500

Page: 510↓

a-year, and the excess of the income of the “first portion” was, as already stated, treated as part of the income of the “second portion” in terms of the declaration contained in the minute, and divided amongst the children of the late Mr Smith entitled thereto.

Upon Mrs Smith's death it became necessary to ascertain and fix the amount of the “first portion” and questions having arisen, the present special case was presented for the opinion and judgment of the Court.

The estate and effects bearing to be set apart in the minute of the trustees as sufficient to yield a free income of £1500 a-year to the testator's widow were valued at that date at £38,701, and yielded a nett return of £1864, 10s. 4d. The estate the trustees actually held at the date of presenting this case was of the value of £47,280, 15s. 8d., and yielded a nett return of £1852, 7s. 6d. At the date of the trustees' minute the value of the estate bearing to be set apart exceeded what was required for the fore-said purpose to the extent of £7500 or thereby, and the value of such excess as at the date of presenting this case amounted to £8994 or thereby.

The parties to the special case were (1) the trustees, (2) the testator's sons, (3) the sons' children, (4) the testator's daughters, and (5) the daughters' children.

The second and fourth parties maintained (1) that no valid, final, and effectual apportionment of the trust-estate into “first portion” and “second portion” had been made by the first parties; (2) that it was now the duty of the first parties to make a valid and effectual apportionment; (3) that such apportionment should be made on the footing that the portion of the testator's trust-estate set apart or to be set apart as the “first portion” should only be of such amount as would provide a yearly income of £1500, or as near that figure as might be; and separatim (4) that the minute of the trustees, so far as it set apart as the “first portion” estate and effects exceed ng what were required to provide a yearly income of £1500, or as near that figure as might be, was ultra vires and inept, and the capital accounts of the first and second portions should be altered and adjusted accordingly.

The third and fifth parties maintained that the apportionment in the minute of the trustees was valid and effectual to determine conclusively that the four items referred to in the minute constituted the “first portion” while the balance of the estate constituted the “second portion” and that all the above claims of the second parties were untenable and ought to be repelled.

The questions of law for the opinion and judgment of the Court were as follows:— “(1) Has any valid, final, and effectual apportionment of the trust—estate into “first portion” and “second portion” been made by the first parties? (2) In the event of the first question being answered in the negative, is it now the duty of the first parties to make a valid and effectual apportionment of said estate into “first portion” and “second portion”?

Argued for the second and fourth parties—There was here no final and effectual apportionment. In the case of Munro's Trustees v. Munro, June 21, 1899, 1 F. 980, the trustees had no power to invest in anything but trust investments.

Argued for the third and fifth parties— The trustees had by their minute made a final and effectual apportionment. The annuity here was payable out of income only, and what the trustees were bound to set aside was such a sum as would safely and certainly produce £1500. This was what they had done. The grandchildren were entitled to get £50,000, that is to say, the sum which at 3 per cent. would yield £1500 — Munro's Trustees v. Munro, cit. The provision in the minute as to the surplus or deficit was either superfluous or illegal.