Scottish Court of Session Decisions

James Muirhead, who carried on business as a wine and spirit merchant at 439–441 Keppochhill Road, and 380–382 Springburn Road, Glasgow, being tenant of the former premises and owner of the latter, died on 6th March 1900, leaving a trust-disposition and settlement dated 16th August 1898, and recorded in the Books of Council and Session 14th April 1900, by which he conveyed to William Honour, wine and spirit merchant in Glasgow, and others, as trustees, all his means and estate for certain purposes therein mentioned, and inter alia, as regards

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residue for behoof of his wife Mrs Jessie Ballantyne or Muirhead and the children of the marriage. The estate consisted in part of the above-mentioned businesses at Keppochhill Road and Springburn Road.

The trustees carried on the business at Keppochhill Road and afterwards sold the “goodwill, fittings, and utensils” in February 1901 for a sum of £4350 to a purchaser, conditionally on the certificate being transferred to him and his being accepted by the proprietor as tenant. They also carried on the business at Springburn Road for two years from the testator's death, and afterwards sold the “goodwill, fittings, and utensils” to a purchaser for £11,600, who was granted a lease of the premises for ten years at a yearly rent of £190, conditional on the certificate being transferred to him.

The truster's widow having claimed her legal rights, the trustees brought this action of multiplepoinding to have it determined whether the sums paid for the goodwill of the two businesses above-mentioned were heritable or moveable.

The trustees maintained that the prices of the businesses were wholly heritable, and so not liable to jus relictæ.

The widow, as claimant and defender, maintained that the prices received for the businesses were moveable quoad succession, and alternatively, that if the price of the Springburn Road business was not moveable, then it fell to be dealt with as a grassum or added into the rental of the premises, and should be divided into ten equal parts, and one part added to each year's rent, and that she was entitled to payment of terce from the rent so ascertained.

The facts disclosed at the proof are fully set forth in the opinions of the Lord Ordinary and of Lord Adam, infra.

The Lord Ordinary ( Kyllachy) on 19th July 1904, pronounced the following interlocutor:—“Finds (1) That the value of the goodwill, utensils, fittings, &c., of the business in Keppochhill Road, Glasgow, which belonged to the deceased Janies Muirhead, was at the date of his death £4000, and that for the purpose of fixing the widow's legal rights it falls to be regarded as wholly moveable in its character; (2) That the sum of £11,600 obtained by the pursuers in March 1902 for the goodwill, utensils, fittings, &c., of the business in Springburn Road falls to be regarded for said purpose as moveable in its character to the extent of £5800, and as heritable to the extent of the like sum of £5800; (3) That for the purpose of fixing the widow's jus reliciæ, the value of the goodwill of the Springburn Road business at the date of the death of the said James Muirhead is to be taken at £10,600, of which the sum of £5300 is to be taken as representing moveable estate; (4) That the said sum of £5300, part of the price of the Springburn Road business effeiring to the heritable estate, is of the nature of a grassum paid by the tenant, to whom the said premises have been let, and is subject to the widow's claim for terce; (5) That the defender and claimant Mrs Muirhead is entitled to payment in name of jus relictæ of one-third of the said sums of £4000 and £5300respectively, effeiring to the deceased's moveable estate, with interest thereon at five per cent per annum from 6th March 1900 until payment; and (6) That the said sum of £5300, being the part of the value of the goodwill of the Springburn Road business effeiring to the deceased's heritable estate, falls to be divided into ten equal parts corresponding to the years of the lease granted by the pursuers to the purchaser of the Springburn Road business, and that accordingly for the purpose of fixing Mrs Muirhead's terce the rent for each year of said lease falls to be increased from £190, being the amount stipulated in the said lease, to £770; And, in respect of these findings, ranks and prefers the said defender Mrs Jessie Ballantyne or Muirhead on the fund in medio—(1) To the extent of the sum of £3100 in name of jus relictæ, with interest thereon at the rate of five per cent per annum from 6th March 1900 until payment; and (2) To the extent of £193, 6s. 8d. per annum in name of terce, payable half-yearly so long as she is in life, for the period of ten years from and after the term of Whitsunday 1902, commencing the first half-year's payment as at the term of Martinmas 1902 for the half-year preceding, and with interest on said half-yearly payments at the rate of five per cent. per annum, declaring, however, that the jus relictæ and terce are subject to deduction in respect of all debts which by law are deductible thereform as at the death of the said James Muirhead: Reserving to the said Mrs Jessie Ballantyne or Muirhead all her claims for jus relictæ and terce out of the estate of her deceased husband so far as not forming part of the fund in medio in this action, including all further claims for terce in respect of the property in Springburn Road after the expiry of the current lease thereof: Ranks and prefers the claimants the trustees of the said James Muirhead to the balance of the fund in medio: Finds the pursuers and real raisers entitled to the expenses of raising and bringing the action into Court out of the fund in medio: And finds the said pursuers as claimants, and the claimant the said Mrs Jessie Ballantyne or Muirhead, entitled to expenses out of the trust-estate of the said James Muirhead,” &

Opinion.—“In this multiplepoinding the competing claimants are on the one hand the widow, and on the other hand the trustees, of the late Mr Muirhead, who died in March 1901, having for a number of years carried on a successful business in two public-houses in Glasgow. One of these public-houses was his own property. The other was held under a lease, which at his death had about two years to run, and which excluded assignees and subtenants. The widow having elected to claim her legal rights, questions have arisen as to how far she is entitled to participate in two sums—one of £11,600, and the other of £4350—obtained by the trustees for the goodwills of the two licensed businesses. These sums form the fund in medio The widow claims that they both represented elements of goodwill which were entirely personal.

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The trustees, on the other hand, claim that in each case the price obtained represented elements which were wholly heritable. They say in the one case that the £11,600, whatever it was called, was really a grassum paid over and above his rent by the tenant to whom they (the trustees) let, on a ten years' lease, the shop of which the deceased was owner. They say similarly in the other case that the £4350 was simply a large premium paid by the purchaser for the reversion, such as it was, of the lease which the deceased held of the public-house of which he was tenant.

“A proof has been led, and what I have now to consider is, what conclusions fall to be drawn from it? I say so, because it is important to keep in mind that we are here in a class of questions where we have to deal with facts and not with legal formulas, or even legal presumptions. Certain things, of course, require to be postulated. For example, nobody, I suppose, disputes that in connection with the business of a public—house, as of any other business, there is or may be something which is called goodwill—something which is of marketable value and is personal property. Nor is it, I suppose doubtful that this personal goodwill may survive the owner's death, may pass to his executors, may enter his inventory, may be the subject of taxation, and may generally and for all purposes form part of his moveable succession. All that is probably quite clear. But how far in any particular case such goodwill exists; how far it survives its owner and transmits as a marketable subject to his executors; how, if it has been sold in cumulo with other assets having a heritable character, the necessary apportionment of the cumulo price is to be made—all these are questions which depend necessarily upon the facts of the particular case, and which are questions not of law or of legal presumption, but of fact and of evidence.

“Keeping this in view, my conclusions upon the proof are shortly these:—

“In the first place I think it is clear that both goodwills were assets of the deceased at the time of his death. I see no reason to doubt that if he had during the last years of his life desired to do so, he might have obtained for them sums substantially the same as those subsequently obtained by his trustees. Nor do I see any reason to think (subject to what I shall say presently as to certain increases in the drawings after his death) that the sums in question were obtained by the trustees in respect of anything contributed by them (the trustees) or by the beneficiaries individually. The trustees held and sold simply as representatives of the deceased. The case of Philp, 21 R. 482, and cases of that kind, have, I think, obviously no application here.

“2. Further, I think it clear that (subject to the same qualification) the whole sum received for the goodwill of the smaller business—the Keppochhill business—must be held as moveable estate. In this case there was, so far as I see, no heritable element which entered into the price. The premises did not belong to the deceased; he had merely a lease which was nearly run out. It was, moreover, as I have said, a lease which was not assignable. Nor was it in fact assigned. Anything heritable—attaching to the premises—the purchaser got not from the trustees but from the landlord, with whom he directly transacted.

“3. I am next of opinion that (subject to the same qualification) the £11,600 paid for the goodwill of the larger business—the Springburn business—must be apportioned as between the heritable and moveable succession. It is, I think, proved that to a large extent, possibly the larger extent, the sum in question represented what is called heritable goodwill—goodwill in separably attached to the premises, and the price of which was really and in substance grassum paid by the tenant. But, on the other hand, it is I think also proved that to a large extent the price represented those elements of goodwill which I have called personal—elements which did not attach to the premises, which were largely associated with the licence, and which I some time ago endeavoured to analyse in the case of Hughes, 19 R. 840. How in such circumstances the apportionment is to be made is always a matter of difficulty. It is a question which comes up frequently in the Valuation Courts; and there it has been found necessary to sanction, or at least accept, a certain rough and ready method commonly adopted in practice, and found generally to be not unfair, viz., to divide the total price in equal portions between the two kinds of goodwill. I do not think that in view of the figures disclosed by the other transaction—the Keppochhill transaction—that apportionment is unfair here. In saying so I have quite in view that the premises here are superior to, and in a better locality than the Keppochhill premises. But on the other hand I have also to keep in view that there was here in addition to the payment of goodwill a very substantial increase of rent. On the whole, therefore, I propose to apportion the goodwill on the principle I have mentioned.

“4. I have said, however, that there is a certain qualification applicable to both cases. It appears that the mode in which the goodwill was here estimated (a mode said to be the usual mode) is to take a certain average of the weekly drawings. That being so, it has to be considered what effect is to be given to a certain increase in the weekly drawings which occurred between the deceased's death and the sale, and while the trustees were themselves carrying on both businesses. The increase was not in either case very great. It was £10 a-week in the one case, and £3 in the other; and partly, at all events, it must have been merely a natural increment due in no way to the management of the trustees or their personal merits. But in a question of legitim or jus relictæ it is no doubt true that the moveable estate must be estimated as at the date of the death—the rule, I think, being that the children or widow receive interest from the date of the death, and not (at least in the general case) anything else. That being so, I think I

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must for the present purpose make some deduction from the total price in each case. It is, of course, only possible to do so roughly; but it appears to me that, all things considered, £1000 may be fairly deducted in the one case, and £350 in the other. The net result therefore is, that the widow in name of jus relictæ gets in respect of personal goodwill, including fittings, &c., from the price of the Spring—burn business one-third of one half of £10,600, that is to say, £1766, 13s. 4d., and from the price of the Keppochhill business one-third of £4000, that is to say, £1333, 6s. 8d.

“5. The widow, however, in addition to her jus relictæ claims terce in respect of one half of the £11,600 which was received for the Springburn business; that half, if I am right, being really a grassum paid by the tenant of the shop in addition to the rent expressed in his lease. Now it appears to me that this claim is well founded. The widow cannot, I apprehend, repudiate the lease or rather the transaction of which the lease was a part. She had not served to her terce or otherwise interpelled the trustees when the lease was granted. In any case, she does not propose to repudiate. But having looked into the authorities, I see no reason why she should not as against the trustees have right to one-third of the additional rent which the grassum represents. In other words, the £5800, which was really a grassum, must be distributed over the ten years of the lease—the additional rent in which the widow is entitled to participate being thus £580.

“The net result is that the widow will receive out of the two funds in medio as jus relictæ the sum of £3100, with interest from the date of the testator's death. She will also receive out of the proceeds of the fund in medio, in name of terce, £193, 6s. 8d. per annum during the currency of the lease.”

The pursuers reclaimed, and argued—The prices got for the goodwill were heritable. It had been decided in Hughes v. Assessor for Stirling, June 7, 1892, 19 R. 840, 29 S.L.R. 625, that there might be a personal element in goodwill, but that element was wanting here according to the test applied by Lord Rutherfurd Clark, in Philp's Executor v. Philp's Trustees, February 1, 1894, 21 R. 482, sub nom. Philp v. Martin, 31 S.L.R. 384. Drummond v. Assessor for Leith, February 5, 1886, 13 R. 540, 23 S.L.R. 385, showed goodwill in similar circumstances to this to be heritable. The decision in Assessor for Kilmarnock v. Allan, March 9, 1887, 14 R. 581, was not in point, since there the contract was between outgoing and incoming tenants. In Assessor for Lanark v. Selkirk, March 9, 1887, 14 R. 579, the contract contained an obligation not to compete. The system of dividing goodwill as half heritable half moveable was rough and ready, and not to be adopted where definite evidence was to hand as here, but only in the absence of such evidence. The English cases quoted ( West London Syndicate v. Inland Revenue Commissioners, [1897] 2 Q.B. 509, and Inland Revenue Commissioners v. Muller & Company's Margarine, Limited, [1901] AC 217) were not in point, as they dealt with a different sort of subject. This case was ruled by the decision in Graham v. Graham's Trustees, July 20, 1904, 41 S.L.R. 846, which was one similar in its circumstances. Hawick Heritable Investment Bank, Limited v. Huggan, November 6, 1902, 5 F. 75, 40 S.L.R. 33, contradicted the view that acquiescence in transfer of certificate was of value.

Argued for the defender and respondent—Goodwill might be, and here was, wholly moveable. Murray's Trustees v. M‘Intyre, March 12, 1904, 6 F. 589, 41 S.L.R. 398, gave a test of what is moveable in goodwill that should be applied here as on all fours with the present case. Hughes v. Assessor for Stirling, supra, also supported this contention. The case of Philp's Executor v. Philp's Trustee, supra, was very special, the question being to whom the business belonged. Graham v. Graham's Trustees, supra, decided that each case dealing with goodwill was dependent on its own circumstances. Here there was consent to transfer of certificate and no competition, so there was clearly a personal element. The goodwill lay in the probability of the renewal of the licence, and this was moveable in its character. In the case of Drummond v. Assessor for Leith, supra, the Court approved of a division into two parts, heritable and moveable, of a sum received for goodwill—see opinions by Lords Lee and Fraser. In the case of the Assessor for Lanark v. Selkirk, supra, a payment for goodwill had been imputed to rent as regards only half its amount; this had also been done in Hughes v. Assessor for Stirling, supra. The views of the English Judges were in favour of this view, and were to be found in West London Syndicate v. Inland Revenue Commissioners, supra, and Inland Revenue Commissioners v. Muller & Company's Margarine, Limited, supra, and also in Trego v. Hunt, [1896] AC 7. The view taken by the Lord Ordinary was the correct one.

At advising—