Scottish Court of Session Decisions

[ Vide Clark's Trustees, June 19, 1895, 22 R. 706, 32 S.L.R. 511.]

On 16th June 1908 Mrs Katherine Margaret Clark or Main, wife of Robert Baillie Main, gas engineer in Glasgow, brought an action against William Clark and others, trustees of her father the late Peter Clark, wine and spirit merchant, Glasgow, and also against the beneficiaries under the trust. In it she sought declarator (1) that the pursuer by taking legitim from her father's estate did not surrender the benefits of the provisions in her favour contained in his trust-disposition beyond the amount necessary to make compensation out of the said provisions to the beneficiaries under the residuary destination for any loss occasioned to them through the withdrawal of legitim; (2) that by the application of the benefits of the pursuer's provisions in the hands of her father's trustees towards the purpose of compensation, full compensation had already been made; (3) that in respect of such compensation having been made she was entitled to receive the benefit of the provision in her favour of the liferent of one fifth of the residue. Conclusions for an accounting followed.

The trustees defended the action. The question between the parties was how certain advances made under the authority of the Court — Clark's Trustees ( cit. sup.) — to the pursuer for the maintenance of her children, fiars of the residue, was to be charged, i.e., whether against the compensating fund, the pursuer's liferent, or the grandchildren's fee, capital. It had already been decided— Clark v. Clark's Trustees, 14th December 1906, 13 S.L.T. 694, per Lord Ordinary (Salvesen) — that the doctrine of equitable compensation was applicable.

The facts are given by the Lord Ordinary ( Mackenzie), who on 6th March 1909 pronounced the following interlocutor:— “Finds and declares in terms of the first conclusion of the summons: Further finds that in making compensation the provisions for which the pursuer is entitled to credit are (1) one-fifth of £100 a-year from 14th September 1882 to 30th September 1885, with interest thereon at the average rate earned by the trust estate from the respective dates when payments should have been made; (2) £500 with interest at said rate from 30th September 1885; (3) the annual sums to which the pursuer is entitled under the liferent right conferred on her by the last purpose of the trust-disposition and settlement, under deduction of ( a) the amount falling to her under head (2), and ( b) the annual sums paid subsequent to 26th March 1898 under orders of the Court for the maintenance, education, and upbringing of her children: Quoad ultra continues the cause, reserving question of expenses: Grants leave to reclaim.”

Note.—[ After stating the first conclusion of the summons]—“There is no dispute that the pursuer is entitled to decree in terms of this conclusion, the point having already been decided in Clark v. Clark's Trustees, 1906, 13 S.L.T. 694. She will therefore have right to receive her share of the income originally destined to her as soon as the trust has been fully compensated. [ His Lordship then narrated the second conclusion of the summons.] The circumstances

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of the trust are as follows — The late Peter Clark died in 1882. By the settlement the provisions in favour of the widow and children were declared to be in full of their legal rights. The testator's widow accepted the testamentary provisions in her favour, but his five daughters claimed and were paid their legitim. In the discharge they granted their rights were reserved under the trust-disposition and settlement after compensation had been made.

By the fifth purpose of the settlement the testator directed his trustees to set aside and invest out of the residue of his estate a sum sufficient to secure an annuity of £600 to his widow so long as she remained unmarried, restrictable in the event of her second marriage to £100.

By the sixth purpose he declared that so long as his wife should remain unmarried it was his desire that his children should remain in family with her so long as they remained unmarried, and he directed his trustees to pay to his wife an allowance of £100 a-year for each of his daughters so long as they should continue to reside with her, for their maintenance, clothing, and education.

By the seventh purpose he directed his trustees, upon the occasion of any of his daughters marrying with their consent and approval, to pay to her the sum of £500 as a marriage outfit, said sum to be ‘deducted from the share of residue of such daughters falling to them as after provided, when the final division of my means and estate takes place.’

By the eighth purpose the testator left an annuity of £60 a-year to his sister Mrs Bryce.

By the last purpose of the settlement the truster gave directions regarding his estate in the event of his wife marrying again (which event did not occur), and went on to provide as follows:— ‘And upon the death of the survivor of my said wife and my sister, the said Mrs Flora Clark or Bryce, I direct my said trustees to hold and retain the whole residue and remainder of my means and estate for behoof of my whole surviving children, viz., Jane Clark, Jessie Flora Clark, Catherine Margaret Clark, Henrietta Alexandrina Clark, and Elizabeth Clark, equally among them, share and share alike, and the survivors and survivor of them in liferent, for their liferent alimentary use of the free annual proceeds thereof only, and their respective lawful issue in fee, equally among them per stirpes, declaring that in case any of my said children shall decease leaving lawful issue, such issue shall succeed always in room of their respective parents, which shares shall not be payable to the beneficiaries entitled to the same until they respectively attain the age of twenty-one years complete in case of males, or in the case of females until they attain that age or are married, whichever of these events shall first happen: And I declare that the whole of the foregoing provisions shall vest in the beneficiaries under these presents at and upon the arrival of the respective periods of payment thereof.’

The amount of legitim paid to the pursuer was £5341, 10s., or including interest to date of payment, £5572, 8s. 9d. Certain advances have been made under the authority of the Court for the maintenance, education, and upbringing of the children of the pursuer. The question whether full compensation has now been made to the trust estate depends upon how these advances are to be dealt with. The pursuer maintains that the whole amount, £6062, 17s. 9d., should be debited against her children's interest in the trust funds. The trustees maintain that they should all be charged against the income now falling to the pursuer.

The proceedings in the petition under which these advances were authorised are reported under the name of Clark's Trustees, 22 R. 706. From the report it appears that the income of the trust investments for the year then current exceeded £3400, and that, after deducting the widow's annuity and other expenses, there was a surplus income of at least £2700 a-year, ‘for the disposal of which,’ as the petitioners averred, ‘in the events which have occurred, the said trust-disposition and settlement makes no provision, and which will fall to be accumulated for the benefit of the truster's grandchildren.’

The petition contained these further statements—‘The petitioners have been applied to by Mr Clark's two married daughters, on behalf of their respective families, who will ultimately become entitled to shares of the fee of the estate, for a payment to each of them out of the aforesaid surplus income undisposed of by the testator to assist them in maintaining and educating their children in a more liberal way than their present means enable them to do, and in a manner more suitable to the fortune which the children will inherit. … In these circumstances the petitioners are satisfied of the propriety of making the payments now asked out of the undisposed-of income of the estate.’ The application was made to the Inner House in virtue of its nobile officium and of its powers under section 7 of the Trusts Act of 1867.

The interlocutor pronounced was in terms of the prayer of the petition, and was as follows:—‘Authorise and empower the petitioners, as trustees of the deceased Peter Clark, merchant, Glasgow, to pay and apply out of the funds of the said trust estate undisposed of by the said deceased, for the maintenance and education and upbringing of the children born or to be born of Mrs Jessie Flora Clark or Main and Mrs Catherine Margaret Clark or Main, to the extent of the sum of not more than £500 per annum to each family, and that for the period of two years from the 15th day of May 1895, and decern ad interim.’

The truster's widow did not die until 26th March 1898, and it was not until then that the pursuer's liferent right under the last purpose of the trust-disposition and

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settlement commenced to run. Until it commenced the surplus income would under the residue clause go to increase the capital destined ultimately to the truster's grandchildren. The effect of the order of the Court was to diminish the fund which would go to augment the capital destined to the grandchildren under the residue clause. The payments for the benefit of the children were continued and increased under subsequent notes presented to the Court, the interlocutors in which were dated 6th March 1897 and 14th July 1900, and are set out in the note dated March 11th, 1905, a print of which has been produced in the present proceedings. In each of the interlocutors the funds out of which payments were directed to be made are described as funds undisposed of by the truster. Although this might be a correct description of the position of the surplus income prior to the death of the pursuer's mother on 26th March 1898, inasmuch as there was no express provision dealing with surplus income which therefore fell within the scope of the residue clause, no part of the income could, strictly speaking, be said to be undisposed of after 1898. The income as well as the fee of what was destined to the pursuer and her family were expressly dealt with by the residue clause, the mother took the liferent and her children the fee. The trustees have debited the whole amount of the advances to the children against the income of the pursuer's share and maintain that they were right in doing so. The pursuer says that the whole should be debited against the share of capital falling to her children.

I am unable to agree with either of the views submitted. I think regard must be had to what it is that the Court has done. The pursuer, though not directly a party to the petition, took the initiative by asking the trustees to present the petition on the footing above set forth. The payments for the benefit of the children commenced under the interlocutor of June 19th, 1895, as from the 15th of May 1895. It is directed by that interlocutor that these payments are to be taken out of the funds undisposed of by the truster. This can only mean that the payment was to be out of income. In no sense could it ever have been said that the capital originally destined to the children was undisposed of. No doubt if the payments had not been taken out of the income the amount to be added to the capital would have been so much larger, but the fact remains that the payments were made from income and nothing else. During the period from 15th May 1805 to 26th March 1898 the pursuer was not entitled to draw anything from the trust estate. I am therefore unable to see how her provisions can be debited with any portion of the advances prior to 26th March 1898.

After that date it appears to me the position of matters is changed. The pursuer was then entitled, according to the terms of the trust-disposition and settlement, to draw the liferent of the capital destined to her children. The sums falling to her under this liferent would then have become available to recoup the trust estate for the amount of legitim she had taken. The pursuer, however, cannot in the circumstances of the present case say that the whole of this income was available to make equitable compensation. She was a party to asking the Court, through the trustees, to authorise payment out of this income of sums for the benefit of her children. This the Court sanctioned. The Court was never asked to sanction any advances out of the capital destined to the children, and never did. The payments were authorised to be made out of what was income and not capital. The trustees have not got in their hands the sums which would have fallen to the pursuer, and therefore cannot apply them in recouping the estate for the legitim she has taken. In my opinion, the estate must be taken as it stands in point of fact. The result of this opinion is that the only funds the pursuer is entitled to maintain are available to make compensation are the sums which would have fallen to her under her liferent, under deduction of the sums annually paid for the benefit of her children subsequently to 26th March 1898.

Two other matters remain—first, in regard to the allowance of £100 a-year dealt with in the sixth purpose of the settlement. I understood the pursuer's counsel to admit that as this allowance is not charged specifically against the pursuer's share, but falls to be paid out of the general estate, she was only entitled to credit for one-fifth of the amount.

The next question relates to the sum of £500 provided as a marriage outfit under the seventh purpose of the trust settlement. The provision is that this sum was to be paid in the event of any of the truster's daughters marrying with the consent and approval of the trustees. It is said this consent and approval was never applied for or given. On the other hand, there is no suggestion that the trustees would have withheld their consent and approval had they been asked. Three of the five acting trustees in 1885 are now dead. It appears to me that the point is not material, in consequence of the declaration that this sum of £500 is to be deducted from the share of residue falling to the pursuer. It is true that there is no sum of capital falling to her under the residue clause, but I think it quite legitimate to take the view that the truster did not intend the £500 to be over and above what his daughter might take under the residue clause. Of course, if she did not survive her mother she would not be entitled to anything from which the £500 could be deducted. If, however, as is the case here, she did, then I think the £500 should be deducted from the liferent. I think the pursuer is entitled to the £500, but that in stating the account the amount which is credited to her under this head must be debited against her liferent.

An argument was submitted that the pursuer was entitled in computing the amount of her liferent to credit for the

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amount of the interest on advances made to the children. In the view I take this would only apply to interest on the advances between 15th May 1895 and 26th March 1898. I think the estate must be taken as it stands; de facto this interest is not in the hands of the trustees to recoup the estate for the legitim taken. I do not think the pursuer is entitled to credit for it.”

The pursuer reclaimed, and argued—The only part of the interlocutor which was challenged was the finding which dealt with the advances paid under orders of Court subsequent to the widow's death. Those advances also should be debited against the capital falling to the children. The petition had been under sec. 7 of the Trusts Act 1867— see Clark's Trustees, June 19, 1895, 22 R. 706, 32 S.L.R. 511. Under that statute the Court had no power to do anything other than make an allowance out of capital. Unappropriated income was capital— Ross's Trustees, July 14, 1894, 21 R. 995, 31 S.L.R. 812. The income which would have fallen to the pursuer should be accumulated in the hands of the trustees. If those advances to the amount of £6000 had not been made, that sum bearing interest would have gone to meet the pursuer's equitable compensation. Furthermore, the advances made subsequent to the widow's death in 1898 ought to be held to apply to income accumulated before that date. What the Court dealt with throughout was the income undisposed of by the settlement—that was the surplus income up to 1898. The pursuer was entitled in computing the amount of her liferent to credit for the amount of the interest on the advances made to the children.

Argued for the defenders (respondents) — There was a manifest distinction between what happened prior to 1898 and thereafter. As the advances to the children subsequent to 1898 were rendered necessary because the pursuer elected to take legitim, she was personally barred from insisting that they should be paid out of capital. Had she accepted the provisions of her father's will she would have had ample funds after her mother's death to maintain and educate her children. It was the duty of a parent to maintain his or her children. The principle was that a parent's funds are liable primo loco for their education and maintenance—Ersk. Inst., i, 6, 56, note e. The advances should therefore be paid out of income. It was only the balance of accumulated income that remained after charges of every kind had been met that became capital. In Clark's Trustees ( sup. cit.) it was stated that what was asked was a payment out of “income undisposed of.” The undisposed income was what the Court was dealing with. It was undisposed of qua income. There was no income to which the children were entitled; there was capital to which they would be entitled when equitable compensation had been fully made. If the pursuer were successful, her action in taking legitim would be to the prejudice of the fiars. That was not the law— Dixons v. Fisher, July 1, 1833, 6 W. & S. 431. The case of Muir's Trustees v. Muir, December 22, 1899, 37 S.L.R. 257, was referred to. The Lord Ordinary was right as regards the question of interest on the advances.