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Douglas V. Douglas Trustees





Trust—Interest—Accumulation of Interest—Bona fides. Circumstances in which held that trustees who had taken an erroneous view of their duty, but had acted throughout in bona fide, were bound to pay to tho beneficiary the net proceeds of the estate, afterwards to pay interest at 4 per cent., and lastly, interest at 5 per cent. But no accumulation of interest allowed.
These were conjoined actions of multipleponding and exoneration at the instance of the trustees of the late J. M. Douglas against General Thomas M. Douglas, and of declarator at the instance of General Douglas against the trustees.
Major Archibald Douglas Monteith died in 1842, leaving a trust-disposition, in which ho named his brother, James M. Douglas, his solo executor and trustee.
He left several legacies, and directed that the residue of his fortune should be vested in the purchase of lands in the county of Lanark, to be entailed on his brother and his lawful issue. On the death of Major Monteith, his brother James Monteith Douglas made up a title to the personal estate under the Major's settlement, and ho made up titles to his real estate as heir-at-law. Shortly after the Major's death, and in pursuance of his purpose of purchasing lands to be entailed under his settlement, James Monteith Douglas bought the estate of Stonebyres, in Lanarkshire, for £25,600, and laid out £23,000 in the erection of a mansion-house and in draining the estate.
James M. Douglas died in 1850, leaving a trustdisposition, by which he conveyed his whole estates, heritable and moveable, including the estates which belonged to Major Monteith, to trustees.
One of the purposes of the trust was to employ the residue of the estate in the purchase of lands in Lanarkshire, to be entailed along with the estate of Stonebyres, on the series of heirs named in Major Monteith's disposition. On his death, General Monteith Douglas was the institute appointed under his trust-disposition. Mr Lindsay was appointed judicial factor on Major Monteith's estates.
The Court decided in 1859 that the trustees of James Monteith Douglas were bound to make a separation between the two trust-estates, and to administer them separately and in such a way that
the amount of residue of the Major's estate might be ascertained and dealt with according to law, as applicable to the directions of entail set forth in his settlement. General Douglas executed an instrument of disentail, by which he acquired tho whole of Major Monteith's estate in fee simple.
It was decided in 1864 that the estate of Stonebyres had not been purchased by James M. Douglas in conformity with the directions of Major Archibald D. Monteith, but that it was purchased in tho bona fide belief that he was entitled to alter the directions of his brother; that the judicial factor of General Douglas, who, by disentail, had acquired right to the whole estate of Major Monteith in feo simple, was entitled to demand from the trustees a conveyance of the estate of Stonebyres, but only on condition that ho paid the sums expended by James M. Douglas in improving the property; or that the judicial factor, in tho event of his not electing to take the property, was entitled to payment of the price, " with any interest that may upon a just account be held to accruo thereon." The sole question now before the Court had reference to this interest.
Young and Shasd for trustees of J. M. Douglas.
Lord Advocate and Adam in answer.
At advising—
Lord Benholme—The reclaiming note which we are now called upon to deal with is presented against an interlocutor of the Lord Ordinary, by which his Lordship ropels the first and second objections for the trustees of J. M. Douglas, as contained in number 937 of process, and appoints tho case to bo enrolled with a view to farther procedxire. The substance of the two objections to the report thus repelled is, that the accountant has proposed an accounting as betweon the objectors and General Douglas, in reference to the income or tho interest due to the latter from the period of James Monteith's death in 1850 down to the present time, on the footing that on the capital of Major Monteith's estate (which has been ascertained by the accountant) interest should be allowed with or without annual accumulations. The accountant has proposed different rates of interest, and under alternative of annual accumulations or without them, leaving it to tho Court to determine the rate of interest and the alternative as to accumulations.
Whilst the objectors object in tolo to the principlo of the report, and suggest various alternatives, some of which would exclude all accounting as between the parties during the foresaid period, and others point in various ways to a modification of the report, both as to the principle and as to tho details, it seems unnecessary to specify these alternatives, since the interlocutor now under review repels the objections in toto.
The interlocutor itself does not select any of the alternative rates of interest proposed by that accountant, nor does it presently determine the question of accumulations. But the note of the Lord Ordinary intimates his opinion that both legal interest and accumulations should be given.
After the best consideration I can give to tho case, I cannot concur in this. I think that justice requires that the whole period from 1850 downwards1 should not be dealt with on the same footing. It is to be observed that from 1850 till the decision of the Court, pronounced in 1859, by which it was determined that James Monteith hail no power to deal with his brother the Major's estate, as substantially merged in his own. There was a complete uncertainty whether it would ever be necessary to separate the two estates or to consider the General as entitled to the character of a creditor for the full amount of the Major's estate as at the date of his death. Now the cause of that uncertainty was certain expressions in the Major's settlements which seemed, in one view of them, to give his brother very ample, if not unlimited, powers in altering or modifying the Major's settlements. There seems to be no doubt that James, during his whole life, was under the bona fide belief that these extensive powers were, vested in himself. He certainly acted upon that footing; and upon his death it is not wonderful that his trustees considered themselves not only entitled but bound to execute his trust instructions as applicable to the whole property, of which their constituents died possessed, and as constituting one undivided trust.
During this period of uncertainty, therefore, occasioned by the ambiguity of the Major's settlement, I cannot think that the objectors are bound to account to his successor upon the footing of hia being the ascertained creditor of James, and not rather as the beneficiary under both trusts. On the contrary, I think that justice will be done between the parties by holding that, until that ambiguity was put an end to by the final decision of the Court, the General is not entitled to demand more than that there shall be paid over to him, in his double character, the whole net process of the joint estate under the management of the objectors, in so far as these have not already been accounted for to him. But by the decision of the Court in 1859, the true character of the General was clearly ascertained to be that of a creditor; and it appears to me that from that date he is entitled to demand interest upon the capital. I must observe, however, that the very ground upon which he is entitled to demand in trust, as purely the creditor upon his brother's estate, excludes him, in my opinion, from claiming accumulations, or, in other words, compound interest upon his debt. The ordinary rule of our law is against compound interest, and the General's resulting character of creditor, in consequence of the judgment of the Court in 1859, does not entitle him to so unusual a benefit as that which compound interest would confer upon it.
But it is necessary to attend to another and subsequent date in the history of this litigation. It was ascertained that the estate of Stonebyres had been purchased by James as the property to be entailed, that the purchaso was made with money (amounting to £25,600) which clearly formed part of the Major's estate. Upon this property James had afterwards expended an additional sum of his own money, exceeding the original purchase money in the way of improvements. Now the General claimed right to Stonebyres, with these improvements, as belonging to him, at the value of tho original purchase money; and after some litigation it was determined that he had an option to take or reject the estate, but that if he took it ho .must give credit to James' estate for the money laid out in improvement, as well as the purchase money. Tho judgment of the Court, dated 80th March 1864, contained the following passage:—"Find that in the event of the said factor and the said General Monteith Douglas electing not to take a conveyance of the estate of Stonebyers, under the conditions foresaid, they will then be entitled, in accounting, to receive payment or credit of, or credit for, the said sum of £25,600, paid out of the funds of the said Archibald Douglas Monteith, as
the price of the said estate, with any interest that may upon a just accounting be held to accrue thereon, after making allowance for the liferent use and enjoyment by the said James M. Douglas of the said sum as part of the residue of the estate of the said A. D. Monteith." General Monteith having, by minute, declared his option to reject Stonebyres on the terms by which his option was fettered, "the Court of this date (20th July 1864) having resumed consideration of the cause with the minute for the judicial factor and General M. Donglas, number 2099 of process, remit to the Lord Ordinary to give effect in the accounting to the interlocutor of 30th March 1864, and the said minute."
In reviewing the interlocutor of the Lord Ordinary reclaimed against, the Court must now givo effect to that part of the interlocutor of 30th March 1864 which finds that General Monteith is to have credit for the purchase money, " with any interest that may on a just accounting be held to accrue thereon." Now on this part of tho case tho consideration of the rate of interest on the sum in question has been interrupted by a convention on the part of James' trustees, that no interest should be allowed on this sum; nay, that no interest should be allowed on a part of his capital equal to the total amount laid out by James, both in purchasing and improving Stonebyres. This pretention could not be founded upon the footing that James was justified in purchasing this comparatively unproductive property, or in so lavishly improving it, since it had been expressly found by the Court, in their interlocutor of 36th March 1864, that " the said purchase was not authorised by nor in conformity with tho directions contained in the will of Archibald D. Monteith." But it was eontended that had it not been for the General's claim to a conveyance of Stonebyres, the trustees might have sold the estate in 1859, and might have got a price equal to the whole sum laid out upon it. It was therefore argued that the General should forego interest upon a part of his capital equal to this whole sum, and in lieu of such interest, be contented with tho net revenue of the estate.
This contention was ably supported, and had considerable plausibility, but after anxious consideration I have not been able to adopt it.
I think, in the first place, it is very far from clear that had the General's claim for Stonebyres been propounded in 1859 and maintained till 1864, the trustees either would or could, consistently with their duty to the beneficiaries under James' trust have parted with Stonebyres, a property which was purchased by their constituent, and which they were directed by him to entail. They seem not entitled to sell that estate unless under an emergency in the affairs of the trust, which could not have been certainly known to have occurred in 1859. And this doubt in my mind is very much strengthened by the conduct of the trustees since the General's pretentions have been finally disposed of; for since 1864 down to tho present time, no sale of Stonebyres has taken place, nor so for as appears has been attempted or resolved upon. But in tho second place, I think it not to be assumed as certain or even likely, that had the estate beeu sold in 1859, it would havo fetched the large price at which it is contended the General must be bound to estimate it.
In these circumstances, the remedy contended for by the trustees is one which I cannot concur in. At the same time, I think that the General's pretention as to Stonebyres must have had the effect of delaying for five years the final extrication of the two estates, a delay which manifestly must have in some measure embarrassed the management of the trustees in the administration of the trustestate, and I think that the judgment of the Court I have already quoted, points at a modification, greater or less, of the rate of interest upon the sum of £25,600.
Now, instead of a great modification of the interest of this sum, I think a simpler course would be to adopt a lesser modification upon the interest of the whole capital, and I would propose that on his whole capital the General should be entitled only to interest at 4 per cont. from 1859 to 1864.
After 1864 I see no reason to allow him less than the legal interest, at 5 per cent.
I have only further to observe, that from 1859 downwards, the General must give credit for his possession of the mansion-house and house farm of Stonebyres of a fair sum as rent, to be fixed by arbitration.
Lord Cowan and Lord Neaver concurred with Lord Benhome.
Lord Justice-clerk—I concur generally in the opinion which has been given by Lord Benholme, that the trustees of James Douglas aro liable only for the actual proceeds of the estate as invested by James Douglas down to 1859, the period at which it was fixed by the Court that the estates were subject to be divided; but I differ in regard to the period between 1859 and 1864,-and I think that the same rule should be applied to that period as to the preceding, and that the same principle of accounting should regulate it. The whole estate was vested in the trustees by James M. Douglas, who acted in optima fide; and his trustees were bound to vindicate the position he bad taken up. They could not. while the question was being determined, at their own hand alter the investment; moreover, from the time of serious challenge, they, by bringing the multiplepoinding into Court, placed the administration of the estate under control of the Court. They did not act as proprietors of the estate, and they would have acted rashly if they had done so. The Court decided in 1859 that the estate of Archibald Monteith was to bo separate from James' estate; but it was not till 1864 that General Douglas elected not to take the estate of Stonebyres. The General during all this time claimed to retain possession, and to pay no more than the estate originally cost, rejecting altogether the sums expended by James. It appears to me that this claim was made in such circumstances as to paralyse the trustees. It remained uncertain whether he would take the money or the estate, and I am unable to see how the claim for interest during this period can be maintained. I feel the effect of the former judgment as somewhat different from my views; but the interlocutor of the Court does not exclude the opinion I now give.
Agent for Trustees of J. M. Douglas—Melville & Lindsay, W.S.
Agent for Judicial Factor on Major Monteith's estate—Alexander Howe, W.S.
Agents for James Douglas—Dundas & Wilson, C.S.


See also:
1. Settlement of Archibald Douglas Monteath



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