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. |
