Scottish Court of Session Decisions

By lease between Beauchamp Colclough Urquhart of Meldrum and Byth and John Davidson, dated 23rd May 1888 and 2nd December 1889, the former let the farm of Auchnagorth for the period of nineteen years to the latter and his heirs, “excluding sub-tenants and assignees, legal or voluntary, and creditors or managers for creditors in any way or shape, unless with the consent of the proprietor.” In the lease it was declared “that this lease is granted by the proprietor and accepted by the tenant under and subject to the general articles, conditions, and regulations established by the proprietor for the tenancy of all farms on his estates of Meldrum and Byth, signed by him on the thirtieth day of January, and recorded in the books of Council and Session on the third day of February, both in the year Eighteen hundred and sixty-four … and declaring that the said articles, conditions, and regulations … shall, in so far only as they are consistent with the terms of this lease, be held to form part thereof, and be binding on the parties hereto as part of the lease in the same manner as it they had herein been verbatim inserted.” It was further contracted in the lease that “in case of the tenant not obtaining a renewal of this lease at the expiry hereof, or in the event of this lease coming to a termination at any time during the currency of the period of let, then the tenant shall be bound to leave to the then incoming tenant or to the landlord, at the valuation of parties mutually chosen, whatever manure is made after the seed time of the last crop, and shall be entitled to receive payment from the then incoming tenant or the proprietor the value of the first year's grass, and of the grain crop, and for the ploughing and rent of fallow land, and for the wire fencing on the farm, as the same shall be fixed by arbitration.”

In the articles and regulations incorporated in the said lease, the following provisions were included—“10. … No turnips shall be planted for seed unless such seed is to be used on the farm or the written permission of the proprietor be previously obtained by the tenant. The whole straw, chaff, turnips, and other green crops, and one-half of the hay, shall be consumed upon the farm, and none sold or carried off without the written permission of the proprietor first had and

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obtained … and the tenant shall be bound to lay upon the farm all the dung produced upon the same, and never to sell any produced thereon. 14.—In the event of any tenant becoming bankrupt, or being sequestrated … during the currency of his lease … the lease shall, in the option of the proprietor, become ipso facto void and null, and he shall have power brevi manu, without any process of declarator or other process at law, to resume possession of the farm at the first term of Whitsunday or Martinmas after the occurrence of any one of these events; … and the tenant and his creditors shall be bound to remove from the farm at the first term of Whitsunday or Martinmas after any one of these events shall have taken place.”

In September 1888 new farm buildings were erected by the landlord on the farm, the tenant agreeing to pay interest at 5 per cent. per annum in excess of expenditure beyond £350.

On 13th September 1891 John Davidson, the tenant, died. At the time of his death he was insolvent, and unable to pay his debts. None of the deceased's representatives desiring to carry on the farm, the landlord entered into possession of it. Thereafter the deceased John Davidson's effects were sequestrated, and on 17th December 1891 John Anderson, farmer, Auchneive, Tarves, was appointed trustee on the sequestrated estate.

By minute of reference dated 6th and 7th January 1892 the trustee in the sequestration, of the first part, and the landlord, of the second part, entered into a reference, in which, after narrating the death of the tenant, his insolvency, the appointment of the first party as trustee, the second party's position as proprietor, the decision of the deceased's representatives not to carry on the farm, the second party's possession and his agreement with the second party to acquire the subjects and effects specified at valuation, the parties referred to arbiters named to fix and determine (1) the quality of the grain crop on said farm of Auchnagorth—said crop to be threshed out by at least two threshings at the mutual expense of the parties, and the price to be the fiars' prices of the county for crop Eighteen hundred and ninety-one; (2) the value of the whole turnips on said farm; (3) the value of all the dung on said farm; (4) the value of the grass and clover seeds sown down with the grain crop of Eighteen hundred and ninety-one; (5) and the value of the wire fencing and other paling on the farm; and whatever said arbiters or oversman shall determine in the premises, the said parties bind and oblige themselves to implement and fulfil to each other in every respect.”

The valuations ascertained under the said minute of reference were as follows:—

1. Grain Crop….	£272	2	1
2. Turnips….	51	8	1
3. Dung….	8	8	0
4. Grass and Clover Seeds. .	8	16	10
5. Wire Fencing…	£362	14	6

On 25th February 1892 Mr Urquhart, the landlord, lodged a claim in the sequestration, in which he deponed that the late John Davidson at the time of his death was resting-owing to the claimant for arrears of rent (including therein the interest in the improvement expenditure agreed to be paid by him) the sum of.				£331	18	10
“Deduct—Compensating Claim, as under:—	“Amount of valuation of turnip crop, dung, grass and clover seeds, and wire fencing on the farm taken over by Mr Urquhart in terms of the lease thereof, dated 23rd May 1888 and 2nd December 1889, docquetted with reference hereto, and herewith produced,	.£90	12	5
“Estimated value of grain crop of 1891 on the farm taken over by Mr Urquhart in terms of the said lease—say 185 quarters, at £1, 5s. per quarter, . .	231	5	0
			321	17	5
“Estimated balance to rank as an ordinary claim….				.£10	1	5”

Upon this claim the trustee in the sequestration pronounced the following deliverance—“In regard to this claim the trustee finds (1) that the claimant has no power under the lease to acquire a preference to the prejudice of other creditors, and (2) that as the turnip crop, dung, grass and clover seeds, and wire fencing, and also the grain crop of 1891, were taken over by the claimant under agreement with the trustee under this sequestration, and not from the deceased, there can be no compensation. The trustee accordingly disallows the said deduction of £321, 17s. 5d., and admits the claim to an ordinary ranking of £331, 18s. 10d.”

Against this deliverance the landlord appealed to the Sheriff of Aberdeen, Kincardine, and Banff at Aberdeen, and craved “that the said deliverance may be recalled, and that the trustee be ordered to rank the appellant as a creditor on the said sequestrated estate, to the effect of entitling him to compensate his claim on the said sequestrated estate by setting off against it the sum payable by him to the trustee on the said sequestrated estate for turnip crop, dung, grass and clover seeds, and wire fencing, and also the grain crop of 1891 taken over by appellant in terms of the lease, or so much of said sum as may be required to compensate the appellant's claim, and in the event of the appellant's claim being in excess of said sum, to the effect also of entitling the appellant to an ordinary ranking in respect of such excess.”

On 4th April 1892 the Sheriff-Substitute ( W. A. Brown) pronounced the following interlocutor—“Recals the deliverance of the trustee: Finds that the appellant is entitled to compensate the amount due by him in respect of the valuation fixed under the minute of reference between him and the trustee by the arrears of rent due to him, including therein the interest on improvement expenditure agreed to be paid by the deceased John Davidson under agreement subsequent to the lease, and to

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be regarded as rent: Remits the appellant's claim to the trustee to be disposed of in accordance with the foregoing finding: Finds the trustee liable in £2, 2s. sterling of expenses, and decerns.

“ Note.—By the general regulations of the estate, which are incorporated in the lease, it is provided that it shall be irritated by bankruptcy in the option of the landlord, and in the lease itself there is a clause ‘excluding sub-tenants and assignees, legal or voluntary, and creditors or managers for creditors in any shape or form, except with the consent of the proprietor.’ The tenant died on 13th September 1891, and sequestration of his estates having afterwards been taken out, it was intimated by the trustee that he did not desire to take up the lease, and the landlord accordingly entered upon possession himself. The parties in the end entered into a reference dated 6th and 7th January last, and the question in the case is, whether the landlord is entitled to compensate the valuations ascertained under it amounting to £362, 14s. 6d. by the arrears of rent amounting to £331, 18s. 10d. The trustee rejected this view, and his deliverance was supported as sound mainly on the authority of the recent judgment of the Court in Caird (Taylor's Trustee) v. Paul, January 24, 1888, 15 R. 313. As the Judge in the Inferior Court, whose opinion was corrected by that decision, I naturally approach the question with some reserve and diffidence; but after the best consideration I have been able to give it, I have come to the conclusion that the case is not ruled by the judgment in the case of Caird, but by the principle of compensation or retention recognised in balancing accounts in bankruptcy. I do not understand that any doubt was thrown or intended to be thrown on that rule of law, the exclusion of the landlord's right of retention being rested solely on the specialty that the trustee had entered into an agreement with the landlord's representative apart from the lease, and therefore there is no concursus of debt, and credit did not exist. Here there is no agreement separate from the lease, but only a minute of reference to practical men to liquidate the obligations arising under it, and the claim for the valuations and the arrears of rent arising hinc inde on the same consensual contract, viz., the lease, the conditions of the plea of compensation are fully qualified. An attempt was made to distinguish the present case from that of Caird by the fact that here there is a Martinmas outgo, the grain crop being in the stackyard; but I do not see that that is anything but an accidental circumstance, the steps taken by the trustee in regard to the subjects of valuation not being, as in Caird's case, in virtue of a covenant which he has succeeded in negotiating with the landlord on behalf of the creditors, but in pursuance of obligations which were incumbent on him as taking up the estate of the bankrupt. No doubt he abandoned the lease, but that operated only to relieve him from future liabilities; the reference he entered into and could not escape from as taking the estate tantum et tale as it existed in the bankrupt. It was contended on behalf of the trustee that in every case there must necessarily be an agreement between the trustee and the landlord, but that is true only in the sense that that is required to liquidate the provision of the lease. In Caird's case there was something beyond that, for what was done practically amounted to waiver of the landlord's rights under the lease, and an election to contract with the trustee personally. I think that is made clear in the opinion of the Lord President, who points out that under the special agreement matters were dealt with which could not have been brought into settlement between the trustee and the landlord at the end of the lease, and that these were brought into existence while the process of division was going on, and after the bankruptcy. I take it, therefore, that the implication of the judgment is that where there is no such special agreement bringing new obligations into play the way is clear for the application of the equitable and familiar principle on which the landlord here relies. From the documents now produced it appears that the deceased agreed to pay interest on improvement expenditure on the footing that it was to be treated as rent.”

Against this interlocutor the trustee appealed to the Court of Session in terms of section 170 of the Bankruptcy (Scotland Act 1856 (19 and 20 Vict. cap. 79), and argued—This was simply an attempt to create a right similar to hypothec. A landlord's claim for arrears of rent was not good against a poinding by the creditors of the bankrupt tenant. In this case the sequestration was equal to a completed poinding in terms of section 108 of the Bankruptcy Act 1856. No preference could be constituted by a landlord's right in a lease to buy stock at a valuation at the termination of the lease— Stewart v. Rose, February 2, 1816, Hume, 229; Macgregor v. Hunter, November 21, 1850, 13 D. 90 (Lord Cunningham's opinion, p. 97); M'Gavin v. Sturroek's Trustee, February 27, 1891, 18 R. 576. Besides, in this case the landlord had departed from his rights under the lease by entering into a new agreement with the trustee. The minute of reference was wholly a new arrangement between the landlord and the trustee; its second and fourth clauses had no reference to the clause of the lease founded on. The landlord's rights were therefore based on an arrangement made after the date of the bankruptcy, and he could have no preference over the other creditors of the bankrupt— Taylor's Trustee v. Paul, January 24, 1888, 15 R. 313.

Argued for the respondent—On the tenant dying a bankrupt, the landlord in terms of the lease acquired a right to take over the grain crop, &c., at a valuation, and he had a right to do so without the consent of the trustee in bankruptcy or anyone else. The turnips under the articles and regulations incorporated in the lease were practically in the same

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position as the grain crop. By entering into possession of the farm before the date of bankruptcy the landlord had made the crops, &c., his own property— Moncrieff v. Hay, December 6, 1842, 5 D. 249. But under the lease he was bound to pay for them at a valuation, and the minute of reference was entered into by the appellant and the respondent in order to ascertain what was to be paid. In neither Stewart v. Rose nor any of the other cases quoted by the appellant had the landlord got possession of the stock before the creditors. Macgregor v. Hunter was a case of specialties, and did not bear out the abstract proposition stated in the rubric. In Taylor's Trustee v. Paul the landlord derived his rights solely from an arrangement with the bankrupt's trustee.

At advising—