SUPREME COURT.

Otago Witness, Issue 2111, 9 August 1894, Page 14

SUPREME COURT.

IN BANCO.

Thoksday, August 2. (Before his Honor Mr Justice Williams.)

HILLS AND OTHERS (TRUSTEES AND EXECUTORS OV TUB WILL OF THE LATE JOHN JONES) V. ISAAC AND OTHERS.

Mr Qeo. Cook appeared on behalf of the Eccles trustees and the beneficiaries of the Meadowbankestate ; Mr F. R. Chapman, with Mr HoskiDg, appeared for the trustees of the will ; Mr Sim, with Mr Eraser and Mr Woodhouse, for the counter-claiming defendants, Eliza Isaac and others ; Mr Solomon for the defendant Rupert Isaac; and Mr C. Mouat for the infant defendants.

In this case, which was heard on June 25 and succeeding dajs, his Honor delivered judgment as follows :—: —

It was admitted that the covenant entered into by Mr Jones in the lease to Mr Bell, as assigns were named in it, bound the reversion into whoever's hands it came. Before, therefore, the will was made the liability for the breach of this covenant had been not only made a burden upon the land, but had become incident to the land J itself, so that future owners of the land would not merely take the land subject to a burden which imposed no personal liability upon them, but would themselves, in their capacity of owners, be liable to be sued for breach ot the covenant. Mr Jones if he had liked could have framed the covenant in such a way that the reversion would not have been bound. As he did not so frame it his original intention must be taken to have been that the liability for the breach of this covenant was to be incident to the reversion. The lease was dated on the 2nd September 1868 and the will was signed on the 20th December. I think there is no doubt that at the time the will was signed Mr Jones believed that nothing more would have to be done to ensure the performance of this covenant. Apart therefore from the lease itself and from anything that may be gathered from the terms of the will, no intention can be attributed to Mr Jones that the co.->t of completely performing the covenant or the damages for the non-performance of it should be borne by any one fund in exoneration of any other. He did not anticipate that there would be anything to be paid by anybody. If Mr Jones had at the date he made his will conveyed his property to a purchaser in fee the liability for the breach of the covenant on the Ist September 1869 would undoubtedly have fallen on the purchaser, nor would the purchaser under the ordinary covenants which occur in a conveyance in fee have had any recourse to Mr Jones. The will contains a specific devise of this property, and, ordinarily, specific devisees take the devised property with the burdens incident to it ; though they have a right to be exonerated from charges upon the property devised which are not iucident to it. The devise, through it does not mention the lease, is, as the lease was then in existence, a devise of the reversion, and the liability of a breach of this covenant is not a mci c charge or encumbrance, but is incident to the nature of the thing devised just as much as the right to receive the rent under the lease is incident to it. The devise was to trustees upon trust for sale and conversion, with a power to postpone the sale, and the proceeds of the sale and the rents aud profits of the land until sale \\ ere i ettled upon certain trusts. If the trustees, the owners at law of the reversion, chose to hold it until the liability for breach of covenant oiTiured, of courbe as between Mr Bell and themsi-lve^. they would be liable. Nor is the fact that tin; land was devised in this way any iudicilinn of il >i intention by the testator that the reversion Hitcitu-ally devised wa& not to bear any burden that might, bo iucident to it. What, however, was maiiily relied on as an indication of intention that Meadowbank should be exonerated was the devise of the residuary real and personal estate of the testator upon trust, amougst other thiiigN, to j,ay debts. No doubt a liability arising from a breach of this covenant is within such a trust. (Morse v. Tucker, 5 Hare 79 ; Bermingham v. Burke, 2 Jo. v. Lat., 699). The ca&e of Hawkins v. Hawkins (13 CD., 470) is, however, a diiect authority that a liability for damages for breach of a covenant in a lease which arose from the default of the testator in his lifetime, but the right of action in respect of which accrued only after his death, is not, as between the specific aud residuary legatees, a debt within the meaning of such a trust. The decision in the case of Hawkins v. Hawkins seems to me to be inconsistent with and in effect to overrule the earlier case of Marshall v. Holloway (5 Sim. lflb"). This latter case is unsupported by any other authority, aud was ducided by a single judge. Hawkins v. Hawkins was a decision of the Court of Appeal, consisting of three judges, one of whom was Sir G. Jcssel. If Hawkins v Hawkins was rightly decided it covers pretty nearly the whole ground in the present case. As to the question whether the covenant could or could not have been completely performed between the day of the death of the testator in Match 18(39 and the Ist September, the riay on which the right of action accrued for breach of the covenant, evidence was adduced at the hearinp. By consent the statement prepared a*; the beginning of IS7O, which formed the c.se for the opinion of counsel in England, was admitted In that statement a question is put in the following way :—*' Are the executors iv th.\t character liable, seeing that theru \v:is no bruich of the covenant in the testator's lifetime, a,ul that_ tin titittee* miijhl haie perfunned it l/etucrii th'< time of hit, death and the It-t September li>o'K" 'ihe other evidence brought forward left this matter iv doubt, but the view which was evidently taken at the time by the ? Arties ought in niy opinion to turn the ecale. find therefore an a fact that the covuujnt might havo been so performed. Looking, however, at the principle on which Hawkins v. Hawkins was decided, 1 do not think the above question i.s really a material one. For the above reasons aud

for the reasons given on the former occasion, I am of opinion that the liability for breach of this covenant was incident to the nature of the estate specifically devised, so that the estate was not entitled to be exonerated from it in the absence of an intention expressed in the will, and that there is no sufficient expression of such an intention. If then the Meadowbank estate was not entitled to be exonerated by the residue from liability for the breach of this covenant. What a'e the rights which the parties entitled to the corpus of the residue have against the trustees and the owners of Meadowbank, and what rights have the trustees against the latter ? The parties entitled to the corpus being infanta, no question can arise as to the Statutes of Limitation, either as between them and the trustees or as between them and the owners of Meadowbank, in respect of any claim which they could make independently of the trustees, although of course as between the trustees and the owners of Meadowbank the question might arise. I do not think it can be said that in the action of 1887 the trustees properly represented the infants, or that the infants, not being parties to the action, are bound by the decree in it as against the trustees. The trustees were, in respect of the residue, accounting parties to the infants (see May v. Newton, 34 CD., at p. 3 ( JD). The trustees were plaintiffs in the action, and they sought and obtained leave to apply a part of the residue in a manner which it now appears was wrongful and to the prejudice of the infants. To this the infants, if they had been made parties to the action, would have had the right to object. They would have had the right to say, " This money in your hands is our money, the money you borrowed to pay the Bell award in 1871. You could and ought long ago to have raised from the Meadowbank property. This property is still in your hands, and if you want to repay the moneys advanced you can raise them from that property, but we object to your applying our money in that way." Not only, therefore, were the trustees accounting parties to the infants, but they asked for and got behind their backs a decree hostile to them. In such circumstances it is impossible to hold the infants bound by the decree of 1887. Further, at the time of this decree, and for some months after, nleadowbank still remained vested in the trustees. It had been devised to them upon trust for sale and conversion. If it was tneir duty to recoup to the residue sums paid in respect of Meadowbank out of the Meadowbank estate, then the decree of 1887 in no way affected that duty. Any sums that as between the residue and Meadowbank were properly chargeable on Meadowbank, could after that decree have been raised by the trustees either by the sale of Meadowbank, under the trust for sale, or by their refusing to convey Meadowbank to'the beneficiary until such sums were paid. As it was, the trustees in 1888 conveyed Meadowbank to the beneficiary without receiving the sums with which it was chargeable. If, therefore, it was the duty of the trustees to have resorted to the Meadowbank estate to recoup this money to the residue, the trustees have not perforated that duty, and at the suit of the infants are liable to be charged in their account with the sum in question. That such was their duty if Meadowbank was not entitled to be exonerated is, I think, unquestionable. The trustees held Meadowbank for one set of cestui que trusts under the will and the residue for another who were infants. It was their duty to administer all the property of which they were trustees in accordance with the terms of the will, and to see that the different cestui que trusts got what they were entitled to, and that one set should not be charged with a burden that would properly be borne by the other. If the amount was properly payable out of residue in the first instance, it was nevertheless the duty of the trustees within a reasonable time afterwards to have replaced it. It appears to me, however, that so long at anyrate as Meadowbank remained vested in the trustees the infants could, as againßt the beneficiaries of Meadowbank, have insisted on their right to be recouped out of that estate. If the trustees had paid the sum due to Mr Bell for the breach of covenant out of their own proper moneys they would have had the right, as against the beneiiciaries of Meadowbank, to have retained that sum if they had sold, or to have insisted on it being paid before they handed over the property. Like all other trustees they would have had a lien on the trust property for all moneys properly expended in the execution of the trust. The iuf.intf, howevur, would have the right to say: " The money the trustees expended on the Meadowbank property was our money, and we claim, as against the beneficiaries of that property, to stand in the shoes of the trustees." But the infants have rights other than those they could enforce through the trustees. They could bring before the court the trustees who held the several trust properties and all the cestui tine trusts. The court could suroiy then decide what burden was to be borne by each property, and give effect to its decisions. Nor does the Statute of Limitations appear to me to apply even as between the trustees and the beneficiaries of Meadowbank— at any rate up to the time the trustees handed over the property. The trustees never had a personal right of action to recover the money. 'Ihe case of in re Corn-tier (34 CD., 137) conclusively shows that Mrs Nelson, the tenant for life, was not liable for it ; nor could it have been recovered by the trustees in an action against the persons entitled in remainder. The property was vested in the trustees upon trust for sale and conveisiou, with power to postpone the sale. The trustees had in their own hands the remedies I have mentioned to recover the money, and the btatut« of Limitations does not appear to me to affect these reme'lies. What, then, has been the efluct of the conveyance by the trustees of Mr Jones's will to the Kccles trustees ' Ihe former trustees, in January I&SS, conveyed Meadowbuak, at the request of Mus Nelson, who had become absolutely eDt<t!ert, to certain trustees for the beLulit cf her half brothers and sisters and her stepfather The comejancc as between Miss Nekon and the^o latter tiustees was voluntary, she having m Llluct given away the property. The property still remains vested in these trustees. If, therefore, there v. as any right against the property which could have been enforced, if the property had remained vested in Miss Nelson alone, that right can still be enforced. The tiustees of Mr Jones's will held the property upon trust for bale and conversion, but Miss Nelbon elected to take it unconverted. They held the

property upon trust for Miss Nelson, but subject to a lien in respect of money paid on account of the property out of residue. This lien they held upon trust for the persons entitled to the residue, who were infants. Had the infants then come before the court, they could have compelled the recoupment out of the property of. the money in respect of which this lien existed. That being | the state of affairs, the trustees, not being aware of the existence of this lien upon the property, conveyed it absolutely to the nominees of Mies Nelson, in whom it still remains vested. No doubt the mistake of the trustees was a mistake of law, and had they not been in the position of trustees, or had all parties assented to the conveyance, then it might well be that all rights against the property would be gone. Where, however, a trustee holds a property upon trust for one cestui quc trust under a will, but subject to a lien or charge in favour of infant cestui que trusts under the same will, and conveys it by mistake free from the charge, I do not think the infant cestui qua trusts can be considered as parties to the mistake, or that their right to follow the property so long as it remained in the hands of the other cestui quo trust would be prejudiced. Before the conveyance the infants would in an action against the trustees or the other cestui qua trusts have had the right to claim against the land, and the mere conveyance from the trustees to the other cestui qua trust could not divest them of that right. (See Harris v. Harris, 29 Beav., 110 ; Lister v. Pickford, 34 Beav., 576.) That property subject to a trust can be followed so long as it can be identified, and has not been conveyed to a purchaser for value without notice, is of course clear. As regards Mrs Isaac, who is entitled to the income of the residue, she certainly has no claim either as against the trustees or as against the Meadowbank property in respect of any arrears of that income. The trustees of the will intended in the first instance, under advice obtained in the colony, to satisfy any damages for breach of the covenant with Mr Bell out of Meadowbank itself. A case, however, was submitted in 1870 by Mr Isaac, on behalf of Mrs Isaac, to eminent caunsel in England, 'Aho advised that Meadowbank was not liable for these damages, but that they should be borne by the residuary estate. This opinion was brought before the trustees, and the trustees acted upon it, without objection from Mrs Isaac, from 1870 until after this action was commenced in 1893. The present counter-claim was, as the pleadings show, itself originally started on the assumption that the residuary estate was liable. It claims that the proceeds of sale of the iron store and shipping shares shall be distributed as by the terms of the will they are directed to be j distributed in the event of a deficiency of residue, and if the Bell award was not chargeable on residue there was no deficiency. Furthermore, the decree in the action of 1887, to which Mrs Isaac was a party, is based on the liability of the residue to be charged with this amount. Where there is a doubtful question of construction of instruments, and trustees and cestui que trusts have assented for 23 years to a particular interpretation, and the income of the trust property has been throughout allowed to be enjoyed in accordance with such interpretation, one cestui que trust cannot turn round upon the trustees or upon the other cestui que trusts, allege that the income has been wrongfully paid or received, and claim to recover it back. (See Clifford v. Cockburn, 3 M. and X.. pp. 76-100 ; Downes v. Bullock, 25 Beav., 54 ; Rogers v. Ingram, 3 CD., 351). As to the question of wilful default, I think there is a sufficient charge for it in the pleadings ; and further, that any objection to its being now raised has been waived. The trustees therefore will be charged in their accounts with the amount paid in respect ot the Bell award, and there will be a declaration that this amount is a charge upon the Meadowbank estate, in the hands of the Eccles trustees, and ought to be raised and paid out of that estate. The question of costs was reserved. MACKENZIE V. MACKENZIE. Motion for judgment. Mr Sim, with Mr Thornton, appeared for the plaintiff, Francis Wallace Mackenzie, of Wellington, medical practitioner, and Mr Hosking for the defendant, John Robert Mackenzie, of Glenkenich, station manager, as representing the trustees and executors of tbe will of the late Francis Andrew Wallace Mackenzie (Captain Mackenzie), deceased. A decree was made in December 1893 declaring Captain Mackenzie trustee for Dr Mackenzie of £2500 as from 1870. In April last an order was made for inquiries, and now motion was made by plaintiff for final judgment. After the examination of one witness and legal argument, his Honor reserved judgment.