John Mackenzie's Trustees - Knight v. Alexander Mackenzie's Trustees - Rutherfurd [1831] UKHL 5

UKHL
John Mackenzie's Trustees - Knight v. Alexander Mackenzie's Trustees - Rutherfurd
[1831] UKHL 5 · 1794-09-09
Three separate contracts having been entered into by copartners in the course of five years: Held, 1. That the last contract was to be explained by the first; but observed, that a recital in a deed is not operative, unless for the purpose of explaining what is doubtful; that under the contracts one of the partners was entitled to a share of profits against his copartners personally, and not merely out of the reversion of the company estate, and that he was not liable in loss in a question with his copartners. 2. That accumulation of interest at the date of the action and of the decree not allowed, in respect of mora.Robert Sharp and John Mackenzie were extensive merchants in Glasgow, trading under the firm of Sharp and Mackenzie, and had different establishments abroad. The business at home was conducted principally by Alexander Mackenzie; and on 9th September 1794 a contract of copartnery was entered into, whereby it was declared, that Alexander Mackenzie was to receive one fourteenth share of the profits, besides a salary of 100 l l . yearly; and by another contract, dated 27th November 1798, his share was raised to one eighth. Balance sheets had been docqueted in 1795, 1796, 1797, 1798, and 1799. Sharp and Mackenzie's affairs became embarrassed, and their estates were sequestrated on the 8th November 1799. A great deal of their property was situated in America, and Alexander Mackenzie was prevailed upon to go out to take the management of the affairs there. As an inducement to undertake this duty, an agreement was entered into, 6th December 1799, by Sharp and Mackenzie, which bound themselves to make payment to Alexander Mackenzie and his heirs of his yearly salary of 100 l l ., together with a share of the free profits of the trade, as the same should appear from the yearly balances made out since 1st September 1794, with interest from the date of such balances, and that so soon as they were in possession of funds or property to enable them to do so in whole or in part. Before leaving this country, Alexander Mackenzie granted a factory and commission to William Leckie and others for the purpose of carrying into effect this obligation.

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While Alexander Mackenzie was in America, several instalments were paid to the creditors, amounting in all to 14 s s . per pound on the amount of their debts. In the year 1801 John Mackenzie, in order to put an end to the sequestration, and to have the affairs of the company speedily wound up, proposed to the creditors to pay the remaining instalment of 6 s s . out of his own funds, in full of the principal of their debt, on condition of their relinquishing all claims for interest. This was agreed to; but before proceeding to carry this proposal into effect, John Mackenzie applied to the attornies of Alexander to restrict his claim to the reversion of the company estate, and to relinquish all claim for interest upon his share of the profits, in respect of the obligation which John Mackenzie had come under to the creditors. The attornies having considered the proposition reasonable, and the arrangement advantageous for their constituent, a deed of agreement was entered into on 25th September 1810, whereby it was agreed to restrict Alexander Mackenzie's claim in manner before mentioned—that the books should be balanced by John Mackenzie at 1st July 1804 —that Alexander's claim for interest should be relinquished—and that his share of the funds should be paid to him by bills at six, nine, and twelve months from the above period. On the same day, John Mackenzie wrote to Alexander, who was then in America, referring to the proposed arrangement for recal of the sequestration, but without mentioning any thing about the deed which had been executed, and adding:—
“I would stipulate for you if your claims are preferable, and it would so turn out that, after winding up the business, no more than your amount is saved, that the same be equally divided betwixt you and I, unless it shall appear I have fully as much as you; but this I will not ask if there be a sum left for me equal to what you are entitled to. You may at first view think this as encroaching on you; a moment's reflection will point out how great a gainer you become by our snatching, with much labour and difficulty, the effects from under a destructive sequestration, by which not only 15,000 l l . of interest will be saved to the estate, but also a larger sum in commission, besides all the load of charges natural to a sequestration. To wind up such an estate as ours, if continued under a ruinous sequestration, your expectations and mine of a surplus

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Alexander Mackenzie returned an answer to the letter on 4th December 1801, in which he observed:—
“As to the request you make of my agreeing to give up one half of my property in your favour, is what I cannot imagine you to be serious in. I suppose that you have not forgot, that, by our contract of copartnership, I had the full right to draw out of the company's funds my proportion of profits yearly, and, to have followed the example that was set before me, secured the same to my family; and if this had been done, would you ever have thought of asking me for any part thereof.”— As to what you say of Mr. Graham and the other gentlemen being of the same opinion with yourself, however far this may be the case, or for as much as I would revere the counsel of these gentlemen, you must excuse me, in the present instance, for reserving to myself the power of thinking and acting as appears to me to be proper. I will come under no promise nor engagement in my present situation, but will most heartily join you in realising as much as possible of our late concerns, and as speedily, too, as the nature of the business will permit, and that upon the same terms which I agreed with you and the gentlemen in management of the business before I left home.”
The same sentiments were communicated in a letter which Alexander Mackenzie wrote to Mr. Graham on 13th June 1802:—

“Mr. William Leckie has written to me, that, at the solicitation

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Notwithstanding of Alexander's refusal to accede to the terms proposed, John Mackenzie carried through the arrangement with the creditors, and on 11th March 1802 the sequestration was recalled. Shortly after this Alexander Mackenzie died on his way home from America, having previously executed a trust deed and settlement, whereby Mr. Leckie and his other attornies in this country were appointed his trustees, along with other persons therein named.In 1810 the trustees raised an action before the magistrates of Glasgow against Sharp and Mackenzie, and the trustees of John Mackenzie, and the representatives of Robert Sharp, for payment of 10,000 l l ., or such other sum, as the amount due for Alexander Mackenzie's yearly salary and annual share of the profits of the business. The trustees of John Mackenzie raised a counter action before the Court of Session, for relief of Alexander Mackenzie's share of the loss sustained in the company's transactions, and for payment of 1,000 l l . uplifted by him in America. The original action was advocated to the Court of Session, and conjoined with the action of relief. After a variety of procedure, Lord Bannatyne, Ordinary, reported both actions to the Court, who, 2d February 1821, pronounced an interlocutor, finding,—
“That the claim made for the trustees of the late Alexander Mackenzie is well founded,” and remitting “to the Lord Ordinary to ascertain the balance due to the said trustees, and to decern for payment of the same; also to hear counsel for the parties as to the demand for a decree for an interim-payment to account of such balance; and in the ordinary action at the instance of John Mackenzie against Alexander Mackenzie's trustees, assoilzie the said trustees from the conclusions of the same, and decern: Find the trustees of the said Alexander Mackenzie entitled to their expenses hitherto incurred in the said conjoined processes.”
On 11th July 1821 this judgment was adhered to.

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The trustees of John Mackenzie pleaded, that under the contracts of 1794 and 1798, there was no exemption of Alexander Mackenzie from liability for loss; that, at all events, he was to be relieved only from loss of capital; that, by the deed of 1799, he had no claim against the parties personally; that there being no reversion of the company's estate, his representatives could draw nothing.Alexander Mackenzie's trustees pleaded, 1. That the report was erroneous, because it bore that the docqueted balance sheets for the years 1795, 1796, 1797, and 1798, were not intended or fitted to ascertain the precise sums due to Alexander Mackenzie, whereas it was clear that those balance sheets were so fitted and intended, and were docqueted for no other purpose than to fix the precise sums. 2. That it was reported that the estimated amount of a share of certain alleged losses appearing as funds for 1798 ought to be deducted, whereas there ought to be no such deduction, because there had previously been made specially all deductions applicable. 3. That, while the report bore that it would be equitable to allow an accumulation of interests as at 8th October 1810, the date of the action, to 2d February 1821, the date of the decree, there ought to be no such allowance by reason of alleged mora on the part of the objectors, whereas it was established that there had been no mora. 4. And that it was reported, without evidence, that there ought to be deducted certain payments alleged to have been made to Alexander Mackenzie in 1799.Cases were ordered, and after some other proceedings the Lord Ordinary, on 25th May 1830, pronounced this interlocutor:—
“Having heard parties' procurators, approves of the accountant's reports, and decerns and ordains the defenders, conjunctly and severally, viz. John Mackenzie's trustees, qua trustees, and the trustees or representatives of Robert Sharp, to make payment to the pursuers, Mrs. Marion Kelly or Mackenzie, relict of the deceased Alexander Mackenzie, merchant in Glasgow, William Leckie, merchant in Glasgow, and Benjamin Mathie, writer there, as surviving trust

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John Mackenzie's trustees reclaimed, praying for absolvitor, or at least that it should be found premature to pronounce decree for any sum until the investigation of the affairs of Andrew Duncan and Co. should be brought to a conclusion.

TheCourt pronounced this interlocutor:—

“On security being found by the pursuers, as trustees, to answer to the defenders for the consequences that may arise against the pursuers in the accounting with Andrew Duncan and Company, adhere to the interlocutor reclaimed against, and allow the decree ad interim to be extracted, on security being found as aforesaid, and lodged in the clerk's hands; and further, find the defenders liable in the expenses incurred by the pursuers since the date of the Lord Ordinary's interlocutor reclaimed against; appoint an account thereof to be put in, and remit to the auditor to tax and report on.” *
Both parties appealed.John Mackenzie's trustees John Mackenzie's trustees .—Alexander Mackenzie had no exemption from liability for loss; and, at all events, could have no claim for profits against the other partners individually, if these profits, before they were drawn by Alexander, or while they remained mixed up with the company's funds, were absorbed by subsequent losses, and the ultimate bankruptcy of the concern. There is no evidence that under the original contract of 1794 Alexander Mackenzie was relieved as in a question with his copartners from all liability for loss. The contract of 1798, by

Footnote

* 8 S. D. B., pp. 781—1009.

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Independently of this, and according to the true construction of the contract of 1799, by which the interests of the parties were ultimately arranged, and having regard to the circumstances in which it was executed, and to the prior contracts, Alexander Mackenzie had no right to profits, except from the reversion of the copartnery estate, after satisfaction of all the company's debts and obligations,—the object of the contract 1799 being to confer upon him a preferable right over the company funds only, as in competition with the copartners, but not to create any claim against their separate or individual estates; and, therefore, as there is no reversion of the copartnery estate, the whole being swept away by the bankruptcy, there is no fund against which Alexander Mackenzie's representatives can have any claim under the contract 1799.But although these deeds are conclusive against the claim, the agreement executed between Alexander Mackenzie's attornies and Messrs. Sharp and Mackenzie superseded all the previous arrangements, and under it the accounts between the parties must be adjusted, unless it can be shown that it is not binding or effectual as against Alexander Mackenzie.But upon the supposition that the interlocutors of the Lord Ordinary and of the Court, together with the report of the accountant on which they are founded, should be supported, it is

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Alexander Mackenzie's trustees Alexander Mackenzie's trustees .—Under the contracts of 1794 and 1798 Alexander Mackenzie was exempted from liability from loss either of capital or profit, and his claim did not depend upon the existence or non-existence of company funds. By the obligation of 6th December 1799, which is a valid and subsisting deed, because the agreement of the attornies, by which it was restricted, was ultra vires and repudiated, Alexander Mackenzie had a claim for profits against his copartners personally, and such claim was not dependent on there being or not being a reversion of the company estate. The docqueted balance sheets for the years 1795–96–97 and 1798, were fitted and intended to ascertain, and did ascertain, the precise sums due to Alexander Mackenzie. Interim-decree in favour of the respondents ought to have been awarded upon these docqueted balance sheets. But assuming that the docqueted balance sheet for 1798 was not to be held as conclusive, there ought not to have been deducted the estimated amount of a share of losses on American adventures, appearing as funds in the docqueted balance of 1798, because these had been previously made specific deductions.Accumulation of interest on the debt, as at 30th October 1810, (the date of the action,) and 2d February 1821, (the date of the decree,) has not been allowed by reason of alleged mora, whereas there was no mora.Lord Chancellor .—My Lords, this question when first brought before your Lordships appeared to be involved in much greater obscurity than, upon a more attentive consideration of the arguments, and the perusal of these very voluminous papers, it proves to be. There can be no doubt, that if in any instrument, whether a bond or agreement, or any other instrument, the parties by way of recital state, that in another instrument certain things were stipulated for on the one hand, or bound to be performed on the other hand; and reference being had to that other instrument, thus imported, as it were, by way of recital, into the one in question, it is found that the other instrument does not contain this matter, the recital, however plain, does go absolutely for nothing, because a man shall not be bound by a mere matter of recital. You are to look upon the operative part of the deed. The recital is of importance, and may be resorted to in explaining

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The House of Lords ordered and adjudged, That the interlocutor complained of be affirmed.Solicitors: John Macqueen— Spottiswoode and Robertson,—Solicitors.