Scottish Court of Session Decisions

Andrew Clark Penman, motor carriage builder, Ayr and Dumfries, pursuer, brought an action against Mrs Helen Mossman or Mackay, Ayr, defender, concluding for declarator “that the pursuer has validly exercised an option competent to him under and in terms of the lease entered into between the defender … and the pursuer … to purchase from the defender as at the term of Whitsunday 1922 a property situated in Ayr … of which the subjects let by the said lease situated at 15 Beresford Terrace, Ayr, form a part, all on the terms and conditions set forth in the said lease.”

The parties averred, inter alia—“(Cond.2) By lease dated 20th and 25th February 1913, entered into between the defender with consent of her husband on the one part and the pursuer on the other part, the defender let to the pursuer the said subjects situated at 15 Beresford Terrace, Ayr, for the space of ten years from Whitsunday 1913 at the rent of £120 per annum. The said lease excludes sub-tenants and assignees, legal or conventional, except with the written consent of the proprietrix. It also provides that the pursuer shall continue to carry on his business as motor agent and repairer, &c., in the premises. It further provides that if at any time during the currency of the lease the pursuer shall contravene any of the prohibitions or conditions of the lease the defender ‘may in her option put an end to this lease.’ It further provides by clause 8 thereof as follows:—‘In the event of the proprietrix during the continuance of this lease desiring to sell the property of which the subjects hereby let form a part, consisting of front building of two storeys and attics, garage, offices, and workshop behind and garden attached, she shall first offer the same to the tenant at the price of £4500 sterling, and failing his acceptance of her offer she shall be entitled to dispose of the property to any other party, subject always to the rights of tenancy under this lease. Should the property not be sold as above, the tenant shall during the continuance of this lease have the option of purchasing same at the said price of £4500 on giving the proprietrix six months’ notice before a term of Whitsunday of his intention so to do.’ ( Ans. 2) Admitted. The lease is referred to for its terms. The said lease provides in article 2 thereof—‘The tenant shall not during the currency of this lease leave the said premises or any part thereof vacant, and shall continue to carry on his business as motor agent and repairer, &c., therein’; and in article 3 thereof—‘If at any time

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during the currency of this lease the tenant shall contravene any of the prohibitions or conditions hereinbefore or after written … then and on the occurrence of any of these events the proprietrix shall be entitled not only to recover from the tenant all loss and damage she may thereby sustain, but also and in addition thereto may in her option put an end to the lease.’ The lease further provides by article 9 thereof as follows:—‘The tenant binds himself and his foresaids to remove from the premises hereby let at the expiry or earlier termination of this lease without warning or process of removing … but without prejudice to the proprietrix's right to take legal proceedings for then removal,’ (Cond. 3) In 1920 the pursuer made an arrangement with his brother Maxwell Penman, who carried on business as a motor car manufacturer at Castle-Douglas and Dalbeattie, for the formation of a private limited liability company to take over the assets and rights of the businesses of the pursuer and his said brother. The said company was incorporated on 18th June 1920 under the name of A. C. Penman Limited, and the business carried on by the pursuer at 15 Beresford Terrace, Ayr, was thereupon transferred to it.… Quoad ultra the defender's statements in so far as not coinciding herewith are denied. ( Ans. 3) Admitted.… The said transfer operated as an assignation of the said lease, and the rights of the pursuer thereunder did accordingly thereupon cease and determine. (Cond. 4) No formal intimation of the transfer of the said business was sent to the defender, but she was well aware of it and took no objection until December 1920. The defender carries on a business in premises adjoining those let to the pursuer, and her household have access through the garage to a garden in the rear of the premises. The rent due at Martinmas 1920 was paid by the limited company by cheque and was accepted without question. Business advertisements by the company appeared in the local newspapers subsequent to June 1920. With reference to the defender's explanations in answer it is admitted that there is a separate access to the said garden, and that the said cheque was delivered to the defender. Quoad ultra the defender's explanations so far as not coinciding herewith are denied. ( Ans. 4) Admitted that no intimation of the transfer of the said business was sent to the defender, that defender carries on a business in premises adjoining those let to pursuer, that a cheque signed ‘ p. A. C. Penman, Ltd., John S. Penman,’ was received by defender in payment of the Martinmas 1920 rent, and that in December 1920 she took objection to the presence of the said company on the premises. Quoad ultra denied. Explained that the usual access from the house to the said garden is separate from that referred to in the condescendence, that the said cheque was delivered to her at her house accompanied by an invoice in name of pursuer only, and that the presence of the word ‘Ltd.’ on said cheque was unnoticed by the defender, and that not until after the receipt of a letter by defender's husband, dated 10th December 1920, and signed ‘ pro A. C. Penman, Ltd., James B. Penman,’ was the said transfer in any way brought to the notice of the defender. Not known when or what business advertisements by the company appeared in the local newspapers subsequent to June 1920. (Cond. 5) On or about 13th December 1920 the defender's husband, on behalf of the defender, had a meeting with the pursuer and stated that the pursuer had contravened the lease by turning the business into a limited liability company. He said that he was not making any difficulties about the contravention but asked for an increase in the rent. The pursuer promised to consider the matter, and after so doing wrote to Mr Mackay on 23rd December in terms of a copy letter, which will be produced, stating that as it would take some time to make arrangements he thought it would be better for him to intimate formally his intention to purchase the county garage property in terms of the lease. On the same day the pursuer's solicitors on his behalf formally intimated to the defender that the pursuer intended to purchase the subjects at the term of Whitsunday 1922 in exercise of the option conferred upon the pursuer by the eighth paragraph of the lease. A copy of the said intimation will be produced. The defender's statements in answer, so far as not coinciding herewith, are denied. In particular, it is denied that at the meeting of 13th December 1920 the defender's husband stated that he claimed and reserved defender's right to exercise her option to put an end to the lease. ( Ans. 5) The meeting of 13th December 1920 is admitted, and that defender's husband at said meeting pointed out to pursuer that the limited company had no right to occupy the premises and that pursuer had contravened the lease. He claimed and reserved the defender's right to exercise her option to put an end thereto, failing an arrangement between the parties which he then proposed. The defender admits the receipt of the said letter and the intimation of 23rd December 1920, which are referred to for their terms. Quoad ultra denied. (Cond. 6) On 27th December 1920 the defender's a gents replied to the said intimation alleging that the pursuer bad contravened the conditions of the lease by disposing of his business to a limited company, and that the lease itself was broken in 1914, and intimating that the defender's rights ‘in consequence thereof are reserved. There was in fact no breach of the lease in 1914, but in that year a verbal arrangement was made between the parties whereby the pursuer obtained possession of an additional part of the property upon payment of an addition of £20 yearly to the rent. Certain alterations were made in order to give the pursuer occupation of the said additional premises, and it was further understood between the parties that if ever the pursuer exercised the option competent to him under the lease he would pay the cost of the said alterations in addition to the purchase price of £4500 agreed upon in the lease. The pursuer's option as contained in the lease remained and remains unaffected, but he has all along been and is

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willing to carry out the understanding above mentioned. ( Ans. 6) The letter of 27th December 1920 is referred to for its terms. The verbal arrangement referred to is admitted. Quoad ultra denied. (Cond. 7) Following on the foresaid correspondence further negotiations took place between the parties, but they came to nothing. On 1st March 1921 the defender's agents sent to the limited company a formal intimation that failing their removal from the premises belonging to the defender and ‘presently illegally occupied by you at 15 Beresford Terrace, Ayr, within two weeks from this date, an action of ejection will be raised against you.’ On or about 5th March 1921 the pursuer had a meeting with the defender's husband, when the latter stated that as the lease had been broken he claimed a payment of £500 in cash, in consideration of which he said the pursuer would be permitted to sit on at the current rent and complete in May 1923 the option which he had exercised. With reference to the answer, the letter of 1st March 1921 is referred to for its terms. Quoad ultra no admission is made. ( Ans. 7) Admitted that negotiations took place as alleged. The correspondence is referred to. On said 1st March 1921 the defender's husband on her behalf wrote to pursuer stating that as the latter did not think it worth while coming to an arrangement he was to act on defender's legal rights. This was an intimation of an intention to exercise the option, and was an exercise of defender's option to terminate the lease already claimed, subject to a settlement between the parties. The intimation of an intention to eject is admitted, and referred to for its terms. Admitted that at the meeting of 5th March 1921, terms on which the defender might consent to the lease being acted on, and to allow pursuer to sit on and exercise his option, were discussed. No arrangement was come to. Quoad ultra denied.… (Cond. 10) The defender maintains that the pursuer has not validly exercised his said option to purchase said premises, and the pursuer believes and avers that she intends, if successful in the said action of ejection, to endeavour to dispossess the pursuer of the said subjects. The pursuer has validly exercised the said option and is entitled to continue in possession of the premises as tenant until the term of purchase.… ( Ans. 10) Admitted that defender maintains that the pursuer has not validly exercised his option to purchase said premises, and intends to dispossess the pursuer of the said subjects. Quoad ultra denied. Explained that in any event in view of the option in favour of the defender, which she has exercised and exercises, to put an end to the lease in terms of article 3 thereof, the pursuer is precluded from carrying out his intention of which he has given notice to purchase the subjects at Whitsunday 1922, and that the pursuer has amitted his right to exercise the option under the said lease.”

The pursuer pleaded—“1. The pursuer having validly exercised the option competent to him in terms of the said lease, decree of declarator should be granted as concluded for. 2. The defences being irrelevant, decree should be granted de piano.”

The defender pleaded, inter alia—“1. The averments of the pursuer being irrelevant and insufficient to support the conclusions of the summons, the action should be dismissed.… 4. The said contract being terminable at the instance of the defender, and she having duly exercised her right to terminate the same, and the whole rights and obligations in favour of the pursuer under said lease being concluded, the defender should be assoilzied from the conclusions of the summons. 5. Separatim—The pursuer having incurred an irritancy of the said lease prior to giving notice on 23rd December 1920 of an intention to purchase the subjects, and the defender having duly exercised her option to terminate the tenancy, the said notice is inept and the defender should be assoilzied. 6. Separatim—The pursuer having contravened the terms of the said lease, and being in consequence thereof bound to remove from the said premises prior to the expiration of the six months' notice of an intention to purchase the property, never acquired or could acquire any right to purchase the same under the terms of the said lease, and the defender should be assoilzied. 8. The defender having founded upon her rights in respect of the said breach of contract, both prior to and at the time of said notice of 23rd December 1920, the said rights are in no way affected by the said notice. 9. The pursuer having incurred a conventional irritancy of the said lease, is not entitled to purge the same. 10. The said lease having been actually or in effect assigned to the said company as at the transfer of the said business, the contract between pursuer and defender therein contained did thereupon ipso facto come to an end.”

On 26th January 1922 the Lord Ordinary ( Sands) granted decree as craved.

Opinion.—“The pursuer became the tenant of certain premises in Ayr under a lease granted by the defender in 1913 for ten years to Whitsunday 1923. The lease contained a stipulation that if the defender should at any time during its currency desire to sell the premises she should be bound to offer them to the pursuer, who had a right of pre-emption, at a price of £4500. On the other hand if the pursuer wished at any time during the currency of the lease to buy the premises, he might do so at the said price on giving notice to the defender six months before a term of Whitsunday. The lease contained a stipulation prohibiting the pursuer from assigning it. Such attempted assignation, however, did not ipso facto bring the lease to an end, as it was in the defender's option whether she should irritate it.

In 1920 the pursuer entered into an agreement with his brother for an amalgamation of businesses and the carrying on of this amalgamated business as a limited company. This company entered into possesssion of the premises here in question, and the defender maintains that this was in effect an assignation of the lease. In December 1920 the defender was aware of

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what had been done. She did not forthwith exercise the right to irritate the lease. But she pointed out to the pursuer that the assignation was a contravention, and suggested an arrangement for an increased rent. Upon 23rd December 1920 the pursuer gave formal notice in terms of the lease of his exercise of his right to purchase the premises at Whitsunday 1922. The defender maintains that this notice was ineffectual because under the lease the option to purchase was given to the tenant, and the pursuer having done what was equivalent to an alienation from himself of the lease was no longer tenant. I do not think that this contention is sound. The defender had not recognised the assignation, and unless it was so recognised it was null and the pursuer was still tenant. The defender puts the matter upon bar. The pursuer, she says, is barred from maintaining that he had the rights of a tenant. There might be something in the contention if the pursuer, having assigned the lease, had taken up the position that he was entitled to do so—that the assignees were now the tenants. But the pursuer did not take up this position.

The pursuer was still tenant under the lease. The notice was in conformity with the lease, and accordingly the pursuer became the purchaser of the subjects as at Whitsunday 1922. The defender, however, maintains that the pursuer's right as purchaser was forfeited on the irritancy of the lease of which the defender gave notice upon 1st March 1921. The irritancy of a contract, however, operates from its date and does not affect rights which have already been completed under it at a prior date. The defender appeals to the well-recognised principle of law that a party who is in failure in the discharge of his obligations under a contract cannot enforce the the terms of that contract against the other party. But this rule does not imply that a party who at some stage has broken some stipulation of a contract has thereby forfeited all his rights under or derived from the contract. The measure of the rule I take to be that the party who is in breach and persisting in the breach cannot insist on fulfilment by the other party. That, however, does not seem to be the situation. In the view that it was effectually irritated the contract of tenancy came to an end upon 1st March 1921, and in that view I do not see how it can be maintained that the pursuer as being in refusal to fulfil his part of the contract is barred from insisting in rights which were completed during its subsistence. On the other hand, if the contract of tenancy be not regarded as at an end the pursuer now offers to fulfil it according to its terms.

The infringement in respect of which the defender claimed right to irritate the lease was committed before the notice of purchase was given. But I do not think that this affects the question. It seems to me that the case would have been on the same footing if the infringement had taken place after the notice but before the term of entry under the purchase, and the defender had then irritated the lease. The defender must make good that it was a condition—precedent of the completion of the purchase that the lease should not be irritated before the term of entry on sale. In judging whether it can be so held I think regard must be had to the consideration of how far the option of purchase was interwoven with the lease. That there was a certain relation between the two there is no doubt. The option of purchase was given to the tenant under the lease, and it was to be exercised during the subsistence of the lease. But on the other hand it was not an ancillary obligation, but was of a separate and independent character. I was referred to the case of Rafferty v. Schofield, 1897, L.R., 1 Ch. 937, which very much resembles the present. There, as here, there was a covenant of tenancy, an irritancy, and an option to purchase on notice. The tenant had become exposed to the risk of irritancy when his notice to purchase was given, but the irritancy was not declared until after the notice had been given. It was held that, as there was no condition-precedent to the exercise of the option of purchase that the defendant should not have committed any breach of the conditions of tenancy, the option to purchase was well exercised and a binding contract thereby made for the sale and purchase of the property, and that the termination of the leasing part of the agreement by the notice given to the defendant for breach of its conditions did not destroy or affect the contract of sale created by the exercise of the option to purchase.

There has been no renunciation of probation, but both parties invited me to decide in their favour on their pleadings. For the reason I have indicated I am of opinion that the pursuer is entitled to decree as concluded for with expenses.”

The defender reclaimed, and argued—The option to purchase had not been validly exercised. (1) The pursuer had not at the time the status of tenant, and had no right to exercise the option. Under the assignation the assignees were tenants under the resolutive condition of the proprietrix consenting, while the only right which the pursuer had in the tenancy was subject to the suspensive condition of the proprietrix refusing the assignees without irritating the lease. Neither of these conditions had been purified. The proprietrix had not waived her right to terminate the lease by entering into negotiations upon the basis of a conditional recognition of the assignees, and when she did exercise the irritancy it operated retro to the date of the infringement— Dobie v. Marquis of Lothian, 1864, 2 Macph. 788 ( vide opinion of Consulted Judges and opinions of Lord President and Lord Deas); Rankine on Leases, pp. 697, 698; Bidoulac v. Sinclair's Trustee, 1889, 17 R. 144, 27 S.L.R. 93. By failing to carry on his business in the premises the pursuer had ceased to be tenant. He had incurred a conventional irritancy which was unpurge—able and operated ipso facto. (2) Esto that notice to purchase had been given, it was not effectual. The meaning of article 8 of

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the lease was that the acquisition by purchase must take place during the continuance of the lease, whereas the lease had been terminated by the defender before the acquisition under the notice could take place. (3) The pursuer could not insist on the defender performing the contract while he himself was in breach of an important part of it— Turnbull v. M'Lean & Company, 1874, 1 R. 730, 11 S.L.R. 320; Dingwall v. Burnett, 1912 SC 1097, 49 S.L.R. 882; Rankine on Leases, p. 327. The case of Rafferty v. Schofield, 1897, 1 Ch. 937, which the Lord Ordinary had followed, was inapplicable. There the infringement was of a simple building condition, and the irritancy would have had a penal effect. The only bearing of that decision on the present case was that the exercise of the option was intimated before the landlord terminated the lease. Mere precedence in time could not, however, be decisive. Further, in that case the lease and the option to purchase had been treated as separate contracts, whereas the Scotch rule was to treat all the stipulations in the lease as one contract.

Argued for pursuer and respondent—(1) The pursuer was tenant when the notice to purchase was given. He and not the assignee was the person bound by the lease, and he remained so until the landlord accepted the assignee or terminated the lease. Dobie v. Marquis of Lothian only decided that the consent to the assignee operated retro. There was no authority for the view that the irritancy did so. (2) The defender's contention that the option was not exercised during the continuance of the lease meant that an irritancy incurred after the exercise of the option would enable the landlord to cut down the purchase. The correct interpretation of article 8 was that the notice concluded the agreement of sale, the date being that of the notice. The option to purchase had therefore been validly exercised by the pursuer as tenant during the currency of the lease and could not be cut down by the proprietor subsequently taking advantage of the irritancy. There was a concluded agreement from which neither party could withdraw. The contention that the irritancy operated ipso facto was not founded on authority. The question was one of construction—Gloag on Contract, p. 783. There was nothing in the lease from which such a result could be implied, and if the parties had intended the irritancy so to operate they could easily have said so. In Bidoulac v. Sinclair's Trustee the agreement was essentially different. (3) The pursuer though himself in breach of the contract, was entitled to found on it so long as the defender in knowledge of the facts delayed to take advantage of the breach—Bell's Principles, sections 70, 71. If one party did not take advantage of the other's breach, the contract still subsisted and either party might found on it. Here the defender had entered into negotiations in the knowledge that the pursuer might exercise the option. There were really two contracts here without any natural or special connection. If the irritancy of the lease operated retro that could not affect the contract of sale— Rafferty v. Schofield, 1897, 1 Ch. 937; Woodall v. Clifton, 1905, 2 Ch. 257, per Romer, L. J., at page 279. (4) In any event the irritancy here was of a penal nature, the effect of which was always in the control of the Court, which was slow to enforce an irritancy which would cause hardship to a party who was prepared to carry out the substantial part of the contract— Forsyth and Johnston v. Kennedy, 1708, M. 7255; Hannan v. Henderson, 1879, 7 R. 380, 17 S.L.R. 236; Cassels v. Lamb, 1885, 12 R. 722, 22 S.L.R. 477.