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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 15
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OPINION of LORD CARLOWAY
in the cause of
JAMES HUGH HUTCHISON and
another
Pursuers
against
MARY GRAHAM'S EXECUTRIX
Defender
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Pursuers: Hayhow;
Russell & Aitken, WS
Defender: IF Maclean; Brodies WS
31 January 2006
1.
The Pleadings
[1] In 1998 the late Mary Graham was the tenant of a local
authority house situated at 5 Longstone
Crescent, Edinburgh. In terms of sections 61 and 62 of the Housing
(Scotland) Act
1987 (c 26), she became entitled to buy the house at a substantial discount
from its market value. She decided to do
this and arranged a loan of г17,150 from the Dunfermline Building Society to
finance the purchase and to pay associated expenses. Mrs Graham was the grandmother of the second
pursuer. Although not admitted by the
defender, the pursuers aver that they had reached an oral agreement with Mrs
Graham whereby they would become guarantors of the loan and make the repayments
to the building society. In return, Mrs
Graham would grant a standard security over the property in the pursuers'
favour postponed to the securities in favour of the building society and the
local authority, which would have a claim to certain sums were the property to
be sold within a period of three years. Part
of this agreement was that Mrs Graham would bequeath the property to the
pursuers.
[2] The agreement was reduced to writing in a Minute of Agreement
executed by the pursuers on 7th, and by Mrs Graham on 9th,
December 1998. Since the dispute between
the parties centres on the construction of the terms of this document, it is
important to record its terms at some length.
It commences with a preamble. This notes Mrs Graham's intention to buy
the house for г16,000; being the market value less a discount of г24,000. It then records the pursuers' agreement to
repay, by monthly instalments, the building society loan. It proceeds to narrate the existence of a
standard security in the pursuers' favour, that: "it is proper that the
obligations of [Mrs Graham] secured by the Standard Security and conditions
applicable thereto should be reduced to writing" and that:
"THEREFORE the parties hereby agree as
follows:
FIRST The
security constituted by the said Standard Security shall be intended to secure
(One)
repayment to the [pursuers] of the aggregate amount of those monthly payments
made by the [pursuers] to the...Dunfermline
Building Society...
(Two)
payment of interest thereon at the rate of Two per centum per annum above the
base lending rate of the Royal Bank of Scotland plc applicable from time to
time
(Three)
repayment of all fees and outlays incurred by the [pursuers]...in connection with
the purchase of the said subjects,
(Four)
repayment of all premiums paid by the [pursuers] in respect of the insurance of
the said subjects...
(Five)
repayment of all sums expended by the [pursuers] in connection with the
upgrading repair or maintenance of the subjects...
SECOND It is understood that [Mrs Graham] shall have the right to
reside in the subjects during the whole of her lifetime without payment of any
rent or interest (except in the circumstances above mentioned)
THIRD [Mrs
Graham] ...binds and obliges herself not to dispose of the subjects by either inter
vivos or mortis causa deed or
otherwise to any individual except the [pursuers] or without the agreement of
the [pursuers] and [Mrs Graham] hereby confirms that she has made a Will
leaving the subjects to the [pursuers] and that she will not make any
subsequent Will altering this particular provision; In the event of [Mrs Graham]
disposing of the subjects to any individual without the agreement of the
[pursuers] or otherwise contravening conditions of this agreement then she
binds and obliges herself to instantly repay all sums due to the [pursuers] and
the [pursuers] ...bind and oblige themselves not to require payment of any of the
sums secured hereunder unless [Mrs Graham] shall dispose of the subjects to any
individual as before mentioned without their consent or the [pursuers] are
disinherited as before mentioned
...
FIVE [Mrs
Graham] as agreed undertakes that as soon as practically possible after the day
of Ninth September Two Thousand and One to convey the subjects to the
[pursuers] without any consideration being paid but subject to the [pursuers]
granting a Right of Occupancy/Licence to Occupy/Liferent
in favour of [Mrs Graham]
...
SIXTH In
construing these presents [Mrs Graham] shall include her executors and
representatives whomsoever; and [the pursuers] shall include their executors
and representatives whomsoever...".
The Standard Security was
executed by Mrs Graham on 9 December
1998, when title to the property was also taken from the local
authority. Five days beforehand, she had
executed a will appointing the second pursuer as her executrix and bequeathing
the property to the pursuers.
[3] The terms of the Minute of Agreement began to be implemented,
with the pursuers making the monthly payments and paying the insurance
premiums. The pursuers aver that the second pursuer also looked after Mrs Graham
during this time. However, on 4 July
2002, Mrs Graham executed a new will purporting to revoke all prior
wills, appointing her daughter Dawn Stoehrer, then
living with her in the property, as executor and leaving the residue of her
estate to her. This bequeaths the house to her daughter and disinherits the
pursuers. The pursuers were unaware of
this will until the death of Mrs Graham on 18 August 2002.
[4] The pursuers seek a declarator that
the provision in the original will bequeathing the property to them was
irrevocable and that the revocation in the subsequent will did not effect it.
Alternatively, they seek reduction of the purported revocation.
2. Submissions
[5] The cause was debated on the Procedure Roll on the defender's
plea to the relevancy of the pursuers' averments. The defender sought dismissal of the action
on the basis of that plea. She accepted
that it was competent for a testator to bind himself to bequeath subjects in a
particular way. The question was whether
Mrs Graham had done that in the circumstances here. The answer to that depended upon the proper
construction of clause THIRD of the Minute of Agreement. The pursuers contended that this clause
rendered the original request irrevocable.
The defender contended that it did not.
As a generality, a testator is entitled to revoke any bequest, even if
it has been declared irrevocable (Meston et al : Wills and Succession, Stair
Memorial Encyclopaedia Vol 25 para 735; Mackenzie
Stuart : The Law of Trusts p 133; Lord Ross et al : Trusts, Stair Memorial Encyclopaedia Vol
24 paras 35-36). That entitlement could
be lost where the testator has contracted with another person not to revoke the
bequest (Meston et
al, (supra) para 736; Mackenzie
Stuart pp 133-134). Whether a testator
has so contracted depends upon the intention of the parties as revealed by the
terms of their agreement construed as a whole.
Clause THIRD commenced by providing that Mrs Graham bound herself
not to dispose of the property without the pursuers' consent. If the clause had said nothing else, the
pursuers' position may have been irresistible.
But the clause did not end there.
It did not stipulate irrevocability but provided for and anticipated
what was to happen if Mrs Graham did dispose of the property either inter vivos or mortis causa. In the event of her
contravening the terms of the Agreement, including the provisions not to dispose
of the property or to alter her will, the pursuers would be entitled to
repayment of all the sums that they had expended in relation to the
property. The Agreement allowed disposal
other than to the pursuers and provided an equitable remedy in that event, protected
by the standard security. The pursuers
had not sought to enforce that remedy.
If the Court considered that each party's construction were potentially
valid, a proof before answer might be held to examine the "matrix" in which the
agreement had been made. However, in
that respect, the actings of the parties after the making of the agreement
(i.e. the payments made in pursuance of the agreement and the assistance
offered by the second pursuer as carer) were irrelevant to the task of construction
(Cameron (Scotland) v Melville Dundas
2001 SCLR 691 (note), Lord Hamilton at para 30). There were no other averments of a "matrix" in the pursuers' pleadings which might be
established by a proof.
[6] The pursuers accepted that the defender's outline of the
general law was accurate. However, they
argued, the central obligation of the Minute of Agreement was to transfer title
in terms of clause FIFTH. It was against
that background that clause THIRD had to be construed. It could be broken down into three
parts. The first was the undertaking not
to transfer the property to anyone other than the pursuers without
consent. It also provided expressly that
the bequest in the will already executed could not be altered. That was, then, a contractual provision. Taken along with the provision in clause
FIFTH, the obligation at the start of clause THIRD covered the period from the
date of the Agreement until the date at which a transfer was to be made, after
the expiry of the discount period. The
second part of clause THIRD provided a remedy to the pursuers in the event of a
contravention of any of the terms of the Agreement. The third part stipulated that there was to
be no repayment unless there was a transfer or disinheritance. It restricted
the circumstances in which repayment could be sought. However, it did not restrict the general
remedies of enforcement otherwise open to a party for breach of contract. The repayment provisions were simply one
option open to the pursuers in the event of default. If the Court had difficulty in resolving the
issue, a proof before answer could be held to examine the factual "matrix". In that regard, as Professor McBryde had said in his commentary to Cameron (Scotland) v Melville Dundas (supra),
subsequent conduct was not always irrelevant. The pursuers had no preliminary
plea relative to the defences but, as a primary position, they did seek decree de plano. If the Court favoured the pursuers'
construction, but considered that such a decree required a plea, the cause ought
to be put out By-Order to enable one to be added by amendment.
3.
Decision
[7] Mrs Graham was entitled, in her second will, to revoke the
terms of the first will unless she had contractually bound herself not to do
so. The contract is reduced to writing
in the Minute of Agreement and the issue of whether she did so bind herself
must turn upon a construction of clause THIRD of that Minute. There are no averments of any disputed
surrounding circumstances, which could assist in that construction and which
might require proof. The "matrix" around
the Agreement is not in dispute. It is
important to observe at the outset that clause THIRD is phrased on the
assumption that Mrs Graham might decide not to convey the property to the
pursuers either mortis causa or inter vivos. Should she implement that decision then, the
Agreement recognises, she would be acting in breach of its terms. Should that occur, the Agreement provides
that the pursuers are entitled to a specific remedy. In some cases,
contractually stipulated remedies can be seen as supplementing those at common
law. In others, they can be seen as a
substitute for them. Which situation
applies will depend upon ascertaining the intention of the parties at the time
of contracting by looking at the meaning of the words they employed in the
context of the contract as a whole. Where
a particular breach averred is anticipated by an Agreement and a specific
remedy is provided in that event, the contractual remedy must be seen as being
intended as a substitute for, and not as a supplement to, those at common law.
Thus, in the situation here, where there has been disinheritance as
particularly provided for in the Agreement, the pursuers are entitled, but only
entitled, to repayment of the sums expended by them on the property, together
with interest at what might be regarded as a reasonable commercial rate of two per centum per annum above a clearing
bank base level. The pursuers ought therefore to recover all the money that
they have expended as a result of Mrs Graham's anticipated revocation of
her will. They will obtain a reasonable
return on that money in the form of the interest. The pursuers have security for the relevant
sums over the house and the executrix will therefore require to
make the appropriate payments in order to release that security. It follows from this interpretation of clause THIRD
that the Agreement was not intended to render, and did not render, the
provision in the first will irrevocable.
Rather, it anticipated revocability and provided for what would happen
in that event. The pursuers will not gain what they thought they might have as
a result of the Agreement, but they should not lose any money either. It follows also that, even if the pursuers
had attempted to enforce it, Mrs Graham could have declined to transfer
the property in terms of clause FIFTH, electing instead to terminate the Agreement
and to suffer the stipulated consequences for doing so.
[8] In these circumstances, the defender's first plea-in-law must
be sustained and the action dismissed.
