Barrett v Barrett and Others (Civil Case No. 22 of 1940 (O.S.)) [1940] EACA 29 (1 January 1940)

ORIGINAL CIVIL

BEFORE SIR JOSEPH SHERIDAN, C. J.

IN THE MATTER OF GEORGE RUSSELL MAYERS (Deceased) and

IN THE MATTER OF THE TRUSTS OF THE HORACE RUSSELL MAYERS MEMORIAL

between

RUPERT WILLIAM BARRETT as the Surviving Executor and Trustee of the Will of George Russell Mayers (Deceased), Plaintiff

$and$

RUPERT WILLIAM BARRETT, ARTHUR ALEXANDER LEGAT, ROBERT HENRY MATHEWS. ERIC GEORGE MAYERS and GEORGE BERESFORD STOOKE as Trustees of the Horace Russell Mayers Memorial. Defendants

Civil Case No. 22 of 1940 (O. S.)

Settled Fund—Mortgages—Deficient Security—Capital and Income—Apportionment.

By his will George Russell Mayers, deceased, devised the residue of his property to Trustees on trust to pay the income arising therefrom to his widow for life and after her death to stand possessed of the same for his children.

By an Order of the Court, dated the 26th June, 1933, approving a compromise entered into between the Executors and Trustees of the said will on the one hand and the Trustees of a Charitable Trust established by the deceased on the other hand it was provided that the payment of the Charitable Trust Fund (£30,000) be made by such instalments and at such times as the Executors and Trustees of the will might in their sole discretion consider feasible without undue loss to the estate of the deceased or undue hardship to the life tenant of the estate. It was further provided that the sum of £30,000 or such portion as might from time to time remain outstanding should bear interest at the rate of 5 per cent per annum from the date of the death of the deceased until payment.

By a further Order of the Court, dated 10th May, 1935, sanctioning and confirming a composition between the Executors and Trustees of the said will on the one hand and the Trustees of the Charitable Trust on the other hand it was provided that the liability of the estate for interest already accrued and to accrue due on the Charitable Trust Fund shall be considered as exclusively charged against and payable out of the accumulated arrears of income due to the estate and such further arrears as may accrue from time to time.

The portion of the estate in this Colony consisted for the most part of agricultural mortgages and the accumulated arrears of income due to the estate at the 30th April, 1935, on foot of these mortgages amounted to Sh. 286,851/62.

Since the 30th April, 1935, as a result of mortgage suits and compromises an aggregate of Sh. 190,804/30 was realized from nine mortgages in respect of principal moneys and interest aggregating Sh. $294,013/27$ , of which Sh. 199,622/08 represents principal money.

The surviving Executor moved the Court for the determination of the question arising out of the Order of the Court dated the 10th May, 1935:—

Whether the aggregate sum of Sh. 190,804/30 received by the estate of the deceased as the result of such suits and compromises in respect of the nine mortgages aforesaid should be applied-

(i) first in payment (so far as the same will extend) of the principal amount owing and thereafter in payment (so far as the same will extend) of the overdue interest: or

(ii) first in payment of overdue interest and thereafter in payment (so far as the same will extend) of the principal amount owing; or

(iii) on the basis that principal and interest are to be abated *pro rata*.

Held (13-3-40).—That the principle laid down in In Re Askinson, Barbers' Company v. Grose-Smith (1904 (2) Ch. 160) applied and that the apportionment of the amount realized by the mortgages as between the surviving executor and the Trustees of the Charitable Trust should be in the proportion which the amount due in respect of arrears of interest bears to the amount due for capital.

Mathews for the Plaintiff.

Shapley for Life Tenant.

JUDGMENT.—This case is in my opinion governed by the decision in In Re Atkinson, Barbers' Company v. Grose-Smith (1904, 2 Ch. 160). The headnote to that case is: $-$

"Where a fund is settled upon tenant for life and remaindermen, and is invested in accordance with the powers of the settlement upon a mortgage which proves to be insufficient for the payment of principal and interest in full, the sum realized by the security ought to be opportioned between the tenant for life and the remaindermen in the proportion which the amount due for arrears of interest bears to the amount due in respect of the capital debt."

Under the will of George Russell Mayers his widow is in the position of the life tenant and the testator's children in the position of the remaindermen. Schedule B to the affidavit of the Executor and Trustee shows the result of the realization of nine mortgages and as in the case of Atkinson the proceeds proved to be insufficient for the payment of principal and interest. The question I am asked to decide is how much of the sum realized is to be apportioned to principal and how much to interest. I answer the question by quoting the passage of Vaughan Williams J. at pages 165 and 166 of his judgment in Atkinson's case:—

"I will venture to enunciate, not a calculation, but a principle here which one ought to apply in these cases, and that principle is, that there being a security for principal and interest, and there having been a loss, one must take care that there is rateable equality in the incidence of that loss. Now I proceed to make the calculation which follows upon that principle, and I will take the very words of In re Moore (54 L. J. Ch. 432, 434): 'The apportionment of (the sum to be dealt with) will be in the proportions which (the amount due for capital) and (the amount due to the tenant for life for arrears of interest) bear to one another'."

Applying this principle the respective amounts of principle and interest can easily be worked out. Mr. Shapley on behalf of the life tenant invited me to consider the case of Smith v. Law Guarantee and Trust Society Ltd. (1904, 2 Ch.

569. I have done so and find that the circumstances of that case were very different. The decision in that case turned in the first place on the construction to be placed upon certain orders made by the Court. It was held that the effect of the orders was to leave it open as to whether certain payments to debenture holders should be regarded as on account of principal or interest—if towards interest then there ensued a liability for income tax. In the course of the realization of the securties it became clear that it was a matter of indifference as between the debenture holders and the mortgagors as to whether certain payments should be appropriated to interest or principal, the estate being insolvent and there not being sufficient for payment in full. In these circumstances as against the contention of the Crown in respect of a claim for income tax that the sums should be dealt with as interest the Court held that the debenture holders were entitled to say: "This estate is insolvent; it is to our interest now to have these sums appropriated, if they have not already been appropriated, to capital, and we ask the Court to do this."

The costs will come out of the estate of the deceased.