Scottish Court of Session Decisions

By disposition dated 9th June 1853 Thomas Anderson of Langdales and Robert Anderson, one of his sons, who were pro indiviso proprietors of Langdales, sold to James Thomson Rankin two-thirds pro indiviso of the whole coal and ironstone, &c., in and under and unwrought from the mineral field of Langdales and Luckenhill. The consideration stated in the disposition was the sum of £800, and also a further sum of £200 to be paid by the purchaser to the sellers out of “the first and readiest of the profits which may be derived from the said minerals.”

Thomas Anderson of Langdales, who died in 1869, by disposition and settlement conveyed to his son Thomas Anderson, the pursuer of the present action, his half pro indiviso of the said lands of Langdales, reserving to the said James Thomson Rankin and his heirs and assignees the minerals conveyed by the foresaid disposition.

Robert Anderson, by disposition dated 30th May 1857, sold to Thomas Waugh, Slamannan, and Mrs Elizabeth Waugh, his spouse, his half pro indiviso of the said lands, substituting them in his full right to call for implement of the whole stipulations prestable in the said disposition of the minerals. Under this disposition Thomas Waugh and his wife were infeft, and on the 16th May 1873 they disponed to the present pursuer their half pro indiviso of the said lands.

By assignation dated 2d and 20th October 1880 the whole children of the deceased Thomas Anderson, and one of them, Robert Anderson, as his heir-at-law, conveyed to the pursuer, Thomas Anderson the younger, above mentioned, absolutely and irredeemaby, their whole interest under the foresaid disposition of minerals granted by Thomas and Robert Anderson in favour of James Thomson Rankin, and, inter alia, the sum of £200 already mentioned, and their whole right to demand the portion of the price still unpaid. Thomas Anderson, the pursuer, was executor-dative qua one of next-of-kin to his father. James Thomson Rankin had died intestate in 1861, and was succeeded by his son Patrick Rankin, who died on 10th January 1880, and was succeeded by Mrs Alston and Anne Rankin, the present defenders, as his general disponees. During the lifetime of James Rankin the minerals had never been wrought, but a lease was entered into by his son Patrick Rankin in 1872 for a period of twenty-one years from Martinmas of that year. By the terms of this lease various annual sums were to be received by the landlord between the years 1876 and 1881 in name of rents, or, in the landlord's option, of lordship.

In this action the pursuer claimed payment of the sum of £200 as profits earned under the lease, and due to him in respect of the clause in the original disposition giving a right to £200 out of “the first and readiest of the profits.” He averred that the profits claimed by the pursuers and their authors greatly exceeded £200. Alternatively he asked an accounting of the rents and profits derived by the defenders from the minerals, and payment of such sum, not exceeding £200, as should be due to him on such accounting.

The total sum received for rents from Whitsunday 1876 to Martinmas 1881 was shown by a statement produced with the defences to be £877, 17s. 7d. The defenders averred—“No interest or return was received from said minerals or for the said sum of £800 originally paid by James Thomson Rankin therefor from 1853 till 1873, and the statement produced shows the whole return that has yet been received. The whole of the said minerals were valued as at January 1880, so far as belonging to the said Patrick Rankin, and the value did not amount to over £570. No profits whatever have been derived from the minerals

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originally purchased by James Thomson Rankin in 1853.”

The defenders pleaded, inter alia—“(3) No profits having been made from the said minerals, and the defenders having stated the whole sums received therefrom, the defenders should be assoilzied. (5) The defenders are not bound to pay any sums to the pursuer till they have received from the said minerals the original price of £800, with the interest thereon at the rate of five per cent. from 1853.”

On the 17th June 1882 the Lord Ordinary ( Kinnear) pronounced the following interlocutor:—“Finds that in terms of the disposition in favour of the now deceased James Thomson Rankin, set forth in the condescendence, the defenders are liable to make payment to the pursuer of the sum of £200 out of the profits which may have been or may yet be derived by them or their predecessors from the minerals thereby conveyed: Finds that in ascertaining the amount of such profits the defenders are entitled to deduct from the whole sum received by themselves or their predecessors the whole sum of £800 paid by the said James Thomson Rankin as the price of the said minerals, with interest thereon at five per cent. since payment: Appoints the case to be put to the roll for further procedure, and grants leave to the pursuer to reclaim if so advised.

“ Opinion.—The predecessors of the pursuer were proprietors of two-thirds of the minerals in and under the lands described in the condescendence, and in June 1853 they sold these two-thirds to the predecessor of the defenders in consideration, as the disposition bears, of £800 immediately paid, and of a further sum of £200 out of the first and readiest of the profits which might be derived from the said minerals. The parties are agreed that for many years the purchasers and their representatives received no return from the minerals, which indeed were not wrought until the year 1874. But in 1872 they were let, along with the remaining third, for payment of certain rents or lordships to be divided between the pro indiviso proprietors in proportion to their shares in the subject of lease. It is not disputed that since 1873 the defenders and their predecessors have received the proportion of rents applicable to the pro indiviso share in question, nor is it disputed that if, upon taking into account the whole sums so received, the purchasers and their representatives, including the present defenders, can be shown to have made £200 or more of profit upon the transaction, the defenders are bound, in terms of the stipulation expressed in the conveyance, to pay that sum to the pursuer, with interest from the date at which it can be shown to have been earned. But the parties differ as to the meaning of the term ‘profits’ as used in the clause in question, and they are agreed in asking a judgment upon the question of construction, as to which they are at variance, without further inquiry into the facts.

The pursuer says that profit means the excess of the return in any year over the working expenditure of the year, without taking into account the original cost of the mineral strata from the working of which the profit is to be earned. The defenders, on the other hand, maintain that the word profit must be construed with reference to the transaction between the parties, which they say must be regarded as a transaction of purchase and sale upon which no profit can be earned until the subject purchased has been resold by the purchaser for something more than he paid for it. I think the defenders are right. The contract does not give the seller a charge upon profit earned de anno in annuM. The mineral strata are sold out and out, and the seller stipulates that in addition to the fixed price already paid he shall have a further sum of £200 as soon as the purchaser has derived so much profit from the transaction. There is no stipulation as to the manner in which the minerals are to be worked for the purpose of ascertaining the profit earned. The purchaser might have worked them himself for a period of years, or he might let them, or, without working the minerals at all, he might have sold them in situ for a fixed price, and the stipulation as to a further payment out of profit would be equally applicable to either of these events. Now, if he had sold the minerals in situ as he bought them for £1000 or more, it seems to be clear that a profit of £200 would have been earned, and that he would have had to make the stipulated payment out of that profit, and I think it equally clear that if he had sold for less than £800 he would not have sold at a profit at all, but at a loss, and that nothing would have been payable as out of profits which never were earned. I cannot see that it should make any difference as to the effect of the condition if instead of selling the whole mineral strata unwrought he had thought fit to work the minerals and sell them piece by piece as they were brought to the surface, and if after working them for a year or a period of years they were found to be exhausted after yielding a return of less than £800 upon the whole, it does not seem to me that he would have made a profit on the adventure any more than if he had sold the whole in situ for a similar sum. Nor can it vary the result that he has let them to a mineral tenant, since a mineral lease is simply a sale out and out of so much of the minerals as can be worked during its subsistence. I find nothing in the nature of the transaction or in the terms of the contract which enables me to refer the word ‘profit,’ as employed in the clause in question, to anything else than the entire adventure in which the pursuer had engaged, and so reading the clause I think the purchaser cannot be said to have made any profit out of the mineral strata which they have purchased until they have repaid the prime cost with interest.”

The pursuer reclaimed, and argued—Whenever the defenders began to work the minerals with a return then profits began to come in. By the terms of this disposition the pursuer was entitled to be paid out of the first earnings. The Lord Ordinary had proceeded upon a wrong basis by assuming that profits upon the transaction are the same as profits on the minerals. If that view were right, the true profit could not be ascertained until the minerals were worked out, for there might be profit one season and loss the next.

Authorities—Lindley on Partnership, i. 786 and 791; Rishton v. Grissel, 1868, L.R., 5 Eq. 326.

Argued for defenders—The pursuer attempted to import into the word “profits” the element of time. “Profits” is a flexible word, and there is nothing in the deed about periodical ascertainment. The word “profit” occurs here in a deed of sale, and the question can only arise after the

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sale has taken place. The working of minerals is really a piecemeal re-sale. Some regard must be paid in a case like this to the capital sunk in the purchase and to the depreciation of the subject. This action was in every respect premature.

The pursuer admitted by minute that the sum of £877, 17s. 7d., stated by the defenders to have been the total sum received for rents to Martinmas 1881 was the sum truly received by them.

At advising—