Re Gorton
| Jurisdiction | UK Non-devolved |
| Year | 1891 |
| Court | House of Lords |
| Date | 1891 |
Administration - Executors - Assets of Testator - Power of Executors to carry on Business - Right of Executors to Indemnity - Rights of Creditors of Testator and subsequent Creditors of Executors.
A testator's business was carried on for about three years by his executors after his death in accordance with the provisions of the will and with the assent of the testator's creditors, in the interest of the creditors as well as of the beneficiaries, and was properly carried on:—
Held, that the executors were entitled (in priority to claims by the testator's creditors) to be indemnified out of the testator's estate against the liabilities which they had properly incurred, and that the indemnity was not limited to that portion of the assets which had come into existence or changed its form since the testator's death.
The decision of the Court of Appeal (40 Ch. D. 536) varied accordingly.
APPEAL from an order of the Court of Appeal (Cotton, Lindley, and Lopes, L.JJ.),F1, varying a judgment of Sir H. F. Bristowe, Vice-Chancellor of the County Palatine of Lancaster.
The following statement of the facts is taken from the judgment of Lord Macnaghten:—
John Gorton, a Manchester manufacturer, died on the 30th of December 1883.
At the time of his death he was carrying on two distinct businesses, one at Lark Hill Mills, Middleton, as a yarn dyer and polisher, and the other as a small ware manufacturer in Anvil Street, Manchester.
By his will, dated the 30th of November 1883, he appointed the respondents, Ann Elizabeth Gorton, his wife, and James William Gorton, his son, to be his executors. After a specific bequest to his wife, he gave his real and personal estate to his executors upon the usual trusts for sale and conversion, with a direction to invest the residue after payment of debts and legacies for the benefit of his wife and children. And he empowered his executors to continue any business in which he might be engaged at the time of his death, and to employ therein such part of his estate as they should think desirable.
Besides debts owing to trade creditors, and some other debts of small amount, all of which it is said have been paid, Gorton was at the time of his death indebted to his bankers on an overdraft, which was secured on his Middleton property. He was also indebted to his sister, Mrs. Caldwell, in the sum of £4000, and to the appellants as executors of one Turner, who died in December 1874, in the sum of £8487 5s. 1d.
The debt to the appellants arose in this way. The Anvil Street business, which was carried on upon a mill rented from Messrs. Birley & Co. at £272 per annum, had belonged to Turner. Gorton and a partner of his, whose interest Gorton afterwards acquired, bought it from Turner as a going concern for £19,487 5s. 1d., under an agreement dated the 25th of September 1874. £2000, part of the purchase money, was paid down when the agreement was signed. The balance was to be paid by instalments of £1500 on the 26th of September in each year. Interest at the rate of £5 per cent. per annum on the balance for the time being remaining unpaid, was to be paid half-yearly in March and September. In case of any default the whole balance then remaining unpaid was to become immediately payable. No part of the machinery was to be sold or removed before the completion of the purchase without the consent of Turner or his executors. In the meantime the machinery was to remain the property of the vendor. The business was to be carried on under the supervision of two inspectors named in the agreement, or their successors, to be appointed by the vendor, subject to the approval of the purchasers. It was provided that if the inspectors should at any time not be satisfied with the carrying on of the business, or if the business should be discontinued, they might at once enter and dispossess the purchasers and take possession of the machinery and sell it, and apply the proceeds towards the payment of the balance then due.
At the time of the testator's death, £11,000 had been paid for principal. Interest on the balance had been paid up to the preceding 12th of September. But three instalments of £1500 each were in arrear.
The estate of the testator, at the time of his death, consisted almost entirely of the assets of the Middleton business, and his interest in the assets of the Anvil Street business.
About a week after the testator's death, two of the appellants, one of whom seems to have been himself an inspector of the Anvil Street business under the agreement of 1874, called upon James William Gorton, at the testator's place of business. He explained to them the general position of the estate and the indebtedness of the testator, especially with regard to the amount due to Mrs. Caldwell, and the overdraft owing to the bank, and he pointed out to them that he and his co-executrix were then carrying on the testator's businesses as carried on by the testator at the time of his death. He represented to them that if the Anvil Street business was continued the interest on the debt owing to Turner's executors would be paid as usual, and that “he hoped after a time to pay instalments to reduce the debt.” James William Gorton says that they told him that he and his co-executrix had better continue the businesses of the testator. They deny that they used that particular expression. But it is plain that they assented to the businesses being continued, and, in fact, according to their own account, they went so far as to make suggestions in regard to their future management.
The testator's will was proved by his widow and his son, whom I shall hereafter refer to as the executors. They continued both businesses under the style of “The Executors of John Gorton & Co.” Balance-sheets of the Anvil Street business, and stocktaking accounts of the Middleton business, were regularly furnished to the appellants, and they were regularly paid interest on their debt down to the 12th of March 1887.
In August 1887 the executors found themselves unable to go on any longer, and they called their creditors together.
On the 14th of October 1887 the appellants brought an action in the Palatine Court for the administration of the testator's estate, asking for the usual accounts, and for a receiver and manager of the testator's businesses.
A few days afterwards they issued an originating summons with the object of having it declared that the book debts, stocks, and other assets of the businesses carried on by the executors ought to be applied in payment of the debts due by the testator at the time of his death, in priority to any claim for indemnity by the executors or the persons with whom they had dealt. The summons also asked for the usual administration order and the appointment of a receiver and manager. To this summons, at the instance of the Vice-Chancellor, the respondents, Gray, Riley, and Sykes, were made parties as representing the creditors of “The Executors of John Gorton & Co.”
On the 23rd of November 1887 in the action, and on the summons, the Vice-Chancellor made an order in the usual form for the administration of the testator's estate, but he prefaced the order by a declaration that all the book debts, stock, and other assets of the businesses carried on by the testator at the time of his death, and at the date of the order due and owing in respect of the said businesses or either of them or belonging to the same, ought to be applied in payment of the debts due by the testator at the time of his death, in priority to any claim of the executors for indemnity in respect of liabilities incurred in carrying on the said businesses, or to any claim of the persons with whom the executors had dealt.
On appeal by the respondents Gray, Riley, and Sykes, the order of the 23rd of November 1887 was varied by omitting the declaration made by the Vice-Chancellor, and in lieu thereof it was declared that the executors were entitled as against, and in priority to, the persons to whom the testator was indebted at the time of his death to be indemnified out of such part of the estate as had been acquired by the executors since his death against debts or liabilities incurred by them in carrying on his businesses to the full amount of such debts and liabilities, or if the executors should be in default to the estate, then to the full amount of such debts and liabilities after deducting the amount in respect of which the executors were so in default, and it was declared that the persons with whom the executors had dealt in carrying on the said businesses, and to whom they were under any debts or liabilities, were to be substituted for or subrogated to the right of the executors with regard to the said indemnity as to such debts and liabilities, and an additional account and further inquiries consequential on that declaration were added.
The appellants complain of the order of the Court of Appeal so far as it varies the order of the 23rd of November 1887, and they contend that the declaration of the Vice-Chancellor ought to be restored.
The arguments are dealt with in the judgments, and the following outline as to the point of law in question will suffice for the present report.
Mar. 12. Sir Horace Davey Q.C. and Alfred Hopkinson for the appellants:—
The assets acquired since the testator's death in carrying on his businesses formed part of his estate, and ought to be applied in satisfaction of the debts owing at his death in priority to any claim by his executors for indemnity against debts and liabilities contracted since his death. The legal assets of the testator vested in the executors quâ executors only, and could not have been taken in execution by creditors of the executors: Abbott v. ParfittF2; Moseley v....
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