Dodson v Sammell.

HIGH COURT OF CHANCERY

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Original Citation: (1861) 1 Dr & Sm 575

English Reports Citation: 62 E.R. 498

July 24, 31, 1861.

22 & 23 Vict. c. 35, s. 27. Executors' Indemnity. Leaseholds.

S. C. 30 L. J. Ch. 799; 9 W. R. 887. See Hardy v. Fothergill, 1888, 13 App. Cas. 370; In re Nixon [1904], 1 Ch. 645.

[575] Dodson v. Sammbll. July'Zi, 31, 1861.

[S. C. 30 L. J. Ch. 799; 9 W. B. 887. See Hardy v. Fothergill, 1888, 13 App. Gas. 370; In re Nixon [1904], 1 Ch. 645].

22 & 23 Viet. c. 35, s. 27. Executors' Indemnity. Leaseholds.

Fund which had been set apart out of residue to indemnify executors in respect of leaseholds of testator ordered to be paid out to residuary legatee, such indemnity, since the passing of the Law of Property Amendment Act, being no longer necessary.

The 27th section of the Law of Property Amendment Act is retrospective in its operation.

This was a petition for rehearing of a petition under the following circumstances:-

The suit of Dodson v. Sammell was an administration suit and, the testator in the cause being the owner of various leasehold properties, by the original decree an inquiry was directed as to what sum ought to be set apart out of the assets as an indemnity to the executors against liability in respect of future breaches of covenants contained in the leases. The Chief Clerk certified that 1100 was a proper sum for that purpose; and accordingly by the decree on further consideration, made in 1857, a sum of 1100 was ordered to be paid into Court, and set apart to indemnify the executors in respect of such covenants. Lord St. Leonards' Act to Further Amend the Law of Property and to Relieve Trustees (22 & 23 Viet. c. 35) having subse¡quently passed, the residuary legatee in 1859 presented a petition for the payment out of Court of the said sum of 1100, which had been so set apart, on the ground that under the 27th section of that Act an indemnity was no longer necessary. Upon that petition coming on for hearing the Vice-Chancellor, being of opinion that the 27th section of Lord St. Leonards' Act was not retrospective, refused to grant an order for the payment out of Court of the sum in question; but a similar order to the one prayed by the petition having been made in several other cases, [576] the present petition for rehearing the decree on further consideration was presented. Itappeared that the trustees had sold and assigned to purchasers all the leaseholds except one, which had been assigned to the present Petitioner, the residuary legatee, who had entered into a covenant of indemnity to the executors with respect to it.

Mr. Jessel, in support of the petition, now asked for an order for the payment out of Court of the indemnity fund, and referred to Dean v. Allen (20 Beav. 1); Waller v. Barret (24 Beav. 413); Fletcher v. Stevenson (3 Hare, 360); Smith v. Smith (ante, 384).

Mr. Glasse and Mr. Fischer, for the executors, contended that the indemnity fund should not be parted with. In the case of an action being brought by a person who was not in a position to pay costs, if the executors had no indemnity fund they might have to pay costs. They cited King v. Makott (9 Hare, 692); Fernon v. -Lord Egmont (1 Bligh, N. H. of Lords Cas. 554); Garratt v. Lancefield (2 Jur. (N. S.) 177).

Mr. Jessel, in reply.

the vice-chancellor [Sir E. T. Kindersley]. Upon this petition of rehearing the question is raised whether in any ordinary case of a suit to administer the estate of a deceased person a fund should be set apart out of his general assets to provide for the possible [577] event of a future breach of any of the covenants contained in a lease held by the deceased.

The law upon this subject is in a very unsatisfactory state. For a long time it has been the practice of the Court, where the property comprised in the lease did

1 DE. & SM. 578. DODS0N V. SAMMELL 499

not of itself furnish a sufficient security, to set apart out of the,residuary estate a reasonable sum to cover any liability which might in any reasonable probability arise by reason of a future breach.

The only principle upon which this practice could stand must have been either that it was required as an indemnity to the executor or administrator, or that it was required for the protection and benefit of the lessor as covenantee.

As to the ground of indemnity to the executor or administrator, it is difficult to reconcile such a ground with the acknowledged principle, now at least well settled, that a decree or order of the Court directing the administration and application of the assets is of itself a complete and perfect indemnity to him, provided he keeps back nothing which ought to be disclosed to the Court. That principle was strongly and justly asserted by the Master of the Rolls in Dean v. Allen (20 Beav. 1), and Waller v. Barrett (24 Beav. 413). It seems strange that the Court should think it right to set apart a portion of the estate as a supplement to that indemnity which is already complete and perfect. Indeed I cannot help thinking that an executor, acting prudently, "would desire no additional protection to that which the decree gives him, for an indemnity implies, and is an admission of, a risk; [578] it throws a doubt on the sufficiency of the protection afforded by the decree. It is difficult to see why the executor should require, or the Court should provide, any indemnity beyond the indemnity of the decree. It seems to me an anomaly to set apart any portion of the assets on the ground of indemnifying the executor or administrator.

With respect to the other ground, that it is required for the benefit of the lessor, it is true that in Fletcher v. Stevenson (3 Hare, 360) the Vice-Chancellor Wigram thought that, although the decree of the Court would be a sufficient indemnity to the executor, it was right to set apart a sufficient part of the assets for the protection of the eovenantee; meaning, of course, that the covenantee had that equity. Now, if the covenantee had such an equity, it would necessarily follow that he could file a bill to enforce it. But in King v. Malcott (9 Hare, 692), the Vice-Chancellor Turner decided that there was no such equity, and dismissed a bill filed by the lessor to enforce it; and this seems to determine that the covenantee's right to protection is a ground that cannot be maintained.

The effect of setting apart a fund to answer future breaches of covenant is to throw a great burthen upon the residuary legatee, for, instead of receiving his residue in the ordinary course, he would be kept out of a portion of it, possibly out of the whole, as long as any leaseholds of the testator were outstanding, for any period of time, how¡ever long. This is a very great evil to the residuary legatee, and should not be inflicted upon him unless absolutely necessary. Now, so far [579] as respects the protection and indemnity of the executor and administrator, it appears to me altogether unnecessary; and as to the lessor, he has no such equity.

There is, however, a technical difficulty in the way of deciding this case on the general ground, namely, that the petition does not seek to rehear the original decree. When the case came on in 1857, upon the Chief Clerk's certificate for further con¡sideration, it was a matter of course to carry out the former decree and certificate; the petition of rehearing is confined to the decree on further consideration. But there are other grounds upon which I am of opinion that the fund ought to be paid out, and that the former petition ought not to have been dismissed. The effect of the 27th section of Lord St. Leonards' Act is that, if an executor has sold the leaseholds and assigned them to a purchaser, he may, without the order of the Court, and of his own authority, distribute the assets without making provision for future breach of covenant in the leases, and shall not be subject to any liability; and surely if he does so under the direction of the Court, a fortiori he would be free from liability. He is indemnified by the Act, and therefore, so far as the leaseholds have been assigned to a purchaser, there is no ground for the indemnity. In this case the greater portion of the lease¡holds have been sold and assigned to purchasers, but there is one which was not so assigned, and which, therefore, does not come within the provisions of the Act. Now, with respect to that lease, the rent reserved by the lease is less than the rack rent; and the lease is of such a value that it is of itself a sufficient indemnity for the rent reserved under the lease. Now, under similar circumstances, in the two cases of Dean v. Allen and Waller v. Barrett, the Master of the Eolls decided that, inde-[580]-

500 IN BE CROSS 1DK.&SM.580.

pendently of any general principle, the security was sufficient, because it would be more for the advantage of the lessor to eject than to bring an action on the covenant, and therefore it was not necessary to set anything aside for an indemnity. For these reasons, I am of opinion that the fund must be released; The costs of the executors and of the Petitioner must be taxed and paid out of the fund.