*CHAPTER V.

ON THE SALE OF REVERSIONARY INTERESTS.

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1. In discussing the subject of investments as usually adopted by insurance companies the purchase of reversions must not be overlooked. To such a purchase the ordinary rules as to the mutual rights of the contracting parties, do not apply; but the case is beset by one important difficulty peculiar to, and inherent in this particular contract; namely, that an obligation lies upon the purchaser, at the time at which the reversion falls into possession, to show that he has paid a full and adequate consideration; and the vendor has been held entitled to file his bill to set aside the sale, and call upon him to prove it. This rule, arising in the first instance from the protection thrown by the Court over expectant heirs, has been also extended to other persons selling reversionary interests. Hence great difficulty arises in supporting purchases of property of this nature. The same rule is, moreover, applicable when the purchase is of a reversionary sum in the nature of a post obit, as where the property upon which such a sum might be charged, is itself sold to a purchaser.

2. The point to be ascertained is, that there has been no fraud or imposition, either expressly proved, or implied from the inadequacy of the price; and this must be done by showing that the full value, or as it has been explained, that the market value was given. (a)

A bona fide sale by auction is always sufficient; such a sale, it is said, being the means of ascertaining the value as nearly [*227] as possible; for the sum that a thing will fetch in the market, is the sum which the thing is worth, and therefore negatives the imputation of fraud. But this principle, of couse, does not apply where the auction is used to cover a private bargain,(b) and post obits were in one case set aside where sold by auction, advertised to take place without reserve.(c) Where the sale is by private contract the whole question is opened; no specific rules of valuation are laid down in the books, but every case has been ultimately referred to its own peculiar circumstances.

3. In setting aside a sale the Court will have regard to anything like oppression, or the absence of fair dealing, on the part of the purchaser; and even to the fact that the vendor has not had proper advice, as where the solicitor of the purchaser has acted for both parties; but even assuming that there is no positive fraud or evidence of improper conduct, the adequacy of the consideration must still be proved. The fact that the solicitor of the vendor is himself the purchaser, might alone be the ground for setting aside a sale; (d) but this equity is not peculiar to sales of reversionary property; and the same remark applies where the

(a) For the authorities proving these propositions, see Sug. Ven. p. 314, et seq. 11th edit. (b) Shelly v. Nash, 3 Mad. 232.

(c) Fox v. Wright, 6 Madd. 111. (d) Cutts v. Salmon, 16 Jur. 623, Ld. C.; Shallcross v. Weaver, 15 Beav. 272.

purchaser is in any fiduciary position towards the vendor; as, for example, trustee for sale of the property. Where there are no objectionable circumstances, the question as to the adequacy remains simpliciter; and the absence of any such circumstances does not render it unnecessary to prove it. In considering any such case, it must be remembered: (1) that the question is to be decided with reference to the circumstances existing at the time of the contract, and not to the event; (2) that the state of the money-market at the time is to be duly regarded; (3) that the Court will *weigh all the evidence produced, which will for the [*228] most part consist of declarations as to the nature and state of the property, and the age and health of the lives upon which the reversion depends, and the opinions of actuaries and auctioneers or surveyors, as to the value.

A distinction has been made between the opinions of actuaries on the one side, who have been supposed to have been able to depose only as to the theoretical value; and those of auctioneers who have been supposed to speak of the appraised or market value, to approximate to which latter is the ultimate object of the Court. The opinions, however, of either class it will be found, are not received as positive evidence that the market value was any particular sum, the Court not undertaking to ascertain any such value; but are applied to the particular sale, to ascertain whether the consideration actually was, or was not less than the market value.

4. With regard to the opinion of surveyors a difficulty has always been felt by the Court, which looks, it is said, "with suspicion at the evidence of value derived from the mere opinion of surveyors, unsupported by any other circumstancee:"(e) and Lord Lyndhurst once observed, that he had been so long accustomed to courts of justice, and to evidence of that desciption-he had seen so much of its flexible character, and its means of adapting itself to the interest of the party on whose behalf it was given-that he placed little reliance upon evidence of this nature.(ƒ)

Great pains have been taken to shew that the valuation of an actuary, or rather that the value, as it has been said, calculated by the tables, is not conclusive. It has been considered that, however true the principles upon which the actuary proceeds as regards average questions, the exceptional conditions of the particular case may upset all his calculations. Such would be the infirmity of health of the tenant for life. Thus, in a case in the House of Lords now the leading case upon the sub

[*229] ject, the appellant, being in 1825, 43 years of age, and tenant in tail, subject to the life estate of his father, who was then 79 years of age, and being in great distress for money, in consideratoon of the two sums of 60007, and 12,0007. paid to him in 1825 and 1827, sold two reversionary sums of 12,000%. and 20,0007., payable in the event only of his surviving his father, and charged them upon the reversion of the settled estate. Fines were levied and, in 1828, a recovery was suffered, with the concurrence of the tenant for life, subject to whose life-interest and a joint power of appointment the estates were limited to the appellant in (*) Cockell v. Taylor, 15 Bear. 114.

(ƒ) Small v. Attwood, You. 491.

fee. On the death of the tenent for life, the bill was filed to set aside the sales of the reversionary sums; and it was referred to the Master, to inquire whether, under the circumstances, they were their fair market values, and, after examining six witnesses, actuaries, and auctioneers, he found that they were so. The report was confirmed by the Lord Chancellor in Ireland, and the decree by the House of Lords on appeal. The Lord Chancellor (Lord Cottenham), repudiated the idea that there was any such rule as that the Court has only to look to the value of the reversionary interest calculated according to the tables, or that Sir William Grant intended to lay down any such rule in Gowland v. De Faria. "Such a rule," he said, "would make it impossible for an expectant heir to dispose of his interest at all;" that under it the lives are supposed to be of average value; but the life in question might be extraordinarily good, (g) or an extraordinarily bad one; one which is likely to last beyond the usual time, or the contrary; and how, then, could it be right to establish a rule not applicable to the particular case, but applying to a majority of cases collected together, and to make that [*230] rule govern an individual case, to which it might not apply at all ?(h)

5. Assuming the lives, however, to be of a fair average quality, it has then been said, that it is perfectly well known that reversions upon sales, even by auction, fetch, on an average, only two-thirds of the sum at which they are valued in the tables. When, therefore, the evidence tendered was the valuation of an actuary, at the sum of 9281. 8s., and the actual price given was 6307., the Court refused to set aside the sale. Chief Baron Alexander observed, he did not dispute Mr. Morgan's valuation, but the price put by the actuary could never be procured; in fact, the price set was the arithmetical value. Now, no man would part with his ready money, and all the advantages which his power over it confers, in exchange for a future interest, without some compensation beyond the dry arithmetical value of it. To set the bargain aside would be, in effect, to decree that no valid bargain for a reversion could be made, except by auction; and he did not know how any other sale of such an interest could be sustained, unless judges proceeded on the same principle as he did this would be a very inconvenient restraint on the power of owners of such property. A private sale was, no doubt, sometimes an imprudent exercise of that power; but in many situations, and under circumstances of no unfrequent occurrence, it was wise and provident. Every case should turn on its particular circumstances; and he thought there were none in the present, which according to sound sense, or to any established course of precedent, affected it.(?)

In another case where the bill was filed by the purchaser, the reversion appears to have been one-eighth of 25,1327. 17s. 6d., 31. per Cent.

(9) It would be a curious problem to be solved by the joint experience of the reversionary interest companies, how far the right of selection, as it is termed, exercised against them by the vendors and their connexions, overbalance the benefit derived from compulsory sales.

(h) Lord Aldborough v. Trye, 7 Clark & Fin. 436. (1) Headen v. Rosher, 1 M'Clel. & You. 89.

Consolidated Bank Annuities, and 32507. 37. per Cent. Reduced Bank Annuities, and 20007. cash, receivable on the decease of the survivor of a gentleman of 62 years of age, and a lady of 65 years of age; but subject to a deduction of 30007, cash to be raised on *the death of [*231] the gentleman. It was valued, on the part of the plaintiff, by Mr. Charles Farebrother, the auctioneer, at 5307.; and by Mr. James Abbott at 5007. On the part of the defendants, by Mr. Charles Ansell, the actuary of the Atlas Life Office, at 8477. 11s.; by Mr. Morgan, the actuary of the Equitable at 8557. 8s.; by Mr. Charles L. Hoggart, the auctioneer, at 9407.; and by Mr. Wyatt, a land-agent and surveyor at 8907. These valuations assumed the stock at 561 and 568 per cent. respectively, the market price on the day of the sale. The two latter witnesses, however, were of opinion that, having regard to the aspect of the money market and the then state of Europe, the stocks should have been taken at 60, in which case their valuations were respectively increased to 10187. and 10007., the actual price given was 5507., and Lord Lyndhurst C. B. supported the sale. It turned out at the trial that the 20007. was not included in the sale, and on this account his lordship thought that one-eighth should be deducted from the valuations. He said: "There are valuations on the one side making it 5307. and 5007., adding them together the sum is 10307., which divided by two makes an average 5157., from which one-eighth being taken, reduces it to 4507. Then on the other side taking Morgan's valuation at 855l., and Ansell's at 8477., they make together 17027., which divided by two makes the average 8517., taking one-eighth from which reduces it to 7447.; so that the average on one side is 7447., and on the other 450, which give 5977. as the average of the whole, or just 477. more than the price actually paid." His lordship concurred in, and restated the opinion of Sir W. Alexander; and laid great stress on the facts that the vendor was 25 years of age at the time of the sale, and had had the advice and assistance of his own solicitor; that there had been no fraud and imposition on the part of the purchaser; and that the case rested entirely on the adequacy of the consideration.(h)

6. The Courts have not, however, fallen into the snare *of as

[*232] suming as a rule, that two-thirds of the actuary's value is the

market value. On the contrary, the rule is, that the market value must be given, and the valuations are received as evidence from which it may be ascertained. This, as the true rule, may be deduced from the cases already cited; but in a very late case it was laid down more distinctly, although it was applied with such strictness as almost to cast a doubt upon the possibility of any sale by private contract being supported. In 1846, Mrs. Edwards, being then 38 years of age, was tenant for life in reversion, after the decease of a lady aged 74, of certain real estate at Reigate. In that year the reversion of one portion of the property, consisting in part of a pottery, was sold to the defendant for 2507. In 1848, the residue, consisting of a house and land let on lease for 21 years, commencing in 1840, was sold for 500l., and an additional sum of 50%. if

(h) Potts v. Curtis, You. 543.

the tenant for life in possession should die within 10 years.

A bill filed

to set aside the sale for inadequacy of value, was dismissed at the Rolls; but was brought on again on appeal before the Lords Justices. Lord Cranworth considered that the preceding case of Aldborough v. Trye following the previous authorities, clearly established that the purchaser of a reversionary interest, or at all events, the purchaser of such an interest from an expectant heir, or from a person standing in the situation of an expectant heir, which he considered the plaintiff to do, was bound, if the transaction was impeached within a reasonable time, to satisfy the Court that he gave the fair market value for what he purchased. As to the first property evidence was adduced on behalf of the plaintiff, of two surveyors of experience, well acquainted with the property, who respectively valued it at 5017. 4s. and 8417. On the other hand, on the part of the defendant, two London surveyors, Mr. Shuttleworth and Mr. Marsh, not being personally acquainted with the property, valued it, not as it actually existed at the time of the sale, but as a well secured annuity of the same yearly value as the actual rent, at 3187. and 3217. The *Lords Justices rejected the argument that some deduction should

be made from their estimates, in consideration of the perishable [*233]

nature of the property and its being out of repair, holding that the defendant could not abstain from examining persons of skill acquainted with the property, and then call upon the Court to made deductions from the estimates of those whom he produced, in consequence of their imperfect information; and remarking that according to his own witnesses the price paid, viz. 2507., was less by about 707. than the fair market value, being a deficiency of above one-fourth of the actual consideration, determined that the sale could not stand. With regard to the second property sold in 1848, the plaintiff's surveyors respectively valued it at 11007. and 9007. Mr. Smith, formerly the actuary of the Eagle Company, stated that the calculated value of the interest sold, treating it as a well secured annuity of 1007. per annum, was 8707.; but from this he said one-third should be deducted, in estimating the probable result of a sale, making the true market value 580l. This deduction of one-third seems to have been made, on account of the loss of rent which might ensue from the property remaining unlet, and the expenses of repairs and insurance, and other outgoings; but he did not appear to have taken into account the probable rise in the rent at the end of 13 years from that time, in consequence of the property having then become more valuable, as was proved in evidence in consequence of, among other things, the tenant's expenditure. On the other side, the same London surveyors, valued the property at 475l. and 4767.; but the defendant, not apparently relying on their evidence, stated that he believed the value to have been 5807.; "and if 5807. was the true value," said the Court, "the sum paid was still too small for the difference between 580l. and 5007., with an additional 507. payable on a contingency only, was not to be disregarded." Hence, upon the whole evidence, but without assuming that the true market value had been shown by the witnesses for the plaintiff, the Court held that the defendant had not, as he was