Scottish Court of Session Decisions

Alexander Graham & Company, merchants and general agents, Glasgow, pursuers, brought an action against the United Turkey Red Company, Limited, Glasgow, defenders, in which they craved decree ordaining the defenders “to exhibit and produce before our said Lords a full and particular account of all orders received by them from customers introduced by the pursuers, and of all such orders implemented by them, and of the whole commission earned by the pursuers in terms of the agreement entered into between the pursuers and the defenders by letters dated 26th February and 2nd March 1914, with the extension or continuance thereof contained in the letter written by the pursuers to the defenders dated 12th December 1916, whereby the true balance due by the defenders to the pursuers may appear and be ascertained.” The balance sued for on an accounting was £5000, and in the event of the defenders failing to produce an account there was a conclusion for payment of £5000. There was also a conclusion for payment of £5000 as damages, but this conclusion was departed from at the close of the proof before the Lord Ordinary.

Page: 421↓

The letters founded on as constituting the agreement contained, inter alia, the following passages:—On 26th February 1914 Mr Graham (the sole partner of the pursuers' firm) wrote—“I beg to offer my services for selling and developing your productions under the following terms, viz.—1. I shall confine myself solely to your productions with the exception of styles and goods which at present you do not produce, but which whenever you are ready to do so will be transferred to you.…” To this letter the defenders replied—“2nd March 1914—We now beg to formally accept the offer of your services contained in your favour of 26th ultimo. We propose that the agreement should be for the term of three years and date from 28th February 1914, with a break in our option at the end of one year from that date.…” On 12th December 1916 the defenders wrote—“We beg to confirm the fact that our agreement of 26th February 1914 is hereby cancelled and the following agreement substituted:—1. It is understood between us that all cotton goods handled by you or offered by you for sale will be the production of the United Turkey Red Company, Limited.… 4. This agreement to be for five (5) years from to-day's date, and thereafter to continue in force subject to six months' notice by either party.”

The pursuers, inter alia, pleaded—“1. The pursuers having sold goods on commission for the defenders are entitled to decree of count and reckoning as concluded for.”

The defenders pleaded, inter alia—“1. The pursuers' averments being irrelevant and insufficient to support the conclusions of the action, the same should be dismissed. 2. The pursuers being in breach of their contract with the defenders, are barred from pursuing the present action, which should be dismissed. 4. The defenders having accounted to the pursuers for all commission presently due to them under the contract sued on, are entitled to absolvitor.” On 17th May 1918 the Lord Ordinary ( Anderson) allowed a proof before answer.

The following narrative of the averments of the parties and of the import of the proof is taken from the opinion of the Lord Justice-Clerk In the summons in this action the pursuers, founding on three letters dated 26th February, 2nd March 1914, and 12th December 1916, sue for commission earned by them in terms of agreements constituted by said three letters. The form in which this claim is put is a conclusion for count, reckoning, and payment, the balance sued for as due on the accounting being £5000. In the second place the pursuers claim decree for a further sum of £5000, which is explained in the condescendence to be damages for breaches of the agreement between the parties. In their condescendence the pursuers (Alexander Graham having been during the whole period in question the sole partner) say, article 2, ‘The agreement constituted by the said letters of 26th February and 2nd March 1914 was by the letter of 12th December 1916 cancelled and a new agreement made.’ The pursuers further aver—‘It was also agreed by defenders that when pursuers were able to obtain from their customers orders for any class of goods covered by the agreement at a price in excess of the price quoted to them by defenders, such extra price was to be added to the pursuers' commission and paid to them by defenders. This was originally arranged in the agreement of 1912, which is referred to by the defenders in answer 1 and which is still in force. The arrangement was embodied in the defenders' letter to pursuers of 14th September 1912, a copy of which is produced.’ In answer 2 the defenders say “The agreement of 1914 superseded all previous arrangements between the parties and was in turn cancelled by the agreement of December 1916,'and they call on the pursuers to state on which agreement they now found. They further aver that there is no obligation on them in either of the agreements to sell only through the pursuers or to sell through them any specific quantities of goods. In condescendence 3 the pursuers aver that immediately the said agreement was made the pursuers ‘devoted their whole energies to procure orders for the defenders, with such success that by the middle of 1916 they were earning commission.’ In their answer to this article the defenders say “That the said Alexander Graham earned substantial commissions under the agreement, but not up to the rate stated. Quoad ultra denied.… Explained further that the said Alexander Graham had other agencies than that of the defenders, and to these he is believed to have devoted considerable time, and further, that without having formal agency agreements he frequently sold goods for other people on commission terms, or bought from others and re-sold on his own account.’ To this the pursuers replied ‘That the only agency held by the pursuers other than that of the defenders was an agency for Messrs Alexander Murdoch & Company, Limited, Bridgeton, Glasgow, for the sale of carpets in London, that this agency was undertaken by the pursuers with the defenders' knowledge and consent, and that it did not in any way conflict with the interests of the defenders.’ In condescendence 4 the pursuers aver that the defenders formed a scheme to deprive the pursuers of their customers and to end the said agreement between the parties to this process. They also say that under the agreement the pursuers were bound not to deal in cotton goods except those manufactured by the defenders, and they give details of said scheme and alleged breaches by the defenders of the agreement with the pursuers; one of these details added by the pursuers by amendment of the record on 6th December 1918 is thus expressed—'(5) In September 1917 they sent the pursuers a list of certain London firms and instructed the pursuers not to call on these firms, stating that the defenders would work these firms through Messrs Heath & Goddard. Four of these firms, viz., Young & Rochester, Limited, the Co-operative Wholesale Society, Limited, Rowe & Company, and T. & J. Wigley & Company, were customers of the pursuers who had been introduced

Page: 422↓

by pursuers to defenders.’ In condescendence 5 the pursuers aver that they ‘intimated to the defenders by letter dated 26th November 1917 that the agreement was terminated by reason of the defenders' persistent breaches thereof.’ In answer the defenders said the pursuers were in breach of contract not only in respect of the letter of 26th November 1917 but in other respects. They further said—‘The pursuers in July 1916 entered into an arrangement with the firm of Elia Torres, calico printers, 56 Faulkner Street, Manchester, to represent them as their agents in London for the sale of cretonnes at agreed rates of commission. In pursuance of that agreement the pursuers between July 1916 and the raising of the present action have continually sold and offered for sale under said agreement goods produced by Messrs Elia Torres. These goods were principally cotton cretonne goods, and were such as the defenders produce. The pursuers in entering into and acting under said agreement were in breach of contract to the defenders, whether under the agreement of 1914 or the agreement of 1916.’ To this later averment the pursuers replied—‘Denied that pursuers had any agreement with Mr Elia Torres of Manchester. Admitted that they sold certain goods for him, but explained that this was done with the knowledge and consent of defenders, who had declined to accept the orders for the goods so sold.’ The defenders also in their answers state that the pursuers in several other cases sold goods other than those of the defenders' manufacture. After a hearing in the procedure roll the Lord Ordinary on 17th May 1918 pronounced this interlocutor—[ His Lordship quoted the interlocutor, which allowed a proof before answer.] Thereafter on 6th December 1918 and 16th January 1919 the Lord Ordinary allowed the record to be amended, and proof was ultimately taken in July 1921. On 20th July 1921 the Lord Ordinary disposed of certain of the parties’ pleas and appointed the defenders to lodge accounts, that is, for the period from March 1914, and the pursuers to lodge objections thereto, and he found the pursuers entitled to expenses since the closing of the record. The present reclaiming note was lodged against that interlocutor. There were thus these demands made in the summons—(1) for an accounting for commission, and (2) a claim for £5000 for damages. Proof was allowed and led as regards both of these claims, under reservation of all questions of accounting. The Lord Ordinary, however, in his note says—‘Mr Gentles at the conclusion of the proof stated that the pursuers no longer insisted on damages for breach of contract and that they were not, in view of the evidence, to press their claim for over-prices.’ Though the Lord Ordinary has not in his interlocutor dealt with these conclusions, the defenders are entitled to be assoilzied therefrom, as the position as regards them taken up before the Lord Ordinary was adhered to before us. The only points argued before us were whether the defenders were liable to account to the pursuers for commission, and if so for what period. The Lord Ordinary's finding as to expenses was also challenged. As to the first of these questions (the defenders' liability to account) I do not think the contract of 1912 can be referred to or that the accounting could in any event be carried back earlier than February/March 1914. In the summons what is claimed is an account for the commission due to the pursuers in terms of the agreement entered into between the pursuers and the defenders by letters dated 26th February and 2nd March 1914, with the extension or continuance thereof contained in the letter of 12th December 1916. The 1912 agreement seems to have been only introduced into the condescendence in support of the claim in respect of over-prices, which has now been departed from by the pursuers. The first provision in the letter of 26th February 1914 was thus expressed—[‘… His Lordship quoted the letters.…’] I have already quoted the averments on record by the parties as to an agency agreement with Mr Elia Torres of Manchester which the defenders said was entered into in July 1916, and while the pursuers denied that they had any agreement with Torres they admitted that they had sold goods for Torres, but said this had been done with the knowledge and consent of the defenders, who had declined to accept the orders for the goods so sold. I do not think the evidence given by Mr Graham as to this matter was candid, and I cannot accept it. In my opinion the defenders have established that in or about July 1916 the pursuers accepted an agency for Torres, that this agreement remained in force and was operative till at least 1917, that the pursuers sold Torres's goods under that agreement to a material extent and that they thereby contravened both the agreement of 1914 and the agreement of 1916. In the course of the argument before us, while senior counsel for the defenders was replying, the pursuers' senior counsel intimated that he admitted that there had been material breaches on the pursuers' part of the obligations as to not selling other goods than those of the defenders' manufacture both under the 1914 agreement and the 1916 agreement. In my opinion the Lord Ordinary was right in finding as he does that the pursuers were in breach. But it is now admitted that they were also in breach in this respect of the 1914 agreement to a material extent, and I am of opinion that the defenders have substantially proved the breaches they averred as to the sale of Torres's goods.”

On 20th July 1921 the Lord Ordinary ( Anderson) sustained the first plea-in-law for the pursuers, repelled the first, second, and fourth pleas-in-law for the defenders, and ordered accounts.

Opinion.—“I have found the decision of this case to be attended with considerable difficulty, but I have reached the conclusion that the pursuers are entitled to the accounting which they crave. Their position as ultimately formulated by their counsel appears to me to be eminently reasonable. By their action they conclude for (1) damages for breach of contract, (2)

Page: 423↓

accounting for and payment of commission earned and unpaid, and (3) accounting for and payment of what have been termed ‘over-prices’—that is, prices obtained by the pursuers for the defenders' goods in excess of the selling lists of the defenders.…

Mr Gentles at the conclusion of the proof stated that the pursuers no longer insisted on damages for breach of contract, and that they were not in view of the evidence to press their claim for overprices.’ All that the pursuers now ask is an accounting for commission admittedly earned. The defenders concede that they hold at least £300 of such commission. The pursuers' counsel further stated that he was willing that extract of any decree pronounced in favour of the pursuers should be superseded until the defenders had an opportunity of constituting any claim which they might have against the pursuers for breach by them of any stipulation of the contract. This position of the pursuers, as I have said, seems to me to be reasonable. The defenders have had in the shape of services rendered the quid pro quo of the sums which they hold; the pursuers ask that they should obtain the counterpart of the services rendered. On the other hand the defenders in my opinion take up a position which does not seem to present the same features of reasonableness. They refuse even to account to the pursuers for the sums which they have earned. Their case is that as the pursuers have been in breach of a stipulation of the contract they (the defenders) are entitled to forfeit what has been earned by the pursuers. The defenders have not attempted to constitute any claim of damages which they may have against the pursuers for breach of contract, but have in effect themselves assessed damages at the amount of earned commission which they hold.

The defenders justify their position in law by appealing to the rule of contract law that a party to a contract who himself has broken it cannot sue the other party for implement of a contractual obligation. The rule has doubtless often been stated as I have expressed it, but in my opinion that mode of expression is not accurate. It is not every breach which will debar a party to a contract from suing upon it. It is only such a breach as goes to the root and substance of the contract— Steel, 1907 SC 360; Sanderson & Son, 1921 S.C. 18. As Lord Collins put it in the case of the General Billposting Company, Limited ( 1909 AC 118, at p. 122)—’ The true test … is that which is laid down by Lord Coleridge, C.J., in Freeth v. Burr, and approved in Mersey Steel Company v. Naylor in the House of Lords, “that the true question is whether the acts and conduct of the party evince an intention no longer to be bound by the contract.”’ The correct expression of the rule seems to me to be that suggested by Mr Gentles, to wit, that a party cannot sue for the implement of a contractual stipulation unless he has performed the counterpart of what is sued for. Here it is said the pursuers have by services rendered and accepted performed the counterpart of the obligation for implement of which they sue, namely, for payment of commission in respect of those services. The pursuers therefore, it seems to me, are entitled to sue although they may have been in breach of another stipulation of the contract which is not fundamental.

The defenders allege that the pursuers were in breach of the contract of agency (1) by terminating the contract without justification in November 1917, and (2) by having during the operation of the contract sold goods which were not the defenders' in breach of an express stipulation not to do so.

As to the first of those points, it was maintained for the pursuers that even if they were not justified in terminating the contract, they were nevertheless entitled to the accounting claimed. I am unable to assent to this contention. The counterpart of the pursuers' right to receive commission was the rendering by them of the stipulated services, and the contract provided that these services should be continued until December of the present year. The pursuers must therefore show that they were justified in terminating the contract when they did. They must prove that the defenders had then shown by their actings that they had resolved not to perform the contract but had repudiated it in its entirety. I am of opinion that the pursuers have proved that they had this justification for terminating the contract in November 1917.

The defenders' counsel submitted an argument as to the contract of agency with which I am unable to agree. The pursuers began to act as the defenders' agents in September 1912, and they continued so to act until November 1917. There was no break or hiatus in the relationship during that period, there was no change in the area traversed by the pursuers, and there was very little difference in the kind of goods sold during the whole period. There were, however, new conditions and terms formulated in writing, first in February 1914 and again in December 1916. The defenders' counsel on the question of the pursuers' justification in terminating the contract argued that there were three separate contracts of agency, each watertight and so independent of the others that what was done or not done under one contract could not be considered or founded on in a question of whether either of the other contracts had been duly implemented. This seems to me to be too artificial a view. In my judgment there was one contract of agency which began in 1912 and came to an end in 1917, modifications of the terms of this contract being made in 1914 and 1916. In any event if there were separate contracts, they were in my opinion so interdependent that the circumstances of one might competently be considered and founded on in order to ascertain whether or not one of the others had been duly implemented.

When the contract was entered into in 1912 the only writing regulating its terms was the said letter of 14th September 1912. All the other terms of the contract were

Page: 424↓

matters of verbal arrangement and actings of the parties.

Certain conditions and terms of the contract were more precisely formulated by the letter of 26th February 1914. These terms were cancelled by the letter of 12th December 1916, which substituted therefor other terms specified in said letter.

It will be noted that one fundamental term of the contract had never been referred to in writing, that, namely, whereby the pursuers were to be paid commission. The practice of the parties as disclosed by the proof establishes that the agreement as to this matter was that the pursuers were to be paid by monthly payments all commission, at the stipulated rates, which had been earned on orders received, accepted, and executed.

The pursuers maintain that in November 1917 it had been obvious that the defenders were in breach of this vital term of the contract (1) by having without the pursuers' assent reduced their commission in certain cases shown in No. 678 of process from the agreed-on minimum of 2 1 2 per cent. to 1 per cent., and (2) by having refused to pay other commissions, calculated at the agreed-on rate, in certain other cases therein specified. As to these last the defenders allege that as to some items the pursuers agreed to forego commission, as to others that they agreed to postpone or delay pending bankruptcy proceedings their claim to receive payment. These allegations were denied by the pursuers and have not been proved by the defenders.

The matters of overdue and unpaid and understated commissions were so unsatisfactory to the pursuers that in May 1917 they put the matter into the hands of their solicitors. A correspondence took place during the summer of 1917 between the parties' solicitors, but no arrangement satisfactory to the pursuers was arrived at. All the unadjusted items of commission, it is true, save one, were in connection with transactions between 1914 and 1916, and the defenders' counsel took the point that the pursuers entered into a new arrangement in December 1916 with these matters unsettled. It was urged that the pursuers had thereby abandoned these claims, or at all events that they could not found upon them as justifying breach of the arrangements come to in December 1916. I am unable to assent to these contentions. The pursuers never discharged, expressly or impliedly, the claims which their solicitors were urging in 1917, and I am of opinion that they were entitled to press these claims when they found that in connection with, the firm of Young & Rochester the defenders under the December arrangements were making further trouble with reference to the payment of commission earned.

The other ground of justification urged by the pursuers for the termination of the contract in November 1917 is disclosed by the terms of the letter of 10th September 1917. The defenders thereby made a serious restriction of the pursuers' market for which they had no authorised reason in the terms of the contract, express or implied.

In my opinion this action on the part of the defenders afforded further justification to the pursuers in bringing the contract to an end when they did. The defenders' counsel argued that the pursuers by continuing to act as the defenders' agents after 10th September 1917 had acquiesced in the proposed restriction of market. I am unable to agree. The pursuers protested by their letter of 11th September 1917 and continued the agency in the hope that the restriction would be removed. It was only when they were satisfied that the defenders were to persist in the restriction, and when they perceived that the defenders were obdurate in reference to the disputes as to commission, that they resolved to terminate the contract.

The defenders also allege that the pursuers were in breach of the first term of the arrangements come to on 12th December 1916 by having sold and handled cotton goods which were not produced by the defenders. The pursuers allege that they never sold goods other than the defenders' except when the defenders were unable to supply the goods ordered, and certainly it has not been proved that the pursuers had any motive in the shape of higher commission to sell goods other than those manufactured by the defenders. I am satisfied, however, that the pursuers have not proved their said allegation, and, moreover, it is established that in a number of cases they acted as merchants with reference to the cotton goods of others, buying at one price and selling at a higher, and thereby making a profit. I therefore hold it proved that the pursuers were in breach of the foresaid stipulation.

But what is the legal result? The pursuers say, damages for the breach, to be constituted in the ordinary way and set off by way of compensation against the pursuers' claim for commission. The defenders say, forfeiture of the sum in their hands.

The test of the matter is that which I have suggested. Was the foresaid stipulation fundamental of the contract in this sense that it must be concluded that the pursuers by breaking it totally repudiated the contract? I am unable to hold that the pursuers' breach had this signification. The fundamental purpose of the contract was the sale of the defenders' goods. This purpose was capable of fulfilment and was being fulfilled by the pursuers despite the said breach. The remedy suggested by the pursuers' counsel seems therefore the appropriate one, if that remedy is open to parties who have themselves, according to what I have said, been in breach of a fundamental term of the contract. This last point, however, is not hujus loci, but will only arise if and when the defenders bring an action of. damages for breach by the pursuers of the said term of the contract.

I ventured at the debate to test the defenders' contention by an extreme case, which if their contention is sound it should of course satisfy. Suppose a large sum, say £5000, admittedly due as commission, and breach of the foresaid stipulation by the sale of a dozen handkerchiefs, with resultant

Page: 425↓

damage to the defenders practically nil. Impressed with this illustration the defenders' counsel disclaimed the suggestion of forfeiture, and conceded that although the pursuers were debarred from suing for commission due under the contract they were entitled to sue for a quantum meruit. But there has been no agreement to employ the pursuers for remuneration estimated on the principal of quantum meruit. And if quantum meruit were demanded, the quantum would doubtless be found to be just what is asked as commission. The defenders therefore would seem to be driven to this position, that they are bound and are willing to give the pursuers what they ask if they call it quantum meruit but not if they call it commission.

I shall therefore order accounts as craved, but there are two matters which the evidence led enables me to exclude from the accounting. The first is that of ‘overprices,’ on which the pursuers do not now insist. The second has reference to what is called block-printing.…

“Other authorities cited—Gloag on Contracts, pp. 696, 720–726; Mersey Steel Company, 9 A.C. 434; Turnbull, 1 R. 730; Dingwall, 1912 SC 1097; Macdonald, 3 F. 923; Forrest, 1916 S.C. (H.L.) 28.”

The defenders reclaimed, and argued—The present contract was a mutual one, and the pursuers having failed to perform a. material part of it could not sue the defenders for performance of it — Turnbull v. M'Lean & Company, 1874, 1 R. 730, per Lord Justice-Clerk (Moncreiff) at p. 738, 11 S.L.R. 319; Dingwall v. Burnett, 1912 SC 1097, per Lord Salvesen at p. 1102, 49 S.L.R. 882; M'Donald v. Kydd, 1901, 3 F. 923, per Lord Trayner at p. 927, 38 S.L.R. 697; Steel v. Young, 1907 SC 360, 44 S.L.R. 291; Earl of Galloway v. M'Connell, 1911 S.C. 846, 48 S.L.R. 751; Forrest v. Scottish County Investment Company, 1916 S.C. (H.L.) 28, and per Lord Buckmaster, L.C., at p. 33, 53 S.L.R. 7. The unity of the contract must be respected, and this applied to the contract of agency as well as to any other contract— Andrews v. Ramsay & Company, [1903] 2 KB 635; Nitedals Taendstikfabrik v. Bruster, [1906] 2 Ch 671; Story on Agency, 9th ed., pars. 331 and 334. The pursuers were only entitled to their commission if they had fulfilled the contract, and this they had not done. [The Lord Justice-Clerk referred to Hippesley v. Knee Brothers, [1905] 1 KB 1.]

Argued for the pursuers and respondents— Esto that the pursuers had broken a stipulation of the contract it did not follow that they were not entitled to the commission which they had earned. There had been substantial compliance with the contract on the part of the pursuers, and the contract therefore remained as a ground of action. The very existence of the relationship of principal and agent implied a liability to account. The defenders' remedy was either to sue for implement and damages, which when constituted could be set off against the commission claimed, or to rescind the contract, and they had done neither. There was no clause of forfeiture in the contract, and even if there had been the Court was always unwilling to give effect to such a clause— Robertson v. Driver's Trustees, 1881, 8 R. 555, 18 S.L.R. 364; Kilmer v. British Columbia Orchard Lands, Limited, [1913] AC 319. The cases quoted contra were not in point, and most of them were cases of executory contracts and had no application to commissions between principal and agent— Johnston v. Robertson, 1861, 23 D. 646, per Lord Justice-Clerk Inglis at p. 656. There was no such breach in the present case as disentitled the pursuers to recover the commission they had earned under the contract— Sanderson v. Armour & Company, 1922, 59 S.L.R. 268, per Lord Dunedin at p. 269, distinguishing Johannesburg v. Stewart & Company, 1909 S.C. (H.L.) 53. 47 S.L.R. 20.

At advising—