Scottish Court of Session Decisions

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Cite as: [1868] ScotLR 5_541, [1868] SLR 5_541

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SCOTTISH_SLR_Court_of_Session

Page: 541↓

Court of Session Inner House First Division.

Wednesday, May 27. 1868.

5 SLR 541

North British Oil and Candle Co. (Limited)

v.

Swann.

Subject_1Agreement
Subject_2Construction.

Facts:

Held, on construction of agreement between manufacturers of oil and a coalmaster, that the latter was only bound to supply coal to the former for the purposes of their manufacture.

Headnote:

In 1865 the pursuer entered into an agreement with the defender James Swann, lessee of a coal field at Riggside, for supply of coal and coal tripping. The agreement bore that “whereas the said company are erecting certain buildings and works at or near Lanark, North Britain, for the purpose of manufacturing paraffin burning oils and other products from petroleum coal or shale: And whereas the said James Swann is desirous of supplying the said company with cannel or oil coals for the purposes of their manufacture from his coal pits situate at Riggside .… the said James Swann doth hereby agree to supply in every week to the said company, and the said company do hereby agree to receive in every week from the said James Swann, as much cannel or oil coal as the said company shall require, but so that the quantity to be supplied in any one week shall not be less than 75 tons of 20 hundredweight each ton, or more than 150 tons of 20 hundredweight each ton: And also any quantity of coal-tripping which the
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said company may require (it being understood and agreed that the said company shall take from the said James Swann the whole coal-tripping which they may require at their said works for distilling or working the cannel or oil coal which they may take from the said James Swann), at the prices and subject to the stipulations hereinafter declared: That is to say—… Thirdly, the first weekly delivery of cannel or oil coals and coal-tripping shall be made as soon as the said works of the said company shall be finished, and notice thereof shall be given to the said James Swann by the said company Sixthly, during the continuance of this contract, the said James Swann shall not supply any cannel or oil coals to any other person or company, for the purpose of distilling or manufacturing paraffin or other oils, &c., at a less price in the works of such other person or company than that paid by the said company, without making a corresponding reduction in the price to be paid by the said company for the cannel and oil coals so, as aforesaid, to be supplied to them.”

The pursuers now sued the defender, concluding for declarator, “ First, that by articles of agreement entered into between the pursuers on the one part, and the defender on the other, dated the 1st and 9th days of August 1865, the defender is, aye and until the term of Whitsunday 1873, bound to supply to the pursuers, from the coal pits worked by him at or near Riggside, as much cannel or oil coal as the pursuer shall require him to supply, but so that the quantity to be supplied in any one week shall not be less than 75 tons, nor more than 150 tons; and Second, that the pursuers are entitled to sell, use, and dispose of in any manner they think proper, the cannel or oil coal supplied, or to be supplied by the defender to them under the said agreement: And the defender ought and should be decerned and ordained by decree foresaid to deliver to the pursuers as much cannel or oil coal aforesaid as they shall require him to supply, but so that the quantity to be supplied in any one week shall not be less than 75 tons, nor more than 150 tons, and that aye and until the term of Whitsunday 1873.”

The defender pleaded:—“1. Under the articles of agreement libelled, the pursuers are not entitled to require delivery of any coal from the defender, except for the purposes of manufacture therein specified, or to use the coal supplied to them by the defender, excepting for such purposes.”

The Lord Ordinary ( Barcaple) pronounced this interlocutor:—“Finds, that by the articles of agreement libelled on, according to the true construction of the same, the defender is only bound to supply to the pursuers cannel or oil coal for the bona fide purpose of being used by them in their manufacture at their works: Therefore assoilzies the defender from the conclusions of the action, and decerns; reserving to the pursuers all right of action competent to them against the defender, to fulfil the foresaid obligation, in terms of the said articles of agreement, and to him his defences as accords: Finds the pursuers liable in expenses.”

The pursuers reclaimed.

Clark and A. Moncrieff for reclaimers.

Watson for respondent.

At advising—

Judgment:

Lord Ardmillan—This case, which relates to a contract for supply of oil to the pursuers, the North British Oil and Candle Company, has been disposed of by the Lord Ordinary on a footing which I think is quite correct. I agree both with his decision and with the principles on which it is based. The result of my opinion is, that on a fair construction of the agreement, the defender is only bound to supply to the pursuers coal for the bona fide purpose of being manufactured. The pursuers’ case is very well brought out in the conclusions of their summons ( reads conclusions). The construction insisted on by the pursuers is that the word require is equivalent to the word demand. I think that this agreement, fairly construed as an agreement between parties engaged in mercantile business, cannot bear that meaning. In the first place, the agreement sets out that the pursuers are erecting works for a particular purpose, secondly, that the defender is desirous of supplying the company with cannel coal, and then that the defender is to supply to the company, and the company are to receive from the defender in every week, as much cannel or oil coal as the said company shall require. Now if the word require is to be read as equivalent to demand, it is brought into this singular relation to the word receive, that the pursuers undertake to receive as much coal as they demand. That is absurd. It is a view of their obligation which cannot reasonably be taken. In the next place, the word require occurs in two other parts of the agreement, in both of which it appears to me that it cannot mean demand, but that it means require for use, or for the purposes of the company. Then the delivery of the coal is only to begin when the works are finished, but if the pursuers are right in their contention, they are entitled to be supplied with cannel coal without any reference to the finishing of the works, and are entitled to receive it and dispose of it in the way of export or in any way they choose, and there is no meaning in delaying delivery until the works are completed. Next, there is a distinct agreement that the defender shall not supply any cannel coal to any other person or company for manufacture of paraffin or other oil at a less price than the pursuers pay. That, as I read it, is a stipulation for the protection of the pursuers against the defender selling at a cheaper rate to persons who should compete with the pursuers. I think it is not consistent with this agreement that these parties shall be entitled to stop their works, and yet continue to demand a supply of coal. Suppose they had no works at all, or suppose they could get coal elsewhere which would suit their purpose here, and were to export this coal obtained from the defender, instead of using it at their works, they would then be entering into competition with the defender. I think that is contrary to the spirit of the agreement, and that they are not entitled to demand a supply of coal from the defender without reference to the purpose of manufacture. Construing the agreement on a just and equitable footing, I cannot agree to give effect to the demand of the pursuers.

Lord Deas concurred.

Lord Curriehill differed. What the Court was asked by the defender to do was to add to the word require these words for the works. He was not satisfied that the defender had made out that part of his case. And as to the second part of the case, he could not see on what ground the pursuers could be prevented from selling, or disposing of in any way they liked, the coal which had been supplied to them and had become their property.

Lord President—It seems to me that the question raised by this summons is, Whether the defender is bound to supply cannel coal to the pursuers for any other purpose than consumption at their

Page: 543↓

works? and I think that is a question which is attended with considerable difficulty.

There is no doubt that the defender has a very material interest in restricting the supply which he is hound to make under this contract, and he had so at the time when the contract was entered into. It was therefore in his power, if he thought fit, to express this condition, that he was not to be bound to supply the pursuers with coal for any other purpose than for the works. There is no such condition expressed, and the question is, Is it implied? There is a good deal of difficulty in construing the agreement. The leading provision is, that the coal shall be supplied as the pursuers require it—the coal, when supplied, becoming the property of the pursuers, which in ordinary circumstances they may dispose of as they think fit. But, on the whole matter, I agree with the majority of your Lordships. My opinion is that the condition is implied, and that because of three portions of the contract. In the first place, that which relates to the coal-tripping. In the second place, the third article of the contract, regulating the delivery of coals and coal-tripping. And, in the third place, the sixth article. I attach the greatest importance to the first of these. The obligation on the parties is that the defender is to supply, and the company is to receive, any quantity of coal-tripping which the said company may require—I omit the parenthesis at present—at the prices and subject to the stipulations hereinafter declared. That contract for the giving and taking delivery of coal-tripping is as much a substantive part of the agreement as the contract for giving and taking delivery of cannel coal. No doubt coal-tripping would not have been in the contract if the coal had not been there; but, being there, it is a substantive part of the contract. But then the measure of this demand and supply is more clearly seen when you read the parenthesis, for it is there stated to be agreed that the Company shall take from Swann the whole coal-tripping which they may require at their works for distilling or working the coal taken from Swann. Now, how is the measure of that coal-tripping to be ascertained if the cannel coal is not to be used at the works? It does not imply that so much coal-tripping is to be taken as corresponds to the cannel coal, but all the coal-tripping which is in fact necessary to distil the cannel coal; and that quantity cannot be ascertained unless the company distil the cannel coal; so that the contract cannot be wrought out unless the cannel coal is distilled. That is a strong indication that the cannel coal is not to be used except for the purpose of distillation. Taking this and the other clause I have mentioned together, I think it is sufficiently clearly implied that coal was only to be delivered for the purpose of manufacture in the pursuers' works. Therefore the pursuers are not entitled to decree of declarator in terms of the first conclusion of their summons, which refers to future time. And I cannot give them decree to the extent of a mere fraction of their declaratory conclusion for saving any rights as to coal now in their possession. That question is not properly raised in this summons. The proper question is that raised by the conclusions and the first plea for the defender, which seems to afford a perfectly good and sufficient defence to meet the whole conclusions of the summons. That plea is [ reads plea]. If at this moment, when the pursuers have given up using cannel coal, they have on hand unused any quantity of coal supplied by the defender, the question may remain whether they may not dispose of that otherwise than by distilling it. But that question is not raised here, and I only give my opinion on the general effect of the agreement.

Solicitors: Agents for Pursuers— Hill, Reid, & Drummond, W.S.

Agent for Defender— John Gillespie, W.S.

1868