Scottish Court of Session Decisions

Dobie & Co., the defenders in this action, were shipbuilders in Govan, and James Spencer & Co., the pursuers, were shipowners there. On 18th August 1876 the defenders contracted with James Spencer & Co. to build for them an “iron sailing barque, of dimensions 196 x 321 x 191, all in accordance with the specification” signed by the parties of that date, for £14, 10s. per register ton, “payable in four equal cash instalments” at specified stages—the last on completion and delivery, in exchange for the builders’ certificate—the vessel to be delivered in the harbour of Glasgow in March 1877. The specification contained, inter alia, the following provisions—“Depth of hold, 19 ft. 6 in… . . To be not less than tons net register, and guaranteed to carry not less than register tonnage, and half of dead weight on 17 feet 3 inches draught of water. Model, midship section, and plans to be submitted for owners' approval before commencing.… The whole of the work to be to the satisfaction of the owners, or any person or persons whom the owners may appoint to superintend during the building… . . No extras to be charged nor alterations made without first having written authority from the owners.”

After the vessel, which was called the “Firth of Tay,” had been built, and all the instalments had been paid and delivery given, Spencer & Co. raised this action in the Sheriff Court at Glasgow, concluding for £1700 of damages for breach of contract. They averred that the defenders had failed to make the vessel of the dimensions provided for, as her hold had only been made of the depth of 19 feet 3 inches in place of 19 feet 6 inches, and that they had failed to construct her so as to carry … register tonnage and half of dead weight. She ought to have carried 1239, and did not carry more than 1085 tons.

When delivery was tendered in March 1877 the pursuers wrote the following letter to the defenders—“We have your letter intimating that you propose to settle to-morrow at 11.30 o'clock, and we will then be ready for you. We think it right, however, to intimate that we will only settle under reservation of our claims for breach of contract between us, as we have now reason to believe that the ship will not have the carrying capacity guaranteed. The payment we make to-morrow you will therefore hold as paid under this reservation. We are weighing the cargo that is being put into the vessel. As we already mentioned to you (verbally), if you wish to do so, you can attend for your own interest.” The defenders submitted that, in letters which were produced, they declined to admit of any reservation, and there was none in the receipt which they granted for the last instalment. These letters and the other documentary evidence are sufficiently referred to below.

The defenders in answer to the pursuers' statements averred that the pursuers had had the model altered, and had adopted a finer one than that originally submitted, and that the ship had been built under the immediate superintendence of the pursuers, who had personally altered the lines of the vessel.

The defenders pleaded, inter alia—“(3) The pursuers are barred from claiming any damages by their having got the defenders to build the ship according to their own views, and by their acquiescence in her construction, and their accepting delivery of her without reservation. (4) The pursuers are also barred by mora from claiming damages.”

On 26th July 1878 the Sheriff-Substitute ( Guthrie) after proof, the purport of which sufficiently appears from the note to his interlocutor and from the opinions of the Court, pronounced this interlocutor—… “Finds that the defenders have not proved that the condition as to the carrying capacity of the vessel was altered or departed from by the pursuers: Finds that as the building of the barque proceeded, three of the stipulated instalments, amounting to £9000, were duly paid, and that the last instalment of £2973 was paid and the builders’ certificate delivered to the pursuers, with the full possession of the vessel, on the 30th of March 1877: Finds that at that time the pursuers, believing that the vessel would not have the required carrying capacity,

_________________ Footnote _________________

* Decided 17th December 1879.

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gave notice that they paid the last instalment only under reservation of their right to claim damages for the deficiency: Finds that the vessel was deficient in the carrying power contracted for to the extent of 142 tons: Finds that by reason of the constructive delivery and appropriation of the vessel, by due payment of the instalments of the price, and of the said notice, the pursuers are entitled, notwithstanding their acceptance of the vessel, to damages for this deficiency, and assesses the damages at £1353, 6s. 8d., for which sum decerns against the defenders in favour of pursuers.” ….

He added this note—

“ Note.— The vessel now called the ‘Firth of Tay’ was built and paid for and delivered, and now the purchasers claim damages for certain breaches of contract. In particular, they aver that the carrying capacity bears much less than the stipulated proportion to the register tonnage, and that the depth of hold, instead of being 191 feet, is only 19 feet 3 inches. I do not understand that the general result of the proof with respect to these two matters is disputed by the defenders, though questions of some importance arise as to the extent of the breach of contract, and the consequent amount of damages in the event of the pursuers succeeding in establishing their claim.

That claim is disputed by the defenders mainly on two grounds.

I. It is said, first, that having paid for and taken delivery of the vessel, the pursuers are barred from asking damages for breach of contract; and that to sustain their claim in such circumstances would be to admit of an actio quanti minoris, which the law of Scotland in the ordinary case rejects. To this two answers are given for the pursuers—(1) that there was an express reservation of all claims of damages when the pursuers paid the price and took delivery of the ship; and (2) that, in any view, the rule which excludes a claim of damages for a defect in the subject of a sale after payment and delivery, does not apply to the case of a contract for building a ship where the price is paid by instalments.

(1) In this case it appears that after the vessel was launched, but before final settlement and delivery, the pursuers began to doubt whether she would have the stipulated carrying capacity, and they accordingly, immediately after receiving the defenders' account and request for settlement of the last instalment, wrote the letter of 29th March 1877, in which, while stating their readiness to pay, they intimate—‘We will only settle under reservation of our claims for breach of contract between us, as we have now reason to believe that the ship will not have the carrying capacity guaranteed. The payment we make tomorrow you will therefore hold as paid under this reservation.’ [ The Sheriff then proceeded to examine the evidence which had been led, so far as bearing upon the question of the defenders' assent.] I think ….. that there was no express assent by the defenders to the reservation made by the pursuers of their claim of damages.

This case therefore presents a different state of facts with regard to the point now under consideration from the case of Walker, Henderson & Co. v. J. & P. Hutchison (not reported), Lord Curriehill's judgment in which was cited at the debate. I have not before me the opinions of the First Division, but I understand that on 19th July 1878 the Lord Ordinary's judgment was on the principal points affirmed. In that case the shipbuilders, who were suing for the balance of the price of the ship, which had been delivered after a partial payment of the last instalment, admitted that it was quite understood when the ship was delivered over that a claim of damages was to be made. There was thus a distinct agreement, or at least understanding, that the defenders, notwithstanding their acceptance and retention of the vessel, might insist in their claims of damage for breach of contract. Here, on the other hand, there is only a protest by the buyer, sufficiently emphatic, but not assented to by the seller, that he was taking and paying for the vessel without foregoing his right to object to her want of conformity to the contract. It is only by reason of a personal exception, arising from the defenders taking the money and patting with the vessel in the face of such an intimation, that the pursuers' contention can receive effect. And the question arises, whether the defenders were entitled to rely, notwithstanding the pursuers' reservation, on the general rule of law, that one who takes possession of an article he has bought cannot claim an abatement of the price, or were bound to refuse to take payment and deliver the vessel upon the footing proposed by the pursuer. There might be some difficulty in holding that an ex parte reservation of this kind could receive effect in an ordinary sale of a specific existing thing.

(2) But Messrs Spencer & Co.'s letter of 29th March is, in my opinion, of some importance in defining their position in the actual case, in which we have not to deal with an ordinary sale of merchandise, but with an executory contract of a peculiar kind. It is settled in the law, both of England and Scotland, that when the price of a ship under a building contract is to be paid for by instalments as the work progresses, the property in the ship passes to the buyer by a process of successive appropriation as it is built and paid for.— Simson v. Duncanson, 1786, Mor. 14,204, 1 Bell's Comm. 177 (189 of M'Laren's ed.) It may be that the legal principle on which this rule is founded is different in this country and in England, but the result is in the main the same, and the foundation in reason and equity is the same. The common sense of the rule is, that the buyer may have security for the money he has paid. As it is said by the Court in Clark v. Spence— 4 A. and E. 448—that in such cases as this, ‘provision for the payment, regulated by particular stages of the work, is made in the contract with a view to give the purchaser the security of certain portions of the work for the money he is to pay, and is equivalent to an express provision that on payment of the first instalment the general property in so much of the vessel as is then constructed shall vest in the purchaser.’ So Lord Neaves, with his usual felicity, thus forcibly explains the rule in Orr's Trustee v. Tullis, July 2, 1870, 8 Macph. 936 (p. 950)—‘It would be contrary to common sense, and shocking to common justice, to hold that because the shipbuilder furnishes the materials and builds in his own yard, the property does not pass till the ship is launched. The law justly and reasonably holds the case to be undistinguishable from the other case, where the party who wants the ship buys or supplies

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the materials himself and has them wrought up in the builder's yards. This, in fact, is held to be the true res gesta—the shipbuilder, after having been paid for his materials, being truly not an owner of the vessel, but a locator operarum on a ship belonging to the man for whom it is destined.’ If this be a correct statement of the law—and it is conformable to the authorities and practice—see, e.g., Lord Ardmillan in Wyllie & Lochhead v. Mitchell, Feb. 17, 1870, 8 Macph. 552, 560, who holds that there is a specific appropriation and constructive delivery of the ship from the laying of the keel, provided the first instalment be then paid—it is obviously unjust and unreasonable to hold that the shipowner under such a shipbuilding contract which has not been duly performed by the builder, has no remedy at the end of the day but to reject the ship and rely on the sufficiency of the shipbuilders, or on diligence against the ship, to recoup the loss he may suffer. In the present case Messrs Spencer & Co. had paid before the breach was apparent three instalments of £9000 out of the whole price, which was £11,973; and in the receipts granted by the defenders for each instalment it was formally declared that the ship was their property to the extent of the instalment paid. I think, therefore, that it would be a perversion, and not a fair application of a rule of law, otherwise wholesome enough, to hold that the pursuers, having bought and paid for three-fourths of the ship, and being vested with the property in the ship, were bound, on discovering her disconformity to contract, to leave her in the hands of the shipbuilder, and to seek from him repayment of the money expended. The defenders argue that they are not to be deprived of the right of disposing of their ship to the best advantage, and that therefore the buyer is shut up to definite rejection or acceptance; but the ship, according to law, is not theirs, but is the pursuers' property already, subject to payment of the last instalment. I think, therefore, that the rule of law on which the defenders found does not apply to a ship the property of which had already vested in the pursuers, and that the letter of March 29 was a proper and sufficient reservation to protect the pursuers from the inference that might possibly have been drawn from their silence in paying the balance of the price.

I am aware that Lord Shand in an unreported case— Clark, &c. v. Rait & Lindsay, 29th February 1876—expressed an opinion adverse to the view which I have taken. I venture to think, however, that Lord Shand's opinion might have been different had there been a reservation by the owner in taking delivery such as there is here, and there was not in that case; or even if the point had been fully argued before him. The view I have taken is supported by the case of Sutherland v. Montrose Shipbuilding Company, February 3, 1860, 22 D. 665, though that case is not precisely identical.

II. The second ground on which the defenders dispute this claim for damages is that the alleged deficiency in carrying capacity was due to alterations in the plan and models made by the pursuers themselves. It may be proper, in dealing with that part of the cause which involves the meaning and effect of the contract, to state that there was some argument as to the construction of the clause of the specification on which the action is rested, and which I quoted at the outset. The defenders laid some stress upon the blanks, and on the comma after the word ‘tonnage.’ But it must be assumed that the parties did not intend to fill up these blanks, and I must disregard the comma, the punctuation being the work of the printer, and being no index of the intention of the contracting parties. Thus the clause distinctly bears that the parties did not stipulate in the specification for any special register tonnage, but only that the ship could carry cargo weighing one-half more than her register tonnage. That this was the meaning of the parties is clear enough; no other meaning was suggested in the course of leading the proof….

The contract therefore was to furnish an iron sailing ship carrying register tonnage and a-half of cargo. It was stipulated that ‘model, midship section, and plans to be submitted for owners' approval before commencing.’ The defenders now maintain that the deficiency in carrying capacity has arisen from the pursuers fining the model and altering the plans. This means that the parties, at a date subsequent to the conclusion of the contract, altered it; for it cannot reasonably be contended that the clause of the contract last quoted is itself intended in any way to derogate from the express stipulations as to dimensions and carrying capacity. It only means that, subject to these stipulations and to the other express terms of the contract, the plans and models may be altered to meet the owner's views, and that he must approve of them before they are adopted as the working plans and model of the ship. In order, therefore, to get rid of the condition in question, the defenders must go beyond the contract and prove that it was discharged by the distinct agreement of parties. Now, where a contract has been put in writing, it is always a difficult and delicate matter to set aside any of its provisions by parole evidence of a subsequent verbal alteration. It would be more correct, indeed, to say that such evidence is inadmissible, except in a few special cases, particularly (if not exclusively) these in which rei interventus or acquiescence is alleged and proved. The law on this subject is to be found in Wark v. Bargaddie Coal Company, 6th March 1856, 18 D. 772, rev. 15th March 1859, 3 Macq. 467; Sutherland v. Montrose Shipbuilding Company, February 3, 1860, 22 D. 665; Buttery v. Inglis, November 3, 1877, 5 Rettie 58 ( per Lord Gifford)—II. of L. 12th March 1878, 15 Scot. Law Rep. 462. Here there is a plea of acquiescence … But it is not alleged that the pursuers did these things in the knowledge that they would deprive the vessel of the carrying capacity contracted for, and with the intention of derogating from the contract in that respect. It may be, however, notwithstanding the want of this allegation, that in the ordinary case these averments, if they had been followed up by an allegation of such knowledge and intention, might have sufficed to let the defenders into a proof of acquiescence, and ultimately of a verbal agreement, innovating on the contract, on the principle of Wark v. Bargaddie Coal Company; and by the interlocutor, allowing proof this was perhaps contemplated. But in the course of the proof it appeared that there was an express condition in the contract in these terms—‘No extras to be charged nor alterations to be

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made without first having written authority from the owners.’ It appears to me that this sentence is susceptible of no other construction than this—that the written contract at the close of which it occurs shall not be altered or modified in any of its terms except by writing of the owners.… I apprehend therefore that the rule to be applied here is precisely the same which received effect in the late case of M'Elroy v. The Tharsis Sulphur and Copper Company, November 17, 1877, 5 Rettie 161 (especially per. L. J. Clerk p. 167, and Lord Ormidale, p.168), aff. 15 Scot. Law Rep. 777.

There is no doubt that the pursuers suggested alterations on the lines of the vessel, but it is not alleged that they did so with the intention of reducing the proportion of weight carried to the register tonnage. It is said that these alterations had that effect; but it was the business of the defenders, knowing (as being men of skill they were bound to know) that these alterations would have such an effect, to point that out to the pursuers, who relied on their ability to produce a ship according to contract, and to get them either to approve a model and plans conformable to the written contract, or to concur in a formal written modification of the contract.

I hold, therefore, that the defenders have not established either their third or their fourth pleas.

There remains the question what amount of damages is due? The ship actually carries 1090 tons on a mean draught of 17 feet and inch in salt water; and I take it, that in a contract to build a sea-going ship, a condition as to draught of water is intended to refer to her draught in salt water, her natural element (see Walker, Henderson, & Company v. J. & P. Hutchison, cited). It thus appears that on a draught of 17 feet 3 inches, she would carry 1130 tons in salt water. This makes a deficiency of 109 tons. But the evidence of Mr Lawrie and Mr Spencer, which is not contradicted, shows that the breach of contract in regard to the depth of the hold, which is also proved, has been productive of a further loss. For, assuming that the hold had been 19 ft. 6 in. in depth, the vessel would have been able to carry 33 tons, or 11 tons per inch, beyond the weight she could carry on a draught of 17 ft. 3 in.—that is to say, the vessel is not confined by any physical or legal limitation to a draught of 17 ft. 3 in., and if there were sufficient space in the hold, could have carried tonnage answering, as the proof shows, to considerably more than 3 inches of further draught. But only 3 inches more was contracted, and all the pursuers can ask is that they should get damages for this shortcoming of 33 tons.

The damages upon the 109 tons are to be calculated, as I think, at the rate of £9, 13s. 4d. per ton (see Mr Lawrie's evidence), which gives the same result as the rule of proportion adopted by Lord Curriehill in the case of Walker, Henderson, & Company v. Hutchison, viz., £1053, 6s. 8d. The damages for deficiency in hold space cannot be so accurately calculated. It is said that the 3 inches lost would have enabled the pursuers to earn about £150 a-year of additional freight. Probably this is a very liberal estimate; but I think it may be assumed that the value of the ship would have been enhanced by £300. The whole sum due therefore in name of damages is £1353, 6s. 8d.”

On appeal the Sheriff ( Clark) adhered, and the defenders then appealed to the Court of Session.

On 4th July 1879 the Second Division allowed the appellants additional proof as to the knowledge of the respondent Spencer with regard to the effect of the alterations made on the model and plans of the vessel, and this proof was taken before Lord Ormidale on 20th October.

Argued for the appellants—(1) As to the alterations on the model—Admitted that it was incompetent to prove that a written contract was modified by verbal agreement; still, if there were acts amounting to rei interventus alleged, such proof was admissible.—Dickson on Evidence, 1st ed., 130, note, and cases there cited; Wark v. Bargaddie Coal Co., March 6, 1856, 18 D. 772; rev. 15th March 1859, 3 Macq. 467; M'Bride v. Hamilton, June 11, 1875, 2 R. 775; Houldsworth v. Brand's Trs., May 18, 1875, 2 R. 683; Duke of Portland v. Baird & Co., Nov. 9, 1865, 4 Macph. 10: Buttery v. Inglis, Nov. 3, 1877, 5 R. 58, and H. of L. 87; Andrews, 2 C.B., N.S. 779. These cases showed that if the pursuers had adopted a new model inconsistent with the written contract, that part of the contract was abrogated. The proof showed that the deficient carrying capacity was due to the alteration of the written contract. (2) The pursuers having taken delivery of the ship, could not claim damages. Their duty was to reject the ship, retaining only a lien over it for the past instalments until the price paid was refunded. Any other rule would admit the actio quanti minoris into the law of Scotland with regard to ships. (3) In any event, the damages were not proved.

Argued for the respondents—(1) The proof showed that the alterations made were within the contract. It was for the shipbuilder, who was the man of skill, to point out that the alterations, if they would have the effect of diminishing the carrying capacity, were incompatible with the specification, which formed a warranty requiring to be fulfilled. It was a warranty of a certain minimum tonnage. The contract provided that any alterations on it must be made in writing. (2) In this case it was the understanding of parties, as manifested by the writings, that the pursuers in making the last payment reserved their claim for damages. The Court would always in a mercantile matter give effect to an understanding which would prevent the rigid law of rejection from doing injustice. — M'Cormick v. Rittmeyer, June 3, 1869. 7 Macph. 854 (Lord Kinloch's opinion). Further, a ship was in a different position from ordinary goods. The rule navis sequitur carinam applied. From the time when the first instalment was paid, the property in the ship so far as built passed to the buyer. Thereafter the builder was locator operarum. It was just like the case of a man building on another's land.— Simson v. Duncanson's Crs., 1786, M. 14,204; Brodie's Stair, p. 900; 1 Bell's Comm. (7th edit.) 189, note; Lord Neaves in Orr v. Tullis, quoted by Sheriff-Substitute. In this case, therefore, the shipowner could not reject his own property. — Wyllie & Lochhead v. Mitchell, Feb. 17, 1870, 8 Macph. 552, supra.