Scottish Court of Session Decisions

On 16th November 1888 the following agreement was executed at New York by J. Thomson Duncan, as agent for J. B. Hannay of Glasgow, the inventor of a new process of producing white lead, and Alfred Shedlock and James Hudson of New York:—“It is understood that J. Thomson Duncan has an understanding with J. B.

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Hannay, F.R.S.E., of Glasgow, the inventor of the apparatus and new method or process of producing white lead, whereby he is empowered to enter into arrangements, which he hereby does, with Alfred Shedlock and James A. Hudson, of New York, for sale of said inventions for the two Americas, and to designate to them power to handle said apparatus, method, or process in such manner as shall seem to them best, and that upon terms as already fixed by correspondence between the said Shedlock and Duncan, and approved of by the said Hannay, viz., That all necessary expenses shall be first deducted from any income that may be derived from sale or use of the patents, and the one-half of the remainder is to go to the said Hannay and the other half to be retained by the said Shedlock and Hudson; it being understood that the said Hannay is to be kept free of all responsibility as to outlays which may be made by the said Shedlock and Hudson, in the event of failure to carry through the business to a successful issue.—Dated New York, November 16th, 1888.—J. Thomson Duncan; Alfred Shedlock; James A. Hudson. Attest—J. S. Michael, Notary Public, New York County.”

On 1st December Mr Hannay confirmed the agreement with certain modifications by the following writing appended to the agreement at Glasgow:—“The above agreement is hereby confirmed by me, subject to the following conditions: That in the event of other patents being taken up in America, all improvements made by any one connected with the undertaking shall be added for the general good of the process, free, except for any expenses incurred. Employees to be engaged under contracts specifying this.” The modifications so introduced into the agreement were accepted by Mr Shedlock and Mr Hudson by the following note appended to the agreement at New York:—“We hereby accept the foregoing modifications made by Mr J. B. Hannay, under date December 1st 1888, and accept the conditions thereby imposed, and so re-execute that agreement as so modified.”

The present action was raised in July 1890 by Shedlock and Hudson against Hannay for payment of £30,000 as damages for alleged breach of contract.

The pursuers founded on the agreement above set forth, and, inter alia, averred—“(Cond. 2) That the defender had thereby agreed with the pursuers for the sale of said inventions for the two Americas, and gave to them power to deal with said apparatus, method or process, as they thought proper, upon the terms, inter alia, that after deducting all necessary expenses from the income to be derived from the sale or use of the patents one-half of the remainder should be retained by the pursuers, the other half being received by the defender… . By the said agreement the pursuers acquired the sole right to use the said inventions in, inter alia, the United States of America, and to dispose of said right in said United States as they pleased. The statements in answer are denied, subject to the admission that the pursuers registered the agreement in the United States patent office, and under reference to the proceedings there.” (Cond. 3) That the defender had, in violation of his agreement with the pursuers, in April 1889, sold to the White Lead Company, Limited, the whole patents and inventions belonging to him—or which he was entitled to acquire—for the said improved method of manufacturing white lead, which he had applied for in the United States of America and other countries, and all future improvements thereon, including the rights previously sold to the pursuers, and had refused to carry out his agreement with them; and (Cond. 4) That they had in consequence of the defender's breach of contract incurred a loss of £30,000.

The defender in answer averred, inter alia—“The alleged agreement is referred to. Quoad ultra denied. The said deed was framed and executed in New York, and the contract therein expressed was to be performed in New York. Explained that the validity and interpretation of the agreement therefore fall to be determined according to the law of the State of New York. No consideration is therein expressed; and by the law of the State of New York a consideration is necessary for the validity of an agreement not under seal; the said agreement is not under seal, and is therefore invalid… . The pursuers afterwards registered the document above mentioned in the American Patent Office, New York, and endeavoured to get the patents issued to them, on the plea that the said document conferred on them the ownership of the said patents, but they were entirely unsuccessful. According to American law the said document is inept to convey any right of ownership in the said patents or to entitle them to have letters-patent issued to them.” The defender further denied that he had committed a breach of his agreement, but admitted that he had sold all his patent rights relative to white lead manufacture to the White Lead Company.

The defender pleaded, inter alia—“(2) The validity and meaning of said alleged agreement fall to be determined and interpreted according to the law of New York, by which, 1st, it is invalid and inoperative; and 2nd, it is and has been determined by decree to be unavailing to confer any rights on the pursuers.”

On 7th November 1890 the Lord Ordinary ( Trayner) pronounced the following interlocutor:—“Finds (1) that the agreement founded on was made and executed in New York; and (2) that the validity and meaning of said agreement fall to be determined by the law of New York: Therefore to this extent and effect sustains the second plea-in-law for the defender, and quoad ultra continues the cause: Grants leave to reclaim.

“ Opinion.—The only question with which I have at present to deal is that raised by the first part of the defender's second plea-in-law.

The agreement in question, which has

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reference to the obtaining and use of a certain patent in America, was executed in New York on 16th November 1888 by the pursuers and a Mr J. Thomson Duncan, the latter being represented in gremio of the deed as a person empowered by the defender to enter into the arrangements there expressed. The agreement so executed is ‘confirmed’ by the defender, subject to certain conditions in a writing dated ‘Glasgow, 1st December 1888,’ appended to the agreement, and these conditions the pursuers agreed to and accepted by a note, also appended to the agreement executed by them in New York. In this state of the facts I am of opinion that the agreement or contract in question was made and executed in New York, and that any question regarding its validity as a contract, its construction, or the extent and character of the rights and obligations arising therefrom, falls to be determined by the law of New York— Peninsular and Oriental Steam Navigation Company v. Shand, 3 Moore's P.C. (N.S.) 272; Jacobs, L.R., 12 QBD 589.

The difficulty which has sometimes arisen in the determination of questions similar to that with which I am now dealing, from the fact that the place of making the contract was different from the place where it was to be performed, does not seem to arise here. In the present case the locus solutionis is, to some extent at least, the same as the locus contractus; and I think the whole circumstances, viz., the character of the contract, its subject-matter, its execution in New York, and its anticipated fulfilment there and elsewhere in America, lead to the inference that the parties intended the law of New York to be that according to which the contract should be interpreted, and if necessary, enforced. There is certainly nothing to indicate that the parties had in view the law of Scotland as the law which was to determine their rights or liabilities.”

The pursuers reclaimed, and argued—Unless there were some special reason to the contrary, a court would construe an agreement according to its own law—the lex fori would govern. In the present case there were several reasons, in addition to this general rule, why the validity of the contract in question should be determined by the law of Scotland. New York was not the locus contractus so much as Scotland, for till the confirmation of the contract by the defender at Glasgow it had no binding effect upon him. Further, the agreement was for the sale and transference by the defender of his invention, and the locus solutionis — the place where the transfer was to be carried out — would naturally be Scotland, which was the defender's domicile. The test of where a person was bound to perform an obligation was to ask, where, in the event of his refusal, would an action be raised to compel him? Scotland was the only forum where the present action could have been raised, and the onus lay on the defender to show that the question between the parties should not be determined by Scotch law. Assuming the contract to have been executed in New York, there was nothing technical in its language to lead the Court to seek the aid of foreign law in order to interpret it. According to Scotch law there was consideration, and the contract was good, and the position taken up by the defender was adopted with the object of nullifying the contract, contrary to the usual maxim that a contract was to be interpreted ut valeat majis quam pereat. In the view that the contract was to receive effect all over the two Americas, there were then a number of loci solutionis, and no special law could be said to be in the contemplation of parties. In that view the contract might be looked upon as a cosmopolitan contract, which was to be interpreted according to the law obtaining at the place where the action was brought — Owners of the “ Emmanuel” v. Denholm & Company, December 7, 1887, 15 R. 152; Valery v. Scott, July 4, 1876, 3 R. 965 ( per Lord President, 966); Ainslie, &c. v. Murray, March 17, 1881, 8 R. 636; Don v. Lippmann, May 26, 1837 (H. of L.), 2 Sh. & M'L. 682; Stewart v. Gelot, July 19, 1871, 9 Macph. 1057; in re Missouri Steamship Company, 1888, L.R., 42 Ch. Div. 321; Storey's Conflict of Laws, sec. 280; Bell's Law Dict., voce “Law” (Law Merchant); Clements v. Macaulay, March 16, 1866, 4 Macph. 583.

Argued for the defender—The decision of the Lord Ordinary was right, and the agreement must be construed according to the law of New York. New York was clearly the locus contractus, for the real agreement was contracted there. The defender might have confirmed the act of his agent by letter to New York, and his confirmation was not required to make the agreement good, but it prevented him saying that he had not authorised Duncan to act for him. The general rule was that the lex loci contractus applied unless a different intention was to be gathered from the nature of the contract, e.g., if it were to be entirely carried out elsewhere, as in the Missouri case, supra, or where its subject-matter was heritable estate in a foreign country, or where the lex loci contractus was the revenue law of a foreign state, as in Stewart v. Gelot, supra; Dale v. Dumbarton Glasswork Company, February 5, 1829, 7 Sh. 369; Wharton, sec. 401; Peninsular and Oriental Steam Navigation Company v. Shand, 1865, 3 Moore's P.C. (N.S.) 272; Jacobs, L.R. 1884, 12 QBD 589; Lloyd v. Guibert, 1865, L.R., 1 Q.B. 115. The maxim “ Actor sequitur forum rei” was applicable to a question of jurisdiction, and not to such a question as was now before the Court. Nor was the rule that a deed was to be construed ut res valeat majis quam pereat more applicable. Suppose the case were reversed, and the defender were suing the pursuers in New York, if the defender's averment was true, he would by the lex fori be unable to enforce the contract. To apply the lex fori as a general rule would mean that the construction of the contract would in many cases vary according as a party was pursuer or defender. The Court could not look at the contract to see whether

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there was consideration in the technical sense referred to by the defender, for consideration according to the law of New York might signify something quite different from consideration in Scottish law. That question must be determined by the law of New York. The contract was to be carried into effect all over the Americas. Nothing remained to be done in Scotland. There were therefore many loci solutionis, and the lex loci solutionis could not be looked to in construing the contract.

At advising—