Scottish Court of Session Decisions

On 29th December 1905 Mrs Jessie Andrews or Krupp, residing at Station Hotel, Oban, with the consent of William Krupp, her husband, and he for his own right and interest, brought an action against John Menzies, Limited, 12 Queen Street, Edinburgh. In it the pursuers, inter alia, sought that the defenders should be ordained “( second) to exhibit and produce before our said Lords a full and particular account of the profits of the business of hotel-keepers and others carried on by the defenders at the Station Hotel, Mallaig, Inverness-shire, for the period from 1st November 1900 to 31st October 1905, whereby the true one-fifth part or share thereof due by them to the pursuers may appear and be ascertained,” and to make payment to the pursuers of £1000 or such sum as should be ascertained to be the balance due on such accounting, with interest at five per cent.

The question upon which the case is now reported was whether the defenders, who averred that the share of profits payable to the pursuers was five per centum and not, as claimed and as stated in the written contract of employment, a fifth, should be allowed a proof.

The facts of the case appear from the opinion ( infra) of the Lord Ordinary ( Dundas), who on 20th March 1906 appointed the defenders to lodge accounts as craved and allowed the pursuers to lodge objections thereto.

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Opinion. — “The defenders in this action, John Menzies, Limited, are proprietors of the Station Hotel at Mallaig. The pursuer, Mrs Krupp, was until recently their housekeeper in the said hotel. The contractual relations of the parties were constituted by a formal minute of agreement, dated 31st October and 1st November 1900, a copy of which is in process. The summons contains two conclusions the subject-matters of which are quite distinct and separate from one another.” … [ His Lordship here dealt with a claim for a sum as arrears of salary, for which he gave decree] …

“The second conclusion of the summons raises some points which are not unattended with difficulty. The sixth article of the minute of agreement above mentioned provides, inter alia, that ‘the first party’ ( i.e. the defenders) ‘shall also, in addition to the salary above mentioned, pay to the third party’ ( i.e. the pursuer) ‘one-fifth part of the net annual profit of the business carried on in the said hotel at Mallaig, as the same shall be shown by the books of the first party. … The said share of profit shall be paid by the first party to the third party as soon as its amount can be ascertained after the close of the first party's financial year.’ The pursuer demands that the defenders shall account to her for, and make payment to her of, her share of the net profits during the five years which have elapsed, and she alleges that she has hitherto received only two sums of £33, 6s. 8d. and £15, 1s. 2d. respectively ‘to account of said share of profits.’ The defenders' (fourth) answer is a somewhat startling one. They explain ‘that the words “one-fifth” part were inserted in the agreement by a clerical error instead of the words “five per cent.” and that the pursuers are well aware of this fact. They are further aware that the managers of the defenders' other hotels were and are paid a percentage calculated on the net annual profits, and that none of them ever claimed or received a share of the profits such as the pursuers are now claiming.’ In answer 5 the defenders further explain that the payments to Mrs Krupp which I have mentioned' were made by the defenders and accepted by the pursuers as representing five per cent. of the net annual profits of the business, as ascertained in the manner specified in the said agreement for the purpose. The pursuer granted receipts for both of these payments. The sum of £15, 1s. 2d. was remitted to her along with a letter (which is produced herewith) bearing that it was made on the five per cent. basis referred to. Five per cent. was well known to the pursuer and her husband to be the rate of bonus arranged for between the parties, and they consistently acted on that footing.’ The defenders' counsel asked for a proof prout de jure of the averments which I have quoted. Now the agreement, which is a formal document, prepared by the defenders' own lawyer, and executed by the parties, appears to me to be quite clear and unambiguous in its terms. But the defenders say that there was ‘a clerical error,’ and that an error of that sort can always be put right by a parole proof. I do not think that the decisions to which their counsel referred me bear out the above contention. In North British Insurance Company, 1864, 3 Macph. 1, parole evidence was allowed to prove that a policy of insurance upon the lives of two spouses had by a clerical error been so expressed as not truly to express what it was intended that it should express. But then the Lord Justice-Clerk (Inglis) pointed out that ‘the policy itself suggests, in the most forcible way, that there has been some clerical blunder, not that one word has been written instead of another, because this part of the contract is printed; but it is plain that this printed form should have been altered in such a way as to express the true nature of the contract.’ His Lordship goes on to state that ‘there are averments upon the record as to the intentions of the spouses, and evidence of that I should not have been inclined to admit.’ He also alludes to ‘the settled doctrine which prevents resort to extraneous parole testimony to contradict the written contract of parties.’ Lord Benholme in the same case said, ‘Now, it is one thing to control the terms of a written contract in so far as it determines the relative rights of the principal contracting parties, and quite another thing to correct its terms by proof of a collateral contract which regulates the rights inter se of two individuals who stand together as conjoined parties to the written contract.’ His Lordship accordingly thought himself justified in looking to the ‘previous collateral contract’ between the spouses in order to get at the true meaning of the policy, which was ‘plainly bungled.’ But he adds, ‘I do not think that evidence of the mere intentions of the parties could have been allowed.’ Now, this case does not seem to me to help the defenders' argument, because ( a) the agreement in question is not a ‘plainly bungled’ document, but is perfectly explicit and unambiguous in its terms; ( b) no anterior written contract between the parties is averred inconsistent with the language of the agreement; and ( c) the case cited does not appear to afford any authority for allowing one of the parties to prove that the intentions of both of them were truly quite other than the plain expression of the instrument. The defenders also founded upon the Glasgow Feuing Company, 1887, 14 R. 610, and especially upon Lord Young's observations at p. 618 and p. 621. But that was a case where a palpable — and I rather think undisputed—blunder had been made by the colourist of a plan of certain feuing lands and roads. It is also to be observed that the action was one of reduction, and I do not think that it affords support for the view that such an error as is here alleged can be proved ope exceptionis by the defenders in a petitory action. I was also referred to the cases of Grant, 1899, 1 Fr. 889, and Grant's Trustees, 1875. 2 R. 377. But these appear to me to have no application here, because they were cases where the parties were at one in admitting that

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the written contract did not correctly express the true agreement between them. In my opinion therefore no authority has been adduced which would warrant me in allowing the defenders the proof which they ask in regard to this portion of the case. If their view of the matter is in fact the true one, they will not be deprived of all remedy by my decision here. It may be that they could successfully reduce the agreement quoad hoc, or it would, I apprehend, be open to them to peril their case upon the pursuer's oath. I think that the proper course as regards the second conclusion of the summons will be to appoint the defenders to lodge an account, as craved by the pursuer.”

The defenders reclaimed, and after a hearing in the Inner House were, by interlocutor of February 26, 1907, allowed to amend their record.

The defenders' answer 4 ( the portion in italics was added, and the portion in square brackets deleted, in the Inner House) was:—“Explained that the words ‘one-fifth part’ were inserted in the agreement by a clerical error instead of the words ‘five per cent.,’ and that the pursuers are well aware of this fact. [They are further aware that the managers of the defenders' other hotels were and are paid a percentage calculated on the nett annual profits, and that none of them ever claimed or received a share of the profits such as the pursuers are now claiming.] On or about 1 st October 1900 the pursuers had a meeting with the defenders managing director and law agent at the office of the latter in Edinburgh. At this meeting terms were discussed for a proposed agreement between the pursuers and defenders relating to the appointment of the pursuers as manager and housekeeper respectively of the defenders' new hotel, which was shortly to be opened at Mallaig, for which posts the pursuers had already applied to the defenders. The conditions of service were fully explained and detailed to the pursuers at the said meeting. These conditions were similar to those in the existing agreement between the defenders and Mr Rusterholz, the manager of the Palace Hotel, Inverness, and his wife. The said hotel also belongs to the defenders, and the pursuers were already familiar with the conditions in the said agreement. The conditions explained to the pursuers at the said meeting were agreed to by them. As regards salary, the same salary as was paid to Mr Rusterholz and his wife, viz., £200 per annum, was offered to and was accepted by the pursuers. As regards a share of profits, it was explained to the pursuers that Mr Rusterholz received a bonus of 10 per cent. One-half of such bonus, viz., £5 per cent. of the nett annual profits of the business of the hotel, was offered to the pursuers, and this they agreed to accept. The smaller rate was fixed because of the larger earning capacity of the Mallaig business through the liquor turnover during the winter months. It was further arranged that the defenders' law agent should prepare and send the pursuers a draft of the agreement The only changes which fell to be made on the draft agreement, as compared with the agreement with Mr Rusterholz and his wife, were (1) ….; (2) the substitution of 5 per cent. of the annual profits instead of 10 per cent. ‘Ten per cent.’ in the agreement with Mr Rusterholz was expressed as ‘ one-tenth part of the nett annual profits.’ A clerk was directed to draft the agreement on that footing. He was provided with the agreement with Mr Rusterholz for his assistance, and was directed to give effect to the alterations aforesaid, his instructions being as regards the share of profits to give half the share received by Mr Rusterholz under his agreement to the pursuers under theirs. The said clerk by inadvertence inserted the words ‘ one-fifth part’ instead of the words ‘five per cent.’ or its equivalent ‘ one-twentieth part,’ being an erroneous calculation on his part of one-half of a tenth. On or about 22nd October 1900 the draft agreement was completed, and on 23 rd October it was sent, containing the clerical error aforesaid, for revisal to the pursuer Mr Krupp. On or about 26th October 1900 the defenders' law agent received the draft revised along with a letter from Mr Henry Mackenzie, solicitor, Oban, who then acted and still acts as law agent for the pursuers. The only alterations he made on the draft were (1) to allocate the salary by giving £70 to the pursuer Mr Krupp, and £130 to the pursuer Mrs Krupp; and (2) to stipulate for payment of the pursuer Mr Krupp's salary in advance. Mr Mackenzie's letter, which gives the reasons for these alterations, is produced herewith and referred to. On the same date the defenders' law agent wrote Mr Mackenzie in reply, and a copy of said letter is produced herewith and referred to. Reference is made in particular to the terms of the postscript, which refers to the arrangement come to between the defenders and the pursuers for a 5 per cent. bonus. On or about 27th October Mr Mackenzie wired the defenders' law agent agreeing to the suggestions contained in the postscript. Said wire is produced herewith and referred to. The defenders' agent thereupon gave effect to the said suggestions by (1) allocating to Mr Krupp £1 a week as salary, and the balance of £148 to Mrs Krupp; and (2) making the bonus payable to Mrs Krupp instead of to Mr Krupp. On or about 30 th October 1900, the agreement as altered was engrossed and sent by letter to the pursuers' law agent for signature by his clients. On or about 1st November 1900 the defenders' law agent received the agreement back from Mr Mackenzie duly signed by the pursuers. On the same day the agreement was signed on behalf of the defenders, and a copy for the pursuers' use was sent to their law agent. Neither the pursuers nor the defenders discovered the mistake as to the share of profits which was included in the engrossed agreement till it was discovered by the solicitor acting for the pursuers in this action shortly before the summons was served.”

The postscript to the letter of 26th October

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1900 from the defender's law-agent Mr Tweedie to the pursuer's law-agent, to which reference is made, contained the following paragraph:—“ P.S.—On considering the matter further, probably the best way for my company will be to pay Mr Krupp a salary of £1 per week, payable weekly after hand, and to pay Mrs Krupp £148 per annum, payable quarterly after hand. This, I think, will save any question cf arrestment so far as Mr Krupp is concerned. Would you not also approve of the 5 per cent. bonus being transferred from Mr Krupp and added to his wife's wages? Kindly let me hear from you as to these points by wire to-morrow. …”

At a hearing on the amended record the reclaimers argued — This was not a case of mutual error, nor was it a case of the defenders seeking to contradict the terms of a written contract by parole evidence. The averment was that all the terms of the contract which the parties were to sign were agreed upon, but that owing to the mistake of a clerk these terms were not correctly set forth in the document subscribed. The statements as to how this occurred were clear and specific, and these statements the defenders were entitled to prove, for, if they were true, to enforce the written agreement would be to violate the real contract between the parties—Dickson on Evidence (Grierson's ed.), vol. 2, sec. 1041; Taylor on Evidence (10th. ed.), vol. 2, sec. 1140; Greenleaf on Evidence (16th. ed.), 1, 296 a; Marquess of Queensberry v. Scottish Union Insurance Company, July 10, 1839, 1 D. 1203, 1 Bell's App. 183, Lord Cottenham at p. 198; Carricks v. Saunders, March 1, 1850, 12 D. 812; North British Insurance Company v. Tunnock & Fraser, November 1, 1864, 3 Macph. 1, Lord Justice-Clerk (Inglis) at p. 5; Stewart's Trustees v. Hart, December 2, 1875, 3 R. 192, 13 S.L.R. 105; Glasgow Feuing and Building Company, Limited v. Watson's Trustees, March 11, 1887, 14 R. 610, Lord Young at pp. 618 and 621, 24 S.L.R. 429. Further, the action being for specific performance of a written agreement, the defenders were entitled to a proof of any averments showing that it would be inequitable to enforce it— Harris v. Pepperell, L.R. 1867, 5 Eq. 1; Garrard v. Frankel, 30 Beav. 445; Manser v. Back, 6 Hare 443, v. the opinion of Wigram (V.C.); Wood v. Scarth, 2 K. and J. 33; Earl Beauchamp v. Winn, L.R. [1873], 6 E. and I. App. 223, Lord Chelmsford at 232–3; Townshend v. Strangroom, 6 Ves. Jun. 328, Lord Eldon at 332–3. Proof should be allowed.

Argued for the pursuers and respondents — There was no authority for the Court re-forming a contract made in terms such as were here. Every care had been taken, and both parties to the contract had been assisted by an agent in framing the agreement. Nor was there anything on record to show that the existing document did not embody the true contract. Parole evidence, which was defined as all evidence not under sealed contract—Stroud's Judicial Dictionary, sub voce parole—was inadmissible to prove the error here alleged — Pollock on Contract, 7th. ed., pp. 513–4. In all the cases cited for the reclaimers there had been some antecedent expression of the contract in writing which explained it. If parole evidence were admissible to contradict a written contract, then there would be an end to all finality with respect to written contracts. The interlocutor of the Lord Ordinary should be sustained.