Scottish Court of Session Decisions

Lord Anderson's 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) 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.

[His Lordship referred to the claims for over-prices and for damages, which were abandoned]—All that the pursuers now ask for 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counsel further stated that he was willing that extract of any decree pronounced in favour of the pursuers should be superseded until the defenders had an opportunity of constituting any claim which they might have against the pursuers for breach by them of any stipulation of the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 S C 360; Sanderson & Son, 1921 S. C. 18.) As Lord Collins put it in the case of The General Bill-posting Company, Limited, [1909] A C 118, at p. 122, “the true test … is that which was laid down by Lord Coleridge, C.J., in Freeth v. Burr ((1874) L. R., 9 C. P. 208), and approved in Mersey Steel Company v. Naylor ((1884) 9 App. Cas. 434) 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 these 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. [His Lordship then dealt with the question of justification for terminating 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 this 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 fore-said 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 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 that 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 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 principle 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. [His Lordship then referred to the matter of over-prices and a claim relating to block-printing, with which this report is not concerned.]

Other authorities cited: Gloag on Contract, pp. 696, 720–726; Mersey Steel Co., 9 App. Cas. 434; Turnbull, 1 R. 730; Dingwall, 1912 S C 1097; M'Donald, 3 F. 923; Forrest, 1916 S. C. (H. L.) 28.

Lord Justice-Clerk (Scott Dickson).—[After referring to the averments of parties and the procedure in the case]—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 substantively proved the breaches they averred as to the sale of Torres's goods.

What, then, in the state of the facts is the legal position of the parties? The pursuers maintained the position which they seem to have taken up before the Lord Ordinary, that their right to commission under the agreement was not altered by any breaches they have committed. The defenders at first contended that the pursuers' right to sue for any commission under the agreements of 1914 and 1916 was wholly gone, whatever rights they might have upon the principle of quantum lucratus, but eventually they did not contest the pursuers' right to sue, so far as commission related to orders prior to July 1916 and was not yet paid. The defenders maintained, and, I think, established, that commission accounts were rendered to the pursuers monthly during the whole period and were duly paid, though that may not be strictly hujus loci at present. There was thus raised a question of law which is not without difficulty.

The Lord Ordinary, on the case as it stood before him, was in favour of the pursuers' contention. As the case was argued before us, I think the authorities were more fully gone into, and admissions in fact were ultimately made by the pursuers which were not before the Lord Ordinary. Turnbull's case has, so far as I know, always been accepted in our Courts as sound, and, although the opinion of Lord Justice-Clerk Moncreiff (at p. 738) is what has been generally quoted, Lord Benholme and Lord Heaves were equally distinct in their opinions as to the law. Even before Turnbull's case the same principle as that expressed by Lord Moncreiff had been stated by Lord Justice-Clerk Inglis in the case of Johnston v. Robertson thus: “The defence arises out of an obligation in a mutual contract, which is to be enforced at the same time as the stipulations in favour of the pursuer. Even that consideration might not be conclusive against the objection that a separate action should be raised to enforce this claim under the contract. But then we must take into consideration the other principle, that in a mutual contract, where one party seeks performance of the stipulations in his favour, he must show that he has given or tendered performance of his part of the contract. Every action on a mutual contract implies that the pursuer either has performed, or is willing to perform, his part of the contract; and it is, therefore, always open to the defender to say that under the contract a right arises also to him to demand performance of the contract before the pursuer can insist in his action.” In the still earlier case of Barclay v. The Anderston Foundry Co. Lord Cowan puts the case thus (at p. 1198): “Now, where there is a clear failure by one of the parties to a mutual contract to fulfil, in essential respects, his part of it, I cannot hold that notice is necessary by the other party ere he can regard himself free of his obligations under it, and entitled to act on that footing. There may, indeed, be room for saying, that when the neglect or failure to perform is but trifling in extent, or has arisen from inadvertence, or permits of satisfactory explanation, the contract cannot, in such a state of matters, be held to have become void.” Erskine puts the matter thus: “No party in a mutual contract, where the obligations on the parties are the causes of one another, can demand performance from the other, if he himself either cannot or will not perform the counterpart, for the mutual obligations are considered as conditional.” The law is stated to the same effect, and more fully, in Bell's Prin., sections 70, 71. In Ramsay v. Brand Lord President Robertson puts the matter thus (at p. 1214): “The question whether, in any given case, the deviations are of such materiality as to fall within the general rule, or are of such detail as to fall within the modification of the rule, is necessarily one of degree and circumstance. If the deviations are material and substantial, then the mere fact that the house is built would not prevent the proprietor of the ground from rejecting it and calling on the contractor to remove it, and he might do so if not barred by conduct from insisting in his right. If this right were so insisted in, then the contractor would of course have right to the materials, but he would have no right to payment. If, on the other hand, the proprietor made the best of it and let the house stay, the only claim which the contractor could have would be a claim of recompense; and this, be it observed, would be not for quantum meruit the builder, but for quantum lucratus est the proprietor. Accordingly, when contractors do not stick to their contracts they not only unmoor themselves from their contract rights, but they drift into much less certain and much less definite claims.” See also Lord Trayner's judgment in M'Donald v. Kydd, and Steel v. Young, where the judgment of the Court was given by Lord Low.

Some of these cases were considered in the House of Lords, in the case of Forrest, but the judgment there, in my opinion, does not affect the legal principle which, according to these cases, falls to be applied in this case. The Lord Chancellor in Forrest's case (at p. 33) began his remarks on the two Scottish cases of Ramsay v. Brand and Steel v. Young by saying: “Upon the view that I have expressed the cases quoted do not apply. The case of Ramsay & Son v. Brand depends entirely upon the view that the contract sued upon had in fact been broken, but only in an immaterial respect, and I reserve my opinion as to the validity of this case; while the case of Steel v. Young only decides that where a contract binds a builder to use a particular substance in construction the architect has no power to substitute a wholly different material.” Lord Parmoor distinguished the same cases, while Lord Wrenbury said (at p. 39): “Further, if I had found that the contract had not been performed, I could not hold that the builder could sue for the contract price, and that the building owner could have a remedy in damages. The two things are, to my mind, wholly inconsistent. The builder can sue for the contract price only if the contract has been performed. The building owner can sue for damages only if it has not. The two rights of action cannot co-exist.”

Two recent English cases were referred to—Andrews v. Ramsay and Nitedals Taendstikfabrik. These cases seem to show that a distinction is to be drawn between deliberate or dishonest breaches and breaches due to inadvertence or mistake.

In Story on Agency the law I am now discussing is dealt with thus (9th ed., paragraph 331): “In the next place, the agent is entitled to his commissions only upon a due and faithful performance of all the duties of his agency in regard to his principal … it is a condition precedent to the title to the commissions, that the contemplated services should be fully and faithfully performed. If, therefore, the agent does not perform June his appropriate duties, or if he is guilty of gross negligence, or gross misconduct, or gross unskilfulness, in the business of his agency, he will not only become liable to his principal for any damages which he may sustain thereby, but he will also forfeit all his commissions. Slight negligence, or slight omissions of duty, will not, indeed, ordinarily be visited with such serious consequences; although if any loss has occurred thereby to the principal, it will be followed by a proportionate diminution of the commissions.” Paragraph 334: “A fortiori, an agent will forfeit his commissions if he engages in any transaction which amounts to a fraud upon his principal; such as betraying his trust, by acting adversely to his interests; or by embarking his property in illegal transactions; or by being guilty of barratry; or by fraudulently misapplying his funds. And, if the agent had stipulated to give his whole time and services to his principal, he will not be permitted to derive any commissions or other compensation for services in another employment during the same period. Indeed, the commissions or other compensation earned by services in another employment, under such circumstances, would, in equity at least, seem properly to belong to the principal.”

Having in view the character of the breaches on the pursuers' part now admitted in this case, especially having regard to the breaches in connexion with Torres, the averments in the pursuers' record, and the evidence bearing on this point, I am of opinion that the pursuers are not entitled to recover commission under the contract for the period subsequent to July 1916.

As to the period prior to that date I have come to be of opinion, though not without difficulty, that the pursuers are entitled to an accounting and to payment of any commission that may be still unpaid for orders obtained between February-March 1914 and July 1916. Accounts showing the commission due appear to have been rendered, as I have said, to the pursuers by the defenders monthly, and payment as in full or to account seems to have been also made monthly, but the parties are not agreed as to this.

[His Lordship then dealt with a matter with which this report is not concerned.]

Lord Salvesen.—The sole question decided by the Lord Ordinary in the interlocutor submitted to review is that the defenders are bound to lodge accounts showing the commissions earned by the pursuers under two agency agreements which they entered into with the defenders. In the end this may prove to be quite academic, and it is regrettable that a proof, extending to 130 pages of print, and documents produced relative to the proof, extending to another 430 pages, should have been thought necessary to elucidate this question which, now that the facts which give rise to it are admitted, is a purely legal one. It appears that, during the whole course of the agency, the defenders regularly rendered monthly accounts to the pursuers of the commissions that they admitted to be due on the assumption that the pursuers were faithfully performing the obligations which they undertook under each of the agreements; and the real question on the merits appears to relate merely to a balance which the defenders have retained on discovering that, for a considerable time before the last agreement was terminated by the pursuers, they had been systematically in breach of it. The pursuers have abandoned their claim for damages, which bulks largely in their summons, and also for commissions on what are called “over-prices.” They admit that any balance of commissions which the defenders' accounts might show to have been earned, on the assumption that the pursuers had honestly fulfilled their duties as agents, may be legitimately retained by the defenders to meet any counter-claims of damages which they may be able to instruct. What we are asked to decide at this stage, when there has been only a partial inquiry, is the legal question whether the breach of agreement which is averred, and which is not now disputed, disentitles the pursuers from calling upon the defenders to produce accounts and to pay commission at the stipulated rate, subject always to their admitted right to set off against those commissions any loss that was caused to them by the pursuers' breach of duty towards them as their agents.

Now, all this procedure might have been avoided, and the merits at once dealt with, in one of two ways—either the defenders might have lodged their accounts under protest, and so made the course clear for the determination of the matter in which the parties are truly interested, namely, whether any sum is due to the pursuers or not; or, when the defenders maintained that they were not liable to account to the pursuers because of their breach of the agreement under which alone they were entitled to commission, the pursuers might have frankly admitted the breach (as they have now been compelled to do), and so have avoided the expense of an inquiry and recovery of documents which have been rendered necessary by their denial; in that case, the legal question might have been discussed in Procedure Roll at a mere fraction of the expense to which parties have actually been put.

The first agreement is contained in a letter of 26th February 1914 from the pursuers to the defenders and their acceptance of the same on 2nd March. The first head of that agreement provides that the pursuers were to confine themselves solely to the defenders' 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.” For a considerable time it appears that the pursuers honestly fulfilled this part of their agreement; but, from July 1916 (if not earlier) and onwards, they systematically violated it by selling the goods of other makers which did not fall under the exception. In July of that year they actually entered into a written agreement with Elia Torres, under which they were appointed as his London agents for the sale of cretonnes, domestics, sateen, and down-quilt sateens, at a commission of 212 per cent and of 5 per cent on the high-class and wide cretonnes. All these were goods which the defenders produced, and which the pursuers accordingly were debarred, by their agreement with them, from selling for other manufacturers. While this agreement was still current, a new agreement was, on 12th December 1916, entered into between the pursuers and the defenders, by which the agreement of 26th February 1914 was cancelled and the new agreement substituted. By the very first article of that agreement it was provided “that all cotton goods handled by you or offered by you for sale will be the production of the United Turkey Red Co., Limited.” At the very time when the pursuers agreed to this stipulation they were acting as the agents of Elia Torres for the sale of cotton goods, and they continued to do so until November of the following year when their breach was discovered. Not merely so, but they continued to purchase and sell cotton goods which were the production of other manufacturers than the defenders. No attempt is now made to excuse the pursuers' conduct in this respect, although Mr Graham himself in the witness-box offered various explanations, all of which were manifestly false and have been completely disproved.

The defenders, in maintaining their second plea in law, rely upon the opinion of the Lord Justice-Clerk in the case of Turnbull, where he says (at p. 738): “I understand the law of Scotland, in regard to mutual contracts, to be quite clear—(1st) that the stipulations on either side are the counterparts and the consideration given for each other; (2nd) that a failure to perform any material or substantial part of the contract on the part of one will prevent him from suing the other for performance.” Similar views were expressed by Lord Benholme and Lord Neaves. The former said (at p. 739): “It is very important that we should express our determination to abide by the well-established rule of Scotch law that in mutual contracts there is no ground for separating the parts of the contract into independent obligements, so that one party can refuse to perform his part of the contract, and yet insist upon the other performing his part. The unity of the contract must be respected.” And Lord Neaves said (at p. 739): “It is a general principle that all the material stipulations in a contract forming a unum quid are mutual causes.” Now, the pursuers' counsel frankly admitted that the condition which I have already quoted was a material part of the contract, so material indeed that, if the pursuers had not assented to it, it may well be that no contract would have been entered into. And certainly it is to be presumed that, neither as regards the rate of commission fixed nor as regards the duration of the agreement, would the terms have been the same if the pursuers had disclosed what seems to have been their intention throughout of deliberately ignoring the prohibition in question. In the subsequent case of Ramsay v. Brand, which applied to a building contract, the Lord President said (at p. 1214): “In judging of this question, it is necessary to bear in memory the law applicable to it. No man can claim the sum stipulated to be paid on the completion of certain specified work unless he has performed that work modo et forma, and this applies to building contracts just as much as to other contracts.” Accordingly, in that case it was held that the contract price sued for was not due, except under deduction of the full amount which would be necessary in order to enable the proprietor of the house to take down those parts which had been erected disconform to the contract, and complete the work in accordance with the contract. The Lord President, in the same case, stated that,

if the proprietor, instead of demanding that the house should be removed, made the best of it and let the house stay, the only claim which the con-tractor could have would be a claim of recompense, “and this, be it observed, would be not for quantum meruit the builder, but for quantum lucratus est the proprietor.” This case was followed by the Second Division in Steel. Lord Low, who gave the leading opinion, held (at p. 366), in circumstances of very great hardship to the contractor, that “the strict rule of law (that a person who has broken his contract cannot sue upon it)” should be applied, and the other Judges concurred. The case of Ramsay v. Brand was questioned by Lord Buckmaster in the case of Forrest (at p. 33), but Lord Wrenbury seems to express precisely the same proposition in law as was given effect to in Ramsay v. Brand and Steel v. Young in the following passage (at p. 39): “If I had found that the contract had not been performed, I could not hold that the builder could sue for the contract price, and that the building owner could have a remedy in damages. The two things are, to my mind, wholly inconsistent. The builder can sue for the contract price only if the contract has been performed. The building owner can sue for damages only if it has not. The two rights of action cannot co-exist.” In any event the Scottish decisions to which I have referred appear to me to be binding upon us.

Now, it is quite true that these decisions are not in terms applicable to a contract of agency. But the general statement of the law in Turnbull v. M'Lean makes the rule the same wherever there are mutual stipulations and any material stipulation has been violated by the party who is suing on the contract. It does not follow that he necessarily forfeits all claim, but it puts upon him the onus of proving the extent to which the other party has been lucratus by the services he has rendered, instead of putting upon the defenders the onus of showing the amount of loss which has flowed from their agent's breach of duty. Such a claim must necessarily be very difficult to establish, and is obviously incapable of exact pecuniary ascertainment. There are two cases in England dealing with breach of duty by an agent, which, although not precisely in point so far as the facts are concerned, have nevertheless a strong bearing upon the pursuers' claim. In the case of Andrews an agent to sell property, who sold the property but received a secret profit from the purchaser, was held not only liable to account for that profit, but also disentitled to any commission from his principal. Lord Alverstone said (at p. 637): “It seems to me that this case is only an instance of an agent who has acted improperly being unable to recover his commission from his principal. It is impossible to say what the result might have been if the agent in this case had acted honestly. … A principal is entitled to have an honest agent, and it is only the honest agent who is entitled to any commission.” In the subsequent case of Nitedals Neville, J., distinguished between the cases in which the agent had acted honestly and those in which he had acted dishonestly, and allowed him to take credit for the commission in the former but disallowed all commission in the latter cases. He also held that the agent must account for any secret profits which he had made. The pursuers founded strongly upon this case, which, in some respects, is very similar to the one with which we are dealing. But it does not seem to me to decide the strict legal question with which we are concerned, and which involves, according to the pursuers' contention, that the defenders are liable to the same strict accounting as regards the pursuers' commissions as if the pursuers had throughout implemented the whole terms of the agreement by which alone they were entitled to commission at all. In the end the equitable result may be very much the same as that arrived at by Mr Justice Neville. But the pursuers must prove, in the ordinary way, the amount of the unpaid commissions, and the defenders are entitled to demand an accounting from the pursuers of the secret profits which they made upon other transactions in breach of their duty as their agents, in addition to any loss that they may be otherwise able to qualify through the pursuers having sold inferior goods as theirs or in any other way. We shall then get to the real merits of the dispute between the parties, and ascertain on which side there is a debit balance. In view of the body of authority that I have cited, I am unable to concur in the Lord Ordinary's view that an agent who deliberately violates a material part of the contract under which he is appointed, and which alone entitles him to commission at the stipulated rate, shall have exactly the same rights of action against his principals, in the matter of compelling them to lodge accounts, as if he had throughout honestly performed all the stipulations of the contract incumbent upon him.

In the view I have taken, I think it unnecessary to decide whether the defenders, by restricting the pursuers from canvassing the customers of their London agents, were themselves in breach of the contract so as to justify the pursuers in terminating it. As at present advised, I am not able to assent to the Lord Ordinary's view on this matter; but it will only arise if a claim is made by the defenders for damages in respect of the unexpired period of the contract, which it is quite possible that they may not press. At all events, this question does not arise at the present stage.

[His Lordship then dealt with a matter with which this report is not concerned.] On the whole matter, I think we must recall the Lord Ordinary's interlocutor, assoilzie the defenders from the conclusions for accounting, except for the period preceding the pursuers' breach of agreement, assoilzie them from the pecuniary conclusion for damages, and remit to the Lord Ordinary quoad ultra to proceed.

Lord Ormidale.—This action as laid, and when proof was allowed by the Lord Ordinary, embraced several matters which, by the admission of the pursuers, it became unnecessary to consider and determine in the Inner House. I refer to the claim for damages by the pursuers and their claim for over-prices. One other question it is unnecessary to decide, viz., whether or not the pursuers were justified in terminating their contract as they purported to do in November 1917? Whatever relevancy this topic might have if the defenders were to make a claim for damages against the pursuers, as they reserve their right to do, the determination of it does not appear to me to have any direct relation to the true and only matter now in dispute, viz., whether the defenders are freed from liability to account to the pursuers for commissions alleged to have been earned by them, in consequence of breaches by the latter of the stipulations of the commission contracts.

The commission contracts libelled in the conclusions of the summons are those of February 1914 and December 1916. Incidental mention is made in the record to a letter of 12th September 1912, which refers to commission, and, as I understand, formed the basis of the pursuers' claim for over-prices. That claim, however, as already noted, is no longer insisted in, and, apart from that, there is no evidence to support it.

Article 1 of the 1914 agreement is as follows: “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.” Article 3 provides, in return for orders secured by the pursuers, for, inter alia, the payment of certain commissions to the pursuers. The agreement was to endure for three years.

On 12th December 1916 the agreement of February 1914 was cancelled and another agreement substituted for it, article 1 of which is as follows: “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 Co., Limited.” By article 2 certain rates of commission are mutually agreed. This agreement was to endure for five years. Notice to terminate it was given by the pursuers in 1917.

The practice was for the defenders to make monthly payments of the commission earned by the pursuers. The latter aver that the payments so made fell far short of the sums to which they were entitled, and, as the defenders do not plead settled accounts, the claim for an accounting would, in the ordinary case, be a relevant and legitimate claim. But the defenders, while denying that any of the commissions due to the pursuers are in arrears, further set out in their defences various instances of serious breaches of the two agreements, and maintain that the pursuers are not entitled to the remedy they seek; and they plead: “2.The pursuers, being in breach of their contract with the defenders, are barred from pursuing the present action, which should be dismissed.” This plea the Lord Ordinary has repelled, and has ordered the defenders to lodge accounts as craved.

It is clear enough on the proof that the pursuers did for a considerable time act in strict compliance with the terms of the agreement of 1914, rendering valuable services to the defenders. For the years 1914 and 1915 the latter have no cause of complaint. It is at least doubtful, in my opinion, whether the pursuers were not in March 1916 in breach of their contract. It is clearly proved that in and after July they were engaged in transactions in material breach of the agreements, a flagrant instance of which is their agreement and transaction with Elia Torres to which your Lordship has referred in detail. They failed to confine their activities as agents solely to the defenders' productions. They handled and offered for sale cotton goods which were not the production of the defenders. They also engaged in transactions in such goods as ordinary merchants. In the end it was not disputed by their counsel that they were in material breach of both the agreements, and it is un-necessary, therefore, to examine the evidence in detail.

In such a position of affairs it is impossible to give effect to the contention of the pursuers that they are entitled to claim an accounting for the commissions alleged to be due under the contracts which they themselves have broken, leaving the defenders to seek a remedy by way of an action for damages. In Forrest v. Scottish County Investment Co., which was concerned with a building contract, Lord Wrenbury says (at p. 39): “Further, if I had found that the contract had not been performed, I could not hold that the builder could sue for the contract price, and that the building owner could have a remedy in damages. The two things are, to my mind, wholly inconsistent. The builder can sue for the contract price only if the contract has been performed. The building owner can sue for damages only if it has not. The two rights of action cannot co-exist.” The weight of authority is entirely to the same effect, and, while in most of the cases cited the contracts in question were not contracts of agency, the principle of law enunciated in the opinions of the Judges who decided them, as expressed in the passages already quoted by your Lordships, is clearly applicable, the principle, namely, that a person who has broken a contract cannot sue upon it. In the case of Andrews v. Ramsay & Co., which was a case of agency, the question was considered whether an agent, who had carried through a transaction but had acted dishonestly in the course of doing so, was entitled to an agreed-on commission. It was held that he was not. That case, however, was concerned only with a single transaction. In the case of Nitedals Taendstikfabrik there were numerous transactions, some of them free from the taint of dishonesty and some of them not, and it was held that the agent was entitled to commission in the instances in which he had been honest, but not in those in which he had not been honest. Mr Justice Neville in giving judgment says (at p. 674): “I am asked to say that he is to have no commission in any case where he has acted properly under his agency as well as in the cases where he acted improperly. Having regard to what is said in Andrews v. Ramsay & Co., I feel that there is a difficulty about the matter, but the conclusion I have come to is this, that the doctrine there laid down does not apply to the case of an agency where the transactions in question are separable, as I think they are in this case, and does not entitle the principal to refuse to pay commission to his agent in cases where he has acted honestly because there are other cases in which the agent, acting under the same agreement, has acted improperly and dishonestly.”

This case suggests a distinction to which, in my opinion, effect may be given in the present case, to the extent of holding that the pursuers are entitled to the agreed-on commissions prior to the date when they breached the agreement and commenced to act improperly, and thereafter not. Having ceased to perform the stipulated services in terms of their contract they forfeited the right to call for commissions—the reward stipulated in the contract for these services—the one being the direct counterpart of the other. It is obvious that the defenders may have been seriously prejudiced by the wholly indefensible actings of the pursuers. I cannot agree with the Lord Ordinary that the pursuers in any view were entitled to a quantum meruit and that the quantum would be found to be just what is sued for as commission. If the defenders were benefited at all by the services of the pursuers after July 1916, the question would be not quantum meruit the pursuers, but quantum lucrati the defenders, and the burden of the proof would be on the pursuers.

Accordingly I concur with your Lordship that the order for accounts pronounced by the Lord Ordinary must be recalled, and that the accounting must be restricted to the period commencing on 26th February 1914, and terminating at July 1916.

[His Lordship then dealt with a matter with which this report is not concerned.]

Lord Hunter.—[After narrating the conclusions of the summons]—The pursuers acted for a number of years prior to 27th November 1917 as agents for the sale of goods manufactured by the defenders. By letter dated 26th February 1914 the pursuers undertook to confine themselves solely to the defenders' productions, with the exception of styles and goods which they did not then produce but which, whenever the defenders were ready to do so, would be transferred to them. In return for orders placed with the defenders the pursuers were to receive a minimum commission of 212 per cent to be placed to their credit, and in special lines a commission to be agreed upon from time to time; also a fee of £100 per annum and an allowance of £100 per annum of travelling expenses. This agreement was cancelled, and in substitution for its provisions it was provided, as set forth in a letter from the defenders to the pursuers dated 12th December 1916, that all cotton goods handled by the pursuers or offered by them for sale should be the production of the defenders. In return for their services the pursuers were to receive a maximum commission of 5 per cent on handkerchiefs and 212 per cent on other commission goods, but on special lines another rate might be agreed on from time to time. Provision was made for the formation, out of 1 per cent, of a fund from which bad debts were to be met. The agreement was to be for five years from 12th December 1916. On 26th November 1917 the pursuers intimated that they terminated the agreement, by reason, as they allege, of the defenders' persistent breaches thereof. The present action was then brought. According to the pursuers' averments the defenders received and implemented many orders forwarded by the pursuers without accounting for the commission to which they were entitled. The defenders admit that the pursuers' commission was payable monthly, but they aver that it is not in arrear.

The first step ordinarily taken in an action of accounting like the present would be an order for accounts, leaving the merits of the dispute to be determined on the objections stated to the accounts produced and the answers thereto. Even in the present case I am not sure that such procedure would not have saved considerable expense, and served to focus the real questions in dispute in a way that has not been accomplished by the procedure actually adopted. The defenders, however, contended that they were under no liability to produce any accounts, the pursuers being “in breach of contract to the defenders,” not only in respect “of the letter of 26th November 1917, there being no justification therefor or for the termination of the agreement of 1916 therein intimated, but also through their disregard both of the agreement of February and March 1914, and of the agreement of 12th December 1916, in virtue of which they were in the former case bound to confine themselves to defenders' productions except as stated in the agreement of 1914, and in the latter case were prevented from selling or offering for sale any cotton goods not produced by the defenders.” Instances of alleged breach were set out on record. The pursuers replied that they were entitled to terminate the agency when they did on account of certain acts of the defenders to which they refer, and they denied that they had themselves committed any act in breach of their agency agreement as contained in the letters of 1914 and 1916 already mentioned. The second plea in law for the defenders is “the pursuers, being in breach of their contract with the defenders, are barred from pursuing the present action.” On 17th May 1918 the Lord Ordinary, before answer and under reservation of all questions of accounting between the parties, allowed them a proof of their respective averments on record and the pursuers a conjunct probation. After a proof the Lord Ordinary sustained the first plea in law stated for the pursuers, and repelled the first, second, and fourth pleas in law for the defenders, on whom he pronounced an order for the production of accounts. Against this interlocutor the present reclaiming note was taken.

From the Lord Ordinary's opinion it appears that he held on the evidence that the pursuers had proved that they had justification for terminating the contract in November 1917. At the same time he found that it was proved that the pursuers had acted in breach of the first term of the arrangement come to on 12th December 1916. The soundness of the latter finding was not disputed by the pursuers' counsel. On the evidence it is, I think, established that the pursuers were in breach of their agreements with the defenders by acting as agents for manufacturers who were the defenders' rivals in trade, and, in a number of cases, to use the Lord Ordinary's words, by acting “as merchants with reference to the cotton goods of others, buying at one price and selling at a higher, and thereby making a profit.”

It does not appear to me to be necessary to consider whether the Lord Ordinary was right or wrong in holding that the defenders had given the pursuers good ground for refusing to act longer as agents. I express no opinion upon this point. A finding to this effect cannot benefit the pursuers, who are proved to have been in serious breach of the obligations undertaken by them, and to have given the defenders just cause for terminating the contract. In these circumstances they could not use such a finding as the foundation for a claim of damages which, at the conclusion of the proof, their counsel had the good sense to abandon. So far as the defenders are concerned, I do not think that a finding that the pursuers were not justified in terminating their agreement with the defenders on 26th November 1917 would necessarily lead to the action being dismissed, though it would constitute good ground for a claim of damages in which, at the present moment, the defenders are not insisting. Their second plea in law is, in my opinion, stated in too absolute terms. If A contracts to build a house or to do some piece of work according to certain requirements, he cannot claim payment under the contract unless he has complied with the material obligations undertaken by him. The most apt illustrations of this rule are probably to be found in building contracts. In Ramsay v. Brand Lord President Robertson said (at p. 1214): “No man can claim the sum stipulated to be paid on the completion of certain specified work unless he has performed that work modo et forma, and this applies to building contracts just as much as to other contracts.” At another part of his opinion he says: “when contractors do not stick to their contracts they not only unmoor themselves from their contract rights, but they drift into much less certain and much less definite claims.” In that case, however, the Court gave the building contractor, who had deviated from plans agreed upon, the contract price under deduction of the cost of bringing the building into conformity with the plans. In Steel v. Young it was held that a contractor, who had, in breach of his contract, substituted milled lime for cement mortar, was not entitled to sue for the contract price. Lord Low said (at p. 365): “The general rule is that a building contract, like any other contract, must be performed modo et forma, and if the builder departs from the contract he loses his right to sue for the contract price.” These cases were considered in the House of Lords in the more recent case of Forrest; but, although some of the Judges expressed doubt as to their soundness, they were not overruled and are binding upon this Court.

It does not appear to me, however, that statements of the law made by Judges in the cases of Ramsay and Steel necessarily apply to contracts of a different character from those which were the subject of those decisions. In the case of Forrest Lord Parmoor says (at p. 36): “I dissent in principle from the proposition that the right of a builder to claim contract price for contract works stands on the same basis in a measure and value contract as in a contract for a lump sum. If the case of Steel v. Young can be taken to affirm any such proposition, I respectfully differ from the judgment of the Court of Session.” He then proceeds to point out that, in the case of a measure and value contract, “the covenants for work are independent of each other in this sense that a builder who has completed a number of items conform to the contract, and has handed over the works to the building owner, and has obtained the final certificates of the architect and measurers, is not disentitled to recover in respect of these items on the ground that on other items he has failed to conform with the contractual conditions.” In this part of his opinion Lord Parmoor proceeds upon the footing that, even in a building contract, you may have severable and independent obligations. It was argued for the defenders that this view is contrary to Scots law, and reference was made to the opinions of the Lord Justice-Clerk and Lord Benholme in Turnbull v. M'Lean & Co., where the latter (at p. 739) said: “It is very important that we should express our determination to abide by the well-established rule of Scotch law that in mutual contracts there is no ground for separating the parts of the contract into independent obligements, so that one party can refuse to perform his part of the contract and yet insist upon the other performing his part. The unity of the contract must be respected.” I do not take this as meaning that, in every contract where a party is in breach of a material condition, he is not entitled to recover what was due to him under the contract prior to the breach and independent thereof. If a servant under a contract of service where his wages are payable weekly or monthly is justifiably dismissed, he does not forfeit the wages he has already earned before he was guilty of misconduct. This has been decided in England—Gordon v. Potter, Parkin v. South Hetton Coal Co.; and I think that the same rule applies in Scotland. As regards agency cases, it was held in Andrews v. Ramsay, that a dishonest agent could not recover any commission at all, but the agent's misconduct affected the transaction in respect of which commission was claimed. In the case of Nitedals Taendstikfabrik it was held by Neville, J., that, where an agent in transactions that are severable has been honest in some but dishonest in others, he is entitled to his commission in the former but not in the latter cases. Mr Justice Neville said (at p. 674): “having regard to the decision in Andrews v. Ramsay & Co. it is clear that the defendant is not entitled to charge any commission in all the cases where he has credited a price to the plaintiffs other than that received by him from the customer. But I am asked to say that he is to have no commission in any case where he acted properly under his agency as well as in cases where he acted improperly. Having regard to what is said in Andrews v. Ramsay & Co., I feel there is a difficulty about the matter, but the conclusion I have come to is this, that the doctrine there laid down does not apply to the case of an agency where the transactions in question are separable, as I think they are in this case, and does not entitle the principal to refuse to pay commission to his agent in cases where he has acted honestly because there are other cases in which the agent, acting under the same agreement, has acted improperly and dishonestly.” Applying this reasoning to the present case I do not think that the pursuers, by a breach of the agreement committed in November 1917, would thereby forfeit all commissions earned by them under their agency prior to the date of the breach. In my opinion, the defenders would not have escaped liability to account by showing that the pursuers committed a breach of their agency contract by terminating the agency when they did, though the fact, if established, might found a claim of damages and therefore have an important bearing upon the extent of the defenders' pecuniary liability to the pursuers.

The real question that arises in this case is whether the pursuers, from the date when it is established that they were in breach of their agency obligations, are entitled to make a claim for commission under the contract. According to the Lord Ordinary the pursuers are entitled to commission under the contract, and, therefore, to the accounting which he has allowed, because they have admittedly rendered the services in respect of which commission is payable. If this be the correct way of looking at the contract, the conclusion reached is sound. In my opinion, however, it is impossible to treat the clause as to remuneration as separable from, and independent of, the agents' obligation as to not selling the goods of rival traders. I do not think it can be said that, if they had reserved to themselves liberty to act for competitors in trade of the defenders, they would necessarily have received the commission stipulated in the contract. In an English case, Stavers v. Curling, Tindal, C.J., said: “the rule has been established by a long series of decisions in modern times, that the question whether covenants are to be held dependent or independent of each other, is to be determined by the intention and meaning of the parties as it appears on the instrument, and by the application of common sense to each particular case; to which intention, when once discovered, all technical forms of expression must give way.” From July 1916 the pursuers appear to me to have been continuously acting in breach of obligations to the defenders that affected their claim to commission, and during that period they are therefore not entitled to found upon the contract as giving them a claim to remuneration, whatever may be their claim independent thereof. I think, therefore, that the Lord Ordinary's interlocutor should be altered by confining the period for an accounting to the time prior to July 1916.