Scottish Court of Session Decisions

Lord Hunter's OPINION.—[After the narrative quoted supra]—The pursuers maintain that, in consequence of the contract having become incapable of fulfilment, they are entitled to recover the money paid by them to the defenders in terms of the contract. The defenders, however, contend that rights acquired under the contract cannot be disturbed by the termination of the contract owing to a cause for which neither is responsible, and that they are therefore entitled to retain the payment made to them. A point of law of interest and importance, the solution of which is attended with difficulty, is thus raised between the parties.

In support of their contention the defenders rely upon a number of English cases. In Anglo-Egyptian Navigation Co. v. Rennie and Another, (1875) L. R., 10 C. P. 271, a firm of shipbuilders had contracted to repair a ship with materials partly new and partly old. The price of the work was to be £5800, to be paid in three instalments as the work progressed. The ship was lost after one of the instalments had been paid and after the new machinery contracted for was ready to be fixed on board. A second instalment was subsequently paid. The plantiffs in the action claimed delivery of the machinery, and, as this was refused, brought an action for the detention of the same or for recovery of the £4000 which they had paid. It was held that the contract was an entire and indivisible one for work to be done upon the plaintiffs’ ship for a certain price, from further performance of which both parties were released by the loss of the ship; that the property in the articles manufactured was not intended to pass until they were fixed on board the ship; and that consequently the plaintiffs were not entitled to the boilers and machinery, nor to recover the £4000 paid, as upon a failure of consideration.

The doctrine upon which the defenders rely is more clearly illustrated in the series of cases which may be described as the Coronation cases. Contracts were entered into, under which high prices were agreed to be paid for the temporary use of premises from which the Coronation procession might be seen. On the postponement of the Coronation owing to the King's illness, a number of legal questions arising out of these contracts came before the English Courts for decision. It was held that the taking place of the procession on the date originally fixed along the proclaimed route was regarded by both contracting parties as the foundation of the contract, and that the non-existence of this state of things going to the root of the matter and essential to the performance of the contract excused both parties from further fulfilment of the contract. Where, however, money had been paid prior to the postponement of the Coronation it was held that it could not be recovered. In Blakeley v. Muller & Co., decided by a Divisional Court in England, and reported in a footnote at page 762 of [1903] 2 K. B., Channell, J., said:—“All that can be said is that, when the procession was abandoned, the contract was off, not that anything done under the contract was void. The loss must remain where it was at the time of the abandonment. It is like the case of a charter-party where the freight is payable in advance, and the voyage is not completed, and the freight therefore not earned. Where the non-completion arose through impossibility of performance the freight could not be recovered back.” In Chandler v Webster, [1904] 1 K B 493, at p. 501, Romer, L.J., stated the law in general terms:—“Where there is an agreement which is based on the assumption by both parties that a certain event will in the future take place, and that event is the foundation of the contract, and, through no default by either party, and owing to circumstances which were not in the contemplation of the parties when the agreement was made, it happens that, before the time fixed for that event, it is ascertained that it cannot take place, the parties thenceforth are both free from any subsequent obligation cast upon them by the agreement; but, except in cases where the contract can be treated as rescinded ab initio, any payment previously made, and any legal right previously accrued according to the terms of the agreement, will not be disturbed.”

In my opinion the reasoning in the cases to which I have referred goes far to support the defenders' contention, although the circumstances of the present case are different from those in any of the cited cases. The same result, however, would not necessarily have been reached in Scotland, where a claim for restitution on account of failure of consideration would probably have been maintainable. In Ersk. III. i. 10, there is this passage:—“From this duty of restitution it ariseth that things given in the special view of a certain event, ex gr. in the contemplation of marriage, must, if the event, in the view of which they were given, shall not afterwards exist, be restored by the grantee, who may be sued for restitution by personal action, styled in the Roman Law, condictio causa data causa non secuta.” In the present case the contract was for marine engines, and the payment was made upon the footing that the engines would subsequently be delivered. Delivery having become impossible in consequence of the outbreak of war, the consideration in respect of which payment was made failed, and a claim for repetition of the money paid would appear to arise—giving the defenders, it may be, a right to a deduction in respect of work done or outlays incurred by them.

In Watson & Co. v. Shankland, (1871) 10 Macph. 142, Lord President Inglis said (at p. 152): “There is no rule of the civil law, as adopted into all modern municipal codes and systems, better understood than this—that if money is advanced by one party to a mutual contract, on the condition and stipulation that something shall be afterwards paid or performed by the other party, and the latter party fails in performing his part of the contract, the former is entitled to repayment of his advance, on the ground of failure of consideration. In the Roman system the demand for repayment took the form of a condictio causa data causa non secuta, or a condictio sine causa, or a condictio indebiti, according to the particular circumstances. In our own practice these remedies are represented by the action of restitution and the action of repetition. And in all systems of jurisprudence there must be similar remedies, for the rule which they are intended to enforce is of universal application in mutual contracts. If a person contract to build me a house, and stipulate that I shall advance him a certain portion of the price before he begins to bring his materials to the ground, or to perform any part of the work, the money so advanced may certainly be recovered back if he never performs any part, or any available part, of his contract. No doubt, if he perform a part and then fail in completing the contract, I shall be bound in equity to allow him credit to the extent to which I am lucratus by his materials and labour, but no further; and if I am not lucratus at all, I shall be entitled to repetition of the whole advance, however great his expenditure and consequent loss may have been.” The question in that case was whether an advance by charterers to account of freight could be recovered where the vessel and cargo were lost. In the particular circumstances of the case it was held by a majority of seven Judges that it could not be recovered, but the view was expressed by the Court, as stated in the rubric, “that an advance by the charterers of a ship to account of freight is, on the loss of ship and cargo, recoverable from the shipowners, where the charter-party contains no stipulation to the contrary, express or clearly implied, the law of Scotland upon this point, although contrary to that of England, being in conformity with the law merchant of every other trading community.” The decision reached by the Court of Session was approved by the House of Lords, 11 Macph. (H. L.) 51, though the Lord Chancellor and the other Judges in that tribunal did not consider it necessary to express a view upon the Lord President's statement of the general law upon the subject. I do not, however, find that any doubt was expressed about the soundness of the Lord President's statement as to the right of restitution or repetition where the consideration in respect of which a payment of money has been made has failed. That statement appears to me to be in accordance with the rule of law as stated by Erskine. In Stair, I. vii. 7, occurs this passage: “The duty of restitution extendeth to those things, quœ cadunt in non causam, which coming warrantably to our hands, and without any paction of restitution, yet if the cause cease by which they become ours, there superveneth the obligation of restitution of them. Whence are the condictions in law, sine causa, and causa data causa non secuta, which have this natural ground, and of which there are innumerable instances.”

In Davis & Primrose v. The Clyde Shipbuilding and Engineering Co. and Others, 1917, 1 S. L. T. 297, Lord Dewar gave effect to Lord President Inglis's expression of the law as to the obligation of restitution in a case similar to the present, and his interlocutor does not appear to have been reclaimed against.

In Penney v. The Clyde Shipbuilding and Engineering Co., 1919 S. C. 363, 1920 S. C. (H. L.) 68, the Clyde Shipbuilding and Engineering Co. (who are also defenders in the present action) had contracted to build a ship for Austrian shipowners. At the outbreak of war a number of instalments, amounting to £79,732, had been paid in respect of the vessel, which was nearing completion. The Admiralty requisitioned the vessel on 17th February 1915, as she then stood, at the price of £86,000, but this price was not paid Until July 1917, and it was then paid without interest. On 1st December 1917 the Board of Trade pronounced an order vesting the £79,732 with interest from the date of receipt of the instalments in the Custodian for Scotland under the Trading with the Enemy Amendment Act, 1914. The Custodian brought an action against the builders, who resisted payment on the ground that, in the event which had occurred, the ship had been forfeited to them. Alternatively, the builders stated two counter-claims against the fund. In the Court of Session the pursuer got decree for the amount sued for, reserving all the counter-claims of the defenders. In the House of Lords the judgment in favour of the pursuer was affirmed, but decree was given under deduction of such sum, if any, as the defenders could prove to represent loss sustained by them under their first counter-claim, i.e., loss caused by the ship occupying a berth in the defenders’ yard after the stipulated date of delivery.

The case of Penney is distinguishable from the present inasmuch as the property in the vessel was held under the contract to have passed to the purchasers, but if I am right in the view which I have expressed, the right to repetition equally exists in the present case. The defenders may, however, wish to alter their averments as to their claim, which do not appear to me to be precise. Meantime, I shall pronounce an interlocutor in terms of the declaratory conclusions of the summons, continue the cause, and grant leave to reclaim.

Lord President (Clyde).—The contract in this case was by a Scottish engineering company to make and deliver to an Austrian company a set of marine engines—as regards certain parts on or before 15th February 1915, and as regards the remaining parts on or before 30th April 1915. The contract was completed by the signature of the parties on 4th May 1914, and immediately passed into the stage of performance. The contract price was £11,550, but of this amount a first instalment of 20 per cent was payable by cash in London on signing the contract. Accordingly, the Austrian buyers on 20th May 1914 paid a sum of £2310 to the makers. The contract also contained a number of detailed provisions—to be carried out immediately on the contract being signed—with regard to the submission on the part of the makers, and the adjustment by the Austrian company, of drawings, plans, and details necessary for regulating the construction of the ship suitably for the reception of the engines when delivered. These provisions were duly implemented by the makers before 12th August 1914 when war was declared between this country and Austria; but no part of the engines had been made or put together by that date, with the result that no property in the engines or in any part of them had passed to the Austrian company (in terms of article 7 of the contract).

The effect of the outbreak of war between the countries of which the makers and the buyers were respectively nationals, while the contract was in course of performance, was to render further performance of it illegal, as involving intercourse with the King's enemies and as being detrimental to the interests of the makers’ country, and so to exonerate or discharge the parties from their respective obligations for such further performance; but whatever rights had accrued under the contract before the outbreak of war remained unaffected, except that the right to sue in respect thereof was suspended during the war. While the contract is discharged as regards further performance, it is not wholly annulled. This was accepted as the law applicable to the case of supervening war conditions by this Court in the case of Penney v. Clyde Shipbuilding Co., and is in accordance with the decisions and opinions in a number of cases in the English Courts and in the House of Lords, of which it is enough to mention Zinc Corporation v. Hirsch and Ertel Bieber v. Bio Tinto Co.

The present action is brought by the Austrian buyers—now an Italian company—for repetition of the instalment of price paid on 20th May 1914. I think this claim is admissible only if it is in accordance with the accrued rights of parties under the contract—interpreted by the law of Scotland—as those rights stood prior to 12th August 1914.

The pursuers contended in the first place that, whereas the whole price was the counterpart of the makers' obligation to make and deliver the engines in accordance with the terms of the contract (see article 9), the makers' accrued right to the first instalment was conditional on the engines being so made and delivered to the pursuers. This is right, so far; for, if the non-delivery occurred through refusal or breach on the part of the makers, the buyers had the right to treat them as repudiating their obligations, and—having rescinded the contract—to demand repetition of the price. But the condition of such repetition is that the contract has been rescinded, that is, wholly annulled. It is nothing to the point that, in the ordinary case of breach of a condition material to the contract entitling rescission, the remedy of repetition of the price is sunk or concealed in an action for the recovery of compensation in damages.

Using Lord Stair's language in his Institutes with reference to the doctrine of restitution (I. vii. 7), such an instalment as was paid in the present case would—on rescission of the contract—become one of “those things quœ cadunt in non causam, which coming warrantably to our hands, and without any paction of restitution, yet if the cause cease by which they become ours, there superveneth the obligation of restitution of them.” If this dictum be expressed in terms of the condictio causa data causa non secuta (Dig. XII. iv.), to which Lord Stair refers, and which was expounded to us with so much ability by Mr Normand, the obligation to make and deliver would be causa data (the consideration given for the money which passed), but when that obligation disappeared (in consequence of the makers' repudiation, followed by the rescission of the contract) it would be causa non secuta, and the way to condictio, or repetition, would be open. But the condition of the argument in the present case is that the contract, though its obligations as regards performance after the outbreak of war are discharged, is neither rescinded nor annulled—but on the contrary stands good as regards rights accrued under it before the outbreak of war. “If,” says Mr Erskine in his Institutes (III. i. 10)—in reference to the doctrine of restitution—“it has become impossible that the cause of giving should exist by any accident not imputable to the receiver, no action lies against him, unless he hath put off performing it when it was in his power to perform, before that accident happened.” In the present case, the cause of giving the first instalment was the makers' obligation to make and deliver the engines. That obligation ceased to exist by virtue of supervening war conditions which erected a legal bar against performance of it; and it is not suggested that complete performance failed for want of timeous compliance—before the outbreak of war—on the part of the makers with any obligation incumbent on them. A supervening legal prohibition, or impossibility, is not the same thing as an “accident not imputable to him”; but it seems to me to present a case of at least equal strength with such an accident. The remedies of repetition and restitution apply to cases in which property or money has got into the possession or power of someone, either on no title, or on a title which turns out to be bad (Stair, Inst. I. vii. 1–9; Ersk. Inst. III. i. 10; Bell's Prin. sections 526, 531). But in this case the £2310 came into the hands of the defenders on what was then a good title, and still remains good so far as the right to the £2310 is concerned.

The pursuers appealed in the second place to the principle on which the cases of M'Intyre v. Clow and of Richardson v. Dumfriesshire Road Trustees were decided. These were cases in which building contracts were in course of performance on the employers' property, and the work (so far duly performed in terms of the contract) was destroyed by storm or accident. The question was on whom the loss fell; and an answer was found by applying the maxim res perit domino, and by construing the contract as one which did not merely provide a slump price for a completed job, but afforded a pro rata standard of remuneration. But I do not know how these decisions are to be applied to a case in which performance has never reached the stage of producing a res to which risks could attach, or the property of which could pass.

The pursuers finally contended that the contract should be construed as containing by implication a condition that, in the event of a supervening legal impossibility preventing complete performance, the accrued rights of parties should be regulated in the same way as their rights would be regulated by the law of Scotland in the event of the contract having been rescinded or wholly annulled. I find it difficult to understand the grounds of this contention. It was said that by the law of Scotland it was illegal to keep money, paid in consideration of something being done, if that thing be not done. But this seems to be no more than a restatement of the first argument dealt with above. There is, I apprehend, no doubt that payments under a contract may be made on a resolutive condition, in accordance with which the money may become repayable in the event of damnum fatale, or even supervening legal impossibility (apart from any failure of duty on the part of the contractor), which prevents complete performance. But a stipulation for payment of a first instalment on signing the contract—which must occur before even the making of the goods has begun—is not favourable to the implication of such a condition. Leitch v. Wilson is an example of the payment of a consideration, namely freight—stipulated to be made before performance of the voyage—which was held to stand good, although completion of performance was prevented by act of God, just because the stipulation was inconsistent with the general rule that freight, as the consideration for carriage by sea, is payable only on performance of the voyage. In Watson v. Shankland Lord President Inglis pointed out (at p. 152) that “a stipulation for payment of freight at the port of loading, or at a time necessarily antecedent to the completion of the voyage and the earning of the freight, may be easily construed into an agreement to dispense with the rule of maritime law that no freight is due unless earned by the right delivery of the cargo,” and referred to Leitch v. Wilson as an illustration. He then drew the distinction which the law of Scotland (differing apparently from the law of England) recognises between a stipulated prepayment of the consideration and an advance made against the consideration; and pointed out (in a passage quoted in the Lord Ordinary's opinion) that an advance against the consideration (as distinguished from a stipulated prepayment) is—if made conditionally on subsequent performance—subject to restitution if fulfilment of the condition does not follow, on the principle of the condictio causa data causa non secuta. His Lordship (at p. 153) described such an advance as one “made on the faith of the master and owners performing their contract, and in consideration of their subsequent performance.” He then goes on to contrast such a conditional advance against the consideration with a loan on the one hand, and with a stipulated prepayment of the consideration on the other hand, in the following sentence: “If it were a separate and independent loan, it could be recovered from the owners immediately, and the charterers would be entitled, contemporaneously with the advance, to draw on the owners for the amount. If it were a payment of freight made in terms of the contract at the port of loading, it could never be recovered back at all.” The eventuality which had occurred in that case was the loss of the vessel by the perils of the sea; but a supervening legal impossibility, preventing performance of the obligation to make and deliver under an executory contract of sale, seems to me to present a case at least equally strong for dispensing with the general mercantile rule that no price is due unless earned by proper delivery of the goods.

For the reasons given, I am unable to follow the Lord Ordinary in his application of the principles of repetition and restitution; and I am at a loss to find any ground on which I could be entitled to imply a condition in the contract requiring the rights of parties—as accrued prior to the outbreak of war—to be regulated on the artificial hypothesis that the contract had been wholly rescinded or annulled from the beginning.

There is, however, one case in our books which does seem to lend a certain support to the pursuers' contention. That is the case of Cutler v. Littleton . The master of an apprentice indentured for four years died after only two years of the apprenticeship had run, and the apprentice was found entitled to recompense, not pro rata temporis, but to the extent of one-third of the apprentice fee paid on the indenture. Oddly enough, a precisely contrary decision was pronounced fifty years later, in the converse case of the death of the apprentice, in Shephard v. Innes . The rules applicable to contracts of service are marked by considerable specialties. One of them is that, if the master dies, a servant who is entitled to maintenance at bed and board in the master's family—and such was the condition of the apprentice—is entitled both to his wages and to maintenance up to the termination of the agreed term of his service—Ersk. Inst. III. iii. 16; see also Hoey v. MacEwan and Auld, (1867) 5 Macph. 814. The contract being one partly of service on the part of the apprentice, and partly of maintenance and instruction on the part of the master—both during a specified term—it may be that the Court in Cuttler v. Littleton found the solution of a difficult problem by treating the indenture as annulled by the master's death. This is the only explanation that occurs to me of the application of the doctrine of recompense (see Bell's Principles, section 538) to the case. Cutler v. Littleton is, however, without any sequel in the subsequent development of the law of Scotland; and, while Mr Erskine, in the section above referred to, cites Shephard v. Innes as an authority applicable to the case of the death of the apprentice, he makes no reference anywhere to Cutler v. Littleton . I am unable in these circumstances to regard that case as an authority which should influence the decision of this dispute, or as affording ground for doubt as to the application of the more general principles upon which I think judgment must be based.

I am, therefore, for recalling the Lord Ordinary's interlocutor and assoilzieing the defenders.

Lord Mackenzie.—The judgment of the Lord Ordinary ought, in my opinion, to be affirmed, because there has been failure of the consideration upon which the pursuers paid the defenders the sum of £2310.

The contract was one of sale. The contractors agreed to supply and deliver to the purchasers a set of marine engines. Article 9 of the contract provides: “In consideration of the said contractors supplying the engines and their appurtenances” the purchasers shall pay the sum of £11,550. The article then provides for the manner in which the price should be paid: “By cash in London—20 per cent on signing contract.” The date of the contract was 4th May 1914. The engines were to be completed and delivered by 30th April 1915.

On 20th May 1914 the pursuers paid the first 20 per cent of the price—£2310. On 12th August 1914 the purchasers, an Austrian firm (now the pursuers), became alien enemies on the declaration of war, and the contract was dissolved on that date. At that date there was, under the agreement, no work in hand, the property of which, as provided by the 7th article of the contract, was to pass to the purchasers. A certain amount of preparatory work, it is alleged, had been done by the defenders, but the position taken up by them is entirely independent of this. They do not found on it. They maintain that the £2310 was paid to them for the obligation undertaken by them and for nothing else. Now, the contract was one for the purchase of goods which, in the event that happened, never came into existence. The pursuers sue for repetition of the part of the price which they paid. Their case involves construction of the contract, more particularly article 9, but it is not an action on the contract. It is a claim for restitution; and, unless the contract contains express terms to the contrary, the law of Scotland will give the remedy asked.

The authority for this proposition is to be found in the opinion of the Lord President (Inglis) in Watson & Co. v. Shankland . “There is no rule of the civil law, as adopted into all modern municipal codes and systems, better understood than this—that if money is advanced by one party to a mutual contract, on the condition and stipulation that something shall be afterwards paid or performed by the other party, and the latter party fails in performing his part of the contract, the former is entitled to repayment of his advance, on the ground of failure of consideration. In the Roman system the demand for repayment took the form of a condictio causa data causa non secuta, or a condictio sine causa, or a condictio indebiti, according to the particular circumstances. In our own practice these remedies are represented by the action of restitution and the action of repetition. And in all systems of jurisprudence there must be similar remedies, for the rule which they are intended to enforce is of universal application in mutual contracts.” It appears to me that the requisites are satisfied here. There is no question that this is a mutual contract, nor that money has been advanced by the pursuers on the condition and stipulation that something would be performed by the defenders. There is equally little doubt that the defenders have not performed any part of the contract, in the sense they have not produced goods which ever existed in forma specifica. The pursuers are, therefore, entitled to repayment on the ground of failure of consideration, if it can be predicated that the defenders failed in performing their part of the contract. As I understand the argument for the defenders, they maintain that, as they were forbidden to execute the contract, it cannot be said there was failure on their part to perform. It appears to me that, as in a question with the pursuers, there was no less a failure to perform because that failure was due to something dehors the contract. The case of Ertel Bieber & Co. decided that the contract was ended by the declaration of war, but that rights accrued as at the date when the contract was dissolved are not affected. It is suggested that, unless it can be shown that the contract was avoided ab initio, and the title upon which the defenders hold the money thus destroyed, the pursuers cannot succeed. But an accrued right may be subject to an implied condition, implied not because the parties are to be held to have contracted with the possibility of war in contemplation, but implied by the common law of Scotland as set out by Stair, I. vii. 7: “The duty of restitution extendeth to those things, quœ cadunt in non causam, which coming warrantably to our hands, and without any paction of restitution, yet if the cause cease by which they become ours, there superveneth the obligation of restitution of them. Whence are the condictions in law sine causa and causa data causa non secuta.” As Lord President Inglis points out, in our practice these remedies are represented by the action of restitution and the action of repetition. The case of Watson dealt with an advance against freight, which on the loss of the ship was held recoverable from the shipowners, as the charter-party contained no stipulation to the contrary. The ground of judgment, as expressed by the Lord President (at p. 153), was “Does then the maritime law attach a meaning and effect to an advance of freight different from that which, according to ordinary legal principle, is the true meaning and effect of a stipulation for an advance of a portion of the contract price in any ordinary contract of locatio operarum?” The payment of £2310 in the present case I regard as an advance of a portion of the contract price. An example of a charter-party which did contain a stipulation to the contrary is afforded by the case of Leitch. In the present case the 20 per cent which was to be paid was paid “in consideration of the said contractors' supplying.” This differs from the contract in Leitch, which was construed to mean “I shall pay the sum on a fixed day whether the vessel arrives or no.” The argument for the defenders in the present case involves this, that whenever the ink was dry on the contract there accrued to them an indefeasible right to a payment of £2310. Their argument admittedly implies that, even if the payment had not been made before the declaration of war, they would have had an accrued right to sue the purchasers for this sum on the declaration of peace, though by the dissolution of the contract they were discharged from all further performance of the contract. In my humble judgment this is not the effect of the contract.

The case of Penney v. The Clyde Shipbuilding and Engineering Co., referred to by the Lord Ordinary, differed from the present, for there property had passed and the sum of £79,732 was ultimately in the course of the case regarded as a surrogatum for the value of the ship.

The cases cited which dealt with rei interitus and were decided upon the principle res perit domino do not apply here. There was no res and could be no interitus. It is in this connexion that I desire to refer to the passage in Erskine (III. i. 10) where it is said, dealing with condictio causa data causa non secuta, “If it has become impossible that the cause of giving should exist by any accident not imputable to the receiver, no action lies against him.” This applies directly to the case of a res of which there has been interitus. My opinion is, however, based on this, that condictio causa data causa non secuta is but a particular example of the general rule of equity, that no one should be enriched without sufficient consideration. The Coronation cases do not afford assistance.

One case, decided in Scotland, is quite inconsistent with the contention of the defenders here, and that is Cutler v. Littleton . There it was held that, the master having died at the end of two years of a four years' apprenticeship, the apprentice was entitled to recompense for the time which had not expired, to the extent of one-third of the apprentice fee. If the argument of the defenders in the present case is sound, such a result would have been impossible, because, the contract not having been voided ab initio, the apprentice could have got back nothing. The point appears to have been fully argued, which cannot be said of the report in Shephard v. Innes, where it was held that the whole apprentice fee was exigible, though the apprentice died before the expiry of the indenture.

The interlocutor reclaimed against makes provision for the pursuers allowing the defenders credit to the extent to which they are lucrati but no further. This is in conformity with the later part of Lord President Inglis's opinion quoted by the Lord Ordinary.

I think that the judgment of the Lord Ordinary is right. No question was raised by the pursuers on the reclaiming note as regards their claim for interest.

Lord Skerrington.—The declaration of war with Austria on 12th August 1914 made it illegal for the parties to this action to do anything further after that date towards carrying out their executory contract for the manufacture and sale by the defenders to the pursuers of a set of marine engines to be delivered f.o.b. at Port-Glasgow within twelve months from the date of signing the contract on 4th May 1914. The object of this action is to obtain repayment of the sum of £2310, being the first instalment of the price, which was paid by the pursuers to the defenders on the signing of the contract in compliance with an express stipulation to that effect (article 9). The Lord Ordinary gave effect to the pursuers' demand, and his judgment is now submitted by the defenders for review. The pursuers' counsel admitted that it was not open to them upon the authorities to argue that the declaration of war rescinded the contract as from the date of the contract. On the contrary, their argument proceeded upon the footing that, as regards the period from 4th May to 12th August 1914, the contract was and still remains valid and binding, and that any rights which accrued under it prior to the latter date continued and continue effectual, although they could not have been enforced during the duration of the war. The pursuers' counsel further admitted that, upon the facts of the case, it was not open to them to argue that the defenders did not duly fulfil their contractual obligations up to the time when further performance became illegal. Obviously very different considerations would have applied to the pursuers' demand for repayment of the first instalment of the price, if it could have been said that the defenders' inability to perform the contract in its entirety was in part at least attributable to their own breach of contract. In that case it might have been held that, prior to 12th August 1914, the pursuers had acquired a vested right to rescind the contract, and that they were now entitled to have that right enforced and given effect to. The Lord Ordinary's judgment is open to the criticism that it awards to the pursuers exactly the same remedy which would have been appropriate if the contract had been rescinded ab initio, in which case the pursuers would have been entitled to restitution of what they had paid under the contract, but subject to any counter-claim which the defenders could establish on the principle of recompense. The judgment is subject to the further criticism that, in a question between two contracting parties both equally innocent and both sufferers from an act of state which was silent as to compensation, it in substance attempts to apportion the loss equitably between them instead of allowing the loss to remain where it fell. Lastly, the judgment reclaimed against seems to contravene the general policy of the law, which is that the rights of the contracting parties should remain so far as possible as they stood immediately before the declaration of war, whereas the Lord Ordinary has put the party who resides in the enemy country in the favourable position of having his indeterminate rights under an executory contract converted by the declaration of war into a liquid claim for repayment of the money which he had invested in the contract—a claim which, though not exigible until the end of the war, would have been readily marketable during its continuance. The pursuers carry the matter a stage further by claiming interest at 5 per cent per annum from 12th August 1914. This demand seems logical, but the Lord Ordinary has apparently negatived it for some reason which he does not explain.

The pursuers' counsel were unable to adduce any direct authority for the proposition that a declaration of war gives rise to a right to demand restitution of money properly and necessarily paid before the war in discharge of a debt constituted by a written obligation which was not annulled by the war, but which on the contrary subsists and remains in force at the date of the action of repetition. The authorities which they cited had to do for the most part with the effect of rei interitus upon various classes of contracts, and, in particular, upon contracts for the sale of specific goods. They also laid great stress upon the contention that delivery on the one hand and payment of the price on the other hand are of the nature of mutual conditions, and that a seller cannot retain the price or any part of it if he is unable to deliver the goods. It seemed to me that the pursuers' counsel did not sufficiently recognise that the principle upon which they relied was not one of universal application, especially if performance had become impossible without fault on the part of either of the contractors. Thus, in the case of a contract for the sale of specific goods which subsequently perished through no fault of the seller, it was thought just, both by the civil law and also by the common law of Scotland, that the buyer should pay the price although he received nothing in return for it. Even according to the law as it now stands under the Sale of Goods Act, 1893, the buyer may have to pay for goods which can never be delivered to him. What may be called the generalities of the law of sale seem to me to be of little importance compared with the specialties of the particular contract with which we are concerned. When these specialties are considered I see nothing contrary to the intention of the parties in allowing the defenders to retain the first instalment of the price, although it so happened that none of the work had become the property of the pursuers during the period between 4th May and 12th August 1914. Further, I see no satisfactory reason for supposing that the several instalments of the price mentioned in article 9 of the contract were stipulated for as mere advances of money which would fall to be repaid if the sellers should for any reason be disabled from supplying the engines. The pursuers' counsel pointed to the first sentence of article 9, but I do not find any special significance in its language, which means no more than that the price of the engines, &c., was to be £11,550, payable at the times and in the amounts there stated. According to the scheme of the contract, as I understand it, the sellers were to receive payment of part of the price and the buyers were to become the owners of part of the work very much earlier than would have happened if their rights had been left to be settled by implication of law instead of by express agreement. The parties did not, however attempt the impossible task of making the instalments of the price exactly balance the value of the property transferred to the buyers. If the outbreak of war had been postponed for a few months, the value of the work vested in the buyers would have grown from day to day until in time it exceeded the amount of the instalments paid. I think that the Lord Ordinary made a mistake when he departed from the rough-and-ready lines upon which the contract was framed, and when he tried to adjust the rights of the parties with greater precision and equity than they themselves considered to be necessary. The theory which underlies his judgment suffered a reductio ad absurdum when the pursuers' counsel found themselves compelled to argue that, if some of the work had become the property of their clients before the outbreak of the war, it would still have been necessary to make up an account in order to ascertain whether the sellers had been overpaid and ought to repay a portion of the price to the purchasers. Again, it is fallacious to assert that the buyers received no consideration in return for the first instalment of the price. They acquired an immediate right to the services mentioned in Article 6 of the contract, and a contingent right to the property of any part of the work which the sellers might from time to time have in hand. Before leaving the contract, I may point out that the parties had in view, and provided for, the risk of the work being destroyed by fire or other accidents before it had been delivered to the buyers (articles 13, 15, and 8 ad finem). It is, however, clear enough that they did not contemplate, and that they did not attempt to provide for, the event of a war between the United Kingdom and Austria. The clauses to which I have referred cannot be applied to that contingency.

We had a learned, able, and interesting argument from the pursuers' junior counsel, but I think it unnecessary to follow him in his review of a long series of authorities which have only a remote bearing upon the present case. The authority upon which he placed most reliance was probably the opinion of Lord President Inglis in Watson & Co. v. Shankland . The passages from the Lord President's opinion quoted by the Lord Ordinary are at first sight favourable to the pursuers, but on a second and more careful reading of the opinion as a whole, it will be seen that the contract to which the Lord President referred was very different in its nature from that with which we are concerned. It was a contract for an advance of money to be repaid from a particular source, viz., freight. In every contract of that kind the Court would require to decide whether the reference to the source from which repayment was to be made was merely demonstrative or whether it constituted a condition of the right to demand repayment. The question discussed by the Lord President, though interesting on account of a supposed difference between English and Scots law, has no bearing one way or the other on the question which we have to decide. Accordingly, I do not think that it would be fair to lay too much stress on an obiter dictum of the Lord President (10 Macph. p. 153 at foot), which seems to be in point and at the same time fatal to the pursuers' claim.

In my judgment the Lord Ordinary's interlocutor should be recalled, and the defenders should be assoilzied.

Lord Cullen.—I concur in the view taken by the majority of your Lordships.

The sum of £2310 claimed by the pursuers was paid by them under an obligation which became due under the contract while it was still operative, and on its payment there emerged counter-obligations on the part of the defenders which continued prestable against them until the emergence of the war made further performance of the contract unlawful. It may be allowed that these counter-obligations, in so far as they were so prestable, were not the equivalent of the £2310, but this seems to me to be the misfortune of the pursuers. The effect of such a termination of contracts as the war brought with it must often be to leave the interests of the contracting parties unequally balanced, so that it enures more to the advantage of one party than of the other. Suppose that, when the war emerged, the second instalment of 20 per cent had been paid, and that the engines were under construction. Could the pursuers have maintained that, the value of the partly constructed engines whereof the property had passed to them being less than the 40 per cent already paid by them, they were entitled to demand repayment of the difference? I think not. The affirmative was, indeed, maintained by the pursuers Their view appeared to be that, while further performance of the contract was forbidden, all that might have been done under it, hinc inde, while it was operative, fell, on the termination of the war, to be opened up and an account taken and a balance struck, in order to avoid loss by either party through the premature termination of performance under the contract. This, however, seems to me to be similar in effect to demanding restitutio in integrum on the footing of the contract having been voided ab initio.