26 March 1993
CONNELLY |
v. |
SIMPSON |
At advising, on 26th March 1993:
"Received from John D. Connelly the sum of £6,000 (Six thousand pounds), as part payment for Thirty-three shares of Comptel (Dundee) Limited, Balance of £10,000 (Ten thousand pounds) to follow."
It was the common understanding of the parties that the shares would not be transferred to the pursuer immediately as the pursuer was then engaged in divorce proceedings and wanted the share transfer to be delayed until after their conclusion, the likely date of which was unknown. No specific date was then agreed for the transfer. In fact, no transfer of shares ever took place and Comptel (Dundee) Ltd. ("the company") went into voluntary liquidation on 7th August 1987. On 14th October 1987
the pursuer raised proceedings in the Court of Session against the defender. The pursuer's conclusions in the original summons were later altered by minute of amendment so that he significantly altered the basis of his claim; but at all times what he sought included decree for £16,000. The principal conclusion now reads:
"For payment by the defender to the pursuer of the sum of sixteen thousand pounds (£16,000) Sterling with interest thereon at such rate and from such date as the court thinks fit until payment."
The foregoing is a bald statement of matter that is not in dispute. But before I deal with other matters of fact that arose in the pleadings or at the proof before the Lord Ordinary it is, I fear, necessary for the purpose of clearing the ground, to say something of the history of these proceedings themselves, because that history appears to have some bearing upon the whole context and character of this reclaiming motion.
In the summons, as signeted on 14th October 1987, there were, in addition to a conclusion for expenses, two executory conclusions, reading as follows:
"(1) For declarator that an agreement between the parties dated 27th January 1986 whereby the pursuer agreed to purchase from the defender 33 shares in Comptel (Dundee) Ltd. at a price of £16,000 is null and void by reason of the fraud of the defender; and for reduction of the said agreement; and for payment by the defender to the pursuer of the said sum of sixteen thousand pounds (£16,000) with interest thereon at the rate of 15 per cent per annum from 27th January 1986 or at such other rate and from such other date as the court thinks fit until payment."
(2) Alternatively, for declarator that the defender is in material breach of the said agreement and that the pursuer is accordingly entitled to treat such agreement as at an end; and for payment by the defender to the pursuer of the sum of sixteen thousand pounds (£16,000) with interest thereon at the rate of 15 per cent per annum from 27th January 1986 or at such other rate and from such other date as the court thinks fit until payment."
It is thus clear that the pursuer was then seeking (a) declarator that the contract entered into on 27th January 1986 was null and void by reason of the defender's alleged fraud, (b) reduction of the agreement, and (c) payment of £16,000 with interest thereon. The alternative sought was (a) declarator that the defender was "in material breach of the said agreement and that the pursuer is accordingly entitled to treat the said agreement as at an end", and (b) payment of £16,000. The condescendence annexed to the summons contained an averment that the pursuer "claims damages in respect inter alia of the defender's failure to perform the obligations under … the contract" (emphasis added); it was also averred that prior to entering into the agreement the defender represented to the pursuer that the company had 100 shares, that by the agreement the pursuer would acquire a one third interest in the company, the total value of which was £48,000; but that, in truth, the defender owned 4,501 shares in the company and, therefore, "Said representation was fraudulent as was the representation that the pursuer was by the agreement acquiring a one third interest in the said company. Said price grossly exceeded the true value of the said 33 shares. But for the defender's said fraud, the pursuer would not have entered into the said agreement."
The next article, presumably intended to support the alternative conclusion, read:
"Cond. 4. Further and in any event the defender is in material breach of the said agreement. Despite numerous requests from the pursuer, he failed to provide the pursuer with any instrument of transfer or share certificate. In the annual return of the said company, included in the said company documentation, the shareholders as at 14th August 1986 are listed as the defender (to the extent of 4,501 shares) and a Mr George Andrew Simpson (to the extent of one share). It was an implied material term of the said agreement that the defender would provide an instrument of transfer or share certificates. The defender is accordingly in material breach of the said agreement and the pursuer therefore regards the said contract in any event as at an end."
The pleas-in-law were:
"(1) The pursuer having been induced by fraudulent misrepresentation to enter into the said agreement is entitled to decree of declarator, reduction and damages as first concluded for."
(2) In any event, the defender being in material breach of the said agreement, the pursuer is entitled to decree of declarator and damages as second concluded for."
The factual background to the pursuer's averments, craves and pleas was that until May 1986 the company had a nominal share capital of £100, made up of 100 ordinary shares of £1 each, two of which had been taken up on incorporation of a company in 1982 by company registration agents; one of these shares had by 1986 been transferred to the defender and the other to his son, George Andrew Simpson. Some time in 1986, the defender, acting on the advice of a Mr Dyer who was then acting as company accountant, gave instructions to Mr Dyer to have the nominal share capital increased by £9,900 beyond the registered capital of £100. These instructions were carried out and the notice of increase in nominal capital was received by the Registrar of Companies on 20th May 1986; however, it purported to have been signed on 15th May 1985 and was accompanied by a resolution authorising the increase, dated either 9th or 8th May 1985. At the same time (in May 1986) there was prepared a return of allotments of shares issued for cash showing that 4,500 ordinary shares of £1 each had been allotted to the defender: in the return it was stated that the allotment had been made on 9th May 1985. When, in October 1987, the pursuer decided to raise legal proceedings against the defender the official documentation relating to the company thus appeared to show that at the time when the agreement was entered into, in January 1986, the shareholding of the company was not 100 but 10,000, of which the defender held 4,501; on that basis, 33 shares would be the equivalent not of nearly one third of the nominal capital but of a tiny fraction thereof. Against this background the pursuer's averments in support of the conclusions annexed to the summons are understandable. The cause was sisted (for a legal aid application) from 26th November 1987 until 15th July 1988. In the defences then lodged, the defender took pleas to the relevancy and competency. However, the defender eventually averred that in relation to the restructuring he had acted on the advice of his accountant, Mr Dyer, and that all the relevant documents had been signed in May 1986 "although they were dated May 1985 by the said Mr Dyer"; thus, in point of fact, according to the defender, when the agreement was entered into in January 1986 he genuinely and correctly believed that the shareholding was 100 shares; and there was no deceit. Of this matter, the Lord Ordinary says:
"he signed the documents to make it appear that the increase in share capital had occurred in May 1985. This was clearly a wrong thing to do but I am satisfied that the defender simply did what his accountant advised him to do and that there was no nefarious motive on his part."
On 14th September 1988, the pursuer was allowed to amend his then first conclusion by deleting the words "the fraud of the defender; and for reduction of the said agreement" and by substituting therefor the words "essential error on the part of the pursuer induced by misrepresentation on the part of the defender". The closed record (as amended) included the first conclusion (as amended) and the second conclusion for declarator and payment. The closed record (as further amended) contained a first conclusion for payment and a second for expenses. No minute of amendment was lodged to effect their change: the court pronounced no interlocutor allowing the conclusions to be so amended. However, the parties before us both approached this reclaiming motion upon the agreed basis that the closed record as further amended should be treated as showing the conclusions appropriate to the case. The second conclusion is for expenses. The first is as now set out in the first paragraph of this opinion. The case was appointed to the procedure roll on 7th November 1989. After debate, before Lord MacLean, the following interlocutor was pronounced:
"9th February 1990. The Lord Ordinary, having resumed consideration of the cause, allows to parties a proof before answer of their respective averments on record with the exception of (1) on p. 6 the words ‘the defender is called upon to aver facts justifying his having such belief’ and (2) the words ‘alternatively the second conclusion’ in cond. 3; finds the defender liable to the pursuer in the expenses of the procedure roll diet."
In his opinion of the same date Lord MacLean began by saying:
"In this action, as it is now pleaded after substantial amendment, the pursuer seeks repetition of the sum of £16,000 from the defender"
and, after briefly summarising the background, says:
"In these circumstances the pursuer in terms of his first plea-in-law seeks repayment of the sum he paid for the shares on the application of the condictio causa data causa non secuta."
For reasons that he explains, his Lordship allowed a proof before answer on the present pleadings with the exception of the material noted in the interlocutor, the second of which tidied up the record by deleting the reference in the pleadings to the second (alternative) conclusion which had been removed by amendment earlier. The proof before answer was taken before Lord Cowie who pronounced an interlocutor in these terms:
"The Lord Ordinary, having considered the cause, sustains the first and second pleas-in-law for the pursuer; finds and declares and decerns in terms of the first conclusion of the summons; reduces agreement between the pursuer and defender dated 27th January 1986 whereby the pursuer agreed to purchase from the defender 33 shares in Comptel (Dundee) Ltd., at a price of £16,000, and decerns accordingly; decerns against the defender for payment to the pursuer of the sum of £16,000 sterling together with interest thereon at the rate of 15 per cent per annum from the date of citation of the summons until payment; continues the cause on the question of expenses."
The middle part of this interlocutor is erroneous as neither declarator nor reduction was sought by the pursuer at that date. The second ground of appeal points out this error and counsel for the respondent accepted that in this respect the interlocutor could not stand. He suggested deletion from and including the words "finds and declares" to and including the words "decerns accordingly". It is obviously necessary to correct this error and that appears to be the appropriate way to do so.
After proof, the Lord Ordinary found in favour of the pursuer and pronounced the interlocutor quoted immediately above. In his opinion, after referring to the history of the action and noting the reference in cond. 1 to the pursuer's claim for "damages", the Lord Ordinary said:
"However at the proof and before the Lord Ordinary who heard the procedure roll debate the case was presented as an action for restitution based on the principles governing the condictio causa data causa non secuta. Since no point was taken by counsel for the defender in relation to the pursuer's pleadings I shall approach the issue between the parties on that basis."
It is now clear from the amended grounds of appeal (q. v.) that any concession made by the defender to the Lord Ordinary relating to the application of the condictio is sought to be withdrawn; and indeed the principal submission for the reclaimer is, in the terms of the first ground of appeal, "the condictio causa data causa non secuta does not apply to the facts averred and proved". Counsel for the reclaimer adhered to that position at the hearing of the reclaiming motion and at the outset counsel for the respondent intimated that as this concession related purely to a matter of law he had no objection to the court's treating the whole issue of the applicability of the condictio in this case as being one for this court to determine. I therefore approach the case on the basis that any concession on this point is withdrawn.
However, para, (iii) of the first ground of appeal raises a different matter and this was contentious. It reads:
"(iii) The pursuer neither averred nor proved frustration of the bargain or any equivalent thereof warranting the applicability of the condictio. Even had it been founded upon by the pursuer on record, the placing of the company into members' voluntary liquidation, after the allotment of shares to the defender referred to by the Lord Ordinary, did not render the transfer of one third of the company's share capital to the pursuer impossible. Any concession made to the Lord Ordinary in that regard (appendix p. 6D ) is withdrawn."
The passage in the opinion of the Lord Ordinary is the one which I have emphasised in the following excerpt from the opinion:
"On 27th January 1986 the pursuer paid £6,000 to the defender to account of the purchase price of the 33 shares and undertook to pay the balance of the sum due, namely £10,000 at a later date. Document no. 20 of process was duly signed by the parties incorporating that agreement. It is further agreed by the parties that in May 1986 the balance of £10,000 was paid by the pursuer to the defender and that both these sums were initially paid in to the defender's private bank account. It is also agreed that the 33 shares in the company were never made over to the pursuer prior to the company going into members' voluntary liquidation in August 1987 and that they could not be made over by the defender to the pursuer after that date. Accordingly the pursuer's position was that he had paid money to the defender for a consideration, namely the transfer of 33 shares in the company, which had failed, and that he was entitled to restitution of the £16,000 which he had paid to the defender. To that extent the case is a simple one for restitution of money paid for a consideration which had failed."
The Lord Ordinary then went on to consider the relevancy of the defences and concluded that, once the correct inferences were drawn from the undisputed facts, there was no relevant defence to the claim for "restitution of money paid for a consideration which had failed". He stated:
"It seems to me that even if the defender's account of the facts is accepted, it is no answer to the pursuer's claim for restitution, and accordingly in my opinion the defence is irrelevant."
Counsel for the defender and reclaimer indicated that counsel appearing for the defender at the proof did not consider that any concession had been made on the defender's behalf relating to the supposed impossibility of transferring shares in the company after the date of the voluntary liquidation; as a matter of law it was perfectly possible to effect such a transfer and any concession to the contrary, if given, was erroneous, related to a pure matter of law and was to be withdrawn. Counsel for the pursuer and respondent disputed the right of the reclaimer and defender to withdraw this concession as narrated by the Lord Ordinary. This matter is dealt with later. For the moment, however, it is enough to note that, in light of the two concessions he recorded, the Lord Ordinary did not need to address the difficult issues which parties to this reclaiming motion have placed before the court in their submissions. Secondly, as the Lord Ordinary felt unable to decide the case on the basis of the agreed facts and concessions, he dealt with the evidence and facts more briefly than he might otherwise have done. However, the Lord Ordinary made findings on the issues of credibility that arose and there was no attempt made to dispute these findings or to challenge the specific facts which were proved to the satisfaction of the Lord Ordinary. On that basis, before I summarise the submissions, I now return to the facts on the basis of which I consider that this court must decide the appeal.
The pursuer agreed to pay and paid the defender £16,000 for 33 shares in the company. When the agreement was reached the nominal capital of the company was £100, consisting of 100 ordinary shares of £1 each, but only two were issued, one to the defender and one to the defender's son; the defender was the controlling mind of the company. The pursuer believed that once he had the 33 shares transferred to him he would effectively have a one-third ownership of the equity and the rights accompanying such ownership. He was motivated by a desire to buttress the security of his employment with the company by owning this block of shares. He also believed that the company was worth about £48,000 and that accordingly the sum he was paying over was the equivalent of one third of the value of the company he was buying into. The pursuer paid the sum in two instalments, of £6,000 and £10,000 respectively, in January and May 1986; it is not clear whether or not the second payment preceded the taking by the defender of the steps resulting in the increase of the share capital and the allotment of 4,500 to the defender, but the pursuer was told and knew nothing of the taking of any such steps. Both sums paid by the pursuer to the defender went into the defender's bank account although, as the Lord Ordinary says, the money "may well have been paid over to or on behalf of the company thereafter". When the agreement was entered into, the pursuer specifically asked the defender not to transfer the shares to him until after the pursuer's divorce action was disposed of. In fact, decree of divorce was pronounced on 19th May 1987, and the pursuer and his wife had reached an agreement on financial matters earlier, in December 1986; it appears that the pursuer did not in the divorce proceedings disclose the interest he had acquired by virtue of the agreement made with the defender; but neither party suggested that these collateral circumstances constituted turpis causa so as to give rise to the application of any rule of law referred to in the brocards ex turpi causa non oritur actio or in turpi causa melior est conditio possidentis.
The pursuer did not tell the defender that decree of divorce had been pronounced or that a financial settlement had been reached and the defender had no knowledge of these matters till after the action was raised. Accordingly the defender had no grounds for thinking that the original request by the pursuer to delay transfer of the 33 shares had been departed from and he took no steps to transfer any shares in implement of the agreement. The pursuer left the employment of the company on 6th June 1987, but the Lord Ordinary finds that he did not then, or at any other time, ask that the 33 shares he had bargained for should be transferred to him. Then, to quote the Lord Ordinary:
"on 7th August 1987 the defender realised that the company was in dire straits, went to his accountant and said to him, ‘Get me out of it.’ He was advised that the best thing to do was to put the company into members' voluntary liquidation and the defender, without consulting the other director, his son, or the pursuer, acceded to that suggestion".
The pursuer had no knowledge of, and was not asked to consent to, any step in connection with the voluntary liquidation. The next significant event that occurred was the raising of the present proceedings in October 1987. No steps were ever taken to recall the voluntary liquidation. On 24th May 1989 the liquidator of the company sent to the pursuer a letter accompanied by a cheque for £400 as representing "the share of the distribution to which the holder of one third of the shares in the said company would have been entitled". The pursuer rejected the said cheque and the offer that it represented.
Against that background of fact, I now turn to the submissions of the reclaimer and the respondent. The submissions on both sides were comprehensive and most helpful. I hope I do no injustice to them if I attempt to summarise them as succinctly as I can. They are, of course, carried forward into and, I hope adequately, reflected in my own reasoning.
Counsel for the defender and reclaimer submitted that the condictio causa data causa non secuta did not apply in the circumstances of this case, and the three principal reasons for that submission were set out in paras, (i), (ii) and (iii) of the first of the amended grounds of appeal. Lord MacLean, it was submitted, had properly treated the pursuer's case as based solely on this condictio and had accurately described the remedy sought as an equitable one: that meant that, even if it were competent to seek such a remedy in circumstances such as these, the court had to look at all the facts before exercising its discretion whether or not to grant the remedy sought. But the condictio had no applicability at all unless the pursuer had no contractual remedy available. If because of a breach of contract—including a failure by the defender to perform a contractual obligation—the pursuer did not get what he had bargained for he had to use one of the normal remedies for breach of contract, that is to say, to claim damages, or to rescind and possibly claim damages as well, or to seek implement, again possibly claiming damages. Only when such remedies were not available, as for example, where performance had become impossible because of some supervening event which had destroyed the subject matter or rendered performance illegal, could resort be had to the condictio. Except when the condictio could be used, the pursuer could never claim repayment of the price as such, although in some cases, when it came to the measurement of the damages, the price paid might be the best measure of the loss sustained. The present case was one in which the pursuer could at best have claimed damages for non-performance. He did not even aver that performance was rendered impossible whether by some extraneous event or because of the actings of either party. The pursuer had elected not to claim damages, at least in the case as finally pled in the last version of the amended closed record. No doubt he had not found the legal remedy of damages an attractive one because by the date of the breach, when the damages fell to be measured, the loss was only of the order of the £400 which the liquidator later offered.
In support of his submission as to the true nature and limited application of a claim based on the condictio counsel referred us to the following texts, authorities and dicta: Gloag and Henderson, Introduction to the Law of Scotland (9th edn.), paras., 11.07, "Impossibility of Performance" and 14.03, "Repetition"; McBryde, The Law of Contract in Scotland, paras. 15.40 to 15.44; Gloag on Contract (2nd edn.), pp. 57 et seq. and p. 353 in the paragraph entitled "Coronation Cases"; Watson & Co. v. Shankland (1871) 10 Macph. 142, affirmed in the House of Lords—a classic case of frustration owing to the loss of a ship where the Lord President (the only judge to refer to the condictio) did so in the context of "total failure" (at p. 153); Cantiere San Rocco v. Clyde Shipbuilding and Engineering Co. 1923 SC (HL) 105, a pure frustration case and one in which the Roman origins of the condictio and all that the institutional writers had to say on that matter were examined in great detail. Reference was made to the observations of the Lord Ordinary in Trans Barwil Agencies (UK) Ltd. v. John S. Braid & Co. Ltd. 1988 S.C. 222 at p.229. As an equitable remedy the condictio was comparable to recompense, a remedy of last resort: Varney (Scotland) Ltd. v. Lanark Town Council 1974 SC 245. Damages was the normal remedy: Lep Air Service v. Rolloswin Investments Ltd. [1973] A.C. 331, per Lord Reid at p. 345.
Alternatively, as ground 3 stated, if the condictio did apply then the Lord Ordinary had erred in failing to take into account the equitable circumstances which he plainly thought favoured the defender; that was the meaning of the passage in the last paragraph of his opinion, viz.:
"For these reasons while it may be said that on equitable grounds the pursuer should not succeed in this action I am of the opinion that equity does not play any part in the right of a party who has paid over money for a consideration who has failed to recover that money always assuming that he is not lucratus and the exception does not apply."
A pursuer in circumstances such as the present had no right to elect between his contractual remedies and the condictio: Haggarty v. Scottish Transport and General Workers Union 1955 SC 109, which dealt with the condictio indebiti, but the same considerations applied to all comparable equitable remedies, of which the condictio causa data causa non secuta was one; cf. also Unigate Foods Ltd. v. Scottish Milk Marketing Board 1972 S.L.T. 137, and the dicta of the Lord Ordinary and Lord Morison respectively in Zemhunt (Holdings) Ltd. v. Control Securities plc 1992 SC 58. If it came down to a question of looking at the equitable considerations, the balance of these obviously favoured the defender, as the Lord Ordinary had concluded; not least was the fact that the pursuer had never at any time asked for the shares to be transferred. In point of fact, the money paid by the pursuer had gone into the company; the defender had received no benefit from that money. The pursuer had never sought to rescind the contract or to repudiate it; he had expressly departed in the course of these proceedings from any claim to rescind the contract. He had not claimed that it was terminated; his first forensic sally had been an attempt to reduce the contract or to obtain declarator of material breach. There was no single recorded instance of the condictio causa data causa non secuta being applied in a mercantile contract in the absence of frustration or its equivalent. As to the supposed concession about the impossibility of transferring the shares after the company had been put into voluntary liquidation, that was a matter of law. There had been no averments about it at all; the pursuer had never even suggested that transfer after members' voluntary liquidation was impossible. It was perfectly possible, and sec. 88 of the Insolvency Act 1986 necessarily so implied. So the liquidation had changed nothing of material significance; it was an irrelevancy in this case. The court should not prevent the withdrawal of the concession because to do so would mean that the case would be decided upon a wholly erroneous basis of law. Reference was made to Marshall v. William Sharp & Sons Ltd. 1991 S.L.T. 114 and John Thorburn & Sons v. Border Harvesters Ltd. 1992 S.L.T. 549.
For the pursuer and respondent, counsel drew attention to the reasons (detailed above) why the case had had such a chequered history. Given the circumstances of the restructuring of the share capital of the company and the falsely dated documentation relating thereto and the defender's decision to put it into liquidation without the pursuer's knowledge, the pursuer could be excused if he had been misled initially as to the basis of his claim and the choice of remedy; nonetheless the pursuer had consistently sought repayment of the sum he had paid over and he had consistently done so because he had never received what he had paid for. The Lord Ordinary had reached the right conclusion subject only to correction of the obvious error contained in the interlocutor. Not every detail of his opinion would be supported by the respondent, but there were additional reasons which underpinned and supported the Lord Ordinary's decision. The approach of the defender and reclaimer was, counsel submitted, wholly unsound. The duty to make restitution of the price in the circumstances of a case like the present arose by operation of law; the defender's obligation was an obediential obligation. That obligation arose when the expected consideration for which the price had been pre-paid failed. The remedy sought was enforcement of that obligation. It was not properly to be characterised as an equitable remedy, like recompense, for example, or the condictio indebiti; nonetheless, as with many other competent remedies, including specific implement and interdict, the court might have regard to certain equitable considerations when it came to decide whether or not to grant the remedy sought. The essential circumstances giving rise to the right to seek repayment of the sum advanced were simply that the advance was made in consideration of the expected return and that that return was never made; that is to say that there was failure of the consideration. The reclaimer was quite wrong to suppose that such a right arose only in the "frustration" type of case. If the consideration failed to materialise then it did not matter whether the cause of that failure was frustration by some external circumstance or breach of contract by the obligant. Once the failure occurred, a right arose in the person who had previously paid over money in order to obtain a consideration to get back what he had advanced in consideration of the expected return; he might also have a I claim for damages, but the rights of such a person were not restricted to damages or specific implement. The right to repayment was not absolute if, on sound equitable grounds, the court considered that the obligant should be allowed to keep the whole or any part of what he had received. If a pursuer paid money to the defender in return for an expected consideration and the defender refused to perform or deliver or put it beyond his power to perform or deliver then the pursuer could found upon that circumstance as entitling him to repudiate the contract. The point in this case at which the pursuer was entitled to treat the defender's conduct as repudiation and to claim the money back was reached in 1987; by the time the action was raised the pursuer was effectively treating the contract as at an end.
The institutional writers and other authorities referred to supported the pursuer and respondent. The basic proposition was contained in the opening sentences of Stair, I, vii, 7. The duty of restitution was not there restricted to cases where performance was impossible; nor did Stair treat equity as a necessary element for the emergence of the duty. Bankton, I, viii, 21 was equally clear:
"Where the cause of the delivery ceases, the thing must be restored to the giver; hence were introduced, by the law, the several conditions."
Erskine, Institute, III, i, 10 was to the same effect: the passage from Erskine which the House of Lords found difficult in the Cantiere appeal nonetheless seemed to imply that if there was fault on the part of "the receiver" the action would lie, so Erskine was not considering externally caused "frustration" only. Reference was made to Bell's Principles (10th edn.), sec. 530, to Trayner's Latin Maxims (1894 edn.), p. 72, "Causa data causa non secuta", to Gloag on Contract (2nd edn.), pp. 57–61, especially p. 57, "Failure of Consideration". The passage quoted from Lord President Inglis' opinion in Watson & Co, v. Shankland at p. 152 was wholly consistent with the respondent's position: the example he gave there of a contract to build a house specifically referred to the right to recover the money paid "if he [the builder who received the money] never performs any part, or any available part, of his contract".
Lord President Inglis had stated the matter with great clarity two years earlier in McCormick & Co. v. Rittmeyer & Co. (1869) 7 Macph. 854 at p. 858. The Cantiere case was strongly in the respondent's favour, notably because of the adoption of the Lord President's exposition of the law in Watson & Co. v. Shankland . The obiter observations in Zemhunt were too wide insofar as they bore on the point at issue here. It was incorrect to say that a person with a contractual remedy could not also have an equitable remedy: N.V. Devos Gebroeder v. Sunderland Sportswear Ltd. 1990 S.C. 291;Singh v. Cross Entertainments Ltd. 1990 S.L.T. 77. Lep Air Service provided no assistance as it was an English case dealing with a different kind of issue altogether. In relation to the power of the court to place some restriction upon the granting of a remedy, reference should be made to the ordinary cases of interdict and specific implement dealt with, for example, in Walker's Civil Remedies at pp. 222–223 and 280. The pursuer was not seeking an equitable remedy here as had been sought in Varney but a legal one. So far as the withdrawal of the concession was concerned the court should not allow it to be withdrawn (the concession referred to being that performance was impossible after restructuring and liquidation). This court had a discretion to refuse to allow a concession to be withdrawn: cf. the Marshall and Thorburn cases already quoted. The Lord Ordinary had not gone into the matter because he understood that the concession had been made. The point conceded was not a pure matter of law but a matter of mixed fact and law. In considering the exercise of the court's discretion to allow or refuse withdrawal, this court should have regard to the conduct of the litigation to date; as a result of the withdrawing of the concession this point would now be raised as an issue for the first time. If it had been raised at the proof, the proof might well have been conducted differently by the pursuer. In any event, the concession given was well founded; for in May 1986 the defender had arranged for an increase in share capital and had accepted an allotment of 4,500 shares; he had thereafter put the company into liquidation without consulting the pursuer. These facts represented a change of circumstances so material that it was therefore no longer possible to perform the defender's side of the contract before even the action was raised. The company could not have been put into liquidation without the pursuer's consent if the company had issued a shareholding giving him the share of equity that he had originally bargained for. Reference was made to the Insolvency Act 1986, sees. 84 (1) (b) and 378 (2). Examples of major events that had been held to render reduction of share capital incompetent could be found in the cases of Western Bank v. Addie (1867) 5 Macph. (H.L.) 80 and, in the context of liquidation, Tennent v. City of Glasgow Bank (1879) 6 R. (H.L.) 69. Reference was also made to Gloag on Contract, pp. 538–539. The principles applied in the cases quoted also applied if the shares had so changed their character that the pursuer could not be forced to take them. There had never been any tender to the pursuer of these or any shares.
So far as the third ground of appeal was concerned, counsel took issue with the opening part of the final paragraph of the Lord Ordinary's opinion where he referred to equitable grounds which might point to the pursuer not succeeding. It was not at all clear what this meant. In any event there was no equitable "free for all". Having regard to all the circumstances which have been narrated the judgment that the Lord Ordinary seemed to have made on this point was unsound. The Lord Ordinary was, however, right in saying that the defender was lucratus: the money had gone into his private account. Finally, it was submitted that the record was adequate to cover the claim which was advanced. The reclaiming motion should be refused.
I propose to consider first what I believe to be the real issue of law which lies at the root of this appeal, namely whether or not a person who, in fulfilment of a contractual obligation, has paid to the other party to the contract the contract price and has done so in the expectation of receiving in return—but at an unspecified date significantly later than the date of payment—something which, at the date of payment, it was in the power of that other party to give, can rescind the contract and claim return of the price paid when, significantly later, he discovers that the other is, as a result of his own actings, no longer able to deliver what he contracted to deliver. Alternatively, is the payer's only remedy, assuming it is money that he seeks, to sue for damages for breach of contract? The issue arises sharply here because the sum paid over by the pursuer and respondent appears to be substantially greater than the value of any claim for damages; and, in any event, the pursuer and respondent in this process seeks only repayment; he does not seek damages. Given that neither side was able to refer to any case in which a claim for simple repayment, not in the form of damages, was sustained (though it must also be said that there was no case cited in which a claim for simple repayment was refused) it appears to me that it would be more appropriate to consider first the respondent's argument: he, after all, is asserting the positive—that such a claim is competent and relevant—and the appellant is asserting a negative—that it is not. I also wish to observe at this stage that, although we have been referred indirectly to the Roman law as the source of the condictio causa data causa non secuta, the issue has to be decided in accordance with Scots law. As Lord Dunedin said in Cantiere San Rocco, at p. 123:
"the Roman law, though interesting, is only of service as showing the foundation on which the Scots law rests. The real question must always be what is the law of Scotland"
, thus echoing similar observations by the Earl of Birkenhead L.C. at pp. 108–109.
Lord Stair's Institutions, I, vii, 7, states:
"Fifthly, the duty of restitution extendeth to those things, quae 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, ob non causam and causa data, causa non secuta which have this natural ground, and of which there are innumerable instances, as all things that become in the possession of either party in contemplation of marriage, the marriage, which is the cause, failing to be accomplished, the interest of either party ceaseth, and either must restore."
The important words in relation to the issue in this case are, "if the cause cease by which they become ours"; the sidenote of this paragraph reads, "Restitution, where purpose contemplated has failed". The example chosen, of a marriage failing to be accomplished, is not, it appears to me, the example that would have been chosen if the duty of restitution also arose as soon as the recipient of money under a contract became unable to perform as the result of his own actings. The choice of the marriage example points in favour of Stair's having had in mind in this passage circumstances in which the causa has failed because of some circumstance for which the obligant does not bear responsibility. If A gives money gifts to B and C because and only because they are to be married, and they decide not to get married, that decision could not sensibly be described as a breach by B or by C or by both of any obligation owed to A. The law would not compel B to marry C, nor would it conduct an inquiry into whose "fault" it was that the marriage did not take place. The failure of the marriage is, in my view, directly comparable to the casual destruction of a res which X has paid Y for but Y is unable to deliver when the time conies because in the meantime the res has been destroyed by circumstances beyond his control. If, however, Y is unable to deliver the res because, since receiving payment from X, he has sold it to Z who has taken it away and can no longer be found, then Y is plainly in breach of his contract with X. The latter failure has not been created by some external, uncontrollable factor but by breach of a duty deriving from the contract. If, as the pursuer and respondent argues here, Stair had had that type of case in mind as falling within the doctrine of restitution then it is surprising that he did not spell it out; after all, such a case would be likely to be as common as a failure to accomplish a marriage. The phrase "if the cause cease" would be a very bland way indeed of describing and including the situation where the obligant, in plain breach of contract, rendered his performance impossible. The phrase is more consistent with the notion of "failure" resulting from some cause external to the parties and beyond their control. I appreciate, of course, that the destruction of the res might result from some mixture of external factors and factors for which the obligant bears responsibility, but there is nothing in the passage from Stair to indicate that any such multiple cause destruction of the res was being considered by Stair.
The passage in Bankton, I, viii, 21 is really to the same effect. It begins:
"Where the cause of the delivery ceases, the thing must be restored to the giver; hence were introduced by the law, the several condictions, sine causa, causa data non secuta etc. as things given in contemplation of a marriage which does not follow."
There is also reference to "every deed or grant that depends upon mutual consideration, not given or performed, must be restored to the granters", but again it appears to me that this phrase must be read in its context which is given by the opening words "Where the cause of the delivery ceases". I do not consider that Bankton is saying anything different from what Stair was saying. The passage in Erskine in Institute, III, i, 10 was discussed fully in Cantiere San Rocco but, as the Earl of Birkenhead said at p. 110:
"it is beyond doubt that he could not have intended to controvert Lord Stair's statement of the law which he had wholly adopted"
; and I do not consider that Erskine is seeking to add anything to Stair.
In Bell's Principles (10th edn.), sec. 530 the case of mistake is bracketed in the same sentence as the case of failure. It reads:
"One who by mistake has received anything (as from a carrier) is liable in restitution; and so one to whom a thing has been transferred, or an obligation undertaken and fulfilled, on a consideration which has failed, is also liable to restitution under the condition, causa data causa non secuta."
Once again we have the bland statement that the consideration has "failed" without any suggestion that this phraseology is apt to cover the case of a wilful breach of contract by the obligant. And this condition is treated in the very same sentence which deals with the non-contractual case of delivery by mistake. The passage in Trayner does indeed state quite blandly:
"Where a sum of money has been paid in consideration of something to be done or procured by the receiver of it, it may be recovered on this ground, where the act is not performed, or the thing not procured, in consideration of which the payment was made."
But, immediately preceding that sentence and following the heading "causa data causa non secuta" are the words "the consideration having failed". Thus I find in the institutional writers and those who followed, including Gloag on Contract, no attempt to state explicitly that restitution of the price is the, or an, appropriate remedy where the failure of the consideration is caused by a breach of contract by the obligant. On p. 57 Gloag says:
"if the original intent of the contract was that a gift or payment was made in view of something which was to be given or done in return for it, and that consideration fails, money which has been paid may be recovered, although the circumstances may not amount to breach of contract".
Again we find here the notion of the consideration "failing". I am disinclined to read the word "although" in this text as really meaning "even although", thereby indicating that the case there considered would be stronger still if there had been a breach of contract. The examples Gloag gives, on pp. 58–59, under the heading "Condictio causa data" are all examples of failure of consideration which did not result from any exercise of his will by one of the parties. Gloag founds his treatment of the matter on the same institutional writers and also upon the opinion of Lord President Inglis in Watson & Co. v. Shankland . The well-known passage from the opinion of Lord President Inglis is of the highest authority, not least because of its adoption by their Lordships in Cantiere San Rocco. The case itself, Watson & Co. v. Shankland, concerned a claim for repayment by the charterers of a ship of an advance by them to be credited to account of the freight, if and when the freight became due; the ship and cargo were lost at sea six months after the advance was made. There could be no claim for freight because there was no performance: there was no performance without complete carrying and right delivery of the cargo; so the observations of the Lord President fall to be considered in this context. The failure to perform might have resulted either from a circumstance outwith the master's control (as was the case in Watson & Co v. Shankland ) or from a circumstance which pointed to a breach of contract caused by some culpable or wilful failure by the master or the owners. But the sum advanced created `"a debt due by [the owners]" (perLord President Inglis at p. 154). The amount of the debt (with interest) would have been deducted from the gross amount of freight if the cargo was delivered, or repaid, with interest, if the freight was never earned. As the Lord President said at p. 154:
"It follows that the money given to the master at the port of loading as an advance against freight bears interest (without any express stipulation) from the date of advance till the date of payment, and therefore cannot in any proper sense be called a payment, but is simply an advance, repayable with interest."
Although the Lord President properly declined to call such an advance a "loan", because it was not "a separate and independent loan of money", it had all the essential characteristics of a loan, except that it might never be repayable, and repayment could not be immediately demanded; but it was an "advance" of cash, earning interest to the advancer, such interest being payable by the person who received the "advance". So it is easy to see why this sum should be repayable if the freight was never earned; it would not necessarily matter why the freight was not earned, because the advance, having most of the essential characteristics of a loan of cash, would be repayable, with interest. Lord President Inglis also gave another example in these words (at p. 152):
"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."
But this too is treated not as a case where there has been payment of the price in whole or in part but as one in which there has been an "advance" of a sum stipulated for, being a sum equal to a certain portion of the price (though I do not apprehend that it would make any difference if the portion advanced were to be equal to 100 per cent of the price). In none of these cases does the question of the appropriate remedy for breach of contract actually arise; there is simply an advance of a sum of money, which is to be credited to the person to whom it has been advanced when he does certain things; if he does not do them then the advance, having the essential character of a loan, falls to be repaid. The possibility of claiming damages as such simply does not arise in respect of such an advance. In McCormick & Co. v. Rittmeyer & Co., what was decided was that no actio quanti minoris lay; the purchaser of goods could not retain goods sent to him under the contract and claim a reduction of the price; his only remedy was to reject and return the goods (timeously) and claim damages for breach of contract. The three other judges found in favour of the pursuers who had in fact retained the goods and disposed of them and then claimed a deduction from the price: they did so on the basis of a special arrangement that the pursuers should retain the goods and claim damages in respect of the breach involved in the delivery of inferior goods. In that very special context, the Lord President, though not prepared to dissent as to the result, said (at p. 858):
"I had throughout the argument in this case great difficulty in adhering to the interlocutor, insofar as regards the sum first claimed in the summons. It appeared to me that this could not be done without violating a rule of mercantile law of the highest importance. Your Lordships, however, now propose to rest the judgment of the Court on the special agreement alleged by the pursuers, which will have the effect of saving the rule of law. This is so far satisfactory. But, to prevent misunderstanding, I think it right to state the rule of law as I understand it. When a purchaser receives delivery of goods as in fulfilment of a contract of sale, and thereafter finds that the goods are not conform to order, his only remedy is to reject the goods and rescind the contract. If he has paid the price, his claim is for repayment of the price, tendering re-delivery of the goods. If he has granted bill for the price, his claim is for re-delivery of the bill in return for the offered re-delivery of the goods.... The purchaser is not entitled to retain the goods and demand an abatement from the contract price corresponding to the disconformity of the goods to order, for this would be to substitute a new and different contract for that contract of sale which was originally made by the parties, or it would resolve into a claim of the nature of the actio quanti minoris, which our law entirely rejects. Just as little is the purchaser entitled, while rescinding the contract, to retain the goods in security of a claim of damages for breach of contract"
(emphasis added).
This passage, in my opinion, was intended simply to be an emphatic restatement of the rule already stated by Lord Kinloch, at p. 857:
"A purchaser who complains that the quality of the goods sent to him is inferior to that contracted for has no legal right to retain the goods and claim a reduction of the price. His only remedy is to reject and return the goods; and he must do so timefully. He will then be entitled to claim damages [emphasis added] from the seller for breach of contract. In the general case the actio quanti minoris is not admissible by our law."
Accordingly, in my opinion, Lord President Inglis in this case is not saying that repayment of the price is an alternative to claiming damages: what he is assuming is that the amount of the damages will be equal to the sum paid. Similarly if the pursuer has granted a bill, he simply seeks re-delivery of the bill, and if he recovers it he suffers no loss and needs no damages. It does not appear to me that in either of the cases Lord President Inglis was doing more than assuming that any damages payable would be exactly equal to the sum advanced. When the passage from Watson & Co. v. Shankland was approved in Cantiere San Rocco, the context was plainly not one of breach of contract but of external frustration of contract; and I do not understand their Lordships individually or collectively to have attempted expressly to enunciate any rule to the effect that where one party is in breach of contract he has any monetary remedy other than damages. In most such cases, the damages are liable to equal or exceed the sum paid, as the price, under the contract; only in a most unusual case will the damages be less than the sum paid. It does not appear to me that dicta which are clearly obiter in other cases take the matter any further; nor should I be inclined to give any weight to any statement in a textbook which took the matter further in the absence of authority. Nonetheless, I draw attention to what Lord Reid said in White & Carter (Councils) Ltd. v. McGregor 1962 SC (HL) 1 at pp. 11–12:
"The general rule cannot be in doubt.... If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract, the other party, the innocent party, has an option. He may accept that repudiation and sue for damages for breach of contract, whether or not the time for performance has come; or he may, if he chooses, disregard or refuse to accept it and then the contract remains in full effect."
In summary, therefore, I can find nothing which is explicit authority for the view that a person who has paid in advance of performance the sum of money which will be due in respect of performance but has agreed that there should be no performance until after a significant period of time, can claim anything other than damages when, the time for performance having arrived, the other party, in breach of contract, declines to perform or is unable to do so because, by his own actions, he has put it beyond his power to perform his part of the contract. Leaving aside the other remedies which might arise following a breach of contract, the only remedy available to a person for breach of contract, if he seeks a monetary remedy, is to claim damages which will compensate him for his loss. Very commonly if he has paid over a sum of money and if no great period of time has elapsed between such payment and the breach of contract then the amount of damages is likely to equal the sum paid over. But all he is entitled to is monetary compensation for the loss he has suffered through the failure of the other party to perform at the time when performance was due; and, in my opinion, that loss clearly falls to be measured as at that date. If unusual circumstances arise, such as in the present case, and the value of the thing, delivery of which has been contracted for, has fallen substantially then the damages will be equal to the value of the article as at the date when, in terms of the contract, it should have been delivered, even although that value is materially less than the contract price which has already been paid. Similarly, if the value of the res has gone up between the date of payment and the date when delivery is properly called for, then if delivery is not then made, because the obligant is in breach of contract, the creditor will claim as damages, the value of the res, albeit that that value exceeds the price paid. This appears to me to be the rule that was clearly and expressly applied in Howie v. Anderson (1848) 10 D. 355, a case which was not cited to us. In the present case the payment made was not of the nature of an advance or a type of conditional loan: repayment was never in either party's contemplation. What each party contemplated was that the defender would deliver certain shares when called upon to do so. At best for the pursuer and respondent, the defender was guilty of breach of contract, on or after 14th October 1987 when the action was raised, by failing to deliver the shares, or by having so acted as to render performance impossible. For such a breach the remedy is damages. If, without having rendered performance impossible, the defender had simply declined to deliver he could have been compelled to do so, whatever the then value of the shares; or he might possibly have been able to meet a claim by tendering performance late, regardless of the then value of the shares: Howie v. Anderson . I see no room, in a breach of contract case, and especially in one where a long time has elapsed without performance ever having been demanded, for a remedy in the form of restitution of the price as such. If the party who has paid a sum in advance were able simply to demand repayment of that sum he would be able to avoid any responsibility to take steps to minimise his loss, which would, in my view, be a surprising and inequitable consequence of giving him this option. In my opinion, the condictio causa data causa non secuta may be invoked by the creditor only when there has been no wilful breach of contract by the debtor giving rise to a claim for damages.
In relation to the proposed withdrawal of the concession which the Lord Ordinary understood the defender and reclaimer to have made, I consider that the concession, if made, was well founded. The defender and reclaimer caused the company to be restructured and thereafter to be put into liquidation at a time when his contractual obligation was, if called upon to do so, to deliver 33 shares in a company which had a nominal capital of 100 ordinary shares of £1 each. By his actions he rendered such performance impossible. No doubt he could have offered something broadly equivalent in its effect to what he had contracted to deliver, such as—to quote para, (iii) of the first ground of appeal—"the transfer of one third of the company's share capital". But he could not then offer what he had promised. I do not need to rehearse here the arguments advanced by counsel for the pursuer and respondent on this issue and which I have summarised earlier. I agree with them and I heard no real answer to them from counsel for the defender and reclaimer. In the circumstances, I do not consider that it would have made any difference if the concession had not been given or if we had allowed it to be withdrawn. For completeness, however, I should have been disposed to allow the concession to be withdrawn, partly because it appears to me to relate to a matter of law rather than of mixed fact and law (the facts were not in dispute), partly because I cannot see what prejudice the pursuer and respondent would suffer from the withdrawal of such a concession, and partly because there may have been some misunderstanding at the proof as to exactly what it was that was conceded in this regard. When a concession is wholly or even largely related to a matter of law, and when that matter of law can be considered on the agreed or proven facts, then it is unsatisfactory to hold a party to a concession which he seeks to withdraw if it is plain that no material prejudice will result to the other party if the concession is allowed to be withdrawn.
In the whole circumstances I have come to be of the view that the reclaiming motion should succeed. I move your Lordships to allow the reclaiming motion and to grant absolvitor as the action is based solely upon the claim for restitution.
LORD SUTHERLAND—The facts as found by the Lord Ordinary relating to this reclaiming motion may be briefly stated. On 26th January 1986 the pursuer agreed to pay £16,000 to the defender for 33 shares in Comptel (Dundee) Ltd., a company which, at the time, had a share capital of £100 of which two shares were in issue, one each being held by the defender and his son. The basis of the price was that the assets of the company at the time were £48,000 and the pursuer was accordingly obtaining a one-third interest in the company. On 27th January 1986 the pursuer paid £6,000 and a receipt was issued in the following terms:
"Received from John D. Connelly the sum of £6,000 as part payment for 33 shares of Comptel (Dundee) Limited. Balance of £10,000 to follow."
In May 1986 the balance of £10,000 was paid. Both of these sums went into the defender's bank account. Also in May 1986 the defender was advised to increase the share capital of the company, and on his instructions the share capital was increased to 10,000 shares of £1 each and 4,500 shares were allotted to him. No shares were ever issued to the pursuer. The Lord Ordinary has accepted the defender's evidence that the reason for this was that the pursuer specifically requested that no shares should be made over to him until a divorce action, at the instance of his wife, was disposed of as he did not wish his wife to know of his interest in the company as that might affect the financial settlement on divorce. In fact decree of divorce was granted on 19th May 1987 but this was not known to the defender. On 7th August 1987 the company was in dire financial straits and the defender, without consulting either his son, the other director, or the pursuer, put the company into members' voluntary liquidation. The eventual sum available to shareholders was £1,200 and the defender offered the pursuer £400 which he refused.
Since the action was raised in November 1987 the pursuer's pleadings have undergone major surgery. The conclusion is now for payment of £16,000. In cond. 1 it is averred that "The pursuer claims damages in respect inter alia of the defender's failure to perform his obligations under and in terms of the contract." I suspect that this averment is one of the scars left over from the surgery as it is not consistent with the remainder of the pursuer's pleadings. In cond. 2, after averring the agreement, the terms of the receipt, and the two payments totalling £16,000, the pursuer avers that he repeatedly asked the defender for a share certificate. This latter assertion was however disbelieved by the Lord Ordinary. It is then averred:
"The parties' agreement was that the pursuer would receive 33 shares in the company from the defender. The consideration was payable to the defender personally and was in fact so paid. Said shares have never been transferred to the pursuer nor has any offer of such transfer ever been made."
The pursuer's first plea-in-law is:
"The pursuer having paid the price in terms of the said contract without performance by the defender is entitled to repayment of the price causa data causa non secuta."
The Lord Ordinary, after proof, found in favour of the pursuer and awarded the sum sued for of £16,000. The basis of his decision was that the pursuer paid £16,000, the consideration of that payment was the transfer of 33 shares, that consideration failed when the company went into members' voluntary liquidation, and the shares have never been transferred. Accordingly, the consideration having failed, the pursuer is entitled to restitution having regard to the classic test set out by Lord President Inglis in Watson & Co. v. Shankland (1871) 10 Macph. 142 at p. 152. It was no answer for the defender to say that the non-transfer was at the pursuer's request because the principle underlying the doctrine of restitution was to prevent unjust enrichment, defined by Lord Shaw of Dunfermline in Cantiere San Rocco v. Clyde Shipbuilding and Engineering Co . 1923 SC (HL) 105 as being "enrichment by reason of the thing being received and the consideration and return failing".
Counsel for the defender argued that the condictio causa data causa non secuta does not apply on the facts of this case because (1) it is an equitable remedy not open when there are other contractual remedies open which the pursuer has chosen not to use, (2) there was no "failure of consideration" and (3) there was no averment or proof of frustration of the contract. He further argued that even if the condictio does apply, as it is an equitable remedy the Lord Ordinary should have had regard to the equitable factors, and in particular the pursuer's actings in requesting delay in the transfer of the shares in order to defeat his wife's financial rights on divorce. On the first point the argument was that the condictio is an equitable remedy and applicable only as an equitable adjustment where a party cannot avail himself of normal contractual remedies, such as where performance has been frustrated by a supervening event not brought about by the fault of parties where, but for the condictio, loss would lie where it fell. Conversely the condictio does not apply when a party can pursue his normal contractual remedies, for example, implement or rescission of the contract and damages. In the present case there is no reason why the pursuer could not have pursued normal contractual remedies. He could have sued for implement or for damages having rescinded the contract, but either way the measure of loss would be £400. Counsel referred to Gloag and Henderson, Introduction to the Law of Scotland(9th edn.), para. 11–07 where it is said that money paid in advance may be recovered "even though as in the case of impossibility no breach of contract may be involved". In McBryde on Contract, para. 15.43 the condictio is dealt with in a section dealing with the consequences of frustration and counsel submitted that that was the appropriate place for the condictioto be found. In Gloag on Contract (2nd edn.), pp. 57–60, the author makes it clear that money paid may be recovered where the consideration fails "although the circumstances may not amount to breach of contract". The observations by Lord President Inglis in Watson are obiter and too wide, Watson in itself being a classic case of frustration, the ship involved having been lost at sea. Cantiere San Roccois another classic frustration case and the dicta contained therein should be confined to that situation. Other equitable remedies can only normally be invoked where no other remedy is available. This was the position in relation to recompense as recognised in Varney (Scotland) Ltd. v. Lanark Town Council 1974 SC 245. On the whole matter therefore the condictiocannot be invoked because there is no frustration of the contract, or its equivalent, only a failure to perform on the part of the defender. The proper remedy for the pursuer is therefore an action of damages for breach of contract and because that remedy is open to him he cannot invoke the condictio.
In reply counsel for the pursuer argued that the pursuer's case is a simple one. He advanced £16,000 in expectation of receiving 33 shares; he never received the shares and therefore he is entitled to restitution of the price. Where an expectation has failed to materialise, for centuries the position has been covered by the condictio which arises not under contract but under a separate obediential obligation arising where the consideration has failed. Once the failure has been established, under the condictio certain consequences follow and accordingly it cannot be described properly as an equitable remedy. It may be that a defender can put forward equitable grounds as to why he should not be held liable but that does not affect the fundamental right of the pursuer to invoke the condictio.The defender's argument is wholly misconceived as on authority consideration fails on non-performance from whatever cause. It may be that a pursuer might also have a claim of damages or other remedy, but even where there has been a breach of contract the rights of parties are not limited to contractual remedies. Counsel referred to Stair's Institutions, I, vii, 7 where the rule is stated in these terms:
"the duty of restitution extendeth to those things, quae 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".
The principle is stated in similar terms by Bankton, Erskine and Bell. Gloag makes it clear that in cases of breach of contract the party aggrieved has an action of damages but in addition to this, and whether damages have been suffered or not, he is clearly entitled to recover any part of the price or other consideration which he may have paid. There is nothing in Gloag to suggest either that the remedy of restitution is only open where no other remedy based on the contract is available, or to suggest that the remedy is available only in cases of frustration of the contract. In Watson Lord President Inglis gives the example of a contract to build a house where a certain portion of the price is paid before work begins. If no part of the work is performed the money so advanced may certainly be recovered back. This example shows that the remedy of restitution is open even though there has been a breach of contract by the builder and, furthermore, that it is not dependent upon frustration as in the example given there appears to be clear fault on the part of the builder. In Cantiere San Rocco many of the examples given by Lord Shaw of Dunfermline are cases where there has been a breach of contract but nevertheless Lord Shaw's view is that the money can be recovered, subject to exception in cases where there is no fault on the recipient's part and he has not in fact been enriched by the transfer. In Zemhunt (Holdings) Ltd. v. Control Securities plc 1992 SC 58 it was said by both Lord Marnoch in the Outer House and Lord Morison that restitution was not affected in principle by breach of contract even on the part of the payer. In the whole circumstances the authorities show that a claim of restitution is one of right or entitlement subject only to the court's right to limit payment equitably in the limited circumstances spelled out by Lord Shaw in Cantiere.
It is in my view clear that if the pursuer is to succeed he must bring himself within the principle set out by Lord President Inglis in Watson and affirmed in Cantiere. I do not consider that much assistance is to be gained from the institutional writers as it appears that they regarded the condictio as being applicable in special and unusual circumstances. Thus Stair in I, vii, 1 makes it clear that the whole title is dealing only with obligations of restitution:
"whereby that which is another's coming in our power, without his purpose to gift it to us, and yet without our fault, ought to be restored, as things straying, or found, or recovered from pirates, thieves, etc. or bought bona fide, or the like"
, and it is in that context that I, vii, 7 must be read. Similarly Bell refers to the condictio under the heading "Goods got by Mistake, etc.". I do not find in any of the institutional writers a suggestion that the condictio is appropriate for use in a situation where a completed contract has been entered into and the ordinary remedies for breach of contract are available and appropriate, and if this were the position I would have expected there to have been some authority in support of it. In Gloag at p. 57 the matter is put thus:
"While, subject to the limitations indicated, it is the rule of the law of Scotland that consideration is not essential to contractual obligation, yet if the original intent of the contract was that a gift or payment was made in view of something which was to be given or done in return for it, and that consideration fails, money which has been paid may be recovered, although the circumstances may not amount to breach of contract. In Roman law this subject was treated in connection with the action by which the money might be recovered (condictio causa data causa non secuta), by the institutional writers in Scotland as an illustration of the obediential obligation of restitution".
The examples then given of cases where money can be recovered when paid for a consideration which has failed all appear to relate to situations where the consideration is for the performance of some future act.
In considering what was said by Lord President Inglis in Watson it is in my view important to keep in mind the context. I do not mean by this the context of frustration. The charterparty which was under consideration provided:
"Sufficient cash for ship's ordinary disbursements to be advanced the master against freight, subject to interest, insurance, and 2.5 per cent commission."
Lord President Inglis refers to the rule of maritime law that no freight is due unless earned by the right delivery of the cargo and to the clear distinction between advance and payment or prepayment. He then adds (at p. 152):
"The general principles of law applicable to the contract of affreightment are not essentially different from those applicable to other similar contracts, such as contracts of land carriage, or building contracts, or any others, in which one party agrees to pay a certain price as the return for materials furnished or work done, or services rendered by the other party."
Thereafter he proceeds to the well-known passage in which he states 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.... 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."
He then deals with the English law which was out of line with that of other nations and continues (at p. 153):
"If, indeed, it were true that an advance of cash by the charterers to the master at the port of loading must be either a payment of freight or a separate and independent loan of money, the reasoning of the English judgments would be more satisfactory. But I apprehend that an advance against freight, or an advance on account of freight, or an advance of freight without further condition or stipulation, is neither a payment of freight nor an independent loan. It is an advance made on the faith of the master and owners performing their contract, and in consideration of their subsequent performance.... 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."
For the purposes of the present case the vital distinction which he makes is between an advance on the one hand, which is recoverable on failure of consideration, and a payment or pre-payment on the other hand, which is not recoverable. This approach is entirely consistent with the institutional writers who refer to restitution of, for example, "the proper goods of another". An advance would not constitute "the proper goods" of the recipient because the price is not due and payable until the consideration under the contract has been performed. A payment or pre-payment would however constitute his "proper goods" because the price is due and payable on the formation of the contract. An example of this may be seen in Leitch v. Wilson (1868) 7 Macph. 150 which is referred to by Lord President Inglis. Leitch was on its facts similar to Watson but with the vital distinction that under the terms of the contract the freight charges became due and payable 30 days after loading even though the voyage would take an estimated six weeks. The ship was lost shortly after departure but it was held that the freight charges were not recoverable. Cantiere was another case in which the nature of the contract was of importance. In that case the contract provided for an instalment of the price to be paid on signature of the contract and it was held that when the contract was frustrated before any part of the engines had been built that advance could be recovered. The Earl of Birkenhead puts the matter thus at pp. 108–109:
"The payment was made in consideration of the supply of the set of engines contracted for. These engines were never made, and consequently never supplied, and the contract has been put an end to without the fault of either party. The result is that the appellant company has got nothing in return for the payment of this money. The consideration was entire, for the instalments were all to be merely payments on account of the supply of the completed engines, and were not allocated to any particular stage, or the completion of any particular part, of the work."
When considering the nature of the condictio he refers to the condictio causa data as being competent where a person who had given something for a future lawful purpose which had not been realised sought to recover from the recipient what the latter had received. As a rule the pursuer in such a case had given a present consideration for a future performance. He concludes (at pp. 111–112):
"In the present instance neither party was in fault, nor was there any object in existence in which the property could pass.... There has been a payment on account of the supplying of the complete set of engines, not a payment of any particular part or stage, so that there was no allocation to any specific thing to be done or made. The set of engines has not been supplied, and for the failure to supply no one is to blame. There has been in fact a causa non secuta … to apply the general rule to the circumstances of this case is in my opinion in accordance with the true principles of Scots law, for any other result would leave the respondents with money paid to them for a purpose which has failed."
Lord Shaw of Dunfermline, in setting out the facts of the case, says, at pp. 116–117:
"The important fact of the case is that the engines were never made, either in whole or in part, and therefore no res came into existence."
The question in the case is, what is to become of the £2,310 which was given for something, but for which nothing was got in return? Is it to remain in the pockets of the builders who built nothing, or is it to be given back to the purchasers who got nothing?
"[T]his is a plain and typical case of restitution. The thing which was to spring into being never existed, and it was that thing in respect of which alone the part payment of the price was made.... There is no splitting up of consideration. The price is to be paid in consideration of the engines being supplied, and the 20 per cent on signing the contract is one of the items impressed within that general expression. The consideration as a whole stands with reference to the price and every part of the price. It is an admitted fact in the case that that consideration has entirely failed. Therefore, this, as I say, would be a typical case of restitution under the Roman law and one for the application of the maxim causa data causa non secuta."
He then considers the Roman law and the institutional writers, but eventually founds his decision on the "unquestioned authority" of Lord President Inglis in Watson.He concludes at pp. 122–123:
"To apply these principles to the case in hand, there can be no doubt that the person who received £2,310 in part payment for engines which were to be built and supplied, must restore money in the event of the engines not having been supplied, and not even having been built. Both the law of Rome and the law of Scotland, not to speak of the equity of the situation, would have been clear on the subject."
Cantiere, therefore, in my view is ample authority for the proposition that money paid in advance may be recovered under the condictio where the reciprocal consideration is for some future event to be performed and that event, for whatever reason, never occurs. A more modern example of the same principle being applied, albeit in different circumstances, can be found in Zemhunt where the deposit was held to constitute a guarantee of the purchaser's performance and thus not recoverable, rather than an advance of the purchase price (which was not due and payable until the settlement date) which might well have been recoverable.
In my opinion this case falls to be decided on the same principles. The question therefore becomes whether the payments made by the pursuer constituted payment of the price then due and payable under the contract in which case they would not be recoverable, or merely an advance towards the price which would not be due and payable under the contract until delivery of the shares in which case they would, in principle, be recoverable as delivery of the shares never occurred. The agreement in this case was a simple one, namely for the purchase of incorporeal moveables. The price was duly paid. As at that moment there was an obligation on the defender to deliver shares, an obligation which would be enforceable by an action for specific implement. As between the pursuer and the defender, the pursuer had a right to the shares and the payment which he made was in consideration of that right. The mechanism whereby that right could be translated into a real right by delivering a signed transfer to the company for registration still had to be completed, but that did not affect the pursuer's right to the shares as against the defender with whom he had contracted. On the facts of this case, as found by the Lord Ordinary, the reason why that mechanism was never put into operation was because the parties agreed not to do so at the instigation of the pursuer because of his matrimonial problems. At any stage after payment of the price it would have been open to the pursuer to demand the shares and to that demand the defender would have no reply. In this situation I am of opinion that the contact was complete and that the payment made by the pursuer could not be described merely as an advance towards the price which would only be due and payable when he was in receipt of a completed transfer. The payment was in fact in consideration of the pursuer acquiring a personal right against the defender to demand a transfer of the shares and that consideration he received. Iam therefore of opinion that there is no room for the application of the condictio and that the pursuer's only remedy would be an action, for breach of contract if he could show that the defender was in breach of his obligations under the contract.
For these reasons I would allow the reclaimin motion and assoilize the defender as the action is based solely on restitution as appears from the pursuer's first plea-in-law.
On the matter of the proposed withdrawal of the concession apparently made before the Lord Ordinary, I agree with your Lordship in the chair for the reasons given that the defender should be permitted to withdraw the concession.
On or about 27th January 1986 the pursuer contracted to buy 33 shares in Comptel (Dundee) Ltd. at a price of £16,000. At that time the share capital of the company was 100 shares. The pursuer paid the price in two instalments which were received by the defender and paid into his private bank account. The pursuer, for matrimonial reasons, requested that the transfer of shares to him should be deferred. No transfer of shares to the pursuer was ever made. In May 1986 the defender authorised the increase in the nominal share capital of the company to £10,000. On or about 7th August 1987 the company went into members' voluntary liquidation. Both of these steps were taken without the knowledge or consent of the pursuer or of the defender's son who was the only other director.
In my opinion the restructuring of the company, viz., the inrease in the nominal share capital, followed by its liquidation rendered performance of the contract between the parties impossible.
I respectfully agree with and adopt the description by your Lordship in the chair of the real issue of law which lies at the root of this appeal. That issue, shortly stated, is whether a party to a contract who has paid to the other party the contract price and has done so in the expectation of receiving in return something which, at the date of payment, it was in the power of that other party to give, can rescind the contract and claim return of the price when he discovers that the other is, as a result of his own actings, no longer able to deliver what he contracted to deliver. Alternatively, is the payer's only remedy to sue for damages for breach of contract? As your Lordship has observed, counsel for neither party were able to refer us to any case in which a claim for simple repayment was sustained or refused. This I do not find surprising. With all respect to your Lordships who have reached a different conclusion, it seems to me to be no more than common sense that a vendor who has been fully paid but is unable to fulfil his obligation under the contract should be liable to make restitution of the price. The question will not normally arise because a claim for damages will generally be worth at least as much, if not more, than a claim for restitution. But that does not affect the vendor's liability. I agree with the submission of counsel for the pursuer and respondent that the pursuer's claim for restitution is a claim of right and not an exceptional remedy dependent on equitable considerations.
I gratefully adopt your Lordship's summary of the cases and texts to which we were referred. In my opinion the law is concisely stated in Trayner's Latin Maxims at p. 72, sub nom."Causa data causa non secuta", where the learned author says:
"money paid in purchase of a certain subject can be recovered on this ground, if the seller fail in delivery".
That is this case.
For the foregoing reasons I agree with the Lord Ordinary that there is no answer to the pursuer's claim for restitution.
On the matter of the proposed withdrawal of the concession made before the Lord Ordinary, I agree with both of your Lordships.
On the whole matter I would affirm the interlocutor of the Lord Ordinary, subject to deletion of the references to declarator and reduction, and refuse the reclaiming motion.
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