Iron & Steel

6, 1885

The pursuer pleaded that the amount sued for was resting- owing to him by the defenders.

The defenders pleaded-"The pursuer having failed to supply two producers, each of a size capable of consuming 4 cwt. of coal per hour, as contracted for, and the defenders having timeously rejected those actually erected, the defenders are entitled to absolvitor, with expenses."

The following facts were elicited on proof-The producers were built in accordance with Wilson's patent, and on the plaus furnished by him. From these plans the pursuer stated he could not, as Wilson's representative, though a principal in this contract, depart. The pursuer stated that 4 cwt. per hour size meant a size capable of burning 4 cwt. per hour. Previous to the erection a model was submitted to Mr Jardine, according to which, with a slight alteration made at the latter's request, they were erected. Alfred Wilson, the patentee, stated in his evidence-"A 4 cwt. per hour producer is intended to do anything from a small quantity up to 4 cwt. per hour. That is what it is known in the trade to do. (Q) If it does not do that, would you consider it a 4 cwt. producer?—(A) Yes, certainly, because it is the most simple matter in the world to prevent a 4 cwt. producer burning 4 cwt. an hour.... (Q) Assuming that very great care has been taken in firing, and every attention possible paid to it, if it does not burn 4 cwt. per hour, would you say it was a 4 cwt. producer?-(A) Yes, certainly. It is a nominal size. (Q) Then it has nothing to do with the amount of coal burned?-(A) Yes, it is the basis of consumption which it has done. I have tested it. (Q) What was the average consumption?-(A) I can only say over 4 cwt. an hour. I tested it. I cannot give you the figures. There is no patent in the size. I can make them any size. (Q) Were these tests carried out in order to fix the size, or were the sizes fixed in accordance with experiment? -(A) If I remember rightly, the sizes were fixed before the experiments were made. When the experiments were made, I found that they confirmed the capability which I fixed. They were fixed upon theory, and a practical test was made, and that test confirmed the capability of the producer." He had supplied plans for the erection of several hundreds of these producers.

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The defenders led proof to show that the producers after being erected in their works failed, even when worked by skilled workmen from other works - one of whom was commended by the pursuer where Wilson's patent was in use, and under the personal inspection of the pursuer himself, to gassify more than 24 to 23 cwts. per hour. The defenders had no other objection to them except that their capacity to make gas was too small.

The Sheriff-Substitute (MAIR) after certain findings in conformity with the above-stated facts, found (2) that it is proved and is admitted by the pursuer, that by gas producers of 4 cwt. per hour size is meant producers each capable of consuming 4 cwt. of coal per hour; (3) that the pursuer caused to be erected at the defenders' works two gas producers, and about the end of

August 1883 informed the defenders they were ready to be used; (4) that immediately thereafter the said producers were found not capable of consuming 4 cwt. of coal each per hour, and consequently did not and could not supply the gas required for heating the puddling furnaces at the defenders' works; (5) that notwithstanding several trials afterwards of the gas producers, it was found they would not consume the quantity of fuel required, and they were therefore rejected by the defenders on 20th December 1883 as disconform to contract; finds that the pursuer has failed to supply two producers, each of a size capable of consuming 4 cwt. of coal per hour as contracted for, and that the defenders having timeously rejected those erected, the defenders are entitled to absolvitor; therefore assoilzies the defenders from the action."

The pursuer appealed to the Court of Session, and argued-All he undertook to do was to erect a patent machine of the name of a 4 cwt. per hour gas producer, according to plans furnished by the patentee, and having done this he had fulfilled his contract. He gave no guarantee that they would actually consume the amount, and in the time according to which they were described by the patentee. The seller of a patent article never does guarantee more than merely that the article sold is the article patented-Ollivant v. Bayley, 5 Q.B., Ad. and Ell. 288; Prideaux v. Bunnett, 1 C.B. (N.S.) 613; Chanter v. Hopkins, 4 Mees. & Wels. 399; Ross's Leading Cases, ii., Com. Law, 368. And these cases were all a fortiori of the present, for in all of them the patentee himself (and not as here his agent) had contracted with the buyer, and had been a party to the case. Alternatively, he had proved that when properly worked, the machine supplied would consume 4 cwt.

The defender replied-The question of patent did not enter into the case except as furnishing a description of the article. They had no objection to the article supplied as far as the patented process was concerned. The question was purely one of the sale of article guaranteed to do a certain amount of work which it had failed to do, and failing, proved disconform to contract. The circumstances were thus not those of any of the cases relied on by the pursuer.

At advising

LORD YOUNG-This is an action for the price of two patent machines called "Wilson's Gas Producers," with which the pursuer avers that he according to contract supplied the defenders. It is admitted that he did supply the defenders under a contract, specifying the price, with these articles, but it is averred that the machines were not capable of consuming fuel at a certain rate per hour, and therefore that they are not according to contract. The question substantially is, whether the capacity was an element of the contract, or, in other words, whether the pursuer, the seller, warranted the capacity?

Wilson is

Now, the facts are clear enough. the patentee of the article in question. His patent gas producers are not kept in stock; it does not even appear whether he manufactures them himself, but they are erected to order by engineers with the patentee's licence; and the pursuer took the defenders' order to erect two of

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"Wilson's Patent Gas Producers" of the 4 cwt. per hour size, and I think it is according to the evidence that the machines supplied were "Wilson's Patent Gas Producers." The only objection stated to them by the defenders is that they are too small, and do not in fact consume 4 cwt. per hour. think it was no part of the contract that they should. I think it is not doubtful that the 4 cwt. an hour size was a name given to his articles by the patentee according to tests of his own. It was the description of them according to his view. The defenders expected that they would literally answer that description, and were honestly disappointed to find that they did not. But I think that the pursuer exactly executed the defenders' order. It appears that the patentee had two sizes of these producers, described in the same way as the 4 cwt. per hour and the 8 cwt. per hour sizes respectively, which were sold by persons having his licence. When the defenders' order was given, the pursuer, an engineer having the patentee's licence, obtained from the patentee plans of the 4 cwt. per hour size, which I must assume was a well-known size, the term being used in that way in the defenders' order. These machines have been made and sold in hundreds of the same kind and under the same description for other works. Could the pursuer in the execution of this order have done anything else than obtain plans for that size and erect a perfect machine according to them? And this he did. It is true, according to the testimony of the defenders, that they did not in their hands, though honestly used, consume the amount of fuel by reference to which they are described. That does not lead me to discredit the patentee's testimony that they did by his tests, and according to which he describes them, consume 4 cwt. per hour. Many things might have interfered with their productive capacity in the defenders' hands. I think the pursuer could have done nothing but what he did do, and that having completely executed the defenders' order he is entitled to payment of the price.

I am therefore of opinion that the Sheriff-Substitute's judgment should be recalled, and that we should find that the pursuer completely executed the contract to supply to the defenders "two Wilson's Patent Gas Producers of the 4 cwt. per hour size," and is therefore entitled to payment of the contract price.

LORD CRAIGHILL-I am of the same opinion. The contract here was for the erection in the defenders' works of two of "Wilson's Patent Gas Producers" and it is not in dispute that what was furnished by the pursuer to the defenders was "Wilson's Gas Producers." But there was a further condition that these producers should be of the size known as the 4 cwt. per hour size; and the controversy is, Are the articles supplied of this size or not? It appears that the articles are of a kind that have been supplied under that description in large numbers to other works, and according to anything in the evidence those supplied to the defenders were not different from those supplied to others. There is therefore nothing to shew that the pursuer departed from the terms of the contract, but, on the contrary, he took the best means of fulfilling it. But it is found that when tested by the defenders the machines did not in fact consume 4 cwt. of fuel per hour, and

& Steel

, 6, 1985

the defenders maintain that the contract was that what was furnished to them should not only be of the size known as the 4 cwt. per hour size, but should actually consume that amount of fuel. But I agree with your Lordship that that was no part of the contract, because the thing to be furnished was merely the thing known as "Wilson's Patent Gas Producers" of 4 cwt. per hour size.

I therefore think the Sheriff-Substitute was wrong in his view of the case. He did not consider what the parties meant by the contract, and I agree that his judgment should be recalled and decree given for the pursuer.

LORD RUTHERFURD CLARK concurred.
The LORD JUSTICE-CLERK was absent.

The Court pronounced this interlocutor:

"Find that the pursuer, in execution of his contract with the defenders, supplied them with two Wilson's Patent Gas Producers' of the 4 cwt. per hour size: Therefore sustain the appeal, recal the judgment of the Sheriff-Substitute appealed against. ordain the defenders to make payment to the pursuer of the sum of £260, with interest thereon," &c.

Counsel for Pursuer (Appellant)-Trayner— Dickson. Agents-J. & J. Ross, W.S.

Counsel for Defenders (Respondents)-J. P. B. Robertson-Lang. Agent-Thomas Carmichael,

S.S.C.

A shareholder in a limited joint-stock company registered under the Companies Acts raised an action of damages against the promoter of the company, alleging that he had been induced to take shares and pay calls on them, and to take debentures of the company, to his loss and damage, on the faith of certain false and fraudulent statements made by the defender, which had led to the formation of the company and to his becoming a member of it. In that action he obtained decree in absence in his favour. In a suspension of the decree in absence by the defender, the Lord Ordinary granted suspension, on the ground that the pursuer as an individual member of the company had no title to sue. Held that as regarded the alleged loss from having taken debentures of the company, the pursuer had a title to sue in his own person, and that as he had made averments relevant to infer falsehood and fraud on the part of the defender, the Lord Ordinary's interlocutor should be recalled and the action remitted back to him for probation.

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Opinions reserved as to the pursuer's title to sue in respect of loss and damage arising from having taken shares and paid calls. In November 1883 Alexander Mitchell, timber merchant, Glasgow, in his own right and as assignee of certain other parties after mentioned, raised against Matthew Dunnett, residing in Molde, Norway, against whom he had used arrestments jurisdictionis fundandæ causa, an action for £3000 as damages.

He averred-Cond. 1. In August 1877 Dunnett, who was a Scotsman resident in Norway, professed to the pursuer Mitchell and his cedents, Robert Robinson, timber merchant, Partick, John Donald, iron merchant, Glasgow, and James Lockhart Mitchell, timber merchant, Glasgow, to have discovered a very rich and extensive bed of iron ore on an estate in Norway, on which there also grew a forest of valuable timber. The estate referred to was the Vaagsoeter estate, situate in Romsdal County, twelves miles north of Molde, on the west coast of Norway. None of these parties had any knowledge of the property except what was conveyed to them by Dunnett, who explained that he wished to form a limited company in this country to purchase the estate and work the timber and minerals on it. He drew up a prospectus and prepared reports, describing the minerals and forests thereon.

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Cond. 2. According to the statements made by the defender to the said parties, and also made by him in said prospectus, the estate was represented as within his personal knowledge to contain 1000 imperial English acres, and the following statements were also made by the defender in the prospectus in regard to the timber on the said estate, the defender being the vendor mentioned, viz., "The forests, nearly 4 miles in length, have been surveyed by Messrs 0. Holm and M. Y. Aarsett (leading forest owners of the district), and the vendor guarantees the accuracy of their inventory and dimensions as follows:-4000 trees of 12 to 153 inch diameter at 24 feet from ground, and estimated 50 to 60 feet high. 10,000 trees of 7 to 11 inch diameter at 24 feet from ground, and estimated 40 to 50 feet high. 20,000 of 5 to 7 inch diameter at 20 feet from ground, and estimated 30 to 35 feet high. The trees under the last diameter were too numerous to be counted, but of sizes to yield each tree 20 feet length, for pit prop wood, are estimated at 80,000. . . . The vendor has extended the foregoing inventory, and values the timber at market prices in British ports at £25,303."

Cond. 3. "The minerals in the lands were also described by the defender to the pursuer and others, and in the prospectus, as being valuable, and consisting of iron ore of excellent quality. In a separate special report entitled 'Report on a new Iron Ore Field in Norway' (meaning Vaagsoeter), the defender, inter alia, stated that he had proved the great bed of iron ore for about of an English mile, and that the supply of ore was practically inexhaustible, and concluded'the average metallic yield of all the veins of this great iron seam is above the yield of the ores used either in Staffordshire or Yorkshire furnaces, and the richest veins of the seam could be put out separately, being admirably suited for making Bessemer steel. The defender also represented in the said report that samples of the ore shewed

on analysis from 36.72 to 61:49 per cent. of metallic iron.'"

In Cond. 4 it was set forth that Dunnett offered to sell the estate (which he represented he had acquired from the Church Commissioners of the State of Norway) to the proposed company for £3800, payable £2850 in cash and £950 in paid-up shares of the company; that he expressly guaranteed repayment of this sum of £2850 within four years from the company's entering into possession, and further agreed to become the company's resident manager at an annual salary of £250, and undertook to erect certain buildings and machinery at a cost of £800, and to advance cash to put f. o. b. the first two cargoes of timber.

Cond. 5 stated that after some time Mitchell and some others agreed to form a company on the lines of Dunnett's prospectus. The formation of the company was however delayed till a deputation of two of those induced by Dunnett's representations to take an interest in it had gone to Norway to inspect the property along with Dunnett. From the statements of Dunnett and the lines on which they were led to believe by him and a native guide named Knud, provided by him, that the boundaries of the estate ran, they formed the impression that the area of the estate was what Dunnett had represented it to be, namely, 1000 imperial acres, and they reported accordingly to the promoters on their return to Glasgow. "While the report of the deputation was under consideration, a letter dated 18th October 1877 was received from the defender by the law-agents of the promoters, informing them for the first time that unless the company was formed and the price paid to the original vendors in Norway on or before 31st December following (1877), the offer which the defender held from the latter would expire. It was also represented in said letter that the company would thereby lose the opportunity of purchasing the estate, as there were other parties in Norway ready to take it up.'

In Cond. 6 it was stated that in consequence of the receipt of this and other urgent letters from Dunnett a company was formed and

of the "Vaagsoeter Estate Company (Limited)," with a capital of £5000, divided into 500 shares of £10 each; that relying on the truth of the statements and representations of Dunnett, Mitchell and his cedents took altogether 180 shares, and paid in calls on them the full price of £1800.

Cond. 8 and 9 stated that the company afterwards paid to Dunnett the price of £2850, he making a profit on the transaction of £1080, over and above his 95 fully paid-up shares, which fell to be retained by the company until his guarantee as to the repayment of the £2850 was fulfilled; that he was appointed resident manager of the company in Norway at a salary of £250 a-year, and acted as manager till October 1878, when he was dismissed for gross mismanagement and repudiation of his obligations to the company; that his claims against the company for salary and advances were satisfied in December 1879 by a payment of £300 in cash, a mortgage over the estate for another £300, and his 95 shares, it being made a condition-precedent of the mortgage that it should not be called up for five years, but Dunnett violated that condition by calling up the mortgage in December 1880, compelling the

directors, in order to prevent a sale, to have it taken over by some one in this country; that the business at Vaagsoeter was thereafter carried on on behalf of the company by John Olsen, who had previously been Dunnett's foreman; that up to the time when the arrangements for settlement with Dunnett above mentioned were completed neither Mitchell nor any of the other shareholders in this country had any reason to doubt the truth of Dunnett's statements and representations which led to the formation of the company, but on the contrary, he, after assuming the management of the company, reported that from a further inspection of the property he believed it to be of at least 1500 acres in extent, and that the company would receive handsome dividends from the timber for ten years, but it was only in June 1882 that the directors and Mitchell and his cedents learned from Olsen that the forest was nearly exhausted, and would only yield one more year's supply of timber.

Cond. 10. "It has now been ascertained, as the result of a careful scientific survey by Mr Olsen (who has the requisite skilled knowledge), and the pursuer believes and avers, that in place of Vaagsoeter containing 1000 imperial English acres, as represented and guaranteed by the complainer, it contains not more than 530 acres. The property is in shape an oblong, and extends inland in an easterly direction a distance of about 34 miles, while its greatest breadth from north to south is not more than 700 yards, narrowing down to about 279 yards. When it was inspected by the deputation sent out by the promoters in September 1877, they arrived at the foresaid approximate estimate of its size, and were misled in making the favourable report to the shareholders which they subsequently did in the following manner. Accompanied by the complainer and his guide Knud, they perambulated the greater part of the boundaries. At certain points, however, they were taken into the adjoining properties and shown by the complainer and Knud, at a distance, the lines in which the boundaries of Vaagsoeter were said to run. To ascertain the average breadth of the estate, Messrs Robinson and Broom (who formed the deputation), along with the complainer, stepped the ground across at two points to which they were taken by the complainer. It was between these points that the boundaries were indicated to Messrs Robinson and Broom from a distance, as already mentioned, and it has now been ascertained that" in place of these two points giving the average breadth, as they were led to believe by the defender, the estate, in point of fact, between those two points makes a large sweep inwards. "This change in the lines of the boundaries could not have been ascertained from the point where these were indicated to Messrs Robinson and Broom as aforesaid, nor without their attention being specially directed thereto. Dunnett had known the property for at least two years previously, and was fully acquainted with the true boundaries. Although known both to the complainer and the guide Knud, they fraudulently concealed from and failed, as they were bound to do, to point out to Messrs Robertson and Broom the true state of the boundaries, and, in particular, the fact that they receded to so great an extent between the two points referred to as to diminish the size of the estate to about one-half what it would have

been had the mean of the breadth at the said points really indicated the average breadth of the property. This concealment on the part of the complainer of the true state of the boundaries of Vaagsoeter, and the consequent effect on its size, only came to the knowledge of the respondent and his cedents for the first time in the month of October 1883.

Cond. 11 and 12 stated that it had been afterwards ascertained that the quantity of timber on the estate had been fraudulently stated by Dunnett in his prospectus, and in the other reports and statements submitted by him. In particular, of the largest-sized trees, stated by him at 4000. not more than 200 had been fouud on it, and of the other classes not more than one-half of those stated in the prospectus. Dunnett was aware when he made his representations that no proper survey or counting had been made by Messrs Holm and Aarsett. It was then stated that the ore on the estate had been recently tested and analysed by Dr Wallace, analytical chemist in Glasgow, and found to yield 30-24 per cent. of metallic or pure iron, and had been pronounced by him to be of no value; that the statements by Dunnett in the prospectus and report referred to, and quoted in stat. 3 above, were false, and were made by him for the purpose of deceiving and imposing upon the pursuer Mitchell and his cedents in a matter of essential importance in judging of the estate; that in consequence of the exhaustion of the forest, and the worthless quality of the iron ore on the estate, the business would fall to be shortly wound up; that there had been expended in the purchase and in the erection of buildings, &c., about £4500; that the estate had now been valued by experienced valuators at £66, 12s., and the buildings and machinery at £188, 14s.-£255, 6s. in alland the company had abandoned the property to the mortgagees; that the company was, besides, indebted on debenture account to the extent of £600, on which there were, on 31st December 1882, arrears of interest to the extent of £144; but there was not the sightest prospect of any assets to meet the debenture debt, much less to yield a dividend to the shareholders; that of the debenture debt the pursuer Mitchell and his cedents then held £426, including interest to 31st December.

Cond. 14. The statements and representations of the defender condescended on in statements 2, 3, 5, and 10 were false and untrue, and were made by the defender in the knowledge of their falsehood, and fraudulently, for the purpose of inducing the respondent and his cedents to subscribe for shares in the said company. And the pursuer and his cedents were induced by the said false and fraudulent misrepresentations and the foresaid fraudulent concealment on the part of the defender to subscribe for shares, and pay calls thereon as aforesaid, and to make the said debenture advances. By the said false and fraudulent misrepresentations and concealment the complainer has been lucratus to the extent of not less than £1300."

The pleas-in-law were as follows - “(1) The pursuer is entitled to damages as concluded for, in respect that he and his cedents were induced to take and pay for shares in it, and take up debenture bonds of said company by the false and fraudulent representations and concealment of the

defender. (2) The defender having knowingly made the foresaid false and fraudulent representations, and having wrongfully and fraudulently concealed essential facts within his knowledge, and having thereby induced the pursuer and his cedents to become shareholders and debenture-holders of said company, is liable in damages and expenses as concluded for."

The summons was served edictally. No defences were lodged, and decree in absence was on 8th December 1884 in consequence pronounced against the defender.

On 11th February 1844 Dunnett brought a suspension of this decree in absence.

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He averred-(After narrating the action)" During the whole of the foregoing proceedings the complainer was resident in Norway, where he has lived since April 1880, and he still resides there. No copy of the said summons served on him personally, or sent to him, although his address was known to the respondent and his law-agents, and he did not hear of the said proceedings till after the said decree had been pronounced, and in consequence of the irregularity of the posts in Norway, and in the time occupied in communications between the complainer and the agents whom he instructed in this country, the information necessary to enable his said agents to take proceedings for having the said decree suspended was only received by them at or about the date of the presentation of the note." He further averred that the decree was ill-founded on the merits. He denied the averments of false and fraudulent representation and concealment made against him in the summons, and maintained that the statements therein were unfounded in fact. His own account of the facts leading to the formation of the company and the purchase of the estate were substantially to the following effect-Previous to bringing the estate under the notice of the promoters of the company he had visited it only once, in 1874, when he examined indications of minerals, and took specimens for analysis, which afterwards proved satisfactory. He did not examine the trees on the property, nor inquire into its extent or its boundaries. He did not revisit the estate again until he accompanied the promoters' deputation above mentioned. The report by Holm and Aarsett, who were entire strangers to him, was got by him from John Olsen, who did not act as his agent in procuring it. In the belief that the information there given was correct he brought it under the notice of the respondent and his cedents. The information contained in the memorandum prepared and laid by him before the respondent and his cedents was obtained from Olsen, and through him from others, whom the respondent believed to be trustworthy and properly skilled. When Robinson and Broom made their report after visiting the estate they had all the information, and the same means of information, about the property which the complainer had himself, and were as well able to judge of it as he was. The company was formed and the estate purchased, not on the faith of any statements of his, but on that of the report of the deputation. The conveyance of the estate to the company was not granted by him, but by the owners and Olsen. The company employed their own lawyer in Norway to carry out the purchase. He did not admit the statements as to the extent

of the property and those regarding the trees and the minerals set forth in the summons. In 1878 he and Olsen again inspected the whole boundaries of the estate, and reported the result, which was corroborative of the previous inspection and the prospectus. He also stated that since the summons had been served a resolution had been passed to wind up the company voluntarily, and the estate had been sold to John Olsen.

It was admitted that a resolution to wind up had been passed by the company.

The complainer pleaded-"(1) The decree complained of having been pronounced in absence of the complainer, and without notice to him, and during his residence furth of Scotland, he is entitled to suspension thereof as craved. (2) The said decree being ill-founded upon the merits, the complainer is entitled to suspension as craved. (3) The averments of the respondent, in the action in which said decree was pronounced, and in the present suspension, being irrelevant, the complainer is entitled to suspension as craved. (4) The respondent had no title to sue the said action. (5) The shareholders and creditors of the company were not entitled to make any claim arising out of the transactions referred to on record as individuals and apart from the company, not having alleged or sustained any loss apart or distinct from the company. (6) The respondent's claim in the said action was bad, in respect that the alleged damage was not the natural, necessary, or actual consequence of the respondent and his cedents having become shareholders or creditors of the company, but arose out of the purchase, by the said company, as its proxima causa, and the right to claim damage in respect of said purchase belongs to the company alone. (10) The purchase of the said estate having been made, and the respondent and his cedents having taken shares in the said company, and lent the company on debenture, not on the faith of any representations by the complainer, but of the report of the said deputation, the respondent has no claim against the complainer. (11) The said company having, before the purchase of the said estate, and at least before payment of the price and conveyance of the subjects, had equally good opportunities with the complainer of investigating the extent and value of the said estate, the respondent's claims cannot be maintained."

The respondent's statements of facts were, with some slight amplification and specification in detail, substantially the same as those made by him in the summons in the action of damages above recited, and need not therefore be again detailed. In particular, it was stated (Stat. 13) that the estate had been then recently sold for £328, "a sum barely sufficient to meet the principal and interest on the existing mortgage on the property."

He pleaded-"(1) The respondent being entitled to damages as concluded for in said action against the complainer, in respect that he and his cedents were induced to take and pay for shares in, and take up debentures of said company, by the false and fraudulent representations and concealment of the complainer, the suspension should be refused. (2) The complainer having knowingly made the foresaid false and fraudulent representations, and having wrongfully and fraudulently concealed essential facts within his