Scottish Court of Session Decisions

On 17th January 1906 J. H. Selkirk, advertising contractor, Bouverie Street, London, raised an action against Alexander Ferguson, 108 West Regent Street, Glasgow, in which he sued for £2000 as damages for breach of contract. The contract in question was with regard to the working of a patent advertising machine, The Animated Poster, the patent rights in which belonged to the defender, who had proposed, after arranging for the working, to form a company to take up the patent, and with this view sold an option to a Mr Cohen. As originally drafted the contract contained a provision that the defender should have right to assign his interest in the patent to a company, “and upon such assignment being carried into effect the said A. Ferguson shall not be under any further liability here under.” As signed, the contract provided—“but notwithstanding such assignment the liability of the said A. Ferguson under this agreement shall remain and have effect.”

The defender had resiled from the contract, and now, inter alia, pleaded—“(4) The defender should be assoilzied with expenses, in respect that (1st) the said agreement was entered into by defender under essential error induced by pursuer; (2nd) said essential error was induced by fraudulent misrepresentations and concealment on the part of the pursuer; and (3rd) said agreement is not binding on defender, but is null and void.”

The circumstances under which the contract was signed are given in the opinion ( infra) of the Lord Ordinary ( Johnston), who on 1st December 1906 assoilzied the defender.

Opinion.—“The defender Alexander Ferguson is a whisky blender and dealer in Glasgow, and he has also apparently dabbled in patents and in company promotion, in the latter of which, though an unskilled hand, he is not exactly a tyro. In 1904 he had got hold of the patent for a system or method of pictorial advertising which was termed ‘The Animated Poster,’ and he posed as ‘The Animated Poster Syndicate,’ the syndicate being himself. In company promotion there seems to be some magic about the term ‘syndicate.’ Looking to what sort of inane devices in the way of advertising succeed in this advertising age, I think that Ferguson had some ground for his sanguine view that the patent which he had acquired, if it caught on, might prove a financial success when sufficiently worked and financed. But he himself could neither work nor finance it. Accordingly he set to work on the lines of company promotion. But there was no use attempting to promote the company until he had provided for the working.

“The pursuer, John Hirst Selkirk, was in 1904 an advertising contractor of capacity and experience, though the ramifications of his business have brought to grief the company into which he has since turned his business. A Mr Slight was Selkirk's manager. Having through other business got into touch with Mr Slight, the defender in the end of 1904 opened to Selkirk his project, with a view of making a contract with Selkirk to work the patent. Slight was impressed with the prospect of the invention, and so, on its being communicated to him, was Selkirk, and meetings and correspondence followed. The end towards which Ferguson was working is disclosed in his letter to Slight of 6th December 1904—‘If you would be prepared to guarantee us advertisers, we would be prepared to guarantee the capital.’ What he wanted was a contract with Selkirk which would promise to produce custom for his invention. When he had secured that, though he had no capital to finance it, and did not directly disclose that fact to Selkirk, he would set about promoting the company, which, on the strength of the promise of the working contract with Selkirk, would finance the invention. And in this he very nearly succeeded, and would probably have done so had he been prudent enough to employ a solicitor. He did make a contract with Selkirk, and he did get people with means to take an option, for which they paid him, to exploit the patent financially by promoting a company. But in three days he found himself obliged to resile from the contract into which on 1st March 1905 he entered with Selkirk and Mr Cohen, and his associates, who had acquired the option, afterwards declined to avail themselves of it.

The pursuer Selkirk now sues the defender Ferguson for damages for breach of the contract, which he puts at £2000. I cannot say that I have any sympathy with Ferguson's conduct throughout the crucial part of the negotiations, but I have nevertheless come to the conclusion that he was entitled to resile. His defence was virtually a recision on the ground of essential error, and the necessity for reduction was waived.

A meeting between Ferguson and Selkirk took place in London about the middle of December 1904, the result of which was the adjustment of terms of offer by Selkirk addressed to ‘The Animated Poster Syndicate, Glasgow,’ and forwarded by Selkirk to Ferguson on 23rd December 1904, and repeated with some variation on 2nd January 1905. The offer was substantially that Selkirk, on having the organisation and control of the enterprise committed to him for three years, and in consideration of salary and expenses, was to guarantee advertisements to keep 100 machines employed. It was open for acceptance for two months. And it was accompanied by a collateral letter stipulating for a share of

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the profit Ferguson might make on floating his company.

It is immaterial to follow the correspondence of the next six weeks. On 10th February 1905 Ferguson again went to London, was introduced by a Mr Vincent to Mr Cohen, and received apparently such encouragement that on 20th February he wrote to Selkirk accepting his offer of 23rd December previous.

Matters then passed into the hands of Mr Slark, of Slark, Edwards, & Company, solicitors, Southampton Street, Strand, who was agent for Mr Cohen and his associates, and in fact prepared to interest himself along with them. Now two things had to be done, first to adjust a working agreement between Ferguson and Selkirk in such terms as would be acceptable to Mr Cohen. For it was clear that a satisfactory agreement between Ferguson and Selkirk must be a condition-precedent to Mr Cohen taking the matter in hand, even on an option contract merely.

Mr Slark was then entrusted with the matter, and the clue to the trouble which has since arisen is that he was employed by Mr Cohen alone, and in his own mind was charged with Mr Cohen's interest alone, while Selkirk and his agent (Mr Davis) understood him, at least down to a very late point, to be acting for Ferguson, and Ferguson himself understood him, though I do not think that he was justified in doing so, to be acting indirectly for him.

Mr Slark says that the conveyancing part of the business, at any rate, first came into his hands on Wednesday, 22nd February, that a draft agreement was prepared by him, and that the parties met at his office on Saturday the 25th, but that, as he was much engaged, he arranged that they should meet at his house on Sunday afternoon, the 26th. This was necessary, as he was leaving for America on the evening of Tuesday the 28th, and Ferguson for Scotland on the following day, Wednesday the 1st March, and the business was therefore urgent. Now the witnesses to what occurred on these four or five days by no means agree with one another. I believe them all to be perfectly honest and to be speaking to the best of their recollection, but that recollection to be inaccurate. I except Mr Davis, Selkirk's agent, who intervened for a very brief period and who speaks with perfect precision. But I must add, that although Mr Slark admits failure to recollect a good deal, I am satisfied that his evidence of what he does recollect is to be preferred to either that of Ferguson or Selkirk. He is a clear-headed man of business, and was perfectly free from bias, having no concern with either one side or the other.

What I believe to have occurred was this. The draft agreement had been prepared by Mr Slark's firm of Slark, Edwards, & Company, was probably before the parties on Saturday the 25th, and was certainly before them on Sunday the 26th. It consisted of nine articles, the eighth of which has an important bearing upon the present question. Many of the details of this draft were discussed on Sunday the 26th, and though he denies ever having seen it, a copy bears pencil marks initialled by Selkirk. The result of the discussion on Sunday afternoon, the 26th, was understood to be substantial agreement on all points, and the adjustments necessary were to be embodied in an amended draft by Mr Slark's firm. Accordingly Mr Slark, after the meeting separated, or at latest next morning, jotted in red ink on the copy the substance of the proposed alterations to be embodied in more formal language by the draughtsman, and a clean copy of the amended draft was to be sent to each of the parties. This was done on the forenoon of Monday the 27th February, and No. 31 of process in its original condition is the copy of the revised draft sent to Selkirk. I do not think that that sent to Ferguson has been recovered, but there is no doubt that after reading it he returned it to Slark, Edwards, & Company approved, without comment or alteration. Selkirk, on the other hand, after going over his copy with his manager Slight, sent for his agent Mr Davis on Monday afternoon and directed him to revise it on his account. Mr Davis according to his custom put no revise on the clean copy draft sent him, which was in typewriting, but made a manuscript copy upon which he put his revise. I do not need to touch upon his revise generally, but on article eighth he made an alteration which he deemed essential to his client's position, and which had an important and far reaching effect.

The article as it originally stood bore that Mr Ferguson should have right to assign his interest in the patent to a company with a capital of not less than £10,000, and upon his doing so, that Selkirk should accept such company in place of Ferguson for the purposes of the agreement, ‘and upon such assignment being carried into effect, the said A. Ferguson shall not be under any further liability here under.’ This was altered to read ‘but notwithstanding such assignment the liability of the said A. Ferguson under this agreement shall remain and have effect.’ There cannot be two opinions as to the materiality of this alteration. Having revised the draft Mr Davis took it on Tuesday, the 28th February, to Selkirk and discussed its terms with him and Mr Slight, pointing out the importance in Selkirk's interest of the alteration on article 8. They then drove to Mr Slark's office, where they expected to meet Ferguson, but not finding him there, Selkirk and Slight along with Mr Davis had an interview with Mr Slark and discussed Davis' revised draft, Slark in his own mind acting solely for Mr Cohen and considering the alterations from that point of view only, the other three believing him to be acting for Mr Ferguson. Mr Davis' alterations were accepted, though some of them not without hesitancy, by Mr Slark, and a tenth article was added which was also somewhat material. The meeting occurred about 4·30 in the afternoon of Tuesday the 28th, and it was arranged that Selkirk and Slight should return in an hour

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in the hopes of meeting Ferguson. Davis, assuming that he had done his part, left the revised draft with Mr Slark and did not return, and had nothing more to do with the business, except that when he got Selkirk's counterpart of the extended and signed agreement he transferred the alterations to the copy of the amended draft, which he intended to exchange for his own office copy left with Slark, Edwards, & Company.

What next happened was that about 5·30 the same afternoon Selkirk and Slight returned to Mr Slark's and found Ferguson there. It is somewhat remarkable that Mr Slark should have forgotten the first meeting on the afternoon of Tuesday the 28th, could not remember Davis having been with him, but remembered very distinctly what occurred at the second meeting with Ferguson, Selkirk and Slight alone without Mr Davis. But I think that he gives an accurate account of the second meeting. I explain his failure to recollect by the fact that he was leaving for Dublin en route for America at eight o'clock that evening, and had a great press of business to get through before doing so, and I think that there is every reason to believe that his description of the meeting, as a short and very summary one, is correct. And I believe him and Ferguson as against Selkirk that the draft was certainly not read over to Ferguson. It is not possible to determine whether Ferguson had, as he avers, any prior assurance by telephone from Selkirk earlier in the day that he had made no material alteration on the draft; but I think that expressions were used at the second meeting of Tuesday the 28th, parties being at cross purposes, which led Ferguson to believe that in Mr Slark's opinion there were no important alterations. His attention was not drawn, as I believe it would have been had Mr Davis been present, to the material alteration on article 8. Now, there was in course of this second meeting something said by Mr Slark to the effect that Ferguson had better have the draft agreement gone over by his own agent, to which Ferguson replied that he did not think that necessary, which led Selkirk for the first time to understand that Mr Slark was not acting for Ferguson, and I think that it would have been prudent and more honest on Selkirk's part if in these circumstances he had drawn Ferguson's attention to the alterations on article 8, of the importance of which his agent Mr Davis had convinced him. However, he did not do so, and the parties separated on the understanding that Davis' revise, with the tenth article added, to which I think, by the way, attention was drawn, should stand as the final form of the agreement, should be extended after Mr Slark's departure, and should be signed by the parties on their attending at the office next forenoon, Mr Slark's partner, who practically knew nothing of the business, seeing to the execution. The parties attended accordingly on the forenoon of Wednesday the 1st March, and the agreement, extended in duplicate, was placed in their hands. Selkirk and Slight at once carried off his part of the agreement along with Mr Davis' revised draft to another room, and there carefully compared it before signing. It is impossible to account for or excuse the folly and neglect of Ferguson, who sat, while they were away, with his counterpart of the agreement lying before him, without asking for the means of comparing it with any draft, and without ever reading it. But so apparently he did, and so accordingly, when the others came back, he signed the agreement in blind reliance on Messrs Slark, Edwards, & Company's engrossment being correct, and that the adjusted draft contained no material alterations or differences, except in the addition of article 10, from the draft which he himself had revised and approved. But however one must condemn Ferguson's conduct at this stage, it is impossible to come to any other conclusion than that he signed a document in terms materially differing from those of the document which he believed he was signing. It is no question of the misunderstanding of the import and effect of the document, it was error as to the document itself, and I cannot therefore hold Ferguson to be bound by his signature. I think further that his conduct immediately after the signature was consistent with the bona fides of his mistake. At the meeting for signature he was pressed for time to catch the afternoon train for Glasgow. On arriving there the first thing that he did on returning to business was to show his counterpart of the agreement to his partner Mr Mount. Mr Mount at once drew his attention to the very serious position in which he was left under clause 8 as executed, and he at once without loss of a day wrote repudiating the agreement as it stood, thus sacrificing the whole of his labour for months previous to bring this arrangement to a point, risking and ultimately forfeiting the agreement which he had obtained with Mr Cohen and his associates, and sacrificing all prospect of any advantage from his patent.

As therefore I am unable to hold that there was any valid agreement between Ferguson and Selkirk, I shall assoilzie the former from the conclusions of the action for damages for breach of contract at Selkirk's instance, but in respect of Ferguson's inexcusable conduct at the signing of the agreement I shall find neither party entitled to expenses.”

The pursuer reclaimed, and argued—There was no essential error on the respondent's part as to the actual deed he was signing, and that being so he was not entitled to have it reduced. Esto that if one signed a bond thinking it was a conveyance he was entitled to plead essential error, that principle did not apply here. The Lord Ordinary was in error in so thinking. The respondent's failure to notice the alteration was due to his own fault in omitting to compare the extended agreement with the draft, or even to read over the deed before signing it. No misrepresentation as to the terms of the alteration had been proved, nor had any “inducing.”

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Where a party was not in error as to the actual deed he was signing, his erroneous belief as to its terms would not entitle him to have it reduced unless that belief had been induced by the representations or misrepresentations of the other contracting party—Bell's Prin., section 11, approved in Stewart v. Kennedy, March 10, 1890, 17 R. (H.L.) 25, at p. 27, 27 S.L.R. 469, at p. 471; Young v. Clydesdale Bank, Limited, December 6, 1889, 17 R. 231, 27 S.L.R. 135.

Argued for respondent—The Lord Ordinary was right. The alterations were of so material a character as to make the deed a different document from that which the respondent thought he was signing. The reclaimer was in honour bound to point out the alterations made, for the parties here were not dealing at arm's length. They were prospective partners discussing an arrangement for their mutual benefit, and were therefore in a fiduciary relation to each other. In such circumstances there was a duty on each to see that the other knew the whole facts in which they were mutually interested. Reference was made to Hogg v. Campbell, March 12, 1864, 2 Macph. 848, at pp. 857–8.

At advising—