Edinburgh United Breweries, Ltd, and Others v Molleson and Another

Lord Chancellor.—This is an appeal from an interlocutor of the First Division of the Inner-House affirming an interlocutor of the Lord Ordinary. The action is of a somewhat peculiar character. The pursuers are the Edinburgh United Breweries Company and Mr Dunn; the defender is Mr Molleson. Mr Molleson, who was the trustee of a brewery belonging to Mr Nicolson, on the 11th November 1889, entered into a contract with Mr Dunn for the sale to him of the Palace Brewery and the business and stocks connected with it. The purchase was to take place as from the 15th of November 1889, at the price of £20,500. The purchase-money was to be paid by the 31st of December, at which date a conveyance was to be executed either to Mr Dunn or to any company to which he might assign his interest, it being no doubt in contemplation at that time that a company would be formed for the purpose of carrying on this and other businesses. That was a matter in which Mr Molleson had no concern or interest, except that he agreed to make the conveyance either to Mr Dunn or to such nominee of his. The 10th clause of the agreement is the one upon which the appellants place their reliance.

Before reading the terms of that clause, however, I will state to your Lordships what subsequently took place. Mr Dunn, on the 14th of December, entered into an agreement with the United Breweries Company, the pursuers, by which he agreed to sell them this brewery and several other breweries. To some of the terms of that agreement I shall have presently to call your Lordships' attention, but the price to be paid by the United Breweries Company to Mr Dunn, who it appears was really acting for the Contract Corporation, was the sum of £28,500, being £8000 more than the price which was to be paid by Mr Dunn to Mr Molleson. On the 31st of December a conveyance was executed by Mr Molleson, at the instance of Mr Dunn, by which Molleson, in implement of his contract of the 11th of November, conveyed to the United Breweries Company the Palace Brewery and all the other subjects of the contract of the 11th of November, so that a profit was made upon the transaction by Mr Dunn, or the Contract Corporation (it matters not which), of £8000. Mr Dunn at that date ceased to have any interest in the Palace Brewery or in the contract entered into with Mr Molleson.

The tenth clause of the original agreement provided that ‘the arrangement herein set out proceeds upon the basis that the net profits from said brewery and wine businesses amounted during each of the two years ending 31st of December 1887 and 31st December 1888 to £3750 or thereabouts upon an average.’ It further provided that, ‘in the event of its being ascertained that this is not the fact, this arrangement shall be at an end, and the second party’ (that is Mr Molleson) ‘shall be bound to repay the said sum of £3700,’ which was the deposit to be paid upon the execution of the agreement. ‘The first party’ (that is Mr Dunn), ‘with the view of verifying the amount of the profits for said two years, shall immediately upon delivery thereof be entitled to have the books, accounts, and vouchers connected with said businesses examined by an accountant named by him.’ In accordance with the provisions of that clause all the books of Mr Molleson connected with the brewery were placed before accountants selected by Mr Dunn, and were examined by them as fully as it appeared to them to be necessary to examine them. They reported that the books shewed a profit of somewhat less than the sum named,—that is to say, a profit of £3300 instead of £3750; but there was a discussion as to whether they had arrived at the profits upon the true basis. I do not think that, for the present purpose, the difference between £3300 and £3750 is material. I will take it for the purposes of my judgment that the books shewed, according to the report of the accountants, the profit stated, namely, £3750. It was discovered, something more than a year after the conveyance to the Brewery Company, that the books had in fact been improperly dealt with by a clerk in the employ of Mr Molleson—that he had altered some of the items in the books with the view of making the profits appear greater than they really were. I assume, for the purpose of the opinion which I am about to express, that, although all the books, vouchers, and accounts were in the hands of the accountants, and they could, if they had examined them, from the materials in their possession have found out the frauds which had been committed, yet the examination contemplated by the parties to the contract was such that the frauds would not in ordinary course have been discovered.

Under these circumstances the United Breweries Company and Dunn come as pursuers, claiming a reduction of the disposition entered into between Molleson and the Breweries Company and Molleson and Dunn, and insist that they are entitled to have those agreements and dispositions reduced. Their case is put by the learned counsel for the appellants in two ways. First, it is said that under the contract between Dunn and Molleson profits were made the basis of that contract; that the contract itself provided that if it were ascertained at any time that those profits had not been made the contract should be at an end; that all the rights of Dunn under the contract were passed by him to the United Breweries Company, and that therefore the United Breweries Company are entitled as a matter of contract to say that the...