McKenna v. F.B. McNamee & Co., (1888) 15 SCR 311

Supreme Court of Canada

McKenna v. F.B. McNamee & Co., (1888) 15 S.C.R. 311

Date: 1888-03-15

John McKenna and Robert Peter Mitchell (Plaintiffs) Appellants;

and

F.B. McNamee & Co. (Defendants) Respondents.

1887: November 25; 1888: March 15.

Present: Sir W.J. Ritchie C.J., and Strong, Fournier, Henry, Taschereau and Gwynne JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Contract—Failure of consideration—Impossibility of performance.

When one contracts to do work for another the preparation for which involves outlay and expense, a corresponding agreement, in the absence of any express provision, will be implied on the part of the person with whom he contracts to furnish the work; but no such implication will be made where, from circumstances known to, and in the contemplation of, both parties at the date of the agreement to do the work it was, and continued to be, beyond the power of the party to carry out such implied agreement. Henry J. dissenting.

APPEAL from a decision of the Court of Appeal for Ontario^[1] affirming the judgment of the Queen’s Bench Division by which the verdict for the plaintiffs at the trial was set aside and the action dismissed.

The defendants had been contractors with the Government of British Columbia for the construction of the Esquimalt Graving Docks, but failing to carry on the work to the satisfaction of the Government the contract was taken out of their hands. They believed however, that its restoration could be effected, and entered into an agreement with the plaintiffs by which the latter were to complete the work and receive 90 per cent. of the profits, the agreement recit-

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ing that the defendants had agreed to take the plaintiffs into their service for the purpose of completing the contract. This course was adopted in consequence of the contract with the Government containing a clause which prohibited them from sub-letting.

The plaintiffs at the time of making this agreement were aware of the fact that the defendants had lost the contract, and had examined its various provisions, but reliance was placed on the political influence of the plaintiff, Mitchell, for its restoration. After the execution of the agreement Mitchell went to British Columbia and used every endeavor to induce the Government to restore the contract to the defendants but was finally obliged to return without accomplishing his object. The plaintiffs then brought their action claiming $100,000 as damages for breach of contract to take them into defendants’ service, and $25,000 for moneys expended on the work.

The defendants claimed that the condition of their contract with the Government was known to the plaintiffs when the agreement was made; that it was made on the express understanding that it was not to take effect unless the contract was restored; and that it was not intended to create the relation of master and servant between the parties the agreement being made in the form it was on account of the clause against sub-letting.

The plaintiffs recovered a verdict on the trial which was set aside by the Queen’s Bench Division and their judgment was confirmed by the Court of Appeal. The plaintiffs then appealed to the Supreme Court of Canada.

McCarthy Q.C. and Mahon for the appellants.

The principle governing the position of parties to a contract, the performance of which becomes impossible, is well defined in Anson on Contracts^[2] citing the

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case Jacobs v. Crédit Lyonnais^[3].

This doctrine is dealt with in a line of decisions be-; ginning with Paradine v. Jane^[4], and followed by. Clark v. Glasgow Ass. Co.^[5]; Medeiros v. Hill^[6]; Hills v. Sughrue^[7].

Other authorities bearing upon the questions involved here are Kearon v. Pearson^[8]; Thiis v. Byers^[9]; Pollock on Contracts^[10]; Barker v. Hodgson^[11].

It is only where the continued existence of the circumstances prevailing when the contract was made is essential to its performance that the impossibility of performing it will discharge the parties. Anson on Contracts^[12]; Brown v. Royal Ins. Co.^[13]; Jones v. St. John’s College^[14].

The Court of Appeal decided this case against the plaintiffs on the authority of Cunningham v. Dunn^[15]. But that case was decided on a very different state of affairs from the one now under discussion. The jury there found that the plaintiff was aware of the disability when the contract was made and the defendant did not become aware of it until later. The court expressly decided the case on the ground that both parties were in fault. Further, Cunningham v. Dunn was decided on the authority of Ford v. Cotesworth^[16], which clearly is no authority for the judgment for the Court of Appeal here.

The following cases, also, were cited: Brecknock Canal Co v. Pritchard^[17]; Hadley v. Clarke^[18]; Atkinson v. Ritchie^[19]; Spence v. Chodwick^[20]; Jervis v. Tomkinson^[21].

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O’Gara Q.C. for the respondents.

Mitchell represented that his influence was sufficient to obtain a restoration of the contract, and the agreement was made in consequence of such representation.

Both parties know that the contract was out of defendants’ hands, and the agreement must be construed in the light of the circumstances.

It was impossible for the defendants to carry out their agreement, and as the plaintiffs knew of the disability they are not entitled to recover. Anson on Contracts^[22]; Campbell on Sales^[23]; Clare v. Lamb^[24]; Cato v. Thompson^[25].

McCarthy Q.C. in reply. The contract is to be construed according to its terms and not by extraneous matter. Taylor on Evidence^[26].

There was a clear covenant either express or implied that the defendants would give as the work progressed and we are entitled to the benefit of it. Samson v. Easterby^[27]; Salton v. Houston^[28]; Lainson v. Tremere^[29]; Addison on Contracts^[30].

SIR W.J. RITCHIE C.J.—Both parties knew the contract had been cancelled and, no doubt, thought the Government of British Columbia would restore the contract to McNamee. It is quite clear that the plaintiff was fully impressed with the conviction that the retention of the contract would not be persisted in. In this state of the case both parties contracted and both parties were disappointed; the Government of British Columbia refused to give the contract back to McNamee. The fulfilment of the contract on either side was, therefore, prevented, by reason of a known difficulty of which both parties were aware and which both, at the time of entering into the con-

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tract, thought could be overcome.

Both parties in this case appear to have been ready and willing to perform their undertaking, and doubtless would have done so but they were prevented by the refusal of the Government of British Columbia, a power over which neither party had any control.

It is clear that unless the contract was restored by British Columbia there could be no performance on either side. We cannot shut our eyes to the state of facts thus existing and known to both parties, and with reference to which the plaintiff and defendant were negotiating with a view to arriving at a right construction of the agreement into which the parties finally entered. It is our duty to construe the contract with the aid of the surrounding circumstances, influenced in the construction not only by the instrument but also by the circumstances under which, and the objects for which, it was entered into and with reference to the intention of the parties at the time it was made. Reading the contract in the light of the surrounding circumstances I think what both parties contemplated was, an agreement based on the restoration of the contract to McNamee, which both parties thought would be obtained through their united efforts and influence; failing in this the contract necessarily fell through, because, without the fault of either party, it could be fulfilled by neither, it not, in my opinion, being contemplated that any liability should arise on either side until the restoration should be obtained through their joint endeavors. If the contract was restored then the agreement became capable of fulfilment but not before; in other words, conditional on the restoration of the contract. The government having refused without the fault of either party, the non‑fulfillment of the agreement happened without fault on either side. This was not a contract the performance of which was dependent on the con-

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tinued existence of a given state of things, but the opposite, the performance was dependent on the action of the Government of British Columbia over which neither party had any control.

In the absence, then, of any express or implied contract or warranty on either side that the consent of the Government of British Columbia would or could be obtained, a matter in which both parties were equally interested and which, from the evidence, it is obvious both parties were to use their endeavors to obtain and which the plaintiff Mitchell thought they had sufficient political influence to accomplish, can this contract be construed into a positive contract on the part of the defendant to procure such consent? On the contrary, looking at the surrounding circumstances, must it not be construed as subject to an implied condition on both sides that it was not to take effect, as it could not, in the event of the refusal of British Columbia to give back the contract to the defendant? Though it may appear on its face to be presently operative both parties must have known that it was not intended to operate, because it could not operate until the happening of a given event. The agreement being silent on the subject there was nothing, in my opinion, to prevent the defendant from showing by parol testimony that it was not intended to, because it could not, take effect until the happening of something else. To hold that the agreement was not to have effect if the Government of British Columbia refused to restore, neither varied nor contradicted the writing. As was said in Wallis v. Littell^[31] “it but suspended the commencement of the obligation.”

Therefore, in my opinion, the refusal of British Columbia was a common misfortune, so to speak, excusing both parties from the performance of the contract, and the loss must remain where it falls.

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I do not wish to be understood as ignoring what I consider firmly established that where a party has, either expressly or impliedly, undertaken, without any qualification, to do anything and he does not do it he must make compensation in damages, though the performance was rendered impracticable by some unforeseen cause over which he had no control. Ford v. Cotesworth^[32]. The principles to be gathered from Lindley v. Lacey,^[33]; Taylor v. Caldwell,^[34] and Appleby v. Myers^[35], in my opinion clearly sustain the views I have expressed.

In Lindley v. Lacey²³. Keating J.—

The principle you are contending for was recognized in a still more recent case in this court, Wallis v. Littell^[36]. There, the plaintiff declared upon an agreement by the defendants to transfer to him a farm which he (the defendant) held under Lord Sydney, “upon the terms and conditions of the agreement under which the same was held by the defendant under Lord Sydney.” The defendant pleaded that the agreement declared on was made subject to the condition that it should be null and void if Lord Sydney should not, within a reasonable time after the making of the agreement, consent and agree to the transfer of the farm to the defendant; and it was held that it was competent to the defendant to prove by extraneous evidence this contemporaneous oral agreement, such oral agreement operating as a suspension of the written agreement, and not in defeasance of it. In giving judgment, Erle C.J. said: “In Pym v. Campbell^[37] and Davis v. Jones^[38], it was decided that an oral agreement of the same effect as that relied on by the defendant might be admitted, without infringing the rule that a contemporaneous oral agreement is not admissible to vary or contradict a written agreement. It is in analogy with the delivery of a deed as escrow; it neither varies nor contradicts the writing, but suspends the commencement of the obligation.” Byles J.: All these cases proceed upon the principle that extraneous evidence is always admissible to apply the agreement.

Byles J.:—

I am of the same opinion. I think there was a prior collateral oral agreement relating to the bill, which the subsequent written

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agreement did not in any manner interfere with. The written agreement is altogether silent as to the payment of that bill: and there is nothing therein which is at all inconsistent with the prior agreement. The case of Harris v. Rickett^[39] seems to me to be precisely in point. But, independently of that, it appears that the original agreement between the parties was, that the bill in the hands of Chase should be taken up by Lacey; and that was to be the ground work of the subsequent arrangement. That being so, Pym v. Campbell^[40], Davis v. Jones^[41], and two recent cases in this court, viz., Wallis v. Littell^[42], and another which has not been referred to, show that evidence may be given of a prior or a contemporaneous oral agreement which constitutes a condition upon which the performance of the written agreement is to depend. If evidence may be given of an oral agreement which affects the performance of the written one, surely evidence may be given of a distinct oral agreement upon a matter with respect to which the subsequent written agreement is altogether silent; more especially if, as here, in addition to its being a stipulation it was also a condition. The justice of the case is evidently in accordance with our view of the law.

Taylor v. Caldwell^[43]. Blackburn J.:—

There seems no doubt that where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burthensome or even impossible. The law is so laid down in Roll. Abr. 450, condition (G) and in note (2) to Walton v. Waterhouse^[44] and is recognized as the general rule by all the judges in the much discussed case of Hall v. Wright^[45]. But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied, and there are authorities which, as we think, establish that principle that where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist the contract is not to be construed as a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing with-

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out default of the contractor.

There seems little doubt that this implication tends to further the great object of making the legal construction such as to fulfil the intention of those who entered into the contract. For in the course of affairs men in making such contracts in general would, if it were brought to their minds, say there should be such a condition.

Appleby v. Myers^[46]. Blackburn J.:—

The whole question depends upon the true construction of the contract between the parties. We agree with the court below in thinking that it sufficiently appears that the work which the plaintiffs agreed to perform could not be performed unless the defendant’s premises continued in a fit state to enable the plaintiffs to perform the work on them; and we agree with them in thinking that if by any default on the part of the defendant, his premises were rendered unfit to receive the work, the plaintiffs would have had an option to sue the defendant for this default, or to treat the contract as rescinded, and sue on a quantum meruit. But we do not agree with them in thinking that there was an absolute promise of warranty by the defendant that the premises should at all events continue so fit. We think that where, as in the present case, the premises are destroyed without fault on either side, it is a misfortune equally affecting both parties; excusing both from further performance of the contract, but giving a cause of action to neither.

STRONG J.—Apart altogether from the ground upon which the judgment of the Court of Appeal is founded I am of opinion that this appeal cannot be sustained.

It was pointed out by Mr. O’Grara in the course of his very able argument for the respondent that the indenture of the 29th of July, 1882, does not contain any covenant on the part of the respondents which, consistently with the facts in evidence, they can be held to have broken. The instrument in question contains the following recital:—

And whereas the parties hereto of the first part have agreed to take into their services the said parties of the second part and pay them ninety per cent. of the price stipulated in the said in part recited indenture of the 24th day of February, one thousand eight hundred and eighty, to be paid to them the said parties of the first part and the said parties of the second part hereby agreeing thereto for the material to be used in and the construction of the said works.

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It also contains the following covenants on the part of the respondents:

And the parties of the first part in consideration of the premises hereby covenant with the parties of the second part that they will be paid by the parties of the first part ninety per cent. of the amount of every estimate issued on the said works until the completion thereof, and also for all other works in excess of those in the said in part recited contract mentioned or referred to.

And an additional covenant as follows:—

And it was further agreed that they the said parties of the second part shall be paid out of every subsequent estimate by the parties of the first part ninety per cent. of such estimate until the final completion of the works in the said in part recited indenture mentioned and of all the works and material in excess thereof connected therewith.

There are no other express covenants on the part of the respondents, contained in the agreement of which it can be suggested there has been any breach.

The recital of an agreement to pay ninety per cent. of the price stipulated to be paid by the contract is restricted and limited by the subsequent express covenants (already set forth) contained in the operative part of the instrument, and according to those covenants the 90 per cent. to be paid is to be so paid out of the amount of every estimate issued, and consequently would not become payable unless estimates were actually issued. Now it is not, and cannot be, pretended that any estimate was issued subsequent to the 29th July, 1882, the date of the indenture. There has, consequently, been no breach of any of these covenants.

If it is contended, in answer to this, that a convenant on the part of the respondents to procure the forfeiture of the contract to be rescinded and the works to be restored to the respondents, in order that the appellants might be afforded an opportunity to do the work and thus earn the 90 per cent, is to be imported into the agreement by implication, the plain answer to it is that, having regard to the facts disclosed in the evidence that at the date of the agreement between the appellants and respondents the Government of British

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Columbia had, pursuant to the provisions of the original contract, taken the works out of the respondents’ hands, and that this fact was well known to all parties, such an implication would be warranted neither by principle nor authority. It is indeed true, as was said in Churchward v. The Queen^[47], and in Thorn v. The Commissioners of Public Works^[48], and as was held by this court in McLean v. The Queen^[49], that if one contracts to do work the preparation for which involves outlay and expense, a corresponding agreement, in the absence of any express provision, will be implied on the part of the person with whom he contracts to furnish the work; but no authority can be cited to show that such an implication will be made when, from circumstances known to, and in the contemplation of, both parties at the date of the agreement to do the work, it was, and has since continued to be, beyond the power of the party to comply with such a stipulation. If any implied term is to be read into the instrument it can only be one imposing on the respondents the obligation of permitting the appellants to perform the work in the event of the Government of British Columbia allowing the respondents to go on and complete their contract, an event which never happened. This point was distinctly taken by the counsel for the respondent at the trial but was overruled by the learned judge and, as I think, erroneously overruled. It seems to me to be decisive of the case.

Granting, however, that there had been such a provision as is now sought to be implied expressed in the agreement in the most clear and unequivocal terms, I should still have been of opinion, with both the courts below, that without overruling the

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cases of Cunningham v. Dunn^[50], Ford v. Cotesworth^[51], Bailey v. De Crespigny^[52], Thorn v. City of London^[53], Taylor v. Caldwell^[54], and Clifford v. Watts^[55], it would have been impossible to have come to any other conclusion than that reached by the judgments under appeal. I do not regard these cases as establishing that circumstances such as we have here are to be considered as affording a defence by way of excuse of performance, but as showing that, in cases similar to the present, the absolute terms of the contract are to be qualified and construed as subject to the condition that their performance shall become possible.

I do not pursue this subject further for I entirely agree with everything contained in the judgment of the learned Chief Justice of the Court of Appeal, though I prefer to rest my own judgment on the ground first mentioned.

The appeal should be dismissed with costs.

FOURNIER J.—The evidence in this case shows very clearly that McKenna took the contract which McNamee had with British Columbia knowing perfectly well that such contract had been set aside. Of this fact there is no doubt. It is also very clear that McKenna undertook to exercise his influence with the Government of British Columbia to effect a restoration of the contract. He was sure of his influence with the Government and depended entirely on that. If he has not been successful in his negotiations McNamee is not to blame.

I think the appeal should be dismissed.

HENRY J.—I think this matter requires the discus-

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sion of certain principles, well known and acted on in many cases. One of the leading principles laid down is, that where a party undertakes to pay another, and the other sustains damage, an action lies; and if a party undertakes to do something, and engages another man to perform the work, it is no answer for the former to say “you knew I had no contract.” What does the law say? It says that is no excuse. The law is that if a party undertakes to employ another to perform certain work, although he himself has not the work to do, he is liable.

Suppose a man engages another to put up a residence and the other employs men to get out stone and timber; after these are supplied the former says “I did not get the contract; you knew I hadn’t it and promised to assist me; you did assist me but I did not get it;” who is liable?

What are the circumstances of this case? McNamee had a contract in British Columbia for constructing certain public works. He did not proceed with the work as fast as the government thought he should and they took the contract out of his hands. Before the government did anything on the work negotiations took place for its restoration.

If McKenna sustained no damage he has no action, but if he did under all the decisions he is entitled to compensation. I think the appeal should be allowed.

TASCHEREAU J.—I am of opinion that the appeal should be dismissed.

GWYNNE J.—What the appellants contracted to acquire and what the respondents agreed to assign to them was, as plainly appears by the evidence, the respondents’ interest in a contract which they had had With the Government of British Columbia, but which in pursuance of certain provisions contained therein

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had been put an end to by that Government, and which the appellants, and it may be also the respondents, entertained the hope that either by the influence of the appellants alone, or by their influence jointly with that of the respondents, they should be able to get restored. The indenture executed for the purpose of giving effect to the intention of the parties assumed the shape it did for the express purpose of obviating a difficulty which would have stood in the way of their getting the contract restored, for that contract contained a clause avoiding it in the case of any sub-letting of it. This indenture contains no express covenant that the contract which the respondents had had with the Government of British Columbia was still in existence in full force and effect. The insertion of such a covenant in the instrument would have been quite inconsistent with the facts known to both parties and with their manifest intention; to imply such a covenant or one to the effect that the forfeited contract would be restored by the Government of British Columbia would be equally inconsistent with the plain intention of the parties. What the appellants contracted for was the benefit such as it was of the respondents’ contract with the British Columbia Government in the condition in which it then was and which was known to the appellants, and that benefit such as it was they got.

I concur therefore that the appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for appellants: Mahon & O’Meara.

Solicitors for respondents: O’Gara & Remon.