KING J.-This is an appeal from a judgment of the
Queen's Bench of Quebec, affirming a judgment of Mr.
Justice Mathieu condemning the appellants, inter alia, to pay to the respondents the sum of $6,000, with interest from 13th May, 1891.
On 18th April, 1889, an agreement was entered intobetween the company and Howard, by which Howard agreed to execute an exclusive license to the company
(subject to conditions of agreement) to manufacture and sell in the United States cans for holding kerosene oil to replace those then sold in the market, which were made from glass, tin and other materials, also all articles then manufactured by the company that could be ANS made from pulp under a patent owned by Howard. Howard also agreed to do all acts, to the best of his ability, necessary to maintain and protect the validity of the patent, to furnish drawings and specifications necessary to build and erect machinery and fixtures for the manufacturing of said articles, to give his time and all necessary information for the building and erecting and starting of said machinery and fixtures free of charge, upon expenses paid, to discount drafts in certain banks, and to grant to the company a new license to manufacture and sell in the United States some other lines of goods that could be manufactured from pulp under his patents, in case it should be found that within two months from the company receiving cans then being made by the Howard Pulp Co., that the trade would not accept and buy them.
The company, on their part, agreed to proceed with due diligence to build and erect buildings, machinery and fixtures necessary and suitable to manufacture at least 1,500 one gallon oil cans (or its equivalent in large cans) per day and thereafter to manufacture all the said cans or goods that could be sold in the United States at a fair business profit, provided that the trade accept and buy the cans then being made for the company by the Howard Pulp Ware Company.
There were other agreements by the company, relating to the mode of making up accounts, keeping books, opening the factories to Howard, and for the manufacturing near Chicago if a larger profit could be realized.
Then there follows this agreement:
by accepting renewal time drafts drawn, from time to time as may be needed to carry said advance of $6,000 or any part thereof until such time as the profit accruing to the party of the first part under this agreement shall be sufficient to pay said drafts.
THE It was also agreed that Howard's share of the net profits should be retained by the company and applied CO. to the payment of the advance and renewal drafts King J. until same are paid in full.
By another agreement of same date referring to that already mentioned it was agreed that in case " Angus will not sign an agreement to repay the company any amount that may be advanced Howard (under said agreement) within 12 months from this date, then the said agreement shall be null and void and a new agreement shall be entered into between Howard and the company."
Onethe 24th April, 1889, Howard addressed to the company a letter saying:
I hereby agree that if from the cause set forth in my agreement with you, dated April 18th, 1889, it should occur that you were unable to carry out your part of said agreement, that then, and in such case I will repay you on or before the 18th day of April, 1890, the total amount that you may have advanced to me under said agreement of 18th April, 1889.
It is understood that this agreement shall form a part of said agreement of 18th April, 1889.
On the same day, viz., April 24th, 1889, Angus signed the following guarantee :
Whereas F. B. Howard has entered into an agreement dated April 18th, 1889, with Union Gas and Oil Stove Company of New York, for the manufacture and sale of articles from pulp under Howard's Patent by the conditions of said agreement Howard is to obtain from said company an advance loan up to the amount of $6,000 by his drafts on them on time. The undersigned being fully aware of all the conditions of the agreement between the said Howard and the company above referred to, hereby agrees to become surety to the said company for the repayment of said drafts within 12 months from date of said agreement, in case it should transpire that if from the reasons incorporated in said agreement, it should not be carried out.
(Signed)
WM. ANGUS.
109- The advance of $6,000 was duly made by drafts .xGs which after certain renewals the company were obliged VE to pay.
The cans made for the company by the Howard Pulp Ware Company were supplied to the respondent between the date of the agreement and August of the same year, and were sold by the company to their customers, wholesale jobbers, by whom they were sold to the retail dealer, through whom they got into the hands of the consumers. Presently large numbers of them came back to the respondent company, being returned by the buyers who found that they would not hold oil. In the process of making them the pulp can was subjected to an indurating hardening process by a coating of oxydized linseed oil. But it was found that after a while the kerosene oil stored in them found its way through the indurated surface and soaking into the pulpy substance destroyed their efficiency.
The consequence was that the goods were thrown back upon the hands of the company and became worthless. In the meantime the company having proceeded to build and having built and filled a factory for the manufacture of the cans in Connecticut, and having manufactured a large number of the cans found themselves with a useless factory and useless stock on their hands. The evidence clearly shows that the venture was a business failure entirely through the inutility of Howard's patent for the induration pulp oil cans.
The want of mercantile value in the oil cans manufactured under Howard's patent and license disabled the company in a mercantile sense from carrying out their undertaking to manufacture and sell the goods, and this is from " a cause set forth in the agreement" within the meaning of those words as used in Howard's letter to the company of April 24th, 1889. Consequently under the terms of that letter Howard became bound to repay to the company on or before 18th April, 1890, the total amount advanced to him under the agreement
VE of 18th April, 1889.
The amount so advanced to Howard exceeded the $6,000 named in the agreement. It was in fact $8,000 and upwards and for that sum he is indebted to the company and liable to make to them payment in accordance with the terms of his letter.
Then as to the guarantee of Angus. It recites the fact of the agreement of April 18th, 1889, for the manufacture and sale of articles made from pulp under
Howard's patent, and Angus, having knowledge of all the conditions of the agreement " agrees to become surety to the said company for the repayment of said drafts within 12 months from date of said agreement in case it should transpire that (if) from the reasons incorporated in said agreement it should not be carried out."
Was the agreement not " carried out," and if so, was this " from the reasons incorporated in it ? "
What was the contemplated failure of the agreement ? and what were the reasons incorporated in the agreement as being likely to cause the contemplated failure to carry out the agreement.
Manifestly the profitable manufacture and sale of the wares was the chief object of the agreement. It was through this that both parties sought the business advantage they contemplated, and it was through this that Howard was able to obtain the advance, and that the company was willing to make the advance, relying upon
Howard's share of the profits as a further security.
The contingency of the cans not being acceptable to the trade was in terms expressed, and is made the subject of certain stipulations. I think therefore that the only thing intended by the clause referred toin Angus's guarantee was a possible failure to manufacture and A'^"S sell the wares by reason of the trade not taking to them. The object of the guarantee apparently was to protect the company in case the manufacturing scheme broke down from the inutility of Howard's patent or invention.
J.
This result has happened, and therefore Angus as surety is bound to indemnify the. company against the advance.
It was argued that under clause 13 the only recourse of the company was to apply for another license to manufacture other pulp goods under Howard's patent. But this clause is one giving an option to the company and binding Howard to performance if the option is exercised, but it in no way deprives the company the right to repayment of the advance.
Then it was argued that under clause 20 the debt was to be paid out of a fund viz., the profits. The answer is twofold.
1st, that the fund is not made in exclusion of personal liability and responsibility, but is an additional security, and 2ndly, if the fund is prevented from being formed by reason of Howard's patent turning out worthless, for the purpose intended, it is not for him or his surety to say that the fund is the only way through which the advance is to be repaid. Then it is said that as within two months next after the company received the cans from the Howard Co., the cans had been purchased and had not been returned, therefore the plaintiff could not insist upon the guarantee.
But the 20th clause only seems to apply to the exercise of the option referred to.
Upon a hn;d and useful reading of the agreement I think that the facts of the case as proved and as found by the court below are within its terms and that " from the reasons incorporated in the agreement it was not carried out."
The scheme of manufacturing failed through the defects of Howard's invention.
AGs. I therefore think that the company are entitled to recover.
Appeal dismissed with costs.