William Morton & Co. v. Muir Brothers & Co.

Factual and Procedural Background

A firm of lace manufacturers, Company A, placed orders for lace curtains with another firm of lace manufacturers, Company B, in the same district. Company A supplied the designs for the curtains, which remained their property. Company B prepared sets of perforated pattern cards from these designs, which were their property. The designs were not registered. The curtains were marketed such that the designs could be derived by others in the trade, but only at considerable expense. The contracts between Company A and Company B contained no express stipulations limiting the use of the designs or cards. However, a trade custom existed in the district restricting the use of such cards by their owners to fulfilling the orders of the design owners only, unless express or implied consent was given otherwise.

Company B was sequestrated, and the pattern cards vested in the trustee subject to the trade restriction. The factory and contents, including the pattern cards, were sold by public auction to Company C. The sale conditions provided that the purchaser’s use of the cards was subject to existing contractual obligations or similar agreements. Company C took possession of the cards, delivered goods in progress to Company A, accepted cancellation of some orders, and was instructed not to destroy the cards. Company A then brought an action seeking to interdict Company C from using the cards for their own benefit or selling goods made from them.

The Sheriff Court found in favour of Company A, recognizing the trade custom as an implied contractual condition restricting the use of the cards. The defenders (Company C) appealed, disputing the existence and applicability of the trade custom and the contractual restrictions.

Legal Issues Presented

1. Whether a trade custom exists that implies a contractual restriction on the use of pattern cards made from supplied designs, limiting their use to fulfilling the orders of the design owner.
2. Whether a trustee in bankruptcy is bound by such an implied contractual restriction on the use of the pattern cards.
3. Whether purchasers from the trustee, such as Company C, are bound by the implied contractual restriction or trade custom affecting the pattern cards.

Arguments of the Parties

Appellant's Arguments

• The alleged trade custom had not been sufficiently proved; general practice does not establish a custom that adds new contractual stipulations.
• The sale conditions did not restrict the defenders’ rights to the cards because the pursuers were not parties to the referenced agreements, and thus had no enforceable rights under them.
• The pursuers had no jus quæsitum tertio (right in favour of a third party) under the sale conditions, and thus could not enforce restrictions against the defenders.
• The defenders contended that since the designs were unregistered, the pursuers were improperly seeking to create an artificial copyright-like protection.

Appellee's Arguments

• The trade custom was proven and formed an implied term of the contract that the designs and cards would only be used to fulfil the orders of the design owner, at least until abandonment of the designs.
• The custom was lawful and reasonable, and could be enforced by contract, protecting against unfair competition.
• The cards, although property of the maker, were subject to a restriction arising from the nature of the contract and trade custom.
• The trustee and subsequent purchasers were bound by the restrictions, having notice of them through the sale conditions and adoption of existing contracts.
• The pursuers did not claim copyright protection but contractual protection against misuse of the cards.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Peddie v. Brown & Company (1857)	Principle regarding jus quæsitum tertio and rights of third parties under contract	Referenced in discussion on whether pursuers had enforceable rights under sale conditions despite not being named parties
Finnie v. Glasgow and South-Western Railway Company (1857)	Similar to above, regarding third-party contract rights	Supported the argument that pursuers lacked jus quæsitum tertio under the articles of roup
Henderson v. Stubbs, Limited (1894)	Contractual rights and third-party enforcement	Used to argue limits on pursuers’ claims under the sale agreement
Welsh & Forbes v. Johnston and Others (1906)	Contractual rights and enforceability of restrictions against third parties	Supported pursuers’ position that custom and contract restrictions could bind successors
Bruce v. Smith (1890)	Confidential employment and protection of trade secrets	Used to analogize the contract as one of confidential employment, justifying restrictions
Heritable Reversionary Company v. Miller	Ownership subject to restrictions (sub modo)	Supported the view that the cards vested in the trustee subject to restrictions
M'Cosh v. Crow & Company	Confidentiality and contractual restrictions in trade practices	Referenced to support the reasonableness and enforceability of the trade custom

Court's Reasoning and Analysis

The court began by examining the nature of the contract and the trade practice in the lace curtain manufacturing industry. It recognized that designs supplied by one manufacturer to another for production are translated into perforated pattern cards, which are the property of the maker but created at the expense of the design owner’s order. The court found that it is a well-established trade custom in the district (the Irvine Valley) that such cards are to be used solely to fulfil the orders of the design owner and not for the maker’s own benefit or for third parties, unless the design owner consents or abandons the design.

This custom was supported by extensive evidence from industry participants and was deemed reasonable and consistent with the nature of the contract, which involves confidential trust and mutual commercial advantage. The court rejected the argument that the lack of design registration negated the contractual restriction, clarifying that the case did not involve copyright law but contract and trade custom.

Regarding the trustee in bankruptcy, the court held that the trustee takes the cards subject to the same contractual restrictions as the bankrupt manufacturer. The trustee’s sale of the factory and cards included explicit conditions notifying purchasers of these restrictions.

The purchasers (Company C) were found to have adopted the contracts between the original parties by continuing to fulfil existing orders and accepting instructions from the design owner not to destroy the cards. Their subsequent use of the cards to manufacture and sell competing goods violated the implied contractual restrictions and trade custom.

The court emphasized that the purchasers had notice of the restrictions through the sale conditions and the low purchase price, reflecting the limited rights acquired. It further held that the purchasers’ actions constituted a breach of the implied contract and justified the interdict sought by Company A.

Holding and Implications

The court DISMISSED THE APPEAL and affirmed the decision of the Sheriff Court, granting the interdict sought by Company A.

The direct effect is that purchasers of pattern cards from a sequestrated manufacturer’s estate are bound by implied contractual restrictions and trade customs limiting the use of those cards to fulfilling the orders of the original design owner. The decision does not create new copyright or patent rights but enforces commercial customs and contractual obligations recognized in the industry. No broader precedent beyond the specific contractual and trade custom context was established.