Henderson v. Stubbs, Ltd

Factual and Procedural Background

An agreement was made for the sale of the business of a trade protection agency whereby the purchasers undertook to pay and discharge all present and future liabilities of the sellers in connection with the business. Subsequently, a third party brought an action of damages against the purchasers for alleged slanders contained in reports issued by the sellers prior to the sale. The pursuer was not a party to the agreement but relied on it as the basis for the claim.

The business originally carried on by a company referred to as Company A was sold to Company B under an agreement dated 30th December 1893. The agreement included the sale of various assets and the undertaking by Company B to pay all liabilities of Company A related to the business. The alleged libellous reports were published by Company A before Company B was incorporated and commenced business.

The pursuer claimed damages for these libels, asserting that Company B, having assumed all liabilities of Company A, was liable. Company B denied liability, arguing that the pursuer was not a party to the agreement and that the reports were issued before Company B existed or commenced business.

Procedurally, the Lord Ordinary initially repelled a plea by Company B but granted leave to reclaim. The matter proceeded to judgment before the court.

Legal Issues Presented

1. Whether the purchasers (Company B), who agreed to assume all liabilities of the sellers (Company A) under the sale agreement, are liable to third-party creditors for liabilities arising before the sale.
2. Whether a third party, not a party to the agreement, has a right of action against the purchasers based on the assumption of liabilities by the purchasers.
3. The legal effect and scope of the clause in the sale agreement undertaking payment and discharge of all present and future liabilities of the vendors in connection with the business.

Arguments of the Parties

Pursuer's Arguments

• The purchasers undertook by the agreement to pay and discharge all liabilities of the sellers, including liabilities arising from the alleged libellous reports.
• Therefore, the purchasers are liable to the pursuer for damages caused by the libels issued by the sellers prior to the sale.

Defenders' Arguments

• The alleged libellous reports were published before the defenders were incorporated and before they commenced business.
• The pursuer was not a party to the agreement and has no right to enforce it or sue the defenders directly.
• The liability for slander is a quasi-delict and not a liability in connection with the business in the sense of the contract.
• There is no authority for saying that purchasing the business and assets of another firm makes the purchaser liable for the debts of the seller to third parties.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the sale agreement which expressly provided that the purchasers would pay and discharge all present and future liabilities of the vendors in connection with the business. The court acknowledged that the defenders had undertaken all liabilities of the sellers, including those arising before the sale.

However, the court emphasized that the pursuer was not a party to the agreement and no jus quœsitum (a right or interest conferred by contract) was conferred upon the pursuer. The stipulation to assume liabilities was for the benefit of the contracting parties only, who could alter or revoke it at will.

Therefore, while the purchasers were bound to relieve the sellers of their liabilities, they had not undertaken any direct obligation to the creditors or third parties such as the pursuer. Consequently, the pursuer had no right of action against the purchasers based on the agreement.

The court rejected the defenders’ argument that liability for slander was not a business liability under the contract, holding that if the sellers carried on the business and incurred liabilities, including for slander, these were liabilities assumed by the purchasers. Nonetheless, this did not confer a direct right of action on the pursuer.

The court concluded that the defenders’ liability to the pursuer must depend on whether the agreement created rights enforceable by the pursuer, which it did not.

Holding and Implications

The court held that the purchasers were bound to relieve the sellers of their liabilities, but the pursuer, not being a party to the agreement and having no jus quœsitum conferred, had no right of action against the purchasers. The defenders were therefore entitled to be assoilzied (absolved) from the claim.

The direct effect of this decision is that third-party creditors cannot enforce liabilities assumed in a business sale agreement unless they are parties to or otherwise have enforceable rights under that agreement. No new legal precedent was established beyond clarifying that such contractual undertakings do not automatically confer enforceable rights on third parties.