“Retention may be defined as a right to resist a demand for payment or performance till some counter obligation be paid or performed… The law on the subject is complicated by the fact that the word retention is used to denote various rights, widely different in their origin and extent. Thus the right of a party to withhold performance of his obligation under a mutual contract, if the counter obligation is not performed, is often spoken of as a right of retention, and may result in a right to retain money or goods.”
“The cases where retention of debts is permissible form the exceptions to the general rule that an illiquid cannot be set off against a liquid claim. These cases may be grouped under four heads: (1) Where the illiquid claim admits of instant verification. (2) Where both the liquid and the illiquid claim arise out of a mutual contract. (3) Where one or other of the parties is bankrupt or vergens ad inopiam. (4) Where, in exceptional circumstances, retention has been allowed to meet the justice or convenience of the particular case.”
“Compensation is pleadable only between liquid debts, with an exception, largely in the discretion of the court, in cases where an illiquid debt may be rendered liquid without delay….The right of retention when debts arise out of the same contract, or where bankruptcy has supervened, is considered further in a later chapter.”
“When two claims, one liquid, the other in the nature of a claim for damages, arise from the same contract the creditor in the claim for damages may withhold payment of his debt until the amount due to him as damages is established.”
“No party in a mutual contract, where the obligations on the parties are the causes of one another, can demand performance from the other, if he himself either cannot or will not perform the counter-part, for the mutual obligations are regarded as conditional.”
“The principle of mutuality of obligations applies to all contracts, and so in any type of contract a claim for the sums due under the contract may be met by the defence that the defender has claims arising from the pursuer’s failure to perform that contract.”
“Where a plaintiff sues to enforce performance of an obligation which is conditional upon performance by himself of a reciprocal obligation owed to the defendant, then the performance by him of this latter obligation (or, in cases where they are not consecutive, the tender of such performance) is a necessary pre-requisite of his right to sue and should be pleaded by him. Conversely in such a case the defendant may raise as a defence, known as the exceptio non adimpleti contractus, the fact that the plaintiff has failed to perform, or in the appropriate case, tender performance of, his own reciprocal obligation.”
“The defenders, being entitled to payment by the pursuers of sums under the contract, are entitled until such sums have been paid to retain any sums found due to the pursuers.”
“The approach of the reclaimers, before us, appeared to be that a proper reading of the two agreements together led to the implication that the parties intended that performance of the obligation to pay the additional consideration was dependent on the fulfilment of the obligations under the services agreement and Clause 15.4 of the acquisition agreement and that was so because of the obvious interconnection of the matters covered by the two agreements. In our system, at least, where the matter is not covered by express agreement, what the court is searching for is identification of obligations which might fall to be seen to be mutual. There is, we think, a danger of focusing on the expression ‘mutuality of contract’ rather than on ‘mutuality of obligation’ in this context. Within a single mutual contract, there may be obligations which are mutually dependent upon each other and can truly be described as reciprocal. There may also be within that single contract an obligation, or obligations, in respect of which there is no direct reciprocal counterpart. That is what Lord President Rodger in Macari v Celtic Football and Athletic Co Ltd 1999 SC 628, 640G-H took from the speech of Lord Jauncey in Bank of East Asia Ltd v Scottish Enterprise 1997 SLT 1213 and what Lord Caplan had to say about the matter at page 650. In a single contract situation, the obligation of an employee to carry out his employer’s instruction was not regarded as the counterpart of his employer’s implied obligation not to seek to damage the relationship of trust and confidence between the parties. Accordingly, the operation of retention even within a single mutual contract, where not expressly provided for, operates subject to these requirements and qualifications.”
“Rent is not liquid in the sense that a sum due by bond is. It is matter of contract in consideration of something to be done. It is paid for possession of the subject let. If the tenant says he has not got entire possession, that is a good answer to the claim for rent.”
“Every action on a mutual contract implies that the pursuer either has performed, or is willing to perform, his part of the contract; and it is, therefore, always open to the defender to say that under the contract a right arises also to him to demand performance of the contract before the pursuer can insist in his action.”
“Oure Souerane Lord and estaitis of parliament statutis and Ordanis that ony debt de liquido ad liquidum instantlie verifiet be wreit or aith of the partie befoir the geving of decreit be admittit be all Jugis within this realme be way of exceptioun Bot nocht eftir the geving thairof In the suspensioun or in reductioun of the same decreit.”
“Compensation is not regularly receivable where the debts on both sides are not clear beyond dispute. They must be ascertained, either by a written obligation, the oath of the adverse party, or the sentence of a judge.”
“Our ancient Scots Act (1592) sanctions the pursuer’s plea, as it only admitted mutual claims which are liquid, to be compensated. We have no such case here. The ploughman’s wages are liquid, while his master’s claims are illiquid, and of a very unfavourable, if not an incredible aspect. No doubt, in practice, we sometimes allow counter claims not yet constituted, to be held pro jam liquido, when they admit almost of immediate ascertainment. But it is always a question of circumstances, and of sound judicial discretion and equity, in what cases that should be allowed. I cannot hang up a labourer’s wages, by such claims as those now in question.”
“yea, the Lords have allowed this without these favourable circumstances.”
“I think, that not only by the law of England and of Scotland, but by the law of other civilized countries, that cannot be done; the inconvenience of it would be excessive. If a person has an actual liquidated money demand, which he seeks to enforce, the amount undisputed, it would be unjust, or might be unjust to him, to involve him in a question whether the person who is bound to pay him that liquidated sum may or may not have a right of action against him upon some collateral matter in respect of some damage on account of which he may have a right of action, for a fraudulent representation, or for an assault, or for a trespass, or any other of those various wrongs which may be inflicted upon the man, and for which he may be entitled to compensation. It is clear, in my opinion, that that cannot be the case either by the law of England, or the law of Scotland, or, as I believe, by the law of any other country.”
“The rule which prevents illiquid claims being set off against liquid claims is founded in justice. It is intended to prevent parties from being kept out of their money by claims which may turn out to be altogether groundless, and which may be put forward for the mere purpose of delay.”
“Perhaps if the case had been set down for trial next week, and no risk as to the condition of parties, it would be a different matter. But when the defence is in reference to an action of damages involving an inquiry into disputed facts in New Orleans and Hobson’s Bay, it becomes a more serious question for the intervention of the Court.”
“I do not like to disturb the maxim, that a liquid claim cannot be met by one that is illiquid. Still the maxim is subject to exception, if the claim is in such a position that it may be immediately made liquid.”
“In disposing of the pleas in this case I think that the Lord Ordinary has rightly dealt with the plea of compensation, because that is a matter of statutory regulation, and the plea is confined to cases where both debts are liquid or capable of immediate ascertainment; but then there is another principle under which one obligation may be suspended until the performance of a counter obligation – the principle of retention, and that, not being subject to the conditions of any statute, must be regarded as an equitable right to be applied by the Court according to the circumstances of each case as it shall arise. The doctrine has received much extension in cases of bankruptcy and insolvency… But the principle is not limited to bankruptcy cases, and it seems to me that the circumstances of the present case constitute a very clear ground for its application, because Lady Ross while in the management of her son’s estates appears to have wholly neglected the duty of keeping strict accounts, which is incumbent upon every administrator of the property of others, and when she is called upon to account she states that the whole of the money has been expended, and that of a very large sum, amounting to nearly£4,000 a-year, she is unable to give any particulars. Now, that is a position which no guardian or administrator is entitled to assume, and upon the statement of these accounts, and also the claim of legitim, I cannot doubt that, if it appears to the Court that there is a probability that Lady Ross has already in her hands as much of her son’s money as would satisfy this jointure, she would not be entitled to immediate decree. The judgment which I understand your Lordship will pronounce will be one merely suspending the procedure in this case, and if it turns out, contrary to all the probabilities, that the whole of the son’s income has been legitimately and properly expended by his mother, and also that there is no legitim due to him, then of course Lady Ross will be entitled to decree for her jointure.”