The appellant however pending this1 action entered into anagreement P4 in August 1972 with M. J. de Silva for running abusiness in partnership with him in a portion of these premisesunder the' name and style of “ Auto Care * for the repair of motorvehicles. By this agreement the appellant undertook to makeavailable to M. J. de Silva, the portion coloured pink depicted insketch P1 of the premises No. 816/5, Maradana Road. He alsoagreed to supply bath and toilet facilities in cbnsideration of whichM. J. de Silva was to pay him a fee of Rs. 200 per mensum. Thebusiness was to be run and managed by M. J. de Silva and it wasagreed that the appellant would be exonerated from all liabilities.The appellant handed over to M. J. de Silva tools and equipmentbelonging to him valued at Rs. 4,100 as his share of the capital.Accounting was to take place every 3 years and the appellant wasentitled to 1/5 share, while M. J. de Silva would get the balance4/5 share , both amounts to be free of income tax. It was alsoagreed that no change in the partnership was to'be effectedwithout the written consent of both parties and if consent is refusedthe partnership was to be wound up.
Contrary to the terms of this agreement, M. J. de Silva,purporting to be the owner and proprietor of the business, by DeedD1 of 30th May; 1975, sold to Rienzie Rodrigo for a sum of Rs.7,900 the premises where the business of 'Auto Care' wasconducted together with the tools and equipment mentionedearlier. On the same date by mortgage bond D2, M. J. de Silvamortgaged the business of 'Auto Care' to Rienzie Rodrigo andhanded over the management of the business to him. The businesshowever was carried on till 9th November, 1975, by Sydney ClaudePerera, a cousin of Rienzie Rodrigo on behalf of Rienzie Rodrigo.This Sydney Claude Perera happened also to be a nephew of theappellant. Thereafter Rienzie Rodrigo by Deed D4 dated10.11.1975 sold the building and structures on premises No.816/5, to the respondent and on the same date on D5 sold the
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business and goodwill also of * Auto Care ’ to the respondent.Again on the same day, the Attorney of M. J. de Silva, had sent tothe Registrar of Business Names, the-form relating to notice ofchange of partners stating that M. J. de Silva has ceased to be apartner and that his right, title and interest in the business haddevolved on the respondent.
When the appellant found that the premises were in the unlawfuloccupation of the respondent and discovered on further probingthe dealings with this property by M. J. de Silva and RienzieRodrigo, he filed this action. He came to court on the basis that hecontinues to be a tenant of the premises by virtue of the Decree inthe District Court, Colombo, Case No. 1,734 and that from31.8.1972 he had used a portion of the premises for running thebusiness ’ Auto Care in partnership with M. J. de Silva. Heaverred that the building and structure, tools and equipment belongto the appellant and that the respondent was in unlawfuloccupation of the premises and conducting the business as atrespasser.
In his answer the respondent stated that M. J. de Silva was thesole proprietor and owner of the business of" Auto Care '. That interms of the devolution of title referred to earlier the respondenthad succeeded to M. J, de Silva's rights. He claimed that he wasTherefore in lawful occupation of the premises and has a right tocarry on the business as in succession to M. J. de Silva.
After trial the learned District Judge- gave judgment for the
The respondent appealed to the Court of Appeal and the Court olAppeal reversed the judgment of the learned District Judge anddismissed the plaintiff's action with costs
The Court of Appeal while agreeing with the appellant that DeedsD1-, D2, D4, and D5 relied on by the respondent “ were insufficientto compel the respondent to accept the appellant as a partner or toconfer upon him a right to interfere with the business ' neverthelessheld that the sales were ” operative to convey such- right, title andinterest as M. J. de Silva had in the concern. The nature of theinterest is M. J. de Silva's proportion of partnership assets afterthey have been all realised and converted into money, after all thepartnership debts and liabilities had been paid and discharged."
Fernando v. Sarath (Wanasundera, J.)
The Court of Appeal also held that it was not disposed to grantthe appellant relief for an additional reason. The Court of Appealheld that the tenancy claimed by the appellant could not beregarded as lawful possession for the appellant was really in theposition of a trespasser,, because he was paying damages under aDecree of Couh although the appellant had the prospect ofconverting the occupancy into that of a tenancy upon fulfilling theconditions stipulated in the Decree. Further the partnershipbusiness installed in the premises by the appellant was in effect asubletting of the premises, and hence the appellant could not besaid to be in actual occupation of the said portion of the premises toenable him to institute and maintain this action.
In regard to the ground of Subletting it may be mentioned that thegenuineness of the transaction set out in P4, namely, whether thiswas a partnership or a deception to cover a subletting does hotappear to have been put in issue by the respondent in theproceedings in the lower court. Such a defence is also not putforward in his pleadings. We cannot also agree with Mr.Gooneratne that issues 4 and 9 pointed out by.him in thisconnection could be stretched to cover this situation. These issueshave not been understood in that way either by the learned DistrictJudge or by the parties. In the result we are of the view that thisfinding is unwarranted and has not been the'subject of contentionbetween the parties in the lower court.
The Court of Appeal has granted Leave to Appeal only on thefollowing grounds :
whether the right to occupy the premises in questiongranted to the plaintiff-petitioner by virtue of the Decree inD.C. Colombo 1734/RE enables him to maintain, thepresent action, and
whether the defendant-respondent can enter the premisesby virtue of the right which he claims'on D5 and can besaid to be in unlawful occupation thereof and therefore atrespasser.
Mr. Gooneratne's main submission was that since thepartnership had not been dissolved, the matters in issue in thiscase, namely the right to occupy the portion of the premises No.816/5, and the right to the use of the equipment and tools continue
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to belong to the partnership and any right the appellant nas must oesubordinate to the rights of the partnership. If so, Mr. Gooneratnesubmits the appellant has no right or title to maintain this actionexcept in his capacity as a partner. Further he adds that theappellant's rights or interests under the Decree do not amount topossession ut dominus.
I am of the view that the appellant was in. lawful possession of thepremises in terms of the Decree of the District Court. The Decreevests a sufficient legal interest in the appellant enabling him tooccupy the premises. This is undoubtedly an interest which the lawwill protect- Incidentally since the appellant was a partner andhaving regard to the nature of his rights to the property in terms ofthe partnership agreement it cannot be said that the appellant didnot have a sufficient occupancy of the premises so as to maintainthis action.
Further the submission of Mr. Gooneratne on the second groundon which the Court of Appeal declined to grant relief, does notappear to be referable to a matter that has been specifically put inissue between the parties in the trial court, It is true that the Courtof Appeal said The present action is constituted on the footing thatthe defendant appellant is a person without any right whatsoever.The suit should have been oriented in the partnership and as it isnot it is misconceived."
I do not understand this statement as showing that the groundcontended for by Mr. Gooneratne was in issue between the parties.It would appear that the Court of Appeal made this statement in thecontext of the respondent's rights and not in regard to the positionof the appellant with which Mr. Gooneratne is now concerned. Inthe result this ground too which was not specifically put in issuecannot be entertained at this stage.
Mr. Gooneratne's second submission which is based on thefinding of the Court of Appeal is that the respondent has succeededto certain rights and interests of the partner M. J. de Silva sufficientto give him a proprietory interest.' Mr. H. L. de Silva, howeversubmitted that having regard to the terms of the partnershipagreement relating to the disposition of partnership property
Fernando v. Sarath (Wanasundera, J.)
neither the right to occupy the portion of the premises nor the rightto the use of the tools and equipment can constitute assets of the,partnership, so as to vest such a right or interest in the respondent.
The folldwing citation from Lindley on Partnership and the twoauthorities cited below throw some light on the legal position insituations such as the present.
Lindley 12th Ed.(page 663)-
*Again it by no means follows that property used by all thepartners for partnership purposes is partnership property, forexample the house and land in and upon which the partnershipbusiness is carried on, often belong to one of the partners only,either subject to a lease to the firm or without any lease at all. So,it sometimes happens, though less frequently, that officefurniture and even utensils in trade are the separate property ofone of the partners subject to the right of the other to use themas long as the partnership continues"
In Pocock v. Carter (1), it was held that where the premises uponwhich a partnership business is carried on are and are declared bythe partnership deed to be the property of one partner and thepartnership deed contains no provisions as to the tenancy of thepartnership but only a general direction that all rents are to be paidout of profits, the court will infer that the partnership was intendedto hold the premises on tenancy only during the continuance of thepartnership and not on a tenancy from year to year or at will.
In Benham v. Gray, (2), the plaintiff and defendant entered into apartnership, the terms of which were not definitely arrangedBusiness was carried on in their names in a shop andcounting-house, which formed a part of a house of which theplaintiff was a lessee. Due to disputes the plaintiff caused thedefendant to be served with a notice of dissolution of partnership Afew days later the defendant broke into and entered the shop andcounting house. The court held that the defendant was liable intrespass, his right to occupation of the premises having ceasedwith the determination of the partnership.
208 .
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In the present case there is however no need to resort to generalprinciples since the matter is governed by the express provisions of thepartnership agreement 94. They are the following :
Clause /-'The party of the first part (the appellant) agrees andundertakes to make available to the said business a portionout of the building and premises bearing assessment No.816/5
Clausem 3-'The party of the second part (M. J. de Silva) shall beentitled to spend in the first instance a sum of Rupees FiveThousand (Rs. 5,000), repairing certain parts of the roof andsupports of that portion of the building, including the wiringfor electricity and other incidental expenses, so that the saidbusiness could be run efficiently. The said sum so expendedshall be recovered by the party of the second part from theparty of the first part in monthly instalments of Rupees Onehundred and forty (Rs. 140) per month.
Clause 15 – " The party of the second part agrees and undertakes notto allow any person other than the employees of the saidbusiness to occupy any section of that portion of the buildingand premises set apart specifically for that purpose.
Clause 16-'The party of the second part agrees and undertakes to- hand over peaceful and vacant possession of that portion ofthe building and premises described in Para 1 hereof, if andwhen the business is wound up or on any cessation of thepartnership and if at any time the dissolution or cessation ofbusiness takes place before the aforementioned sum ofRupees Five Thousand (Rs. 5,000) is fully recovered, anaccount of any sum due to the party of the second part shallbe taken and the party of the first part shall pay the sameforthwith, making any adjustments if any, for the tools andequipment not returned or value paid as provided inparagraph 14 hereof.'
It is clear from these provisions that M. J. de Silva himself wouldhave been obliged to hand over possession of the portion of thepremises in the event of the partnership coming to an end. Therespondent is in no better position and can claim no greater rightsthan M. J. de Silva.
Fernando v. Sarath (Wanasundera, J.)
■The position seems to be no different in the case of the tools andequipment claimed by the appellant. Even if the appellant hadhanded over those items to M. J. de Silva, as his share of thecapital, clauses 14 and 16 contain express provision regardingtheir disposal upon a cessation of the partnership.
Clause 14 is worded as follows :
'The party of the second part accepts, the said valuation ofRupees Four Thousand One Hundred (Rs. 4,100) forvthe saidequipment and tools as capital from the party of the first part forthe said business, and upon the. dissolution of the said businessor any change of the partnership duly effected as above, the partyof the second part undertakes to return the said tools and.equipment in good condition or their full value thereof.'
It is not a matter of surprise to find M. J. de Silva had agreed tothose terms since the rights to those properties had been with theappellant from the inception and it was he who made themavailable to the partnership for the purpose, of its business.
Even if we were to go by the finding of the Court of Appeal thatthe Deeds D1, D2, D3, D4 and D5 were adequate to convey theright or interest which the law recognises as being vested in apartner upon a dissolution of partnership namely the right to aproportion of partnership assets after they have been all realisedand converted into money and all the partnership debts andliabilities have been paid and discharged , this would not help therespondent. This statement of the law makes it abundantly clearthat the right the respondent has in respect of the propertiesreferred to could arise only after a dissolution of the partnership andupon the conversion of the partnership assets into money. Howthen can the respondent claim a present right to occupy thesepremises or a present right to use those equipment and tools ?Those rights are necessarily restricted to the partners and only inrespect of an existing partnership. Both these requirements areabsent in this case. Accordingly the respondent cannot show avalid legal basis to remain in occupation of the premises or for theuse of the tools and equipment.
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For these reasons I would set aside the judgment of the Court ofAppeal and restore the judgment of the District Court. Therespondent will pay to the appellant the costs of appeal both hereand in the Court of Appeal.
ABDUL CADER, J.-l agree.
Appeal allowed.