DEONIS, Appellant, and KLEYN, Respondent

038-NLR-NLR-V-45-DEONIS-Appellant-and-KLEYN-Respondent.pdf


Deonis and Kleyn.
121
•1944Present: Howard C.J. and Keuneman J.DEONIS, Appellant, and1 KLEYN, Respondent.
77—D.C. Colombo, 12,342.
Partnership—Agreementinwriting—Threepartners—Retirementofone—
tfo termination of partnership.
Where, by an agreement in writing, three persons enter into a partner-ship, the retirement of one and the assignmentofhis share totheother
two dp not terminate the partnership.
A
PPEAL from a judgment of the District Judge of Colombo.
The facts appear from the argument.
H. V. Perera, K.C. (with him H. W. Jayewardene), for the defendant,appellant.—The plaintiff has sued the defendant for an accounting-on the basis .that they are the partners in a business known as StandardMotor Stores. By an agreement in writing dated March 5, 1927, thepartners were the plaintiff, the defendant and one Fonseka. In 1930,Fonseka retired and the business was carriedonby the plaintiffand
•defendant, the latter two having bought off Fonseka’s rights. There is,however, no agreement in writing in respect of the second partnership,•as required by section 18 (c) of the Prevention of Frauds Ordinance(Cap. 57). The present action was brought in 1940.
It is submitted that a new partnership cameinto being whenFonseka
retired in 1930. The District -Judge has erredinholding thattheold
partnership continued, with the number of partners diminished by one.The real position in law is that the retirement of a partner from a partner- '•ship operates as its dissolution. The recent case of Abbott v. Abbott1strongly supports this view. See also Raman Chetty v. Vyraven Ghetty2.In the absence, therefore, of an agreement in writing the plaintiff in thepresent case cannot lead evidence of the second partnership. He mayhave had a cause of action against the defendant in 1930 under the-original partnership, but it is now prescribed.
N. Nadarajah, K. G. (with him Dodwell Ghinawardand) for the plaintiff,respondent.—There was no dissolution of the partnership in 1930. Whathappened was that Fonseka assigned his rights to the other two partners.Such assignment cannot be said to have dissolved the partnership.-SeeLindley on Partnership(8thed.)p.661; Pollock onPartnership
<(13th ed.) p. 85; Sturgeon Brothers v.Salmon3. No writingisnecessary
for the assignment of a partner’s share—Mohamed v. Warind*■ Evenassuming that there was a dissolution of the original partnership, section-42 of the Partnership Act would be applicable—Omer v. Anthony5.
H. V. Perera, K.C., in reply—The passages in Lindley (supra) andPollock (supra) deal with assignments to third parties and not betweenpartners inter se. The law applicable to the facts of the present case isstated – unambiguously in Abbott v . Abbott (supra).
1 {1936) 3 A. B. B. 823 at 826.3 (1906) 22 T. L.R.584.
»(1916) 2 G. W. R. 81.* (1919) 21 N. L.R.225.
5 (1916) 2 C. W. R. 122.
122
HOW AIM) C.J-—Deonis and Kleyn.
[Howard, G.J. referred to Emmanuel et al v. Symon-1]
The remarks relevant to this ease which appear in the judgments irtsturgeon Brothers v. Salmon (su-pra) were made obiter.
Cur. adv. vult.
February 17, 1944. Howard C.J.—
The defendant in this case appeals horn a judgment of the DistrictJudge, Colombo, ordering him to render to the plaintiff, the respondent,,a full and true account of the business known as the Standard MotorStores carried on at Fourth Cross street, Pettah, Colombo, includingthe stock in trade thereof and to pay the balance half share of the profits-to the plaintiff. Xn the alternative it was ordered that in the event of thedefendant failing to render an account he should pay the plaintiff a sum ofRs. 10,446.78 as profits up to May, 1939, together with further profits,from June, 1939, till payment in full. The plaintiff alleged that byvirtue of an agreement in writing dated March 5, 1927, the defendant,himself and one M. W. Fonseka became partners in the business knownas the Standard Motor Stores of which the defendant was the workingand managing partner on whom devolved the responsibility of keepingproper and correct books of account. The plaintiff further alleged that thebusiness was carried on until 1930 when M. W. Fonseka ceased to be apartner and the business was thereafter carried on by the plaintiff anddefendant, the remaining partners, each being entitled to a half-shareof the profits. In the year 1939 the defendant, so the plaintiff aHeges,failed to render to him a true and proper account of the profits of thesaid business. In the District Court it was contended on behalf of the-defendant that the latter was the sole proprietor of the said business,that the document dated March 5, 1927, is of no force or avail to create-a partnership between the parties and does not constitute the writing-required by law for the establishment of such a partnership and that the-elaim, if any, of the plaintiff is prescribed. In finding in favour of the-plaintiff the learned District Judge has held that (1) there was a partner-ship between the plaintiff, defendant and Fonseka and the defendant was-liable to render accounts and pay the plaintiff a one-third share of theprofits, (2) after 1930 the business was carried on by the plaintiff and!defendant, (3) the document of March 5, 1927, was sufficient to createa partnership, and (4} the defendant broke the partnership agreement in1939 and hence the plaintiff’s claim is not prescribed.
The only findings of the lower Court that have been really challengedin this Court are (3) and (4). Mr. H. V.- Perera, on behalf of the de-fendant, has maintained that the retirement of Fonseka from the partner^ship in 1930 operated in law as a dissolution of the partnership. Hencethe action can only be maintained by the plaintiff on the basis of a newpartnership agreement concluded between him and the defendant,The capital of the partnership exceeding one thousand rupees, section18 (c) of the Prevention of Frauds Ordinance (Cap. 57) required that the?agreement establishing such partnership should be in writing. Mr.Perera, in these circumstances, contended that any cause of action;
1 L. R. (1907) 1 K. B. 235 at 242.
HOWARD C-T.—Deonis and Kleyn.
123
under the original partnership arose in 1930 and was, therefore, barredby prescription and that there was no evidence to' establish a freshpartnership.
The only question that requires decision is whether the retirement ofFonseka fromthe partnership operated inlaw as a dissolution of the
partnership orwhether the partnership continued undertheagreement
of March 5, 1927, as between the plaintiff and the defendant ? In 1929,Fonseka commenced proceedings against the defendant claiming hisshare of the profits under the agreement. Fonseka did not ask for adissolution ofthe partnership. This case,according totheplaintiff’s
evidence, “wassettled on the footing thatthe plaintiffanddefendant
bought up Fonseka’s rights for Us. 3,000. The plaintiff apparentlywith difficulty liquidated his share of this sum by driblets. The matteris of course governed by the Partnership Act (1890) (53 and 54 "Viet, o- 39)which is in force in Ceylon by virtue of section 3 of the Civil Iiaw Ordinance(Cap. 66). Sections 32 and 33 of the Act prescribe in what mannera partnership is dissolved. Eetirement of a partner is not formulatedas operating in law to produce a dissolution. On the other hand, section-46 of the Act is worded as follows: —
“ The rules of equity and of common law applicable to partnership,shall continue in force except so far as they are inconsistent with theexpress provisions of this Act.
It would seem that prior to the enactment of the Partnership Act,1890, a partnership at common law would be dissolved by the retirementof a partner. Can it be said thatthe ruleof common law isinconsist-ent with the provisions of Sections32 & 33of the Act ?Mr.Perera in
support of his contention that the partnership was dissolved relies on the-case of Abbott v. Abbott1. In this case clause 2 of the partnership deed-stated that the death or retirement of anypartner shallnotterminate
the partnership. In his judgmentClausonJ., at page826,states as
■follows: —
“ The matter came before the Court of Appeal in the case of Moss v.Elphick2 and it is authoritatively stated in the judgments in that case—I refer to the judgment of Farwell Li.J., in particular, which I adoptfully—that. the statement contained in Lindlev on Partnership (7thFd., p. 142) is correct. That statement is that —
* the result of a contract of partnership is a partnership at will unlesssome agreement to the contrary can be proved. ’
This being an agreement for a partnership, it is an agreement whicheach partner has a right to bring to an end at any moment, if he so-desires, unless I am satisfied that there is some other agreement.The first point is that on reading cl. 2 it is clear that a partner who says* I want to go out of the partnership ’ does not determine the partner-ship by doing that. If this were a partnership at will and one partnersaid, ‘ I am determined to go out of this partnership ’ the effect wouldThe that the partnership would come to an end as between all thepartners, although the others might form some new partnershipramongst themselves if they so desired.”
{1936) 3 Al E. R. 823.
(1910) 1 K. B. 846.
124
HOWARD C.J.—Deonis and Kleyn.
This passage is, therefore, some authority for Mr. Perera’s contentionthat a partnership at will, unless there is some other provision to the-contrary in the partnership agreement, is determined if one partner goes outof the partnership. In Abbott v Abbott {supra) there was such a provisionin the agreement. Hence the opinion of Clauson J. is obiter. 'Reference'has also been made to the ease of Sturgeon Brothers v. Salmon1. Tfiofollowing passage from the judgment of Ridley J. merits attention: —
Section 46 of the Partnership Act, 1890, has been referred to,,which provides that the rules of equity and common law should beapplicable except where inconsistent with the express provisions of theAct; but section 8?, and the following sections of the Act give themodes in which a partnership can be dissolved, and it would be in-consistent with these sections to say that a mere assignment would,operate as a dissolxition. That was the opinion of the learned editorsof ‘Liindley on Partnership but it is not necessary for me to determinethe question, because according to this agreement there was no suchassignment as would constitute a dissolution of the partnership.”
On the other hand it would appear that the other Judge, Darling J.in this ease took a different view as will appear from the followingpassage: —
” I think there is a great deal to be said for Mr. Wild’s contentionthat prior to the Partnership Act an assignment, in the case of apartnership at will, would have operated as a dissolution, and there isdistinct authority for that proposition in the 5th edition of ‘ Lindleyon Partnership ’. He gives as an authority the case of Heath v. Sansomand I am not sure that I agree with my brother Ridley as to the effect. of Heath v. Sansom. The passage from Lord Hundley's book is verydistinct. If the matter had remained there I am not so sure that wecould have upheld the County Court Judge's decision. Since the5th edition, the Partnership Act, 1890, has been passed, containing,several provisions—section 32 et seq.—which have led the learnededitors of Lord Lindley's book to qualify the opinion previouslyexpressed, and they use words to this effect (His Lordship read thepassage at page 621 of the 7th edition). They maintain the formeropinion, but consider the Act may have altered the law. 1 do notthink they took notice of section 46. Speaking for myself, I shouldhave thought it doubtful, if it were correct to say that in a partnershipat will an assignment by one of the partners would work a dissolution,that this would be inconsistent with the provisions of sections 32 and33 within the meaning of section 46.”
The opinions of both Judges on the question at issue were obiter.
The case of Sturgeon Brothers v. Salmon {supra) was considered byChannell J. in Emmanuel v. Symon2. At pages 241-242 the learnedJudge stated as follows- —
“ It is stated at p. 583 of the 5th edition of Lindley on Partnership,which was published before the Partnership Act, 1890, that in the-case of a partnership at will the assignment by a member of an ordinary
1 22 T. L. R. 584. '
{7907) 1 K. B. 23,
HOWARD C.J.—Deonis and Kleyn.
125
firm of his share in it operated as a dissolution of the partnership; butin the editions published since the Act the editors indicate that it is-their opinion that • the Act has made a difference in this respect,because the Act mentioned certain specific cases in which a partnershipis to be considered to be dissolved, and the assignment of partnershipshares is not included amongst them. I was referred to a case of"Sturgeon v. Salmon, in which it was suggested that the point had beendecided by Ridley and Darling J-J. in the Divisional Court, but whenthat case is examined it will be found that the point was not decided,the decision of the Court having proceeded on the special terms of theparticular agreement between the parties. There seems to be no realauthority on the question where there are more than two partnersrthough where there are only two partners there is authority: Heath y.Sansom,1 which shows that an assignment by one partner of his share-to the other does put an end to the partnership, as indeed mustobviously be the case. Where there are more than two partners andthere is an assignment from one to another so that no new partner-is introduced, the question is so doubtful that I do not like to express-an opinion on it. The Partnership Act, 1890, leaves the matter indoubt, because the Act provides by section 46 that the rules of equityand common law applicable to partnership shall continue in force-except in so far as they &x.e inconsistent with the express provisionsof the Act, and it is very arguable whether the addition of other causes-of dissolution is inconsistent with a section which expresses certaincauses. ”
That the question at issue is shrouded in doubt appears from the following-passage from Volume 24 of Halsbury’s Laws of England, page 462,.paragraph 883: —
“ An assignment of his interest by one partner to another, wherethere are only two partners, operates as a dissolution, but wherethere are more than two the point is doubtful.”
In this state of uncertainty it is relevant to consider the opinions ofstandard works on the Law of Partnership. In the 10th edition ofLindley on the Law of Partnership, I find the following passage on page680:— –
The Partnership Act, 1890, does not mention the assignment of a.share amongst the causes of dissolution; it is therefore conceived"th.it the assignment of a share in no case operates as a dissolution.This is of slight importance in partnerships for an undefined term,as they may be dissolved at any time upon notice; nor is it of muchconsequence in the ease of partnerships for a fixed term, if the other-partners have a right to treat the assignment as a ground of dissolution.Rut from the silence of the Act on this point and the express mentionof the option to dissolve when a partner suffers his share of the partner-ship property to be charged for his separate debts, it is apprehended thatan assignment by a partner of his share is no more than a circumstanceenabling the Court, if it thinks fit, to decree a dissolution on the ground,that ii is, for the reasons above stated, just and equitable to do so
(1832) 4 B and Ad. 172.
126
B. J. Fernando and Sunthary Pillai.
A similar opinion is expressed in the following passage from page 86•of the 11th edition of Pollock on Partnership: —
Since the Act it seems that the assignment, of a partner’s sharedoes not iit any case work a dissolution of itself, or give the otherpartners an absolute right to have the partnership dissolved. Section-33, sub-section 2, does give that right in the event of a partner allowinghis share to be charged under section 23 for his separate debt. Butthe fact of a partner having alienated his share so as to deprive himself•of substantial interest in the firm would be a circumstance for the•consideration of the Court in determining whether it was just andequitable to order a dissolution under section 35 (a)
The authors of these two standard treatises on the Law of Partnership■state that the matter is not free from doubt but incline to the view thatan assignment of the share of one partner to another where there aremore than two partners does not terminate the partnership. Thedefendant in these circumstances has not established that the learned•Judge came to a wrong decision and the appeal must be dismissed with•costs.
Appeal dismissed.
ICeuvbman J.—I agree.