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Present: Mr. Justice Middleton and Mr. Justice Grenier.
PATE v. PATE et al.
D. 0., Kandy, 16,307.
contracts—Executory contracts—Ordinance No. 7 of 1640, s. 21.
In an action between partners (or an account of the partnership,the capital of which exceeded Rs. 1,000, and which was not consti-tuted by anyt deed of partnership,—
Held, that the prohibition against parol evidence contained insection 21 of Ordinance No. 7 of 1840 applied only to executorycontracts, and that parol evidence was admissible to prove apartnership already dissolved for the purposes of an action for thesettlement of partnership accounts.
D. C., Kandy, 52,568 followed.
PPEAL by the plaintiff and the second defendant from adismissal of an action for an account of a partnership from
the first defendant. The facts sufficiently appear in the judgmentof Middleton J.
Sampayo, K.C. (with him H. J. C. Pereira), for the plaintiff,appellant.
Walter Pereira, K.C., S.-G. (with him F. J. de Saram), for thesecond defendant, appellant.
Bawa (with him Van Langenberg), for the first defendant.
Gur. adv. vult.
July 17, 1907. Middleton J.—
This was an action in which the plaintiff, an alleged partner withthe first and second defendants and one McClay, deceased, testatorand husband of the third defendant, prayed for an account of the1 (1871) Vunderstroaten 196.
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partnership transaction from .the first defendant. The second de- 1907.fendant, admitting the alleged partnership, prayed in reconvention July 17.for dissolution and an account as between the partners and from .the Middiubtokfirst defendant. The third defendant admitted that McClay had ashare in the alleged partnership, but pleaded that he had sold hisshare to the first defendant in February, 1900, and, disclaiminginterest, prayed the dismissal of the action.
The learned District Judge dismissed the plaintiff’s action, andthe plaintiff and second defendant appealed. The third defendantdid not appear on the hearing of the appeal. No order or decreeappears to have been made on the claim in reconvention by thesecond, defendant.
The undisputed facts were that a syndicate was formed on orabout December 24, 1897, by the plaintiff, first and second defend-ants, and one McClay, to .take over the working of the coach linefrom Matale to Jaffna and Dambulla to Trincomalee, that eachmember was to contribute Bs. 10,000, and that the plaintiff, whohad been working the line before the syndicate took over, was tohave his stock-in-trade of coaches, horses, &c., taken over by .thesyndicate. Bach party to be entitled to the profits in equal shares.
No partnership deed was drawn up in writing, and i.t was pleadedas matter of law by the firet defendant that the plaint disclosed nocause of action, inasmuch as it was not alleged that the agreementrelied upon was in writing.
The second defendant pleaded that the first defendant had byfalse representation in October, 1899, induced him to accept anamount equivalent to the capital of Bs. 10,000 he had contributed,and, alleging that he .had not on .that account ceased to be a partner,averred that the first defendant was stopped from denying it byhis admission on a balance sheet sent to the second defendant byhim in October, 1900, of the second defendant’s status as a partner,and claimed in reconvention.
The learned District Judge decided the question of law by thefirst defendant against him, and, although he had not appealed onthis point, his counsel claimed to re-argue the question before us,and we allowed him to do so under section 772 of the Civil PocedureCode, upon the ground that he was supporting the decree on aground of law decided against him in the Court below.
It was argued by counsel for the respondent that D. C. Kandy,
52,668, decided by Creasy C.J., Temple and Lawson J.J., andreported at page 195 of Vanderstraaten's Reports, does not concludeas in the present case, or in the alternative' that it can be differen-tiated fom the present case.
The decision in that case was held by the'District Judge to bebinding on him here, and, in my opinion, the ruling in that case,which has been consistently followed, with the exception perhapsof the case in 1869 reported in 1 8. 8. C. 120, since 1871, is not only
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binding on us by the sanctity of long usage, but by the ruling laiddown by the Full Court in the case of Robot et al. v. De Silva et al.1
It appears that in Mendia v. Peiria,* Burnside C.J. again upheldhis own views of the section expressed in 6 S. C. C. 120, which weredissented from by Clarence and Dias JJ., who had already followedthe case reported in Vanderstraoten in Bawa v. Mohamado Gasirn.3
As regards the construction of section 21 of Ordinance No. 7 of1840, I am willing to accede to the view of the learned counsel forthe respondent that the word “ establish ” has the meaning of“ create, ” but I think the proviso must unquestionably be readand construed with reference to the peculiar clause which enactsthat in Ceylon no promise, contract, bargain, or agreement, unlessit be in writing and signed by the party making the same, or bysome person thereto lawfully authorized by him or her, shall be offorce or avail for establishing a partnership where the capitalexceeds £100. If so, it is impossible to give the proviso the meaningsought to be engrafted on it by the argument of the learned counsel,that partners in the latter part of the proviso mean partners accord-ing to law under a partnership created in writing according to law.If that restricted meaning is given to the proviso, its terms wouldbe redundant and unnecessary.
Again, if the. illustration adopted by Mr. Bawa of a partner inpiece goods partnership trading in plumbago without the authori-zation of the partnership deed be considered, I agree that paroltestimony concerning transactions by, or the settlement of, anyaccount between the partners as regards plumbago might be provedby parol testimony, if, as regards the plumbago, they had dealtas, and it was a question as to their rights as, partners, and one ofthem, had sought to take advantage of his own wrong on the pleathere was no legal partnership.
If it was not a question as to their rights as partners as regards theplumbago, oral testimony would, of course, be admissible to provethe transaction between them so far as it was properly relevantthereto.'
I think it is necessary in this case to say what, in my opinion, isthe effect of the ruling in. the case in Vanderstraaten so far as thereport enables nfie to do so.
The facts there were an alleged partnership which could not beestablished in writing, which had been executed as a partnershipand terminated in some way or another, it is not stated how, leavingan alleged balance of account due from the defendant to the plaintiffon the alleged partnership accounts.
The Court held that the last words of the proviso appeared toapply precisely to cases like that before the Court, and that unlessthey did so they were unmeaning and inoperative.
» (1907) 10 N. L. R. 140.* (1891) 1 C. L. R. 98,
* (1891) 1 C. L. R. 53.
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The Court then went on to instauee a case which the section wouldnot countenance, and one which in connection with the proviso itwould countenance. ” For instance, if there were a verbal agree-ment between A and B to be partners for seven years, and A at theend of the first year refused to carry on the partnership any longer.B could not compel him to do so. The verbal agreement would notin such a case establish the partnership. But if, when the partner-ship has in fact been carried out and terminated, there is on thebalance of accounts a sum due from one partner to another, theproviso in the Ordinance clearly enables the plaintiff to prove hiscase by parol evidence, as well regard to the fact .that a partner-ship had existed as with regard to the balance due.”
It did not, I take leave to think, hold, as Dias J. appears toconsider in Bawa v. Mohammado Cassim,1 that the prohibitionagainst parol evidence only applied to executory contracts.
I am inclined to think it might apply to a partly executed oralcontract of partnership, where the assistance of the Court was soughtto compel an alleged partner to perform by proceedings for specificperformance or by action for breach of contract some act he hadorally agreed to perform. In such a case although the contract wasnot an executory one, the plaintiff would be, I think, successfullymet by the answer:You must establish your contract in writing,”
and the proviso does not apply.
I think also that the decision contemplates the termination insome form of the executed oral agreement of partnership as anecessary element to bring the proviso into play.
The law applicable to partnership matters here is the law ofEngland, and a partnership thereunder is dissolved ipso facto bydeath, in the absence of agreement to the contrary. No partner,moreover, could retire from the partnership except with the assentof the other partners.2
In the present case the four alleged partners in the syndicate notbeing bound in writing could have terminated the arrangement atwill at any moment by notice, or by ceasing to take part in the trans-actions of the partnership, or by withdrawing their capital; or, byobstructing the other partners in the performance of their presumedobligations, might have brought the arrangement practically to anend at any moment, so far as the rights of the partners inter se wereconcerned.
There was nothing in law to prevent any partner withdrawing thewhole of his capital if he could get it out of the business at any time,or to prevent his divesting himself of the character of partner asregards his other partners whenever he. thought fit to do so.
A partner might have rendered himself liable "to third parties, buthe had no liability to his alleged partners, except by bringing intoplay the proviso under the section.
1 am) C: L. R. 53.2 Lindley 456.
!)J. K. A 99909 (8/50)
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In determining the rights and obligations of the members of thissyndicate, I think, however, the only law that we can properlyapply in dealing with them under the proviso is that which wouldhave bound the parties had they complied with the obligatorystatutory enactment of putting their agreement into writing, viz.,the English Law of Partnership.
If, therefore, we hold that the learned District Judge’s decisionon the facts is not warranted on the written evidence, we shall, I.think, then be bound to consider the case of the parties as if theyhad entered into a partnership agreement in writing, and, annexingto their association all the incidents which are understood toapply to a partnership agreement not in writing, endeavour toformulate an order by which the rights of the parties may bedetermined upon an. accounting between two definite dates, andalso inter se.
The first question raised on appeal on the facts was whether theDistrict Judge was wrong in holding as subsidiary to the 5th issue(“ whenever the plaintiff retired from the partnership in 1898 ”)that the plaintiff’s stock-in-trade on the old coach line was to betaken over at a valuation and credited to him at its value, or whetherit was to be passed in the books at Rs. 10,000.
The evidence on which the District Judge has acted is set out inhis judgment, and the learned counsel for the plaintiff-appellantrelied mainly on G W 2, the evidence of the plaintiff at pages 10, 11,12, documents C H P 10, C H P 16, C H P 17, the evidence ofWhite at pages 26, 27, and 34, G W 3, G W 4, commenting also onD 20, D 21, A .P 17, and A P 18, as showing that the District Judgebad overlooked matter material to be considered.
It is true the Judge does not refer to the evidence and documentsrelied on, but he heard and saw all the evidence, and has expressedan opinion as to the reliability of second defendant’s evidence, whichseems warranted by the facts.
I have taken into consideration the entry on the left-hand side ofC H P 17. This was made by Perera at Stewart’s (p. 22) requestwhile first defendant was absent from the Island. The first defend-ant admits, however (pp. 21, 22), that plaintiff’s son Charlie postedthe book in which C H P 7 appears up to the end of 1898, and thatit had been in the first defendant’s possession since January orFebruary, 1899. This shows acquiescence by the first defendant inplaintiff’s share being taken at Rs. 10,000.
It was evident both in G W 1 and D 19 that the second defendantthought the plaintiff’s stock was to be taken in at a valuation, andG W 2 may be construed to some extent the same way, althoughcounsel for the plaintiff has put a different construction on it. Itwas valued twice, and the Judge with some reason says thatthis would not have been done had it not been intended to take itinto the business at its valuation.
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The first defendant in C H P 10 says: “ The stock, however, taken1909•
over from Charles came to only B£. 7,695, and this was arrived at ^giving him a lot of advantages, ” although on receipt of the draft Umozannrdeed from plaintiff he does not seem to have protested against the J‘plaintiff’s valuation of his share in it, or to have traversed directlythe plaintiff’s assumption. It is significant also that no protest wasmade by the plaintiff in respect to the valuation.
The fact that the difference between the valuation and' thecapital of Bs. 10,000 was not debited to the plaintiff at the time is astrong and important piece of evidence, but it may be accounted forby the careless manner in which the books were kept or by anuncertainty at the tim« as to what was to be done. It is not at allimprobable that it never wss distinctly agreed how the plaintiff’sshare was to be computed. There is no doubt the burden was onthe plaintiff to prove that his stock was taken over at a valueexceeding its valuation, and I do not think he can be considered to -have discharged that burden in its entirety. I would thereforeuphold this finding of the District Judge only so far as it mightaffect McClay. As against the first defendant, he was at first verywilling to give the plaintiff the fullest benefit of his stock-in-tradeand I hold that he (first defendant) acquiesced in the share of theplaintiff being entered on the books at Bs- 10,000, and must be takento have agreed to that course- As regards the second defendanthe has admitted in his evidence at pages 26 and 27 that firstdefendant and he agreed to give plaintiff two shares in Bs. 10,000 inthe syndicate for the value of his plant.
As regards the main part of the 5th issue as to the plaintiff’sretirement in 1898, I am afraid that I am unable to agree with thelearned District Judge. In the first place, there is no evidenceshowing any definite intention to retire and to cease connectionwith the business, and the drawings, which apparently ceasedbetween December, 1898, and May, 1899, may only indicate thatthe plaintiff had then drawn as much as he thought justifiable,and having done so was prepared to accept whatever might happen.
He was told in Gr V 2 by second defendant that “ once the . tenderis accepted and the line placed in working order you will not needtrouble, as Artie (first defendant) and myself will do our best tomake it a success. "
I was in some doubt whenever the case did not fall under theprinciple vigilantibus non domientibu.i subveniunt leges, which wouldpreclude plaintiff by his own laches from obtaining relief.
There is no positive proof of abandonment here except the inferencethat may arise from the drawing out of money to an amount approxi-mately equal to the value of the share.. There is no negative proofby the lapse of time from 1998 till 1900 before assertion of the claim.
Again, according to the view of the Lord Chancellor, applying nodoubt the dictum from the Codex, 4, 37, 3, in societatie contractis
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fides exuberet in Clements v. Hall,1 one partner would be heldJuly l . uberrima fide to disclose every fact which would enable the otherlitoDLKTon partners to exercise a sound discretion as to the course they oughtto pursue. There is no evidence that first defendant, who had theentire management of the business, ever disclosed to the plaintiffthat the business had become profitable, nor, on the other hand, thatthe plaintiff ever asked for information. It seems to me also thatthe doctrine of recognition of the title of the plaintiff by the firstdefendant as shown by his tacit acquiescence in the plaintiff’s claimto be deemed a partner after the family meeting and upon receiptof the draft partnership deed, may apply to this case (see Penny v.Pickwick.2)
The drawings were at first without interest, and no security wasasked for or given, while afterwards a promissory note was given tothe plaintiff. This by itself does not seem to me necessarily to showthat the plaintiff was withdrawing his capital, and the first defend-ant in G W 6 in writing to second defendant on October 6, 1900,says: “ Charles, on the other hand, called in the principal investedby him but what is there to show that these drawings might nothave been against prospective profits as alleged by the plaintiff, orloans as suggested by the first defendant in G W 6? It is not clearthat because no interest was charged that he must be deemed to bewithdrawing capital.
When he sought to obtain an account by C H P 2 of March 22,1900, on the footing of a partner, he was not met with any denial ofhis rights as a partner, or any allegation that he had retired, by thefirst defendant. The reply C H P 3 of March 24, 1900, by the firstdefendant admitted practically the plaintiff’s claimed rights, and gavean assurance of the necessary steps being taken to enable eachshareholder to know his position exactly.
By C H P 9 of September 15, 1900, the first defendant admits“ taking the tip ” of the second defendant, as he calls it, and failingto reply to the three letters of the plaintiff of .July 18, C H P 6.' andC H P 7, so that apparently the defendant deliberately avoideddenying the partnership interest claimed by the plaintiff, which henow disputes in this action.
Without going into the evidence of Smith at page 15 and thesubsequent apparent acquiescence of the first defendant by hisassenting to sign a partnership deed after his return from Australia,or criticism of its terms giving plaintiff a share equal to Rs. 10,000in his letters G W 22 and C H P 14, I feel strongly that thelearned District Judge’s finding cannot be supported on the 5thissue.
In regard to the argument that plaintiff lay by until he ascer-tained it was worth while to re-assert his rights as a partner, it would
1 2 De Gex and Jones 188.
– 16 Beaton 246.
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seem that his letter C H P 2 was on March 25, 1900, about two yearsafter the business was started, but he was told in G W 2 it was notnecessary for him to trouble in the matter.
The learned District Judge expresses surprise that plaintiffapparently waited two years even when he thought the business wasyielding the large profits of Bs. 4,000 a month, of which his sharewas Bs. 1,000. but the evidence of Silva at page 23 is that he did notget A P 10 till September or October, 1900, and Silva went intoplaintiff’s employment in March, 1900, so that the plaintiff wouldnot have got information from Silva about the improvement in thebusiness till March, 1900, or have had it confirmed by A P 10 tillSeptember or October.
The argument of the learned Judge, therefore, that the plaintiffmust have felt he had withdrawn from the business as a partner in1898, because he took no steps to assert himself after he becameaware the business was in a flourishing condition, falls to the ground.He asserted his rights in March, 1900, soon after getting the inform-ation from Silva.
Plaintiff’s counsel in his argument on this part of the case referredto defendant’s evidence at page 19, A P 2, C H P 9, G W 10, G W 12,C H P 2, C H P 3, CHP4, C H P 5, C H P 21, C H P 22, D 27,C H P 6, C H P 7, C H P 8. C H P 9, D 21. CHP 10, G W 6, G W 15.G W 16, G W 13, G W 18, G W 19, G W 22, G W 2, the evidence offirst defendant at pages 19, 20, 22, C H P 11, and the evidence ofBobert Logan Smith at page 15, C H P 11 and C H P 13, which Ihave carefully read and considered, and taking into considerationthe reasons and arguments of the learned Judge in his judgment,1 am of opinion that his finding on the 5th issue was wrong, andcannot be supported. I find, therefore, that the plaintiff did notretire from the partnership in 1898 or at any time.
We now come to the case of the second defendant, who sold hisshare to the first defendant in October, 1899. The second defend-ant stated in D 21 (September 23, 1900): “ I have ceased to be amember of the syndicate.” This was in reply to C H P 9 ofSeptember15, 1900,- inwhich firstdefendant had told second
defendant he had secured himself.
The syndicate ledger G W 7a, kept under the first defendant,,shows Bs.20,000 carriedto capitalaccount, debiting the second
defendant.In G W 6the first defendant on October 6, 1900,
writes tothe seconddefendant:“ the capital account is
untouched, and the Bs. 20.000 appearing to your debit is Bs. 10,000paid yo.u and Bs. 10,000 paid Charlie. Your name appears for twoshares in the capital account, equal to Bs. 20,000,. ”
The learned District Judge is therefore slightly in error as to thedate in his answer to the 8th issue, which was whether the firstdefendant admitted in October, 1900, not September, that seconddefendant was a partner.
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In G W 16, dated October 27, 1900, the first defendant again wroteto the second defendant that his name still appeared in the booksfor two shares, and in G W 18, dated October 30, 1900, the firstdefendant writes to the second: “ What was there to prevent me onthe strength of these withdrawals and renunciations to have ceasedto recognize you as partners, ” thereby implying that he had not soceased. From the same letter the first defendant was willing to havethe partnership deed drawn out on his return from Australia oncondition that he had the money due to him, and that he drewmoney to the value of his share. The learned Solicitor-Generalfurther relied on C H P 21, C H P 24, CHP 22, the evidence of thefirst defendant—page 22, and C H P 9.
I do not think it is open to the second defendant to set up the pleaof want of notice to other partners. As McClay’s agent, the firstdefendant had notice on his behalf, and it surely lay on him to givenotice to the plaintiff of his intention to withdraw his capital if hedesired and intended to do so.
In G W 24a of November 2, 1900, the second defendant expressesvery clearly and emphatically that, after waiting “ twenty months,and when there appeared no chance of getting anything out of theconcern, he had been willing to get out of the business by gettinghis money back, and had determined to wash himself of the con-cern. ” In the same letter he declares his confidence in the firstdefendant, and acquits him of all meanness or treachery in regard tothe non-disclosure of the state of the business.
It is impossible to say that the second defendant at that time hadnot in his own opinion, and in full view of possibilities of there havingbeen profits in the business, entirely withdrawn from the concern.Is he now to be permitted to say that he did not sell his share to thefirst defendant because he himself gave ho notice tp the plaintiff, orbecause the first defendant has subsequently to the claim raised bythe plaintiff shown a disposition to recognize him as a partner ifhe were permitted to draw an amount equal to his share?
On the question of uberrima fides, as i't affects his non-disclosure by1the first defendant to the second defendant that profits existed, thesecond defendant seems to have waived his right of inquiry into thestate of the partnership (see on this point G W 24a.)
Th'e letter D 22, D 23, D 24, D 25. and D 26, dated August 6, 1899,to October 23, 1899, all seem' to point to a keen anxiety on the partof the second defendant to dispose of his share without any inquiryas to whether there were profits or losses.
In D 13, on October 26, 1899, the first defendant in writing to thesecond defendant stated he did not know how matters stood withregard to accounts, and in fact was in the clouds about it.
In D 14, on November 3, 1899, in reply to it, the second defendantsaid: "I sincerely trust the line is doing well.” There is apparentlyno letter in evidence from the second defendant to the first defendant
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until D 27 of March 27, 1900, in which he says: “ Have told CharlesI have no interest in the concern, and actually not having. Lassietells me McClay has also been paid back his money, so 1 presumehis interests have also ceased; if so, you would only have Charlesto deal with, who could be easily managed. ”
C H P 9 of September 15, 1900, shows that first defendant con-sidered then that both second defendant and McClay had drawntheir capital and secured themselves. Plaintiff also says in hiscross-examination at page 13 that second defendant told Him inOctober, 1900, “ I am afraid I have already retired. I cannot helpyou ” and that he may have told him so before D 27 was written inMarch, 1900.
I see no reason, therefore, on the arguments used before us, todisagree with the learned District Judge, who thought that thefirst defendant was willing to take the second defendant back into
the business as a matter of grace and not of right- I do not thinkthat first defendant's acquiescence in the partnership deed beingdrawn up with the second defendant as a partner, subject to hisclaim to draw as much money from the business as the otherpartners had drawn, amounts to such a < recognition of the seconddefendant’s right as would estop the first defendant now fromasserting that second defendant has no legal right.
I draw a distinction between second defendant’s and plaintiff’scase, inasmuch as the first defendant never negatived the claim ofthe plaintiff in the way he negatived the claim of the second defend-ant in C H P 9, nor, did the plaintiff ever make the admissions ofwithdrawal from the business that the second defendant did inD 21 and D 27. I think therefore that the finding of the DistrictJudge on the 3rd and 8th issues against the second defendant shouldstand. It becomes unnecessary therefore, under the circumstances,to consider the question as to second defendant’s claim in reconven-tion. As regards McClay, his legal representative disclaims allshare in. the partnership business.
The order of the District Judge will therefore "Be set aside so faras it affects the plaintiff and first defendant, and judgment will beentered for the plaintiff with costs in the Court below and of thisappeal against the first defendant. The order of the District Judgewill stand as to the third defendant’s costs in the Court below, andthe second defendant will further pay bis own costs and half thecosts of the first defendant both in the Court below and of thisappeal.
The order will be that an account be taken from February 1,1898, to September 15, 1903, the date of the notice sent by theplaintiff’s proctors to the first defendant. In taking this accountthe first defendant must be allowed a salary of Bs. 200 permensem, as admitted by the plaintiff (page 11), during the wholeperiod.
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1097. If it is clear on the accounts or agreed whether the first defend-July 17. ^t purchased the shares of the second defendant and McClay outMiddlbton of the partnership funds or out Of his own pocket, issues must beJ- settled and tried on these points.
If it is clear that the second defendant and McClay were paidoff out of partnership proceeds, the plaintiff and first defendantbecame eaoh half owners of the partnership business.
If it is clear that the first defendant purchased the shares of oneor both of the other two partners out of his own money, he will, ofcourse, stand in their shoes in respect of .each such share.
In distributing the proceeds of the partnership, the first defendantmust be permitted before they are divided to take a sum equal tothe sum shown by the books to be drawn out by the plaintiff asagainst profits up to the end of 1898, with legal interest thereonfrom January 1, 1899, to September 15. 190.'!,
I agree to the order proposed by my brother Middleton- 1 havenothing to add to his observations in regard to the question of lawTaised by the first defendant. In my opinion, the District -Judgewas right in following the judgment of the Full Court in D. C.,Kandy, 52,568.' That judgment has been, as remarked by mybrother, consistently followed, with a solitary' exception to befound in 6 8. 0. C. 120. Indeed, I was strongly of opinion, whenMr. Bawa desired to re-argue the question, that it was not open tohim to do so in view of there being two collective rulings on thesubject, and that as the question had thus been authoritatively settled,we had no alternative but to follow those rulings-
On the facts I agree that the District Judge was wrong in holdingthat the plaintiff had at any time withdrawn from the partnership;and that he is entitled to an account from February 1, J898. toSeptember 15, 1903.
l Vanderslraalen 19;>.
PATE v. PATE et al