082-NLR-NLR-V-18-PATE-v.-PATE.pdf
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[Privy Council.]
Present: Lord Sumner, Lord Wyenbury, and Sir Edmund Barton.
PATE r. PATE.D. C. Kandy, 16,307.
Partnership—Actionfor accounting by one partner againstanother—
Capital over Re.1.000—Actionnot maintainableintheabsence
of written agreement—Ordinance No. 7 of 1640, s. 81.
Plaintiff, alleginga partnershipbetween himselfand defendant,
brought * this action for an accounting, and prayed for judgmentfor suchsum asmight be found due. Therewasnowritten
agreementbetweenplaintiff anddefondant, thoughthecapital
exceeded one thousand rupees.
Held, that the action was not maintainable, owing jo the provi-sions of section 21 of Ordinance No. 7 of 1840.
facts are set out in the judgment (see also 11 N. L. li. 254).
July 22, 1915. Delivered by Lord Sumner:—
From the beginning of 1898 Arthur John Pate, now appellant,Charles Henry Pate, whose legal personal representatives are now.respondents to this appeal, and George William White and CharlesMcClay, both now dead and strangers to these proceedings, tradedtogether in a coaching business between Matale and Jaffna andbetween DambuUa and Trincomalee. They had no articles ofpartnership. There was no agreement in writing or writtenmemorandum of the bargain subsisting between them. Theircapital exceeded one hundred pounds. Disputes presently arose,and there has been much controversy about them. Jn one way oranother their partnership-r-for such de facto it was—had come toan end before December, 1908, when Charles Henry Pate beganthe present suit, making Arthur John Pate the principal defendant.
The plaint alleged that there was an agreement of partnership,carried out by contributions of .capital and 1>y joint trading, andalleged also its ultimate dissolution. It stated that no account hadbeen taken or settled, and prayed a decree for partnership accounts,with payment of-such sums as might be found due, and othersuitable relief.- –
The answer took the objection in limine that the partnershipagreement was not proved by any writing in accordance withOrdinance No. 7 of 1840, section 21. The action went to trial. Itwas held to be maintainable, and the ruling was sustained on
10—J. IT. A 99908 (3/50)
1815*
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1915. appeal. This was in July, 1907. Inquiries were directed, andfurther proceedings and appeals took place till,, in December, 1911,Smonni Supreme Court disposed of the last of them, and judgment went
— against the now appellant for some Rs. 40,000.die v« Pott
The respondents' counsel drew their Lordships* attention to thefact that 'the Supreme Court of Ceylon disposed of the objectionbased on Ordinance No. 7 of 1840 as long ago as 1907, while leaveto appeal to their Lordships’ Board was only granted in 1912. Itwas suggested that after such an interval of time their Lordshipsmight well decline to entertain what was called a mere technicalobjection. The point had been argued when the Supreme Courtgranted leave to appeal, and the Court, following prior decisionsin Ceylon, held that the decree, which declared the existence of apartnership, was not appealable till the taking of accounts hadshown whether or not an amount of Rs. 5,000 or more was involved,as provided in rule 1 (a) of the rules scheduled to Ordinance No. 81of 1909. The appellant's case did not raise thi6 point; and,as their Lordships are of opinion that it is not an objection ofwhich their Lordships would take notice motu proprio, no furtherobservation need be made upon it.
Ordinance No. 22 of 1866 enacted that English law is the law ofpartnership in Ceylon, but this in no way enlarged or diminished theprior Ordinance No. 7> of 1840. When that Ordinance has beenconstrued, no Court can proceed to modify its effect or restrict itsapplication.
It is described as au Ordinance to provide more effectually forthe prevention of frauds and perjuries. Its object is effected byrequiring certain kinds of transactions to be proved by writing, notby limiting the competency of persons, or by prohibiting or penaliz-ing their acts, or by avoiding certain classes of transactions. Aftera code of formalities for the execution and attestation of wills andsundry deeds and other instruments in twenty sections, it proceedsin section 21 to what is plainly an evidentiary provision with
regard to certain legal proceedings. It enacts that “ no
agreement,, unless it be in writing and signed by the party making
the same shall be of force or avail in law for any of the
following purposes. M The first three purposes are: (1)'charginganyone with another's debt or default, (2) pledging movable propertywithout delivery, and (3) sale of movables without' either deliveryor some .payment. The fourth is “ for establishing a partnershipwhere the capital exceeds one hundred pounds. ”
To this there is a proviso: “ Provided that this shall not beconstrued to prevent third parties from suing partners, or personsacting as such, and offering in evidence circumstances to prove apartnership existing between such persons, or to exclude paroltestimony concerning transactions by or the settlement of anyaccount between partners. ”
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But for the use of the .vord " establishing ’’ as to the purpose 1915*and of the word “ prove ” in the proviso, it could hardly be doubtedthat “ establishing ” means “ establishing by proof ” coram judice. SumnebThe significance of a change of term as importing change of substance,though material, may easily be exaggerated. If at the end of thetrial the Judge had said to the plaintiff, " You cannot succeedunless you establish a partnership, and on the evidence you haveestablished none, ” the mere expression would have been perfectlycorrect. In their Lordships’ opinion the words 44 for establishingu partnership ” clearly apply to the present case, which whsfounded on the allegation of an agreement, not expressed in any writingof which parol evidence was adduced for the purpose of establishinga partnership as the basis of the suit. This agreement, in theiropinion, was of no force, and did not avail in law unless itcould be brought within the proviso. They are unable to acceptthe somewhat unpractical contention that " establishing herespecially refers to cases (if such there be) where the plaintiff seeksto establish bis disputed right to be a partner, and not to caseswhere the parties have acted as if they were partners in fact and
uno dispute has arisen as to their partnership rights or propertyinter tfl.
It is true that the Ordinance says 14 no agreement shall be offorce, ” and not “ no evidence of an agreement shall be of force, ”but this appears to be* a mere verbal distinction. In what sensecould an agreement he of force for establishing a partnership, whichwould effectually distinguish the agreement from the record orevidence of that agreement? It is said that a partnership whichexists in fact, nud d fortiori a partnership which has existed in feet,and has been determined* needs no “ establishing, " a term onlyappropriate to that which exists exclusively in promise and not inperformance. Again, this is only a play upon words. Partnershipis essentially a relation resting in agreement. That agreementmay be- proved or established (if there be no evidentiary law to thecontrary) by proof of an express agreement, written or unwritten,or by proof of such acting as raises the imerence of an impliedagreement; but a partnership, whether in course of performance orwholly spent, is still a matter of agreement, though of agreementcoupled with something more. If agreement once be negatived,there is no partnership at all. However the matter may standwhere an existing or past partnership is admitted, it is equallynecessary to 44 establish ” the agreement upon issue joined in thatregard, whether the partnership alleged to be agreed is, or was, or isto he. The requirement is evidently a binding rule of evidence incourts of law.
As all parties to the suit had been de facto partners, or were thelegal personal representatives of such persons sued as such, onlythe last line of the proviso need be considered. The nuestio** is
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191ft.whether the present is a case of “ parol testimony concerning
^transactions by ** partners, or concerning “ the settlement of any
Suitor account between partners.”
Pole tr. Pate Their Lordships think that the answer must be in the negativeWhere the transaction of which proof is .tendered would be irrelevantif it were not that it is a transaction by a partner proof of it istestimony for establishing a partnership, and if that be not establishedthe proof of the transaction is immaterial. If parol testimonycan always be given concerning transactions by partners, it is noteasy to see what the cases are in which a writing signed by theparty is requisite. Again, if the settlement of any account betweenpartners-means simply a claim upon an account stated, it does notmatter whether the parties to it have been partners or have not.
If there is to be any relevancy in the words “ between partners-”it must be because claims for a partnership account, where thepartnership is neither admitted nor established, are not within theproviso. Thus, just as a third party seeking to make A and Bliable to him as partners may give circumstantial proof of theirpartnership, so, as soon as a partnership agreement has been dulyestablished by writing, parol testimony of the partners' transactionsand settlements of accounts may be given without further documen-tary evidence.
It may be that such an interpretation will restrict the applicationof the proviso to cases which are limited in extent and of infrequentoccurrence. Still, on. the whole, if the law requires certain classesof agreement to be recorded in or evidenced by writing in order toprevent fraud and perjury, the smaller the area of an'exceptiveproviso, the more emphatic is the safeguard against the commissionof these offences. It is plain that the words “ for establishing apartnership ” refer to proof of a partnership generally, for otherwisethe first branch of the proviso would not be an exceptive proviso vat all, but a mere unnecessary warning. The first branch of theproviso refers to the case of strangers to a partnership, who desireto prove, its existence; the second deals with certain mattersarising in proceedings between established partners.
It was urged upon their Lordships that in accordance with acurrent of authority in Ceylon, now of considerable standing, adifferent interpretation should be placed on the words of this section'.In 1871 it was decided in an anonymous case (D. C. Kandy, 52,568 l)that when a partnership had been terminated* and on balance ofaccount one partner claimed a stun to be due to him from another,he might prove his claim by parol evidence under this proviso, ” aswell with regard to the fact that a partnership had existed as withregard to the balance due. ” The reason for this decision is notclear. The Court distinguishes such a case from one in which apartnership has to be ” established,” by describing the latter as a
1 Vandcrstraaten 295.
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case “ where a man seeks to compel another to act as his partner ”
—a description which is very obscure. This case has been followedlobx>
in Ceylon ever since, often with expressed reluctance, and latterly Bumwbbalways on the ground that the decision is binding. Thus, in pate pateSawenna Chetty 0. Kawenna Chetty1 in 1884, Burnside C.J. expressedJiis doubts of it, and in Bawa 0. Mohamado Cassim8 Lias J.supports the case on a supposed distinction between executorycontracts of partnership and contracts which have been partlyexecuted. Later decisions treat the point as ruled by the case inVanderstraaten, viz., Mendis v. Petris, 3 though Burnside C.J.dissented, .Silva v. Nelson4, Annamali Chetty v. 8handts O. B. deSilva v. A. B. de Silva;4 Kanappa Chetty v. Wallathappa ChettytTSingho Appu v. Amarasuriya4 and two later decisions, unreportedof which certified shorthand notes of the judgments were producedto their Lordships.
With all respect to the learned Judges who so read the Ordinancein 1871, their Lordships not only think that their decision waserroneous, but also that even after the interval of forty-four yearsit ought to be over-ruled. The present is not one of those cases inwhich inveterate error is left undisturbed because titles and trans-actions have been founded on it which it would be unjust to disturb.
There can be few partnerships in Ceylon, still in operation orunliquidated, in which writing ha6 l*een dispensed with on thefaith of these decisions. If parties choose to disregard so ordinaryand so simple a formality as the Ordinance requires, there is nohardship in leaving them to take the consequences, nor is it in anycase sound to misconstrue a statute for fear that in particularinstances some hardship may result. That is a matter for theLegislature, not for the Courts. Whenever the law enacts thatthe truth shall be proved by one form of testimony only, and notby all admissible and available forms, there is peril of doingparticular injustice for the sake of some general good, and even ofenabling some rogue to cloak his fraud by taking advantage of astatutory prescription the policy of which was the prevention offraud. This the Legislature must be taken to have weighed beforeenacting the Ordinance. All that remains for judicial determinationis its true meaning.
This decision has made it unnecessary to pursue the issues offact, which were investigated by the Courts below. Their Lordshipswill humbly advise His Majesty that the appeal should be allowed,with costs here and below, and that judgment should be enteredfor the defendants in tire action.
Appeal allowed.
1 Br. 87.
« 6 N. C. R. 92; 8 Br. 136.
*7 N. C. R. 889.
1 8. C. D. 87.
1 6 S. C. C. 119.21 C. L. R. 68.81C. L. R.98.*1 Br. 76.