WEESASO OB.IYA, J.—Rajasekaram v. Rajaralnam
Present: Weerasooriya, J., and Sansoni, J.RAJASEKARAM, Appellant,' and RAJARATNAM, RespondentS. C. 515—i>. C. Point Pedro, 4323fM
Partnership—Difference between partnership and co-ownership—Equality of shares ofpartners not essential—Capital over Rs. 1000—Absence of agreement in writing—Admissibility of parol evidence—Death of partner—Continuation of businessby surviving partners—Failure to agree in writing—Effect—Prevention ofFrauds Ordinance (Cap. 57), s. 18.
A business cannot be a partnership as well as a co-ownership at the same' time.
A partnership may in law exist even if the shares of the partners in thebusiness are not equal. The rule that the shares of partners are equal is onlya prima facie one, to be applied in the absence of an express agreement to thecontrary or circumstances from' which an agreement to the contrary may beimplied.
The absence of an agreement of partnership as required by section 13 of thePrevention of Frauds Ordinance will not preclude a partner, as defendant,from adducing parol evidence of the partnership in order to prevent anotherpartner, as plaintiff, from maintaining an action for an accounting or otherrelief on the false basis that the business is a co-ownership.
Where a partner dies bequeathing his share of the business to one of thesurviving partners who subsequently carry on the business with the self-sameassets on the basis of a partnership, but without complying with the imperativeprovisions of section 13 of the Prevention of Frauds Ordinance, it cannot becontended that there is a co-ownership as between the surviving partners.
It cannot be said of a partner that he owns any portion of the assets andgoodwill of a particular branch of the business,
.^^lPPEAL from a judgment of the District Court, Point Pedro.
S. Nadesan, Q.G., ■with C. Ranganatkan and F. Ratnasabapathy, fordefendant-appellant.
S. V. Per era, Q.G., with T. Arulananthan, for plaintiff-respondent.
January 20', 1958. Weebasooriya, J.—
The plaintiff-respondent and the defendant-appellant are the- sons- of -one. Veeragafchipilla-i who. carried qn business as a trader, .money-lenderand pawn-broker under.the name of S. V. at Point Pedro with a branchat Jaffna. In 1929, Veeragathipillai gifted a one-third share in the15—LSI
nJ. 2T. B 21245—1,995 (2/60)
WEERASOORXYA, J.—Rajasskaram v. Sajaratnam
business to each of the two sons and the business was thereafter carriedon by the father and the sons under the name of S. Veeragathipillai andSons, as appears from a declaration dated the 14th October, 1933, andsigned by them of which P36,~D3 and D3A purport to be translationsand according to which each of them was entitled to a one-third sharein the business. VeeragathipiUai died on the 3rd December, 1933,leaving a last will whioh was admitted to probate and under which hebequeathed his one-third share in the business to the plaintiff, who wassome 18 years older than the defendant. Consequent on the death ofVeeragathipillai, the plaintiff hied the declaration P2 dated the 19thNovember, 1934, under the Business Names Registration Ordinance(Cap. 120) setting out, as far as was necessary for the purpose of thatOrdinance, the altered constitution of the business and describinghimself and the defendant as the partners of the him as from the 3rdDecember, 1933.
The evidence shows that until the year 1947 the plaintiff and thedefendant carried on the business on the footing that the plaintiff wasentitled to a two-thirds share and the defendant to a one-third share.The plaintiff’s case is that it was on the same footing that the businesscontinued to be carried on until June 1952 when the defendant claimedthe sole ownership of the Jaffna branch, of which he was in charge, andthus gave rise to the cause of action pleaded in the plaint, which has beenframed on the basis that the relationship subsisting between the partiesin respect of the business is one of co-ownership.
The substantial defence taken by the defendant is that the business ascarried on by him and the plaintiff is a partnership and not a co-ownership,that although the capital of the partnership was over Rs. 1,000 noagreement in writing and signed by the partners as required by section 18of the Prevention of Frauds Ordinance (Cap. 57) was entered into andthe present action is, therefore, not maintainable. There is a finding bythe learned trial Judge, which is supported by ample evidence, that atall times material to this action the capital of the business was far inexcess of Rs. 1,000 and this finding was not canvassed at the hearing ofthe appeal. It is common ground that there is no agreement in writingas- required by the relevant provisions of section 18 of the Preventionof Frauds Ordinance in respect of the business carried on by the plaintiffand defendant after their father’s death. It would seem to follow,therefore, that if that business is a partnership the plaintiff would beprecluded by the same provisions from maintaining any action againsthis other partner, the defendant, in which the existence of the partnershipwould have to be established as the basis of the suit, nor could he cir-cumvent those provisions by instituting an action framed on the colour-able footing that the business is a co-ownership. The question whetherthe business is a partnership or a co-ownership is, thus, of vitalimportance to the decision of this case.
For ther purpose of deciding that question it is necessary to consider*certain evidence adduced at the trial which has a bearing on it. I have*already referred to the declaration P2 in which the plaintiff describedjjimsp.lf and the defendant as the partners of the business that was
WEERASOORIYA, J.—Hojaaekaram v. Sajaratnam
carried on after the 3rd December, 1933. Annexed to the plaint in thiscase is a financial statement (also produced in evidence marked PI6) ofthe business for the year ending the 31st December, 1950. There aresimilar statements for the years 1946 (P11B), 1947 (P17), 1948 (P14) and1949 (P15). AH these statements have been prepared on the basis thatthe business is a partnership. In P11A dated the 28th April, 1949,which is a communication sent by the plaintiff to the Controller ofImports applying for the inclusion of the name of S. Veeragathipillai andSons in the list maintained by the Controller for the issue of importlicences, the plaintiff has described himself and the defendant as thepartners of the firm and given the capital contribution of the twopartners as Rs. 600,000 and Rs. 300,000. In the year 1945 the letterD26 was signed and addressed by the plaintiff and defendant to the Bankof Ceylon describing themselves as the “ individual partners ” of thefirm of S. Veeragathipillai and Sons and requesting and authorising theBank to honour all cheques, orders, bills and receipts signed by any oneof them in the name of or on behalf of the firm. D21 to D24 are someof the cheques which were drawn on the Bank of Ceylon in the ordinarycourse of business by the firm of Veeragathipillai and Sons and signed bythe plaintiff as partner. DIO dated the 7th March, 1950, is the plaint inan action instituted by the plaintiff and the defendant as partnerscarrying on business as S- Veeragathipillai and Sons.
Towards the end of 1951 differences arose between the plaintiff and thedefendant which culminated in the present action. As a result of thesedifferences the plaintiff seems to have been at pains on occasions tostress his position as the senior partner of the firm. He has so describedhimself in his letters D6 dated the 8th May, 1952, D13 dated the 14thMay, 1952, D15 dated the 23rd May, 1952, and D25 dated the 7th May,1952. Qn the 7th June, 1952, the defendant, in pursuance of an agree-ment alleged by bim in bis evidence to have been entered into betweenhimself and the plaintiff (which evidence, however, was rejected by thelearned District Judge), made the declaration P4 under the BusinessNames Registration Ordinance. According to P4 the plaintiff ceased tohe a partner of the firm of S. Veeragathipillai and Sons as from the 6thJune, 1952, and the defendant became the sole proprietor thereof. Thisdeclaration was made without the concurrence or knowledge of theplaintiff but when he came to learn of it shortly afterwards, he sent tothe Registrar of Business Names the letter P9 protesting that he wasstill a “ two-third shareholder of the business In the affidavit P9awhich accompanied P9 the plaintiff, while claiming to be “ the ownerand proprietor of the two-third share ”, also asserts that the declarationof the defendant that the plaintiff had ceased to he a partner on the 6thJune, 1952, is false.
There is also the evidence of Alagasunderam, the hanakapulle, anemployee of the firm since 1928 and who was called as a witness by theplaintiff, that the business has been carried on as a partnership and theprofits ascertained from time to time and divided between, the partners.In giving this evidence he did not differentiate between the periods priorto and subsequent to the death of Veeragathipillai in 1933.
WEEBASOOiinrA, J.—BajaseJcaram v. Bajaratnaatv-
Although the learned District Judge seems to have felt the cumulativeforce of the evidence outlined "by me as indicating a business carried onin partnership since 1933, it would appear from his findings, read withthe answers given-hy-brm to the specified issues relevant to the question,that he thought that co-ownership also of the business could not heexcluded. No authority, however, is given by him, nor was any citedbefore us, for the proposition that a business can be a partnership aswell as a co-ownership at the same time.
The principal reason that appears to have induced the trial Judge totake the view that co-ownership could not be excluded in regard to thebusiness carried on after Veeragathipillai’s death is that the shares ofthe plaintiff and the defendant in the business and the division of theprofits between them were in the proportion of two-thirds and one-thirdrespectively and that the inequality of shares is inconsistent withpartnership. It is clear, however, from section 24 of the “EnglishPartnership Act, 1890, that the rule that the shares of partners areequal is only a prima facie one, to be applied in the absence of an expressagreement to the contrary or circumstances from which an agreement tothe? contrary may he implied.
The inferences to be drawn from the evidence relating to the nature ofthe business carried on after the death of. Veeragathipillai are matters inrespect of which this Court is not in a less advantageous position thanthe Court of trial. The plaintiff and the defendant gave conflictingversions on the point but neither of them can he described as a reliablewitness and the District Judge had ample grounds for ignoring theirevidence (as he seems to have done). One is then left with the evidenceof the accountant Kumaraswamy, the kanakapulle Alagasunderam andthe documentary evidence. Mr. Nadesan who appeared for the appellantrightly stressed the almost insuperable difficulties in the way of abusiness such as that offthe plaintiff and defendant being conducted as a. co-ownership; nor has any special reason been disclosed as to whydespite these difficulties the plaintiff and the defendant should havedecided^ while ostensibly carrying oh business as partners, that their real’ relationship should he one of co-owners.
In my opinion the learned District Judge was wrong in holding on theevidence that the business was also a co-ownership. I think no con-clusion other than that the business is a partnership is reasonably possibleon that evidence.
In view of this finding the only other question which arises for decisionis whether the plaintiff’s action is maintainable. Mr. H. V. Perera whoappeared for the plaintiff readily granted that if the business is indeed apartnership the plaintiff would not he able to maintain an action on_thefalse basis that the business is a co-ownership. He submitted, however,that in law the business was never a partnership, that from its inceptionafter Veeragathipillai’s death the business was carried on by the plaintiffand the defendant as co-owners and thtir relations continued'to he suchthroughout. To put Mr. Perera’s argument shortly, on the death ofVeeragathipillai in 1933 the plaintiff and the defendant became co-ownersof the stock-in-trade and other assets of the business which had been
WEBRASOORIYA, J.—Rajasekaram v. Rcijaratnam
carried on tip to that point of time by the three of them; and that asregards the new business which was carried on subsequently by theplaintiff and the defendant with the self-same assets, even if they pur-ported to do so on the basis of a partnership, no such relationship couldin law have come into existence because of non-compliance with the-imperative provisions of section 18 of the Prevention of FraudsOrdinance. Hence the relationship of co-owners, which existed at theinception of the new business, was never superseded by, or merged into,a valid partnership.
For this argument Mr. Perera relied on the wording of the relevantprovisions of Section 18 of the Prevention of Frauds Ordinance and onwhat, in his contention, is the interpretation of those provisions by theJudicial Committee of the Privy Council in Pate v. Pate K But that wasa case where the action was founded on an allegation of a partnershipand although there was no written agreement of the partnership asrequired by Section 18, parol evidence had been adduced on the plaintiff’sbehalf at the trial for the purpose of establishing the partnership as thebasis of the suit. I do not think that the decision in that case wentbeyond laying down, as explained by Gratiaen, J., in The Commissionerof Income Tax v. Allaudin a that " apart from cases to which the provisoapplies, the existence of a partnership (whose capital exceeds Rs. 1,000)'cannot in the absence of a written agreement be established * as the basis <of a suit ’, or, to put it in another way, as the foundation of a claim inproceedings before the appropriate tribunal vested with jurisdiction inthe matter”. He, therefore,- held that in proceedings on a case statedunder the Income Tax Ordinance (Cap. 188) the Assessor was notprecluded from proving a partnership for the purpose of resisting theassessee’s claim to have the assessment reduced upon a false hypothesis.
In Balasvbramaniam v. Valliappar Chettiar 8 it was held that even inan action between two partners one of them might lead evidence toprove the existence of the partnership (in regard to which there was noagreement in writing as required by section 18 of the Prevention ofFrauds Ordinance) by way of defence against the other partner’s actionfor an accounting on the basis that their relationship was one of principaland agent. Keuneman, J., pointed out in that case that if in suchcircumstances a defendant is not allowed to adduce evidence of thepartnership “ a ready means would be available for a dishonest plaintiffso to frame his action as to escape the effect of section 21 ” (nowSection 18 of the Prevention of Frauds Ordinance). So also, in Toosoofv. Hassan 4 the absence of an agreement of partnership as required bysection 18 was held not to preclude the defer dant, as a partner, fromadducing parol evidence of the partnership in order to defeat the claimof the plaintiff which was based on the allegation that the defendant wasonly a manager of the business.
did not understand Mr. Perera to question the correctness of thesedecisions. As I stated earlier, he was prepared to concede that if, as thedefence alleged in the present case, there was in reality a partnership
1 (1915) 18 N. L. R. 289.3 (1938) 39 N. L. R. 553.
3 (1953) 54 N. L. R. 385.4 (1944) 45 N. L. R. 137.
*J. N. B, 21245 (2/60)
WEEHtASOOB.HrA, J.—Rajaaekaram, v. Rajaratnam
between, the plaintiff and the defendant, the plaintiff would not be ableto maintain an action for an accounting or other relief on the false basisthat the business is a co-ownership. But it seems to me that thesedecisions cannot be regarded as correct if Mr. Perera’s argument is to beaccepted that non-compliance with section 18 of the Prevention ofFrauds Ordinance has the effect that even if parties purport to carry onbusiness on the basis of an informal agreement of partnership, no suchrelationship is created in law. Since partnership is essentially a legalrelationship, there would be no meaning in having held in these casesthat a defendant may, within the limits laid down in them, adduceevidence of a non-existent partnership. The proviso to Section 18contemplates the existence of a partnership, with its legal incidents,notwithstanding that the agreement is not in writing and signed by theparties making the same. 3h my opinion, non- compliance with Section 18does not prevent the creation of the partnership. All that it does is toprevent evidence of the partnership being adduced in certain circums-tances.
It was, accordingly, competent to the defendant in the present case toshow that the business between himself and the plaintiff did not con-stitute a co-ownership but is a partnership. The evidence relating tothe nature of that business I have already discussed. Even if on thedeath of Veeragathipillai and the consequent dissolution of the businesswhich was carried on by him along with the plaintiff and the defendant,it be assumed that by some legal process (which is not very dear to me)the plaintiff and the defendant became co-owners in the stock-in-tradeand other assets of that business, it remains to be considered whetherthey can he regarded as co-owners of the new business that commencedthereafter. The evidence of Alagasunderam is that after Veeragathi-pillai’s death on 3rd December, 1933, business was suspended until the7th December, 1933, when business was resumed with all the cash,stock-in-trade and other assets which comprised the old business as onthe 2nd December, 1933. This evidence is supported by the entries inthe ledgers D30 and D31. It is clear, therefore, that all the assets ofwhich the plaintiff and defendant were co-owners (assuming that to betheir position originally) were brought by them into the partnershipbusiness (as already held by me) which commenced on the 7th December,1933. Section 20 (1) of the English Partnership Act, 1890, provides,inter alia, that property brought into the partnership stock is partnershipproperty and must he held and applied by the partners exclusively forthe purpose of the partnership.
A volume of evidence was led at the trial regarding the nature of thebusiness which was carried on by the plaintiff, the defendant and theirfather prior to the father’s death. The plaintiff’s case is that after hisfather gifted a one-third share of the business in 1929 to each of theplaintiff and the defendant the business was carried on by the three ofthem in co-ownership. Although the trial Judge held with him I amfax from convinced that the plaintiff, on whom the burden lay, hasestablished that at any point of time during the relevant period he andthe defendant stood in the position of co-owners in respect of the business
Rajammal v. JBalaaubramaniyam Kurukai
and if the occasion had arisen for the matter to be considered in appealit would have become necessary to review the learned Judge’s decisionin the light of all the evidence relevant to that question.
On the basis of the trial Judge’s findings that the business carried onby the plaintiff and the defendant since 1933 is also one of co ownership,he has held that the plaintiff is entitled to an accounting on the footingof a constructive trust arising under section 96 of the Trusts Ordinance(Cap. 72) in respect of the plaintiff’s two-thirds share in the businesscarried on at the Jaffna branch. No argument was addressed to us byMr* Perera that if the business is a partnership and not a co-ownership,the plaintiff is entitled to any relief on the basis of a constructive trustby virtue of section 90 or section 96 of the Trusts Ordinance. In myopinion no such relief can be given to the plaintiff under the action asconstituted. The only reference in the plaint to a trust is in para-graph 8 of it where the averment is that the defendant is holding the“ business carried on at Jaffna, the assets and goodwill thereof, in respectof a 2/3rd share in trust for the plaintiff”.
It is clear that in the case of a partnership it cannot be predicated of apartner that he owns any portion of the assets and goodwill of thebusiness since what is meant by the share of the partner is “ his proportionof the partnership assets after they have all been realised and convertedInto money and all the partnership debts and liabilities have been paidand discharged ” (Handley on Partnership, 11th ed., Bk. 3, Ch. v, p. 427).Still less can it be said of a partner that he owns any portion of the assetsand goodwill of a particular branch of the business.
For reasons given by me the judgment and decree appealed from mustbe set aside and the plaintiff’s action dismissed with costs here and inthe Court below.
Sausohi, J.—I agree.