Unlawful Consideration and Object

EQUIVALENT CITATION


(1860) 8 HLC 268


BENCH


LORD CRANWORTH & LORD WENSLEYDALE


RELEVANT ACT/ SECTION


The Indian Partnership Act, 1932


BRIEF FACTS AND PROCEDURAL HISTORY


Under the name of B Smith & Son, Benjamin Smith and Josiah Timmis Smith carried on a business of iron and maize traders. They owed large amounts of money to the creditors of the company. A meeting was held between S & S and the creditors that included Cox and Wheatcroft. They executed a deed of arrangement in favor of the creditors. The party to the first part of the deed was S & S; to the second part were five creditors including Cox and Wheatcroft. The party to the third part of the deed were the general body creditors of S & S. The party to the second part was to carry the business under the name of The Stanton Iron Company as a trustee. This deed also contained a provision that stated that they would not sue Smiths for their debts. Cox never acted as a trustee; Wheatcroft had resigned six weeks later after the deed. No other trustees were appointed in place of Cox and Wheatcroft.


Hickman – a businessman, drew three bills of exchange for the goods supplied to him after Wheatcroft had resigned. These bills were received on behalf of the Stanton Iron Company by one of the three creditors. Hickman sued Cox and Wheatcroft and stated that they both were liable because they were the original parties to the second part of the deed.
The case was tried before Lord Jervis, who ruled it in favor of the defendants. The action went to the Exchequer Chamber, where three judges wanted to reverse the decision, whereas the other three judges asked to uphold the judgment.


ISSUES BEFORE THE COURT


Is there any partnership between the merchants who were in the essence of the creditors of the company?


RATIO OF THE CASE


The argument that mere sharing of the profits constitutes the partnership is a misconception. The right to share the profits does not cause liability for the debts of the business.
The fact that the business was carried on by the person acting on his behalf is the actual ground for the liability.


DECISION OF THE COURT


The execution of the deed did not make the creditors partners in the Stanton Iron Company. The deed is only an arrangement to pay debts out of the existing and future profits. The creditors were given special powers as per the deed. To make rules to carry out the trade and to decide whether to continue the business. The creditors let the trustees carry out the trade instead of them. This act of the creditors did not make them partners. The trustees would not have accepted the bills of exchange if the creditors had chosen to carry out the trade. The agreement did not constitute the relations of partners between the creditors and trustees. Therefore, the creditors are not liable because they are not the principals of the trustees. However, the trustees are liable because they are the agent of the contract.
Hence, the defendants are not held liable and overturned the decision of the Court of Common Pleas.

The case analysis has been done by Gracy Singh, a student of 2nd Year BA.LLB (Hons.) from Mody University of Science and Technology, Lakshmangarh, Rajasthan.

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