By an agreement entered into by four parties-A, B, C, and D-it was provided that A and B should advance respectively to C and D, in equal proportions, the capital required to start and carry on a business for a period of three years. A’s advance to C was expressly a loan, but B’s advance to D was expressed to be on behalf of D without any obligation for repayment either by C or D.
C was declared to be the sole partner, in the meantime, of the business, and it was agreed that he should manage the finances, while B was to be manager of the works. Beyond a right of inspecting the books, and co., A and B were to have no concern with the management of the business.
It was provided that the profits, after payment of salaries to C and D, and interest on the sums advanced by A and B, should be accumulated for three years, one-half to the credit of C and one-half to the credit of a ‘suspense account,’ and the losses were to be debited in the same way, so that at the end of the three years’ trading the balance of profit or loss, as the case might be, would stand to the credit or debit of these two accounts. A and B had the power to require, at any time during the three years, that the balance at the credit of these two accounts should be applied to repayment of the capital advanced by them. One-half, both of the accumulated profits as represented by the suspense account, and of the assets of the firm, was at the absolute disposal of B at the expiry of the contract, and he had similar rights both in the profits and the assets in the event of the business being wound up during the three years.
It was agreed that at the expiry of the three years B should be entitled to call upon D to take C as a partner, B’s share in the assets and the accumulations in the suspense account being made over to D.
Held (aff. the judgment of the First Division) that these provisions showed that the business was carried on by and for behoof of B, and that he was liable as a partner.
Lord Chancellor (Halsbury) and Lords Watson, Shand, and Davey
[1899] UKHL 619, 36 SLR 619
Bailii
England and Wales
Company
Updated: 12 November 2021; Ref: scu.631834