A father took his son into a farming partnership. The agreement recited that they agreed that ‘the heritable property should be taken as of the value of eight thousand pounds, but which is burdened with a heritable security for three thousand five hundred pounds’. Proper books of account were to be kept. Until 1963 the books of account were prepared on the basis of those values. In 1963 the father sought a declaration that he was entitled to have the capital value of the assets of the partnership entered in the balance sheet at a real and not an arbitrary or notional value.
Held: The issue is one of construction: what did the partners intend by the agreement which they made. Lord Strachan, sitting in the Outer House of the Court of Session, granted the declaration. As to Cruikshank v Sutherland: ‘The fact that Cruikshank was dealing with the share of a deceased partner is not, in my opinion, a material ground for distinguishing it from the present case. Similar issues are involved in this case, because under clause seventh of the contract a retiring partner or the representatives of a deceased partner are to be paid the sum at his credit as shown in the last preceding balance sheet. The same issues are therefore raised, but ab ante. It was argued for the defender, however, that there is vital distinction between Cruikshank and the present case in respect that the agreement that the heritable property is to be taken as of the value of andpound;8,000 laid down a definite figure which was to be adopted in preparing the accounts and that it therefore cannot be said that the contract is silent as to the principle to be adopted in entering the heritable property. That point is the crux of the case, and with some hesitation, I have come to the opinion that the narrative references in the contract and the disposition cannot reasonably be read as meaning that the figure of andpound;8,000 was to be entered in every balance sheet. It was a figure which was agreed for the purpose of fixing the capital of the company but on a construction of the whole deeds I find insufficient warrant for holding that it was intended to be a permanent valuation to be entered in every balance sheet. If that were so, a retiring or deceased partner would have no share whatever in any increase in the market value of the property, and if such an apparently unfair result had been intended, I think it would have been provided for in the eight clauses in which the terms and conditions of the partnership are reduced to writing, and would not have been left to be inferred from the narrative clauses. In my opinion, therefore, the contract is silent as to the principle to be adopted in framing the balance sheet, and Cruikshank is not distinguishable on that ground.’
Lord Clyde: ‘In my opinion the provision requiring the keeping of proper books annually balanced and regularly audited requires the inclusion in the balance sheet of the assets of the partnership at their true value at the end of the year in question. The language of cl.6 of the contract of co-partnery will not therefore be complied with if any of the assets, one of which is the farm itself, is entered at a mere nominal value which was fixed by agreement between the parties when the contract was made. I can find nothing in art. 6 of the contract to support the view that the value of the farm itself – the main asset – was to be frozen year by year at a constant figure throughout the partnership . . . It was contended by the defender that in solicitors’ partnership agreements it is quite common to provide that the heritable property in which the business is carried on should be entered at a constant figure in the balance sheets of the partnership throughout its term. It is of course quite legitimate for parties to make such a provision, but clear language to that effect is essential. There is no such provision in the present case.’
Lord Migdale: ‘As I understood their arguments counsel on both sides are agreed that it is always open to partners to provide that an asset acquired by the partnership should continue to appear in the partnership books at its original value. The question raised here is not whether it can be so agreed but whether in this case it was so agreed.’
Judges:
Lord Migdale, Lord Strachan, Lord Clyde
Citations:
[1965] SLT 415
Jurisdiction:
Scotland
Citing:
Cited – Cruikshank v Sutherland HL 1923
The executors of a deceased partner of the respondents sought relief. The assets had been taken over from an earlier partnership between the parties and had been brought into the accounts of the new partnership at the values at which they had stood . .
Cited by:
Cited – In Re White (Dennis) Deceased; White v Minnis and Another CA 25-May-2000
A family partnership had carried freehold property at its historic cost value in the books, rather than at a market value. After the death of one partner the share came to be valued.
Held: Being a family partnership there was presumption that . .
Cited – In Re White (Dennis) Deceased; White v Minnis and Another CA 25-May-2000
A family partnership had carried freehold property at its historic cost value in the books, rather than at a market value. After the death of one partner the share came to be valued.
Held: Being a family partnership there was presumption that . .
Appeal from – Noble v Noble IHCS 26-Jan-1966
. .
Cited – Thom’s Executrix v Russel and Aitken 1983
The court was asked as to how the value of the interest of a deceased partner was to be calculated.
Held: There had been prior dealings at book value as between the partners, and the payment of the deceased partner’s share was restricted to . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 07 July 2022; Ref: scu.238858