Scottish Court of Session Decisions

This was action of declarator of partnership brought by the Clippens Shale Oil Company and two of the then partners in that company against James Scott and Thomas Inglis Scott. The company was formed by deed of copartnery dated 18th and 22d July 1871 between Robert Binning and John Binning, who were the pursuers in this action, and Thomas Inglis Scott, who was called as a defender for his interest. His father, James Scott, the defender in this action, was a party to this contract only as the legal guardian of his son.

The pursuers averred that James Scott, the father, entered on the management of the business of the Company, superintended their manufacturing operations, and entirely managed their financial transactions, supervising payment of accounts, arranging with bankers for payment of monies required, and prescribing the manner in which the books of the company were to be kept. It was also averred that he extended the works largely, and took a leading part in the selection of officials and servants. The leading averment was in the 2d article of the condescendence—that “Although Thomas Inglis Scott was the ostensible partner of the company, the defender James Scott was really the party who became partner, and implemented the obligations nominally undertaken by Thomas Inglis Scott.” On the suggestion of the Lord Ordinary the following minute of amendment of this article was prepared: —“At the time when the contract was signed the pursuers believed that Thomas Inglis Scott was to be their partner, but immediately thereafter they discovered, that although Thomas Inglis Scott was the ostensible partner of the company, the defender James Scott was really the party who became the partner and implemented the obligations nominally undertaken by Thomas Inglis Scott. As soon as the contract was entered into Thomas Inglis Scott left for the Continent, and did not enter on the duties which devolved upon him under the contract, or proceed to qualify himself for assuming and taking charge of the works, as he was by the express terms of the contract bound to do. James Scott thereupon at once took up the position of being a partner in lieu of his son, and he was accepted as such by Robert Binning and John Binning, and they along with him, as copartners, have all along carried on the business of the Clippens Shale Oil Company upon the footing (as was the fact) that he was a partner of the company under the contract.” For the reasons stated by the Lord Ordinary in his opinion he did not allow this amendment to be put in.

Both defenders pleaded that the averments of the pursuer were irrelevant, and the Lord Ordinary pronounced an interlocutor sustaining that plea and dismissing the action.

“ Opinion.—The purpose of the action is to have it declared that the defender James Scott is, and since 22d July 1871 has been, a partner along with the pursuers under a contract of copartnery of that date. The contract, which is in the form of a probative deed, bears that the partners are the pursuers and Thomas Inglis Scott, and that the partnership shall endure, on the terms specified as agreed to, till 1st August 1885, being held to have commenced on 15th May 1871. As the effect of the decree of declarator concluded for would be to displace T. I. Scott from his position as a partner under the deed, and to put the defender in his place, he is called, and has appeared, as a party for his interest.

In support of the action the pursuers aver (cond. 2) that ‘although T. I. Scott was the ostensible partner of the company, the defender James Scott was really the party who became the partner and implemented the obligations nominally undertaken by T. I. Scott.’ This, which is the leading averment, is followed by detailed averments regarding the defender's conduct in relation to the business of the company, from which it appears that he took an active charge of the business, so active indeed that, being also injudicious, the concern has in consequence been involved in great pecuniary difficulties.

The pursuers asked a proof of their averments, which the defender opposed on the plea of irrelevancy. The question for decision accordingly is, whether or not the pursuers' averments are such as ought to be admitted to proof.

The pursuers argued that a contract of co-partnership was proveable by parole, and might even be inferred from the conduct of parties. The defenders, conceding this as a true general proposition, contended that it was here inapplicable because of the deed of partnership, which

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the pursuers were not at liberty to discredit and contradict by parole evidence, to the effect of shewing that while in terms contracting with T. I. Scott, and he with them, the reality was otherwise, the contract being in truth between them and the defender, and that the name of T. I. Scott was inserted in the deed as a deception for some purpose unexplained. The counsel for the pursuers contended that the deed might be so contradicted, and I do not see how the conclusion whereby it is asked that the defender shall be declared a partner under it, and to have been so from its date, could with reference to the averments, which are to the effect that the parties had so intended and agreed from the first, be otherwise maintained.

I am clearly of opinion that the deed of partnership cannot be so contradicted. It may be, and probably is, true that the defender meant to secure to himself or his son (it don't signify which) such benefits as the partnership might yield, without exposing himself to the corresponding risk, and that with this view he induced the pursuers to take his son, who was a minor, and probably dependent on him, as their partner under the deed, and at the same time to allow him (the father) to take a part in the management of the business. The device would, of course, be unavailing to save the defender from liability to third parties dealing with the company in the belief, justified by his conduct, that he was a partner; but the question is very different when it occurs with the pursuers, who agreed to take the son as their partner, and that for whatever reason, good or bad, but agreed to by them as satisfactory, the defender should not be their partner. This is the effect of the deed which they executed, and it is plain that the meaning and intention of taking the minor son, and not his father, as the partner in the concern, was to save the father from liability as in a question with themselves, for it could not affect strangers.

It was for them to consider whether they would agree to this or not, but having agreed to it they cannot now repudiate it or prove by parole an agreement that the father was to be bound to them just as if his name, and not his son's, had been inserted in the deed.

I have said that the defender would be liable to third parties on proof that he so acted in the business as to warrant the belief that he was a partner. Such liability does not, like liability inter socios, rest on the fact of partnership, but on conduct which induces reasonable belief, although it may be contrary to the fact. Inter soeioe partnership is always a pure question of contract, while liability as a partner to strangers may be, and frequently is, irrespective of any contract constituting partnership, and may exist notwithstanding of the clearest evidence that the party liable never was, or had long ceased to be, a partner.

I suggested in the course of the discussion that the case might stand very differently on an averment that, subsequent to the execution of a deed of partnership, a verbal agreement had been made whereby T. I. Scott had retired from the company and the defender had agreed to become, and had been accepted as, a partner in his room and place, and that this subsequent agreement had been acted upon. The pursuer's counsel asked time to inquire and consider whether he I could propose an amendment of the record to this effect. The result is the minute No. 9 of process. I cannot, however, regard it as an amendment to the effect suggested, or other than a statement in somewhat different, but not more distinct, language of the case presented by the record, viz., that while the pursuers by deed contracted with the defender's son they verbally contracted with the defender himself, who, on parole proof to that effect, should be held liable just as if the written contract had been with him. I do not therefore see fit to allow the amendment, and on the whole matter must feel constrained to sustain the plea of irrelevancy, and dismiss the action.”

The pursuers reclaimed, and were allowed by the Court to put in the foregoing minute of amendment on payment of £5, 5s. of expenses.

Argued for them—It was perfectly competent to prove verbal alterations on a written contract if followed by rei interventus, prout de jure. That was the principle of the Bargaddie case ( Wark v. Bargaddie Coal Company, 6th March 1856, 18 D. 772; reversed in H. of L. 15th March 1859, 21 D. p. 1.) and of Sutherland v. The Montrose Shipping Company, 22 D. 665. Now, the actings here averred were of such a nature that they could only be explained by referring them to some verbal agreement. Besides, it was sufficiently averred in the statement that James Scott was accepted as a partner by the pursuers. The judgment of the Lord Ordinary proceeded on the assumption that the pursuers wished to lead proof to contradict the written contract. That was not so. James Scott was not individually interested in the contract, and was no party to it. Such facts and circumstances as were here averred would certainly be sufficient in the ordinary case to establish a partnership, and it was only on the assumption that the pursuers wished to destroy the written contract that the Lord Ordinary's judgment was founded; but no alteration of the contract was proposed, and therefore this was a stronger case than either of those quoted; proof therefore prout de jure was competent.

The defenders were not called upon.

At advising—