Scottish Court of Session Decisions

In 1871 a partnership was entered into between Mr Thomas Aikenhead and Mr Robert Taylor, but in the letter of agreement constituting it it was stated that the name of Mr Robert Taylor merely stood for that of a Mr Robert Sinclair, who was the true partner of the concern. The business of the copartnery was carried on from that date till 9th December 1874 by these two gentlemen under the firm-name of Thomas Aikenhead, when the partnership was dissolved by written agreement between the parties. This dissolution was not advertised. Mr Thomas Aikenhead from that date carried on the business on his own account and under his own name until 7th May 1875, when the following circular was issued to all his customers and creditors:—

“Sir,—I beg to inform you that I have taken into partnership my brother-in-law Mr Allan Watt, who has been some time with me, and that the business of manufacturer, at present carried on by me on my own account, will for the future be carried on by me and my partner under the firm of T. Aikenhead & Co.—I am, yours respectfully,

“ Thomas Aikenhead.

“Mr Aikenhead will sign

“T. Aikenhead & Co.

“Mr Watt will sign

“T. Aikenhead & Co.”

The firm name of T. Aikenhead & Co. having then been adopted, the business was carried on under it until April 1877, when the firm became bankrupt. Sequestration was awarded of the company's estate, and of that of Thomas Aikenhead as a partner and individual, on 20th April of the same year, and Mr Mann, the pursuer, was appointed trustee in the sequestration.

In these circumstances the pursuer raised an action against Robert Sinclair, to have it found that Robert Sinclair was at the date of the sequestration a partner of the firm of T. Aikenhead & Co., and of Thomas Aikenhead, in the business carried on by him under the name of the firm, and was liable to the creditors of the firm in the full amount of the debts due to them at the date of the sequestration. It was pleaded that the defender was really a partner of the firm of Aikenhead & Co.; or, secondly, that even were he not a partner, he was liable for the company's debts as if he were, because the dissolution of his partnership was never advertised or made known to the customers of the concern. A proof was led, and it was clearly shown in evidence by the minute of dissolution, &c., that the defender was not a partner, and never had been a partner of the firm of T. Aikenhead & Co. Further, all the creditors except one who were examined admitted to having received the above-quoted circular, although it also appeared that some of them were aware that Sinclair had been in partnership with Thomas Aikenhead.

The Lord Ordinary ( Young), on 18th July 1878, pronounced an interlocutor assoilzieing the defenders, and added the following note:—

“ Note.—The pursuer is trustee on the sequestrated estates of T. Aikenhead and Company, and of Thomas Aikenkead as a partner of that company and as an individual, and he sues in that capacity. He concludes for declarator that the defender Robert Sinclair ‘was at and prior to the said sequestration a partner of the said firm of T. Aikenhead & Company, and of the said Thomas Aikenhead in the business carried on by the said Thomas Aikenhead under the name of the said firm, and is liable to the whole creditors of the said firm, and of the said Thomas Aikenhead as a partner thereof, in the full amount of the debts due to the said creditors respectively at the date of the said sequestration,’ and for decree against him for the amount, viz., £6785, 15s.

It is proved, and indeed admitted, that the defender and Thomas Aikenhead formed a partnership in 1871, the terms being regulated by a deed of agreement, in which the name of Robert Taylor stands for that of the defender. Taylor was (and I presume is) the defender's partner in his other business, and the reason for using his name in the contract with Aikenhead is stated in a letter quoted in the condescendence. The reason may be satisfactory or not, but the fact is not disputed, that the contract was truly with the defender. Under it the business was carried on in the name of Thomas Aikenhead till 9th December 1874, when the partnership was dissolved by written agreement between the parties of that date, the dissolution, however, having effect from 1st November preceding, being the day after the last balance was made. I avoid further details of the deed of partnership and agreement of dissolution, which I think are immaterial. It was admittedly intended that the partnership should be secret, and that Thomas Aikenhead should be the only ostensible trader. The minute of agreement provides that the dissolution shall be advertised, but it was not. Thomas Aikenhead thereafter carried on his business as a sole trader, and in his individual name (as before) till May 1875, when he assumed his brother-in-law Mr Watt as a partner. The firm of T. Aikenhead & Company was then adopted, and the business thereafter carried on by these two partners under it till April 1877, when the firm became bankrupt. Sequestration was awarded of the estate of the company, and of Thomas Aikenhead as a partner and individual, on 20th April, no account being taken of the individual estate of Mr Watt, probably because he had none.

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On these facts the pursuer contends that the defender was really a partner of the bankrupt company at the date of sequestration, and that although he was not, he is nevertheless liable for its debts as if he were, in respect of his partnership with Thomas Aikenhead, the dissolution of which was not advertised or notified to the customers who continued to deal with Thomas Aikenhead thereafter. The defender disputes the pursuer's title to sue, ‘at least’ on the latter ground, and also maintains that the action is untenable on its merits.

Being of opinion on the evidence that the defender was not in fact a partner of the bankrupt firm, or of Thomas Aikenhead in the business carried on by him ‘under the name of the said firm,’ ‘at and prior to the said sequestration’ (I quote from the declaratory conclusions of the summons), it is unnecessary that I should decide upon the title of the pursuer to sue on an opposite assumption.

The bankrupt company was formed in May 1875, and the formation of it notified by the circular quoted in the condescendence. Of this company the defender was certainly never a partner. He may be liable for all or some of its debts on another ground, but assuredly not on the ground that he was a partner. Partnership is constituted by contract, and cannot be otherwise constituted, and there is no evidence whatever that the defender ever agreed to be a partner of the bankrupt company. The evidence is distinctly to the contrary.

It is, however, true that a man may be under the same liability to the trade creditors of another (whether an individual or a company) as if he were a partner, although in fact he is not. The common case of such liability, and the only one that need be noticed (if indeed there is any other), occurs where a man has so acted as to create the belief (contrary to the fact) that he is a partner, whereby people were induced to deal in reliance on his credit. When a man is in fact a partner, it is of course immaterial whether he is known or believed to be so or not, for he is liable on the fact itself. But when he is not a partner in fact, I really do not know any other ground on which liability on his part can rest, other than a belief that he is, attributable to himself, i.e., his conduct, whether of commission or omission, calculated to produce it.

The parties are in controversy on the question, whether the defender's secret partnership with Thomas Aikenhead from 1871 to 1874, and his omission to advertise or otherwise notify the dissolution of it, involves liability to all the creditors of the bankrupt company subsequently formed by Thomas Aikenhead, or to such of them as had discovered or truly suspected this partnership while it existed? There is of course, no doubt of his liability for all debts incurred in the trade of which he was a partner; but there are, as I understand, none such, and certainly the pursuer has no concern with them if they exist. The defender is presumably, and no doubt really, solvent and able to meet his liabilities to those who have claims upon him. With respect to his alleged liability to all or any of the creditors of the sequestrated company, I desire to say no more than that, as at present advised, I see no sufficient ground for it. I abstain from entering further on the subject, because I think it unfitting to encourage or prejudice any claim against him which individual creditors may see fit to make on the ground that they in their dealings with the company were warranted in believing that he was a partner and relied on his credit accordingly. It is, I think, obvious that different creditors may stand differently in this matter. Liability of the kind I am dealing with is truly of an equitable and cautionary character, standing as it does on the consideration and principle that a man shall make good an obligation which, although not his own, he has induced another to accept in reliance on his credit.

Here the bankrupt company is the primary and proper debtor for all the debts incurred in the course of its trade. The defender may, for aught I can decide in this case, be liable on the doctrine in question to all the creditors if there is no distinction among them (of which I am necessarily ignorant), or to some of them and not to others if there be room for distinction, as there well may be. To such extent as he might be called on to satisfy these creditors he would, I think, clearly be entitled to such relief as a cautioner may have from the proper debtor, that is, the bankrupt company, for any liability of his is for debts not his own but the company's. Now, I can see no title or duty which the pursuer has to intermeddle in this matter. His right and duty is to ingather and distribute the estate of the bankrupts, of which the liability of the defender to all or any of the creditors to make good their debts (assuming it to exist) forms no part. The creditors will, of course, take what they can get in the distribution of the bankrupt estate of their primary and proper debtors, and if they are so fortunate as to have claims beyond against the defender or any other to make good deficiencies, so much the better for them; but I fail to see what concern the trustee in the bankruptcy has with such claims.

I should have thought all this quite clear, and decided accordingly, without any doubt or hesitation, had it not been for the case of Hay v. Mair in 1809, in which other views seem to have been assumed without question or discussion, for in that case no question seems to have been raised or mooted regarding the title of the trustee in bankruptcy. Considering the date of the case—for it occurred at a period (seventy years ago) when mercantile cases were rare in Scotland—that the question of title was not argued but simply assumed, and that no case to the same effect has since occurred, I am not disposed to regard it as an authority which I ought to follow against the opinion which I have formed. The principles of mercantile law have been greatly developed and matured since 1809, and I am not prepared in deference to a solitary case of that date to hold that a man may be liable for the debts of another on the footing that he was a partner of his, although he was neither so in fact nor gave any reasons to the creditors in these debts to believe that he was. The pursuer's counsel pressed it as authority even to the extent of sanctioning the proposition that this sort of liability may exist (like that of a real partner) in favour of creditors who did not believe the party to be a partner, or who positively knew that he was not. If this were allowable, it would, I think, be a severe condemnation of the

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authority. Nor can I in deference to this case hold that when a man induces the erroneous belief that he has become the partner of a trader, or continues his partner after he has truly ceased to be so, the liability thence attaching to him is a liability to such trader, and so part of his assets to be recovered by himself if solvent, and by his trustee in bankruptcy if sequestrated. I have already observed that a party against whom such liability is enforced pays not his own debt but that of the trader who incurred it, and has relief against him or his estate in bankruptcy accordingly, for the ground of his liability to the creditor is not necessarily or generally inconsistent with a right of relief against the proper debtor. I must regard this as a very clear proposition indeed, and it is obviously inconsistent with the contention of the pursuer here, and the assumption (for it was no more) in the case of Hay v. Mair. A trustee in bankruptcy represents the creditors—that is, is charged with their interests only with respect to the bankrupt estate. The creditors, all or any of them, may have, and very frequently have other estates, and parties liable to them, and with respect to these liabilities they are certainly not represented by the trustee in bankruptcy, who accordingly has no title or duty to enforce their claim, the success of which, while it would benefit them, would not enlarge or relieve the bankrupt estate under his charge.

With this full explanation of the grounds of my judgment, I think I may properly give effect to it by sustaining the defences generally and assoilzieing the defender, and of course with expenses.”

The pursuer reclaimed, and argued that no notice of the dissolution of partnership, which took place in December 1874, was given to the customers unless the circular of May 1875 could be said to do so, but that was not sufficient to advertise a dormant partner out of a concern. On this ground Sinclair's estate was liable to the creditors. If that were so, the trustee had a good title to sue in this action, as the duty of a trustee in a sequestration was to gather in the bankrupt's estate, and that was equivalent to saying that he was to gather in all the estate available to give to the creditors. Further, when a firm was made bankrupt, though the individuals were solvent at the time, the trustee had a good title to go against the solvent partners to the amount of the liability for the good of the creditors, all of whom he represented. It had also to be presumed in this case that the trustee was acting with concurrence of all the creditors.

Authorities—Bell's Comm. ii. 640–643, 5th ed. — 530–533, 7th ed.; Lindley on Partnership, 405–407, Cases; Dalgleish v. Fleming, M. 14,595; Mercantile Law Amendment Act 1856, 2d Rep. of Commission; Hay v. Mair, Jan. 27, 1809, F.C.

Argued for respondent—None of the creditors here were in the position of knowing that Sinclair had even been a partner—they might have heard a rumour, but that was all. Besides, even if they had heard, Sinclair had ceased to be a partner, and never had traded under the new firm-name T. Aikenhead & Co. Besides, sufficient notice was given to the creditors by the circular of May 1875; it plainly showed that the old firm, whatever it had been, had ceased to exist, and a new one, whose members were specified, had been begun. But further, the trustee had no title to sue this action, for he could not represent all the creditors in this case, as their interests were conflicting. Some also knew that Sinclair had left the firm and some did not. If the trustee could sue at all, he sued for all the creditors equally, and therefore these two classes of creditors would be put on an equality, which was manifestly unjust. The question as to the title to sue of a trustee in a sequestration was not decided in Hay v. Mair; it never was submitted to the Court. There all the creditors were in the same position, as the partner proceeded against was an active member of the concern.

Authorities— Cox v. Hickman, Aug. 3, 1860, 8 Clark's H. of L. Cases, 268; Eaglesham v. Grant, July 15, 1875, 2 R. 960; Stott v. Fender, July 20, 1878, 5 R. 1104; Story on Partnership, par. 159; Carter v. Whalley, 1 Barn, and Ad. 11; Heath v. Sansom, 4 Barn. and Ad. 172; Smith's Mercantile Law, 47, 9th ed.; Western Bank v. Needell, 1 Fos. and Fin. 461; Gardner v. Anderson, Jan. 21, 1862, 24 D. 315; ex parte Good, 5 L.R. (C.D.) 146; ex parte Sheen, 6 L.R. (C.D.) 235; Remmington Wilson v. Dunbar, March 10, 1810, F.C.; Hunt v. Alexander, 7 Carr and Payne, 746.

At advising—