Scottish Court of Session Decisions

Provost Barr, John Howatson Thomson, and Matthew Barr were partners of the firm of Barr & Shearer, shipbuilders, Ardrossan, under a contract of copartnery dated 18th November 1874. By this contract it was provided that the copartnery should commence as on the 31st day of March 1874, and that the whole stock, plant, machinery, utensils, and assets belonging to Provost Barr should, after providing for the liabilities of the business previously carried on by him, be transferred to the copartnery at the agreed-on value of £3100, Provost Barr being entitled to interest thereon at 4 per cent., payable before the balance of profit or loss in each year was struck.

By the third article it was provided that “the profits and losses of the copartnery shall belong to and be borne by the first party to the extent of six-eighths, the second party to the extent of one-eighth, and the third party to the extent of one-eighth thereof.” By the fifth article it was provided that “regular and distinct books containing the whole transactions of the copartnery shall be kept, which shall be brought to a just and true balance yearly, as at the 31st day of March in each year, and within the next two months the balance-sheet shall be docqueted by the parties as approved and correct; and failing their docqueting it within that period it shall be held as approved and correct, unless any of the parties shall within that period state in writing to the other parties specific objections thereto, in which case these objections shall forthwith be submitted to and disposed of by the arbiter after-named and designed, whose decision thereanent shall be final, and who shall docquet the balance-sheet either as it originally stood, or with such alterations as he shall deem just, which balance-sheet when docqueted or held as approved and correct as aforesaid shall conclusively fix for the purposes of this copartnership the profit and loss of the year embraced in it, and the sums due to or by each partner at the close thereof in account with the copartnership.” And by the eighth article it was provided that “upon the expiry or earlier termination of this copartnery the whole assets and goodwill thereof shall be converted into cash, its liabilities discharged, and the balance divided among the parties according to their respective interests therein.”

Matthew Barr died in 1877, and Provost Barr acquired his share. On 2d April 1884 Provost Barr died. Shortly after his death his trustees intimated to Mr Thomson their declinature to become partners in the concern, and on 29th April Mr Thomson intimated to the trustees, in terms of the contract of copartnery, that he was unable to carry on the business on his own account, and that it would have to be wound up. The trustees then employed a firm of shipbuilders to value the contents of the shipbuilding yard, and their valuation brought out the sum of £6960. On 8th April 1885 the trustees presented a petition for sequestration, and for the appointment of a judicial factor to wind up the concern. But on the 3d July 1885 Mr Thomson proposed that the affairs of the firm should be wound up under the provisions of the contract of copartnery, and this proposal was accepted by the trustees. On 6th August 1885 the shipbuilding yard and its contents were sold for £6960. At the annual balance on 31st March 1884 (two days before Provost Barr's death) the firm of Barr & Shearer owed the Bank of Scotland on overdraft the sum of £13,918, 4s. 6d., against which the bank held as security a valuable property in Ardrossan belonging to Provost Barr. The trustees on 8th January 1885 made a payment on account of interest of the debt, and afterwards the Bank of Scotland realised the

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security, and applied the proceeds, £11,850, at 15th May 1885, in payment pro tanto of the overdraft. The balance of the debt, with interest down to 6th August 1885, was on that date paid by the trustees to the bank. Further, it had been arranged between the parties that the expenses connected with the application for the appointment of a judicial factor, and in making up a title to the ships, should be paid out of the £6960, the proceeds of the shipbuilding yard, &c., and these sums, amounting to £187, 1s. 8d., were deducted, leaving a balance of £6772, 18s. 4d., which was received by the trustees. The assets of the firm, other than the shipbuilding yard, &c., consisted, as shown by the balance-sheet as at 31st March 1885, of outstanding accounts due to the firm, amounting to about £2900, and there were outstanding trade debts, not exceeding £200, due by the firm.

The trustees alleged that a balance of £8000 was due by the firm to the trust-estate, that the assets of the firm were insufficient to meet this debt, and that under the third article of the deed of copartnery one-eighth of the loss fell to be contributed by Mr Thomson. Mr Thomson denied liability, and alleged that he was the firm's creditor for £8721.

The trustees brought this action of count, reckoning, and payment against Mr Thomson, concluding for payment of £2000.

The defender averred (in answer to Cond. 16 for the pursuer)—“That from the commencement of the copartnery in 1874 up till the date of his death in 1884 the late Provost Barr incurred accounts as an individual to the firm of Barr & Shearer for large amounts. These accounts were for repairs on vessels of which Provost Barr was owner; materials supplied and work done for a coal work at Doura, of which he was proprietor; repairs on machinery belonging to a printing establishment carried on by him in Ardrossan; and material supplied and work done for house property in Ardrossan of which he was proprietor. The amount of these accounts, under deduction of the annual salary of £50 due by the firm to Provost Barr, and the amounts of contra accounts for goods and materials supplied by him to the firm was, conform to abstract of accounts produced herewith, £8721, 10s. 7d. No part of this sum was ever paid by Provost Barr to the firm. At the first annual balance made after the commencement of the copartnery, the amount of the accounts incurred by Provost Barr during the preceding year, and which amounted, after deduction of the salary due to him by the firm, to £3308, 15s, 6jd., was entered in the list of outstanding accounts in the draft balance-sheet prepared by the said Matthew Barr, otherwise Matthew Barr Findlay. At the request of Provost Barr, this sum, subject to discount of £10 per cent., was, in the adjusted balance-sheet, deducted from the amount of his capital account, to which had been added his share of profits then calculated upon the year's business. This mode of disposing of the amount due by Provost Barr to the firm was adopted on an obligation being given by him that, should circumstances arise necessitating a new valuation of the buildings, machinery, and stock-in-trade belonging to the firm being made, which were entered in the balance-sheet at a valuation put on them by Provost Barr himself, and the new valuation be less in amount than his valuation, he would make up the difference to the extent of thesum then, or any sums which might thereafter be, deducted from his capital.” The defender further averred that the valuation of the buildings, machinery, and stock-in-trade was utterly extravagant. It was admitted that the balance-sheets from 1875 to 1879 inclusive were docqueted, and that those from 1880 to 1883 inclusive were not docqueted.

There was produced the following

“ Balance-Sheet of Barr & Shearer, Shipbuilders, Ardrossan, dated 31st March 1875.

Assets.

I.—Property, &c.

Erections, per last balance,	£2,433	0	0
Machinery, tools, &c., per do.,	2,377	0	8
	£4,810	0	8

II.—Stock.

Timber	£4,305	4	7 1 4
Iron	350	14	2
Chandlery	1,880	7	4 3 4
New vessel in course of construction.	756	13	0
	7,292	19	2

III.—Book Debits Outstanding..

Book debits outstanding	£7,268	13	9 1 4
Off discount, 5 per cent.,	363	8	9 1 4
	6,905	5	0

IV.— Barr and Another v. Cooper et al.

Barque “Joan Cunllo's” account, valued at

I,000

0

0

V.—Cash.

Balance on hand, per Cash Book,

56

I0

I0

VI.—Partners.

John Barr, per account,	3,022	18	0
Total amount of Assets,	£23,087	I3	8

Liabilities.

I.—Sundry Creditors on Open Account.

Sundry creditors on open account,

£2,038

9

9 3 4

II.—Bills Payable.

Bills Payable

1,422

0

3

III.—Sundry Creditors.

54 Bank of Scotland	£II,8I2	3	8
87 James Shearer's trustees.	876	6	I
	12,688	9	9

IV.—Partners.

John Barr, Capital at 3Ist March 1874	£3029	15	5 1 4
Interest there on at 4 percent.,	I2I	3	9 3 4
Salary..	50	0	0
Old debits collected since last balance.	II8	I3	7 3 4
	£3,3I9	I2	I0 3 4
Total amount of Liabilities.	I9,468	I2	8 1 2
Nett balance..	£3,6I9	0	II 1 2

V.—Profits.

John Barr, 6–8th share,	£2,7I4	5	9
John Howatson Thomson, I–8th share,	452	7	7 1 2
Matthew Barr, I–8th share,	452	7	7
	3,619	0	11 1 2

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Capital Account.

I.—John Barr.

Capital at 31st March 1874,	£3,029	I5	5 1 4
Interest thereon at 4 percen., t	I2I	3	9 3 4
Salary,	50	0	0
Old debits collected since last balance,	II8	I3	7 3 4
Profits	2,7I4	5	9
	£6,033	18	7 3 4
Deduct—account-current,	3,022	I8	0
	£3,011	0	7 3 4

II.—John Howatson Thomson.

Profits,……

452

7

7 1 2

III.—Matthew Barr..

Profits,……	452	7	7
Nett capital,..	£3,9I5	I5	I0 1 4

“ Ardrossan, 3d June 1875.—E. & O. excepted.

Docquetted in terms of Article 5 of Deed of Copartnery, executed on 18th November 1874.

“ John Barr.

John H. Thomson.

Matthew Barr.”

The pursuers pleaded—“(4) The obligation referred to in answer 16 can only be proved by writ or oath. (5) The claims put forward in the 16th answer are excluded by the contract of copartnery.”

The defender pleaded—“(3) On a just accounting, no sum being due by the defenders to the pursuers, the defenders are entitled to absolvitor, with expenses.”

On 22d May 1886 the Lord Ordinary ( Kinnear) pronounced this interlocutor—“Allows the defenders a proof of their averments contained in the answers to the 16th article of the condescendence for the pursuers, and to the pursuers a conjunct probation.”

The pursuers reclaimed, and argued that down to 1879 the balance-sheets were all docqueted, whilst from 1880 to 1883 they were made out in the same way but not docqueted. Both sets of balance-sheets were therefore conclusive under article 5 of the deed of copartnery. It was incompetent to prove prout de jure a verbal agreement to vary the terms of a written contract, especially when the actings of the parties had been in conformity with the provisions of the latter— M'Laren v. Liddell's Trustees, Feb. 22, 1862, 24 D. 577; Kirkpatrick v. Allanshaw Coal Co., Dec. 17, 1880, 8 R. 327.

Argued for the defender—It was not necessary for his case to obtain new valuations. All that he wanted was a different method of stating the accounts. The materials to correct the balance-sheets were thus within the balance-sheets themselves. It was from the method of stating the account that the business seemed to be worked to a profit. The balance-sheets were based upon extravagant valuations. The cases showed that a docqueted account was not to be taken as a discharge— M'Laren v. Liddell's Trustees, supra; Laing v. Laing, July 17, 1862, 24 D. 1862. Besides, the defender was entitled to prove his agreement prout de jure—Lindley on Partnership, ii. 820.