Dickinson and Brown v Fisher's Executors

• Jurisdiction: South Africa
• Judge: Innes CJ, Solomon JA and CG Maasdorp JA
• Judgment Date: 14 September 1916
• Hearing Date: 07 June 1916
• Court: Appellate Division

Innes, C.J.:

This dispute turns upon the meaning and effect of a document executed in April and May, 1910, by the two appellants and the late Fisher, and purporting to be a deed of partnership. By the 6th clause of the deed, Fisher's capital in the business was "declared to be" £10,000, upon which sum it was stipulated that he should receive interest. In the event of his death the remaining partners were to have the option of retaining his capital in the business for the remainder of the term covered by the agreement. Fisher died in October of the same year, and his capital was so retained in accordance, not only with the desire of the survivor, but with the express directions of his own will. The period contemplated by the deed has elapsed, the business has been liquidated, and the result is that all the capital of the partnership has been lost, the assets of the firm having been exhausted in discharging its liabilities to third parties. The amount which the executors claimed from Mrs. Dickinson (no order was asked against Brown), and which the Durban Circuit Court directed her to pay, represented Fisher's capital aforesaid, with certain interest thereon. The claim was based upon alternative contentions. The first and main contention was that Fisher was not in law a partner of Mrs. Dickinson, and that the amount of £10,000 represented an advance by way of loan from him to her. The second was that if there was a partnership, it was one in which Mrs. Dickinson bore all the loss, and was, therefore, bound to make good the entire amount of her partner's capital.

Innes, C.J.

The terms of the deed will be best appreciated by considering them in the light of the circumstances which led up to the execution of the document. The evidence showed that deceased and Mrs. Dickinson began to trade in partnership as far back as 1877. For many years they shared profits in an agreed proportion. At the beginning of 1894 Fisher's capital in the business stood at about £2,500. He was then desirous of settling in England; and an agreement was signed extending the partnership for a term of years, and providing that Fisher should manage the business of the firm in that country. It was a special stipulation of the agreement that Fisher's capital should be reckoned at £10,000, and that he should receive interest at 10 per cent. thereon. That position was rendered possible by the transfer of approximately £7,500 to his capital account from that of Mrs. Dickinson, in consideration of which he gave up all interest in the business, furniture and fittings, and in certain shares registered in the firm's name, but apparently not of any great value. In 1902 the defendant Brown, who had previously been in the firm's employ, was admitted as a partner, and a new deed was signed, the terms of which were in substance identical with those of the one sued upon. To this latter document it will be convenient now to refer. It recited that the parties had for some time traded in co-partnership under the style of Dickinson & Fisher, and it recorded their agreement to continue so to trade at Durban and elsewhere. It extended the term of the partnership to 31st December, 1915; and thereafter, subject to six months' notice. Brown, it was stipulated, should devote his whole time to the management of the business, and was to receive a salary of £600 and 20 per cent. of the nett profits, Beyond such salary and profits he was to have no interest in the assets or liability for the losses. Fisher, when in England, was to conduct the business of the firm "at that end"; but he was to be entitled to proceed to Natal at the expense of the partnership, if at any time he thought it necessary to inspect matters there. Proper books were to be kept, and accounts rendered, and Fisher was to be furnished with monthly reports and trial balances. His capital was "declared to be" £10,000, on which he was to receive interest at 6 per cent. Beyond that capital sum and interest he was declared "to have no other interest in the assets and profits of the business." In the event of his death during the subsistence of the agreement, the other partners were to have the option of

Innes, C.J.

retaining his capital in the business during the remainder of the term, or of paying it out with interest, in which latter event neither Fisher nor his estate were to have any "further interest in or claim on the said business." By clause 10 provision was made for the repayment of Fisher's capital, and of any monies due to Brown on the termination of the partnership. Further reference to this portion of the deed will be necessary at a later stage. There was a special stipulation against the use of the money or effects of the firm for non-partnership purposes; and a clause, in the usual terms, for the reference to arbitration of all differences between the partners. Such were the main provisions of the agreement on which the rights of these litigants depend.

The enquiry, though by no means free from difficulty, is simplified by the absence of any considerations connected with the position of outside creditors. It is further simplified by the admitted bona fides of those concerned. There is no suggestion that the parties, for ulterior purposes, meant the transaction to be other than they called it. So that the element of intention is of supreme importance. How important that element may be in cases which stand on the border line between partnership and some other contractual relationship is shown by the passage in Digest (17, 2, 44) dealing with the case of a man who had undertaken to sell a pearl which belonged to another on terms of retaining all profit over a certain price. It was there laid down that if the parties intended to become partners (si animo societatis contrahendae id actum sit), then the action pro socio would lie; otherwise the action praescriptis verbis. And full effect was given to the same principle by this Court in Le Voy v Birch's Executors (1913 AD 102). A party to an agreement which expressly declared that the signatories did not intend to become partners, was not allowed to say as against a co-signatory applying for an order of sequestration that a partnership had been established. Now, whatever else may be obscure in this controversy, there can be no doubt as to the intention of the contracting parties. The deed was the last of a series which purported and were meant to continue a relationship at its inception clearly one of partnership. It was called a deep of partnership, and that the signatories, and especially Fisher, regarded themselves throughout as partners, is manifest from their communications. Indeed, the impression left upon my mind, after a perusal of the voluminous correspondence

Innes, C.J.

recorded, is that Fisher, had he been alive would never have taken up the attitude which his executors have assumed. Now, an agreement entered into in good faith, with the intention of constituting a partnership should, as between the contracting parties, be construed in that sense if possible. If its terms are such that in spite of the intention, the law must class the transaction under some other category, then of course legal requirements will prevail. But where its construction is in doubt, regard should be had and effect given to the object which the signatories had in view at the time.

There can be no question as to the existence here of most of the essentials of partnership. There was a contribution of capital or labour by each contracting party. And the business was carried on in common. Brown, as manager at Durban, transacted the bulk of its affairs; but Fisher did whatever work was necessary in England. And they were all entitled to exercise powers of criticism and control. of those powers Fisher made full use. He did not visit Natal for inspection purposes, as he was entitled to (lo at the expense of the firm. But he claimed to have a voice in the policy of the business and objected to his capital being used for what he considered to be non-partnership purposes. And in so doing he was acting within the powers conferred by the deed. The only question is whether he could correctly be described as sharing the profits if so, then clearly the contract was one of partnership. He was not liable for the losses beyond (as will subsequently appear) the loss of his own capital; but that fact was quite consistent with the existence of such a contract. The circumstances under which his capital came to be "declared" as £10,000 have already been referred to. And they indicate that Mrs. Dickinson raised his credit balance to that amount, not that he might make an advance to the business - there would have been no sense in his lending her £7,500 from her own funds, but in order to entitle him to a fixed share of the profits sufficient for his future requirements. The parties had in view, not a loan, but the allocation to one of their number of a definite charge upon the profits. This view is borne out by the fact that the rate of interest was from time to time varied by mutual consent, in sympathy with the fluctuations of the business. It increased when the profits grew, and shrank when they dwindled. The determination of a partner's profits upon the basis of interest on his capital, and not of a pro

Innes, C.J.

rata share is doubtless an unusual arrangement, but it is not necessarily inconsistent with the nature of partnership. The strongest argument against the view suggested arises on the frame of the accounts and the conduct of the parties. Because Fisher's interest was treated in the accounts as an item of business expenditure and paid whether there was a profit on the year's transactions or not. The explanation of that course of dealing is, I think, to be found in the terms of par. 10 of the deed. That clause provided that at the termination of the partnership the nett profits of the business up to...