Scottish Court of Session Decisions

LORD WHEATLEY'S OPINION.—In this action the pursuer seeks declarator, (1) that he, along with the deceased Robert Sneddon Stein, was at the date of the death of the said deceased, on 2nd January 1959, a partner in the firm of Messrs Stein & Munro, having a place of business at 163 High Street, Musselburgh, and was, at that date, entitled to an equal share of the capital and profits of the said firm along with the deceased; and (2) that the dance hall at 163 High Street, Musselburgh, operated by the said firm of Messrs Stein & Munro, formed part of the assets of the said partnership as at 2nd January 1959. He also seeks a decree ordaining the first-named defender to denude himself of the said subjects at 163 High Street, Musselburgh, and to convey the same, with the writs and evidents thereof, to him as trustee for the said partnership, with warrandice from the first-named defender's own facts and deeds. The action was originally directed against the first-named defender, who is the only son of the deceased, the second-named defender, who is the widow of the deceased, the third-named defender, who is the only daughter of the deceased, and, as such, one of his heirs in mobilibus, and the fourth-named defenders, who are the firm of Messrs Stein & Munro. It is a matter of agreement that no other person has an interest in the succession to the deceased's estate.

On llth October 1960 the Court decerned in absence against the second, third, and fourth-named defenders, in terms of the first and second conclusions of the summons. Decree of special service in favour of the first-named defender, as heir-at-law of the deceased, in respect of the dance hall at 163 High Street, Musselburgh, was granted at Edinburgh Sheriff Court on 20th October 1959.

It was conceded by counsel for the first-named defender that, in the event of declarator being granted in terms of the first and second conclusions of the summons, decree in terms of the fourth conclusion would automatically follow.

The only live issue in the case is whether the pursuer has established by requisite evidence facts and circumstances to entitle him to the declarators sought in the first and second conclusions. The pursuer deponed that he knew the deceased before the 1939–1945 war as the proprietor of a dance hall at 163 High Street, Musselburgh, known as Stein's Dancing Academy, and had in fact played in the band in that dance hall before the war. The pursuer is a master builder, and the deceased was a working painter, who, for a period of about one year before his death on 2nd January 1959, had been in business as a master painter. In the early part of 1958 the deceased informed the pursuer that the dance hall, which had been requisitioned during the war and had not been de-requisitioned up to that date, was about to be vacated and handed back to him. About 21st April 1958, the deceased asked him if he would care to have a one-half share in the hall. The deceased explained to him that he required £100 immediately to meet certain urgent debts, and the pursuer indicated that he was prepared to provide this money and to enter into the partnership suggested by the deceased. On the following day the pursuer and the deceased went to the deceased's solicitor, Mr Hogg of Messrs Miller, Leys & Power, solicitors, Edinburgh, at the instigation of the deceased, in order to have the matters thereanent arranged. Mr Hogg deponed that the deceased at this meeting informed him that he and the pursuer had made an arrangement whereby they would run the dance hall in Musselburgh which was the deceased's property, and that as he required money immediately the pursuer had agreed to let him have £100. The deceased asked Mr Hogg to draft a receipt for £100, and when Mr Hogg asked him what he wished embodied in the receipt, the deceased stated that they wished to enter into partnership to run the dance hall, and that the dance hall was to form part of the assets of the partnership. Mr Hogg then asked the pursuer if this was in accordance with his wishes, and on the pursuer giving an affirmative answer, Mr Hogg drafted a receipt in pencil, read it over to the pursuer and the deceased, and received their approval of the terms thereof. Thereafter, when the draft was typed out, the deceased read it, signed it, and put the date on it. This document is No. 14 of process, and brevitatis causa I refer to that document for its terms. The pursuer paid over the £100 to Mr Hogg, on the deceased's behalf, and Mr Hogg used that money to pay off debts due by the deceased. The pursuer stated in evidence that this document embodied what he and the deceased had agreed, and that it was signed by the deceased in his presence. Thereafter, and in terms of the receipt, the pursuer proceeded to carry on with the reinstatement of the hall and did most of the work in connexion therewith. He subsequently discovered that there was a bond over the hall for £515, and he eventually arranged with the solicitors for the bondholder, who wished to call up the bond, to postpone payment thereof until Whitsun 1959. He also entered into negotiations with the Ministry of Works regarding the compensation to be paid for dilapidations to the hall and engaged firms of surveyors and valuators to negotiate an appropriate amount of compensation. In due course, a sum of approximately £1900 was obtained by way of compensation, although the original figure offered was only £700. The cheque re-received from the Ministry of Works was made out in the name of Stein & Munro,.and this money was used to open an account in the firm name in the Royal Bank of Scotland, Musselburgh branch. The manager of the bank gave evidence, and he stated that on 5th November 1958 both the pursuer and the deceased came to the bank with this cheque, which was for £1939, 18s. 7d., and informed him that they were both partners of the firm, that both could operate the account, but that all cheques would be signed by both partners in their own names and not in the firm name. The account was headed in the bank books "Stein & Munro," and thereafter operated in terms of the arrangement made with the bank manager."

In August 1958 an assessment form, in the name of Stein & Munro, as proprietors of the said property, was received from the assessor of the county of Midlothian. In August 1958 there was a further meeting of the pursuer and the deceased with Mr Hogg in his office as the result of a telephone call from the deceased. At this meeting the deceased wanted to know what the position would be in the partnership if he died, and Mr Hogg explained to him the effect of his death on the partnership. The deceased then explained to him that he wished his wife to take his place in the partnership should he die, and that a similar arrangement should be made with regard to the pursuer and his wife. Both the pursuer and the deceased were agreeable to this proposal. Mr Hogg made notes at the time of what was discussed at this meeting, and he consulted both the pursuer and the defender on each of the points before he committed them to writing. The notes are contained in No. 26 of process. This was only used as an aide-mémoire, and it was not suggested that the document was valid for any other purpose. Again, for the sake of brevity, I refer to No. 26 of process for its terms. Mr Hogg intended this to be the basis of a contract of co-partnery which he would eventually draw up, and while he appreciated that there might be technical difficulties in the drafting of such a document, he did not consider that it would be impossible to give effect to the wishes of the parties thereanent. It was specified that the deed was to be drawn when business actually commenced, but was to date back to 22nd April 1958. The pursuer admitted that he had only given £100 to the deceased at that time as a consideration of his entering into the partnership, and he agreed that, if further payments were required, he would require to put up more money. In point of fact, he subsequently contributed several small sums amounting to £36, 9s. 2d. and also provided personal services in the re-establishment of the premises as a dance hall. In cross-examination he admitted that, if it had been ascertained that his share of the assets was going to be worth £2000, that was the sum which he would have had to pay to become a legal partner. In a balance sheet which was prepared by a chartered accountant on the pursuer's instructions, after the death of the deceased, it appears that the value of the pursuer's share in the partnership was £1197, 4s. 10d., which consisted of a half share of the property, less the bond, a half share of the compensation received, and the £36, 9s. 2d. hereinbefore referred to, less £51, 13s. 7d. credited to him. The dance hall was opened as a going concern on 24th Decenber 1958, and for some two months prior thereto, extensive work was done in order to restore the premises to a condition suitable for their purpose. Contractors were engaged to do the major part of the work, but some direct labour was employed, and the wages paid to the men so engaged were paid out of the firm's account with the bank. The pursuer and the deceased were both engaged in the running of the dance hall. The deceased died suddenly on 2nd January 1959, and subsequently the pursuer paid certain insurance stamps for the deceased which were overdue, and part of the funeral account, out of the firm's bank account. At a meeting some three weeks after the death of the deceased, in Mr Hogg's office, the pursuer and the deceased's widow discussed the situation which had arisen, and Mr Hogg explained to the widow that in terms of the agreement she would take her husband's place in the partnership. There is doubt as to whether the widow had prior knowledge of this arrangement. In any event, both the pursuer and Mrs Stein agreed that they should continue as partners, and Mr Hogg suggested that a contract of co-partnery should be drawn up, but this was never, in fact, effected. On Mr Hogg's advice the pursuer and Mrs Stein went to the bank and arranged that the account in the name of Stein & Munro should be operated by the pursuer and Mrs Stein in the same manner as it had formerly been operated by the pursuer and the deceased. The pursuer deponed that, in fact, they operated the account for some time in this manner after Mrs Stein had given a specimen signature for the purpose, and this was confirmed by the bank manager. The pursuer arranged with Mrs Stein that she should carry out certain duties in the dance hall, which was still being carried on, and that she should receive £5 per week until such time as the business got properly going. This arrangement was followed for some time, but in about March 1959 Mrs Stein refused to sign certain cheques, stating that the dance hall belonged to her son, the first-named defender, and that the pursuer was only the manager. The pursuer would not, of course, accept this position, and he offered to pay her her weekly sum of £5 by way of a cheque, but she refused to countersign the cheque and stopped working at the dance hall. The pursuer stated that he still regards Mrs Stein as his partner and is prepared to account to her for her share of the profits.

In that situation, the pursuer maintains that he is entitled to the two declarators sought in the first and second conclusions of the summons. A partnership is strictly a relation between individuals and is the creature of contract. The contract is consensual and may be expressed or inferred. The consent necessary for it may be proved by any competent evidence of consent to enter into it, either express or inferred from appropriate facts and circumstances. As with the constitution, so with the incidents of the relation as between the parties. These may be varied by agreement, and this agreement may be either express or may be inferred from the actings of the parties. The whole of the alleged agreement must be looked into in order to see what is the intention of the parties, together with the surrounding circumstances, at the time when the agreement was entered into. I am perfectly satisfied on the evidence of the pursuer, Mr Hogg, and Mr Caird, the bank manager, that an agreement of co-partnery on a fifty-fifty basis was entered into by the pursuer and the deceased with regard to the running of the business of the dance hall at 163 High Street, Musselburgh. No counter-evidence was led by the first-named defender to rebut the evidence to this effect by the three witnesses to whom I have referred, all of whom I accepted as reliable and credible witnesses. Not only was this contract entered into, but it was implemented. In that regard, I point not only to the preliminary steps which were taken in order to equip the premises for the purpose of the business of the partnership in which the pursuer played a leading part, but to the fact that the business was jointly operated by them between 24th December 1958 and 2nd January 1959. There is, in fact, little or no dispute about the facts in the case, either as derived from the evidence or from the admissions in the pleadings. The only questtion at issue is a legal one. It was submitted by counsel for the first-named defender that the pursuer had not established by requisite legal evidence the constitution of the partnership and his entitlement to an equal share of the capital and profits of the firm said to be constituted by the partnership. For the reasons which I have already given, I cannot regard this submission as being well founded. The two points on which counsel for the first-named defender mainly relied were (1) that the receipt No. 14 of process merely referred to the fact that the dance hall was to form part of the assets of the proposed co-partnership, which indicated that, at the date of the signing thereof, no partnership had been in fact formed; and (2) that the pursuer had admitted in evidence that, if it had been ascertained that his share of the assets was going to be worth £2000, he would have required to pay such a sum to become a legal partner, the sum of £100 paid on 22nd April 1958 being only an initial payment. Dealing with the first of these arguments, I am of the opinion that the use of the expression "proposed co-partnership," in the receipt, No. 14 of process, is not negative of the fact that the pursuer and the deceased had already agreed to enter into partnership, but is probably more readily explained by the fact that a formal deed of co-partnership was then in contemplation. This is further evidenced by the last of the notes made by Mr Hogg in No. 26 of process, which was said correctly to represent the intentions of the parties, and clearly envisages that the partnership had to be dated from 22nd April 1958. In any event, it is quite clear from the subsequent actings of the pursuer and the deceased, and from the actual commencement of business on 24th December 1958, that the partnership had been formed by, and was in existence at, 2nd January 1959, which is the point that the pursuer seeks to have established in the first conclusion. I do not regard the fact that the pursuer admitted in evidence that he might have had to contribute more capital to the firm, if it had been ascertained subsequently that his share of the assets would be worth £2000, as negativing the setting up and existence of the partnership prior thereto. It may be that he would have felt morally obliged to do so. Looking to the whole surrounding circumstances, and bearing in mind that he did not require to give any consideration at all for entering the partnership provided the deceased was prepared to accept him as a partner on such terms, it is clear to my mind that the actual arrangement which the pursuer made, namely, an advancement of £100 as at 22nd April 1958, was regarded by the deceased as sufficient to justify his concluding the partnership agreement with the pursuer, having in view that the pursuer would be giving his personal services to the partnership as in fact he did. The subsequent actings of the pursuer and the deceased, as I have already indicated, fully harmonise with this view, and I accordingly find that the pursuer has proved facts and circumstances to justify the declarator sought in the first conclusion of the summons. The partnership, in my opinion, was certainly in existence as at 2nd January 1959, and the terms of the partnership, as established in evidence, were that the partners should be entitled to an equal share of the capital and profits of the firm. This, to my mind, is wholly confirmed by the subsequent events following the death of the deceased, when his widow stepped into his shoes in conformity with the arrangement made in August 1958.

The next question which falls to be determined is whether, in these circumstances, the heritable property of the dance hall formed part of the partnership stock. In this regard, the pursuer founded primarily on section 20 (1) of the Partnership Act, 1890, which is in the following terms:—

"All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement."

Defender's counsel submitted that, as this was heritable property, it was necessary to establish by probative deed that the property had been transferred to the partnership. Again, I regard the submission by defender's counsel as ill-founded. In my opinion, in deciding the constitution of the partnership and what it comprehended, it is competent to prove by parole evidence what each party was bringing into the partnership estate. A different situation might have arisen if the situation had been that the deceased was alleged to have brought the heritable property into the partnership agreement after the partnership had been constituted. That situation does not arise, and, accordingly, I do not require to consider the line of authority, and apparently conflicting authorities, as to whether property acquired in his own name by a partner during the existence of the partnership, for alleged behoof of the partnership, has to be regarded as an act of trust with the limitations of the proof thereof prescribed by the Act 1696, cap. 25, or can be proved prout de iure as an element of the partnership. Again, in that situation I do not require to examine at length the alternative argument submitted by pursuer's counsel to the effect that, if this element of the case was affected by the Act 1696, cap. 25, which is in the following terms:—

"No action of declarator of trust shall be sustained as to any deed of trust made for hereafter except upon a declaration or backbond of trust lawfully subscribed by the person alleadged to be trustee and against whom or his heirs or assigneyes the declarator shall be intented or unless the same be referred to the oath of. party simpliciter,"

the signature of the deceased on the receipt, No. 14 of process, would have satisfied the requirements of that statute—cf. Taylor v. Crawford, (1833) 12 S. 39, and University of Aberdeen v. Magistrates of Aberdeen, (1876) 3 R. 1087, per Lord Deas at p. 1101. Construing that receipt as an acknowledgement by the deceased that the property was to form part of the assets of the co-partnership which they were then forming, and accepting that his signature to that document was sufficient to satisfy the requirements of the statute, I am of the view that, even if the pursuer had to resort to his alternative argument, he would be well founded in his submission. I consider, however, that the pursuer is entitled to succeed in his primary argument, namely, that he is entitled to prove prout de iure that the deceased brought the property into the assets of the firm when it was formed, and, on that basis, I find both on the oral evidence of the witnesses and the contents of the receipt No. 14 of process that this has been established. I find, accordingly, that the pursuer has proved by requisite evidence facts and circumstances which entitle him to the declarator sought in the second conclusion of the summons.

In that situation, as I have indicated, it was conceded by the first-named defender's counsel that the pursuer is entitled to the decree sought in the fourth conclusion ordaining the first-named defender to denude himself of the subjects and to convey them with the writs and evidents thereof to him as trustee for the said partnership, with warrandice from the first-named defender's own facts and deeds. This follows from section 20 (2) of the Partnership Act, 1890, which is in the following terms:—

"Provided that the legal estate or interest in any land, or in Scotland, the title to and interest in any heritable estate which belongs to the partnership, shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust so far as necessary, for the persons beneficially interested in the land under this section."

In the whole circumstances, therefore, I shall sustain the first, second and fourth pleas-in-law for the pursuer and grant decree in terms of the first, second and fourth conclusions of the summons.